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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE
SECURITIES EXCHANGE ACT OF 1934
PROLONG INTERNATIONAL CORPORATION
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(Exact Name of Registrant in its Charter)
Nevada 74-2234246
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(State or other jurisdiction (I.R.S. Employer identification
of incorporation or number)
organization)
1210 North Barsten Way, Anaheim, California 92806
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(Address of principal offices) (Zip Code)
Registrant's telephone number: (714) 630-3040
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Exchange on Which
to be so Registered Such Class is to be Registered
None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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(Title of Class)
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ITEM 1. BUSINESS
THE REGISTRANT
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Prolong International Corporation (the "Registrant") is a Nevada
corporation that was incorporated on August 24, 1981 as Giguere Industries,
Incorporated ("Giguere"). On September 14, 1981, Giguere consummated a merger
with Medical International, Inc., a Utah corporation, pursuant to which Giguere
was the surviving entity. Prior to the merger with Giguere, Medical
International, Inc. had completed an offering of its common stock which was
exempt from registration under the Securities Act of 1933, as amended, by reason
of Regulation A thereunder. All of the outstanding shares of Medical
International, Inc. common stock were exchanged for shares of Giguere as part of
the plan of merger. Subsequent to the merger, Giguere conducted operations for
several years until it liquidated its assets in order to satisfy its creditors
and discontinued operations in 1987. Giguere was inactive and held no
significant assets from 1987 to June 21, 1995.
On June 21, 1995, Giguere acquired all of the outstanding common stock of
Prolong Super Lubricants, Inc., a Nevada corporation ("PSL"), in a share
exchange with PSL's then existing shareholders (the "Reorganization") and
changed its name from Giguere to Prolong International Corporation. Since the
Reorganization, the Registrant has changed its focus from being a company
without operations, a business or significant assets, to that of a holding
company for its wholly-owned operating subsidiary, PSL. The Registrant, through
PSL (referred to collectively in the operational context with the Registrant as
"Prolong"), is engaged in the manufacture, sale and worldwide distribution of a
line of high performance lubrication products which are based on a patented
extreme pressure lubricant additive for use in metal lubrication, commonly
referred to as anti-friction metal treatment ("AFMT").
PSL currently holds an exclusive, worldwide license to manufacture, sell
and distribute lubrication products based on AFMT. This license was acquired
from EPL Prolong, Inc., the holder of the patent for AFMT, in 1993. As part of
the license arrangement, PSL continues to pay royalties to EPL Prolong, Inc.
based on the gross sales of its AFMT-based products. Prolong is currently
considering acquiring all of the net assets of EPL Prolong, Inc., including the
patents. There can be no assurances, however, that Prolong will be successful
in this acquisition.
Prior to 1996, the Registrant's activities generated losses. However, due,
in part, to PSL's successful marketing campaign based primarily on an
infomercial, the Registrant's activities generated a profit in 1996. The
Registrant anticipates that its sales will continue to grow in the future as it
takes advantage of the worldwide market for its products. Prior to fiscal 1996,
the Registrant raised capital primarily through the issuance of its Common Stock
in private placements.
PRODUCTS
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Prolong markets a variety of products which are based on AFMT. AFMT is a
patented formula which can be blended with many other lubricants and
formulations to create a wide variety of individual lubricant products with
superior friction fighting characteristics. AFMT can also be blended with other
constituents to create unique new products. AFMT bonds to the metal surfaces
with which it comes into contact, resulting in reduced friction, wear and heat
buildup when subjected to pressure. Prolong believes that AFMT is most
effective in extreme pressure applications, where metal-to-metal contact, and
the resulting wear, can be severe.
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AFMT is composed of petroleum distillates and other chemicals and contains
no solid particles. Typically, performance enhancing lubrication additive
formulations contain solid particles such as lead, molybdenum disulphides, PTFE
resins, Teflon(TM), fluorocarbon resins or fluorocarbon micropowder. Prolong
believes that the primary disadvantage to particulate material in lubricant
additives is that it tends to distribute unevenly and can result in excessive
particulate build-up. Because AFMT contains no solid particles, Prolong
believes that there is no risk of excessive build-up, and the lubrication "film
coat" is uniform and microscopically thin.
AFMT exhibits both the "hydrostatic" and "boundary" principles of
lubrication. Specifically, all surfaces tend to attract some substances from
the environment. Such substances or films may be only a few molecules thick,
and are absorbed into the surface. The strength of the absorption depends upon
the electronic structure of "polarized" molecules, which tend to absorb
perpendicularly to the surface. According to Warren Prince, Ph.D., AFMT
operates by attaching to the metal at the microscopic level, evenly and
uniformly. Prolong believes that once this chemical/electrical action takes
place through absorption, only very extreme heat, grinding away of the surface
area, or the introduction of material with a stronger molecular adhesion will
alter the surface bonding. As a result, tests performed on AFMT have
demonstrated that it is impervious to many elements and chemicals and its
benefits continue beyond the initial application.
Prolong believes that the use of AFMT in lubrication products provides many
advantages for its users. For example, in clinical testing, the use of AFMT
resulted in reduced friction in mechanical devices. This, in turn, caused the
operating temperatures of the machinery to drop due to the reduction in heat-
generating friction. Prolong believes that in the long term, this combination
of friction and temperature reduction leads to a longer operating life for the
machinery and lower repair bills. Additionally, the use of AFMT in internal
combustion engines has been demonstrated to cause a reduction in operating
temperature and an increased resistance to catastrophic failure occasioned by
loss of engine oil. AFMT also has a high resistance to oxidation, which, when
combined with other oils, improves the oxidization resistance of metals. Given
the foregoing advantages demonstrated by AFMT, Prolong has identified a broad
market for its lubricant products.
Prolong believes that the following are examples of some of the
applications of AFMT-based products:
. Internal Combustion Engines . Automatic and Manual Transmissions
. Agricultural Equipment . Computer Numerically Controlled Machine Tools
. Airline Ground Equipment . Milling Equipment
. Marine Equipment . Trucks, Buses
. Railroad Equipment . Differentials, Gears
. Mining Equipment . Compressors
. Bearing Journals . Hydraulic Systems
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. Pumps and Generators
Prolong markets the following products, each of which can be utilized in
multiple applications:
Prolong Anti-Friction Metal Treatment "AFMT"
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This is Prolong's fundamental lubricating oil which is made according
to a patented formula for use as an extreme pressure lubricant. It is packaged
in concentrate form and is designed to be added by the customer to the
lubrication oils in engines, gears, and other machinery.
Prolong Engine Treatment
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Formulated for use in the lubrication of internal combustion engines,
Prolong believes that this product reduces friction, heat and wear. As a result
of enhanced lubrication of the engine, Prolong believes that there is increased
useful life of moving metallic parts. Prolong Engine Treatment is suitable for
use in both gasoline and diesel engines.
Prolong Transmission Treatment
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Formulated for use in both automatic and manual transmissions and for
other applications, such as heavy duty industrial gear boxes where metal gears
are operated under high pressure, this product is designed to improve overall
transmission performance.
Prolong Gas/Diesel Fuel System Treatment
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This product is formulated to increase fuel efficiency, lubricate the
"top end" of internal combustion engines, and clean and maintain fuel injectors
and other fuel system components. This product is also designed to help
maintain peak engine performance and overall mileage. The formula is EPA
registered and is suitable for both gasoline and diesel fuel systems.
Prolong High Performance Multi-Purpose EP-2 Grease
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This product is formulated to provide a wide range of lubricating
benefits to industrial equipment under extreme pressure, high and low
temperature extremes, and potential water washout conditions. Prolong believes
that this product represents a substantial improvement in lubrication
performance relative to other products on the market in applications requiring
an extreme pressure grease formulation.
Prolong "SPL100" Super Penetrating Lubricant
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This product is formulated to lubricate, penetrate, and prevent
corrosion, free sticky mechanisms, displace moisture, stop squeaks, and reduce
friction and wear. This product can also serve as a light duty machining,
tapping and drilling fluid.
Prolong "Ultra-Cut 1" Water Soluble Cutting Fluid
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This product is formulated to lubricate and cool metal tools and parts
during machining operations. This product can be used in Computer Numerically
Controlled ("CNC") metal turning and
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machining operations. Prolong believes that the use of this product will provide
higher feed rates and operating speeds, finer surface finishes, and improved
cutting tool life.
Prolong Multi-Purpose Precision Oil
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This product is formulated as a fine, light oil for use in lubricating
precision tools and equipment. This product is designed to provide smooth
lubrication, which Prolong believes results in optimal operation of precision
equipment and tools and extension of useful life.
Despite PSL's current variety of products, there are other products which
Prolong believes could be successfully and beneficially formulated in the future
using AFMT technology and derivatives thereof that would result in products with
improved lubrication performance. Although there can be no assurances that
Prolong will have the financial or other resources to develop, manufacture and
market any such additional products, the following is a partial list of such
additional products:
High Performance Motor Oil
High Performance Synthetic Motor Oil
Motorcycle Engine & Transmission Treatment
Gun Oil & Cleaner
Gear/Differential Treatment
Heavy Duty Diesel Fuel Conditioner
Hydraulic System Treatment
Chain Oil
2-Cycle Engine Oil
Power Steering Treatment
Radiator Treatment
Compressor Treatment
Shock Absorber Lubricants
Brake Cleaner
Assembly Lube
In addition to the development of the above-referenced AFMT-based
products, Prolong is also engaged in efforts to expand its lubricant
formulations beyond its current AFMT-based technology.
RISK FACTORS
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Prospective investors should consider carefully the following risk factors,
in addition to the other information contained in this Registration Statement
concerning the Registrant and its business, before making any investment in the
Registrant's securities. This Registration Statement contains forward-looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act that involve certain risks and uncertainties.
Discussions containing such forward-looking statements may be found in the
material set forth under "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and in this Registration
Statement generally. The Registrant's actual results could differ materially
from those anticipated in such forward-looking statements as a result of certain
factors, including those set forth in the following risk factors and appearing
elsewhere in this Registration Statement. These forward-looking statements are
made as of the date of this Registration Statement and the Registrant assumes no
obligation to update such forward-looking statements or to update the
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reasons why actual results could differ materially from those anticipated in
such forward-looking statements.
Managing Growth
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The Registrant currently contemplates a period of rapid growth that
will place a significant strain on its financial, management and other
resources. The Registrant's ability to manage its growth effectively, should it
occur, will require it to continue to improve its operational, financial and
management information systems and to attract, train, motivate, manage and
retain key employees. If the Registrant's executives are unable to manage
growth effectively, the Registrant's business, operating results and financial
condition could be adversely affected.
Need to Raise Capital For Growth
--------------------------------
The Registrant expects that its capital requirements will increase
significantly in the future, and there can be no assurance that such capital
requirements will be met on satisfactory terms, if at all. The Registrant's
capital requirements will depend on numerous factors, including the progress of
Prolong's product development programs, the rate of growth of Prolong's
business, the commercial success of Prolong's products and the availability of
cash from other sources, notably, operations. The Registrant may seek
additional funds through debt or equity financing. Issuance of additional
equity securities by the Registrant could result in substantial dilution to its
present or future shareholders. If adequate funds are not available on
acceptable terms, the Registrant will be required to delay or scale back
Prolong's product development and the manufacture of Prolong's current products.
Any inability to fund its capital requirements would have a material adverse
effect on the Registrant's business, operating results and financial condition.
Dependence on Third Party License
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Prolong's formula for AFMT is currently licensed from a third party,
EPL Prolong, Inc. ("EPL"). The license agreement provides that it shall remain
in effect so long as Prolong does not commit a material breach of the agreement.
There can be no assurance that Prolong will be able to avoid committing such a
breach in the future and, consequently, may not be able to retain the license
indefinitely. Prolong is currently considering acquiring the rights to the AFMT
formula from EPL. Should Prolong be unable to continue as a licensee (as a
result of litigation or otherwise) successfully purchase the rights from EPL,
Prolong could not continue to manufacture its current AFMT-based products, which
would result in a material adverse effect on the Registrant's business,
operating results and financial condition.
Dependence on Key Management
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The Registrant's success depends, in large part, upon the continued
performance of Elton Alderman, President of the Registrant. The Registrant
currently has no employment agreement with Mr. Alderman and does not maintain
any "key man" life insurance. In the event that Mr. Alderman is no longer able
to provide his services to the Registrant, the operations of the Registrant
would be materially adversely effected.
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Risk of Product Liability
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The nature of the Registrant's business exposes it to risk from
product liability claims. The Registrant currently maintains product liability
insurance in the amount of $11,000,000 per occurrence and $12,000,000 in the
aggregate, per annum. Two of the Registrant's main concerns are that product
liability coverage is becoming increasingly expensive and that there can be no
assurance that its current coverage will be adequate to cover future product
liability claims. Any losses that the Registrant may suffer from future
liability claims, and the effect that any product liability litigation may have
upon the reputation and marketability of Prolong's products, may have a material
adverse effect on the Registrant's business, financial condition and results of
operations.
Competition
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The market for Prolong's products is highly competitive and is
expected to be increasingly competitive in the future. Prolong's principal
competitors include other providers of specialized lubrication products, such as
First Brands (STP(TM)) and Quaker State (Slick 50(TM)), both of which market
engine oil treatments. Prolong's competitors also include major oil companies
such as Shell Oil Company, Castrol, Pennzoil, and other companies who
manufacture lubrication products, such as WD40 Corp. Further, Prolong believes
that major oil companies not presently offering products that compete directly
with those offered by Prolong may enter its markets in the future. Increased
competition could result in price reductions, reduced gross margins, and a loss
of market share, any of which could have a material adverse effect on the
Registrant's business, financial condition and results of operations. In
addition, many of Prolong's competitors have significantly greater financial,
technical, product development, marketing and other resources and greater market
recognition than Prolong. Several of Prolong's competitors also currently have,
or may develop or acquire, substantial customer bases in the automotive and
other related industries. As a result of these factors, Prolong's competitors
may be able to respond more quickly to new or emerging technologies and changes
in customer requirements or to devote greater resources to the development,
promotion and sale of their products than Prolong. Additionally, other dealers
and distributors may offer similar lubrication products at prices below those
offered by Prolong, appealing to the price-sensitive segment of the market.
While Prolong believes that the prices for its lubrication products are
competitive for the level of quality obtained by the customer, Prolong relies on
its brand name recognition and reputation for selling quality products supported
by strong customer service. There can be no assurance that Prolong will be able
to compete successfully against current and future competitors or that
competitive pressures faced by Prolong will not materially adversely effect the
Registrant's business, financial condition and results of operations.
Market Volatility
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The market prices of the Registrant's Common Stock have been and may
continue to be highly volatile. Announcements of new products by Prolong or its
competitors, developments concerning or general conditions in the automotive or
related industries, or the economy in general, may have a significant adverse
effect on the Registrant's business and on the market price of the
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Registrant's securities. Sales of a substantial number of shares of Common Stock
by existing security holders could also have a material adverse effect on the
market price of the Registrant's securities.
Costs of Components
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Prolong depends upon its suppliers for the supply of the primary
components for its AFMT formula. Such components are subject to significant
price volatility beyond the control or influence of Prolong. Prices for the
components of the quality sought by Prolong are dependent on the origin, supply
and demand at the time of purchase. Prices can be affected by multiple factors
in the producing countries, including weather and political and economic
conditions. Additionally, petroleum products, which comprise AFMT, have been
affected in the past, and may be affected in the future, by the actions of
certain organizations and associations, such as the Organization of Petroleum
Exporting Countries ("OPEC"), that have historically attempted to establish
price controls on petroleum products through agreements establishing export
quotas or restricting petroleum supplies worldwide. No assurance can be given
that OPEC (or others) will not succeed in raising the price of petroleum
components or that, in such event, Prolong will be able or choose to maintain
its gross margins by quickly raising its prices without affecting demand.
Increases in the prices for the components, whether due to the failure of its
suppliers to perform, conditions affecting the component-producing countries, or
otherwise, could have a material adverse effect on the Registrant's business,
operating results and financial condition.
Dependence on Third Party Supply Relationships
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To date, Prolong has been able to obtain adequate supplies of the
components required for its AFMT formula from its existing sources to meet its
current manufacturing schedule. Prolong does not foresee any shortages of
supply in the near future. However, Prolong has recently increased production
and plans further increases to meet increases in demand. These increases could
eventually place a strain on the production capacity of its existing suppliers.
While Prolong is working actively with each of its suppliers to increase
production of the components, there can be no assurance that each supplier will
be able to increase its production in time to satisfy Prolong's increasing
requirements or that alternative suppliers will be able to meet any such
deficiency on an ongoing basis. If Prolong is unable to obtain sufficient
quantities of the components, or if such components do not meet Prolong's
quality standards, delays or reductions in product shipments may result which
would have a material adverse effect on the Registrant's business, financial
condition and results of operations.
Product Concentration
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The Registrant derives substantially all of its net revenues from
sales of Prolong's AFMT-based products, and these products are expected to
continue to account for most, if not all, of the Registrant's net revenue in the
foreseeable future. Because of this concentration of revenue in one product
line, namely lubricants, a decline in demand for, or in the prices of, Prolong's
AFMT-based products as a result of competition, technological advances or
otherwise, could have a material adverse effect on the Registrant's business,
financial condition and results of operations. Prolong has recently expanded
its product line and intends to continue such expansion in the future, but there
can be no assurance that these new AFMT-based products introduced by Prolong
will receive widespread acceptance.
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Risk of Declining Selling Prices
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Prolong may experience declining average sales prices for its
products. Specialty lubricant suppliers have come under increasing price
pressure from competitors and consumers, which in turn could result in downward
pricing pressure on Prolong's products. In addition, average sales prices are
affected by price discounts negotiated for large volume purchases by certain
customers. To offset the potential for declining average sales prices, Prolong
believes that in the near term it must achieve manufacturing cost reductions,
and in the longer term Prolong must develop new AFMT-based products that can be
manufactured at lower cost or sold at higher average sales prices. If, however,
Prolong is unable to achieve such cost reductions or product diversification,
Prolong's gross margins could decline, and such decline could have a material
adverse effect on the Registrant's business, results of operations and financial
condition.
Dependence on International Sales for Future Growth
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Prolong intends to expand its international sales in the future, which
will require significant management attention and financial resources. In order
to expand worldwide sales, Prolong must establish additional marketing and sales
operations, hire additional personnel and recruit additional distributors
internationally. To the extent that Prolong is unable to do so effectively,
Prolong's growth is likely to be limited and the Registrant's business,
operating results and financial condition could be materially adversely
affected. In addition, as Prolong expands its international operations, a
portion of the revenues generated from such international sales may be subject
to taxation by such jurisdictions at rates higher than those to which Prolong is
subject to in the United States. Prolong's worldwide sales are currently
denominated in United States dollars. An increase in the value of the United
States dollar relative to foreign currencies would make Prolong's products more
expensive and, therefore, potentially less competitive in those markets.
Additional risks inherent in Prolong's worldwide business activities generally
include unexpected changes in regulatory requirements, tariffs and other trade
barriers, costs of localizing products in foreign countries, longer accounts
receivable payment cycles, difficulties in operations management, potentially
adverse tax consequences, including restrictions on the repatriation of
earnings, and the burdens of complying with a wide variety of foreign laws.
There can be no assurance that such factors will not have a material adverse
effect on Prolong's future international sales and, consequently, the
Registrant's overall business, operating results and financial condition.
Environmental Compliance
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Federal, state and local regulations impose various controls on the
storage, handling, discharge and disposal of substances used in Prolong's
manufacturing process and on the facilities leased by Prolong. Prolong has
registered its fuel conditioners with the United States Environmental Protection
Agency. The Registrant is not aware of any additional governmental approvals
required for Prolong's products nor does the Registrant know of any existing or
probable governmental regulations which would have any material adverse effect
on its current business. Costs of compliance with environmental laws have been
nominal and have had no material effect on the business of the Registrant. As
such, the Registrant believes that its activities, PSL's activities and those of
its contract manufacturers conform to present governmental regulations
applicable to each such entities' operations. Additionally, the Registrant
believes that its current facilities as well as PSL's facilities conform to
present governmental regulations relating to environmental, land use, public
utility utilization and fire code matters. There
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can be no assurance that such governmental regulations will not in the future
impose additional process requirements upon Prolong or restrict Prolong's
ability to expand its operations. The adoption of such measures or any failure
by Prolong to comply with the applicable environmental and land use regulations
or to restrict the discharge of hazardous substances could subject the
Registrant to future liability or could cause its operations, PSL's operations
or those of its contract manufacturers to be curtailed, relocated or suspended.
Control by Management and Existing Shareholders
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The present directors, executive officers and principal shareholders
of the Registrant beneficially own, in the aggregate, approximately 61% of the
outstanding Common Stock. These shareholders, acting together, will have the
ability to control the election of the Registrant's directors and most other
shareholders' actions and, as a result, direct the Registrant's affairs and
business. Such concentration may have the effect of delaying or preventing
certain actions that can be taken by the Registrant including, but not limited
to, a change in control of the Registrant.
Effects of Preferred Stock on the Rights of Common Stock
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The Registrant's Board of Directors is authorized to issue, without
shareholder approval, up to 50,000,000 shares of Preferred Stock with voting,
conversion and other rights and preferences that may be superior to those of the
Common Stock and that could adversely effect the voting power or other rights of
the holders of Common Stock. The issuance of Preferred Stock, while providing
desirable flexibility in connection with possible acquisitions and other
corporate purposes, could have the effect of making it more difficult for a
third party to acquire a majority of the outstanding voting stock of the
Registrant, which may not be in the best interests of certain of its
shareholders. The Registrant has no present plans to issue shares of Preferred
Stock. However, there is no assurance that the issuance of Preferred Stock will
not have a material adverse effect on the market value of the Registrant's stock
in the future.
CURRENT MARKETS FOR PROLONG'S PRODUCTS
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The Registrant's strategy is to successfully direct Prolong's product line
to a number of different markets, each of which is currently large, representing
significant future revenue potential for the Registrant. Although the
Registrant is currently actively addressing both the consumer automotive and
consumer household markets described below, the Registrant's strategy is to
adapt Prolong's product line and address the industrial and governmental markets
also described below:
Consumer Automotive
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The consumer automotive market consists of automobiles, light trucks,
motorhomes, motorcycles, snowmobiles, jetskis, and other fuel burning vehicles.
According to the National Petroleum Refiners Association, during 1996 the demand
for automotive lubricants was in excess of 1.5 billion gallons. The owners of
the vehicles using these lubricants represent a significant source of customers
for Prolong's lubricants, fuel conditioners and other future additions to
Prolong product line. Recognizing this fact, this market has been the primary
target of Prolong's marketing efforts to date.
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Consumer Household
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The consumer household lubrication market is a potentially lucrative
segment of the industry which could prove receptive to Prolong's products for
uses as varied as fishing reels, guns, windows, sliding doors, garage doors,
sewing machines, electric hair clippers, bicycles, tricycles, scooters,
skateboards, garage door openers, lawn mowers, snow blowers, drills, saws, door
locks, hinges, rusted bolts, and virtually anything made of metal that must be
lubricated in order to maintain performance. Prolong currently manufactures
"SPL100 Super Penetrating Lubricant" and "Prolong Multi-Purpose Precision Oil"
for this market.
Industrial
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The industrial market encompasses an enormous variety of major and
minor manufacturers. This market includes businesses such as steel mills,
automobile manufacturers, aircraft manufacturers, paper mills, electric motor
manufacturers, petrochemical manufacturers, oil refineries, mining operations
and electrical generating facilities, all of which require lubricants and
Prolong believes would benefit from the increased performance of Prolong's
products. Even more numerous are the smaller industrial facilities, such as
machine shops and other fabrication businesses throughout the world. Prolong
further believes that businesses engaged in stamping, molding, die casting,
boring, drilling, honing and a number of other similar operations could realize
significant cost savings by using the full line of Prolong's products.
Prolong anticipates pursuing the industrial market through a network
of manufacturer's sales representatives and through established industrial
distributors.
Federal, State, & Local Governments
-----------------------------------
The government market is not only very large, but Prolong believes it
is also extremely varied. It includes cities, counties, states and all of the
federal government agencies. Prolong believes that these agencies collectively
purchase, operate, and maintain a significant investment in trucks, automobiles,
buses, tanks, airplanes, helicopters, boats, ships, radar equipment, guns,
miscellaneous equipment and tools, as well as many other mechanisms, all of
which require adequate lubrication.
Federal Government. The federal government represents potential sales
by Prolong to many different agencies such as the Department of Defense, NASA,
Department of Energy, Department of Transportation and other federal
governmental agencies.
Military Sales. Procurement procedures require that products used in
or on military equipment must be manufactured according to certain military
specifications ("MIL Specs"). Prolong intends to apply for and receive United
States MIL Specs for certain of its products, and to market products not only to
the United States military, but to foreign militaries as well. Prolong plans to
develop the military market, both here and abroad, through the utilization of
specialists who are familiar with military procurement procedures and with the
special needs of the military services.
State Government. Potential sales to state governments include users
such as the National Guard, highway patrol, state police and other state
agencies.
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County and City Government. Both county and city governments are
potential Prolong customers for use by police, fire, water, gas, waste
management and other local departments.
Public Transportation. Public transportation entities are major
potential customers for Prolong's products, and Prolong intends to focus its
efforts to market products to these entities at the various levels of
government. Prolong believes that rapid transit districts throughout the
country are facing a serious problem with noisy and polluting diesel buses. The
Los Angeles Rapid Transit District, for example, has 3,300 buses and is
currently under heavy public and regulatory pressure to reduce emissions. In
addition to diesel buses, there are a significant number of other vehicles
currently operated by county and city public transportation agencies which
Prolong believes, if treated with its products, could run cleaner, quieter, last
longer and would burn less fuel.
FUTURE MARKETS FOR PROLONG'S PRODUCTS
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Although not being directly addressed by the Registrant at the present, the
Registrant believes the following to be significant opportunities for expansion
of its marketing efforts into diverse niches of the lubricant market. There can
be no assurances that Prolong will be successful at penetrating any of these
potential markets.
Commercial Trucking
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Prolong intends to develop a market for its products in the long-haul
trucking industry. A substantial portion of the distribution of goods in this
country occurs via truck shipments. Consequently, large quantities of oil and
diesel fuel are consumed by trucks operated in this industry. Prolong believes
that the use of its products in the long-haul trucking industry may provide an
economic advantage to truck operators because of the increased operating
efficiency demonstrated by engines treated with AFMT-based products. Prolong
believes that this increased efficiency may directly result in a reduction in
fuel costs and overall transportation costs. Further, the use of AFMT-based
products may provide additional savings to this industry in the form of reduced
service and repair costs over the useful life of the trucks due to AFMT's
propensity to reduce engine wear and the wear of other "treated" components.
Agricultural Applications
-------------------------
The agricultural industry represents another potentially significant
market for Prolong's products. Modern agricultural machinery and equipment tend
to be highly complex and are often subjected to harsh working environments. As
a result of the harsh environments, the machinery and equipment operates
inefficiently and results in increased fuel consumption and a decreased
productive life-cycle due to increased mechanical wear. Prolong believes that
the use of its products could save the agriculture industry substantial sums by
reducing these industry wide losses caused by friction and contaminants.
Marine Applications
-------------------
The marine market includes both freshwater and salt water boats and
ships, from outboard fishing skiffs to pleasure boats, yachts and other marine
vessels. Prolong has the ability to formulate special products for the harsh
marine environments, including marine grease and a special
-11-
<PAGE>
2-cycle oil for small outboard motors. Prolong believes that in diesel powered
boats and ships, Prolong Gas/Diesel Fuel System Treatment can provide benefits
similar to those attained from use in diesel truck engines.
Railroads
---------
The railroad industry is currently a large user of lubrication
products. Prolong would have to obtain certain mandatory product certifications
prior to being able to market its products to the railroad industry. Prolong is
not actively pursuing such certifications for its products at this time, but may
do so in the future.
GEOGRAPHIC MARKETS
- ------------------
Prolong currently markets its products in the United States, Canada, Japan,
Hong Kong, Thailand, India, Sub-Saharan Africa, Chile, Kuwait and Saudi Arabia
and intends to continue developing distributor relationships in other foreign
countries. Prolong's current focus is to identify distributors that possess the
expertise and industry relationships necessary to assist it in further
penetrating retail sales channels in the various markets identified above, with
a primary focus on the consumer automotive and industrial lubricant markets.
Prolong intends to selectively grant distributorships to established companies
on a country by country basis. Prolong intends to build on this relationship and
continue to expand sales and revenues in the international marketplace. There
can be no assurance that Prolong will be able to successfully penetrate any
foreign markets.
If it is economically feasible, Prolong intends to grant distributorships
throughout Europe. Consistent with this goal, Prolong is analyzing the
economics of the industry, competitive aspects, regulatory matters, and methods
of distribution on a country by country basis in Europe. Prolong has also
obtained patent protection on its products in several of the EEC member
countries.
MARKETING AND DISTRIBUTION OF THE PRODUCTS
- ------------------------------------------
Prolong currently distributes its products through direct response
television, direct distribution, independent distributors and manufacturers
representative organizations. Specifically, Prolong distributes its industrial
and commercial products, both nationally and internationally, through
independent distributors. Currently, Prolong has twenty-two (22) distributors
in the United States.
Prolong has produced a 30 minute direct response television commercial (the
"Infomercial") entitled "The Prolong World Challenge" which it began airing in
January, 1996. The Infomercial features celebrities such as four-time Indy 500
Champion Al Unser, well known TV personality Bob Eubanks, International
Motorsports Champion Roberto Guererro, Olympic Champion and Olympic Gold
Medalist Mark Spitz, former Los Angeles Dodgers baseball star and World Series
MVP Steve Yeager, and renowned motorcyclist Nick Nichols promoting Prolong's
product line. The purpose of making the Infomercial was to build brand name
recognition for Prolong's products in the United States, while simultaneously
marketing its principal consumer lubricant products (i.e., the Prolong Car Care
Kit) directly to consumers. Sales made through the Infomercial are currently
completed through a third-party order processing and sales fulfillment facility
located in Burbank, California. This facility contains a warehouse that is
prestocked with Prolong's products in order to provide a quicker and more
efficient delivery of its products to the consumer. Prolong intends to use the
exposure generated by the Infomercial, along with the funds generated by the
sales realized therefrom, to further expand its national retail sales program in
the automotive and household consumer markets.
-12-
<PAGE>
The products offered by Prolong have also been publicized through print and
electronic media, trade shows and motorsports sponsorships. For example, in the
area of motorsports sponsorship, Prolong executed a co-sponsorship agreement
with King Entertainment and Kenneth D. Bernstein pursuant to which Mr. Bernstein
will provide promotional services and appearances and will recognize "Prolong
Super Lubricants" as a co-sponsor of the "Budweiser King Prolong Top Fuel
Dragster." The agreement calls for the display of the Prolong Super Lubricants
name and logo on the dragster and related racing components in all races and
other events in which the dragster appears. Further, Prolong has entered into a
separate agreement in which it retained the services of Al Unser to endorse and
promote Prolong's products. Mr. Unser has agreed to make certain appearances to
assist in marketing the products and has agreed to license his name and likeness
in connection with the marketing of Prolong's products. Prolong has entered
into an agreement with Smokey Yunick pursuant to which it retained the services
of Mr. Yunick to promote Prolong's products and to act as a spokesman for, and
technical consultant to, Prolong. Mr. Yunick has agreed to make certain
appearances to assist in marketing Prolong's products and has agreed to license
his name and likeness in connection with the marketing of Prolong's products.
Additionally, Prolong has entered into an advertising contract with Motor Trend
magazine for print ads during 1997. In addition to motorsports sponsorship,
endorsements and magazine advertising, Prolong is engaging experienced marketing
personnel to commence concentrated marketing efforts in order to increase
retail, commercial, industrial, governmental and international sales. Prolong
believes that the foregoing advertising and marketing efforts, which began with
the production of its Infomercial in 1995, have resulted in recognition of the
product line as a superior alternative to other conventional lubricants
available within the lubricant industry.
COMPETITION
- -----------
The market for Prolong's products is highly competitive and is expected to
increase in the future. The basic formula of Prolong's products has not changed
materially since its development in 1986. However, given that Prolong's
products have only recently been made available to the general public, they have
been characterized as "new," "innovative" and "state of the art" technology.
Despite this current technological advantage, the market for Prolong's products
is characterized by rapid technological advances, frequent new product
introductions and evolving industry standards. Some of Prolong's principal
competitors include other providers of specialized lubrication products, such as
First Brands (STP(TM)) and Quaker State (Slick 50(TM)), both of which market
engine oil treatments. Prolong's competitors also include major oil companies
such as Shell Oil Company, Castrol, Pennzoil, Quaker State and others who
manufacture lubrication products, such as WD40 Corp. Further, Prolong believes
that major oil companies not presently offering products that compete directly
with those offered by Prolong may enter Prolong's markets in the future.
Increased competition could result in price reductions, reduced gross
margins, and a loss of market share, any of which could have a material adverse
effect on the Registrant's business, financial condition and results of
operations. In addition, many of Prolong's competitors have significantly
greater financial, technical, research and product development, marketing and
other resources and greater market recognition than Prolong. Several of
Prolong's competitors also currently have, or may develop or acquire,
substantial customer bases in the automotive and other related industries. As a
result of these factors, Prolong's competitors may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products than Prolong. Additionally, other dealers and distributors may
-13-
<PAGE>
offer similar lubrication products at prices below those offered by Prolong,
appealing to the price-sensitive segment of the market. While Prolong believes
that the prices for Prolong lubrication products are competitive for the level
of quality obtained by the customer, Prolong relies on PSL's brand name
recognition for selling high quality, state of the art products. There can be no
assurance that Prolong will be able to compete successfully against current and
future competitors or that competitive pressures faced by Prolong will not
materially adversely effect the Registrant's business, financial condition and
results of operations.
Prolong believes that its current competitive edge lies solely with the
superior lubrication performance of its products relative to that of its
competitors. In order for Prolong to draw attention to the superior performance
of its products, Prolong is treating and marketing its products as a unique
specialty line of high performance products as opposed to a high volume product
line.
A key strategy for Prolong's continued growth is to use direct response
television ("DRTV") to generate sales, build brand name recognition, and to lay
the foundation for other, more conventional forms of advertising and marketing.
For example, Prolong believes that its Infomercial that debuted in 1996 has
resulted in a significant increase in sales and brand name recognition. This
broad public exposure generated by the Infomercial may permit Prolong to
position itself favorably among larger companies competing in both the national
and international lubricant markets.
PRODUCTION
- ----------
The AFMT formula contained in all of Prolong's products and the formulas
for such products themselves are comprised of petroleum-based components which
are readily available from several suppliers. Prolong does not foresee any
shortages of supply in the near future. However, Prolong has recently increased
volume production and plans on continued expansion. This continued expansion
could eventually place a strain on the production capacity of its existing
suppliers. While Prolong is working actively with each of its suppliers to
increase production of the components, there can be no assurance that each
supplier will be able to increase its production in time to satisfy Prolong's
increasing requirements or that alternative suppliers will be able to meet any
such deficiency on an ongoing basis. If Prolong is unable to obtain sufficient
quantities of the components, or if such components do not meet Prolong's
quality standards, delays or reductions in product shipments could occur which
would have a material adverse effect on the Registrant's business, financial
condition and results of operations.
In addition to the potential deficiency in supply of the AFMT components,
such components are also subject to significant price volatility beyond the
control or influence of Prolong. Prices for the components of the quality
sought by Prolong are dependent on the origin, supply and demand at the time of
purchase. Prices can be affected by multiple factors in the producing
countries, including weather and political and economic conditions.
Additionally, petroleum products, of which Prolong relies on for its AFMT
formula, have been affected in the past, and may be affected in the future, by
the actions of certain organizations and associations, such as the Organization
of Petroleum Exporting Countries ("OPEC"), that have historically attempted to
establish price controls on petroleum products through agreements establishing
export quotas or restricting petroleum supplies worldwide. No assurance can be
given that OPEC (or others) will not succeed in raising the price of petroleum
components or that, in such event, Prolong will be able or choose to maintain
its gross margins quickly by raising its prices without effecting demand.
Increases in the prices for the components, whether due
-14-
<PAGE>
to the failure of its suppliers to perform, conditions affecting the component-
producing countries, or otherwise, could have a material adverse effect on the
Registrant's results of operations.
The production of Prolong's products is comprised of contract manufacturers
mixing the components pursuant to the AFMT and other proprietary formulas and
bottling the resulting mixtures in packaging specified by Prolong. Prolong's
current contract manufacturers have the capacity to produce its products in high
volumes, having been designed to meet the production requirements of major oil
companies. By utilizing existing third party manufacturing facilities, Prolong
avoids the large capital expenditures associated with mixing and packaging
operations, as well as costly management of human resources. At present, there
are facilities located throughout the world that are capable of mixing and
packaging the components into finished products. However, Prolong's increased
volume production and continued expansion may result in shortages or
restrictions in supply and manufacturing capabilities in the future. Prolong has
not entered into any long term contracts with respect to the supply or
production of its products, preferring to intermittently review quotations
provided by interested parties in order to take advantage of competition among
suppliers and manufacturers.
CUSTOMERS
- ---------
Prolong believes that a majority of its sales have resulted as a response
to the airing of its Infomercial. Such sales are made to large numbers of
individual consumers and, accordingly, Prolong does not consider itself
dependent on any particular customers in this market segment. In 1996,
Prolong's sales to commercial and industrial customers, which are derived
through independent manufacturers representatives and distributors, comprised
approximately 5% of its revenues while sales to retail customers comprised
another 5% of total revenues. None of such customers accounted for more than 5%
of Prolong's aggregate sales in 1996. Consequently, the Registrant does not
consider itself to be dependent on these customers or any of its other
customers.
INTELLECTUAL PROPERTY
- ---------------------
Prolong holds the exclusive worldwide license to manufacture and sell
products based on AFMT, which PSL acquired from the patent holder, EPL Prolong,
Inc. (referred to herein as "EPL" or the "Licensor"), in 1993. This agreement
calls for Prolong to pay to the Licensor 3.5% of gross sales of any products
which utilize AFMT technology or bear the "Prolong" name. This agreement calls
for minimum royalties of $3,000 per month beginning in 1995. During 1996,
Prolong expended $553,900 in royalties under this agreement. The license is
perpetual absent a major breach of the agreement by Prolong. There can be no
assurance that Prolong will be able to avoid committing such a breach in the
future and, consequently, may not be able to retain the license indefinitely.
Prolong is currently engaged in discussions to purchase the rights to the AFMT
formula from EPL. Should Prolong be unable to continue as a licensee or
successfully purchase the rights from EPL, Prolong could not continue to
manufacture its current AFMT-based products, which would result in a material
adverse effect on the Registrant's business, operating results and financial
condition.
The U.S. patent on AFMT expires July 4, 2006. There are a number of other
patents and patent applications covering Prolong's products in other countries
worldwide. Additionally, Prolong has obtained or applied for the exclusive
rights to the use of a number of trademarks which it utilizes in the marketing
of its products including, but not limited to, the marks "Prolong," "Prolong
Super Lubricants," "The Ultimate in Protection & Performance," "No Equal in the
World," and "SPL100."
-15-
<PAGE>
ROYALTY AGREEMENTS
- ------------------
Aside from the royalties due to EPL as described above, Prolong has entered
into a memorandum agreement with the producer of its Infomercial whereby Prolong
has agreed to pay The 2M Group, Inc. 1.5% of gross sales generated from DRTV
promotions made via a toll-free telephone number, which utilize the Infomercial
video footage. The term of this agreement is dependent upon the life cycle of
the Infomercial. During 1996, Prolong expended $151,400 in royalties under this
agreement.
Prolong has also entered into a personal service agreement with Al Unser
whereby Prolong has agreed to pay Mr. Unser 1.0% of gross sales resulting from
DRTV sales from the Infomercial, with guaranteed annual minimum royalties of
$40,000, $50,000 and $60,000 during the first, second and third years of the
agreement, respectively, following an initial 120 day test period. Royalties
earned are to commence with the first airing of the Infomercial and continue for
three years and 120 days, contingent upon (i) the continued airing of the
Infomercial after the 120 day test period and; (ii) after each one-year period
thereafter. The maximum term of this agreement is until May, 1999. During 1996,
Prolong paid Mr. Unser $100,900 under this agreement.
Further, Prolong has entered into a service and endorsement contract with
Al Unser whereby Prolong has agreed to pay royalties on all net retail sales of
its products according to the following rates: 1.5% from November 1, 1996
through October 31, 1997; 1.25% from November 1, 1997 through October 31, 1998;
and 1% from November 1, 1998 through October 31, 1999. For each of the years
included in the arrangement, Prolong must pay a guaranteed minimum amount of
$15,000. Earnings maximums under the arrangement are as follows: $100,000 in
year 1; $125,000 in year 2; and $150,000 in year 3. Either party has the option
to extend the arrangement for an additional 4 years. If the option to extend is
exercised by either party, the agreement terminates on October 31, 2003. During
1996, Prolong paid Mr. Unser $7,800 under this agreement.
EMPLOYEES
- ---------
As of June 1997, the Registrant and PSL collectively employs twenty-nine
(29) full-time employees, including two (2) executive officers, and no part-time
employees. None of Prolong's employees are represented by a labor organization
and the Registrant considers the relationships with its employees and those of
PSL to be good.
ITEM 2. FINANCIAL INFORMATION
SELECTED FINANCIAL DATA
- -----------------------
The following selected financial data is qualified by reference to, and
should be read in conjunction with the consolidated financial statements,
related notes and other information included elsewhere in this Registration
Statement as well as "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The financial data for the years ended
December 31, 1994 and 1995, respectively, is derived from the consolidated
financial statements of the Registrant and PSL that have been audited by Corbin
& Wertz. The financial data set forth below for the year ended December 31,
1996 is derived from the consolidated financial statements of the Registrant and
PSL that have been audited by Deloitte & Touche, LLP. The selected financial
data for the three month periods ended March 31, 1997 and 1996 are derived from
the unaudited consolidated financial
-16-
<PAGE>
statements of the Registrant and PSL. The unaudited consolidated financial
statements include all adjustments, consisting of normal recurring accruals and
eliminating entries, which the Registrant considers necessary for a fair
presentation of the financial position and results of operations for these
periods. There is no available financial data concerning the Registrant's
activities in the years ended December 31, 1992 and 1993, respectively, as prior
to the Reorganization the Registrant was inactive during those periods within
the meaning of Rule 3-11 of Regulation S-X.
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
----------------------------------------- --------------------------
1994 1995 1996 1996 1997
<S> ---- ---- ---- ---- ----
Statement of Operations Data
<C> <C> <C> <C> <C>
-SALES $ $ 390,506 $15,813,493 $ 689,719 $ 5,784,089
-NET PROFIT (LOSS) (134,285) (415,740) 721,178 (371,255) 279,649
-NET PROFIT (LOSS) PER SHARE OF
COMMON STOCK N/A(1) $ (0.02) $ 0.03 $ (0.02) $ .01
-WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING N/A(1) 17,156,501 23,463,620 20,450,015 25,479,728
BALANCE SHEET DATA
TOTAL ASSETS $ 139,984 $ 730,760 $ 9,023,317 $ 1,588,462 $ 9,065,201
TOTAL LIABILITIES 12,452 88,218 1,732,467 310,125 1,463,452
TOTAL STOCKHOLDERS' EQUITY 127,532 642,542 7,290,850 1,278,337 7,601,749
</TABLE>
- ---------------
(1) Net loss per share and weighted average shares of Common Stock outstanding
information for the year ended December 31, 1994 have not been provided as
such period preceded the Registrant's merger with PSL in June 1995 and,
therefore, such information would not be meaningful.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
- --------------------------------------------------------------------------
OPERATIONS
- ----------
General
-------
Since the Reorganization, management of the Registrant and PSL has
concentrated a significant portion of its efforts and resources on the marketing
and sale of Prolong's consumer oriented products, principally the Car Care Kit,
through DRTV advertising. Management now believes that it has attained a
significant level of brand and product identification and Prolong has now begun
efforts to expand sales of its consumer lubrication products into retail
channels.
The lubricant business is extremely competitive. Prolong's business
requires that it compete with larger, better financed entities, most of which
have brand names which are well established in the marketplace. Although
Prolong, in the opinion of management, has unique products which have superior
performance characteristics relative to the well known products available in the
marketplace, Prolong remains at a distinct disadvantage and will be required to
expend substantial sums in order to promote brand name identity and product
acceptance among its prospective customers. In order to establish brand name
identity, Prolong has relied primarily on its Infomercial and intends to
continue to utilize this means to gain product recognition for purposes of
directly increasing sales as well as increasing retail, commercial and
industrial and governmental sales resulting from broader public knowledge of its
products.
-17-
<PAGE>
Comparison of the Three Month Period Ended March 31, 1997 and March 31,
-----------------------------------------------------------------------
1996
- ----
In January 1996, Prolong began to air its Infomercial. The number
of airings and the quality of the timeslots in the first quarter of 1996 were
limited by the cash available to spend on television airtime. Substantially all
first quarter 1996 revenues were generated from the Infomercial. During the
first quarter of 1997, the Infomercial aired approximately 5,000 times in
markets throughout the United States which resulted in Infomercial derived
revenues of approximately $3,941,000. Additionally, Prolong began the
rollout of its retail sales efforts in the first quarter of 1997 resulting in
retail sales of approximately $1,483,000. The remainder of the first quarter of
1997 revenues were generated in industrial/commercial and international markets.
Costs of goods sold decreased significantly as a percentage of
revenues in the first quarter of 1997 as compared to the first quarter of 1996.
This decrease was the result of Prolong entering into full production,
through its outside manufacturers, of its products to meet the demands of
Infomercial derived sales and Prolong's retail rollout. As a result of
significantly higher purchases, Prolong was able to take advantage of volume
discounts and other efficiencies in the production process.
Selling, general and administrative costs increased significantly
during the first quarter of 1997 as compared to the first quarter of 1996
primarily as a result of expenditures for television airtime, endorsement and
sponsorship payments, salaries for new employees in the sales and marketing
departments, and other administrative costs incurred as a result of the volume
increase. The selling, general and administrative expenses as a percentage of
sales decreased from 81% in the first quarter of 1996 to 68% in the first
quarter of 1997 due to the holding of costs relative to the volume increase in
revenues. Administrative costs are being spread over higher levels of revenue.
During the first quarter of 1997, Prolong used approximately
$1,019,000 of cash. The cash was used primarily to build inventories for the
expected sales in the remainder of the 1997 fiscal year. This cash utilization
was partially offset by proceeds from the sale of common stock. Current assets
at March 31, 1997 were approximately $8,782,000 while current liabilities were
$1,438,000.
Comparison of the Years Ended December 31, 1996 and December 31, 1995
---------------------------------------------------------------------
During the year ended December 31, 1995, Prolong entered into the
business of manufacturing and selling its products and had sales of $390,506.
During 1995, PSL was mainly engaged in the production of its Infomercial and the
organization of television airing, product delivery, product and packaging
design and related marketing activities. No sales of product were made during
1995 from television airings, since the Infomercial did not air until January,
1996. PSL expended $223,748 in the production of its Infomercial, $117,562 in
advance royalties to the holder of the AFMT patent and $806,235 in product costs
and selling, general and administrative expenses. At December 31, 1995, the
Registrant's current assets of $542,909 exceeded its current liabilities of
$88,218 by $454,691 and its total assets of $730,760 exceeded its total
liabilities of $88,218 by $642,542.
-18-
<PAGE>
During the year ended December 31, 1996, Prolong debuted its
Infomercial and experienced a dramatic increase in sales to $15,813,493. During
1996, Prolong obtained working capital from the sales of its products as well as
the sale of its common stock through private placements. Prolong expended
$553,900 in royalties to the holder of the AFMT patent and related trademarks,
$151,400 in royalties to the producer of its Infomercial, $100,900 in royalties
to Al Unser for his appearance in the Infomercial, $7,800 in royalties to Al
Unser in connection with an endorsement contract, $87,500 in royalties pursuant
to other endorsement and sponsorship agreements, and $14,920,478 in product
costs and selling, general and administrative expenses. At December 31, 1996,
the Registrant's current assets of $8,745,635 exceeded its current liabilities
of $1,706,626 by $7,039,009 and its total assets of $9,023,317 exceeded its
total liabilities of $1,732,467 by $7,290,850.
Comparison of the Years Ended December 31, 1995 and December 31, 1994
---------------------------------------------------------------------
During the year ended December 31, 1994, PSL's activities were limited
to the entry into its license agreement with EPL for the use of the AFMT formula
and the creation and organization of its business plan.
There were no revenues and limited operating activities during the
year. PSL's cash flows were derived principally from the issuance of its common
stock and were used mainly to pay the initial license fee under the license with
EPL and related expenses. At December 31, 1994, PSL's current assets of $14,132
exceeded its current liabilities of $12,452 by $1,680 and its total assets of
$139,984 exceeded its total liabilities of $12,452 by $127,532.
Liquidity and Capital Resources
-------------------------------
Prior to the fiscal year ended December 31, 1996, the Registrant had
not generated sufficient revenues to finance its operations and was able to
remain in business primarily with the proceeds from the issuances of its Common
Stock in private placements. Currently, the Registrant has sufficient revenues
to meet its current expenses. However, the Registrant believes that it may need
to obtain additional financing in the future to fund its anticipated period of
growth. As of March 31, 1997, the Registrant did not have any commitments for
material capital equipment acquisitions. Further, the Registrant anticipates no
immediate future need for any material production-related capital expenditures.
The Registrant expects that all future manufacturing will be sub-contracted out,
bypassing the need for any infrastructure investment. However, despite the
minimal capital expenditures anticipated in the near future, the Registrant
plans to significantly increase its level of operations, and in particular plans
to increase its marketing activities to include additional markets in the United
States and abroad.
In June 1997, PSL executed a commitment letter with a commercial bank
for a $4 million line of credit which is to be collateralized by PSL's inventory
and receivables. The Registrant will be required to guarantee all of PSL's
obligations under such credit facility, which by its terms will expire in July
1999. The credit facility is subject to negotiation and execution of definitive
documentation. The Registrant believes that its current level of revenues and
cash flow generated from operations, if sustained, in addition to the funds
provided from the foregoing credit facility, if consummated, will be sufficient
to meet its liquidity needs for fiscal 1997 and 1998. The Registrant anticipates
that it may seek additional capital in the future to fund its growth. Any
additional required financings may not be available on terms satisfactory to the
Registrant, if at all. The Registrant is electing to become a reporting company
under the Securities Exchange Act of 1934 in order to attract capital.
Recently Issued Accounting Standards
------------------------------------
During 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share" (FAS 128). FAS 128 requires the Registrant to
disclose a basic and diluted earnings per share calculation. Basic earnings per
share (EPS) excludes common stock equivalents from the EPS calculation, while
diluted EPS is calculated consistent with the Registrant's primary earnings per
share calculation. The Registrant will adopt the provisions of FAS 128 within
the 1997 year-end consolidated financial statements. Basic and diluted EPS, as
computed under FAS 128, would not have been materially different than EPS
determined in accordance with APB 15 for the periods presented.
-19-
<PAGE>
ITEM 3. PROPERTIES
Neither the Registrant nor its subsidiary owns any real property. As its
headquarters, Prolong leases approximately 7,000 square feet of office and
warehouse space on a month-to-month basis in a one story building located at
1210 North Barsten Way in Anaheim, California. The base rent for this property
is $4,557 per month. Prolong also leases a limited amount of space on a month-
to-month basis in each of two adjacent facilities located at 1200 North Barsten
Way and 1220 North Barsten Way, respectively. The aggregate base rent for this
additional space is $1,925 per month. The Registrant considers these present
facilities to be adequate for Prolong's current operations and for those
reasonably expected to be conducted during the next twelve months. Further,
Prolong believes that any additional space, if required, will be available on
commercially reasonable terms.
-20-
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Registrant's outstanding Common Stock as of March
31, 1997 for (i) person(s) who are known by the Registrant to be the beneficial
owner of more than five percent of the Registrant's Common Stock, (ii) each
director and officer of the Registrant and (iii) all current directors and
executive officers as a group.
<TABLE>
<CAPTION>
Name and Address of Shares Beneficially Percent of
Beneficial Owner Owned(1) Class
---------------- -------- -----
<S> <C> <C>
Elton Alderman 3,954,000 15.46
1210 N. Barsten Way
Anaheim, California 92806
Carol Auld 3,794,999(2) 14.84
1210 N. Barsten Way
Anaheim, California 92806
Emthree Enterprises, Inc. 1,850,000 7.23
22681 Sweet Meadow
Mission Viejo, California 92692
Tom T. Kubota 1,825,000 7.14
1210 N. Barsten Way
Anaheim, California 92806
Thomas C. Billstein 1,545,000 6.04
1210 N. Barsten Way
Anaheim, California 92806
Ramon D. Pratt 1,400,000(3) 5.47
73-304 Willow Street
Palm Desert, CA 92260
All officers and directors as a group 8,724,000(4) 34.11
(4 persons)
</TABLE>
_____________________________
(1) Beneficial ownership as reported in the table above has been
determined in accordance with Rule 13d-3 promulgated under the
Securities Exchange Act of 1934. Accordingly, except as noted, all of
the Registrant's securities over which the individuals named, or as a
group, directly or indirectly have, or share voting or investment
power, have been deemed beneficially owned.
-21-
<PAGE>
(2) Carol Auld obtained beneficial ownership of the above 4,125,000 shares
following the death of her husband, Edwin C. Auld Jr., on February 8,
1996.
(3) Ramon Pratt held of record 800,000 shares in his name and an
additional 600,000 shares in joint tenancy with his wife, Marie Z.
Pratt.
(4) Includes shares held by Messrs. Alderman, Kubota, Billstein and Pratt
who collectively served as the Registrant's directors and executive
officers as of March 31, 1997.
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
DIRECTORS AND EXECUTIVE OFFICERS.
- --------------------------------
The following sets forth certain information with respect to each of the
directors and executive officers of the Registrant as of June 30, 1997.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
George Elton Alderman 58 President, Chief Executive Officer
and Director
Thomas C. Billstein 44 Vice-President, Secretary and
Director
Tom T. Kubota 57 Vice President, Investor Relations
and Director
Nicholas M. Rosier 51 Chief Financial Officer
Melanie A. McCaffery 44 Director
</TABLE>
George Elton Alderman has served as the Chairman of the Board of Directors,
President and Chief Executive Officer of the Registrant since the Reorganization
in June, 1995. From October 1993 to the present, Mr. Alderman has also served
as a director, President and Chief Executive Officer of PSL, the Registrant's
wholly-owned operating subsidiary. Prior to joining PSL, Mr. Alderman served as
the President and Chief Executive Officer of EPL Prolong, Inc., the holder of
the patent for the AFMT formula, from July 1988 until October 1993.
Thomas C. Billstein has served as a director of the Registrant since the
Reorganization in June, 1995. Mr. Billstein has also served as the Registrant's
Vice President and Secretary since February 1996. From October 1993 to the
present, Mr. Billstein has also served as a director of PSL, and has served as
PSL's Secretary since February 1996. Prior to joining PSL, Mr. Billstein served
as an independent financial and legal consultant to EPL Prolong, Inc. from
August 1992 until October 1993. From November 1991 to August 1992, Mr.
Billstein provided independent financial and legal consulting services to
various small companies located in Southern California. Since commencing his
employment with the Registrant and PSL, Mr. Billstein has served as an
independent financial and legal consultant to those entities as well. Mr.
Billstein holds a Bachelor of Science Degree in Business
-22-
<PAGE>
Administration with an emphasis in Finance-Investments from California State
University Long Beach. He attended Whittier College School of Law, was awarded
the American Jurisprudence Award for Agency Law, and graduated with a Juris
Doctorate degree in 1978. Mr. Billstein is a member of the State Bar of
California.
Tom T. Kubota has served as a director of the Registrant since the
Reorganization in June 1995. Between June 1995 and April 1997, Mr. Kubota
served as the Registrant's Vice President, Finance. In June 1997, Mr. Kubota
was promoted to Vice President, Investor Relations. From October 1993 to the
present, Mr. Kubota has also served as a director of PSL. Prior to joining PSL,
Mr. Kubota served as an independent consultant for EPL Prolong, Inc., from March
1992 to October 1993. Since the date of Mr. Kubota's employment with the
Registrant and PSL, respectively, he has served as an independent consultant to
each entity. Mr. Kubota is also a vice president and director of GenCell, Inc.,
a publicly-traded company.
Nicholas M. Rosier has served as Controller of PSL since March 1997 and was
promoted to Chief Financial Officer of the Registrant and PSL, effective July
1997. For the four year period prior to his joining PSL, Mr. Rosier was the
Controller and Financial Accounting Manager of two divisions for DePUY, Inc., a
major public manufacturing company in the global orthopaedic industry. Prior to
that position Mr. Rosier was the Controller/Director of Finance for thirteen
years for Adams Rite Manufacturing Company, a privately owned manufacturer of
locks and automotive equipment. He holds a Bachelors degree in accounting and
finance from H.B.S. in Holland.
Melanie A. McCaffery was appointed to the Board of Directors in June 1997.
Mrs. McCaffery, a certified public accountant, is the President of McCaffery &
Associates, a financial and accounting firm which she founded in October 1995.
From October 1988 through September 1995, Mrs. McCaffery was a Partner with the
international accounting firm of Coopers & Lybrand L.L.P. From 1978 through
October 1988, Mrs. McCaffery served as a staff member at Coopers & Lybrand
L.L.P. Mrs. McCaffery serves on the board of directors of Boyds Wheels, Inc. a
publicly-traded company, and the March of Dimes of Orange County, California.
Mrs. McCaffery received a Bachelors degree in political science from the
University of California, Los Angeles, in 1975 and a Master's in Business
Administration from the University of Southern California in 1978.
All directors hold office until the next annual meeting of the shareholders
and until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Board of Directors. There are no
family relationships among any of the directors or officers of the Registrant.
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth the compensation of the named executive
officers paid by the Registrant and PSL for the last three fiscal years. None
of the named executive officers of the Registrant or PSL were paid $100,000 or
more in base salaries during any of the periods covered.
-23-
<PAGE>
The information presented below represents compensation in all capacities
in which each identified individual served the Registrant and PSL, as
applicable.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Restricted All Other
Name and Stock Compen-
Principal Position Year Salary($) Awards($)(1) sation ($)
------------------ ---- --------- ------------ ----------
<S> <C> <C> <C> <C>
George Elton 1994 5,000 4,150 ---
Alderman 1995 --- --- 61,250
President and Chief 1996 93,337 --- ---
Executive Officer
Thomas C. Billstein 1994 --- 1,750 ---
Vice-President and 1995 --- --- 53,008
Secretary 1996 90,256 --- ---
Ramon D. Pratt (2) 1994 --- 1,500 ---
Vice-President and 1995 --- --- 19,250
Treasurer 1996 43,600 --- ---
Tom T. Kubota 1994 --- 1,500 ---
Vice President 1995 --- --- 65,250
Investor Relations 1996 90,000 62,500 118,500
</TABLE>
(1) At March 31, 1997, the above-named individuals collectively held
approximately 8,724,000 shares of the Registrant's Common Stock with a value of
$30,534,000 in the aggregate, based on the average of the high and low share
price of $3.50 per share on such date.
(2) Mr. Pratt resigned from his officer and director positions effective
April 1, 1997.
The Registrant's 1997 Stock Incentive Plan (the "Plan") was adopted by the
Registrant's shareholders and Board of Directors in June 1997. The Plan
provides for the granting of "incentive stock options" within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonqualified stock options and restricted stock. The Plan has authorized for
issuance up to 2,500,000 shares of the Registrant's Common Stock. Under the
Plan, shares of the Registrant's Common Stock may be granted to directors,
officers, employees, consultants and other service providers of the Registrant,
except that incentive stock options may not be granted to non-employee
directors. The Plan is administered by the Board of Directors or a committee
appointed by the Board (the "Committee"), which has sole discretion and
authority, consistent with the provisions of the Plan, to determine which
eligible participants will receive options, the time when options will be
granted, the terms of options granted and the number of shares which will be
subject to options granted under the Plan. Presently, the Board of Directors
administers the Plan. As of June 30, 1997, there were 1,112,687 options
outstanding under the Plan at a weighted average exercise price of $2.00 per
share. In the event of a merger of the Registrant with or into another
corporation or the sale of substantially all of the assets of the Registrant,
all outstanding unvested options of the Plan shall be accelerated.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
- -----------------------------------------------------------
The Registrant does not have a compensation committee or any other board
committee that performs equivalent functions. However, during the fiscal year
1996, the directors determined executive officer compensation. As discussed in
the section entitled "Directors and Executive Officers," Messrs. Alderman,
Billstein, and Kubota all serve concurrently as officers and directors of both
the Registrant and PSL.
-24-
<PAGE>
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January, 1997, Prolong Acquisition Corporation, a Delaware corporation
("PAC") owned by Elton Alderman and Thomas C. Billstein, acquired the
International Hot Rod Association, a sanctioning body for certain motorsports
competitions commonly known as drag races. Following the acquisition, PAC was
renamed the International Hot Rod Association, Inc. (the "IHRA"). It was
contemplated that the Registrant or PSL purchase an equity interest in the IHRA.
In February 1997, the Registrant's Board of Directors formally considered
purchasing an equity interest in IHRA but determined not to make such an
investment at that time. The proposed terms were substantially the same as those
terms at which Messrs. Alderman and Billstein made the acquisition. Messrs.
Alderman and Billstein abstained from voting on such proposed transaction.
Currently, the Registrant is a party to a sponsorship agreement with the
IHRA. Under this sponsorship agreement, the Registrant is obligated to sponsor
at least two races in 1997. During 1997, the Registrant paid IHRA $50,000 for
sponsorship of the Prolong SuperLubricants Spring Nationals in Bristol,
Tennessee and $35,000 for sponsorship of the Prolong SuperLubricants - Ohio
Lottery World Nationals in Norwalk, Ohio. In addition to the above contemplated
transaction with IHRA, as of March 31, 1997, the Registrant has advanced the
IHRA approximately $120,000 in the aggregate as a prepayment for sponsorship and
title rights of nationally televised national events to occur in 1998.
From the date of the Reorganization and continuing to January 1997, Thomas
Billstein has provided the Registrant with legal consulting services in his
capacity as an attorney sole practitioner, and has provided PSL with such
services since October 1993. Mr. Billstein's responsibilities include
conducting a general review of all potential legal issues involving the
Registrant or PSL and acting as a liaison with all outside counsel retained by
the Registrant or PSL. In addition to Mr. Billstein's consulting services to
the Registrant and PSL, Mr. Billstein also provides such services from time to
time to EPL Prolong, Inc., the holder of the patent to the AFMT formula. This
relationship with EPL Prolong, Inc. has been fully disclosed to and approved by
both the Registrant's and PSL's board of directors. In the fiscal year ended
December 31, 1996 receipts from the Registrant and PSL amounted to $90,256 which
represented approximately ninety percent (90%) of Mr. Billstein's total
compensation as an attorney/consultant.
From the date of the Reorganization and continuing to June 1997, Tom Kubota
has served as an independent consultant for the Registrant. In the fiscal year
ended December 31, 1996, receipts from the Registrant amounted to $208,500.
Messrs. Alderman, Billstein, and Kubota all hold concurrent positions as
officers and directors of both the Registrant and PSL. See "Directors and
Executive Officers."
On January 30, 1996 Tom Kubota acquired 250,000 shares of the Registrant's
Common Stock, valued at $0.25 per share, as consideration for services rendered
to the Registrant and PSL, in lieu of cash compensation. Such acquisition of
Common Stock was made pursuant to the exemption from registration under Section
4(2) of the Securities Act of 1933, as amended. See "Recent Sales of
Unregistered Securities."
-25-
<PAGE>
Other than the related transactions disclosed above, the Registrant is not
aware of any transactions or proposed transactions to which the Registrant or
PSL was or is to be a party, in which any director, executive officer, nominee
for election as a director, security holder or any member of the immediate
family of the persons named above had or is to have a direct or indirect
material interest.
ITEM 8. LEGAL PROCEEDINGS
Neither the Registrant nor PSL is a party to any pending or threatened
legal, governmental, administrative or judicial proceedings that Prolong
believes will have a materially adverse effect upon the Registrant's or PSL's
financial condition or operations. The AFMT patent on which Prolong's products
are based, has been the subject of litigation, primarily suits contesting the
ownership thereof. Prolong believes that EPL, the third party which owns such
patent and exclusively licenses its use to Prolong, has been successful in the
defense of all such claims to date. The Registrant does not anticipate that any
such litigation will have a material adverse effect on Prolong's continued use
of such patent and its continued manufacture and sale of Prolong's products
pursuant to the license agreement, but no assurances can be made of such fact.
Should such litigation result in an adverse ruling precluding Prolong's
continued use of the AFMT patent under the license agreement, the Registrant's
business, operating results and financial condition would be materially
adversely effected.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
The Registrant's common stock is currently trading on the system of the
National Association of Securities Dealers, Inc., known as the OTC Bulletin
Board under the symbol "PROL."
The Registrant's common stock resumed trading (after approximately 8 years
of dormancy) in January, 1996. High and low bids for each quarter during 1996
and for the first quarter of 1997 are as indicated below.
<TABLE>
<CAPTION>
Quarter Ended: High Bid Low Bid
-------------- -------- -------
<S> <C> <C>
March 31, 1996 $2.25 $ .38
June 30, 1996 $4.38 $1.88
September 30, 1996 $4.63 $3.75
December 31, 1996 $6.38 $4.25
March 31, 1997 $6.50 $3.25
</TABLE>
Information during the period has been furnished by the OTC Bulletin Board.
These quotations reflect inter-dealer prices, without retail mark-up, mark-down
or commission and may not represent actual transactions.
The Registrant has authorized only one class of common stock, namely Common
Stock, having a par value of $0.001 per share. The number of holders of record
of the Registrant's common stock is
-26-
<PAGE>
approximately 438. The Registrant has not declared any cash dividends since
inception, and does not intend to do so in the foreseeable future. The
Registrant currently intends to retain its earnings for the operation and
expansion of its business. The Registrant does not have any restrictions on its
ability to pay dividends on common equity. The Registrant's Board of Directors
is authorized to issue up to 50,000,000 shares of Preferred Stock with such
rights, preferences and privileges as may be determined by the Registrant's
Board of Directors. No such shares of Preferred Stock have been issued to date.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES
The following information sets forth all securities of the Registrant sold
within the past three years without registering the securities under the
Securities Act of 1933, as amended. The Registrant made no public offerings of
its securities during the past three years. It sold only one class of stock,
namely Common Stock. The sales were made pursuant to negotiated transactions
between the parties, and the price per share for each transaction was a result
of the negotiations.
On June 21, 1995, the Registrant effected a two-for-one reverse stock split
of shares of its outstanding restricted unregistered common stock in the amount
of 789,535 shares. On the same date, the Registrant acquired all of the
outstanding common stock of PSL in a one-for-one share exchange for the
Registrant's restricted unregistered common stock in the amount of 15,967,500
shares.
Between June 21, 1995 and December 31, 1995, the Registrant issued for cash
1,980,000 shares of its restricted unregistered common stock at prices ranging
from $0.14 to $0.25 per share. The Registrant also issued 445,000 shares of its
restricted unregistered common stock in exchange for services performed by its
employees and outside consultants. Such services were recorded at a price of
$0.25 per share. Additionally, during this period the Registrant sold 320,000
shares of its restricted unregistered common stock pursuant to subscription
receivables aggregating $80,000.
During fiscal 1996, the Registrant issued 4,891,665 shares of its
restricted unregistered common stock in exchange for $5,322,630 at prices
ranging from $.25 to $2.70 per share. The Registrant also issued 730,000 shares
of its restricted unregistered common stock for services performed by its
employees and outside consultants during the year ended December 31, 1996.
Consulting expense was recorded at share prices ranging from $.25 to $2.00 per
share. Additionally, during fiscal 1996 the Registrant issued 320,000 shares of
its restricted unregistered common stock which had been subscribed for $80,000
in fiscal 1995. In September 1996, the Registrant entered into an agreement
whereby it issued 330,000 shares of its restricted unregistered common stock in
exchange for a note receivable of $660,000. In October 1996, the Registrant
granted an option to an employee to purchase 30,000 shares of its restricted
unregistered common stock at an exercise price of $5.38 per share. This option
was cancelled in June 1997 and replaced by an option to purchase 30,000 shares
of the Registrant's restricted unregistered common stock under its 1997 Stock
Incentive Plan. The option vests over a five-year period beginning June 4, 1997
and is exercisable for a period of up to ten (10) years at a price of $2.00 per
share. Lastly, in 1996, the Registrant received subscriptions receivable
aggregating $209,500 for the sale of 155,800 shares of its restricted
unregistered common stock.
During the first quarter ended March 31, 1997, the Registrant privately
issued 5,000 shares of its common stock in exchange for an aggregate of $12,500
at a price of $2.50 per share. During the first quarter ended March 31, 1997,
the Registrant also privately issued 37,500 shares of its common stock under
contracts dated April 24, 1995 and May 9, 1996 for services performed by outside
service providers. A charge to selling expenses was recorded at shares prices
ranging from $.25 to $1.00 per share. Additionally, during the first quarter
-27-
<PAGE>
ended March 31, 1997 the Registrant privately issued 60,000 shares of its common
stock which had been subscribed for $150,000 in fiscal 1996.
The Registrant believes, based upon the representations of the investors at
the time of each of such issuances, that such issuances were made solely to
"accredited investors" as such term is defined under Rule 501 of Regulation D
promulgated under the Securities Act of 1933, as amended. The Registrant made
such sales with the intention of relying upon the exemption afforded by Rule 506
of Regulation D; however, the Registrant has never filed a Form D with the
Securities and Exchange Commission. In all transactions for the issuance of
stock for which the exemption from registration is claimed pursuant to
Regulation D, the stock certificates issued contain a legend imprinted thereon
setting forth the exemption from registration claimed and the restrictions on
transferability of the stock.
The Registrant's transfer agent has placed "stop transfer" instructions on
each stock certificate with orders that such stock cannot be transferred except
in accordance with applicable securities laws.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED
COMMON STOCK
------------
The authorized capital of the Registrant which the Registrant is
registering consists of 150,000,000 shares of Common Stock with a par value of
one mill ($0.001) per share. As of December 31, 1996, the Registrant had
25,453,700 shares of common stock issued and outstanding.
Each of the holders of record of Common Stock is entitled to one (l) vote
per share thereof in the election of the Registrant's directors and all other
matters submitted to each such holder for a vote of shareholders; to share
ratably in all dividends, when, as, and if declared by the Registrant's board of
directors from funds legally available therefor; and to share ratably in all
assets available for distribution to holders of record of capital stock upon
liquidation or dissolution. There are no cumulative voting rights with respect
to the election of the Registrant's directors, and no conversion rights or
sinking fund provisions applicable to capital stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VII of the Registrant's Amended and Restated Articles of
Incorporation provides that, subject to any restrictions set forth in the
Registrant's By-Laws, it shall indemnify and hold its directors, officers,
others serving at the request of the Registrant as a director or officer of
another corporation and those individuals serving as the Registrant's
representative in a partnership, joint venture, trust or other enterprise,
harmless and free from liability, expenses and loss (including attorney's fees,
judgments, fines and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such individual to the fullest extent permitted under
the laws of the State of Nevada for any claims against such individual arising
out of the performance of his duties on behalf of the Registrant. Additionally,
Article IX of the Registrant's By-Laws gives the Registrant the ability to
provide indemnification for each of its employees and agents to the same extent
as its directors and officers upon action by its Board of Directors. Article IX
also permits the Registrant to enter into indemnity agreements with any
director, officer, employee, fiduciary or agent of the Registrant. The
Registrant has entered into indemnification agreements with each of its
directors and officers (Exhibit 10.1 hereto), which provide
-28-
<PAGE>
for the indemnification of directors and officers of the Registrant against any
and all expenses, judgments, fines, penalties and amounts paid in settlement, to
the fullest extent permitted by law. Lastly, Article IX permits the Registrant
to maintain indemnification insurance for its directors, officers, employees,
fiduciaries or agents. The Registrant does not currently maintain
indemnification insurance.
Section 78.751 of the Nevada General Corporation Law allows the Registrant
to indemnify any person who was or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he or she is or was serving at the request of the Registrant as a
director, officer, employee or agent of any corporation, partnership, joint
venture, trust or other enterprise. The Registrant may advance expenses in
connection with defending any such proceeding, provided the indemnitee
undertakes to pay any such amounts if it is later determined that such person
was not entitled to be indemnified by the Registrant.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing, the Registrant has been
advised that, in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy and is, therefore, unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The required financial statements are included under the section "Financial
Statements and Exhibits" in this Registration Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no disagreements with the Registrant's principal
independent accountant or with PSL's principal independent accountant during the
Registrant's two most recent fiscal years. The Registrant's principal
independent accountant for fiscal 1995, Corbin & Wertz, was dismissed on
February 21, 1997. For the fiscal year ended December 31, 1996, the Registrant
appointed Deloitte & Touche, LLP as its independent accountant.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) CONSOLIDATED FINANCIAL STATEMENTS FILED WITH THIS FORM 10
---------------------------------------------------------
(i) Audited statements of operations, cash flows, and
stockholders' equity for the year ended December 31, 1994.
(ii) Audited consolidated balance sheets as of December 31, 1995
and 1996 and consolidated statements of income, cash flows,
and stockholders' equity for the years, ended December 31,
1995 and 1996.
(iii) Unaudited consolidated balance sheets and consolidated
statements of income, cash flows, and stockholders' equity
for the periods ended March 31, 1996 and 1997.
-29-
<PAGE>
(B) EXHIBIT INDEX
-------------
EXHIBIT NO.
- -----------
2.1 Exchange Agreement between Stockholders of PSL and the Registrant.
3.1 Amended and Restated Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
3.3 Second Amendment and Restatement of the Articles of Incorporation of
Corporate Development, Inc.
3.4 Bylaws of Corporate Development, Inc.
4.1 Specimen Certificate of Registrant's Common Stock.
10.1 Form of Indemnification Agreement for Executive Officers and
Directors.
10.2 Exclusive License Agreement between PSL and EPL Prolong, Inc., d.b.a.
Prolong International, dated November 10, 1993.
10.3 Memorandum of Agreement between PSL and 2M Corporation, dated April
24, 1995.
10.4 Agreement between PSL and Al Unser, dated July 28, 1995.
10.5 Service Agreement between PSL and Tylie Jones & Associates, Inc.,
dated October 24, 1995.
10.6 Telemarketing Agreement between PSL and West Telemarketing
Corporation, dated October 24, 1995.
10.7 Service and Endorsement Contract between PSL and Al Unser, dated April
29, 1996.
10.8 Associate Sponsorship Agreement between PSL, King Entertainment, Inc.
and Kenneth D. Bernstein, dated May 9, 1996.
10.9 Sponsorship Agreement between PSL, Pikes Peak Auto Hill Climb
Educational Museum, Inc. and Barnes Dyer Marketing, Inc., dated
February 21, 1997.
10.10 Major Associate Sponsorship Agreement between PSL, Norris Racing, Inc.
and Barnes Dyer Marketing, Inc., dated December 15, 1996.
10.11 Standard Industrial Lease-Gross between Coronado Investors Properties
and Prolong International for the property Anaheim, California, dated
April 20, located at 1210 North Barsten Way, 1990.
10.12 The Registrant's 1997 Stock Incentive Plan and form of Stock Option
Agreement.
21.1 Subsidiaries of the Registrant.
-30-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
PROLONG INTERNATIONAL CORPORATION
---------------------------------
(Registrant)
Date: July 3, 1997 By: /s/ ELTON ALDERMAN
------------ -------------------------
Elton Alderman, President
-31-
<PAGE>
PROLONG INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEARS ENDED DECEMBER 31, 1995 AND
1994 WITH INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Prolong International Corporation:
We have audited the accompanying consolidated balance sheet of Prolong
International Corporation and subsidiary (the Company) as of December 31, 1995
and the related consolidated statements of operations, stockholders' equity and
cash flows for each of the years in the two-year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Prolong
International Corporation and subsidiary as of December 31, 1995, and the
results of their operations and their cash flows for each of the years in the
two-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that Prolong International Corporation and subsidiary will continue as a going
concern. As discussed in Note 2 to the consolidated financial statements, the
Company's limited sales, losses from operations and liquidity problems raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
/s/ CORBIN & WERTZ
Irvine, California
February 23, 1996
<PAGE>
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash and cash equivalents $ 122,096
Accounts receivable, net of allowance for doubtful
accounts of $4,778 31,965
Subscription receivable (Note 5) 80,000
Inventories (Notes 2 and 3) 46,208
Prepaid royalties (Note 4) 36,000
Prepaid expenses and other 2,892
Capitalized advertising costs (Note 2) 223,748
----------
Total current assets 542,909
----------
License agreement, net of accumulated
amortization of $21,240 (Note 4) 84,950
Prepaid royalties, less current portion (Note 4) 81,562
Other assets 21,339
----------
$ 730,760
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 66,375
Other liabilities (Note 7) 21,843
----------
Total current liabilities 88,218
----------
Commitments (Note 8)
Stockholders' equity (Note 5):
Common stock, $0.001 par value, 150,000,000
shares authorized, 19,182,035,
shares issued and outstanding 19,182
Common stock subscribed, $0.001 par value,
320,000 shares to be issued 320
Additional paid-in capital 1,186,833
Accumulated deficit (563,793)
----------
Total stockholders' equity 642,542
----------
$ 730,760
==========
</TABLE>
See accompanying notes to consolidated financial statements and independent
auditors' report.
1
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
----------------------
<S> <C> <C>
Revenues (Note 2) $ 390,506 $ --
Cost of revenues $ 211,220 $ --
--------- ---------
Gross profit 179,286 --
Selling, general and administrative expenses (Note 5) 595,015 132,685
--------- ---------
Loss from operations (415,729) (132,685)
Other income -
Interest income, net 1,589 --
--------- ---------
Loss before provision for income taxes (414,140) (132,685)
Provision for income taxes (Notes 2 and 6) $ 1,600 $ 1,600
--------- ---------
Net loss $(415,740) $(134,285)
========= =========
Earnings per common share $ (0.02) N/A
Weighted average number of
Common shares outstanding 17,134,848 N/A
</TABLE>
See accompanying notes to consolidated financial statements and independent
auditors' report.
2
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common
Common Stock Stock Subscribed Total
------------------- ------------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Equity
------ ------ ------ ------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1994 180,000 $ 180 13,767,500 $ 13,768 $ 51,637 $ (13,768) $ 51,817
Shares issued for
cash (Note 5) 320,000 320 79,680 80,000
Contributed
services (Note 5) 130,000 130,000
Net loss (134,285) (134,285)
---------- ------- ----------- -------- ---------- --------- ---------
Balance at
December 31, 1994 500,000 500 13,767,500 13,768 261,317 (148,053) 127,532
Shares issued for
cash, net of costs
of $48,000 (Note 5) 1,700,000 1,700 325,300 327,000
Shares issued for
common stock
subscribed (Note 5) 13,767,500 13,768 (13,767,500) (13,768)
Issuance of shares
to effect reverse
acquisition (Note 1) 789,535 789 (789)
Shares issued for
cash, net of costs
of $33,000
(Note 5) 1,980,000 1,980 394,520 396,500
Shares subscribed
for receivable,
net of costs of
$8,000 (Note 5) 320,000 320 71,680 72,000
Shares issued for
services (Note 5) 445,000 445 110,805 111,250
Contributed
services (Note 5) 24,000 24,000
Net loss (415,740) (415,740)
---------- ------- ----------- -------- ---------- --------- ---------
Balance at
December 31, 1995 19,182,035 $19,182 320,000 $ 320 $1,186,833 $(563,793) $ 642,542
========== ======= =========== ======== ========== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements and independent
auditors' report.
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $(415,740) $(134,285)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 23,116
Provision for doubtful accounts 4,778
Expense recorded upon
subscription of shares 111,250
Contributed services 24,000 130,000
Change in operating assets and
liabilities:
Accounts receivable (30,064) (6,679)
Inventories (46,208)
Prepaid expenses and other (2,892)
Accounts payable 66,375
Other liabilities 1,391 12,452
--------- ---------
Net cash provided by (used in) operating
activities (263,994) 1,488
--------- ---------
Cash flows from investing activities:
Increase in license agreement (55,000)
Increase in prepaid royalties (102,062) (15,500)
Increase in capitalized advertising
costs (223,748)
Increase in other assets (19,053) (4,047)
--------- ---------
Net cash used in investing
activities (344,863) (74,547)
Cash flows from financing activities:
Sale of common stock 723,500 80,000
--------- ---------
Net increase in cash and cash equivalents 114,643 6,941
Cash and cash equivalents, beginning of year 7,453 512
--------- ---------
Cash and cash equivalents, end of year $ 122,096 $ 7,453
========= =========
</TABLE>
Supplemental disclosures of cash flow information -
There was no cash paid during the years for interest or income taxes.
See Note 5 for non-cash financing activities.
See accompanying notes to consolidated financial statements and independent
auditors' report.
4
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
- --------------------------------------------------------------------------------
1. ORGANIZATION
Prolong International Corporation (PIC) is a Nevada corporation
organized August 24, 1981 as Giguere Industries Incorporated (Giguere).
Pursuant to a stockholders' action, on June 21, 1995, Giguere changed
its name to Prolong International Corporation.
PIC remained dormant from 1987 to June 21, 1995, when, pursuant to
stockholders' action, it acquired 100% of the outstanding stock of
Prolong Super Lubricants, Inc., a Nevada corporation (PSL).
Because the former stockholders' of PSL have retained control of PIC,
the acquisition has been accounted for as a reverse acquisition. In
connection with the transaction, PIC issued 15,967,500 shares of its
common stock in exchange for 100% of the common stock of PSL. For
financial statement purposes, the shares issued by PIC are considered
outstanding as of the date of the acquisition and the 789,535 shares
retained by the stockholders of PIC are reflected as consideration
issued to consummate the reverse acquisition.
The reverse acquisition was accounted for by the purchase method of
accounting, however, there were no material assets acquired or
liabilities assumed. No value was ascribed to the consideration given to
consummate the reverse acquisition.
PIC, through PSL, is engaged in the manufacture and sale of a patented
line of super lubricants primarily in the United States.
2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of PIC and its wholly-owned subsidiary,
PSL (collectively, the Company). All significant intercompany accounts
have been eliminated in consolidation.
Basis of Presentation - The consolidated financial statements have been
prepared on a going concern basis which contemplates the realization of
assets and satisfaction of liabilities in the normal course of business.
The Company's ability to generate positive cash flows depends on its
ability to maintain a level of revenues sufficient to meet its
obligations and sustain its operations. The Company has had limited
sales to date, has sustained operating losses since inception, and has
been primarily dependent upon proceeds from the sale of its common stock
for cash flows. These matters raise substantial doubt about the
Company's ability to continue as a going concern. The Company is engaged
in developing and expanding its commercial/industrial distributor
network, both nationally and internationally. The Company is also
expanding the marketing of its products directly to government entities
through manufacturers' representatives. In order to develop and promote
Prolong's brand name recognition, increase sales, and prepare for the
introduction of its products to the retail automotive aftermarket, the
Company has produced and plans to air in January 1996 a 30 minute
direct-response television
Continued
5
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (CONTINUED)
- --------------------------------------------------------------------------------
commercial ("Infomercial") (see Note 8). The Company believes that these
activities will generate sufficient revenues to meet its obligations and
sustain its operations. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
Use of 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 materially differ from those estimates.
Cash and Cash Equivalents - The Company considers securities with a
remaining maturity of three months or less when purchased to be cash
equivalents.
Accounts Receivable - The Company reviews a potential customer's credit
history before extending credit and generally does not require
collateral. The Company establishes an allowance for doubtful accounts
based upon factors surrounding the credit risk of specific customers,
historical trends and other information.
Inventories - Inventories are stated at the lower of cost (first-in,
first-out method) or market.
Capitalized Advertising Costs - The Company has capitalized certain
incremental direct costs and payroll-related costs associated with its
direct-response infomercial production. Amounts capitalized related
thereto will be expensed in their entirety in January 1996, the time of
the first public showing of the Infomercial.
Revenue Recognition - Revenue from product sales is recognized upon
shipment.
Income Taxes - The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109, Accounting for
Income Taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date.
Earnings per share - Earnings per common share are computed by dividing
net income by the weighted average number of common shares outstanding.
Common share equivalents are included where their impact is not anti-
dilutive. Fully diluted earnings per share is materially the same as
primary earnings per share.
Continued
6
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (CONTINUED)
- --------------------------------------------------------------------------------
3. INVENTORIES
Inventories at December 31, 1995 consist of the following:
Raw materials $12,289
Finished goods 33,919
------
$46,208
======
4. LICENSE AGREEMENT AND PREPAID ROYALTIES
The Company has entered into a perpetual license agreement with EPL
Prolong, Inc. (EPL), an unrelated entity. The agreement called for an
initial one-time fee of $106,190, which the Company capitalized and is
amortizing over a five year period. The Company amortized $21,240 for
the year ended December 31, 1995. The agreement requires the Company to
pay royalties of 3.5% of sales (as defined) of the Company's products
that utilize the proprietary information licensed from EPL. Effective
January 1, 1996, the minimum annual royalty under the agreement is
$36,000. In addition, during the years ended December 31, 1995 and 1994,
the Company paid certain expenses totaling $117,562 on behalf of EPL
which have been classified as prepaid royalties on the accompanying
consolidated balance sheet. Prepaid royalties representing the minimum
annual royalty for the year ended December 31, 1996 of $36,000 has been
reflected as a current asset in the accompanying 1995 consolidated
balance sheet.
5. STOCKHOLDERS' EQUITY
During the year ended December 31, 1994, the Company issued for cash
320,000 shares of common stock at $.25 per share.
During the year ended December 31, 1995, the Company received $723,500
for the issuance of 3,680,000 shares of common stock at prices between
$.20 and $.25 per share, net of costs of $81,000.
During the year ended December 31, 1995, the Company issued 13,767,500
shares for common stock subscribed.
During December 1995, the Company received an $80,000 subscription
receivable for the sale of 320,000 shares of its common stock at $.25
per share, net of costs of $8,000. The $80,000 subscription receivable
was received subsequent to December 31, 1995.
During the year ended December 31, 1995, the Company agreed to issue
445,000 shares of common stock for services performed by outside
consultants of the Company. Consulting expense at $.25 per share has
been recorded in the accompanying statement of operations and is
included in selling, general and administrative expenses.
Continued
7
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (CONTINUED)
- --------------------------------------------------------------------------------
The Company recorded compensation expense during fiscal 1994 and 1995 of
$130,000 and $24,000, respectively, for services provided by two key
employees. The services were provided without payment required and,
accordingly, the Company has recorded the services as contributed
capital.
6. INCOME TAXES
Income tax expense was $1,600 for each of the years ended December 31,
1995 and 1994 and consists of the minimum state taxes.
Income tax expense for the years ended December 31, 1995 and 1994
differs from the amounts computed by applying a U.S. federal income tax
rate of 34% to pretax loss as a result of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Computed "expected" tax benefit $(140,808) $(45,113)
Nondeductible expenses 46,000 44,200
Increase (reduction) in income taxes resulting from:
Change in the beginning-of-the-year
balance of the valuation allowance
to income tax expense 94,808 913
State income taxes 1,600 1,600
--------- --------
$ 1,600 $ 1,600
========= ========
</TABLE>
The tax effect of temporary differences that give rise to deferred tax
assets at December 31, 1995 and 1994 are presented below. Deferred tax
liabilities at December 31, 1995 and 1994 are not significant:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due to allowance
for doubtful accounts $ 1,900 $-------
Operating loss carryforwards 111,000 9,000
--------- --------
Total gross deferred tax assets 112,900 9,000
Less valuation allowance (112,900) (9,000)
--------- --------
Net deferred tax assets $ $
========= ========
</TABLE>
Continued
8
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (CONTINUED)
- --------------------------------------------------------------------------------
There was no valuation allowance as of January 1, 1994. At December 31,
1995, the Company had net operating loss carryforwards of approximately
$300,000 and $150,000 for federal and state tax reporting purposes,
respectively, which, if not utilized to offset future taxable income,
will expire through 2010. The Tax Reform Act of 1986 includes provisions
which may limit the net operating loss carryforwards available for use
in any given year if certain events, including changes in stock
ownership (see Note 1), should occur.
7. RELATED PARTY TRANSACTIONS
The Company is a guarantor on a note wherein a stockholder of the
Company is the lender and EPL is the promisor, with a maximum guarantee
not in excess of $36,000.
Included in other liabilities is approximately $9,000 owed to two
shareholders for advances made by the shareholders to the Company. The
advances are non-interest bearing and have no due date.
8. COMMITMENTS
Leases - The Company and its wholly-owned subsidiary occupy
approximately 7,000 square feet of office and warehouse space located in
Anaheim, California on a month to month basis with a monthly rental of
$4,557. The Company leases its office furniture and fixtures, laboratory
equipment and warehouse equipment at a monthly rate of $1,000 from EPL.
Rent expense for the year ended December 31, 1995 was $67,453. There was
no rent expense incurred during the year ended December 31, 1994.
Royalties - The Company is contractually obligated for the production of
a one-half hour, direct response, television commercial ("Infomercial")
(See Note 2) in the total amount of $87,084, plus 80,000 shares of
common stock of the Company plus a bonus payment of 20,000 additional
shares of common stock of the Company (all of which have been reflected
as shares issued for services in the accompanying statement of
stockholders' equity for the year ended December 31, 1995). In addition
thereto, the Company is required to pay royalties to the producer of the
Infomercial of 1.5% of gross sales (as defined) generated from direct
response television sales made via an 800 telephone number, which
utilize the Infomercial video footage. As of December 31, 1995, the
Company had paid a total of $70,084 of the contracted amount and is
obligated to pay an additional $17,000 in cash.
In connection with the production of the Infomercial mentioned above,
the Company has entered into certain personal service agreements. In
addition to cash payments, the Company has agreed to pay royalties of 1%
of gross sales resulting from direct response sales from the
Infomercial, with guaranteed annual minimum royalties of $40,000,
$50,000 and $60,000 during the first, second and third years of the
agreement, respectively, following an initial 120 day test period.
Royalties earned will commence with the first airing of the Infomercial
and continue for three years and 120 days, contingent upon; (i) the
continued airing of the Infomercial after the 120 day test period and;
(ii) after each one-year period thereafter.
Continued
9
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994 (CONTINUED)
- --------------------------------------------------------------------------------
The Company is required to pay royalties of 3.5% on all sales of its
products with minimum annual royalties of $36,000 beginning January 1,
1996 (see Note 4).
9. CONCENTRATION OF RISK AND SIGNIFICANT CUSTOMERS AND SUPPLIERS
The Company, at times, has cash and cash equivalents held with financial
institutions in excess of federally insured amounts.
Sales to one customer accounted for approximately 29% of consolidated
net sales for the year ended December 31, 1995. Sales to another
customer accounted for approximately 26% of consolidated net sales for
the year ended December 31, 1995. Accounts receivable from these two
customers amounted to $0 and $7,900, at December 31, 1995, respectively.
Raw material purchases from one supplier accounted for approximately 41%
of total purchases for the year ended December 31, 1995. Accounts
payable from this vendor amounted to $9,300 at December 31, 1995.
10
<PAGE>
PROLONG INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE YEAR ENDED DECEMBER 31, 1996 AND
INDEPENDENT AUDITORS' REPORT
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Prolong International Corporation:
We have audited the accompanying consolidated balance sheet of Prolong
International Corporation and subsidiary (the Company) as of December 31, 1996
and the related consolidated statements of income, stockholders' equity and cash
flows for the year then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Prolong International Corporation
and subsidiary as of December 31, 1996, and the results of their operations and
their cash flows for the year then ended, in conformity with generally accepted
accounting principles.
/s/ DELOITTE & TOUCHE LLP
March 28, 1997
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996
- ----------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $5,063,585
Accounts receivable, net of allowance for doubtful accounts
of $94,282 1,361,878
Subscriptions receivable 189,500
Inventories 1,534,938
Prepaid expenses 184,284
Prepaid television time 367,161
Deferred tax asset 44,289
----------
Total current assets 8,745,635
PROPERTY AND EQUIPMENT, net 117,758
OTHER ASSETS 115,462
DEPOSITS 44,462
----------
TOTAL ASSETS $9,023,317
==========
</TABLE>
See independent auditors' report and
notes to consolidated financial statements. 2
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF DECEMBER 31, 1996 (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 748,870
Accrued expenses 703,222
Income taxes payable 251,563
Note payable, current 2,971
----------
Total current liabilities 1,706,626
NOTE PAYABLE, net of current portion 25,841
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 50,000,000 shares authorized;
no shares issued or outstanding
Common stock, $0.001 par value; 150,000,000 shares authorized;
25,453,700 shares issued and outstanding 25,454
Common stock subscribed 156
Additional paid-in capital 7,767,855
Retained earnings 157,385
Note receivable issued for common stock (660,000)
----------
Total stockholders' equity 7,290,850
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,023,317
==========
</TABLE>
See independent auditors' report and
notes to consolidated financial statements. 3
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
NET REVENUES $15,813,493
COST OF GOODS SOLD 4,660,926
-----------
GROSS PROFIT 11,152,567
OPERATING EXPENSES:
Selling expenses 8,218,450
General and administrative expenses 2,041,102
-----------
Total operating expenses 10,259,552
-----------
OPERATING INCOME 893,015
OTHER INCOME, net:
Interest expense (51,666)
Interest income 15,224
Dividend income 71,879
-----------
Total other income, net 35,437
-----------
INCOME BEFORE PROVISION FOR INCOME TAXES 928,452
PROVISION FOR INCOME TAXES 207,274
-----------
NET INCOME $ 721,178
===========
EARNINGS PER COMMON SHARE $0.03
===========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 23,463,620
===========
</TABLE>
See independent auditors' report and
notes to consolidated financial statements. 4
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
COMMON (ACCUMULATED
COMMON STOCK STOCK SUBSCRIBED ADDITIONAL DEFICIT)
------------ ----------------- PAID-IN RETAINED
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS
<S> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1995 19,182,035 $19,182 320,000 $ 320 $1,186,833 $(563,793)
Shares issued for cash 4,891,665 4,892 5,317,738
Shares issued for services 730,000 730 394,270
Issuance of shares previously subscribed 320,000 320 (320,000) (320)
Shares subscribed 155,800 156 209,344
Shares issued in exchange for a note receivable 330,000 330 659,670
Net income 721,178
---------- ------- -------- ----- ---------- -----------
BALANCES, December 31, 1996 25,453,700 $25,454 155,800 $ 156 $7,767,855 $ 157,385
========== ======= ======== ===== ========== ===========
<CAPTION>
TOTAL
NOTE STOCKHOLDERS'
RECEIVABLE EQUITY
<S> <C> <C>
BALANCES, December 31, 1995 $ - $ 642,542
Shares issued for cash 5,322,630
Shares issued for services 395,000
Issuance of shares previously subscribed
Shares subscribed 209,500
Shares issued in exchange for a note receivable (660,000)
Net income 721,178
---------- ----------
BALANCES, December 31, 1996 $(660,000) $7,290,850
========== ==========
</TABLE>
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 721,178
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 42,874
Provision for doubtful accounts 89,504
Deferred taxes (44,289)
Reserve for obsolescence (2,432)
Common stock issued in exchange for services 395,000
Changes in assets and liabilities:
Accounts receivable (1,418,855)
Inventories (1,486,298)
Accounts payable 673,252
Accrued expenses 692,222
Prepaid expenses (181,954)
Prepaid television time (367,161)
Income taxes payable 249,963
-----------
Net cash used in operating activities (636,996)
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized infomercial production costs 223,748
Prepaid initial royalties 117,562
Purchases of property and equipment (97,489)
Increase in deposits (25,000)
Increase in other assets (57,500)
-----------
Net cash provided by investing activities 161,321
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (5,466)
Proceeds from issuance of common stock 5,322,630
Proceeds from subscriptions receivable 100,000
-----------
Net cash provided by financing activities 5,417,164
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 4,941,489
CASH AND CASH EQUIVALENTS, beginning of year 122,096
-----------
CASH AND CASH EQUIVALENTS, end of year $ 5,063,585
===========
</TABLE>
See independent auditors' report and
notes to consolidated financial statements. 6
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
<TABLE>
<S> <C>
SUPPLEMENTAL DISCLOSURES - Cash paid during the year for:
Income taxes $ 800
=======
Interest $51,666
=======
</TABLE>
SUPPLEMENTAL NONCASH INVESTING AND FINANCING ACTIVITIES -
During 1996, the Company completed the following transactions:
Issued 730,000 shares of common stock in exchange for services valued at
$395,000.
Issued 320,000 shares of common stock previously committed.
Issued 330,000 shares of common stock in exchange for a note receivable of
$660,000.
Issued subscriptions receivable of $209,500 in exchange for 155,800 shares of
common stock subscribed.
Purchased automotive equipment for $34,278 in exchange for a note payable.
See independent auditors' report and
notes to consolidated financial statements. 7
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996
- -------------------------------------------------------------------------------
1. BUSINESS
Prolong International Corporation (PIC) is a Nevada corporation organized on
August 24, 1981 as Giguere Industries Incorporated (Giguere). PIC remained
dormant from 1987 to June 21, 1995, when, pursuant to a stockholder's
action, it acquired 100% of the outstanding stock of Prolong Super
Lubricants, Inc., a Nevada corporation (PSL), then changed its name to
Prolong International Corporation. The transaction was treated as a reverse
acquisition and was accounted for under the purchase method of accounting;
however, there were no material assets acquired or liabilities assumed.
PIC, through PSL, is engaged in the manufacture, sale and worldwide
distribution (under license - Notes 5 and 11) of a patented complete line of
high performance lubricants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of PIC and its wholly-owned subsidiary, PSL
(collectively, the Company). All significant intercompany accounts have
been eliminated in consolidation.
Cash and Cash Equivalents - Cash and cash equivalents consist of all highly-
liquid, short-term investments with an original maturity of three months or
less.
Accounts Receivable - The Company reviews a potential customer's credit
history before extending credit and generally does not require collateral.
The Company establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends
and other information.
Inventories - Inventories are valued at the lower of cost (determined on the
first-in, first-out basis) or market.
Capitalized Infomercial Production Costs - The Company capitalizes certain
incremental direct costs and payroll-related costs associated with its
direct-response infomercial production. Amounts capitalized related thereto
were expensed in their entirety in January 1996, the time of the first
public showing of the infomercial.
8
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
Property and Equipment - Property and equipment are stated at cost, less
accumulated depreciation and amortization. Depreciation and amortization
are computed using the straight-line method over the estimated useful lives
of the assets, which are as follows:
Computer equipment 3 years
Office equipment 5 years
Furniture and fixtures 7 years
Automotive equipment 5 years
When assets are retired or otherwise disposed of, the cost and the related
accumulated depreciation are removed from the accounts and any resulting
gain or loss is recognized in operations for the period. Renewals and
betterments which extend the life of an existing asset are capitalized while
normal repairs and maintenance costs are expensed as incurred.
Other Assets - Other assets are comprised of licensed technology and
trademarks, which are being amortized over five years.
Fair Value of Financial Instruments - Statement of Financial Accounting
Standards (SFAS) No. 107, Disclosures About Fair Value of Financial
Instruments, requires management to disclose the estimated fair value of
certain assets and liabilities defined by SFAS No. 107 as financial
instruments. Financial instruments are generally defined by SFAS No. 107 as
cash and cash equivalents, evidence of ownership interest in equity, or a
contractual obligation that both conveys to one entity a right to receive
cash or other financial instruments from another entity and imposes on the
other entity the obligation to deliver cash or other financial instruments
to the first entity. At December 31, 1996, management believes that the
carrying amounts of cash and cash equivalents, accounts receivable,
subscriptions receivable, notes receivable, accounts payable, other current
liabilities, and notes payable approximate fair value because of the short
maturity of these financial instruments.
Accounting For Income Taxes - The Company follows SFAS No. 109, Accounting
for Income Taxes, which requires the recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the differences
between the financial statements and the tax bases of assets and liabilities
using enacted rates in effect for the year in which the differences are
expected to reverse. Valuation allowances are established, when necessary,
to reduce deferred tax assets to the amount expected to be realized.
Revenue Recognition - Revenue is recognized as products are shipped.
9
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
Earnings per Common Share - Earnings per common share are computed by
dividing net income by the weighted average number of common shares
outstanding. Common share equivalents are included where their impact is
not anti-dilutive. Fully diluted earnings per share is materially the same
as primary earnings per share.
Use of 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.
New Accounting Pronouncement - In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, Accounting for Stock-Based
Compensation, which requires the determination and disclosure of
compensation costs implicit in stock option grants or other stock rights.
The Company was required to adopt certain provisions of this standard for
nonemployee transactions entered into after December 15, 1995. The Company
has adopted the required provisions during fiscal 1996. Under the employee
transaction provisions, companies are encouraged, but not required, to adopt
the fair value of accounting for employee stock-based transactions.
Companies are also permitted to continue to account for such transactions
under Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock
Issued to Employees, but would be required to disclose in a note to the
financial statements pro forma net earnings and earnings per share as if the
Company had adopted SFAS No. 123. The Company will continue to account for
employee stock-based compensation under APB Opinion No. 25.
3. INVENTORIES
Inventories at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Raw materials $ 416,223
Finished goods 1,044,776
Promotional items 73,939
----------
$1,534,938
==========
</TABLE>
10
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
4. PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 consists of the following:
<TABLE>
<S> <C>
Computer equipment $ 60,823
Office equipment 16,669
Furniture and fixtures 11,649
Automotive equipment 42,626
--------
131,767
Less accumulated depreciation (14,009)
--------
$117,758
========
</TABLE>
5. LICENSE AGREEMENT
The Company has entered into a license agreement which requires the Company
to pay royalties of 3.5% of sales (as defined) of the Company's products
that utilize certain proprietary technology, trademarks and copyrights. The
royalty expense under this arrangement for the year ended December 31, 1996
approximated $553,900. The agreement also called for an initial one-time
license fee of $106,190, which the Company capitalized and is amortizing
over a five-year period. The Company amortized $21,238 for the year ended
December 31, 1996 resulting in an accumulated amortization balance of
$42,478 as of December 31, 1996. The agreement shall remain in effect as
long as the Company has not committed any breach of the terms and provisions
of the agreement. (See Note 11 regarding contingency involving the
licensor.)
6. ACCRUED EXPENSES
Accrued expenses at December 31, 1996 consist of the following:
<TABLE>
<S> <C>
Accrued royalties payable $354,889
Sales taxes payable 93,727
Payroll and payroll taxes payable 235,430
Accrued commissions payable 19,176
--------
$703,222
========
</TABLE>
11
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
7. NOTE PAYABLE
Note payable at December 31, 1996 consists of the following:
<TABLE>
<CAPTION>
Note payable to a credit institution bearing interest at 10.5%, monthly
principal and interest payments of $488 through September 2001
and a balloon payment of $11,478 plus interest in October 2001,
<S> <C>
collateralized by automotive equipment $28,812
Less current portion (2,971)
-------
$25,841
=======
</TABLE>
The future principal payments for the note payable are as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1997 $ 2,971
1998 3,298
1999 3,661
2000 4,065
2001 14,817
-------
$28,812
=======
</TABLE>
8. STOCKHOLDERS' EQUITY
On June 21, 1995, PIC issued 15,967,500 shares of its common stock in
exchange for 100% of the common stock of PSL. In addition to these shares,
the existing stockholders of PIC at that date held 789,535 shares of common
stock.
During fiscal 1996, the Company issued 4,891,665 shares of restricted
unregistered common stock in exchange for $5,322,630 at prices ranging from
$.25 to $2.70 per share.
The Company issued 730,000 shares of restricted unregistered common stock
for services performed by outside consultants during the year ended December
31, 1996. Consulting expense was recorded at share prices ranging from $.25
to $2.00 per share and is included in selling and general and administrative
expenses.
12
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
During 1996, the Company issued 320,000 shares of restricted unregistered
common stock which had been subscribed for $80,000 in fiscal 1995. The
$80,000 was collected in the first quarter of 1996.
In September 1996, the Company entered into an agreement whereby it issued
330,000 shares of restricted unregistered common stock in exchange for a
note receivable of $660,000.
In 1996, the Company received subscriptions receivable aggregating $209,500
for the sale of 155,800 shares of restricted unregistered common stock.
Subscriptions of $20,000 were collected in fiscal 1996, with the balance of
$189,500 being collected in the first quarter of 1997.
9. STOCK OPTION
In October 1996, the Company granted an option to an employee to purchase
30,000 shares of the common stock of the Company at an exercise price of
$5.38 per share, which represented the market value at the date of grant.
The option vests over a three-year period beginning on December 31, 1997 and
is exercisable for a period of 10 years.
Stock option activity is as follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
SHARES EXERCISE
UNDER PRICE
OPTION PER SHARE
<S> <C> <C>
OUTSTANDING, December 31, 1995 - $ -
Granted 30,000 $ 5.38
------
OUTSTANDING, December 31, 1996 30,000 $ 5.38
======
</TABLE>
As of December 31, 1996, no options were exercisable.
The Company applies APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations to account for the stock option. Had
compensation cost for the stock option been determined based on the fair
value at the grant date consistent with the method of SFAS No. 123,
Accounting for Stock-Based Compensation, the Company's net income would have
been the pro forma amounts indicated below:
<TABLE>
<S> <C>
Net income, as reported $721,178
Net income, pro forma $657,630
</TABLE>
13
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
The fair value of options granted was estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions: no dividend yield, risk-free interest rate of 6.9% and an
expected life of 7 1/2 years.
10. INCOME TAXES
The provision for income taxes consists of the following for the year ended
December 31, 1996:
<TABLE>
<S> <C>
Current:
Federal $178,816
State 72,747
--------
251,563
Deferred:
Federal (34,027)
State (10,262)
--------
(44,289)
--------
$207,274
========
</TABLE>
The provision for income taxes differs from the amount that would result
from applying the federal statutory rate as follows:
<TABLE>
<S> <C>
Federal statutory income tax rate $ 315,674
State income taxes, net of federal benefit 41,241
Change in valuation allowance (112,900)
Other (36,741)
---------
$ 207,274
=========
</TABLE>
Temporary differences which give rise to deferred tax assets and liabilities
are as follows at December 31, 1996:
14
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
<TABLE>
<S> <C>
Deferred tax liabilities -
State taxes $(3,489)
Deferred tax assets:
Accrued vacation 1,325
Allowance for doubtful accounts 40,824
Other 5,629
-------
$44,289
=======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Contingency - As discussed in Note 5, the Company licenses the use of
certain technology, trademarks and copyrights (intellectual property). The
licensor, but not the Company, brought suit against two of its own directors
on causes of action for common law and statutory damages, and for injunctive
and declaratory relief in connection with the defendants' attempts to
unlawfully interfere with the licensor's efforts to manufacture and market
lubricants. In July 1993, the trial court ruled in favor of the licensor,
awarding the licensor damages in excess of $15.5 million, and made findings
of fact that the defendants had signed certain key documents which evidenced
the licensor's ownership of the intellectual property. The defendants
appealed the trial court's findings. The appellate court is expected to
hear oral arguments in June 1997. Based upon consultations with management
of the licensor and review of the trial court records, it is the opinion of
management of the Company that the ultimate disposition of the appeal will
not result in the trial court's rulings being reversed and that control of
the intellectual property will not be affected.
Leases - The Company leases its office facilities, located in three adjacent
buildings, under month-to-month operating leases. Additionally, it leases
some office equipment under operating leases.
Lease expense was approximately $61,900 for the year ended December 31,
1996.
Guarantee - The Company is a guarantor on a note wherein a stockholder of
the Company is the lender and the company from which the technology is
licensed (Note 5) is the promisor. The maximum guarantee is $36,000.
Royalties - The Company is obligated to pay royalties to the producer of a
one-half hour, direct response, television commercial (infomercial) at the
rate of 1.5% of gross sales (as defined) generated from direct response
television sales made via an 800 telephone number which utilizes the
infomercial video footage. For the year ended December 31, 1996, the
Company expensed approximately $151,400 under this arrangement.
In connection with this infomercial, the Company is obligated to pay
royalties to another individual at the rate of 1% of gross sales resulting
from direct response sales from the infomercial. The agreement has a term
of three years beginning in January 1996. Guaranteed minimum payments are:
$40,000 in 1996; $50,000 in 1997; and $60,000 in 1998. The Company expensed
approximately $100,900 under this arrangement for the year ended December
31, 1996.
15
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1996 (CONTINUED)
- -------------------------------------------------------------------------------
The Company has an arrangement with an individual whereby it has agreed to
pay royalties on all net retail sales according to the following rates:
1.5% from November 1, 1996 through October 31, 1997; 1.25% from November 1,
1997 through October 31, 1998; and 1% from November 1, 1998 through October
31, 1999. For each of the years included in the arrangement, the Company
must pay a guaranteed minimum amount of $15,000. Earnings maximums under
this arrangement are: $100,000 in year one, $125,000 in year two and
$150,000 in year three. Either party has the option to extend this
arrangement for an additional four years. For the year ended December 31,
1996, the Company expensed approximately $7,800 under this arrangement.
Endorsement and Sponsorship Agreements - The Company has entered into
endorsement and sponsorship agreements with various automotive and racing
personalities for product marketing and promotion purposes. The remaining
terms for individual agreements range from two to three years. The Company
is committed to aggregate future payments under these agreements as follows:
<TABLE>
<S> <C>
Year ending December 31:
1997 $ 600,000
1998 585,000
1999 645,000
----------
$1,830,000
==========
</TABLE>
Endorsement and sponsorship expense charged to operations related to these
agreements was approximately $87,500 for the year ended December 31, 1996.
16
<PAGE>
PROLONG INTERNATIONAL CORPORATION
AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS FOR
THE QUARTERS ENDED MARCH 31, 1996 AND
MARCH 31, 1997.
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
ASSETS 1996 1997
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 225,506 $4,044,922
Accounts receivable, net of allowance for doubtful accounts
of $4,778 at March 31, 1996 and $ 55,552 at March 31, 1997 155,085 1,328,940
Subscriptions receivable 755,000 39,500
Inventories 101,372 2,671,377
Prepaid expenses 122,856 348,125
Prepaid television time 43,083 304,908
Deferred tax asset -- 44,289
---------- ----------
Total current assets 1,402,902 8,782,061
PROPERTY AND EQUIPMENT, net -- 131,400
OTHER ASSETS 185,560 107,278
DEPOSITS -- 44,462
---------- ----------
TOTAL ASSETS $1,588,462 $9,065,201
========== ==========
</TABLE>
Continued
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS, CONTINUED
(UNAUDITED)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1997
----------- -----------
CURRENT LIABILITIES:
<S> <C> <C>
Accounts payable $ 300,882 $ 657,290
Accrued expenses 9,243 568,856
Income taxes payable -- 209,207
Note payable, current -- 2,971
----------- -----------
Total current liabilities 310,125 1,438,324
NOTE PAYABLE, net of current portion -- 25,128
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.001 par value; 50,000 shares authorized; no shares issued or
outstanding
Common stock, $0.001 par value; 150,000,000 shares authorized;
20,930,035 and 25,556,200 shares issued and outstanding, respectively 20,930 25,557
Common stock subscribed 1,520 96
Additional paid-in capital 2,190,935 7,799,062
Retained earnings (accumulated deficit) (935,048) 437,034
Note receivable issued for common stock -- (660,000)
----------- -----------
Total stockholders' equity 1,278,337 7,601,749
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,588,462 $ 9,065,201
=========== ===========
</TABLE>
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(UNAUDITED) FOR THE THREE MONTHS ENDED
MARCH 31,
- -------------------------------------------------------------------------------------
1996 1997
---- ----
<S> <C> <C>
NET REVENUES $ 689,719 $ 5,784,089
COST OF GOODS SOLD 502,180 1,419,024
----------- -----------
GROSS PROFIT 187,539 4,365,065
OPERATING EXPENSES:
Selling expenses 559,756 3,343,241
General and administrative expenses -- 591,560
----------- -----------
Total operating expenses 559,756 3,934,801
----------- -----------
OPERATING INCOME (LOSS) (372,217) 430,264
OTHER INCOME, net:
Interest expense -- (750)
Interest income 962 144
Dividend income -- 52,035
----------- -----------
Total other income, net 962 51,429
----------- -----------
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES (371,255) 481,693
PROVISION FOR INCOME TAXES -- 202,044
----------- -----------
NET INCOME (LOSS) $ (371,255) $ 279,649
=========== ===========
Earnings Per common share $ (0.02) $ 0.01
=========== ===========
Weighted average number of
common shares outstanding 20,450,015 25,479,728
=========== ===========
</TABLE>
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For The Three Months Ended March 31, 1997 (Unaudited)
<TABLE>
<CAPTION>
Common stock Additional Total
Common stock subsribed paid-in Retained Note stockholders'
Shares Amount Shares Amount capital earnings receivable equity
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, December 31, 1996 25,453,700 $25,454 155,800 $156 $7,767,855 $157,385 ($660,000) $7,290,850
Shares issued for cash 5,000 5 12,495 12,500
Shares issued for services 37,500 38 18,712 18,750
Issuance of shares previously subscribed 60,000 60 (60,000) (60)
Net income 279,649 279,649
------------------------------------------------------------------------------------------
BALANCES, March 31, 1997 25,556,200 $25,557 95,800 $96 $7,799,062 $437,034 ($660,000) $7,601,749
=========================================================================================
</TABLE>
<PAGE>
PROLONG INTERNATIONAL CORPORATION AND SUBSIDIARY
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED
(UNAUDITED) MARCH 31,
- ------------------------------------------------------------------------------------------------------------------------------
1996 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ (371,255) $ 279,649
Adjustments to reconcile net income to net cash used in operating
activities :
Depreciation and amortization 7,237 17,520
Provision for doubtful accounts -- (38,730)
Reserve for obsolesence -- 88,271
Expense recorded upon subscription of shares 62,500 --
Changes in assets and liabilities :
Accounts receivable (123,120) 71,669
Inventories (55,164) (1,224,710)
Prepaid expenses (83,964) (63,841)
Prepaid television time -- 62,253
Accounts payable 234,507 (91,580)
Accrued expenses (12,600) (134,366)
Income taxes payable -- (42,356)
----------- -----------
Net cash used in operating activities (341,859) (1,076,221)
CASH FLOWS FROM INVESTING ACTIVITIES :
Prepaid advances 180,219 (100,000)
Purchases of property and equipment -- (22,979)
----------- -----------
Net cash provided by investing activities 180,219 (122,979)
CASH FLOWS FROM FINANCING ACTIVITIES :
Payments on notes payable -- (713)
Proceeds from subscriptions receivable -- 150,000
Proceeds from issuance of common stock 265,050 31,250
----------- -----------
Net cash provided by financing activities 265,050 180,537
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 103,410 (1,018,663)
CASH AND CASH EQUIVALENTS, beginning of period 122,096 5,063,585
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 225,506 $ 4,044,922
=========== ===========
</TABLE>
<PAGE>
EXHIBIT 2.1
EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT made this _____ day of May, 1995, by and between
AMAFIN Trust, Gina F. Brandt, John M. Nassif, MD, Karl H. & Renate H. Herrmann,
Mr. & Mrs. Roy E. & Carol M. Biederman Trustees, Mr. & Mrs. Shaoguang Song, Mr.
Edward E. Jay, Mr. Edwin C. Auld, Jr., Mr. Elton Alderman, Mr. James Russell
Fickle, Mr. Ramon D. Pratt, Mr. Robert P. Dilfer, Mr. Thomas C. Billstein, Mr.
Tom Kubota, Mrs. Pauline Dilfer, Ms. Phyllis Helland, Nob & Yoshiko Kubota, Paul
Buzad, Jr., Robert H. & Ruth T. Brandt, Sahag Steve Kalfayan and Scott S. &
Evelyn F. Kubota are the only shareholders of Prolong Super Lubricant, Inc, a
Nevada corporation, hereinafter "Prolong", and Giguere Industries, Inc., a
publically held Nevada corporation, hereinafter "Giguere".
WITNESSETH:
WHEREAS, AMAFIN Trust, Gina F. Brandt, John M. Nassif, MD, Karl H. &
Renate H. Herrmann, Mr. & Mrs. Roy E. & Carol M. Biederman Trustees, Mr. & Mrs.
Shaoguang Song, Mr. Edward E. Jay, Mr. Edwin C. Auld, Jr., Mr. Elton Alderman,
Mr. James Russell Fickle, Mr. Ramon D. Pratt, Mr. Robert P. Dilfer, Mr. Thomas
C. Billstein, Mr. Tom Kubota, Mrs. Pauline Dilfer, Ms. Phyllis Helland, Nob &
Yoshiko Kubota, Paul Buzad, Jr., Robert H. & Ruth T. Brandt, Sahag Steve
Kalfayan and Scott S. & Evelyn F. Kubota are the owners of all 15,017,500 shares
of the issued and outstanding common stock, par value $.001 per share, of
Prolong, hereinafter "Prolong Shareholders"; and,
<PAGE>
WHEREAS, the authorized capital stock of Giguere consists of 15,000,000
shares of capital stock, par value one cent per share, of which 1,579,070 shares
are issued and outstanding; and,
WHEREAS, the Prolong Shareholders, Giguere and Prolong agree that it would
be in their mutual benefit for Giguere to acquire all of the outstanding stock
of Prolong in exchange for shares of Giguere common stock.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. [REPRESENTATIONS AND WARRANTIES OF PROLONG SHAREHOLDERS]
The shareholders of Prolong hereby represent and warrant to Giguere that they
own on the date hereof and on the Closing Date hereinafter provided will own,
free and clear of all liens, charges and encumbrances, all of the issued and
outstanding stock of Prolong.
2. [REPRESENTATION AND WARRANTIES OF PROLONG]
(a) Prolong is a corporation duly organized and validly existing and
in good standing under the laws of the state of Nevada; has all corporate power
necessary to engage in the business in which it is presently engaged; and has an
authorized capital consisting of 50,000,000 shares of common stock, par value
$0.00l per share, of which there are validly issued and outstanding 15,017,500
shares of common stock, fully paid and non-assessable.
(b) Prolong has heretofore initialled and furnished to
2
<PAGE>
Giguere copies of the financial statements of Prolong for the period ending
December 31, 1994, together with related statements of operations and retained
earnings and changes in financial position for the period then ended submitted
by Prolong. Said balance sheets and related statements accurately set forth the
financial condition of Prolong as of said dates and as of the result of
operations for the period involved, prepared without audit. Copies thereof are
attached hereto and marked Exhibit "A".
(c) Prolong has good and marketable title to all of its property and
assets (except property and assets disposed of since such date in the usual and
ordinary course of business), subject to no mortgage, pledge, lien or other
encumbrance except as disclosed in such balance sheet which appear as Exhibit
"A" annexed hereto and made a part hereof.
(d) As at December 31, 1994, Prolong had no obligations, liabilities
or commitments, contingent or otherwise, of a material nature which were not
provided for, except as set forth in such balance sheets which appear as Exhibit
"A".
(e) Since the date of the aforementioned balance sheets, there have
been no changes in nature of the business of Prolong nor in its financial
condition or its property, other that changes in the usual and ordinary course
of business, none of which has been materially adverse, and Prolong has incurred
no liabilities or obligations or made any commitments other than in the usual
and ordinary course of business or as disclosed in Exhibit "A".
3
<PAGE>
(f) Prolong is not a party to any employment contract with any
officer, director, or stockholder or to any lease, agreement or other
commitment not in the usual and ordinary course of business, nor to any
operation, insurance, profit-sharing or bonus plan, except as disclosed in
Exhibit "A".
(g) Prolong is not a defendant, nor plaintiff against whom a
counterclaim has been asserted, in any litigation, pending or threatened, nor
has any material claim been made or asserted against Prolong, nor is there any
proceedings threatened or pending before any federal, state or municipal
government, or any department, board, body or agency thereof, involving Prolong
except as disclosed in Exhibit "A".
(h) Prolong is not in default under any agreement to which it is a
party nor in the payment of any of its obligations.
(i) Between the dates of the balance sheets referred to in sub-
paragraph (c) hereof and the Closing, Prolong will not have (i) paid or declared
any dividends on or made any distributions in respect of or issued, purchased or
redeemed, any of the outstanding shares of its preferred or common stock, or
(ii) made or authorized any changes in its Certificate of Incorporation or in
any amendment thereto or in its By-Laws, or (iii) made any commitments or
disbursements or incurred any obligations or liabilities of a substantial nature
and which are not in the usual and ordinary course of business, or (iv)
mortgaged or pledged or subjected to any lien, charge or other encumbrance any
of its
4
<PAGE>
assets, tangible or intangible, except in the usual and ordinary course of its
business, or (v) sold, leased, or transferred or contracted to sell, lease or
transfer any assets, tangible or intangible, or entered into any other
transactions, except in the usual and ordinary course of business, or (vi) made
any loan or advance to any stockholder of Prolong or to any other person, firm,
or corporation except in the usual and ordinary course of business, or (vii)
made any material change in any existing employment agreement or increased the
compensation payable or made any arrangement for the payment of any bonus to any
officer, director, employee or agent, except as set forth in Exhibit "A".
(j) This Exchange Agreement has been duly executed by the shareholders
of Prolong and the execution and performance thereof will not violate, or result
in a breach of, or constitute a default in, any agreement, instrument, judgment,
order or decree to which Prolong is a party or to which Prolong is subject nor
will such execution and performance constitute a violation of or conflict with
any fiduciary to which Prolong is subject.
(k) Prolong will file with the appropriate governmental authorities,
all tax and other returns required to be filed by it, with such returns to be
true and complete and all taxes shown thereon to be due having been paid. All
material, federal, state, local, county, franchise, sales, use, excise and other
taxes assessed or due having been duly paid or reserves for unpaid taxes having
been set up as required on the basis of the facts and in
5
<PAGE>
accordance with generally accepted accounting principles.
(l) Prolong is not in default with respect to any order, writ,
injunction, or decree of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
and there are no actions, suits, claims, proceedings or investigations pending
or, to the knowledge of Prolong, threatened against or affecting Prolong, at law
or in equity, or before or by any federal, state, municipal or other
governmental court, department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Prolong has complied in all material
respects with all laws, regulations and orders applicable to its business.
(m) No representation or warranty in this section, nor statement in
any document, certificate or schedule furnished or to be furnished pursuant to
this Agreement by the shareholders of Prolong or in connection with the
transactions contemplated hereby, contains or contained any untrue statement of
a material fact, nor does or will omit to state a material fact necessary to
make any statement of fact contained herein or therein not misleading.
(n) Prolong maintained, and will until the Closing, maintain in full
force and effect adequate policies of insurance with coverage sufficient to meet
the normal requirements of its business.
3. [REPRESENTATIONS AND WARRANTIES OF GIGUERE] Giguere hereby
represents and warrants to Prolong and its shareholders
6
<PAGE>
that:
(a) Giguere is a corporation duly organized and validly existing and
in good standing under the laws of the State of Nevada; is not qualified to
transact business in any other state; and has an authorized capitalization of
15,000,000 shares of which there are issued an outstanding 1,579,070 shares of
capital stock, par value one cent per share.
(b) Giguere has delivered to Prolong and its shareholders its
financial statements for the year ended December 31, 1994. These financial
statements accurately set forth the financial condition of Giguere as of the
date specified and as of the result of operations for the periods involved,
prepared in conformity with generally accepted accounting principles
consistently applied. Said financial statements are attached hereto and marked
Exhibit "B".
(c) Giguere has no property or other assets.
(d) As at December 31, 1994, Giguere had no obligations, liabilities
or commitments, contingent or otherwise, of a material nature which were not
provided for, except as set forth in such balance sheet or in Exhibit "B".
(e) Since the date of the aforementioned financial statements there
has been no change in the nature of the business of Giguere, nor in its
financial condition or property, other than changes in the usual and ordinary
course of business, none of which has been materially adverse, and Giguere has
incurred no
7
<PAGE>
obligations or liabilities or made any commitments other than in the usual and
ordinary course of business except as disclosed in Exhibit "B".
(f) Giguere is not a party to any employment contract with any
officer, director, or stockholder, or to any lease, agreement or other
commitment not in the usual or ordinary course of business, nor to any
operation, insurance, profit-sharing or bonus plan, except as disclosed in
Exhibit "B".
(g) Giguere is not a defendant, nor a plaintiff against whom a
counterclaim has been asserted, in any litigation, pending or threatened, nor
has any material claim been made or asserted against Giguere nor are there any
proceedings threatened or pending before any federal, state or municipal
government or any department, board, body or agency thereof, involving Giguere,
except as disclosed in Exhibit "B".
(h) Giguere is not in default under any agreement to which it is a
party nor in the payment of any of its obligations.
(i) Between the date of the financial statements referred to in
paragraph (b) above and the Closing, Giguere will not have (i) paid or declared
any dividends on or made any distributions in respect of, or issued, purchased
or redeemed, any of the outstanding shares of its capital stock, or (ii) made or
authorized any changes in its Articles of Incorporation or in any amendment
thereto or in its By-Laws, or (iii) made any commitments or disbursements or
incurred any obligations or liabilities of a
8
<PAGE>
substantial nature, or (iv) mortgaged or pledged or subjected to any lien,
charge or other encumbrance any of its assets, tangible or intangible, or (v)
sold, leased, or transferred or contracted to sell, lease or transfer any
assets, tangible or intangible, or entered into any other transactions, or (vi)
made any loan or advance to any stockholder of Giguere, or to any other person,
firm, or corporation, or (vii) made any material change in any existing
employment agreement or increased the compensation payable or made any
arrangement for the payment of any bonus to any officer, director, employee or
agent except as set forth in Exhibit "B" hereof.
(j) This Exchange Agreement has been duly executed by Giguere and the
execution and performance of this Exchange Agreement will not violate, or result
in a breach of, or constitute a default in, any agreement, instrument, judgment,
order or decree to which it is a party or to which it is subject nor will such
execution and performance constitute a violation of or conflict with any
fiduciary to which it is subject.
(k) Giguere will file with the appropriate governmental authorities
all tax and other returns required to be filed by it, such returns being true
and complete and all taxes shown thereon to be due having been paid. All
material, federal, state, local, county, franchise, sales, use, excise and other
taxes assessed or due having been duly paid and no reserves for unpaid taxes
have been set up or are required on the basis of the facts and in
9
<PAGE>
accordance with generally accepted accounting principles.
(l) Giguere is not in default with respect to any order, writ,
injunction, or decree of any court or federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality
and there are no actions, suits, claims, proceedings or investigations pending
or, to the knowledge of Giguere, threatened against or affecting Giguere, at law
or in equity, or before or by any federal, state, municipal or other
governmental court, department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Giguere has complied in all material
respects with all laws, regulations and orders applicable to its business.
(m) No representation or warranty in this section, nor statement in
any document, certificate or schedule furnished or to be furnished pursuant to
this Exchange Agreement by Giguere or in connection with the transactions
contemplated hereby, contains or contained any untrue statement of a material
fact nor does or will omit to state a material fact necessary to make any
statement of fact contained herein or therein not misleading.
4. [DATE AND TIME OF CLOSING] The Closing shall be held on May , 1995
at 10:00 a.m., local time, at 40 South 600 East, Salt Lake City, Utah.
5. [EXCHANGE OF SHARES OF STOCK] The mode of carrying into effect the
exchange provided for in this Agreement shall be as follows:
10
<PAGE>
(a) Giguere shall call a special stockholders meeting to be held on
Friday, June 16, 1995 at 12:00 noon, local time, at Prolong Super Lubricants,
Inc., 1210 North Barsten Way, Anaheim, California 92806, for the following
purposes:
(1) To amend the Articles of Incorporation as follows:
a. To change the name to Prolong International Corporation;
b. To increase the number of authorized shares to one
hundred fifty million (150,000,000) with a par value of one mill ($0.001) per
share.
c. To reduce the outstanding shares from 6,279,070 to
3,139,535 by a 2 to 1 reverse split.
(2) To ratify the action of the board of Giguere in executing
this Exchange Agreement.
(3) To transact such other businesses made properly before this
special meeting, or in the adjournment thereof.
(b) Giguere shall hold an organizational meeting of the board at 2:00
p.m., local time, on Friday the 26th day of May, for the following purposes:
(1) To authorize the issuance of up to (16,000,000) shares of
common stock, par value one mill per share, to the stockholders of Prolong in
exchange for all of the issued and outstanding stock of said Prolong.
(2) To accept the resignations of the current
11
<PAGE>
officers and directors.
(3) To elect Elton Alderman, Ramon D. Pratt and Thomas C.
Billstein, Edwin C. Auld, Jr. and Tom Kubota, as directors.
6. [CONDITIONS TO CLOSING] Prolong, the shareholders of Prolong and
Giguere's obligations to complete the transaction provided for herein shall be
subject to the performance by them of all their respective agreements to be
performed hereunder on or before the closing, to the material truth and accuracy
of the respective representation and warranties of Prolong, the stockholders of
Prolong and Giguere contained herein, and to the further conditions that:
(a) All representations and warranties of Prolong and the stockholders
of Prolong and Giguere contained in this Exchange Agreement are substantially
true and correct on and as of the closing with the same effect as if made on and
as of said date.
(b) All of the agreements and covenants contained in this agreement
that are to be complied with, satisfied and performed by each of the parties
hereto on or before the closing, shall, in all material respects, have been
complied with, satisfied and performed.
7. [INDEMNITY PROVISIONS]
(a) Prolong aqrees to indemnify and hold harmless Giguere and its
successors and assigns, of and from any and all loss, liability or damage,
including reasonable attorney's fees and
12
<PAGE>
expenses, arising out of or resulting from the assertion against Giguere of any
claims, debts or obligations, fixed, contingent or otherwise, including federal,
state and local tax obligations attributable to periods prior to December 31,
1994, except to the extent reserved against in the aforementioned balance sheets
of Prolong. Giguere shall give Prolong prompt notice of the assertion of any
claim and Giguere shall afford Prolong an opportunity to participate with
counsel of their own choosing at their own expense, in the defense or other
contest thereof in connection therewith, Giguere shall afford Prolong access to
such books and records of Giguere as may be reasonable and required.
(b) Giguere shall agree to indemnify and hold harmless Prolong and its
shareholders and their respective heirs, administrators and assign, of and from
any and all loss, liability or damage, including reasonable attorney's fees and
expenses, arising out of the breach of any of the representations and warranties
of Giguere contained in this Exchange Agreement.
8. [FINDERS FEE] Each party represents to the other that it has not
employed any broker or agent or entered into any agreement for the payment of
any finders fee or compensation to any firm, person or corporation in
connection with this transaction.
9. [NOTICES] Any notice under this Exchange Agreement shall be deemed to
have been sufficiently given if sent by Federal Express, registered or certified
mail, postage prepaid, and addressed as follows:
13
<PAGE>
If to the shareholders of Prolong, to
Elton Alderman
C/O Prolong Super Lubricants, Inc.
1210 North Barsten Way
Anaheim, California 92806
If to Prolong, to
Prolong Super Lubricants, Inc.
1210 North Barsten Way
Anaheim, California 92806
If to Giguere, to
Thomas R. Blonquist
Attorney at Law
40 South 600 East
Salt Lake City, UT 84102
Or to any other address which may here after designated by the parties
hereto by notice given in such manner. All notices shall be deemed to have been
given as of the date of receipt.
10. [MERGER CLAUSE] This Exchange Agreement supersedes all prior
agreements and understandings between the parties and may not be changed or
terminated orally and no attempt at change, termination or waiver of any of the
provisions hereof shall be binding unless in writing and signed by the parties
hereto.
11. [GOVERNING LAW] This Exchange Agreement shall be governed by and
construed according to the law under the state of Nevada, the state of
incorporation of Giguere.
12. [EXECUTION OF THIS AGREEMENT] Because Prolong Shareholders
reside throughout United States and foreign countries, it is agreed that this
Exchange Agreement may be executed in
14
<PAGE>
several counterparts, each of which shall be an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
Giguere Industries, Inc.
by /s/ Charles Giguere Pres
---------------------------
attest:
- -----------------------------
Secretary
Prolong Super Lubricants, Inc.
by /s/ Elton Alderman
---------------------------
as President
attest:
/s/ Edwin C. Auld, Jr.
- -----------------------------
Secretary
AMAFIN Trust, reg.
by
--------------------------- -------------------------------
James Russell Fickle
Roy E. & Carol M. Biederman Trustees
by /s/ Tom Kubota
---------------------------- -------------------------------
Tom Kubota
- ------------------------------ -------------------------------
Gina F. Brandt Ramon D. Pratt
15
<PAGE>
several counterparts, each of which shall be an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
Giguere Industries, Inc.
by
---------------------------
attest:
- -----------------------------
Secretary
Prolong Super Lubricants, Inc.
by /s/ Elton Alderman
---------------------------
President
attest:
/s/ Edwin C. Auld, Jr.
- -----------------------------
Secretary
AMAFIN Trust, reg.
by /s/ James R. Fickle
--------------------------- -------------------------------
James Russell Fickle
Roy E. & Carol M. Biederman Trustees
by /s/ Tom Kubota
---------------------------- -------------------------------
Tom Kubota
/s/ Ramon D. Pratt
- ------------------------------ -------------------------------
Gina F. Brandt Ramon D. Pratt
15
<PAGE>
several counterparts, each of which shall be an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
Giguere Industries, Inc.
by /s/ Charles Giguere Pres
---------------------------
attest:
/s/ Thomas W. Gould
- -----------------------------
Secretary
Prolong Super Lubricants, Inc.
by /s/ Elton Alderman
---------------------------
as President
attest:
- -----------------------------
Secretary
AMAFIN Trust, reg.
by
--------------------------- -------------------------------
James Russell Fickle
Roy E. & Carol M. Biederman Trustees
by /s/ Tom Kubota
---------------------------- -------------------------------
Tom Kubota
- ------------------------------ -------------------------------
Gina F. Brandt Ramon D. Pratt
15
<PAGE>
several counterparts, each of which shall be an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
Giguere Industries, Inc.
by /s/ Charles Giguere Pres
---------------------------
attest:
/s/ Thomas W. Gould
- -----------------------------
Secretary
Prolong Super Lubricants, Inc.
by /s/ Elton Alderman
---------------------------
as President
attest:
- -----------------------------
Secretary
AMAFIN Trust, reg.
by
--------------------------- -------------------------------
James Russell Fickle
Roy E. & Carol M. Biederman Trustees
by /s/ Tom Kubota
---------------------------- -------------------------------
Tom Kubota
- ------------------------------ -------------------------------
Gina F. Brandt Ramon D. Pratt
15
<PAGE>
several counterparts, each of which shall be an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
Giguere Industries, Inc.
by
---------------------------
attest:
- -----------------------------
Secretary
Prolong Super Lubricants, Inc.
by
---------------------------
attest:
- -----------------------------
Secretary
AMAFIN Trust, reg.
by
--------------------------- -------------------------------
James Russell Fickle
Roy E. & Carol M. Biederman Trustees
by
---------------------------- -------------------------------
Tom Kubota
/s/ Gina F. Brandt
- ------------------------------ -------------------------------
Gina F. Brandt Ramon D. Pratt
15
<PAGE>
several counterparts, each of which shall be an original, and such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first hereinabove written.
Giguere Industries, Inc.
by
---------------------------
attest:
- -----------------------------
Secretary
Prolong Super Lubricants, Inc.
by
---------------------------
attest:
- -----------------------------
Secretary
AMAFIN Trust, reg.
by /s/ Manfred Heeb
--------------------------- -------------------------------
Manfred Heeb, President James Russell Fickle
Roy E. & Carol M. Biederman Trustees
by
---------------------------- -------------------------------
Tom Kubota
- ------------------------------ -------------------------------
Gina F. Brandt Ramon D. Pratt
15
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
/s/ Thomas C. Billstein
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
/s/ Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
/s/ Elton Alderman
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
/s/ Thomas C. Billstein
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
/s/ Edward E. Jay /s/ Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
/s/ Paul Buzad, Jr. /s/ Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
/s/ Elton Alderman /s/ Roy E. Biederman
- --------------------------------- ----------------------------------
Elton Alderman Roy E. Biederman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
/s/ Carol M. Biederman
- --------------------------------- ----------------------------------
Elton Alderman Carol M. Biederman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
/s/ Robert H. Brandt /s/ Ruth T. Brandt
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
/s/ Robert P. Dilfer
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
/s/ Pauline Dilfer
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
/s/ Thomas C. Billstein /s/ Phyllis Helland
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
/s/ Edward E. Jay /s/ Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
/s/ Paul Buzad, Jr. /s/ Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
/s/ Elton Alderman /s/ Roy E. Biederman
- --------------------------------- ----------------------------------
Elton Alderman Roy E. Biederman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
/s/ Phyllis Helland
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
/s/ Karl H. Herrmann /s/ Renate H. Herrmann
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
/s/ Stuart Hodosh
- --------------------------------- ----------------------------------
Elton Alderman Stuart Hodosh, M.D.
----------------------------------
Daniel Friedman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
/s/ Yoshiko Kubota /s/ Nob Kubota
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
/s/ Scott S. Kubota /s/ Evelyn F. Kubota
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
By: /s/ John M. Nassif
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
/s/ Shaoguang Song
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- ---------------------------------
Elton Alderman
16
<PAGE>
- --------------------------------- ----------------------------------
John M. Nassif, MD Robert P. Dilfer
- --------------------------------- ----------------------------------
Karl H. Herrmann Renate H. Herrmann
- --------------------------------- ----------------------------------
Mr Shaoguang Song Pauline Dilfer
- --------------------------------- ----------------------------------
Thomas C. Billstein Phyllis Helland
- --------------------------------- ----------------------------------
Edward E. Jay Sahag Steve Kalfayan
- --------------------------------- ----------------------------------
Yoshiko Kubota Nob Kubota
- --------------------------------- ----------------------------------
Paul Buzad, Jr. Edwin C. Auld, Jr.
- --------------------------------- ----------------------------------
Robert H. Brandt Ruth T. Brandt
- --------------------------------- ----------------------------------
Scott S. Kubota Evelyn F. Kubota
- --------------------------------- ----------------------------------
Elton Alderman Stuart Hodosh, M.D.
/s/ Daniel Friedman
----------------------------------
Daniel Friedman
16
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT AND RESTATEMENT
OF ARTICLES OF INCORPORATION
OF PROLONG INTERNATIONAL CORPORATION
PROLONG INTERNATIONAL CORPORATION, a Nevada corporation (the
"Corporation"), by its duly authorized officers, does hereby certify as follows:
1. The board of directors of the Corporation by unanimous written consent
dated as of December 1, 1996, passed a resolution declaring the advisability of
amending and restating in their entirety the Articles of Incorporation of the
Corporation to read as follows and calling stockholders' meeting to ratify said
amendment and restatement:
ARTICLE I
RESIDENT AGENT
The name and address of the Corporation's resident agent is Nevada Agency
and Trust Co., 50 W. Liberty St., Ste. 880, Reno, NV 89501.
ARTICLE II
PURPOSE
The Corporation is organized for the purpose of engaging in any lawful
activity, within or without the State of Nevada.
ARTICLE III
STOCK
Section 4.01. Authorized Stock. The total number of shares of stock this
------------ ----------------
Corporation is authorized to issue shall be Two Hundred Million (200,000,000)
shares of stock, each share with a par value of one-tenth of one cent ($0.001).
This stock shall be divided into two classes of stock to be designated as
"Common Stock" and "Preferred Stock").
Section 4.02. Common Stock. One Hundred fifty Million (150,000,000)
------------ ------------
shares of the authorized stock are designated "Common Stock." The holder of each
share of Common Stock, when issued, shall have one (1) vote per share on all
matters placed before the stockholders.
Section 4.03. Preferred Stock. Fifty Million (50,000,000) shares of
------------ ---------------
authorized stock are designated "Preferred Stock." The Board of Directors of
this Corporation is hereby authorized to issue the Preferred Stock at any time
and from time to time, in one or more series and for such consideration as may
be fixed from time to time by the then Board of Directors. The number of shares
to comprise each such series, which number may be increased (except where
otherwise provided by the Board of Directors in creating such series) or
decreased (but not below the number of shares thereof then outstanding) shall be
determined from time to time by the Board of Directors. The Board of Directors
is hereby expressly authorized, before issuance of any shares of a particular
series, to determine any and all designations, preferences and privileges,
participating, optional or other special rights, or qualifications, restrictions
or limitations thereof, pertaining to such series, including but not limited to:
(a) Voting rights, if any, including, without limitation, the
authority to confer voting rights as to specified matters or issues such
as mergers, consolidations or sales of assets, or voting rights to be
exercised either together with holders of common stock as a single class,
or independently as a separate class;
(b) Rights, if any, permitting the conversion or exchange of any
such shares, at the option of the holder, into any other class or series of
shares of this Corporation and the price or prices or the rates of exchange
and any adjustment thereto at which such shares will be convertible or
exchangeable;
(c) The rate of dividends, if any, payable on shares of such
series, the conditions and the dates upon which such dividends shall be
payable and whether such dividends shall be cumulative or non-cumulative;
(d) The amount payable on shares of such series in the event of any
liquidation, dissolution or distribution of the assets of or winding up of
the affairs of this Corporation;
(e) Redemption, repurchase, retirement and sinking fund rights,
preferences and limitation, if any, the amount payable on shares of such
series in the event of such redemption, repurchase or retirement, the terms
and conditions of any sinking fund and the manner which the foregoing is
payable in preference to, or in relation to, the dividends payable on any
other class or classes of stock; and
(f) Any other preference and relative, participating, optional or
other special rights and qualifications, limitations or restrictions of
shares of such series not fixed and determination herein, to the extent
permitted to do so by law.
ARTICLE IV
DIRECTORS AND INCORPORATORS
Section 5.01. Governing Board of Directors. The governing board shall be
------------ ----------------------------
styled "Board of Directors." Provided that the Corporation has at least one
director, the number of directors may at any time or times be increased or
decreased to a maximum number of nine (9) as provided in the bylaws.
Section 5.02. Current Directors. The names and post office addresses of
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the members of the current Board of Directors are as follows:
NAME ADDRESS
---- -------
Elton Alderman 1210 N. Barsten Way
Anaheim, CA 92806
Ramon D. Pratt 1210 N. Barsten Way
Anaheim, CA 92806
[STAMP]
FILED
IN THE OFFICE OF THE
SECRETARY OF STATE OF THE
STATE OF NEVADA
MAY 07, 1997
NO. C5712-81
/s/ Dean Heller
DEAN HELLER, SECRETARY OF STATE
<PAGE>
Thomas C. Billstein 1210 N. Barsten Way
Anaheim, CA 92806
Tom T. Kubota 1210 N. Barsten Way
Anaheim, CA 92806
These individuals shall serve as directors until the next annual meeting of
shareholders or until their successors are elected and qualified.
Section 5.04. Incorporator. The names and post office addresses of the
------------ ------------
incorporators signing these Articles of Incorporation are as follows:
NAME ADDRESS
---- -------
Elton Alderman 1210 N. Barsten Way
Anaheim, CA 92806
Thomas C. Billstein 1210 N. Barsten Way
Anaheim, CA 92806
ARTICLE V
CONTROL SHARES AND BUSINESS COMBINATION STATUTES
The provision of NRS 78.378 through 78.3793, inclusive, and NRS 78.411
through 78.444, inclusive, shall not apply to this Corporation.
ARTICLE VI
DIRECTORS' AND OFFICERS' LIABILITY
No director or officer of the Corporation shall be personally liable to the
Corporation or any of its stockholders for damages for breach of fiduciary duty
as a director or officer involving any act or omission of any such director or
officer. However, the foregoing provision shall not eliminate or limit the
liability of a director or officer for (i) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of law, or (ii) the payment
of dividends in violation of Section 78.300 of the Nevada Revised Statutes. Any
repeal or modification of this Article by the shareholders of the Corporation
for acts or omissions prior to such repeal or modification.
ARTICLE VII
Section 8.01. Right to Indemnity. Subject to any restrictions set forth
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in the bylaws of this Corporation, every person who was or is a party, or is
threatened to be made party to or is involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that he or a person of whom he is the legal representative is or was a director
or officer of the Corporation, or is or was serving at the request of the
Corporation as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the laws of the State of Nevada from time to time against all expenses,
liability and loss (including attorney's fees, judgments, fines and amounts paid
or to be paid in settlement) reasonably incurred or suffered by him in
connection therewith. Such right of indemnification shall be a contract right
which may be enforced in any manner desired by such person. Such right of
indemnification shall not be exclusive of any other right which such directors,
officers or representatives may have or hereafter acquire, and, without limiting
the generality of such statement, they shall be entitled to their respective
rights of indemnification under any bylaw, agreement, vote of shareholders,
provision of law, or otherwise, as well as their rights under this Article.
Section 8.02. Expenses Advanced. Subject to any restrictions set forth in
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the bylaws of this Corporation, expenses of directors and officers incurred in
defending a civil or criminal action, suit or proceeding by reason of any act or
omission of such director or officer acting as a director or officer shall be
paid by the Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of any undertaking
by or on behalf of the director or officer to repay the amount if it is
ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the Corporation.
Section 8.03. Bylaws; Insurance. Without limiting the application of the
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foregoing, the Board of Directors may adopt bylaws from time to time with
respect to indemnification, to provide at all times the fullest indemnification
permitted by the laws of the State of Nevada, to limit the right of
indemnification, and may cause the Corporation to purchase and maintain
insurance or make other financial arrangements on behalf of any person who is or
was a director or officer of the Corporation as a director or officer of another
corporation, or as its representative in a partnership, joint venture, trust or
other enterprise against any liability asserted against such person and incurred
in any such capacity or arising out of such status, to the fullest extent
permitted by the laws of the State of Nevada, whether or not the Corporation
would have the power to indemnify such person.
The indemnification and advancement of expenses provided in this article
shall continue for a person who has ceased to be a director, officer, employee
or agent, and inures to the benefit of the heirs, executors and administrators
of such person.
2. A Stockholders meeting was duly called, noticed and held on January 25,
1997. The stockholders voted by a vote of 20,703,408 shares to 80,000 shares to
amend and restate the Articles of Incorporation of the Corporation as set forth
in the Directors' resolution and exactly as set forth herein.
IN WITNESS WHEREOF, the undersigned officers of the Corporation have
executed this Certificate on April 16th, 1997.
PROLONG INTERNATIONAL CORPORATION,
A NEVADA CORPORATION
By /s/ Elton Alderman
---------------------------------
Elton Alderman, President
By /s/ Thomas C. Billstein
---------------------------------
Thomas C. Billstein, Secretary
<PAGE>
EXHIBIT 3.2
BYLAWS
PROLONG INTERNATIONAL CORPORATION, A NEVADA CORPORATION
-------------------------------------------------------
ARTICLE I
STOCKHOLDERS' MEETING
SECTION 1.1 PLACE OF MEETINGS.
All meetings of the stockholders shall be held at the principal office of
the corporation in the State of California ("Principal Office"), or at any other
place within or without the State of Nevada as may be designated for that
purpose from time to time by the Board of Directors.
SECTION 1.2 ANNUAL MEETINGS.
The annual meeting of the stockholders shall be held not later than 210
days after the close of the fiscal year, on the date and at the time set by the
Board of directors, at which time the stockholders shall elect directors,
consider reports of the affairs of the Corporation, and transact such other
business as may properly be brought before the meeting.
SECTION 1.3 SPECIAL MEETINGS.
Except as otherwise required by law, special meetings of stockholders of
the Corporation may be called only by the board of directors pursuant to a
resolution adopted by a majority of the total number of authorized directors
(whether or not there exist any vacancies in previously authorized directorships
at the time any such resolution is presented to the Board of Directors for
adoption).
SECTION 1.4 NOTICE OF MEETINGS.
1.4.1 Notice of each meeting of stockholders, whether annual or special,
shall be given at least 10 and not more than 60 days before the meeting by the
Secretary or any Assistant Secretary causing to be delivered or mailed to each
stockholder of record entitled to vote at the meeting a written notice stating
the time and place of the meeting and the purpose or purposes for which the
meeting is called. The notice shall be signed by the Chairman of the Board, the
Vice Chairman of the Board, the President, the Secretary or any Assistant
Secretary and shall be delivered or mailed postage prepaid to each stockholder
at such stockholder's address as it appears on the stock books of the
corporation. If any stockholder has failed to supply an address, notice shall be
deemed
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to have been given if mailed to the address of the Principal Office, or
published at least once in a newspaper having general circulation in the county
in which the Principal Office is located.
1.4.2 It shall not be necessary to give any notice of the adjournment of or
the business to be transacted at an adjourned meeting other than by announcement
at the meeting at which such adjournment is taken. However, when a meeting is
adjourned for 30 days or more, notice of the adjourned meeting must be given as
in the case of an original meeting.
SECTION 1.5 CONSENT BY STOCKBROKERS.
Any action required or permitted to be taken at a meeting of the
stockholders of the Corporation may be taken without a meeting by the written
consent of stockholders entitled to vote on such action holding at least a
majority of the voting power.
SECTION 1.6 QUORUM.
1.6.1 The presence in person or by proxy of the persons entitled to vote a
majority of the voting stock at any meeting constitutes a quorum for the
transaction of business. Particular shares of stock shall not be counted in
determining the number of shares of stock represented or required for a quorum
or in any vote at a meeting, if the voting of such shares at the meeting has
been enjoined or for any reason such shares cannot be lawfully voted at the
meeting.
1.6.2 The stockholders present at a duly called or held meeting at which a
quorum is present may continue to do business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
1.6.3 In the absence of a quorum, the holders of a majority of the shares
of stock present in person or by proxy and entitled to vote may adjourn any
meeting from time to time, but not for a period of more than 30 days at any one
time, until a quorum is in attendance.
SECTION 1.7 VOTING RIGHTS.
1.7.1 Except as otherwise provided by law or by or pursuant to the Articles
of Incorporation or any amendment thereto, every stockholder of record of the
Corporation entitled to vote is entitled at each meeting of the stockholders to
one vote for each share of stock standing in the stockholder's name on the books
of the Corporation. Except as otherwise provided by law or by the Articles of
Incorporation or any amendment thereto or by these Bylaws, if a quorum is
present, the vote of the holders of a majority of votes cast on a particular
matter is binding upon all stockholders of the Corporation.
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<PAGE>
1.7.2 The Board of Directors may designate a day not more than 60 days
before any meeting of the stockholders as the day as of which stockholders
entitled to notice of and to vote at the meeting is determined.
SECTION 1.8 PROXIES.
Every stockholder entitled to vote or to execute consents may do so either
in person or by written proxy executed in accordance with the provisions of
Chapter 78 of the Nevada Revised Statutes and filed with the Secretary of the
Corporation.
SECTION 1.9 MANNER OF CONDUCTING MEETINGS.
To the extent not in conflict with the provisions of law relating thereto,
the Articles of Incorporation or any amendment thereto, or these Bylaws,
meetings must be conducted pursuant to such rules as may be adopted by the
chairman presiding at, or the holders of a majority of the shares of stock
represented at, the meeting.
SECTION 1.10 BUSINESS BROUGHT BEFORE MEETINGS.
At any annual meeting of stockholders, the only business which may be
conducted must have been brought before the meeting (i) by or at the direction
of the Board of Directors or (ii) by any stockholder of the Corporation who is
entitled to vote with respect to the matter and who complies with the notice
procedures set forth in this Section 1.10. For business to be properly brought
before an annual meeting by a stockholder, the stockholder must give timely
notice thereof in writing to the Secretary of the Corporation. To be timely, a
stockholder's notice must be delivered or mailed by first class United States
mail, postage prepaid, to the Secretary of the Corporation not less than 90 days
before the annual meeting. A stockholder's notice to the Secretary must set
forth details of each matter the stockholder proposes to bring before the annual
meeting as follows: ( i) a brief description of the business desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and address, as they appear on the books of
the Corporation, of the stockholder of the Corporation proposing such business,
(iii) the class and number of shares of the stock of the Corporation that are
beneficially owned by the stockholder and (iv) any material interest of the
stockholder in such business. Notwithstanding anything in these Bylaws to the
contrary, no business shall be brought before or conducted at an annual meeting
except in accordance with the foregoing procedures. The officer of the
Corporation or other person presiding over the annual meeting ("Presiding
Person") shall, if the facts so warrant, determine and declare to the meeting
that business was not properly brought before the meeting in accordance with the
provisions of this Section 1.10. If the Presiding Person determines that a
matter was not properly brought before the meeting, the Presiding Person shall
so declare to the meeting and the business shall not be transacted. Except as
otherwise provided in this Bylaws, at any special meeting of the stockholders,
the only
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business which shall be conducted must have been brought before the meeting by
or at the direction of the Board of Directors.
SECTION 1.11 NOTICE OF NOMINATIONS.
Nominations for the election of directors may be made by the Board of
Directors or by any stockholder entitled to vote for the election of directors.
A notice of the intent of a stockholder to make a nomination must be made in
writing, delivered or mailed by first class United States mail, postage prepaid,
to the Secretary of the Corporation not less than 7 days before the annual
meeting or a special meeting of stockholders at which the election of a director
or directors will take place.
ARTICLE II
DIRECTORS - MANAGEMENT
SECTION 2.1 POWERS.
Subject to any limitation contained in the laws of the State of Nevada, the
Articles of Incorporation or any amendment thereto, or these Bylaws, or as to
action to be authorized or approved by the stockholders, all corporate powers
shall be exercised by or under authority of, and the business and affairs of
this Corporation shall be controlled by, the Board of Directors.
SECTION 2.2 NUMBER AND QUALIFICATION.
The number of directors which shall constitute the whole Board of Directors
shall be no less than three nor more than 9. The number of directors shall be
fixed from time to time within this range exclusively by the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors, whether or not any vacancies exist in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption.
SECTION 2.3 CLASSES OF DIRECTORS AND TERM OF OFFICE.
2.3.1 The directors (exclusive of directors who may be elected by the
holders of one or more classes or series of preferred stock) may be divided by a
resolution of the Board of Directors into a maximum of three classes, as nearly
equal in number as possible. If there are no classes of directors, each director
has a term of office of one year. If the directors have been divided into
classes, the resolution of the Board which creates the classes must set forth
the term of office of each class. ln the event of vacancy, either by death,
resignation, or removal of a director, or by reason of an increase in the number
of directors, each replacement or new director shall serve for the balance of
the term of the class of the director he or she succeeds or, in the event of an
increase in the number of
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<PAGE>
directors, of the class to which he or she is assigned. All directors elected
for a term shall continue in office until the election and qualification of
their respective successors, their death, their resignation in accordance with
Section 2.6, their removal in accordance with Section 2.5, or if there has been
a reduction in the number of directors and no successor is to be elected, until
the end of the term.
2.3.2 Directors elected by holders of preferred stock of the Corporation
voting as a class shall not be members of any of the foregoing classes and shall
hold office until the next annual meeting of stockholders unless the terms of
the series or class of preferred stock of the Corporation provides otherwise.
SECTION 2.4 ELECTION OF DIRECTORS.
2.4.1 At each annual meeting of stockholders, the class of directors to be
elected at the meeting shall be chosen by a plurality of the votes cast by the
holders of shares entitled to vote in the election at the meeting, provided a
quorum is present. The election of directors by the stockholders shall be by
written ballot if directed by the chairman of the meeting or if the number of
nominees exceeds the number of directors to be elected.
2.4.2 Any vacancy on the Board of Directors shall be filled by the
affirmative vote of a majority of the remaining directors, or a sole remaining
director, though less than a quorum.
2.4.3 If the holders of Preferred Stock voting as a class are entitled to
elect directors, those directors shall be elected by a plurality of the votes
cast by the holders of shares of preferred stock of the Corporation entitled to
vote, voting separately as a class.
SECTION 2.5 Removal of Directors.
Any director, other than a director elected by holders of preferred stock
of the corporation voting as a class, may be removed from office at any time but
only upon the affirmative vote of the holders of at least 66-2/3% of the voting
power of all of the then-outstanding shares of voting stock of the Corporation,
voting together as a single class.
SECTION 2.6 RESIGNATIONS.
Any director of the Corporation may resign at any time either by oral
tender of resignation at any meeting of the Board of Directors or by giving
written notice thereof to the Chairman of the Board, the Vice Chairman of the
Board, the President or the Secretary of the Corporation. Such resignation shall
take effect at the time it specifies, and the acceptance of such resignation
shall not be necessary to make it effective.
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<PAGE>
SECTION 2.7 PLACE OF MEETINGS.
Meetings of the Board of Directors shall be held at the Principal Office or
at such other place within or without the State of Nevada as may be designated
for that purpose by the Board of Directors.
SECTION 2.8 MEETINGS AFTER ANNUAL STOCKHOLDERS' MEETING.
The first meeting of the Board of Directors held after the annual
stockholders meeting shall be held at such time and place within without the
State of Nevada as is fixed by announcement of the Chairman of the Board, the
Vice Chairman of the Board or the President of the Corporation given at the
annual stockholders' meeting, and no other notice of such meeting shall be
necessary, provided a majority of the whole Board is present. Alternatively,
such meeting may be held at the time and place fixed in a notice given under
other provisions of these Bylaws.
SECTION 2.9 OTHER REGULAR MEETINGS.
2.9.1 Regular meetings of the Board of Directors shall be held at such
time and place within or without the State of Nevada as may be agreed upon from
time to time by the Board.
2.9.2 No notice need be given of regular meetings, except that each
director must be given written notice of the specific meeting dates or regular
meeting dates, and the day of the month, the time, and the place of the meeting.
SECTION 2.10 SPECIAL MEETINGS.
Special meetings of the Board of Directors must be held whenever called by
the Chairman of the Board, the Vice Chairman of the Board or the President of
the Corporation or any two other directors, except that when the Board of
Directors consists of one director, then the one director may call a special
meeting. Notice of any special meeting must be mailed to each director not later
than three days before the day on which the meeting is to be held, or shall be
sent to him or her by telecopy, or delivered personally or by telephone, not
later than midnight of the day before the day of the meeting. Any meeting of the
Board of Directors shall be a legal meeting, without any notice thereof having
been given, if each director consents to the holding thereof or waives notice in
the manner specified in Section 2.11. Except as otherwise provided in this
Bylaws or as my be indicated in the notice thereof, any and all business may be
transacted at any special meeting.
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<PAGE>
SECTION 2.11 WAIVER OF NOTICE.
Anything herein to the contrary notwithstanding, notice of any meeting of
directors shall not be required as to any director who waives notice in writing
(including telecopy) before or after the meeting, which waiver shall be filed
with the Secretary of the Corporation. Attendance of a director at a meeting is
equivalent to a written waiver of notice of the meeting if the director's oral
consent is entered in the minutes or the director takes part in the
deliberations of the meeting without objection.
SECTION 2.12 NOTICE OF ADJOURNMENT.
Notice of the time and place of holding an adjourned meeting need not be
given to absent directors if the time and place is fixed at the meeting
adjourned.
SECTION 2.13 QUORUM.
A majority of the number of directors as fixed by the Articles of
Incorporation or any amendment thereto, or pursuant to these Bylaws, shall be
necessary to constitute a quorum for the transaction of business, and the action
of a majority of the directors present at any meeting at which there is a
quorum, when duly assembled, is valid as a corporate act. However, a minority of
the directors, in the absence of a quorum, may adjourn from time to time or fill
vacant directorships in accordance with Section 2.4 but may not transact any
other business. When the Board of Directors consists of one or two directors,
then the one or two directors, respectively, constitute a quorum.
SECTION 2.14 ACTION BY UNANIMOUS WRITTEN CONSENT
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting, if all members of the Board
individually or collectively consent in writing to the meeting. The written
consent must be filed with the minutes of the proceedings of the Board and has
the same force and effect as a unanimous vote of the directors.
SECTION 2.15 COMPENSATION.
The directors may be paid their expenses of attendance at each meeting of
the Board of Directors. Additionally, the Board of Directors may from time to
time, in its discretion, pay to directors either or both a fixed sum for
attendance at each meeting of the Board of Directors or a stated salary for
services as a director. No such payment precludes any director from serving the
Corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like reimbursement and
compensation for attending committee meetings.
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<PAGE>
SECTION 2.16 TRANSACTIONS INVOLVING INTERESTS OF DIRECTORS.
In the absence of fraud, no contract or other transaction of the
corporation is affected or invalidated by the fact that any of the directors of
the corporation are in any way interested in, or connected with, any other party
to, such contract or transaction, provided that such transaction satisfies the
applicable provisions of Chapter 78 of the Nevada Revised Statutes. Each and
every person who becomes a director of the Corporation is hereby relieved, to
the extent permitted by law, from any liability that might otherwise exist from
contracting in good faith with the corporation for the benefit of himself or
herself or any person in which he or she may be in any way interested or with
which he or she may be in any way connected. Any director of the corporation may
vote and act upon any matter, contract or transaction between the Corporation
and any other person without regard to the fact that he or she is also a
stockholder, director or officer of, or has any interest in, such other person.
ARTICLE III
OFFICERS
SECTION 3.1 EXECUTIVE OFFICERS.
The executive officers of the Corporation shall be a Chief Executive
Officer (who may be the Chairman of the Board, the Vice Chairman of the Board or
the President), a Deputy Chief Executive Officer (who may be the Chairman of the
Board, the Vice chairman of the Board or the President), a President, one or
more Executive Vice Presidents, one or more Senior Vice Presidents, a Secretary
and a Treasurer. Any person may hold two or more offices. The executive officers
of the corporation must be elected annually by the Board of Directors and hold
office for one year or until their respective successors are elected and
qualify.
SECTION 3.2 APPOINTED OFFICERS: TITLES.
3.2.1 The Chief Executive Officer or a person designated by such officer,
or the Secretary in the case of assistant secretaries or the Treasurer in the
case of assistant treasurers, may appoint one or more assistant secretaries or
one or more assistant treasurers, each of whom shall hold such title at the
pleasure of the appointing officer, have such authority and perform such duties
as are provided in these Bylaws, or as the Chief Executive Officer or other
appointing officer may determine from time to time. Any person appointed under
this Section 3.2.1 to serve in any of the foregoing positions is deemed by
reason of such appointment or service in such capacity to be an "officer" of the
Corporation.
3.2.2 The Chief Executive Officer or a person designated by such officer
may also appoint one or more vice presidents and one or more assistant vice
presidents for each
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corporate staff function and a corporate controller and one or more assistant
controllers. Each of these persons hold such title at the pleasure of the Chief
Executive Officer and have authority to act for and shall perform duties with
respect to only the staff function for which the person is appointed. Any person
appointed under this Section 3.2.2 to serve in any of the foregoing positions is
not deemed by reason of such appointment or service in such capacity to be an
"officer" of the Corporation.
SECTION 3.3 REMOVAL AND RESIGNATION.
3.3.1 Any officer may be removed, either with or without cause, by a
majority of the directors at the time in office, at any regular or special
meeting of the Board. Any appointed person may be removed from such position at
any time by the person making such appointment or such person's successor.
3.3.2 Any officer may resign at any time, by giving written notice to the
Board of Directors, the Chief Executive Officer, the Deputy Chief Executive
Officer, the President or the Secretary of the Corporation. Any such resignation
takes effect at the date of the receipt of such notice, or at any later time
specified in the notice. Unless otherwise specified, the acceptance of the
resignation is not necessary to make it effective.
SECTION 3.4 VACANCIES.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these Bylaws for regular appointments to such office.
SECTION 3.5 CHAIRMAN OF THE BOARD AND VICE CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the Board of
Directors and shall exercise and perform such other powers and duties as may be
from time to time assigned to him or her by the Board of Directors or these
Bylaws. The Vice Chairman of the Board shall, in the absence of the Chairman,
preside at all meetings of the Board of Directors and shall exercise and perform
such other powers and duties as may be from time to time assigned to him or her
by the Board of Directors or. these Bylaws.
SECTION 3.6 CHIEF EXECUTIVE OFFICER.
The Chief Executive Officer shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business and
affairs of the Corporation. The Chief Executive Officer shall preside at all
meetings of the stockholders and, in the absence of the Chairman of the Board
and the Vice Chairman of the Board, at all meetings of the Board of Directors.
The Chief Executive Officer is ex officio a member of the Executive Committee
and has the general powers and duties of management
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usually vested in the office of chief executive officer of a corporation and
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
SECTION 3.7 DEPUTY CHIEF EXECUTIVE OFFICER.
In the absence or disability of the Chief Executive Officer, the Deputy
Chief Executive Officer shall perform all of the duties of the Chief Executive
Officer and when so acting has all the powers and is subject to all the
restrictions upon the Chief Executive Officer, including the power to sign all
instruments and to take all actions which the Chief Executive Officer is
authorized to perform by the Board of Directors or these Bylaws. The Deputy
Chief Executive Officer has such other powers and duties as may be prescribed by
the Chief Executive Officer or the Board of Directors or these Bylaws.
SECTION 3.8 PRESIDENT.
In the absence or disability of the Chief Executive Officer and Deputy
Chief Executive Officer, the President shall perform all of the duties of the
Chief Executive Officer and when so acting has all the powers and is subject to
all the restrictions upon the Chief Executive Officer, including the power to
sign all instruments and to take all actions which the Chief Executive Officer
is authorized to perform by the Board of Directors or these Bylaws. The
President has the general powers and duties usually vested in the office of
president of a corporation and such other powers and duties as may be prescribed
by the Chief Executive Officer, the Deputy Chief Executive Officer or the Board
of Directors or these Bylaws.
SECTION 3.9 EXECUTIVE VICE PRESIDENT, SENIOR VICE PRESIDENT AND VICE PRESIDENT
In the absence or disability of the Chief Executive Officer, the Deputy
Chief Executive Officer and the President, an Executive Vice President or a
Senior Vice President in the order of his or her rank and seniority shall
perform all of the duties of the Chief Executive Officer, and when so acting has
all the powers of and is subject to all the restrictions upon the chief
Executive Officer, including the power to sign all instruments and to take all
actions which the Chief Executive Officer is authorized to perform by the Board
of Directors or these Bylaws. The Executive Vice Presidents, Senior Vice
Presidents and Vice Presidents have the general powers and duties usually vested
in the office of a vice president of a corporation and each of them has such
other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors, the Executive
Committee of the Board of Directors, the Chief Executive Officer or these
Bylaws.
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SECTION 3.10 SECRETARY AND ASSISTANT SECRETARIES.
3.10.1 The Secretary shall (1) attend all meetings of the Board of
Directors and all meetings of the stockholders; and (2) record and keep, or
cause to be kept, all votes and the minutes of all proceedings in a book or
books to be kept for that purpose at the Principal Office, or at such other
place as the Board of Directors may from time to time determine, specifying
therein (i) the time and place of holding, (ii) whether regular or special, and
if special, how authorized, (iii) the notice thereof given, (iv) the names of
those present at directors' meetings, (v) the number of shares of stock the
holders of which are present or represented at stockholders' meetings, and (vi)
the proceedings thereof; and (3) perform like duties for the Executive and other
standing committees, when required. In addition, the Secretary must keep or
cause to be kept, at the office of the Corporation's resident agent in Nevada,
those documents required to be kept at such office by Section 5.2 of these
Bylaws and the applicable provisions of Chapter 78 of the Nevada Revised
Statutes.
3.10.2 The Secretary shall give, or cause to be given, notice of meetings
of the stockholders and special meetings of the Board of Directors, and has such
other powers and perform such other duties as may be prescribed by these Bylaws
or by the Board of Directors or the Chief Executive Officer, the Deputy Chief
Executive Officer or the President, under whose supervision he or she shall be.
The Secretary must keep in safe custody the seal of the Corporation (if any) and
affix it to any instrument requiring it, and when so affixed, it shall be
attested by his or her signature or by the signature of the Treasurer or an
Assistant Secretary. The Secretary is hereby authorized to issue certificates,
to which the corporate seal may be affixed, attesting to the incumbency of
officers of this Corporation or to actions taken by the Board of Directors or
any committee of officers or directors or the stockholders.
3.10.3 In the absence or disability of the Secretary, the Assistant
Secretaries, in the order of their seniority, shall perform the duties and
exercise the powers of the Secretary, and shall perform such other duties as the
Chief Executive Officer, the Deputy Chief Executive Officer or the President or
the Secretary prescribe.
SECTION 3.11 TREASURER AND ASSISTANT TREASURERS.
3.11.1 The Treasurer shall deposit all moneys and other valuables in the
name and to the credit of the Corporation, with such depositories as may be
ordered by the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
Chief Executive Officer, the Deputy Chief Executive Officer or the President or
directors, whenever they request it, an account of all his or her transactions
as Treasurer, and of the financial condition of the Corporation, as may be
prescribed by these Bylaws or by the Board of Directors or the Chief Executive
Officer, the Deputy Chief Executive Officer or the President, under whose
supervision he or she shall be.
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3.12.2 In the absence or disability of the Treasurer, the Assistant
Treasurers, in the order of their seniority shall perform the duties and
exercise the powers of the Treasurer and shall perform such other duties as the
Chief Executive Officer, the Deputy Chief Executive Officer or the President or
the Treasurer prescribe.
SECTION 3.12 ADDITIONAL POWERS, SENIORITY AND SUBSTITUTION OF OFFICERS.
In addition to the foregoing powers and duties specifically prescribed for
the respective officers, the Board of Directors may from time to time by
resolution (i) impose or confer upon any of the officers such additional duties
and powers as the Board of Directors may see fit, (ii) determine the order of
seniority among the officers, and/or (iii) except as otherwise provided above,
provide that in the absence of any officer or officers, any other officer or
officers shall substitute for and assume the duties, powers and authority of the
absent officer or officers. Any such resolution may be final, subject only to
further action by the Board of Directors, or the resolution may grant such
discretion, as the Board of Directors deems appropriate, to the Chief Executive
Officer (or in his or her absence the executive officer serving in his or her
place) to impose or confer additional duties and powers, to determine the order
of seniority among officers, and/or provide for substitution of officers as
above described.
SECTION 3.13 COMPENSATION.
The officers of the Corporation shall receive such compensation as is fixed
from time to time by the Board of Directors. No officer is prohibited from
receiving such salary by reason of the fact that the officer is also a director
of the Corporation.
SECTION 3.14 TRANSACTION INVOLVING INTEREST OF OFFICER.
In the absence of fraud, no contract or other transaction of the
Corporation shall be affected or invalidated by the fact that any of the
officers of the Corporation are in any way interested in, or connected with, any
other party to such contract or transaction, or are themselves parties to such
contract or transaction, provided that the transaction complies with the
applicable provisions of Chapter 78 of the Nevada Revised Statutes. Each and
every person who is or may become an officer of the Corporation is hereby
relieved, to the extent permitted by law, when acting in good faith, from any
liability that might otherwise exist from contracting with the Corporation for
the benefit of such officer or any person in which he or she may be in any way
interested or with which he or she may be in any way connected.
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ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
SECTION 4.1 STANDING.
The Board of Directors may appoint an Executive Committee, an Audit
Committee and/or a Compensation Committee, consisting of such number of its
members as it may designate, consistent with the laws of the State of Nevada,
the Articles of Incorporation or any amendment thereto, or these Bylaws,
including, if deemed desirable, alternate members who, in the order specified by
the Board of Directors, may replace any absent or disqualified member at any
meeting of the Committee.
4.1.1 The Executive Committee shall have and may exercise, when the Board
is not in session, all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation, but the Executive Committee
shall not have the power to fill vacancies on the Board, or to change the
membership of or to fill vacancies in the Executive Committee or any other
committee of the Board, or to adopt, amend or repeal the Bylaws, or to declare
dividends.
4.1.2 The Audit Committee shall select and engage on behalf of the
Corporation, and fix the compensation of a firm of certified public accountants
whose duty it shall be to audit the books and accounts of the Corporation and
its subsidiaries for the fiscal year in which they are appointed, and who shall
report to the Audit Committee. The Audit Committee shall confer with the
auditors and shall determine, and from time to time shall report to the Board
of Directors upon, the scope of the auditing of the books and accounts of the
Corporation and its subsidiaries. The Audit Committee shall also be responsible
for determining that the business practices and conduct of employees and other
representatives of the corporation and its subsidiaries comply with the policies
and procedures of the Corporation. A majority of the members of the Audit
Committee shall not be officers or employees of the Corporation or any of its
subsidiaries.
4.1.3.1 The Compensation Committee shall establish a general compensation
policy for the Corporation and shall have responsibility for the approval of
increases in directors' fees and in salaries paid to officers and senior
employees earning in excess of an annual salary to be determined by the
Committee. The Compensation Committee also shall evaluate and make
recommendations to the Board of Directors with respect to the adoption,
substantive modification to or termination of any benefit plan of this
Corporation, and with respect to employee benefit plans of the Corporation has
such additional responsibilities as are described in Section 4.1.3.2 hereof.
None of the members of the Compensation Committee shall be officers or employees
of the Corporation or any of its subsidiaries.
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4.1.3.2 To assist the Corporation in fulfilling its business goals, the
Board of Directors may from time to time establish or adopt those benefit plans,
which it shall designate as constituting a Level 1 plan (which designation
generally shall connote a compensatory plan in which participation is designed
solely for directors or senior management employees, or involves stock of this
Corporation, or is an incentive compensation plan that includes senior
management) or as constituting a Level 2 plan (which designation generally shall
connote a compensatory plan which is a savings plan or a corporate-wide capital
accumulation plan in which participation is broader than senior management
employees). The Board of Directors may modify or terminate any such plan.
However, the Compensation Committee is authorized to take action to adopt non-
substantive amendments to any Level 1 or Level 2 plan as it deems necessary or
appropriate, unless such plan involves the issuance of stock of the Corporation.
The Chief Executive Officer, or his designee, may take any and all actions to
establish or adopt any Level 3 plan (which would include medical plans, dental
plans, insurance plans, welfare plans and other benefit plans and any other plan
which is not a Level 1 or Level 2 plan) which he deems necessary or convenient
to the management of the Corporation, or to modify or terminate such Level 3
plan, so long as such action is not primarily for the benefit of directors or
senior management employees of the Corporation, either individually or
collectively.
Notwithstanding the foregoing, the Compensation Committee is responsible
for the control and management of the operation and administration (which shall
exclude ministerial activities) of the benefit plans of the Corporation, subject
to the limitations of this section. The Compensation Committee is responsible
for the control and management of the operation and administration (which shall
exclude ministerial activities) of those plans designated by the Board of
Directors as Level 1 plans. The Compensation Committee's responsibilities with
respect to the control and management of the operation and administration (which
shall exclude ministerial activities) of those plans designated by the Board of
Directors as Level 2 plans, is limited to the appointment of members of any
committee as may be constituted as under such plans, and such periodic oversight
as the Compensation Committee deems prudent under the circumstances then
prevailing in order to evaluate the prudence of the continued appointment of
such members. The Compensation Committee has no responsibility with respect to
the control and management of the operation and administration of any Level 3
plan.
SECTION 4.2 OTHER COMMITTEES.
Subject to any limitations in the laws of the State of Nevada, the Articles
of Incorporation or any amendment thereto, or these Bylaws as to action to be
authorized or approved by the stockholders, or duties not delegable by the Board
of Directors, any or all of the corporate powers may be exercised by or under
authority of, and the business and affairs of this Corporation may be controlled
by, such other committee or committees as may be appointed by the Board of
Directors. The powers to be exercised by any such committee shall be designated
by the Board of Directors.
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SECTION 4.3 PROCEDURES.
Subject to any limitations in the laws of the State of Nevada, the Articles
of Incorporation or any amendment thereto, or these Bylaws regarding the conduct
of business by the Board of Directors and its appointed committees, any
committee created under this Article may use any procedures for conducting its
business and exercising its powers, including but not limited to, actions by the
unanimous written consent of its members in the manner set forth in Section
2.14. A majority constitutes a quorum unless the Committee consists of one or
two directors, then the one or two directors, respectively, constitute a quorum.
Notices of meetings may be sent to a committee's members in any reasonable
manner and may be waived as for meetings of directors.
ARTICLE V
CORPORATE RECORDS AND REPORTS - INSPECTION
SECTION 5.1 RECORDS.
The Corporation shall maintain adequate and correct accounts, books and
records of its business and properties. All of such books, records and accounts
shall be kept at its Principal Office as fixed by the Board of Directors from
time to time.
SECTION 5.2 ARTICLES, BYLAWS AND STOCK LEDGER.
The Corporation shall maintain and keep the following documents at the
office of its resident agent in the State of Nevada: (i) a certified copy of the
Articles of Incorporation and all amendments thereto; (ii) a certified copy of
the Bylaws and all amendments thereto; and (iii) a statement setting forth the
following: "The Corporation's transfer agent, whose address is Nevada Agency and
Trust Co., 50 West Liberty Street, Suite 880, Reno, Nevada 89501, is the
custodian of the duplicate stock ledger of the Corporation."
SECTION 5.3 INSPECTION.
Any person who has been a stockholder of record for at least six months
immediately before such stockholder's demand, or any person holding, or
thereunto authorized in writing by the holders of, at least five percent of all
of the Corporation's outstanding stock, upon at least five days' written demand,
or any judgment creditor without prior demand, has the right to inspect in
person or by agent or attorney, during usual business hours, the duplicate stock
ledger of the Corporation and to make extracts therefrom. However, such
inspection may be denied to any stockholder or other person upon his or her
refusal to furnish to the Corporation an affidavit that such inspection is not
desired for a purpose which is in the interest of a business or object other
than the business of the Corporation and that he or she has not at any time sold
or offered for sale
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any list of stockholders of any corporation or aided or abetted any person in
procuring any such record of stockholders for any such purpose.
SECTION 5.4 CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of, or payable to, the
Corporation, shall be signed or endorsed by such person or persons, and in such
manner as shall be determined from time to time by resolution of the Board of
Directors.
ARTICLE VI
OTHER AUTHORIZATIONS
SECTION 6.1 EXECUTION OF CONTRACTS.
The Board of Directors, except as these Bylaws otherwise provide, may
authorize any officer or officers or agent or agents to enter into any contract
or execute any instrument in the name of and on behalf of the Corporation. Such
authority may be general, or confined to specific instances. Unless so
authorized by the Board of Directors, no officer, agent or employee shall have
any power or authority, except in the ordinary course of business, to bind the
Corporation by any contract or engagement or to pledge its credit, or to render
it liable for any purpose or in any amount.
SECTION 6.2 REPRESENTATION OF OTHER CORPORATIONS.
All stock of any other corporation, standing in the name of the
Corporation, shall be voted, represented and all right incidental thereto
exercised as directed by written consent or resolution of the Board of Directors
expressly referring thereto. In general, such rights shall be delegated by the
Board of Directors under express instructions from time to time as to each
exercise thereof to the Chief Executive Officer, the Deputy Chief Executive
Officer, the President, any Executive Vice President, any Senior Vice President,
and Vice President, the Treasurer or the Secretary of this Corporation, or any
other person expressly appointed by the Board of Directors. Such authority may
be exercised by the designated officers in person, or by any other person
authorized so to do by proxy, or power of attorney, duly executed by such
officers.
SECTION 6.3 DIVIDENDS.
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding stock in the manner and on the terms and
conditions provided by the laws of the State of Nevada, and the Articles of
Incorporation or any amendment thereto, subject to any contractual restrictions
to which the Corporation is then subject.
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ARTICLE VII
CERTIFICATES FOR TRANSFER OF STOCK
SECTION 7.1 CERTIFICATES FOR STOCK.
7.1.1 Certificates for stock shall be of such form and device as the Board
of Directors may designate and shall be numbered and registered as they are
issued. Each shall state the name of the record holder of the stock represented
thereby; its number and date of issuance; the number of shares of stock for
which it is issued; the par value; a statement of the rights, privileges,
preferences and restrictions, if any; a statement as to rights of redemption or
conversion, if any; and a statement of liens or restrictions upon transfer or
voting, if any, or, alternatively, a statement upon certificates specifying such
matters may be obtained from the Secretary of the Corporation.
7.1.2 Every certificate for stock must be signed by the Chief Executive
Officer, the Deputy Chief Executive Officer or the President and the Secretary
or an Assistant Secretary, or must be authenticated by facsimile signatures of
the Chief Executive Officer, the Deputy Chief Executive Office or the President
and the Secretary or an Assistant Secretary. Before it becomes effective, every
certificate for stock authenticated by a facsimile or a signature must be
countersigned by a transfer agent or transfer clerk, and must be registered by
an incorporated bank or trust company, either domestic or foreign, as registrar
of transfers.
7.1.3 Even though an officer who signed, or whose facsimile signature has
been written, printed or stamped on a certificate for stock ceases, by death,
resignation or otherwise, to be an officer of the Corporation before the
certificate is delivered by the Corporation, the certificate shall be as valid
as though signed by a duly elected, qualified and authorized officer, if it is
countersigned by the signature or facsimile signature of a transfer agent or
transfer clerk and registered by an incorporated bank or trust company, as
registrar of transfers.
7.1.4 Even though a person whose signature as, or on behalf of, the
transfer agent or transfer clerk has been written, printed or stamped on a
certificate for stock ceases, by death, resignation or otherwise, to be a person
authorized to so sign such certificate before the certificate is delivered by
the Corporation, the certificate shall be deemed countersigned by the signature
of a transfer agent or transfer clerk for purposes of meeting the requirements
of this section.
SECTION 7.2 TRANSFER ON THE BOOKS.
Upon surrender to the Secretary of the Corporation or transfer agent of the
Corporation of a certificate for stock duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to
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issue a new certificate to the person entitled thereto, cancel the old
certificate and record the transaction upon its books.
SECTION 7.3 LOST OR DESTROYED CERTIFICATES.
The Board of Directors may direct, or may authorize the Secretary of the
Corporation to direct, a new certificate or certificates to be issued in place
of any certificate or certificates theretofore issued by the Corporation alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate for stock so lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors or Secretary may in its or his or her discretion, and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his or her legal representative, to advertise
the same in such manner as it shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation with respect to the certificate alleged to have been
lost or destroyed.
SECTION 7.4 TRANSFER AGENTS AND REGISTRARS.
The Board of Directors may appoint one or more transfer agents or transfer
clerks, and one or more registrars, who may be the same person, and may be the
Secretary of the Corporation, or an incorporated bank or trust company, either
domestic or foreign, who shall be appointed at such times and places as the
requirements of the corporation may necessitate and the Board of Directors may
designate.
SECTION 7.5 FIXING RECORD DATE FOR DIVIDENDS, ETC.
The Board of Directors may fix a time, not exceeding 60 days before the
date fixed for the payment of any dividend or distribution, or for the allotment
of rights, or when any change or conversion or exchange of stock shall go into
effect, as a record date for determining the stockholders entitled to receive
any such dividend or distribution, or any such allotment of rights, or to
exercise the rights with respect to any such change, conversion, or exchange of
stock, and, in such case, only stockholders of record on the date so fixed are
entitled to receive such dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares of stock on the books of the Corporation after any record date fixed as
provided in this Section 7.5.
SECTION 7.6 RECORD OWNERSHIP.
The Corporation is entitled to recognize the exclusive right of a person
registered as such on the books of the Corporation as the owner of shares of the
Corporation's stock to receive dividends, and to vote as such owner, and is not
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person,
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whether or not the Corporation has express or other notice thereof, except as
otherwise provided by law.
ARTICLE VIII
AMENDMENTS TO BYLAWS
SECTION 8.1 BY STOCKHOLDERS.
Except as otherwise required by the provisions of the Articles of
Incorporation or any amendments thereto and subject to the right of the Board of
Directors to adopt, amend or repeal bylaws as provided in Section 8.2, new or
restated bylaws may be adopted, or these Bylaws may be repealed or amended at
the annual stockholders' meeting or at any other meeting of the stockholders
called for that purpose, by a vote of stockholders entitled to exercise a
majority of the voting power of the Corporation.
SECTION 8.2 BY DIRECTORS.
Except as otherwise required by the Articles of Incorporation and subject
to the right of the stockholders to adopt, amend, or repeal bylaws as provided
in Section 8.1, the Board of Directors may adopt, amend or repeal any of these
Bylaws by the affirmative vote of a majority of the directors present at any
organizational, regular or special meeting of the Board of Directors. This power
may not be delegated to any committee appointed in accordance with these Bylaws.
SECTION 8.3 RECORD OF AMENDMENTS.
Whenever an amendment or a new Bylaw is adopted, it shall be copied in the
book of minutes with the original Bylaws, in the appropriate place. If any Bylaw
is repealed, the fact of repeal, with the date of the meeting at which the
repeal was enacted, or written assent was filed, shall be stated in the book of
minutes.
ARTICLE IX
INDEMNIFICATION OF DIRECTORS AND OFFICERS
SECTION 9.1 INDEMNIFICATION FOR EXPENSES IN PROCEEDINGS.
Each person who was or is a party or is threatened to be made a party to or
is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (hereinafter a "proceeding"), by reason of the
fact that such person, or a person of whom such person is the legal
representative, is or was a director or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee,
fiduciary or agent of another corporation or of a partnership, joint venture,
trust
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or other enterprise, including service with respect to employee benefit plans,
whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as a director, officer,
employee, fiduciary or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent permitted by the laws of Nevada, as the same
exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, employee
benefit plan excise taxes or penalties and amounts paid or to be paid in
settlement) reasonably incurred or suffered by such person in connection
therewith, and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee, fiduciary or agent and shall inure to the
benefit of such person's heirs, executors and administrators. However, except as
provided in Section 9.2, the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board of Directors. The right to indemnification conferred in this Article IX
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if so required by Chapter 78 of the Nevada Revised Statutes, the
payment of such expenses incurred by a director or officer in such person's
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer (and not
in any other capacity in which service was or is rendered by such person while a
director or officer, including, without limitation, service to any employee
benefit plan) in advance of the final disposition of a proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it shall ultimately be
determined that such director or officer is not entitled to be indemnified under
this Section 9.1 or otherwise. The Corporation may, by action of the Board,
provide indemnification to employees and agents of the Corporation with the same
scope and effect as the foregoing indemnification of directors and officers.
SECTION 9.2 RIGHT TO BRING SUIT FOR UNPAID CLAIMS.
If a claim under Section 9.1 is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the Corporation shall also pay the expense of prosecuting such claim. It is a
defense to any such action (other than an action brought to enforce a claim for
expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any is required, has been
tendered to the Corporation) that the claimant has failed to meet a standard of
conduct which makes it permissible under Nevada law for the Corporation to
indemnify the claimant for the amount claimed. Neither the failure of the
Corporation (including the Board of Directors, independent legal counsel, or its
stockholders) to have made a determination before the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including the Board of Directors, independent legal counsel,
or its
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stockholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.
SECTION 9.3 ADVANCEMENT OF EXPENSES.
The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article IX is not exclusive of any other right which any person may have or
hereafter acquire under any provision of law, the Articles of Incorporation or
any amendment thereto, or these By-Laws, or of any agreement or vote of
stockholders or disinterested directors, or otherwise.
SECTION 9.4 INDEMNIFICATION INSURANCE.
The Corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee, fiduciary or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprises
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under Nevada law.
SECTION 9.5 INDEMNIFICATION EXPENSES OF WITNESSES.
To the extent that any director, officer, employee, fiduciary or agent of
the Corporation is by reason of such position, or a position with another entity
at the request of the Corporation, a witness in any action, suit or proceeding,
the Corporation shall indemnify such person against all costs and expenses
actually and reasonably incurred by such person or on such person's behalf in
connection thereto.
SECTION 9.6 INDEMNIFICATION AGREEMENTS.
The Corporation may enter into agreements with any director, officer,
employee, fiduciary or agent of the Corporation providing for indemnification to
the full extent permitted by Nevada law.
SECTION 9.7 SEVERABILITY.
If any provision of this Article IX shall for any reason be determined to
be invalid, the remaining provisions hereof shall not be affected thereby but
shall remain in full force and effect.
SECTION 9.8 FEDERAL ELECTION CAMPAIGN ACT.
The rights provided by this Article IX shall be applicable to the officers
(including without limitation the Chief Executive Officer, the Deputy Chief
Executive Officer, the
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President, the Treasurer and any Assistant Treasurer) appointed from time to
time by the Chief Executive Officer or the Treasurer of the Corporation or the
designee of either of them to serve in the administration and management of any
separate, segregated fund established for purposes of collecting and
distributing voluntary employee political contributions to federal election
campaigns pursuant to the Federal Election Campaign Act of 1971, as amended.
ARTICLE X
CORPORATION SEAL
The Corporation Seal shall be circular in form and shall have inscribed
thereon the name of the Corporation, and the date of its incorporation, and the
word "Nevada".
ARTICLE XI
INTERPRETATION
Reference in these Bylaws to any provision of Chapter 78 of the Nevada
Revised Statutes shall be deemed to include all amendments thereto and the
effect of the construction and determination of validity thereof by the Nevada
Supreme Court.
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EXHIBIT 3.3
SECOND AMENDMENT AND RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
CORPORATE DEVELOPMENT, INC.
At a meeting held October 20, 1993, the following amended and restated articles
of incorporation were unanimously approved and adopted by the stockholders of
Corporate Development, Inc.
I
NAME: The new and amended name of the corporation shall be:
PROLONG SUPER LUBRICANTS, INC.
II
PRINCIPAL OFFICE AND AGENT FOR SERVICE OF PROCESS: The corporations duly
appointed resident agent in charge of said principal office in the state of
Nevada upon whom process can be served is the Nevada Agency and Trust Company,
50 West Liberty Street, Suite 880, Reno, Nevada, 89501.
III
PURPOSE: To do and perform any and all acts and things and to transact
such business as is not inconsistent with the law in any part of the world
wherein the corporation is doing business; all as more specifically enumerated
in the Nevada Revised Statutes pertaining to corporations.
IV
DURATION: The period of this corporation's duration is perpetuity,
unless dissolved according to these articles or according to law.
V
BOARD OF DIRECTORS: The affairs of this corporation shall be managed by
a Board of Directors comprised of seven persons. The number of directors
comprising the Corporation's Board of Directors may be changed from time to time
by resolution of the Board of Directors and otherwise in accordance with
applicable provisions of the Nevada Revised Statutes. The names and address of
the members of the Board of Directors are as follows:
Elton Alderman, 1210 N. Barsten Way, Anaheim, CA 92806
Edwin C. Auld, Jr., 1210 N. Barsten Way, Anaheim, CA 92806
Michael R. Davis, 1210 N. Barsten Way, Anaheim, CA 92806
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Edward E. Jay, 1210 N. Barsten Way, Anaheim, CA 92806
Tom Kubota, 1210 N. Barsten Way, Anaheim, CA 92806
Thomas C. Billstein, 1210 N. Barsten Way, Anaheim, CA 92806
Ramon D. Pratt, 1210 N. Barsten Way, Anaheim, CA 92806
The Original Incorporators of the Corporation are as follows:
Ramon D. Pratt, P.O. BOX 9206, Palm Springs, CA 92263
Edward E. Jay, 650 E. Alejo Rd., Palm Springs, CA 92262
James W. Williams, 3190 E. Via Escuela, Palm Springs, CA 92662
VI
STOCK: The amount of the total authorized capital stock of this
corporation is $50,000.00 consisting of Fifty Million (50,000,000) shares of
$0.00l par value each. Said shares are all non-assessable and of the same class,
to-wit: common stock.
Stockholders of the corporation are not entitled to pre-emptive or any
other preferential right to acquire any shares (or securities convertible into
such shares) of this corporation's stock, nor are holders of the corporation's
stock entitled to exercise cumulative voting rights.
Shares of stock in the corporation shall be fully paid and non-assessable.
The Board of Directors shall have authority to fix and determine classes of
stock and the designations, preferences and relative rights and qualifications,
limits and restrictions thereof, as authorized by law.
VII
DIRECTOR LIABILITY: The liability of the directors of the corporation for
monetary damages shall be eliminated to the fullest extent permissible under
Nevada law.
VIII
INDEMNIFICATION OF AGENTS: The corporation is authorized to provide
indemnification of agents for breach of duty to the corporation and its
stockholders through bylaw provisions or through agreements with the agents, or
both, to the limits on such indemnification allowed under the Nevada Revised
Statutes.
IN WITNESS WHEREOF, we the undersigned officers of this corporation have
hereunto set our hands and seals effective the 10th day of November, 1993.
/s/ RAMON D. PRATT
-----------------------------------
Ramon D. Pratt, President
/s/ MARIE PRATT
-----------------------------------
Marie Pratt, Secretary
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EXHIBIT 3.4
BYLAWS
of
CORPORATE DEVELOPMENT, INC.
This is to certify that, pursuant to the written approval by the initial
board of directors of Corporate Development, Inc. The following Bylaws were
adopted for the corporation.
1. Identification
1.1 Name: The name of the corporation is Corporate Development, Inc.
1.2 Incorporation: The corporation was incorporated on March 16, 1989.
1.3 Principal Office: The principal office shall be located at 650 Alejo Rd.,
Palm Springs, California 92262.
1.4 Registered Offices and Agents: Registered officers and agents shall be
maintained in all states where required by the business of the corporation.
A registered office and/or agent may be, but need not be, identical with
the principal office. The address of the registered office may be changed
from time to time by the board of directors. The business address of the
registered agent shall be the same as the registered office when so
required by law.
1.5 Other Offices: The corporation may have other offices, either within or
without the state of incorporation, as the board of directors may designate
or as the business may require.
1.6 Corporate Seal: The board of directors may provide a corporate seal which
shall be in such form as the board may determine, which may include the
name of the corporation, the state of incorporation, and the year of
incorporation. An impression of the seal, if adopted is impressed in the
margin.
11. PURPOSES, POWERS AND PROHIBITIONS
The purposes, powers and prohibitions of the corporation are as stated in
Article III of the Articles of Incorporation.
111. SHAREHOLDERS
3.1 Place of Meetings: Meetings of the shareholders of the corporation shall
be held at the principal place of business, or at any other place, as
determined by the board of directors.
3.2 Annual Meetings:
(a) Day: The annual meeting of the shareholders shall be on the 15th day
of May of each year.
(b) Holidays: If the day fixed for the annual meeting is legal holiday in
the state where the meeting is to be held, the meeting may be held on the
next business day.
(c) Purpose: Annual meetings shall be for the purpose of electing directors
and for the transaction of any other business as may come before the
meeting.
(d) Substitute: If the annual meeting is not held on the day designated,
or if the directors are not elected at the annual meeting or at an
adjourned
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meeting, the directors shall cause a substitute annual meeting of share-
holders to be held as soon as convenient. The substitute annual meeting
shall be called in the same manner as provided for annual shareholders'
meeting shall be as valid as if transacted or held at the annual meeting.
3.3 Special Meetings:
(a) Purpose: Unless otherwise prescribed by statute, special meetings of
shareholders may be called for any purpose.
(b) Called by President, etc: Special meetings of shareholders may be
called by the president, the board of directors, any directors, or the
holders of not less than one-tenth of all the shares entitled to vote at
the meeting.
(c) Scope of Business: Business transacted at any special meeting of the
shareholders shall be limited to the purposes stated in the notice.
3.4 Conference Call Meetings: Meetings of the shareholders may be held by use
of conference telephone or similar communication equipment by means of
which all persons participating in the meeting can hear each other at the
same time. Participation shall constitute presence in person at a meeting.
3.5 Actions Without Meeting: Any action required or permitted 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 taken, is signed by all of the
shareholders entitled to vote with respect to the subject matter. Any such
consent shall be inserted in the minute book as if it were the minutes of a
shareholders' meeting.
3.6 Notice of Meetings: Written notice stating the place, date and hour of the
meeting, and in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than 10 nor more
than 50 days before the date of the meeting, either personally or by mail,
by or at the director of the president, or the secretary, or the officer or
persons calling the meeting, to each shareholder of record entitled to
vote. If mailed, the notice is deemed delivered when deposited in the
United States mail, addressed to the shareholder at his address as it
appears on the stock transfer books, with postage prepaid.
3.7 Waiver of Notice: Notice of any shareholders' meeting may be waived in
writing by any shareholder at any time. Notice is deemed waived by any
shareholder who affixes his signature of approval to the minutes of any
shareholders' meeting.
3.8 Determination of Shareholders:
(a) Closure of Transfer Records-Maximum Period: For the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or at any adjournment, or shareholders entitled to receive
payment of any dividend, or in order to make a determination of
shareholders for any other proper purpose, the board of directors may
provide that the stock transfer records be closed for a stated period, but
not to exceed, in any case, 50 days.
(b) Maximum Periods of Meetings: If the stock transfer records are closed
to determine the shareholders entitled to notice of or to vote at a
meeting of shareholders, the records shall be closed for at least 10 days
immediately preceding the meeting.
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(c) Fixed Record Date; In lieu of closing the stock transfer records, the
board may fix, in advance, a date as the record date of any determination
of shareholders the date in any case not to be more than 50 days and, in
case of a meeting of shareholders, not less than 10 days, prior to the date
on which the particular action requiring such determination of share-
holders is to be taken.
(d) Automatic Record Date: If the stock transfer records 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 shareholders entitled to receive
payment of a dividend, the date on which notice of the meeting is mailed or
the date on which the resolution of the board declaring the dividend is
adopted, as the case may be, shall be the record date for this
determination of shareholders.
(e) Adjournment: When a determination of shareholders entitled to vote at
any meeting has been made as provided in this section, the determination
shall apply to any adjournment matter submitted to a vote at a meeting of
shareholders.
3.9 Voting Rights:
(a) Generally: Unless otherwise provided for in the Articles of
Incorporation, each outstanding share entitled to vote shall be entitled
to one vote upon each matter submitted to a vote at a meeting of
shareholders.
(b) There shall be no cumulative.
(c) Lists: If there are more than 15 shareholders, the officer or agent
having charge of the stock transfer records shall make, at least 10 days
before each meeting of shareholders, a complete list of the shareholders
entitled to vote at each meeting, or any adjournment, arranged in
alphabetical order, with the address of and the number of shares held by
each, which list, for a period of 10 days prior to the meeting, shall be
kept on file at the principal office and shall be subject to inspection by
any shareholder at any time during usual business hours. This list shall
also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time
of the meeting. The original stock transfer records shall be prima facie
evidence as to who are the shareholders entitled to examine such list or
transfer records or to vote at any meeting of shareholders.
3.10 Conduct Meetings:
(a) Quorum: A majority of the shares entitled to vote, represented in
person or by proxy, shall constitute a quorum at a meeting of shareholders.
(b) Majority Vote: If a quorum is present, the affirmative vote of the
majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by the act, the Articles
of Incorporation or the Bylaws, or by a Shareholders' Agreement.
(c) Effect of Withdrawals: The shareholders present at a duly organized
meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
(d) Adjournments in Absence of Quorum: If less than a majority of the
outstanding shares are represented at a meeting, a majority of the shares
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represented may adjourn the meeting from time to time without further
notice, except that any meeting at which directors are to be elected shall
be adjourned from day to day until the directors are elected. In the case
of any meeting called for the election of directors, those who attend the
second and adjourned meeting, although less than a quorum, shall constitute
a quorum for the purpose of electing directors. At all adjourned meetings
at which a quorum is represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
(e) Presiding Officer: The president and, in his absence, the vice
president, shall preside at all shareholders' meetings. If both are
absent, the shareholders present shall elect a presiding officer. The
secretary shall act as secretary at all shareholders' meetings. In his
absence or failure to act, the presiding officer may appoint any person to
act as secretary of such meeting.
(f) Order of Business: The order of business at annual meetings, and so
far as practicable at all other meetings of shareholders, shall be as
follows:
(1) Proof of notice of meeting.
(2) Call of roll-examination of proxies
(3) Reading and disposal of any unapproved minutes.
(4) Annual reports of officers and committees.
(5) Completion of unfinished business.
(6) Consideration of new business.
(7) Adjournment of meeting.
3.11 Proxies: A shareholder may vote either in person or by proxy executed in
writing by the shareholder or by his duly authorized attorney-in-fact. No
proxy shall be valid after 11 months from the date of its execution,
unless otherwise provided in the proxy.
3.12 Prohibitions Against Voting: No share of common stock or preferred stock
shall be voted at any meeting of shareholders or counted in determining
the total number of outstanding shares at any given time in any of the
following events:
(a) Not Fully Paid: If the consideration for the shares has not been
fully paid to the corporation.
(b) Shares Unissued or Held by Subsidiary: If any shares are unissued
or are held by another corporation if a majority of the shares entitled to
vote for the election of directors of the other corporation is held by the
corporation.
(c) Shares Subject Redemption: On or after the date on which written
notice of redemption of redeemable shares has been mailed to the holders
and a sum sufficient to redeem the shares has been deposited with a
trustee with irrevocable instruction and authority to pay the redemption
price to the holders for surrender of certificates, such shares shall not
be entitled to vote on any matter and shall not be deemed to be
outstanding shares.
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3.13 Voting by Certain Holders: Shares held by the following types of holders
shall be voted as follows:
(a) Corporate Holders: Shares standing in the name of another
corporation may be voted by the officer, agent or proxy as the bylaws of
the holding corporation may prescribed or, in the absence of such
provision, as its board of directors may direct.
(b) Fiduciary Holders: Shares held by an administrator, executor,
guardian or conservator may be voted by him, either in person or by proxy,
without a transfer of such shares into his name. Shares standing in the
name of a trustee may be voted by him, either in person or by proxy, but
no trustee shall be entitled to vote shares held by him without a transfer
of such shares into his name.
(c) Receivers: Shares standing in the name of a receiver may be voted
by the receiver, and shares held by or under the control of a receiver may
be voted by the receiver without transfer into his name if authority is
contained in an appropriate order of the court by which such receiver was
appointed.
(d) Pledges: Unless otherwise agreed by the parties, a shareholder
whose shares are pledged shall be entitled to vote the shares pledged
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares transferred.
IV. DIRECTORS
4.1 Management by Directors:
(a) Generally: The business and affairs of the corporation shall be
managed under the direction of the board of directors.
(b) Resolutions: The board of directors may exercise its powers by
resolution adopted in any regular or other meeting.
(c) Rules and Regulations: The board of directors may adopt rules and
regulations for the conduct of meetings and the management of the affairs
of the corporation, not inconsistent with the laws of the state of
incorporation, and the Articles of Incorporation and Bylaws.
4.2 Number: The board of directors shall consist of three or more members to
be determined by the directors. No decrease in number shall shorten the
term of any incumbent director.
4.3 Qualifications: Directors need not be residents of the state of in-
corporation or of the state in which the principal office is located.
Directors need not be shareholders and may be officers.
4.4 Election: Members of the initial board of directors shall hold office
until the first annual meeting of shareholders and until their successors
shall have been elected and qualified. At the first annual meeting of
shareholders, and at each annual meeting thereafter, the shareholders
shall elect directors.
4.5 Term: Unless sooner removed as provided in Section 4.19, each director
shall hold office until the next annual meeting of shareholders and until
his successor is elected and qualified.
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4.6 Vacancies: Any vacancy occurring in the board of directors may be filled
by the affirmative vote of a majority of the remaining directors though
less than a quorum of the board participates. A director elected to fill a
vacancy shall be elected for a term continuing only until the next
election of directors, except in cases of classification of directors.
4.7 Place of Meetings: All meetings of directors shall be held at the
principal office unless a majority of the directors designate that any
meeting be held at some other place.
4.8 Annual Meeting: The annual meeting of the board of directors shall be held
without other notice than this bylaw, immediately after, and at the same
place as the annual meeting of shareholders.
4.9 Regular Meetings: The Board of Directors may provide, by resolution, the
time and place for the holding of regular meetings without other notice
than such resolution, either within or without the state in which the
principal office is located.
4.10 Special Meetings: Special meetings of the board of directors may be
called as follows:
(a) On Call of President: The president may call a special meeting of
the board of directors at any time. In his absence, or in his inability to
act, the vice president may call a special meeting.
(b) On Call of Two Directors: Any two directors may call a special
meeting by written request to the secretary who shall forthwith give
notice to all members of the board of the time and place of the meeting,
which shall not be less than 10 days nor more than 20 days after the
request is delivered to the secretary. If the secretary fails to give the
notice within 10 days after receipt of the request, the two directors may
give the notice.
(c) Place, Date and Time: The person or persons calling the meeting
shall fix the place, date and time.
4.11 Notice of Special Meeting: Notices of all directors' special meeting
shall be in writing or by telegram, and shall be given as provided in
Section 3.3 for meetings of shareholders. The notices shall be given in
sufficient time to enable each director to arrive at the place of meeting
by the customary modes of transportation.
4.12 Waiver of Notice: Any director may waive notice of any directors' meeting
by:
(a) Signing a written waiver
(b) Signing the written minutes, or
(c) Attending the meeting, unless attendance is for the express purpose
of objecting to the transaction of any business because the meeting is not
lawfully called or convened.
4.13 Conference Call Meetings: Meetings of the board of directors or
committees may be held by use of conference telephone or similar
communication equipment by means of which all persons participating can
hear each other at the same time. Participation shall constitute presence
in person at a meeting.
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4.14 Action Without a Meeting: Any action that may be taken by the board of
directors at a meeting may be taken without a meeting if a consent in
writing, setting forth the action so taken, is executed by all of the
directors entitled to vote on the subject matter. The written consent
shall be inserted in the minute book as if it were the minutes of a board
meeting.
4.15 Conduct of Meetings:
(a) Quorum: A majority of the number of directors fixed by Section
4.2 entitled to vote on the subject matter, 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, a majority of the directors present
may adjourn the meeting from time to time without further notice.
(b) Presiding Officer: The president shall preside at all directors'
meetings unless the directors have previously designated a different
person as chairman of the board. In the absence of the president or any
chairman of the board the vice president shall preside.
(c) Majority Voting: The act of the majority of disinterested directors
present at a meeting at which a quorum is present shall be the act of the
board of directors, unless the act of a greater number is required by the
Articles of Incorporation or by a Shareholders' Agreement.
(d) Presumption of assent - Dissents: A director present at a meeting
of the board 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 or unless he files a written dissent
to the action with the secretary before the adjournment or forwards his
dissent by certified mail to the secretary immediately after the
adjournment of the meeting. The right to dissent shall not apply to a
director who voted in favor of the action.
4.16 Compensation: No stated salary shall be paid directors for their
services, but by resolution of the board of directors, a reasonable amount
may be al1owed to each director for attendance at each regular of special
meeting of such board, plus expenses of attending a meeting. No such
payment shall prevent any director from serving the corporation in any
other capacity and receiving compensation therefor. Members of special or
standing committees may be allowed like compensation for attending
committee meeting.
4.17 Duties of Directors: Directors shall perform their duties in good faith,
in a manner believed to be in the best interest of the corporation, and
with the care, including reasonable inquiry as an ordinary prudent person
in a like position would use under similar circumstances, as provided in
RCW 23A.08.343 as it now exists or as it may be amended.
4.18 Liability of Directors: Directors may be liable as provided in RCW
23A.08.450 as it now exists or as it may be amended.
4.19 Removal of Directors: At a shareholders' meeting called expressly for
that purpose, the entire board of directors, or any member thereof, may be
removed for or without cause in the following manner:
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(a) Majority Vote: by a vote of the holders of two-thirds of the
shares then entitled to vote at an election of directors.
(b) Cumulative Voting: If cumulative voting is authorized, and if less
than the entire board of directors is to be removed, no one of the
directors may be removed if the votes cast against the director's removal
would be sufficient to elect him if then cumulatively voted at an election
of the entire board of directors, or if there be classes of directors, at
an election of the class of directors of which he is a part.
4.20 Reliance on Interpretations: If any uncertainty or issue should arise at
any time as to the proper interpretation of these bylaws, or of the
articles of incorporation, or any portion of them, the directors are
authorized and directed to obtain the written opinion of the lawyer who
drafted them, or if not available, of the lawyer who is then representing
the corporation, and to act upon this opinion. In interpreting any of the
instruments, the lawyer is authorized and expected to consider any facts
of which he or she may have knowledge, whether or not admissible in court.
V. OFFICERS
5.1 Designation: The officers of the corporation shall be a president, one or
more vice presidents (the number to be determined by the board of
directors), a secretary and a treasurer, each of whom shall be elected by
the board of directors. The board of directors may elect a chairman of the
board who, when present, shall preside at all meetings of the board of
directors and who shall have any other powers as the board prescribes. Any
two or more officers may be held by the same person, except the president
may not hold any other office. All offices may be held by one person when
one person holds all of the outstanding shares.
5.2 General Authority and Duties: All officers and agents as between
themselves and the corporation shall have such authority and perform such
duties in the management of the corporation as may be provided in these
bylaws or as may be determined by resolution of the board of directors not
inconsistent with these bylaws.
5.3 Qualifications: The president and chairman of the board of directors, if
any, need not be shareholders. The vice presidents, secretary, treasurer
and other officers need not be shareholders or directors.
5.4 Election and Term: The officers of the corporation shall be elected
annually by the board of directors at the first meeting held after each
annual meeting of the shareholders. If officers are not elected after the
annual meeting, the election shall be held as soon as convenient and, in
any event, within 13 months.
5.5 Extended Terms - Succession: Each officer shall hold office until a
successor is elected and qualified, or until death, resignation or
removal.
5.6 Removal: Any officer or agent elected or appointed by the board of
directors may be removed by the board, whenever, in its judgment, the best
interests of the corporation would be served thereby. Any removal shall be
without prejudice to the contract rights, if any, of the person being
removed. Election or appointment of an officer or agent shall not, of
itself, create contract rights.
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5.7 Resignations: Any officer of the corporation may resign at any time by
giving written notice to the corporation, to the board of directors,
or to the chairman of the board, or to the president, or to the
secretary. Any resignation shall take effect at the time fixed in the
resignation or, if no time is fixed, upon its acceptance by the board of
directors.
5.8 Vacancies: A vacancy in any office because of death, resignation, removal
disqualification or otherwise, may be filled by the board of directors
for the unexpired portion of the term.
5.9 Delegation: In the case of absence or inability to act of any officer and
of any person authorized to act in his place, the board of directors may,
from time to time, delegate the powers of duties of the officer to any
other officer or any director or other person whom it may select.
5.10 Chairman of the Board: The chairman of the board, if any, shall preside
at all meetings of the board of directors, if present, and shall, in
general, perform all duties incident to the office of chairman of the
board of directors.
5.11 President: The president shall be the principal executive officer and,
subject to the control of the board of directors, shall, in general,
supervise and control all of the business and affairs of the corporation.
He shall, when present, preside at all meetings of the shareholders and of
the board of directors unless a chairman of the board is designated. The
president shall perform all duties incident to the office of the president
and any other duties as may be prescribed by the board from time to time.
5.12 Vice President: In the absence of the president, or in the event of the
president's death, inability or refusal to act, the vice president (or in
the event of more than one vice president, the vice president who was first
elected to such office) shall perform 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. Vice presidents shall perform any other
duties as from time to time may be assigned to them by the president or by
the board.
5.13 Secretary: The secretary shall:
(a) Keep the minutes of shareholders; and board of directors' meetings
in one or more books provided for that purpose;
(b) See that all notices are duly given in accordance with the
provisions of these bylaws or as required by law;
(c) Be custodian of the corporate records and of the seal of the
corporation and see that the seal of the corporation is affixed to all
documents, the execution of which on behalf of the corporation under its
seal is duly authorized;
(d) Keep a register of the post office address of each shareholder as
furnished to the secretary by each shareholder;
(e) Sign with the president, or a vice president, certificates for
shares of the corporation, the issuance of which has been authorized by
resolution of the board;
(f) Have general charge of the stock transfer books of the
corporation; and
(g) Perform, in general, all duties incident to the office of
secretary and such other duties as from time to time may be assigned to him
by the president or by the board.
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5.14 Treasurer: If required by the board of directors, the treasurer shall
give a bond for the faithful discharge of his duties in such sum and with
such surety or sureties as the board of directors shall determine. He
shall have charge and custody of and be responsible for all funds and
securities of the corporation; receive and give receipts for monies due
and payable to the corporation from any source whatsoever, and deposit all
such monies in the name of the corporation in such banks, trust companies
or other depositories as shall be selected in accordance with the
provisions of Articles VI of these bylaws; and in general perform all of
the duties incident to the office of treasurer and such other duties as
from time to time may be assigned to him by the president or by the board
of directors.
5.15 Other Officers and Agents: Directors may appoint a general manager, one
or more assistant treasurers, one or more assistant secretaries, and any
other officers and agents as they deem necessary or expedient, who shall
hold their offices for the terms and shall exercise powers and perform
duties as my be determined from time to time by the board of directors.
5.16 Salaries: The salaries of the officers shall be fixed, from time to time,
by the board of directors. No officer shall be prevented from receiving
his salary by reason of the fact that he may be a director of the
corporation.
VI FISCAL MATTERS
6.1 Depositories: All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such
banks, trust companies or other depositories as the board may select.
6.2 Surety Bonds: The board of directors, may, by resolution, require any and
all officers and agents to give bonds to the corporation, with sufficient
surety or sureties, conditioned for the faithful performance of the
duties of their respective offices, and to comply with any other
conditions as may be required by the board of directors.
6.3 Negotiable Instruments: All checks, drafts, or other orders for the
payment of money, notes or other evidences of indebtedness issued in the
name of the corporation shall be signed by the officer or officers, agent
or agents, and in the manner prescribed by resolution of the board of
directors.
6.4 Deeds, Contracts, etc: The board of directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the corporation,
and such authority may be general or confined to specific instances.
6.5 Endorsement of Stock Certificates: Subject to the specific directions of
the board of directors, any share or shares of stock issued by any
corporation and owned by the corporation (including reacquired shares of
stock of the corporation) may, for sale or transfer, be endorsed in the
name of the corporation by the president, and his signature shall be
attested to by the secretary or an assistant secretary who shall affix the
corporation seal.
6.6 Voting Shares: Share owned by the corporation in another corporation,
domestic or foreign, may be voted by the officer, agent, or proxy as the
board of directors may determine or, in the absence of such determination,
by the president.
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6.7 Distributions: (a) Methods. A distribution shall mean a direct or
indirect transfer of money or other property (except its own shares) or
incurrence of indebtedness by the corporation to or for the benefit of its
shareholders in respect of any of its shares. A distribution may be in the
form of a dividend, a purchase, a redemption, or other acquisition of
shares, or otherwise.
VII ISSUANCE AND TRANSFER OF SHARES
7.1 Amount and Classes: The authorized shares of the corporation are as
provided in Article IV of the articles of incorporation.
7.2 Subscriptions: A written subscription for shares of this corporation is
provided by the terms of the subscription agreement, unless all of the
subscribers consent to the revocation of such subscription.
7.3 Consideration: Consideration for the issuance of shares shall be
established from time to time by the board of directors.
7.4 Payment: The consideration for the issuance of shares may be paid by
cash promissory note, services performed, contract for services to be
performed, or in other tangible or intangible property. When payment of
the consideration for which shares are to be issued has been received by
the corporation, the shares shall be deemed to be fully paid and non-
assessable.
7.5 Issuance Restrictions: No certificate shall be issued for any share
until the consideration established for its issuance has been paid.
7.6 Preemptive Rights: The preemptive rights of all shareholders are as
limited in the articles of incorporation.
7.7 Certificates for Shares:
(a) Execution: The shares of a corporation shall be represented by
certificates signed by the president or a vice president and the secretary
or an assistant secretary of the corporation, and may be sealed with the
seal of the corporation or a facsimile. The signatures of the president or
vice president and the secretary or assistant secretary upon a certificate
may be facsimiles if the certificate is countersigned by a transfer agent,
or registered by a registrar, other than the corporation itself or an
employee of the corporation.
(b) Classes: Every certificate representing shares issued by a
corporation which is authorized to issue shares of more than one class
shall set forth upon the face or back of the certificate, or shall state
that the corporation will furnish to any shareholder upon request and
without charge, a full statement of the designations preferences,
limitations and relative rights of the shares of each class authorized to
be issued and, if the corporation is authorized to issue any preferred or
special class or series, the variations in the relative rights and
preferences between the shares of each such series so far as the same have
been fixed and determined and the authority of the board of directors to
fix and determine the relative rights and preferences of subsequent
series.
-11-
<PAGE>
(c) Contents (or Forms): All Certificates representing shares shall be
numbered consecutively and state:
(1) The corporation is organized under the laws of the state of Nevada;
(2) The name of the person to whom issued;
(3) The number and class of shares, and the designation of the series,
if any, which such certificate represents;
(4) A reference to or a full statement of the designations, preferences,
limitations and relative rights of the shares of each class
authorized to be issued;
7.8 Transfer of Shares: The corporation shall register a transfer of a
certificate presented to it for transfer if:
(a) Endorsement: The certificate is properly endorsed by the registered
holder or by his duly authorized attorney.
(b) Witnessing: The endorsement or endorsements are witnessed by one
witness unless this requirement is waived by the secretary of the
corporation.
(c) Adverse Claims: The corporation has no notice of any adverse claims
or has fulfilled any duty to inquire into any claims; and
(d) Collection of Taxes: There has been compliance with any applicable
law relating to the collection of taxes.
7.9 Transfer Agents and Registrar: The board of directors may appoint a
transfer agent and a registrar for the common and preferred shares of the
corporation. When appointed, the transfer agent shall be in charge of the
issue, transfer and cancellation of shares and shall countersign all
certificates. The transfer agent shall maintain transfer books, which
shall include a record of the shareholders, giving the names and addresses
of all shareholders, and the number and class of shares held by each;
prepare voting lists for meetings of shareholders; produce and keep open
these lists at the meetings; and perform any other duties as may be
delegated by the board of directors. Shareholders shall give notice of
changes of their addresses to the transfer agent. The registrar shall be
in charge of preventing the overissue of shares, shall register all
certificates, and perform any other duties as may delegated by the board
of directors.
7.10 Transfer Records: The corporation shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
register, a record of it shareholders, giving the names and addresses and
IRS income tax identification numbers of all shareholders and the number
and class of shares held by each.
7.11 Reliance and Records: The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as owner. Registered shareholders only
shall be entitled to be treated by the corporation as the holders in fact
of the stock standing in their respective names. The corporation shall not
be bound to recognize any equitable or other claim to or interest in any
share on the part of any other person, whether or not it shall have
express or other notice thereof, except as expressly provided by the laws
of the state of incorporation.
-12-
<PAGE>
7.12 Lost, Stolen or Destroyed Certificates: If a stock certificate is lost,
mutilated or destroyed, a duplicate certificate may be issued upon the
terms prescribed by the board of directors.
7.13 Acquisition of Own Shares: The corporation may acquire its own shares as
provided in RCW 23A.08.030. No purchase or redemption shall be made if
the corporation is or would thereby be rendered insolvent.
7.14 Treasury Shares: (Reserved)
7.15 Fractional Shares or Scrip: The corporation may, but shall not be
obliged to, issue certificates for fractional shares, which shall
entitled the holder to exercise voting rights, to receive dividends, and
to participate in any of the assets of the corporation in the event of
liquidation. In lieu of fractional shares, the board of directors may
provide for the issuance of scrip in registered or bearer form which
shall entitled the holder to receive a certificate for a full share upon
the surrender of scrip aggregating a full share.
7.16 Limitations on Transfer: No shares shall be transferred contrary to
any restrictions contained in the articles of incorporation or
contrary to any agreement among shareholders and/or with the
corporation, of which the corporation has notice.
VIII MISCELLANEOUS
8.1 Notice Methods: Except as may otherwise be required by law, any notice
to any shareholders or director may be delivered personally or by mail.
If mailed, the notice shall be deemed to have been delivered when
deposited in the United States mail, addressed to the addressee at his
last known address in the records of the corporation with postage
prepaid.
8.2 Amendment of Bylaws: These bylaws may be amended, repealed or altered, in
whole or in part, by the board of directors, except that they shall not
make or alter any bylaws fixing their qualifications classifications,
term of office or compensation. The shareholders may make, alter and
repeal these bylaws not inconsistent with law, or with the articles of
incorporation, including bylaws made or altered by the board of
directors.
IX CERTIFICATION
The Undersigned secretary of the above corporation hereby certifies that
the foregoing bylaws were adopted by the Board of Directors.
Signed and sealed this 31st day of March, 1989.
/s/ MARIE Z. PRATT
-----------------------------------
Secretary
Approved:
/s/ RAMON D. PRATT
-------------------------
President
-13-
<PAGE>
EXHIBIT 4.1
SPECIMEN
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
1981
PAR VALUE $0.001 PER SHARE CUSIP NO. 743411100
NUMBER SHARES
PROLONG INTERNATIONAL CORPORATION
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
AUTHORIZED CAPITAL STOCK [__,000,000] COMMON SHARES
This Certifies that *** *** is the owner of
--------------------------------------------
*** ***
- ----------------------------------------------- Shares of the Capital Stock of
PROLONG INTERNATIONAL CORPORATION
transferable only on the books of the Corporation by the holder hereof in person
or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed by its duly authorized officers and its Corporate Seal to be hereunto
affixed this ________________ day of ______________ A.D. 19______.
/s/ [ILLEGIBLE SIGNATURE] /s/ ELTON ALDERMAN
------------------------ -------------------------
SECRETARY PRESIDENT
[SEAL]
NEVADA AGENCY & TRUST CO., SUITE 880 COUNTERSIGNED AND REGISTERED
50 WEST LIBERTY STREET, RENO, NEVADA 89501 /s/ [ILLEGIBLE SIGNATURE]
<PAGE>
CERTIFICATE
FOR
SHARES
OF THE
CAPITAL STOCK
ISSUED TO
--------------------------
DATED
--------------------------
For Value Received, _______ hereby sell, assign and transfer unto
- -------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
to transfer the said Stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated 19
------------------------- ----
In presence of
- --------------------------------------------------------------------------------
NOTICE: THE SIGNATURE OF THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
<PAGE>
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT ("Agreement") is made on ______________,
19___, between PROLONG INTERNATIONAL CORPORATION, a Nevada corporation (the
"Company"), and _______________________ ("Indemnitee"), an officer and/or member
of the Board of Directors of the Company.
WHEREAS, the Company desires the benefits of having Indemnitee serve as an
officer and/or director secure in the knowledge that expenses, liability and
losses incurred by him in his good faith service to the Company will be borne by
the Company or its successors and assigns in accordance with applicable law; and
WHEREAS, the Company desires that Indemnitee resist and defend against what
Indemnitee may consider to be unjustified investigations, claims, actions, suits
and proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company notwithstanding that conditions in the
insurance markets may make directors' and officers' liability insurance coverage
unavailable or available only at premium levels which the Company may deem
inappropriate to pay; and
WHEREAS, the parties believe it appropriate to memorialize and reaffirm the
Company's indemnification obligations to Indemnitee and, in addition, set forth
the indemnification agreements contained herein;
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties agree as follows:
1. INDEMNIFICATION. Indemnitee shall be indemnified and held harmless by
the Company to the fullest extent permitted by applicable law, as the same
exists or may hereafter be amended, against all expenses, liability and loss
(including attorneys' fees, judgments, fines, and amounts paid or to be paid in
any settlement approved in advance by the Company, such approval not to be
unreasonably withheld) (collectively, "Indemnifiable Expenses") actually
reasonably incurred or suffered by Indemnitee in connection with any present or
future threatened, pending or contemplated investigation, claim, action, suit or
proceeding, whether civil, criminal, administrative or investigative
(collectively, "Indemnifiable Litigation"), (i) to which Indemnitee is or was a
party or is threatened to be made a party by reason of any action or inaction in
Indemnitee's capacity as a director or officer of the Company, or (ii) with
respect to which Indemnitee is otherwise involved by reason of the fact that
Indemnitee is or was serving as a director, officer, employee or agent of the
Company, or of any subsidiary or division, or is or was serving at the request
of the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise. Notwithstanding the
foregoing, Indemnitee shall have no right to indemnification for expenses and
the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities and Exchange Act of
1934, as amended.
2. INTERIM EXPENSES. The Company agrees to pay Indemnifiable Expenses
incurred by Indemnitee in connection with any Indemnifiable Litigation in
advance of the final disposition thereof, provided that the Company has received
an undertaking by or on behalf of Indemnitee, substantially in
<PAGE>
the form attached hereto as Exhibit A, to repay the amount so advanced to the
---------
extent that it is ultimately determined that Indemnitee is not entitled to be
indemnified by the Company under this Agreement or otherwise, provided further,
that the Company may, in its discretion, request adequate security from
Indemnitee to ensure repayment prior to the advancement of Indemnifiable
Expenses. The advances to be made hereunder shall be paid by the Company to
Indemnitee within twenty (20) days following delivery of a written request
therefor by Indemnitee to the Company.
3. PROCEDURE FOR MAKING DEMAND. Indemnitee shall, as a condition
precedent to his right to be indemnified under this Agreement, give the Company
notice in writing as soon as practicable of any claim made against Indemnitee
for which indemnification will or could be sought under this Agreement. No
failure to give such notice shall relieve the Company from any indemnification
obligation hereunder, except to the extent such failure shall materially and
adversely affect the Company. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address set forth in Section 10
hereof (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked and sent by certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power. Any indemnification provided for in Section 1 shall be made
no later than forty-five (45) days after receipt of the written request of
Indemnitee.
4. FAILURE TO INDEMNIFY.
(a) If a claim under this Agreement is not paid in full by the
Company, within forty-five (45) days after a written request for payment thereof
has been received by the Company, Indemnitee may, but need not, at any time
thereafter bring an action against the Company to recover the unpaid amount of
the claim and, subject to Section 12 of this Agreement, if successful in whole
or in part, Indemnitee shall also be entitled to be paid for the expense
(including attorneys' fees) of bringing such action.
(b) It shall be a defense to such action (other than an action
brought to enforce a claim for expenses incurred in connection with any action,
suit or proceeding in advance of its final disposition) that Indemnitee has not
met the standard of conduct which make it permissible under applicable law for
the Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of interim expenses pursuant to Section 2 hereof unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its board of
directors, any committee or subgroup of the board of directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
2
<PAGE>
5. NOTICE TO INSURERS. If, at the time of the receipt of a notice of a
claim pursuant to Section 3 thereof, the Company has director and/or officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
6. RETENTION OF COUNSEL. In the event that the Company shall be
obligated to pay Indemnifiable Expenses under this Agreement as a result of any
proceeding against Indemnitee, the Company, if appropriate, shall be entitled to
assume the defense of such proceeding, with counsel approved by Indemnitee,
which approval shall not be unreasonably withheld, upon the delivery to
Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by that Indemnitee with
respect to that same proceeding, provided that (i) Indemnitee shall have the
right to employ his or her counsel in any such proceeding at Indemnitee's
expense, and (ii) if (A) the employment of counsel by Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the Company and
Indemnitee in the conduct of any such defense, or (C) the Company shall not, in
fact, have employed counsel to assume defense of such proceeding, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
7. SUCCESSORS. This Agreement establishes contract rights which shall be
binding upon, and shall inure to the benefit of, the successors, assigns, heirs
and legal representatives of the parties hereto.
8. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee, and, in that event, the Indemnitee's rights and the Company's
obligations hereunder shall be subject to that determination.
9. CONTRACT RIGHTS NOT EXCLUSIVE. The contract rights conferred by this
Agreement shall be in addition to, but not exclusive of, any right which
Indemnitee may have or may hereafter acquire under any statute, provision of the
Company's Articles of Incorporation or Bylaws, agreement, vote of shareholders
or disinterested directors, or otherwise. Nothing in this Agreement shall be
construed to affect or modify any such right.
10. INDEMNITEE'S OBLIGATIONS. The Indemnitee shall promptly advise the
Company in writing of the institution of any investigation, claim, action, suit
or proceeding which is or may be subject to this Agreement and keep the Company
generally informed of, and consult with the Company with respect to, the status
of any such investigation, claim, action, suit or proceeding. No failure to
give such advisement shall relieve the Company from any indemnification or other
obligation hereunder, except to the extent such failure shall materially and
adversely affect the Company. Notices to the Company shall be directed to
Prolong International Corporation, 1210 North Barsten Way,
3
<PAGE>
Anaheim, California 92806, Attn: Chief Executive Officer (or other such address
as the Company shall designate in writing to Indemnitee). Notice shall be deemed
received three days after the date postmarked if sent by certified or registered
mail, properly addressed. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
11. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expenses, including
reasonable attorneys' fees, incurred by Indemnitee with respect to such action,
unless as a part of such action, a court of competent jurisdiction determines
that each of the material assertions made by Indemnitee as a basis for such
action were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement, or to enforce
or interpret any other terms of this Agreement, Indemnitee shall be entitled to
be paid all court costs and expenses, including attorneys' fees, incurred by
Indemnitee in defense of such action (including with respect to Indemnitee's
counterclaims and cross-claims made in such action), unless as a part of such
action the court determines that each of Indemnitee's material defenses to such
action were made in bad faith or were frivolous.
12. SEVERABILITY. Should any provision of this Agreement, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of this Agreement shall remain fully
enforceable and binding on the parties.
13. MODIFICATION AND WAIVER. No supplement, modification or amendment of
this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether of
not similar) nor shall such waiver constitute a continuing waiver.
14. CHOICE OF LAW. The validity, interpretation, performance and
enforcement of this Agreement shall be governed by the laws of the State of
Nevada.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first written above.
PROLONG INTERNATIONAL CORPORATION
By: _____________________________
INDEMNITEE:
---------------------------------
Print Name:
4
<PAGE>
EXHIBIT A
---------
UNDERTAKING AGREEMENT
This AGREEMENT is made on _______________, 19___, between PROLONG
INTERNATIONAL CORPORATION, a Nevada corporation (the "Company") and
__________________________, a member of the board of directors or an officer of
the Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims, actions,
suits or proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance
with Section 78.751 of the Nevada Revised Statutes, the Company may make such
payments only if it receives an undertaking to repay from Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee
pursuant to the terms of the Indemnification Agreement dated ________________,
19___, between the Company and Indemnitee, Indemnitee hereby undertakes and
agrees to repay to the Company any and all amounts so paid promptly and in any
event within thirty (30) days after the disposition, including any appeals, of
any litigation or threatened litigation on account of which payments were made,
but only to the extent that Indemnitee is ultimately found not entitled to be
indemnified by the Company under the Articles of Incorporation, Bylaws of the
Company or otherwise, Section 78.751 of the Nevada Revised Statutes, other
contract rights or other applicable law, or otherwise.
2. This Agreement shall not affect in any manner rights which
Indemnitee may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
PROLONG INTERNATIONAL CORPORATION
By: ___________________________
INDEMNITEE:
--------------------------------
Print Name:
<PAGE>
EXHIBIT 10.2
EXCLUSIVE LICENSE
-----------------
This Exclusive License (the "Agreement") was originally made and entered
into as of the 10th day of November 1993, and is restated herein effective as of
January 1, 1995. This Agreement is by and between EPL Prolong, Inc., d.b.a.
Prolong International ("Owner") and Prolong Super Lubricants, Inc., a Nevada
corporation (formerly named "Corporate Development, Inc.") ("Licensee").
RECITALS
--------
A. EPL Prolong, Inc. is the owner, among other things, of the following:
Patents (see Exhibit "A") in the United States, Canada, and specified European
countries for an "Extreme Pressure Additive for use in Metal Lubrication",
commonly called "Anti-Friction Metal Treatment" or "AFMT" by Owner; proprietary
information on the processes used to blend AFMT with other products that offer
anti-friction uses and benefits; certain rights to use tradenames, dba's, logos,
slogans, and symbols in association with the marketing of lubricant products and
in association with marketing the name recognition of the company (all of the
aforementioned to be known as the "Products"); and Distribution Agreements, (see
Exhibit "B"), which agreements grant to third parties, among other things,
limited rights to distribute products of the Owner.
B. Licensee desires to acquire the exclusive license to manufacture,
distribute, market and sell the Owners Products, to utilize the proprietary
processes and information known to Owner, to create new products utilizing the
processes and information available through this License to utilize the brand
names, tradenames, trademarks, logos, slogans and symbols of Owner, to sell
Products to the Distributors listed in Exhibit "B", and to sell Products to any
and all other parties worldwide ("Exclusive License").
C. Owner is willing to grant to Licensee and Licensee desires to obtain
from Owner the Exclusive License referred to above under the terms set forth
herein.
AGREEMENT
---------
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and conditions hereinafter contained, the parties hereby agree as
follows:
1. Grant of License. Owner hereby grants to Licensee the Exclusive License
----------------
to utilize the properties and rights set out in Recital (A) above, for the
purposes set out in Recital (B) above, for the term hereof as set forth below.
2. Obligations of the Licensee. Licensee shall have the following
---------------------------
obligations under this Agreement:
(a) Licensee shall fully perform each and every obligation which
licensee is required to perform under the terms and provisions of this
Agreement;
(b) Licensee has paid to Owner a one time initial fee of $100,000, in
cash;
(c) Licensee shall pay to Owner during the term of this Agreement a
cash royalty in the amount of 3.5% of the Gross Sales from Products which
utilize proprietary information, formulations, or processes obtained from Owner,
or which utilize the name "Pro-
<PAGE>
Long" in any way, or which utilize any of the rights obtained from this License.
The royalty shall apply to Licensee's Gross Sales, as well as to the Gross Sales
of all other persons or entities which generate Gross Sales as sub-licensee's of
Licensee, or through any other method by which Licensee allows third parties to
capitalize on Owner's property and rights which are the subject of this License.
Payments shall be disbursed to Owner monthly, and shall be due on or before the
10th day of the month, accompanied by an accounting of Gross Sales during the
immediately preceding month;
(d) Commencing on January 1, 1996, Licensee shall accrue an obligation
to pay a minimum monthly royalty of $3,000.00;
(e) Licensee has the right to prepay royalties, or to accrue
royalties, from time to time, however, Licensee may not accrue more than one
year of royalties without the prior written consent of Owner. To the extent
Licensee accrues any royalty obligation for a period longer than 90 days,
licensee shall pay interest monthly on such accrued royalty, at an annual
interest rate of 10%;
(f) Licensee agrees to acknowledge the following listed distributors
and to abide by and fulfill the terms of these existing distributorship
contracts held by EPL Pro-Long, Inc. (See Exhibit "A")
(g) Licensee agrees to sub-lease from Owner the industrial building
located at 1210 N. Barsten Way, Anaheim, CA for the balance of the term of the
lease, for a price equal to that being paid by owner under the lease, and in
accordance with the terms of the lease. Licensee agrees to pay the future
utilities, telephone, business taxes, business licenses, and the other costs of
operation of the Anaheim Facility as an office and warehouse facility upon
commencement of this Agreement. Owner agrees to move out of the Anaheim Facility
and to maintain a separate place of business distinct from that of Licensee's
place of business, during the term of this License.
3. Term of Agreement. This Agreement became enforceable on November 10,
-----------------
1993 (the "Effective Date"). Licensee shall commence activities under the
License on January 1, 1995, and the obligation of Licensee to pay royalties to
Owner shall begin to accrue as of that date. This Agreement shall remain in
effect so long as Licensee has not committed any major breaches of this
Agreement. In the event of a major breach by Licensee, Owner shall advise
Licensee in writing of such breach and the conditions of cure, and Licensee
shall have 45 days from receipt of Owners written notice to cure the breach.
4. Sub-Licenses. Licensee shall have the right to issue to third parties
------------
sublicenses to manufacture and distribute Products, subject to the terms of this
Exclusive License, and subject to the rights of pre-existing distributors, and
conditioned upon the procurement from sub-licensees, in advance of the grant of
sub-licenses, of written promises of confidentiality, in a form suitable to EPL
Pro-Long, Inc., regarding the treatment and handling of proprietary information
and trade secrets of EPL Pro-Long, Inc., and conditioned upon sub-licensee
entering into a written agreement, in a form suitable to Owner, to pay a monthly
Royalty equal to 3.5% of Gross Sales in accordance with the same obligations of
the Licensee herein (excluding the one-time fee of $100,000).
5. Future Improvements. Owner agrees that in the event improvements are
-------------------
made to the Products, Owner shall communicate all relevant information
concerning said improvements to Licensee. Licensee shall thereafter have the
right to use such improvements.
2
<PAGE>
In the event Owner should secure the grant of Letters Patent on any such
improvements to the existing Patents, Owner will notify Licensee of said fact.
Licensee will thereafter have the right, at its option, to include said Letters
Patent as a part of the Exclusive License within the terms of the present
Agreement.
6. Acknowledge of Patent Validity. Licensee agrees that, so long as this
------------------------------
Agreement is in force and effect, Licensee will not contest, nor assist others
in contesting, the validity or ownership of Letters Patent for the Products.
7. Termination. This Agreement shall not be automatically terminated in the
-----------
event that Licensee is ordered or adjudged bankrupt or is placed in the hands of
a receiver.
8. Confidentiality. Licensee understands that in the course of
---------------
manufacturing, marketing, distributing, and selling the Products, Licensee may
learn or discover confidential information regarding the Products which is
proprietary to Owner and not disclosed by or through the Letters Patent
("Proprietary Information"). Licensee shall keep in strict confidence and trust
and will not for any reason or purpose whatsoever, use for its personal benefit,
or disclose, communicate, or divulge to, or use for the benefit, direct or
indirect, of any person, firm, association or corporation other than Owner, any
such Proprietary Information. Such Proprietary information shall include,
without limitation, all formulas, patents, computations, programs, devices,
methods, techniques or processes, created, discovered, developed or otherwise
known by Owner or the property rights which have been assigned or otherwise
conveyed to Owner, which information has commercial value, actual or potential,
in the business in which the Owner is engaged. By way of illustration, but not
limitation, proprietary information includes trade secrets, processes, formulas,
data, know-how, improvements, discoveries, developments, designs, inventions,
techniques, marketing plans, strategies, forecasts, new products, unpublished
financial statements, budget projections, licenses, prices, costs, and supplier,
customer and other lists. Upon termination of this Agreement for any reason,
Licenses shall return to Owner all Proprietary Information and any record
thereof. Without limiting the generality of the foregoing provision, Licensee
acknowledges the proprietary interest which Owner has in the "Prolong
International" "Prolong" and "Super-1" names and in the production formulas for
the Products, and in any other trademarks, tradenames, service marks or formula
which is or may be used in connection with the Products. This covenant shall
survive the termination of this Agreement.
9. Relationship of the Parties. The parties hereto are independent
---------------------------
contractors and nothing contained in the Agreement shall be deemed or construed
to create the relationship of partnership or joint venture or principal and
agent or of any association or relationship between the parties other than that
of licensee and licenser (Owner). Licensee acknowledges that it does not have,
and shall not make any representation to any third party either directly or
indirectly indicating that Licensee has authority to act for or on behalf of
Owner or to obligate Owner in any way whatsoever, except as expressly permitted
by this Agreement.
10. Limitations on License. It is understood between the parties that
----------------------
Licensee has had an opportunity to review the books, records, property,
contracts, history, management, litigation, financial statements and all other
business of the Owner prior to entering into this Agreement. The parties agree
that the rights and property of the Owner being licensed herein have
limitations, and that Owner offers this License subject not only to the known
limitations, but to those limitations that may arise in the future, for any
reason, known or unknown, excluding fraud by the Owner.
3
<PAGE>
Inherent in this License is the fact that over time Patents expire, certain
tradenames, slogans and similar intellectual property may be altered or fall
into disuse, product formulations may change, and in general the original
property rights granted under the terms of this License may evolve. It is the
intent of the parties hereto to incorporate those changes and include them as
property rights covered by this License, and subject to a Royalty payment, to
the extent they evolved from, or relied upon access to, the original property
and rights being licensed herein.
11. Insurance. Licensee agrees, upon written request by the Owner, during
---------
the term of this License, to add Owner as a named insured on Licensee's policies
of insurance for risks reasonably arising from this License, in amounts equal to
the coverage purchased by Licensee.
12. Arbitration.
-----------
(a) Binding Arbitration. Any controversy or claim arising out of or
-------------------
relating to this Agreement shall be settled by final and binding arbitration in
accordance with California Code of Civil Procedure, Section 1280 et seq., and in
accordance with provisions of this paragraph. It is hereby agreed by the
parties that judgment upon any award rendered by the arbitrator or arbitrators
under the provisions of this paragraph may be entered in any court having
competent jurisdiction over the dispute. The parties hereby consent to the
jurisdiction of the Superior Court of the State of California and the venue of
said court in the County of Orange.
(b) Notice and Selection of Arbitrators. In the event a claim or
-----------------------------------
controversy should arise under this Agreement, the party initiating the claim
shall give notice to the other pursuant to the notice provision of this
Agreement. Said notice shall specify the nature of the dispute and shall request
that respondents in the arbitration agree to the designation of one of the
proposed neutral arbitrators within fifteen (15) days of receipt of the list.
The respondent may similarly propose alternative neutral arbitrators. If the
parties cannot mutually agree to the selection of a single neutral arbitrator
within ten (10) days of service of the notice of claim or controversy, each
party shall select its own party designated arbitrator by notifying the other
party in writing of his identity no later than twenty (20) days following the
service of the initial notice under this Agreement. The two party designated
arbitrators shall select by mutual agreement a third and neutral arbitrator to
serve on the panel. Said designated arbitrators shall decide the claim or
controversy by the majority decision, which shall be in writing and which shall
be final and binding upon the parties. In the event the two party designated
arbitrators are unable to agree on the identity of the third and neutral
arbitrator within thirty (30) days of the service of notice of claim or
controversy, either party may petition to the local Superior Court for
appointment of a neutral arbitrator under the provisions of the Code of Civil
Procedure, Section 1281.6.
(c) Timing of Arbitration. Unless otherwise agreed by the parties, the
---------------------
arbitration shall commence no later than one hundred and twenty (120) days from
the date that the initial notice of claim or controversy is served in accordance
with this Agreement. The arbitrators so designated shall render their written
award no later than thirty (30) days following the close of the arbitration
proceeding. The award of the arbitrator shall be in writing and shall be served
by the neutral arbitrator upon all of the parties to the proceeding by certified
mail, return receipt requested.
4
<PAGE>
(d) Rules of Arbitration. The parties of this Agreement specifically
--------------------
acknowledge and agree that the arbitration proceeding shall be conducted in
accordance with the rules of evidence as applied under the then-operative
California Evidence Code and all rulings regarding submission of evidence,
procedure and the conduct of the hearing shall be made solely by the neutral
arbitrator. The parties specifically agree that the provisions of California
Code of Civil Procedure, Section 1283.05 providing for certain discovery and
other rights are hereby incorporated into the terms of this Agreement. To the
extent this incorporated into the terms of this Agreement. To the extent this
Agreement conflicts with the arbitration provisions of the California Code of
Civil Procedure, the Provisions of this Agreement shall control.
13. General Provisions.
------------------
(a) Notices. Any notices to be given hereunder by either party to the
-------
other may be effected by personal delivery in writing or by mail, registered or
certified, postage prepaid with return receipt requested, or by telegraphic
communication. Notices mailed or sent by telegraphic communication shall be
addressed to the parties at the addresses specified below, but the parties may
change their addresses by written notice in accordance with this Paragraph.
If to Owner: EPL Pro-Long, Inc.
c/o Michael R. Davis, President
24961 Via Marfil
-----------------------
Mission Viejo, CA 92692
-----------------------
if to Licensee: Prolong Super Lubricants, Inc.
c/o Elton Alderman, President
1210 N. Barsten Way
Anaheim, CA 92806
(b) Entire Agreement. This Agreement constitutes the entire Agreement
----------------
between the parties pertaining to the subject matter hereof, fully supersedes
any and all prior agreements between the parties hereto respecting the subject
matter hereof. In addition, no amendment or modification to this Agreement shall
be valid unless set forth in writing and signed by each of the parties.
(c) Assignability. The rights and duties of the Licensee under this
-------------
Agreement shall not be subject to alienation, assignment or transfer, whether
voluntary or involuntary. Licensee may not assign this Agreement without the
prior written permission of Owner, which Owner may arbitrarily approve or
disapprove. Notwithstanding the foregoing, this Agreement shall be binding upon
the parties' respective successors in interest.
(d) Severability. Any provisions of this Agreement which may be
------------
prohibited by law or otherwise held invalid shall be ineffective only to the
extent of such prohibition or invalidity and shall not invalidate or otherwise
render ineffective the remaining provisions of this Agreement.
5
<PAGE>
(e) Legal Action and Fees. In the event of any controversy, claim or
---------------------
dispute between the parties hereto arising out of or relating to this Agreement,
the prevailing or successful party shall be entitled to recover from the
nonprevailing party its reasonable expenses, including, but not by way of
limitation, attorney's fees, costs, filing fees, and expert witness fees.
(f) Governing Law. This Agreement is being executed and delivered and
-------------
is intended to be performed in the State of California and shall be governed by
and construed in accordance with the laws of the said state.
(g) Duplicate Originals. This Agreement may be fully executed in any
-------------------
number of duplicate originals, all of which shall be considered one and the same
agreement, and shall become effective when one or more of such duplicate
originals, each of which has been signed by each of the parties hereto, has been
delivered to each of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first above written.
EPL PRO-LONG, INC.
Owner/Licensor
/s/ MICHAEL R. DAVIS
-----------------------------
By: Michael R. Davis, President
PROLONG SUPER LUBRICANTS, INC.,
Licensee
/s/ ELTON ALDERMAN
------------------------------
By: Elton Alderman, President
6
<PAGE>
EXHIBIT "A"
----------
1. Austria
2. Belgium
3. Canada
4. France
5. Germany
6. Greece
7. Italy
8. Liechtenstein
9. Luxembourg
10. Netherlands
11. Sweden
12. Switzerland
13. United Kingdom
14. United States
7
<PAGE>
EXHIBIT "B"
-----------
1. Abbott Trucking Dist.
2. All Points Machinery
3. Barber Bros.
4. Cal Industrial Supply
5. DeNardi Equipment Corp.
6. Dunwell Petro-Chemical Co. Ltd.
7. Emerald Petroleum Products
8. Engineered Equipment Svcs.
9. Excaliber
10. Forum Exporters Int'l
11. Hall Pantera
12. Hilaski Sales
13. Kaufmann Products
14. J.O.A. Products
15. Jaken & Co.
16. M.C. Tech
17. MSC Industrial Supply
18. Northeast Ind. Supply
19. O.E.J. Enterprises
20. P&L Supply
21. Petroflex Ltd.
22. Petro-Tech Dist.
23. Ed Powell Dist.
24. Prolong Lubricants Canada Ltd.
25. Ryan International Enterprises
26. Top of the Line Lubricants
27. Universal Benefit
28. W.S. Distributors
29. Z Marketing
8
<PAGE>
EXHIBIT 10.3
MEMORANDUM OF AGREEMENT
THE 2M GROUP
with
PROLONG SUPER LUBRICANTS, INC.
regarding
THE PROLONG CHALLENGE INFOMERCIAL
AGREEMENT made this 24th day of April 1995, between the Prolong Super
Lubricants, Inc., a Nevada corporation of 1210 North Barsten Way, Anaheim,
California 92806, hereinafter called CLIENT, and The 2M Group, a Sole
Proprietorship of 3518 Cahuenga Blvd. West, Suite 202, Los Angeles, California
90068, hereinafter called 2M.
IT IS AGREED that:
1. CLIENT will retain the services of 2M to produce an infomercial
hereinafter called the Program, to be completed before October 24, 1995.
2. The Program will be 28 minutes and 30 seconds in length.
3. 2M agrees to provide the elements stated in the proposal which is an
integral part of this agreement. See attachment A.
4. CLIENT agrees to provide the elements stated in the proposal which is
an integral part of this agreement. See attachment A.
5. CLIENT has the right to change the off-line cut of the show. After
approval of the off-line cut and the on-line cut has been started, should the
PROGRAM require revision based on CLIENT's evaluation, the costs of any such
modifications will be underwritten by CLIENT as a payment to 2M separate from
and in addition to the PROGRAM budget.
6. Any and all expenditures in any way incurred by CLIENT on 2M's behalf
must have prior written authorization from an authorized officer representing
2M. In any case where CLIENT has incurred any expense on 2M's behalf without
prior written authorization from an authorized 2M officer the CLIENT will be
fully responsible for payment of that expense.
7. In consideration of the above services, CLIENT agrees to compensate 2M
in the following manner:
A. 2M shall receive the amount of $78,000.00 dollars with payments
scheduled: a) upon starting pre-production or any part thereof in the amount of
$10,000.00 dollars, b) on the first day of shooting or any part thereof in the
amount of $17,000.00 dollars, c) when the off-line cut is commenced in the
amount of $17,000.00 dollars, d) when the off-line cut is approved in the amount
of $17,000.00 dollars and e) upon completion and prior to release of the first
edited master in the amount of $17,000.00 dollars for the Program.
1.
<PAGE>
B. 2M shall receive 1.5% of the gross sales (not including shipping and
handling) minus returned product generated from any and all direct response
television sales made via an 800 telephone number and which utilize the Program
footage.
C. 2M shall receive the equivalent of $20,000 in stock at 25 cents per
share. This will be divided at 40,000 shares of 144 stock and 40,000 shares of
free trading stock. A bonus of 10,000 shares of stock will be paid if 5,000
units are sold within 60 days from the first airing of the infomercial and
another 10,000 shares if 45,000 units are sold within 180 days of the first
airing of the infomercial. The bonus shares will be 50% 144 stock and 50% free
trading stock, unless free trading stock is unavailable to the company other
than by buying stock on the market. If free trading stock is unavailable then 2M
shall receive 144 stock in its place.
8. The Program will contain a visual copyright notice on behalf of CLIENT.
This will allow the CLIENT rights to the show only as an integral synchronized
specific program.
9. CLIENT shall at all times indemnify and hold 2M, its officers,
employees, associates, assigns or any affiliated persons, harmless from and
against any and all liabilities or damages of any kind, including but not
limited to any attorney's fees, costs, and expenses, arising out of or connected
to in any way any infomercial, video, film or motion picture produced by 2M for
CLIENT or any of its affiliated companies. 2M promises to add Prolong Super
Lubricants, Inc. as an additional insured under its liability insurance policy,
with coverage in amount not less than $1MM, for the duration of the production.
Prolong Super Lubricants, Inc. as an additional insured under its liability
insurance policy, with coverage in amount not less than $1MM, for the duration
of the production. Prolong Super Lubricants, Inc. shall approve the content of
the Program, for legal compliance purposes, prior to on-line editing.
10. 2M is the agency or record and when the campaign proves successful 2M
shall supervise, oversee and decide on the media buys in conjunction with CLIENT
for a minimum of one year from the first date of the media run. A successful
campaign would be determined by the fact that it remains on the air. It is
understood that The 2M Group will receive a commission of 15% on media buys, in
conformance with industry standards. The 2M Group will provide Client with full
disclosure in writing of all media buys.
11. In the event that any provision of this contract is suspended or
canceled by mutual agreement of the contracting parties, all sections of this
document which remain unaffected by that suspension or cancellation shall
continue in full force and effect, unless modified by mutual agreement of the
contracting parties.
2.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this agreement as of
the dates written below:
PROLONG SUPER LUBRICANTS, INC.
/s/ ELTON ALDERMAN
- ----------------------------------------
ELTON ALDERMAN, PRESIDENT
Date: 4-24-95
---------------------------------
THE 2M GROUP
/s/ MICHAEL A. MCGAHEE
- ----------------------------------------
Michael A. McGahee, Sole Proprietor
Date: 4-24-95
---------------------------------
3.
<PAGE>
ATTACHMENT A
THE PROLONG CHALLENGE INFOMERCIAL
DIRECT RESPONSE PROGRAM
The 2M Group proposes to produce a direct response program for the Prolong
Challenge Infomercial that is twenty-eight and one half minutes long. The
objective of the campaign is to sell product in high volume over a short period
of time with a high profit margin.
SERVICES PROVIDED BY THE 2M GROUP
*Marketing consultation
*Creative
*Market Research
*Pre-production
*Complete production supervision and consultation
*Up to four day shoot on location with 2 cameras for shooting the open, close
and segues with host, testing and race sequence in Phoenix.
*Up to four day single camera shoot on location to video professionals,
testimonials and product shots.
*Audio package
*Camera package (Betacam quality or higher)
*Writing of the script
*Script breakdown to a shooting script
*Producer
*Director
*Technical Director\Engineer
*Make up -- Hair for host
*Lighting Director
*Gaffer
*Audio mixer
*A - 2
*All grips and electrician for the video
*Lighting package for the video
*Production assistants and personnel
*Video tape
*A "rough cut" of the video to view before the final copy is made so that any
necessary changes can be made
*Post production on-line cut (to include Betacam to D2 quality editing)
*Audio sweetening as needed
*Complete assembly of program
*One-inch or D2 safety-master tape
*Music
*Negotiation of celebrity talent
*Casting for an on-camera spokesperson
*Casting for celebrity persons and negotiation as needed in coordination with
Client
4.
<PAGE>
2M shall provide all Media planning and buying. This includes tape trafficking
as well as tracking the results of each infomercial for media efficiency ratios
and geographical sourcing.
2M will consult in the setting up of the inbound 800 service, fulfillment house,
and merchant account for Visa\MC, if needed.
2M will provide a quantitative survey on the target demographic to locate any
"emotional buyer buttons" that may shed some light on where the emphasis for
the creative should be skewed. This typically determines some of the major
impulse points for the product and increased sales.
In short, The 2M Group will assist as much as possible to make this a turnkey
operations.
WHAT PROLONG SUPER LUBRICANTS WILL SUPPLY
* Any special or celebrity talent requested (2M will handle acquisition of
talent if needed)
* Any perks for said talent including but not limited to special make up person,
limo, hotel room, airline flight, wardrobe, Winnebago, special dressing room
etc. (2M will organize arrangements of these elements if needed)
* Any copyrighted music (example: theme music from a movie or a top 40 song)
* Products
* Any payments for testimonial persons, authorities (2M will handle acquisition,
scheduling and organization of persons and authorities if needed)
* The cost of locations
* Any props such as engines, race cars, etc.
SCHEDULE
The 2M Group will begin work on the project immediately. Usual production
schedules take approximately three to four weeks for preparation
(pre-production), one to two weeks for production and three to four weeks for
post production.
DISTRIBUTION AND COPIES
Included in the production cost, The 2M Group will deliver one safety master
plus one half inch copy, to view the show on a home/office video player. All
editing and dubs needed for broadcast and 800 number insertion as well as VHS
copies for standards and practices for TV stations and shipping and handling
cost are additional.
5.
<PAGE>
AMENDMENT TO
MEMORANDUM OF AGREEMENT
THE 2M GROUP
With
PROLONG SUPER LUBRICANTS, INC.
Regarding
THE PROLONG WORLD CHALLENGE INFOMERCIAL
This is an amendment to the agreement dated April 24, 1995 entered into between
The 2M Group, Michael McGahee, sole proprietor, and Prolong Super Lubricants,
Inc., a Nevada corporation. The agreement is amended effective March 4, 1996 as
follows:
(1) The address of The 2M Group has been changed to 28163 US Highway 19
North, Suite 303, Clearwater, Florida 34621, Tel 813-726-4633, Fax 813-726-5699.
(2) Since the inception of this agreement Michael McGahee of The 2M Group
has formed a corporation named The 2M Group, Inc. It is agreed that both The 2M
Group as a sole proprietor and The 2M Group, Inc. are jointly agreeing to be
bound by the terms of the original agreement and this amendment hereto.
(3) Paragraph 7C, page 2 -- In lieu of receiving 40,000 shares of free
trading stock and 40,000 shares of stock subject to Rule 144, The 2M Group shall
receive 100,000 shares of stock subject to rule 144 and no shares of free
trading stock. A bonus of 10,000 shares of stock has been earned as a result of
the Program selling 5,000 units within the first 60 days of the first airing.
(4) Paragraph 10, page 2 -- The 2M Group will receive a commission 10% on
media buys (a reduction from 15%) in exchange for 100,000 shares of common stock
of Prolong International Corporation (which shares are subject to Rule 144). The
shares of stock shall be valued at $0.25 per share, and distributed in
increments of 25,000 shares every 90 days, with the first shares delivered June
4, 1996. The shares shall be issued to Michael McGahee and Denise McGahee.
Agreed to among the parties effective March 4, 1996.
PROLONG SUPER LUBRICANTS, INC.
/s/ ELTON ALDERMAN
______________________________
Elton Alderman, President
<PAGE>
THE 2M GROUP,
A Sole Proprietorship
/s/ MICHAEL MCGAHEE
-------------------------
MICHAEL MCGAHEE
THE 2M GROUP, INC.
A Corporation
/s/ MICHAEL MCGAHEE
-------------------------
MICHAEL MCGAHEE
President
<PAGE>
EXHIBIT 10.4
AGREEMENT
BETWEEN
PROLONG SUPER LUBRICANTS, INC.
-----------------------------
AND
AL UNSER
--------
This Agreement is made this 28th day of July, 1995, by and between Prolong
Super Lubricants, Inc. with its principal place of business located at 1210
North Barsten Way, Anaheim, California 92806 (hereinafter referred to as
"Prolong") and Al Unser, a professional race car driver residing at 7625 Central
Avenue N.W., Albuquerque, New Mexico 87121 (hereinafter referred to as "Unser").
WHEREAS, Prolong is in the business of manufacturing and marketing
lubrication products and desires Unser to be Prolong's spokesperson; and
WHEREAS, Unser is willing to perform personal services for Prolong; and
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
1. DURATION
--------
A. This Agreement shall commence with the date of execution hereof and
shall terminate three (3) years and 120 days after the first airing of the
Infomercial on television in any market.
B. The duration of the Test Marketing Period of the Infomercial shall be
120 days, commencing with the first airing of the Infomercial on television in
any market and ending 120 days thereafter.
C. The Roll-Out Date shall be the 120th day after the first airing of the
Infomercial on television on any market. This Agreement shall continue
thereafter for up to three (3) years, conditioned upon Prolong airing the
Infomercial after successive anniversaries of the execution of this Agreement as
dealt with in Paragraph 6.a.
1
<PAGE>
2. SCOPE
-----
A. INFOMERCIAL TAPING
------------------
1. Purpose
-------
The primary purpose of this Agreement is to facilitate the marketing
of Prolong's products through the dissemination of a videotaped "infomercial."
Present scheduling calls for the infomercial to be taped in the months of July
and August of 1995. In any event, Prolong will provide Unser with at least 14
days' prior notice of proposed taping dates and, as soon as reasonably possible
after the execution of this Agreement, Unser will provide Prolong with a
schedule of dates when he will be unavailable during the months of July, August,
and September 1995.
2. Services
--------
a) Unser agrees to allow Prolong to utilize his photographic or
videotaped likeness, name, signature, initials, and endorsements in conjunction
with the production and promotion of the infomercial.
b) Unser agrees to make himself available for up to two consecutive
days for taping of the infomercial. If Prolong elects to tape on non-
consecutive days, Unser agrees to make himself available for one (1) day at any
location in the continental U.S. reasonably chosen by Prolong and one (1) other
non-consecutive day so long as this day is spent in the Albuquerque metropolitan
area. Prolong shall pay, above and beyond any other compensation specified in
the Agreement, for all first-class transportation costs, lodging, and meal
expenses incurred by Unser in travel to and from the one day of shooting which
may be spent on location away from the Albuquerque metropolitan area.
c) All printed promotional materials, printed advertising, press
releases, and any other communicative materials utilizing Unser's photographic
image, name, signature, endorsement, or initials, shall not be derogatory to the
image of Al Unser as reasonably determined by Unser and Barnes Dyer Marketing
(hereinafter referred to as BDM), Unser's authorized agent, prior to release,
publishing, broadcasting, or other dissemination. Prolong agrees to provide to
BDM copies of all such materials for approval no later than 5 days before any
such release or dissemination. BDM and Unser agree to respond promptly to every
such request for approval, but in any case shall respond no later than 5 days
after receipt of such request for approval. If no response is received by
Prolong within such 5-day period, such non-response shall be deemed to
constitute approval.
2
<PAGE>
d) Unser agrees that he will not endorse competitive products during
the term of this Agreement. Competitive products shall be as follows: Engine
Treatment, Transmission Treatment, Fuel Conditioner, Penetrant Spray, Precision
Oil, Engine Oil and Grease.
e) Unser agrees to use his best efforts to promote Prolong and its
products during the term of this Agreement.
3. COMPENSATION FOR INFOMERCIAL TAPING
-----------------------------------
a) In addition to all other compensation herewith, Prolong shall pay
to Unser $5,000 per day for every day or fraction thereof utilized in taping.
b) Guaranteed Minimum and Royalties
If Prolong airs the Infomercial in any market after the Roll-Out Date,
Unser shall be paid a guaranteed minimum of $40,000 for the first year of this
Agreement period, plus the amount by which a one percent royalty (1%) on gross
product sales from the direct response program exceeds $40,000 (gross product
sales means all income generated, less only returns, bad checks, cancellations,
declines, shipping and handling, sales or use tax collected by Prolong from
purchasing consumers and entirely paid to the taxing authorities by Prolong, and
credit card charge backs). During the first year of this Agreement,
commencing upon the Roll-Out Date, and conditioned upon any airing of the
Infomercial in any market after the Roll-Out Date, the $40,000 guarantee shall
be paid in installments of $6,666.66 per month for the first six months, with
the first payment due on the date of roll-out and an equal amount due each
subsequent month thereafter, until the minimum is paid. For Year 2 of the
Agreement, the compensation shall increase to a guaranteed minimum of $50,000,
(if the Infomercial is aired at all in any market after the 1st anniversary
thereof) plus the amount by which a 1-percent royalty on gross product sales (as
defined herein) exceeds $50,000. During Year 2 the installment payments of the
guaranteed minimum shall be $8,333 for each of the first six months of said Year
2, with the first payment due on the first anniversary of the execution hereof,
and an equal payment due on the first day of the next five months. Payment for
Year 3 shall be in all respects identical to Year 2 except conditioned on an
airing of the Infomercial after the second anniversary hereof; the minimum
guarantee shall be $60,000 payable in equal installments of $10,000 each,
commencing on the second anniversary of the execution hereof, and payable each
of the next five months thereafter.
Whenever the royalties of (one) 1 percent of gross sales as defined herein
exceed the guarantee for the relevant year, Prolong will pay the excess, if any,
earned by Unser during each prior three-month period on a quarterly basis,
commencing three
3
<PAGE>
months after the execution hereof, within 10 days after the end of each three-
month period.
a) Accounting for royalties
------------------------
Prolong will submit comprehensive quarterly royalty statements to BDM
within 15 days after the end of the prior three-month period commencing on a
date three months after the execution hereof and continuing on a quarterly basis
throughout the balance of this agreement or any extensions thereof. BDM and
Unser shall have the right to reasonably review and inspect all accounting
documents, methods, and materials used by Prolong to record sales and earnings
in order to verify royalty payments. BDM and Unser agree to keep confidential
and secret all information they receive from the accountings provided by Prolong
and acknowledge that such information, if disseminated to third parties, could
harm Prolong economically.
4. RELATIONSHIP OF THE PARTIES
---------------------------
Nothing contained in this Agreement shall be construed to create the
relationship of employer and employee, principal and agent, partners or joint
venturers, and none of the acts of the Parties shall be deemed to create any
relationship between Prolong and Unser other than that of Independent
Contractors.
5. INDEMNIFICATION
---------------
Prolong agrees for itself, its successors and assignors to defend, hold
harmless, and indemnify, both collectively and individually, Unser and BDM,
their officers, agents, employees and their successors and assigns, and anyone
acting on behalf of any of them, from and against any and all losses, costs, and
damages, expenses or claims (including attorney's fees), whether such claims are
groundless or not, arising out of any claim, including but not limited to claims
of personal injury, death, or damage to property, whether real or personal, or
false advertising or misrepresentation, unless such claims arise from Unser or
BDM's intentional misconduct or gross negligence. The intent of this
indemnification paragraph is to cause Prolong to indemnify and hold harmless
Unser and BDM from any and all third-party claims of any nature arising out of,
or related to this Agreement or performance hereunder, unless such claims arise
from intentional or grossly negligent conduct of BDM or Unser.
6. TERMINATION CLAUSE
------------------
a) Termination by either party: either party may, upon 30-day notice to
the other of breach and a subsequent failure to correct such breach within 30
days after such written notice,
4
<PAGE>
terminate further performance under this agreement, while maintaining the right
to require performance by the other party of those obligations accruing prior to
the date of termination as determined herein. The payment of all compensation
earned by Unser under this agreement will fully discharge all of Prolong's
obligations hereunder; Prolong shall not be further obligated to produce,
broadcast, telecast, or publish any of the materials or further utilize Unser's
services hereunder. It is understood, however, that all guarantees of minimum
payments hereunder (i.e., $40,000, 1st year; $50,000, 2nd year; $60,000, 3rd
year) shall be payable in any event regardless of Prolong's exercise of
discretion regarding any reduction in production or dissemination of the
materials contemplated hereunder, so long as the Infomercial is aired after
relevant anniversary dates hereof: The obligation of Prolong to pay the minimum
annual guarantee for Year 1 is conditioned upon Prolong first airing an
Infomercial, in which Unser appears, on or after the Roll-Out Date (120 days
after the first test airing). The obligation of Prolong to pay the minimum
annual guarantee for Year 2 is conditioned upon Prolong airing an Infomercial in
which Unser appears on or after the first anniversary of the Roll-Out Date. The
obligation of Prolong to pay the minimum annual guarantee for Year 3 is
conditioned upon Prolong first airing the Infomercial in which Unser appears on
or after the second anniversary of the Roll-Out Date.
b) At any time that Prolong is in breach of the compensation terms of this
agreement, either for royalties or guarantees, Prolong shall have 30 days to
cure such breach after 30 days' written notice from Unser/BDM of the breach. In
the event of failure to cure within the time limits provided hereunder, in
addition to such other remedies to which Unser may be entitled, Unser shall have
the right to halt all use of the Unser image by Prolong thereafter, in which
event Prolong agrees it shall cease using in any way the Unser image and agrees
to recall all outstanding material produced hereunder which uses the Unser
image. It is understood between the parties that Prolong may discontinue airing
the program at any time, for any reason, and that such action is not a breach of
this Agreement, so long as all obligations incurred by Prolong hereunder up to
the date of discontinuation are current.
7. PAYMENTS
--------
All payments to Unser shall be made payable to BDM, Unser's authorized
representative, at 15510 Rockfield Blvd., Suite C, Irvine, California 92718.
5
<PAGE>
8. ENTIRE AGREEMENT/MODIFICATION IN WRITING
----------------------------------------
This agreement constitutes the entire and only understanding between
Prolong and Unser, and supersedes any and all prior agreements, arrangements,
communications or representations, whether oral or written. No alteration,
amendment, change, modification or waiver to this Agreement shall be valid or
binding unless the same is in writing and signed by the parties or their duly
authorized representatives.
9. LAW GOVERNING
-------------
This Agreement shall be interpreted and construed in accordance with the
State of California. Jurisdiction and venue shall be in Orange County,
California. In the event of a legal dispute between the parties, the prevailing
party shall be entitled to actual legal costs, attorney's fees, filing fees,
costs of suit, costs of transcripts and depositions, and all other reasonable
costs incurred.
DATED: July 28th, 1995 /s/ ELTON ALDERMAN
--------------- ------------------------------
ELTON ALDERMAN
President
Prolong Super Lubricants, Inc.
DATED: 7/28/95 /s/ AL UNSER
--------------- ------------------------------
AL UNSER
6
<PAGE>
EXHIBIT 10.5
PROLONG SUPER LUBRICANTS
SERVICE AGREEMENT
Agreement made as of October 24, 1995 by and between TYLIE JONES &
----------------
ASSOCIATES, INC., 3519 West Pacific Avenue, Burbank, California 91505
(hereinafter referred to as TJ&A) and PROLONG SUPER LUBRICANTS, INC., 1210 North
Barsten Way, Anaheim, CA 92806 (hereinafter referred to as Client).
TJ&A will provide specified services for Client in the order processing
and fulfillment of Prolong Super Lubricants (Product).
------------------------
In addition to Order Processing and Fulfillment Services for EDI orders
and other orders as necessary, TJ&A will provide Customer Service functions.
Standard reporting will include weekly activity summary spreadsheet;
monthly inventory; monthly activity by item sales; monthly invoice summary
register by payment type; and monthly taxable sales report for one state.
Postage and/or materials charges will be invoiced as incurred.
The attached Pricing Schedule is subject to a standard monthly minimum
of $2,000.00/month. The monthly minimum must be achieved each month or the
difference between actual service fees and the minimum will be billed. Storage
charges, programming, materials, telephone charges and shipping charges do not
apply to the monthly minimum. Any services not specified, such as, but not
limited to, special research, special projects, special handling, account
analysis, fund management, and collection activities are not included and, as
such, may not be reflected in the attached Pricing Schedule. Prices for
additional services are as agreed upon by both parties and become part of this
Agreement.
Start-up requires pre-payment of the set-up fees and full standard
monthly minimum deposit, along with a deposit of one month's estimated shipping
costs. The shipping deposit will be held in reserve and adjusted as needed.
1
<PAGE>
PROLONG SUPER LUBRICANTS
SERVICE AGREEMENT
Page Two
TJ&A will, at all times, exercise reasonable care in its actions on
behalf of the Client and will exert its best efforts to produce high quality
work to satisfy the Client and its customers.
TJ&A cannot be held responsible for any claims of special, indirect or
consequential damages to include specifically, but without limitation: loss of
revenues or anticipated profits, loss of use, cost of replacement services,
claims of customers or any third party, and/or other damages resulting from acts
of God, natural disaster or any other cause uncontrollable by TJ&A.
Client's materials are received, stored and shipped by TJ&A only at
client's risk. TJ&A does not accept responsibility for any loss or damage to
such materials from any cause except for loss or damage to such materials
actually covered by TJ&A's Bailees Liability Insurance Policy. Client should,
however, insure all materials delivered to TJ&A against all risks. TJ&A will
use every reasonable effort in handling client's products while in TJ&A's care.
TJ&A shall not in any event be liable for any materials delivered to it by or
for client in excess of the client's replacement cost of materials involved.
TJ&A will be deemed to have parted custody of the Product(s) when delivered to
the United States Post Office or to any shipping company.
TJ&A will not be held responsible for unpaid, and/or unreturned
shipments.
The parties acknowledge the TJ&A is acting solely as a fulfillment
center for client's product(s), and is an independent contractor. As such, TJ&A
is not a seller of these products and will bear no liability whatsoever in the
event that the products it ships are defective, allegedly defective or in any
way not as represented.
Client shall indemnify, defend and hold TJ&A harmless from any and all
claims that the product(s) shipped by TJ&A are defective. Client shall, at its
own cost and expense, procure and keep in full force and effect a product(s)
liability insurance policy naming TJ&A as an additional insured, and shall
promptly furnish TJ&A with a certificate showing insurance.
2
<PAGE>
PROLONG SUPER LUBRICANTS
SERVICE AGREEMENT
Page Three
TJ&A invoices are due upon receipt. If client fails to pay the charges
of TJ&A for a period of fifteen (15) days from receipt, TJ&A may, with formal
written notice to customer:
a) Hold orders received
b) Require Additional Security and/or Shipping Deposit
c) Stop providing any service of any kind
d) Any combination of above
Any deposits will be applied, and/or refunded by completion of project upon
final reconciliation.
Client hereby acknowledges the terms set forth in this agreement, and
authorizes Tylie Jones & Associates, Inc., to commence account set-up activities
upon receipt of signed and completed documents.
This agreement shall be construed in accordance with the laws of the
State of California. Venue shall be Orange County, CA.
** See additional terms noted below signature line.
TYLIE JONES & ASSOCIATES, INC. PROLONG SUPER LUBRICANTS, INC.
A Nevada corporation
By: BY: /s/ ELTON ALDERMAN
____________________________ ____________________
Elton Alderman, President
Date: Date: Oct. 24th 1995
_________________________ ________________
** This agreement shall commence effective the month of November, 1995.
This Agreement consists of seven (7) pages.
In the event of a legal dispute between the parties, the prevailing party
shall be entitled to his actual attorney fees, costs of suit, costs of
copies, transcripts, depositions, and all other actual costs of resolving
the legal dispute.
3
<PAGE>
TJA CUSTOM FULFILLMENT
FOR
PROLONG SUPER LUBRICANTS
<TABLE>
<S> <C>
800 ORDERS
- ----------
EDI order retrieval. $ .10 ea
Minimum per download $ 15.00
ORDER PROCESSING
- ----------------
Processing order detail into TJ&A Direct Response system .35 ea
including name, address, phone #, media source, credit
card, and product and sales breakdown. Also includes
credit card processing, set-up of each order for full
reporting capabilities and future project management,
as well as database capture for Customer Service functions.
Add manual entry of check order $ .60 ea
PRODUCT FULFILLMENT
- -------------------
Fulfill one "ship ready" package.* $ .45 ea
Includes label, packing slip, seal, prep for shipping and
ship confirm.
P.O. BOX SERVICE
- ----------------
Set-up/One-time only $ 100.00
P.O. Box servicing, including daily pick-up $ 50.00/mo
Sorting per piece $ .05
CAGING/DEPOSIT SERVICE
- ----------------------
Per check $ .10 ea
Per Deposit $ 15.00
MATERIALS
- ---------
Supplied as needed
</TABLE>
*Please see ASSEMBLY on the last page.
--------
Items in bold are key components for initial fulfillment. Add shipping
and optional features
Page 4
<PAGE>
PROLONG SUPER LUBRICANTS
Page Two
CUSTOMER SERVICE Mon-Fri 6:00am to 6:00pm/Saturday 8:00am-2:00pm - Pacific
<TABLE>
<S> <C>
Incoming phone call - up to 3 minutes, includes customer look-up $ 1.25 ea*
Additional minutes $ .40
Form letters (dollar variance, NSF, etc.) $ .50 ea
Database update $ .25 ea
* Plus Telco charge
STANDARD REPORTS - VIA MAIL
- ----------------
Weekly summary activity spreadsheet: monthly inventory; monthly sales No Charge
sales by item report, monthly invoice register summary by payment type;
monthly taxable sales report for one state.
Additional Reports Available $ 0.05 per page*
* excludes programming for custom reports
Faxing $ 0.05 per page
SHIPPING
- --------
UPS Ground Per Weight/Zone
We will provide a shipping analysis as volume grows.
RETURNS PROCESSING
- ------------------
Includes data entry, customer records and inventory updates, $ .85
returns report by reason.
WAREHOUSE SERVICES
- ------------------
Including receiving, packing slip verification, receiving reports, $ 19.75/hr
fax copies to Client, computerized inventory tracking (averages
$6.00 per pallet).
Returns Handling, including decollate and return to inventory as required.
STORAGE
- -------
Active Inventory per 4x4x4 pallet No Charge
Active inventory order volume averaged over 6 weeks.
Inactive Inventory $ 12.00/pallet/mo
</TABLE>
Page 5
<PAGE>
PROLONG SUPER LUBRICANTS
Page Three
<TABLE>
<S> <C>
CUSTOM PROGRAMMING $65.00-$100.00/hr.
- ------------------
Database storage of customer list while active No Charge
Order history maintained for 90 days past activity No Charge
ADMINISTRATION AND CLERICAL/SPECIAL REQUESTS - OPTIONAL $31.00-$45.00/hr.
- -------------------------------------------- --------
Including charge back management, refunds, POD's, special administrative
services, analysis, special reports and backorder coordination.
SET-UP FEE $ 400.00
- ----------
Includes computer set-up of product for EDI download from telemarketer
and up to 6 hours of EDI testing. (Additional hours billed at programming
rates.) Also set systems for up to 10 SKU's, product identification for order
entry, for credit card, sales activity, and inventory tracking and reporting
systems. Includes set-up taxable sales for one state.
Set-up customer service 800# (includes all lines required) and $ 450.00
customer service training.
SET-UP CREDIT CARD PROCESSING $ 400.00
Includes set-up of EDI interface with credit card processor, coordination
of Merchant Account and merchandise sales information and up to four (4)
hours of testing (additional hours billed as programming rates).
STANDARD MONTHLY MINIMUM $ 2000.00/mo.
TERMS
- ----
</TABLE>
Start-up requires full payment of set-up fees, deposit of total standard monthly
minimum and deposit of one month's estimated shipping costs, to be held in
reserve and adjusted as needed.
Page 6
<PAGE>
August 22, 1995
TYLIE JONES & ASSOCIATES
ASSEMBLY FOR
PROLONG SUPER LUBRICANTS
Per submitted materials, the following is the assembly fee:
. Prepare RSC shipper box with die cut inserts
. Add 5 individual components into correct position
. Add 3 sheets of printed material
. Close and seal box
$ .40 each
Page 7
<PAGE>
EXHIBIT 10.6
Proposal for
PROLONG SUPER LUBRICANTS
Prepared by
Connie Boeka
National Account Manager
West Telemarketing Corporation
October 24, 1995
<PAGE>
PROGRAM OVERVIEW
The following prices are quoted for a toll-free telemarketing program, wherein
800 toll-free numbers are included in television advertisements. The length of
the commercial will be 30 minutes.
Callers will be ordering a Car Care Kit, including Engine Treatment,
Transmission Treatment Fuel Conditioners, and Spray Lubricant. Several price
points will be tested including $39.95. Credit cards and checks or money orders
will be the only acceptable methods of payment.
The program is projected to initiate November of 1995. Call volume is unknown.
The client will furnish West Telemarketing a schedule of advertising whenever
possible.
As the telemarketing services vendor, West Telemarketing will be responsible
for:
A. Processing calls from advertised 800 telephone numbers;
B. Capturing the required data;
C. Supplying daily order and media tracking reports.
________________________________________________________________________________
Prolong Super Lubricants October 24, 1995 Page 2
<PAGE>
PROGRAM DESIGN
A. A personalized screen will be developed for use by specially trained
telephone representatives.
B. Possible information to be captured in each call will include:
1. Name
2. Address (including Apartment Number -- always verified)
3. City
4. State
5. Zip Code
6. Phone Number
7. Media Source (via 800#)
8. Credit Card Information
9. Upsell Question -- To Be Determined
10. Standard Closing and Delivery -- "Thank you for calling."
C. Test calls will be routinely conducted to ensure efficiency and accuracy
throughout the program.
D. Incoming calls will be received via West's shared line network, to afford
the maximum capacity required in broadcast promotions.
E. The phones will be answered in the shared environment with the standard
greeting, "This is Mary, may I help you?"
F. All addresses will be verified for increased accuracy.
G. Calls will be processed 24 hours a day, 7 days per week.
H. Orders will be transferred to a fulfillment company of choice.
I. Standard daily reports will be provided for evaluation and follow-up.
________________________________________________________________________________
Prolong Super Lubricants October 24, 1995 Page 3
<PAGE>
PRICING
<TABLE>
<CAPTION>
U.S. CANADA
------------- ------
<S> <C> <C>
A. Cost Per Call Capture
- -- ---------------------
1. Name, address, apartment, city, state, zip $1.03 $1.39
2. Caller's phone number .12 .16
3. Credit card request .07 .09
4. Credit card information, (type, number,
expiration date and on-line verification) .37 .50
5. Upsell, special closing and special scripting
to be determined by actual time at $.019 per
second U.S. and $.026 per second Canadian Based on time
6. Yes/No Questions (one sentence) .12 .16
B. Inquiry Calls
- -- -------------
A. Documented Inquiry $ .94 1.27
B. Inquiry Calls (Non data capture) .71 .96
C. Customer Service Calls
- -- ----------------------
1. Documented -- includes name, address, city,
state, zip, apartment, phone, time, date, phone
agent, plus a brief description of customer
service problem $1.39 1.88
2. Refer customer to phone number .84 1.13
3. Refer customer to address .94 1.27
D. Authorization Services
- -- ----------------------
1. Credit card authorization $ .16
2. Credit card authorization thru Transnet/Litle .02
E. Other information
- -- -----------------
1. Age or date of birth $ .12 .16
2. Male/Female .03 .04
3. Shipto clarification question (required
for any screen which includes shipto option) .12 .16
4. Shipto name, address .84 1.13
</TABLE>
________________________________________________________________________________
Prolong Super Lubricants October 24, 1995 Page 4
<PAGE>
PRICING, continued
<TABLE>
<CAPTION>
<S> <C>
F. Information Transfer Options
- -- ----------------------------
Electronic Transmission (per record) $ .02
(Minimum per Transmission $5.00)
Hard copy reports (excluding standard source reports)
-per report + postage 5.00
Magnetic Tape (300 ft.) -- per tape + postage 12.00
3 1/2" diskette or 5 1/4" floppy per diskette 8.00
Reruns of order/lead records, per day required 20.00
G. Labels
- -- ------
3" x 15/16" (5 rows) $ .03
3" x 1 1/4" (8 rows) .04
3" x 5" (15 rows) .07
UCC forms .09
C.O.D. .06
H. Administrative Charges
- -- ----------------------
Account set up fee
First product 500.00
Each additional product 250.00
Special programming (per hour) 80.00
Security deposit Required (may be reviewed,
based on credit check)
Monthly minimum (per product) 2,500.00
Program minimum 5,000.00
Postage At cost
Terms Net 14 days
</TABLE>
All elements of this proposal are guaranteed for thirty days from the date of
the proposal, unless:
A. AT&T increases the tariffed rates for 800 service, or
B. There is an increase in the minimum wage standard.
________________________________________________________________________________
Prolong Super Lubricants October 24, 1995 Page 5
<PAGE>
Telemarketing Agreement
- -----------------------
WEST TELEMARKETING CORPORATION cannot be held responsible for any claims of
special, indirect or consequential damages to include specifically, but without
limitation; loss of revenues or anticipated profits, loss of use, cost of
replacement services; claims of customers or any third party, and/or other
damages resulting from acts of God, natural disaster or any other cause
uncontrollable by WEST TELEMARKETING CORPORATION.
At WEST TELEMARKETING CORPORATION, we understand the importance of proving
daily, the value of our service. Furthermore, we feel that if we are not
producing the results that you expect, that you should have the right to
discontinue our services at any time. Therefore, this agreement may be canceled
with 30 days prior written notification, by either party.
I hereby authorize WEST TELEMARKETING CORPORATION to begin account set-up, and
acknowledge the terms set forth in this agreement.
Accepted By: PROLONG SUPER LUBRICANTS, INC.
By: /s/ ELTON ALDERMAN
- ------------------------------------
Elton Alderman, President
October 24, 1995
- ------------------------------------
(date)
Prepared by:
/s/ ^^ [ILLEGIBLE SIGNATURE] ^^
------------------------------------
10-24-95
------------------------------------
(date)
________________________________________________________________________________
Prolong Super Lubricants October 24, 1995 Page 6
<PAGE>
EXHIBIT 10.7
PROLONG SUPER LUBRICANTS, INC.
SERVICE AND ENDORSEMENT CONTRACT
--------------------------------
This Agreement is made this 29th day of April, 1996, by and between Prolong
Super Lubricants, Inc., a Nevada corporation ("Prolong"), and Al Unser, an
individual ("Unser"). Prolong and Unser are hereinafter at times referred to
individually as the "Party" and collectively as the "Parties."
RECITALS
--------
A) Prolong is in the business of manufacturing and marketing lubrication
products (the "Products"). The Products currently manufactured and sold by
Prolong are set forth on Exhibit "A" attached hereto. The defined term
"Products" shall include all enhancements, improvements, modifications and
changes to the existing Products;
B) Unser is a professional race car driver and has significant celebrity
recognition arising both out of his success as a race car driver and from other
activities in which he has engaged that have added to his public recognition;
C) Prolong believes it would be in its best interest and Unser believes it
would be in his best interest for Prolong to engage Unser and to use Unser's
likeness, name, photograph, voice, signature, initials and endorsements (the
"Promotional Materials") in marketing the Products.
NOW, THEREFORE, in consideration of the foregoing Recitals and the terms
and conditions hereinafter set forth, the Parties hereby agree as follows:
AGREEMENT
---------
1. Services.
--------
1.1 Use of Promotional Materials. Unser hereby grants to Prolong the
----------------------------
exclusive right and license throughout the world (the "Territory") to use his
likeness, name, photograph, voice, signature, initials and endorsements in the
promotion and sale of the Products. The Promotional Materials may be used by
Prolong in any advertising now existing or hereafter used in any and all media
forms. The Promotional Materials shall be used to promote the sale of the
Products.
1.2 Personal Services. During each 12-month period that this
-----------------
Agreement is in effect, Unser shall make himself available without charge to
Prolong for five (5) one-day appearances for functions to meet and greet the
public or for special appearances. Unser also agrees to make additional
appearances subject to the compensation as set forth herein and which may be
reasonably required to carry out the express purpose and terms and conditions of
this Agreement. Appearances
1
<PAGE>
by Unser shall consist of participation in any media or promotional events,
filming, taping or any other activity reasonably related to the marketing and
promotion of the Products. Unser agrees to act as a goodwill ambassador for
Prolong and its products and to take advantage of opportunities to talk about
and promote Prolong and its products during the course of his day-to-day
activities. As part of said promotional activities Unser agrees to wear
Prolong's apparel, including hats, shirts and jackets, when such apparel would
be reasonably appropriate based on the nature of the event when Unser is in
attendance at race car events. The duties set forth in this Section 1.2 shall
hereinafter be referred to as the "Services."
2. Availability. The dates and times when Unser shall be personally
------------
available to make personal appearances or to provide other services on behalf of
Prolong shall be determined by mutual agreement between the Parties. Prolong
shall make every effort to notify Unser no less than thirty (30) days in advance
of any personal appearances and Unser shall not have the right to refuse said
appearances so long as they do not conflict with any items on his personal
schedule. Unser shall use his best efforts to honor any request by Prolong to
make an appearance.
3. Approval by Unser. All printed promotional materials, printed
-----------------
advertising, press releases and any other communicative materials utilizing
Unser's photographic image, name, signature, endorsement or initials shall not
be derogatory to the image of Unser as reasonably determined by Unser and Barnes
Dyer Marketing ("BDM"), Unser's authorized agent, prior to release, publishing,
broadcasting or other dissemination. Prolong agrees to provide BDM copies of all
such materials for approval no later than five (5) days before any such release
or dissemination. BDM and Unser agree to respond promptly to every such request
for approval, but in any case shall respond no later than five (5) days after
receipt of such request for approval. If no response is received by Prolong
within such five-day period, such non-response shall be deemed to constitute
approval. Any approval to be provided by Unser shall not be unreasonably
withheld.
4. Professional Conduct. Unser hereby agrees to provide the Services
--------------------
pursuant to this Agreement in a professional manner that will reflect favorably
on Prolong and others associated with Prolong, and on the Products. Unser agrees
to use his best efforts to promote Prolong and the Products during the term of
this Agreement and will take every reasonable opportunity during the term of
this Agreement when and where reasonably appropriate to promote Prolong and the
Products. Unser agrees to conduct himself with due regard to public conventions
and morals and further agrees not to do or commit any act or thing that would
reasonably tend to derogate or detract from the goodwill of Prolong or the
Products.
5. Use of Promotional Materials. Use of the Promotion Materials shall be
----------------------------
subject to approval by Unser as set forth in Section 3 above. The Promotional
Materials shall not be used in any way that would diminish the goodwill
associated therewith or in any way damage the image or reputation of Unser.
6. Term. The Promotional Materials shall be available to Prolong and the
----
Services shall be provided to Prolong for a period of three (3) years, beginning
on November 1, 1996 and ending
2
<PAGE>
on October 31, 1999 subject to an option to extend for an additional four (4)
year term as set forth herein (the "Term"). On or before the 90th day prior to
the end of the third year, either Party upon notice to the other Party may
extend the Term of this Agreement for an additional four (4) years (the
"Option"). The Option period shall be governed by the express terms and
conditions as set forth in this Agreement. Prolong may terminate this Agreement
prior to the end of the Term if Unser is unable to perform the Services for any
reason or if there is a material breach of this Agreement by Unser. Any
compensation to be paid to Unser shall be prorated through the date of
termination.
7. Compensation.
------------
7.1 Compensation Amount. Prolong shall compensate Unser for the
-------------------
right to use the Promotional Materials and the Services by providing the
following consideration to Unser:
<TABLE>
<CAPTION>
Percentage of Prolong Guaranteed
Year Net Retail Sales Common Stock Earnings Cap Payment
---- ---------------- ------------ ------------ ----------
<S> <C> <C> <C> <C>
1 1.5% 40,000 $100,000 $15,000
2 1.25% -- $125,000 $15,000
3 1.0% -- $150,000 $15,000
4 1.0% -- $175,000 $75,000
5 1.0% -- $200,000 $75,000
6 1.0% -- $225,000 $75,000
7 1.0% -- $250,000 $75,000
</TABLE>
7.2 Payment Terms. The guaranteed payments set forth above shall be
-------------
offset against any Royalties received from Net Retail Sales. The Guaranteed
Payments for years one through three shall be paid in four equal quarterly
installments each year of $3,750 each, with the payments to be made on the first
day of each calendar quarter beginning on January 1, 1997 during each 12-month
period. The Guaranteed Payments during years four through seven shall be made in
four equal quarterly installments of $18,750 each with each payment to be made
on the first day of each calendar quarter beginning on January 1, 2000 during
each 12 month period. All payments to Unser shall be made payable to BDM,
Unser's authorized representative, at 15510 Rockfield Blvd., Suite "C", Irvine,
California 92718.
Royalties shall only be paid at such time as the total Royalty
payments for the applicable year exceed the amount of the total Guaranteed
Payment amount for said year. For purposes of this Agreement "Royalty" shall
mean the payments based on a percentage of Net Retail Sales. "Net Retail Sales"
shall mean sales of Prolong products to end users located in the United States
or to resellers who will sell products to end users located in the United States
all of whom sell said products as "consumer goods" for use primarily for
personal, family or household purposes. Net Retail Sales shall not include the
sale of "consumer goods" sold by Prolong as a result of direct response sales
which include, but are not limited to, sales made through media advertisements
of any nature that result in product sales to customers through their response
to an advertised telephone order number such as an "800" number. Net Retail
Sales shall be equal to gross sales minus any
3
<PAGE>
charge backs, taxes, returns and allowances, shipping and handling charges,
credit card charge backs and any other deductions used to arrive at "net sales"
in accordance with generally accepted accounting principles consistently
applied.
The Royalty shall be paid on or before the twentieth (2Oth) day
following the end of each applicable quarter.
7.3 Accounting. Prolong shall submit comprehensive quarterly Royalty
----------
statements to BDM along with each payment to BDM. BDM and Unser shall have the
right to reasonably review and inspect all accounting documents, methods and
materials used by Prolong to record sales and earnings in order to verify
Royalty payments. BDM and Unser agree to keep confidential and secret all
information they receive from the accountings provided by Prolong and
acknowledge that such information, if disseminated to third parties, could harm
Prolong economically.
7.4 Personal Appearance Fees. For each additional one-day appearance
------------------------
by Unser, Prolong shall pay to Unser $5,000 for the first day and $3,500 for
each consecutive day thereafter. In the event that a personal appearance relates
to a charity event, Unser hereby agrees to a fee of $3,750 per day. The
foregoing personal appearance fees shall be paid on or before the 30th day
following the date of the appearance.
7.5 Infomercial Contract Offset. The Parties entered into an
---------------------------
Agreement dated July 28, 1995, whereby Unser agreed to provide personal services
used by Prolong in the taping of an infomercial (the "Infomercial") for Prolong
(the "Infomercial Contract"). Unser hereby agrees that if, for any reason, the
Infomercial is discontinued at any time on or before the end of the second year
of the Infomercial Contract, the Guaranteed Payment shall be equal to the
greater of the guaranteed amount in the Infomercial Contract for the year in
which the Infomercial Contract is terminated or the Guaranteed Payment amount
pursuant to this Agreement for the year following the year in which the
Infomercial is terminated, and Unser would not be entitled to receive a
guaranteed payment amount pursuant to the Infomercial Contract. For example, if
the Infomercial Contract is terminated at the end of year 2 on July 28, 1997,
the guaranteed amount for year 3 of $60,000 would be substituted in the place of
the Guaranteed Payment of $15,000 for "year 2" of this Agreement beginning on
November 1, 1997. If the Royalty based on the Percentage of Net Retail Sales
during "year" 2" equals $55,000, the payment to Unser for "year 2" under this
Agreement would be $60,000 (the greater of the Percentage amount or the
Guaranteed Payment). No payment would be due under the Infomercial Contract.
7.6 Stock Consideration. The 40,000 shares of stock to be issued to
-------------------
Unser (the "Shares") shall be issued effective as of the date of this Agreement,
April 29th, 1996 subject to the representations and warranties and restrictions
set forth herein. The value of the Shares as negotiated by the Parties shall be
deemed to be $1.00 per Share.
7.7 BDM Stock Payment. Prolong hereby agrees to issue 10,000 shares
-----------------
of Prolong common stock (the "BDM Stock") to BDM as partial consideration for
services rendered
4
<PAGE>
by BDM relating to the Promotional Material and Services to be provided to
Prolong. The BDM stock shall be issued concurrent with the execution of this
Agreement and Prolong shall not have any obligations whatsoever to BDM for any
other costs, fees or consideration in any way relating to the subject matter of
this Agreement. The BDM Stock is also referred to hereinafter at times as the
"Shares."
7.7.1 REPRESENTATIONS OF UNSER. Unser hereby represents,
------------------------
warrants and agrees as follows:
(a) The Shares have not been registered under the Act, as amended, in
reliance upon the exemption from the registration requirements under the Act
provided in Section 3(b) as interpreted by Regulation D. The Shares have not
been registered under the California Securities Laws or under the Nevada
Securities Laws. Therefore, Unser understands that Unser must bear the economic
risk of the investment for an indefinite period of time since the Shares cannot
be offered for sale or sold without compliance with the provisions of the Act,
the California Securities Laws and the Nevada Securities Laws.
(b) Unser will not sell, assign, transfer or otherwise dispose of all
or any part of the Shares without complying with the provisions of the Act, the
California Securities Laws and the Nevada Securities Laws. In addition, the
transfer records of Prolong will be noted indicating the restrictions on
transferability and sale and the stock certificates will bear any legend
required by the California Securities Laws and the Nevada Securities Laws, as
well as the following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
FEDERAL SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THAT ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED."
7.7.2 KNOWLEDGE OF UNSER. Unser acknowledges and is aware of the
------------------
following:
(a) Unser has adequate means of providing for Unser's current needs
and possible personal contingencies, and has no need for liquidity of Unser's
investment in Prolong. Unser understands the highly speculative risk of
investing in the Shares and that there is a high degree of risk of loss of
Unser's entire investment or of having to hold the Shares for an indefinite
period of time.
(b) There are substantial restrictions on the transferability of the
Shares; the Shares will not be, and investors in Prolong have no rights to
require that the Shares be, registered under the Securities Act; there will be
no public market for the Shares; Unser may not be able to avail itself of the
provisions of Rule 144 adopted by the Securities and Exchange Commission under
the Securities
5
<PAGE>
Act with respect to the resale of the Shares; and, accordingly, it may not be
possible for Unser to liquidate its investment in Prolong.
(c) Unser is personally familiar with and fully understands the
business operations and financial condition of Prolong, and has full access to
the records of Prolong and all information pertaining to its operations, plans
and financial condition.
(d) Unser is aware that Prolong has just been successful starting in
the first part of 1996 in creating a substantial market for and/or penetrating
markets for the sale of its products and is competing in a highly competitive
market which includes more experienced and larger companies. There can be no
assurance that Prolong or its products will be able to successfully compete with
these companies for potential customers.
(e) Unser is an investor of sufficient sophistication able to make an
informed investment decision based upon his knowledge of the business and
affairs of Prolong; the records, files and plans of Prolong, as to all of which
Unser has had full access; such additional information as Unser may have
requested and received from Prolong; and, the independent inquires and
investigations undertaken by Unser.
(f) Unser has had an opportunity to ask questions of and receive
answers from the officers and directors of Prolong, or persons acting on their
behalf, concerning the terms and conditions of this investment, and all such
questions have been answered to Unser's full satisfaction.
(g) Unser has the authority to execute this Agreement.
(h) Unser is aware that no federal or state agency has made any
finding or determination as to the fairness for public investment in, nor any
recommendation or endorsement of the Shares.
(i) Unser hereby understands that the price per share has been
determined by management of Prolong and the per Share price does not necessarily
reflect the same price that may be charged to other investors for shares in
Prolong and Unser had the opportunity to fully and fairly negotiate the purchase
price of the Shares.
(j) Unser understands that Prolong may require additional funds in
order to continue its operations and may need to raise additional capital. There
is no assurance, however, that Prolong will be successful in additional private
offerings or in obtaining the necessary underwriting or investment support to
complete a public offering as required to provide the necessary funds to
Prolong.
(k) Unser recognizes that Prolong is relying upon the representations
and warranties made in this Section 7.6.2 in selling the Shares pursuant to this
Agreement, and agrees to
6
<PAGE>
indemnify Prolong against any and all loss, damage or liability arising out of a
breach of any such representations or warranties.
7.7.3 Forfeiture of Shares. In the event this Agreement is terminated
--------------------
on or before November 1, 1997, Unser shall forfeit 32,000 Shares to Prolong and
BDM shall forfeit 8,000 Shares to Prolong. In the event this Agreement is
terminated after November 1, 1997, but on or before November 1, 1998, Unser
shall forfeit 20,000 Shares to Prolong and BDM shall forfeit 5,000 Shares to
Prolong. In the event of a forfeiture as set forth herein, Unser and BDM shall
be deemed to transfer all right, title and interest in the forfeited Shares to
Prolong as of the date of termination of this Agreement. After November 1, 1998,
the Shares shall be fully vested in Unser and BDM and shall not be subject to
forfeiture pursuant to this Section. Until the time of forfeiture, if it occurs,
Unser and BDM shall have all rights associated with all of the Shares held by
them.
7.7.4 Restriction on Transfer of Shares. Until such time as the
---------------------------------
Shares become fully vested, those Shares that are still subject to forfeiture
shall not be sold, transferred or encumbered in any way without the express
written consent of Prolong which may be withheld in its sole and absolute
discretion.
8. Expenses. Prolong shall pay for all reasonable expenses incurred by
--------
Unser associated with any personal appearances made by Unser pursuant to the
terms and conditions of this Agreement (the "Expenses"). The Expenses shall
include first-class, round-trip air transportation and reasonable costs
associated with lodging, meals and other transportation expenses incurred by
Unser in the course of making the personal appearances. Prolong shall either pay
the Expenses directly or shall reimburse Unser for the Expenses incurred by him
no later than 30 days following receipt of an accounting of the Expenses from
Unser.
9. Noncompetition by Unser. Unser agrees that he will not endorse any
-----------------------
competitive products during the Term of this Agreement. The competitive products
shall be as follows: Engine treatment, transmission treatment, fuel conditioner,
penetrant spray, precision oil, engine oil and grease.
10. Confidentiality. In the course of working with Prolong in providing
---------------
the Services as set forth in this Agreement, Unser may have access to certain
confidential information and materials which may be disclosed verbally or in
writing to Unser concerning Prolong and/or the Products (the "Confidential
Information"). Unser hereby agrees not to utilize or disclose any Confidential
Information except as required in carrying out the Services and shall take
reasonable steps to protect any public disclosure of the Confidential
Information. Unser shall, during the Term of this Agreement and at any time
thereafter, hold in confidence and not disclose to any person or entity without
the express prior written authorization of Prolong, names or addresses of any of
Prolong's customers, Prolong's past or prospective dealings with its customers;
the parties, dates or terms, if any, of Prolong's contracts; any information,
trade secrets, systems, processes or business methods, or any other secret
confidential matters relating to the customers or business affairs of Prolong or
any companies affiliated with Prolong. All written material or other property,
tangible or intangible,
7
<PAGE>
provided to Unser, or developed in conjunction with Unser, that contain
proprietary rights and materials, including copyrights therein, arising out of
or resulting from the performance of this Agreement shall belong to Prolong and
shall not be disseminated or used in any way by Unser except as expressly set
forth herein. Upon termination of this Agreement, all said materials shall be
returned by Unser to Prolong. Such information and materials shall not include
any general marketing information or other materials or information that is
generally known by or has been disseminated to the public.
Prolong's rights and interests (including all rights of copyright print) in
and to the Promotional Materials and the results and proceeds of the Services
hereunder are at times referred to hereinafter as the "Proceeds". The Proceeds
are a "work made for hire" for Prolong to be used by Prolong in its promotional
and marketing materials, commercials and ads in any form of marketing media and,
therefore, are "specially ordered and commissioned" for use as a part of the
marketing activities and promotional works of Prolong.
11. Independent Contractor Status. Unser hereby declares that Unser is
-----------------------------
engaged in an independent business and Unser will perform the Services as an
independent contractor and not as agent, employee or servant of Prolong. In no
event shall Unser be allowed to engage any other individual to carry out the
duties of Unser pursuant to this Agreement. Unser shall be responsible for the
payment of any state or federal withholding tax, social security tax or other
payroll tax, and worker's compensation insurance related to the performance of
the Services.
12. Indemnification. Prolong agrees for itself and its successors and
---------------
assignors to defend, hold harmless and indemnify, both collectively and
individually, Unser and BDM, their officers, agents, employees and their
successors and assigns, and anyone acting on behalf of any of them, from and
against any and all losses, costs and damages, expenses or claims (including
attorney's fees), whether such claims are groundless or to, arising out of any
claim, including but not limited to claims of personal injury, death or damage
to property, whether real or personal, or false advertising or
misrepresentation, uniess such claims arise from Unser or BDM's misconduct or
negligence. The intent of this indemnification Section is to cause Prolong to
indemnify and hold harmless Unser and BDM from any and all third-party claims of
any nature arising out of, or related to this Agreement or performance
hereunder, unless such claims arise from the breach of this Agreement by
Unser or the misconduct or negligence of BDM or Unser.
13. Termination.
-----------
(a) Termination by Either Party. Either party may, upon 30 days'
---------------------------
notice to the other of breach and a subsequent failure to correct such breach
within 30 days after such written notice, terminate further performance under
this Agreement, while maintaining the right to require performance by the other
party of those obligations accruing prior to the date of termination as
determined herein. The payment of all compensation earned by Unser under this
Agreement will fully discharge all of Prolong's obligations hereunder.
8
<PAGE>
(b) Cure. At any time that Prolong is in breach of the compensation
----
terms of this Agreement, either for Royalties or guarantees, Prolong shall have
30 days to cure such breach after 30 days' written notice from Unser/BDM of the
breach. In the event of failure to cure within the time limits provided
hereunder, in addition to such other remedies to which Unser may be entitled,
Unser shall have the right to halt use of the Promotional Materials by Prolong
thereafter, in which event Prolong agrees it shall cease using in any way the
Unser image and agrees to recall all outstanding material produced hereunder
which uses the Unser image.
(14) General Provisions.
------------------
(a) Notices. All notices pertaining to this Agreement shall be in
-------
writing and shall be transmitted either by facsimile, overnight mail, personal
hand delivery or through the facilities of the United States Post Office,
certified or registered mall, return receipt requested. The addresses set forth
below for the respective Parties shall be the places where notices shall be
sent, unless written notice of a change of address is given.
Prolong Super Lubricants, Inc. Al Unser
1210 North Barsten Way c/o Matt Stowe
Anaheim, CA 92806 Barnes Dyer Marketing
15510 Rockfield Blvd, Ste. C
Irvine, CA 92618
Any such notices shall be deemed to be given as of the date so delivered.
(b) Attorneys' Fees. In the event that any legal, declaratory, self
---------------
help, or equitable action or arbitration or any other action not considered to
be a legal or equitable action is commenced between the Parties hereto or their
personal representatives concerning any provision of this Agreement or the
rights and duties of any person in relation thereto, the prevailing Party shall
be entitled, in addition to such other relief that may be granted, to a
reasonable sum for their attorney's fees and any other costs and expenses
relating thereto.
(c) Governing Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be controlled by and construed under the
laws of the State of California. In the event of any litigation arising out of
any dispute in connection with this Agreement, the Parties hereby consent to the
jurisdiction of the California courts with venue in Orange County, California
which is the agreed upon location where the Parties entered into this Agreement.
(d) Binding Effect. Each and every covenant, term, provision and
--------------
agreement herein contained shall be binding upon and inure to the benefit of the
Parties hereto and their respective heirs, successors, assigns and legal
representatives and shall survive the termination of this Agreement where
appropriate to carry out the terms thereof.
9
<PAGE>
(e) Amendments. Modifications and Waivers. No amendment or
-------------------------------------
modification of this Agreement or any exhibit or schedule hereto shall be valid
unless made in writing and signed by the party to be charged therewith. No
waiver of any provision of this Agreement shall be deemed, or shall constitute,
a waiver of any other provision, whether or not similar. No waiver shall be
binding unless executed in writing by the party making the waiver.
(g) Assignment. The interest of Unser in this Agreement is personal
----------
and shall not be assigned, transferred, shared or divided in any manner by
Unser.
(h) Severability. Every provision of this Agreement is intended to be
------------
severable. If any terms or provisions hereof are illegal or invalid for any
reason whatsoever, such illegality or invalidity shall not affect the validity
of the remainder of the Agreement.
(i) Parties in Interest. Nothing in this Agreement shall confer any
-------------------
rights or remedies under or by reason of this Agreement on any persons other
than the Parties and their respective successors and assigns nor shall anything
in this Agreement relieve or discharge the obligation or liability of any third
person to any party to this Agreement, nor shall any provision give any third
person any right of subrogation or action over or against any party to this
Agreement.
(j) Entire Agreement. This Agreement contains the entire Agreement
----------------
between the Parties hereto, and supersedes any prior written or oral agreement
between the Parties concerning the subject matter contained herein. There are no
representations, agreements, arrangements or understandings, oral or written
between the Parties hereto, relating to the subject matter contained in this
Agreement, which are not fully expressed herein.
This Agreement is adopted and made effective as of the date first set forth
above as evidenced by the signatures of the Parties hereto.
PROLONG SUPER LUBRICANTS, INC.
By:
-------------------------
Elton Alderman, President
AL UNSER
- ------------------------------
Al Unser
10
<PAGE>
Barnes Dyer Marketing in return for the BDM Stock issued to them
pursuant to the Agreement hereby agrees that the representations and warranties
set forth in Sections 7.7.1 and 7.7.2 shall apply to BDM as though BDM is
inserted in place of Unser and that BDS shall be deemed a party to the Agreement
subject to all the terms and conditions set forth therein except to the extent
that such terms and conditions relate to rights, duties and obligations of
Unser.
Barnes Dyer Marketing
By:
------------------
Matt Stowe
11
<PAGE>
EXHIBIT 10.8
Associate Sponsorship Agreement
-------------------------------
THiS AGREEMENT is entered into as of the 9 day of May
- ---
1996 by and between King Entertainment, Inc., a Texas corporation, and Kenneth
D. Bernstein (hereinafter collectively referred to as "Owner"), with a main
place of business at 1105 Seminole, Richardson, TX 75080 and Prolong Super
Lubricants, Inc. (hereinafter "PROLONG"), with a principal office at 1210 N.
Barsten Way, Anaheim, CA 92806, party of the second part.
WHEREAS, Owner represents that it owns sufficient equipment and has
retained all necessary personnel to enter a Top Fuel drag race vehicle in and
compete in all 1996,1997, 1998 and 1999 national events conducted and sanctioned
by the National Hot Rod Association ("NHRA");
WHEREAS, Prolong is engaged in the business of refining, producing and
selling lubricants, which products Owner intends to use in its Top Fuel race
vehicles;
WHEREAS, the parties desire to enter into an agreement under which Prolong
will agree to provide financial sponsorship for Top Fuel drag race vehicles
owned by Owner and a race team affiliated with Owner entered in the
1996,1997,1998 and 1999 NHRA national events;
WHEREAS, Owner represents and warrants that it has not previously granted
the promotional and other rights herein granted for 1996,1997,1998 and 1999 and
that such rights granted to Prolong will not conflict with any rights granted to
Owner's primary sponsor.
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and intending to be legally bound hereby, the parties agree as follows:
1. Definitions. The following terms shall have the specified meanings for
-----------
the purposes of this Agreement.
a) "Racing Event" or "Race" shall mean all events included within the
1996,1997, 1998 and 1999 schedules of national events sponsored and
sanctioned by NHRA, a listing of which for 1996 is included on Exhibit A to
this Agreement.
b) "Race Team" shall include the cars owned by Owner and to be entered in
the races, Kenneth D. Bernstein as the driver, and mechanics, crew chief
and all other persons retained or hired by Owner to provide services
related to participation in the races.
c) "Driver" shall mean Kenneth D. Bernstein.
d) "Race Car" shall mean a Top Fuel drag race vehicle designated as the
"Budweiser King Prolong Top Fuel Dragster", owned and operated by Owner and
entered in all Races.
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<PAGE>
2. Sponsorship. Owner hereby grants Prolong an associate sponsorship and
-----------
promotional rights for the Driver, Race Team, race cars and support
vehicles, all as more fully provided in this Agreement. Prolong
acknowledges that Anheuser-Busch Companies, Inc. (Budweiser) is the primary
sponsor of the race car and race team, and that Prolong's rights hereunder
are subject to Budweiser's primary sponsorship rights.
3. Racing Obligations. Owner represents and warrants that it owns sufficient
------------------
equipment, has retained or will retain the services of personnel to perform
and hereby covenants to perform the following racing responsibilities:
a) Owner shall own and make available one or more Top Fuel drag race
vehicles to compete in the Racing Events herein defined, and shall provide
garage, repair and storage facilities for the Race Car.
b) Kenneth D. Bernstein shall serve as driver for the entire 1996,
1997,1998 and 1999 NHRA seasons and for other promotional services and
personal appearances necessary to carry out this Agreement. In the event
Kenneth D. Bernstein should be unable to serve as driver during the term of
this Agreement due to injury or illness or circumstances beyond the control
of Kenneth D. Bernstein, Owner shall retain a qualified substitute driver
to complete the events and provide promotional services and personal
appearances over the term of this Agreement, which substitute driver shall
be acceptable to Prolong.
c) Owner shall provide all parts, accessories, equipment, trailers and
transporters necessary to enter all Racing Events, and shall service,
maintain and repair the Race Cars so that they are in good condition and
repair suitable for use in all Races.
d) Owner will retain the services, for all Racing Events throughout the
term of this Agreement, personnel necessary to enter all Races.
e) The Race Car shall prominently display the Prolong logo in twelve
locations. The exact location and size of the Prolong identification on the
Race Car shall be as agreed upon by Owner and Prolong. The race car
transporter shall display Prolong identification on both side panels and on
rear door, in sizes and locations to be mutually agreed by Owner and
Prolong. Prolong acknowledges that the rear door identification for 1996 is
of a smaller size and agrees to incur the cost of repainting the rear door
of the transporter, if desired, for the 1997 season to enlarge
identification. No identification of any entity which manufactures, sells
or distributes lubricants shall be displayed on the Race Car or transport
vehicles, except that of Prolong's identification .
f) Owner shall provide crew and driver uniforms which prominently feature
Prolong identification and shall require the Driver and all crew members to
wear such uniforms during all races, and during qualifying and practice
runs on Saturdays and Sundays of race weekends. No identification or logos
shall appear on the Driver or crew uniforms that conflict with Prolong
Super Lubricants. Prolong acknowledges that the embroidery work had been
completed on the 1996 Driver and crew uniforms prior
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<PAGE>
to Prolong contracting with Owner. Owner agrees for the 1996 season,
Prolong patches (provided by Prolong), will be sewn on all Driver and crew
uniforms in an available location. For the years 1997,1998 and 1999,
Prolong will be placed on the front of the Driver and crew uniforms.
g) Owner shall enter, use their best efforts to qualify in and race the
Race Car in each 1996,1997, 1998 and 1999 Racing Event.
h) Owner shall not enter any race car not sponsored by Prolong and that
does not bear the Prolong color scheme and identification in any NHRA
national drag racing event during the term of this Agreement.
Provided, however, that should Owner determine to field a second (or more)
race cars during the 1996, 1997, 1998 and 1999 NHRA seasons, Owner shall
afford Prolong the first right of refusal as associate sponsor for such
race cars and teams. Should Prolong decline to sponsor a second (or more)
race cars, Owner may contract with another manufacturer or distributor of
lubricants or lubricant related products as either a primary or associate
sponsor of such second (or more) race cars. Kenneth D. Bernstein's name
shall not be used to promote or endorse any product that conflicts with
Prolong on any additional race cars.
4. Promotional Responsibilities of Owner. Owner and its employees shall
-------------------------------------
provide the following promotional services for Prolong.
a) Owner's car, Driver, race crew, supporting personnel and car shall be
known collectively as the "Budweiser King Prolong Race Team", and shall be
thus designated, when appropriate, in all press releases, promotional
material and all other material released to the public by Owner and all
such material shall include reference to the team's associate sponsorship
by Prolong, when appropriate.
b) The Driver shall at no additional fee, appear at 6 events each year
during 1996, 1997,1998 and 1999 as designated by Prolong, at locations
other than the race track. Such appearances shall include, but not limited
to, participation in the preparation of television, radio or magazine
advertising for Prolong Super Lubricants if requested by Prolong, public
appearances, photographic and recording sessions, sales meetings and trade
shows. Prolong shall reimburse Owner for reasonable expenses of the Driver,
and or crew, incurred in such appearances (air fare, lodging, local
transportation and meals), upon presentation of supporting documentation.
Appearances by the Driver, in excess of 6 each year, shall be at a fee of
$3,000 per appearance. Owner, the Driver and other team members shall not
be entitled to any additional compensation for such appearances, excepting
only residuals at ASCAP scale for any television broadcast of programs or
advertisements in which they appear.
All appearances by the Driver on behalf of Prolong shall be subject to the
reasonable approval of Owner, and shall be consistent with and designed to
preserve and foster the good name, reputation, and public image of Kenneth
D. Bernstein. All appearances shall be scheduled during normal business
hours
-3-
<PAGE>
unless otherwise approved by Owner, not to exceed one hour in length and
will not conflict or interfere with racing activities.
Prolong agrees to attempt to give Owner at least 10 days' prior notice of
the times and places the Driver is to appear. Owner agrees to exercise its
best efforts to comply with such requests and agrees not to withhold its
consent to any appearance unreasonably, consistent with the Driver's travel
and racing schedule.
c) Owner, the Driver and the Budweiser King Prolong Team shall not, during
the term of this Agreement, endorse, participate in the advertising of or
permit its or their names, trademarks, likenesses, logos or other
identifying marks to be used in the advertising or promotion of any
lubricant, other than that of Prolong. The Driver shall not drive any race
car or wear any uniform bearing the identification of any manufacturer of
lubricants other than Prolong without the written consent of Prolong.
d) Owner or his designated delegate shall use their best efforts in and
cooperate with Prolong in other promotional activities not specified herein
at the reasonable request of Prolong.
e) The Driver and other crew members shall wear uniforms bearing Prolong
identification in the winner's circle or designated winner's area at all
race tracks, and Owner shall distribute hats bearing Prolong's
identification (furnished by Prolong) to be worn, when appropriate, by some
or all crew members and associated personnel in all such areas.
f) Owner shall have no right to use or license to third parties any of
Prolong's names, logos, trademarks or other identifying marks without the
prior consent of Prolong. Prolong consents the use of Prolong's name and
trademark as displayed on the Race Car by the primary sponsor and secondary
sponsors of the Race Car in advertising and promotional material. Prolong
also agrees that Owner may use Prolong's name and trademark for the purpose
of producing souvenir items that display the Budweiser King/Prolong Top
Fuel race vehicle.
5. Other Sponsor Rights. In addition to the other rights granted to Prolong,
--------------------
Owner hereby grants Prolong the following rights and privileges:
a) During the term of the Agreement, Prolong shall be the exclusive
lubricant sponsor of Owner, the Driver, team, and the Budweiser King
Prolong Top Fuel Dragster in drag racing. No decal or identification of any
other lubricant company shall be placed on the Budweiser King Prolong Top
Fuel Dragster.
b) Prolong shall have the right at no fee or compensation to Owner or
others, to use the names "Budweiser King Prolong Race Team" and the names,
trademarks, photographs of and likenesses of Owner, Driver, other team
members and the Race Car in Prolong's advertising (including print, point
of purchase, radio and television) and promotional material during the term
of this Agreement with the prior approval of Owner. All use of such
material shall cease immediately upon expiration of this
-4-
<PAGE>
Agreement. Owner warrants that it has obtained all releases and/or consents
necessary for this purpose, and will make such available to Prolong upon
request. Prolong may promote its sponsorship in any manner it deems proper,
subject to the prior approval of Owner.
c) During the term of this Agreement, and without payment or consideration
other than the sponsorship fee and as provided in Paragraph 4 (b), Owner
and Kenneth D. Bernstein consent to the non-exclusive use (including but
not limited to reproduction, display, broadcasting, televising, publication
and distribution) in any media of Kenneth D. Bernstein's name, biographical
information, photograph and any other likeness including caricatures,
either in whole or in part and in any form, style, size and color selected
by Prolong and approved by Owner (which approval shall not be unreasonably
withheld). Kenneth D. Bernstein agrees that his name, biographical
information, and photograph or likeness and the name and photograph or
likeness of the Budweiser King Prolong Top Fuel Dragster may be used for
the aforesaid purposes alone or in conjunction with each other and/or with
sketches, cartoons, captions, films, artwork, textual matter or other
photographs. Any print or electronic advertisement involving Kenneth D.
Bernstein and the Budweiser King Prolong Top Fuel Dragster shall be subject
to the prior approval of Owner, which shall not be unreasonably withheld.
d) During the term of this Agreement, Owner, the Driver and the Budweiser
King Prolong Race Team and crew shall not endorse, participate in the
advertising or promotion of, or permit its or their names, likenesses,
logos, trademarks or other identifying marks to be used in the advertising
or promotion of any lubricant other than that of Prolong.
e) Should Prolong desire to undertake any merchandising or souvenir
program using the Owner's logos or trademarks, the name or likeness of
Driver or Kenneth D. Bernstein (Kenny Bernstein) or the Budweiser King
Prolong Top Fuel Dragster, Owner and Prolong will negotiate royalty terms
for any such program. Prolong further agrees that it shall not manufacture
or license, or authorize any third party to manufacture, souvenirs bearing
the logo or trademarks or the name or likeness of the Driver without the
prior approval of Owner.
6. Fee. In consideration for the obligations and services of Owner and Kenneth
---
D. Bernstein and the sponsorship rights granted herein, Prolong agrees to
pay Owner a sponsorship fee for each of the 1996,1997,1998 and 1999 racing
seasons as follows:
1996: $50,000 in cash, payable $5,000 at commencement, and $5,000 per month
on the 10th day of each month beginning April 10th, 1996 through December
10th, 1996; plus 100,000 shares of common stock of Prolong International
Corporation, the parent company of Prolong Super Lubricants, Inc., a
publicly traded company (Trading symbol "PROL" on the OTC Bulletin Board)
to be delivered upon signing of this Agreement; plus 50,000 additional
shares of common stock to be delivered in four equal increments of 12,500
shares deliverable January 1,1997, April 1, 1997, July 1, 1997 and October
1,1997. Stock herein to be issued subject to SEC Rule 144.
-5-
<PAGE>
1997. $350,000 in cash, payable in 6 installments of $29,166 per month on
the l0th day of each month beginning January lOth, 1997 and 2 installments
of $87,502 payable July 1,1997 and October 1,1997 along with the 50,000
shares of stock referenced above in 1996 to be delivered in 1997.
1998: $400,000 in cash, payable in 4 equal installments on the first day of
each calendar quarter.
1999: $425,000 in cash, payable in 4 equal installments on the first day of
each calendar quarter.
Prolong agrees to pay Owner a performance bonus in any year of the
Agreement, excluding 1996, in which Owner is deemed by the NHRA as the
winner of the Top Fuel Championship for the season. Prolong shall pay to
Owner a cash bonus equal to 5% of the then current years cash sponsorship
being paid by Prolong to Owner. Any bonus money due to Owner is due on or
before December 1 of the year the bonus was earned.
In the event Owner should fail to enter a scheduled NHRA sanctioned
national event in any year, other than due to circumstances beyond the
Control of Owner, Prolong shall be entitled to a refund of a pro rata
portion of the applicable year's cash sponsorship fee for each race missed,
based upon the number of scheduled NHRA sanctioned national events for the
applicable year. Notwithstanding the foregoing, no refund shall be payable
for any missed event for which Owner participates in a substitute national
drag race sanctioned by the International Hot Rod Association or in an
independent drag race of comparable national prominence in Prolong's
reasonable judgment. Owner shall exercise its best efforts to participate
in a substitute race during the same calendar year as the missed event;
provided that if it is impossible for Owner to participate in a substitute
race during the same calendar year, Owner shall enter the first available
substitute race or races held in the succeeding year.
7. Lubricants. Upon request of Owner and at no charge, Prolong shall provide
----------
Owner with Prolong products as necessary for use in the Racing Events.
Owner agrees that no lubricant other than Prolong shall be used in Owner's
race cars during the term of this Agreement as long as the Prolong product
is technically capable for the application.
8. Term and Option to Renew. The term of this Agreement shall commence upon
------------------------
the date hereof and shall continue in effect through December 31,1999,
unless earlier terminated as hereafter provided.
Prolong shall be given the first right of refusal to sponsor Owner, the
Race Car and the Race Team for the year 2000 NHRA season, on the same terms
and conditions as set forth herein other than the sponsorship fee. Should
Prolong determine to exercise its option, it shall give written notice
thereof to Owner not later than August 1, 1999. Owner shall then, prior to
August 15, 1999, meet and negotiate in good faith a sponsorship fee for the
2000 NHRA season. In the event the parties fail to reach agreement and to
enter into a written agreement prior to September 1,1999, the parties shall
have no further rights or obligations with respect to one another
hereunder, other than to complete performance of this contract.
-6-
<PAGE>
9. Sole Risk. Owner acknowledges and agrees that race cars entered in any Race
---------
by Owner shall be entered for Owner's sole account and risk. Neither Owner
nor its Driver, mechanics, crew, other employees or shareholders shall make
any claim against Prolong for salary or other payment except as
specifically provided herein.
Owner shall obtain from its Driver and other employees appropriate releases
in form acceptable to Prolong absolving Owner and Prolong and their
subsidiaries, affiliates, officers, employees and shareholders of all
liability for damages, injury or death suffered by the Driver or other
employees as a result of or arising out of racing related activities.
10. Liabilities and Indemnity. Owner shall be solely responsible for all claims
-------------------------
and liabilities, of whatever kind, arising out of or incidental to its
racing activities, including but not limited to, claims for personal injury
and property damage of Owner, its Driver, Owner's employees, spectators,
other racing teams and other third parties.
Owner further agrees to defend, indemnify, and save Prolong, its officers,
directors, agents and employees harmless from and against any and all
claims, actions, suits, judgment, cost and fees, including reasonable
attorney's fees, which arise from the acts and/or omissions of Owner, its
Driver, mechanics, employees, agents, contractors or third parties under
its control or which arise out of or are related to Owner's racing
activities, transportation to and from Races, and all other acts or
omissions of Owner and Owner's employees and agents. The indemnified claims
include, but are not limited to, claims of Owner, the Driver, Owner's
employees, race spectators, other racing teams and other third parties for
personal injury, death and/or property damage.
11. Insurance. Owner shall obtain and keep in force a policy or policies of
---------
insurance of the following types and limits to cover the Race Cars, Team
transport vehicles, and all activities of Owner, the Team and all of the
Owner's employees and agents during this Agreement:
a) Collision or casualty insurance covering the Race Cars and Team
transport vehicles, for their full replacement cost.
b) Commercial general and automobile liability in combined single limits
of at least $2 million.
Such policies shall provide coverage on an occurrence basis and shall
include Prolong as a named insured. No such liability insurance shall be
deemed in any way to limit Owner's obligations under Paragraph 10 of this
Agreement. Upon request of Prolong from time to time, Owner shall deliver
satisfactory proof that such insurance is in full force and effect.
c) Worker's Compensation - as required by law.
12. Compliance with Law. Owner shall, at its sole expense, comply with all
-------------------
federal, state and local laws and regulations applicable to its business
and racing activities contemplated hereby.
-7-
<PAGE>
13. Termination. ln the event of the occurrence of any of the following,
-----------
Prolong shall have the right to terminate this Agreement by written notice
to Owner:
a) Owner should breach this Agreement in any respect, which breach shall
remain uncured for a period of 10 days following written notice thereof by
Prolong.
b) Proceedings seeking to have Owner declared bankrupt or insolvent should
be brought by or against Owner, or Owner should cease doing business for
any reason;
c) Owner should fail to enter two consecutively scheduled NHRA sanctioned
events, unless such failure is caused by matters beyond the reasonable
control of Owner;
d) If Driver fails to drive the Car in all of the Races, and such failure
is not caused by any illness or injury to Driver or by circumstances beyond
the control of Owner, then Prolong shall have the right to terminate this
Agreement forthwith. Prolong shall also have the option to terminate this
Agreement if Driver dies during the Contract period.
f) Kenneth D. Bernstein should sell, assign or otherwise transfer, his
controlling interest in the Race Team or his controlling interest in King
Entertainment, Inc.
Upon any such termination or expiration of the Agreement, Prolong shall be
entitled upon demand to an immediate refund of any unearned portion of the
sponsorship fee determined in accordance with paragraph 6 (except that
Owner's right to make up races shall not apply) and Prolong shall cease all
new production of advertising or promotional material using Owner names.
14. Remedies of Owner. ln the event of the occurrence of any of the following,
-----------------
Owner shall have the rights set forth below:
a) If Prolong should breach this Agreement in any respect, which breach
shall remain uncured for a period of ten (10) days following written notice
thereof by Owner, Owner shall have the right to terminate this Agreement at
any time thereafter. In addition, after any such breach but prior to
termination by Owner, Prolong shall remain obligated to perform under this
Agreement, but Owner shall have the right to remove Prolong's name from the
car and to terminate any exhibition of Prolong's name by the Owner, until
such breach is cured.
b) If proceedings seeking to have Prolong declared bankrupt or insolvent
should be brought by or against Prolong, or Prolong should cease doing
business for any reason, Owner shall have the right to terminate this
agreement.
15. Independent Contractor. Owner's relationship to Prolong is that of an
----------------------
independent contractor, and this Agreement is not intended to and shall not
be deemed to create any agency, employment, partnership or joint venture
relationship between the parties hereto. Owner's Driver, mechanics, and
other employees are not intended to be and shall not be deemed to be
employees or agents of Prolong.
-8-
<PAGE>
16. Notices. Any notice required by this Agreement shall be deemed duly given
-------
if deposited by certified mail, postage prepaid, addressed as follows:
If to Owner:
King Entertainment, Inc.
1105 Seminole
Richardson, Tx 75080
Attn: Kenneth D. Bernstein
If to Prolong:
Prolong Super Lubricants, Inc. (Prolong)
1210 N. Barsten Way
Anaheim, CA 92806
Attn: Elton Alderman, President
17. Entire Agreement. This Agreement incorporates the complete and final
----------------
agreement of the parties relative to the subject matter hereof, and no
covenant not set forth herein shall be binding. This Agreement may not be
amended or supplemented other than in writing signed by both parties
hereto.
18. Binding Effect. This Agreement shall be binding upon and inure to the
--------------
benefit of the parties hereto and their respective successors and assigns;
provided, however, that Owner shall have no right to assign this Agreement
or delegate the performance of any duty hereunder, by operation of law or
otherwise.
19. Applicable Law. This Agreement shall be governed by and construed in
--------------
accordance with the laws of the State of California.
20. Captions. The captions herein are inserted for convenience of reference
--------
only, and shall not be used in interpreting any of the terms of the
Agreement.
21. No Waiver. Any failure or delay in exercising any right or remedy hereunder
---------
shall not be deemed to be a waiver of such right or remedy or of any other
right or remedy.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
this 9 day of May 1996.
WITNESS:
ILLEGIBLE SIGNATURE /s/ KENNETH D. BERNSTEIN 5/9/96
- ----------------------- ---------------------------------- ----------
Kenneth D. Bernstein, individually Date
ATTEST: KING ENTERTAINMENT, INC.
ILLEGIBLE SIGNATURE ILLEGIBLE SIGNATURE 5/9/96
- ----------------------- ---------------------------------- ---------
Its: President Date
ATTEST: PROLONG SUPER LUBRICANTS, INC.
ILLEGIBLE SIGNATURE ILLEGIBLE SIGNATURE 5/9/96
- ----------------------- ---------------------------------- ---------
Its: President Date
-10-
<PAGE>
EXHIBIT 10.9
PIKES PEAK AUTO HILL CLIMB EDUCATIONAL MUSEUM, INC.
AND
PROLONG SUPER LUBRICANTS, INC.
AND
BARNES DYER MARKETING, INC.
SPONSORSHIP AGREEMENT
1997 75th Running
with Option to Prolong for 1998 and 1999
THIS AGREEMENT ("Agreement") is made this 21st day of February, 1997 by and
between PIKES PEAK AUTO HILL CLIMB EDUCATIONAL MUSEUM, INC./(TM)/("HILL CLIMB"),
a Colorado corporation, PROLONG SUPER LUBRICANTS, INC. ("PROLONG"), a Nevada
corporation and BARNES DYER MARKETING, INC. ("BDM"), a California corporation.
Therefore, HILL CLIMB and PROLONG and BDM agree as follows for the 1997 Pikes
Peak International Hill Climb Events with an option for 1998 and 1999.
I. DEFINITIONS
A. "Event" means the 75th, 76th, and 77th Annual Pikes Peak International
Hill Climb and related events that are sanctioned by HILL CLIMB.
B. "Race Week" means the week beginning June 27 of each sponsorship
year and ending July 5 of each of the aforementioned years.
C. "HILL CLIMB Trademarks" include the trademarks and copyright that
HILL CLIMB has registered. "PROLONG Trademarks" means trademarks and
copyright which PROLONG has registered.
D. "Event Related Merchandise" means any merchandise that bears the
official HILL CLIMB Trademarks.
E. "Default" means that either HILL CLIMB or PROLONG has breached this
Agreement.
F. "Agreement" includes the body of this agreement and any attached
addenda.
<PAGE>
II. OBLIGATIONS
A. All proposed advertising copy, signs and displays must be submitted to
HILL CLIMB for prior approval. PROLONG will bear all costs of their
production, transportation and installation.
1) HILL CLIMB must reply to PROLONG within ten (10) working days
or proposed advertising copy, signs and displays will be implied
acceptable.
2) HILL CLIMB must advise PROLONG ninety (90) days before final
production of official race program that submitted advertising copy is
acceptable. If HILL CLIMB does not advise PROLONG, submitted
advertising copy will be implied acceptable.
B. HILL CLIMB's Trademarks and all associated goods will belong to HILL
CLIMB. PROLONG must submit all proposed uses of the HILL CLIMB Trademarks
during the terms of this Agreement to HILL CLIMB for approval. If no
response is received within ten (10) working days from HILL CLIMB,
PROLONG's proposed uses of HILL CLIMB's trademarks will be implied
acceptable. PROLONG shall not apply for or obtain any state or federal
service mark or trademark registration covering or including HILL CLIMB's
Trademarks.
C. PROLONG Trademarks and all associated goods will belong to PROLONG.
HILL CLIMB may use them to the extent necessary to carry out the terms of
this Agreement and must submit all proposed uses to PROLONG for approval.
HILL CLIMB shall not apply for or obtain any state or federal service mark
or trademark registration covering or including the PROLONG Trademarks.
D. PROLONG must submit all proposed Event Related merchandise to HILL
CLIMB for approval of its content.
E. Both parties must publicly identify and refer to the Event as the
"Chevrolet Pikes Peak International Hill Climb".
F. This indemnity shall survive the termination of this Agreement.
1. HILL CLIMB shall defend, indemnify and hold harmless PROLONG
and its director, officers, employees and agents from and against all
claims, liabilities, damages and losses, including reasonable
attorney's fees, arising from or connected with HILL CLIMB's breach of
this Agreement.
2. PROLONG shall defend, indemnify and hold harmless HILL CLIMB
and its directors, officers, employees and agents from and against all
claims, liabilities, damages and losses, including reasonable
attorney's
2
<PAGE>
fees, arising from or connected with PROLONG's breach of this Agreement.
When either PROLONG or HILL CLIMB requests indemnity for the other, the
indemnitor shall bear the expense of settlement, the indemnitee shall be
entitled to participate at its own expense, and no settlement shall be made
without prior written consent of the indemnitee.
G. The terms of this Agreement shall remain confidential unless both parties
agree to disclose them in whole or in part.
H. If any cause beyond the control of HILL CLIMB or PROLONG prevents HILL
CLIMB or PROLONG from performing any or all of its obligations as described
in this Agreement (excluding the obligation to pay money), either party may
cancel this Agreement with no further obligation and with all monies paid
hereunder returned to the party who made the payment.
I. Term and Option of Agreement - The term of this Agreement shall commence on
the date the last signatory executed this Agreement, and shall continue through
December 31, 1999 unless earlier terminated as hereafter provided. Should
PROLONG determine to exercise its option to either terminate the Agreement or
discontinue supplying the product (reference page 7, D, item 1), it shall give
written notice thereof to Barnes Dyer Marketing no later than August 1 preceding
each year's Pikes Peak International Hill Climb Event.
J. Notices - All notices and communications regarding this Agreement shall be
in writing and shall be hand-delivered or sent register or certified mail,
postage prepaid, return receipt requested, to:
HILL CLIMB: Nick Sanborn
Chief Executive Officer
Pikes Peak International Hill Climb
P.O. Box 6962
Colorado Springs, CO 80934
(719) 685-4400
PROLONG: Jerry Grant
Motorsports Manager
Prolong Super Lubricants, Inc.
1210 North Barsten Way
Anaheim, CA 92806
(714) 630-3040
BDM: Matt Stowe
Manager, Client Promotions
Barnes Dyer Marketing
15510 Rockfield Blvd., Suite C
3
<PAGE>
Irvine, CA 92618
(714) 768-2942
K. Either party may assign this Agreement without the prior written
consent of the other party, and HILL CLIMB may assign its right to receive
payments to secure credit obligations of HILL CLIMB.
L. HILL CLIMB shall name PROLONG in the amount of five million dollars
($5,000,000.00) as an additional insured on its commercial general
liability insurance covering all of its activities relating to the
performance of this Agreement during 1997 with option for 1998 and 1999.
HILL CLIMB shall provide PROLONG with a certificate of insurance
reflecting compliance with the terms of this section on or before April 15
of each sponsorship year and thirty (30) days prior written notice of any
change in coverage or termination of coverage.
III. HILL CLIMB WILL PROVIDE TO PROLONG EACH YEAR
A. Designation of PROLONG as "Official Lubricant" of the Chevrolet Pikes
Peak International Hill Climb ("event").
B. Opportunity to tag PROLONG advertising with "Prolong - Official
Lubricant of the Chevrolet Pikes Peak International Hill Climb" through
December of each year of sponsorship.
C. The right to utilize the Chevrolet Pikes Peak International Hill
Climb logo and marks in all advertising and promotions through December of
each year of sponsorship. (All designs to be mutually agreed upon.)
E. PROLONG to receive national and international television exposure
through contracted coverage of the event with major TV network. 10%
discount off commercial advertisement cost for TV telecast. Commercial
spots must be secured by May 1 of each year of sponsorship. PROLONG
to provide ad/commercial video footage to TV broadcast specifications.
F. One 20' x 40' hospitality tent to be located at the Start Line or
alternative location pending TV feed availability; seating capacity for
50 persons (excludes catering); live race day television and radio feed;
50 race day tickets for each event; 50 official souvenir race programs for
each event.
G. PROLONG identification at the Official Start Line and Finish Line.
PROLONG identification will consist of three (3) PROLONG banners (4' x
10') prominently displayed at each location. A minimum of three 4' x 10'
PROLONG
4
<PAGE>
banners per seven designated TV locations placed to receive optimum TV
exposure.
H. PROLONG identification prominently displayed at Official Hotel, Race
Headquarters, Press Room and Registration area.
I. Prominent signage and product display at all Chevrolet Pikes Peak
International Hill Climb special events and week-long activities
preceding race day.
J. Complimentary one full-page, four color advertisement each year of
sponsorship in the Official Race Program.
K. Complimentary one full-page editorial each year of sponsorship in the
Official Race Program.
L. 20 VIP All-Event Race Tickets for each year of sponsorship. (Parking
VIP passes for each event is subject to negotiation due to limited
parking availability in designated VIP areas.)
M. Two hotel rooms at Race Headquarters Hotel, four room nights each
for a total of eight room nights for the 1997 Racing Event.
N. Prolong identification on two (2) "official" show trucks supplied
by PPHC.
O. "Prolong Super Lubricants - No Equal in the World" identification
on all race tickets.
P. Prolong Super Lubricants logo incorporated into the PPHC website.
Q. Prolong Super Lubricants logo incorporated into the PPHC 75th
commemorative poster.
IV. PROLONG WILL PROVIDE TO HILL CLIMB
A. Cash $40,000 - 1997 (75th Running) and Optional Renewal Years 1998
and 1999
1. $20,000.00 due upon signing of agreement or on or before
January 31, 1997 and on or before January 31 of each subsequent year.
2. $20,000.00 due on or before March 31 of each year.
B. Lubricant Product Each Year
1. As determined by Prolong.
5
<PAGE>
C. 400 (5" x 1 1/2")PROLONG decals.
D. 36 (4' x 10') PROLONG product banners.
E. Camera-ready artwork for Official Program advertisements and
editorial copy delivered to HILL CLIMB on or before April 1 of each
year of sponsorship.
F. Guaranteed consideration of cross-promotional advertising and
opportunities with HILL CLIMB participating Major sponsors at each
event.
G. PROLONG may provide the following promotional premiums for each
event:
200 - PROLONG race hats
200 - PROLONG racing T-shirts
200 - PROLONG promotional give-aways to include in drivers' entry
packets.
VI. BARNES DYER MARKETING WILL PROVIDE TO PROLONG
A. Program assistance and liaison with the Hill Climb.
B. Hospitality assistance
C. Credential assistance
D. Public relations liaison with the Hill Climb
E. Promotional assistance
F. On-site management and execution
VII. PROLONG WILL PROVIDE TO BARNES DYER MARKETING
A. $5,000.00 management fee to Barnes Dyer Marketing on or before
June 1, 1997.
6
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
date first above written.
PIKES PEAK AUTO HILL CLIMB EDUCATIONAL MUSEUM, INC.
By: /s/ NICK SANBORN Nick Sanborn
-----------------------------------------
(Signature) (Printed Name)
Title: Executive Director Date: 2/26/97
-------------------- -----------
PROLONG SUPER LUBRICANTS, INC.
By: /s/ ELTON ALDERMAN
---------------------------------------------------
(Signature) (Printed Name)
Title: President Date: February 21st, 1997
-------------------- -------------------
BARNES DYER MARKETING, INC.
By: /s/ B.F. BARNES B. F. Barnes
---------------------------------------------------
(Signature) (Printed Name)
Title: President Date: 2/24/97
--------------------- --------------------
7
<PAGE>
EXHIBIT 10.10
[LOGO OF BARNES DYER MARKETING, INC.]
MAJOR ASSOCIATE SPONSORSHIP AGREEMENT
This Major Associate Sponsorship Agreement ("Agreement") is entered into
between Prolong Super Lubricants, Inc., a Nevada corporation (herein "Prolong");
Norris Racing, Inc., a Texas corporation (herein "Norris Racing"); and Barnes
Dyer Marketing, Inc., a California corporation (herein "BDM"); collectively
referred to as the "parties".
1. Sponsorship
-----------
Subject to the terms and conditions herein, Prolong agrees to become a
Major Associate Sponsor of Norris Racing with respect to one race to be
mutually determined by the parties and seven (7) 1997 NASCAR truck events
as follows:
May 31 New Hampshire International Speedway, Loudon, NH
June 29 Nazareth Speedway, Nazareth, Pennsylvania
July 31 Indianapolis Raceway Park, Clermont, Indiana
August 9 Flemington Speedway, Flemington, New Jersey
August 16 Nashville Speedway USA, Nashville, Tennessee
September 4 Richmond International Raceway, Richmond, Virginia
October 18 California Speedway, Fontana, California
The parties acknowledge that the 1997 NASCAR truck schedule is subject to
change
2. Term
----
The term of this Agreement shall be from the date hereof, through and
including November 30, 1997.
3. Sponsor Identification
----------------------
For the consideration described herein, Prolong shall be entitled to the
following rights and benefits:
A. Race Truck. Prolong will receive identification on both sides of the
----------
race truck and on the front or rear of the race truck, exact sizes and
locations to be mutually determined by the parties.
B. Driver Suit and Crew Uniforms. The driver suits and crew uniforms
-----------------------------
(including fire suits) will include Prolong identification, exact size
and location to be mutually determined by the parties.
Barnes Dyer Marketing, Inc.
15510 Rockfield Blvd., Suite C, Irvine, CA 92618 (714)768-2942 FAX (714)768-0630
RD 12, Sedgewood, Carmel, NY 10512 (914)225-3500 FAX (914)225-0138
<PAGE>
C. Support Equipment. The fuel tank and scoring stand shall include Prolong
-----------------
identification.
D. Eric Norris. Eric Norris agrees to permit Prolong to use his photographic
-----------
likeness, name, signature, and initials in conjunction with Prolong's
advertising and merchandising materials for its lubricant products for the
term of this agreement, subject to the approval rights described below. For
the term of this Agreement, Eric Norris shall provide his exclusive
endorsement to Prolong's lubricant products to further promote the
association. Eric Norris shall be available to Prolong for a reasonable
number of appearances at sales meetings and corporate functions during the
term of the Agreement, subject to the schedule and availability of Eric
Norris and Prolong's assumption of the direct expenses incurred by Eric
Norris in attending such meetings and functions.
E. Chuck Norris. In addition, Prolong shall have the right to use Chuck
------------
Norris' name, photographic likeness, signature and initials in conjunction
with the promotion of Norris Racing's NASCAR truck team and/or the Kick
Drugs Out of America Foundation, subject to the approval rights described
below. Chuck Norris shall also be available for a reasonable number of
trackside appearances on behalf of Prolong, subject to the schedule and
availability of Chuck Norris.
F. Hospitality Facility. Norris Racing and BDM shall make available a complete
--------------------
hospitality facility for corporate entertaining by Prolong at the eight
NASCAR truck events subject to this Agreement (described above). The direct
expenses associated with such hospitality facility, plus a 7% handling
charge for the inherent costs to BDM for same, shall be at the sole cost
and expense of Prolong.
G. Team Hospitality. Prolong will be given a reasonable number of guest passes
----------------
to the Norris Racing Team motor home at the eight races described above.
H. Passes. Prolong will be allocated two (2) NASCAR garage passes for each of
------
the eight (8) races described above and entered by Norris Racing. Over-
passes will be made available as required at Prolong's cost.
I. Show Truck. On thirty days prior written notice, Norris Racing and BDM
----------
shall have a show truck available for appearances on behalf of Prolong at
sales meetings, corporate functions, and promotions for which Prolong
agrees to pay a daily fee of $1,000.00, direct show truck driver expenses,
and one dollar ($1.00) per mile expense reimbursement.
The provisions for truck site appearances at sales meetings, corporate
functions and other meetings are in all instances subject to the same not
conflicting with race activities.
2
<PAGE>
4. ADVERTISING, PROMOTIONAL MATERIAL APPROVAL
------------------------------------------
All advertising, promotional materials, and press releases containing Eric
Norris' or Chuck Norris' photographic likeness, name, signature, or
initials shall be presented in writing for approval by Eric Norris, Chuck
Norris, and BDM. Eric Norris, Chuck Norris and BDM agree to respond
promptly to every written request for approval, but in no case later than
ten (10) days after the receipt of the request. If no response is received
by Prolong within such ten day period, such materials shall be deemed
approved by Eric Norris, Chuck Norris and BDM. Any disapproval by Eric
Norris, Chuck Norris or BDM of such materials will be accompanied by
specific reasons sufficient in the circumstances to inform Prolong of the
basis for such disapproval.
5. RELATIONSHIP OF THE PARTIES
---------------------------
Nothing contained in this Agreement shall be construed to create the
relationship of employer and employee or principal and agent, or to create
an agency or partnership or joint venture relationship between the parties
hereto, but rather there shall exist only an independent contractor
relationship among the parties.
6. INDEMNITY
---------
Norris Racing agrees to indemnify, defend and hold harmless Prolong and its
directors, officers, employees, and agents from and against any claims,
liabilities, damages and losses, including reasonable attorneys fees
arising from or connected with the actual omissions of Norris Racing, Eric
Norris, Chuck Norris, or employees or agents of any of them in the
performance of this Agreement. In support of the indemnification provided
by Norris Racing to Prolong hereunder, Norris Racing agrees to ensure
Prolong and cause Prolong to be named as an additional insured under one or
more general liability insurance policies with a combined aggregate limit
not to exceed five million dollars ($5,000,000). A certificate of insurance
evidencing same shall be provided to Prolong upon request.
7. COMPENSATION
------------
Prolong agrees to pay Norris Racing and BDM for the services and rights
described herein. A sponsorship fee in the amount of one hundred twenty
five thousand dollars ($125,000), payable as follows:
$25,000 payable upon execution of this Agreement
$25,000 payable on or before February 15, 1997
$25,000 payable on or before April 15, 1997
$25,000 payable on or before June 15, 1997
$25,000 payable on or before August 15, 1997
All payments hereunder shall be made to Barnes Dyer Marketing, Inc. at
15510 Rockfield Boulevard, Suite C, Irvine, California 92618.
3
<PAGE>
8. PROVISION OF RACE VEHICLE
-------------------------
Norris Racing and BDM shall make arrangements to provide a race vehicles of
suitable construction and outfitting to meet applicable specifications to
qualify for the 1997 NASCAR truck events specified. Norris Racing and BDM
shall use its best efforts to cause the race vehicle to be qualified for
and entered into each of the subject eight races. In the event that Norris
Racing fails to enter or fails to attempt to qualify for any of the eight
events, Prolong shall be reimbursed on a pro rata basis based on the number
of events for which the race vehicle was not qualified relative to the
total number of eight events. If Eric Norris is unable to drive the race
vehicle for any reason, Norris Racing shall provide, at its own expense, a
substitute driver who shall be experienced, competent, and qualified. A
substitute driver shall be provided only during such periods of time when
Eric Norris is unable to drive the race vehicle.
9. OPTION FOR ADDITIONAL TERM
--------------------------
Norris Racing and BDM agree that Prolong shall have the option to become a
Major Associate Sponsor of Norris Racing for the full 1998 NASCAR Truck
Series and to extend the term of this Agreement to November 30, 1998 by
giving written notice to Norris Racing and BDM in on or before August 15,
1997 of its intention to so exercise such option. In the event such option
is exercised, Prolong shall have all the rights described herein for the
1998 NASCAR truck events scheduled to be held within said time period,
which are now expected to be twenty-six (26) in number. The sponsorship fee
to be paid in the event the option is exercised by Prolong shall be
mutually negotiated by the parties.
10. ADDITIONAL SPONSORSHIP ASSISTANCE
---------------------------------
In consideration of the sponsorship fee to be paid hereunder, Norris Racing
and BDM agree to provide sponsorship liaison assistance to Prolong
including:
A. Assisting Prolong with arrangements for pit tours and hospitality,
B. Providing arrangements with respect to the show truck,
C. Coordinating appearances of Eric and Chuck Norris on behalf of
Prolong,
D. Developing and implementing a merchandising program involving the
Prolong-Norris Racing NASCAR truck team and Kick Drugs Out of America
Foundation,
E. Developing and coordinating cross-promotional programs with other
Norris Racing sponsors,
F. Coordinating the execution of Prolong's on-site program requirements.
4
<PAGE>
BDM will assist Prolong in hospitality arrangements at each race location
as required by Prolong, including the making of hotel reservations, rooming
lists, meeting arrangements, cocktail and dinner functions, ground
transportation, race credentials and such matters as to which Prolong will
be charged for only the direct expenses there involved plus a 7% handling
fee for the inherent costs incurred by BDM. BDM will assist Prolong with
hospitality and credentials for other professional race car series,
including the NASCAR Winston Cup Series and CART IndyCar series.
11. Assignment
----------
Neither party shall have the right to assign its rights or obligations
hereunder without the prior written consent of the other party, provided,
however, that Prolong may assign its rights and duties hereunder to any
affiliate of Prolong, provided that such assignment without the prior
written consent of the other party shall not relieve Prolong of any
obligation to make payments hereunder.
12. Notices
-------
All notices and other communication required or permitted hereunder shall
be sent to the parties by certified or registered mail and shall be deemed
given three days after deposit. All such notices shall be sent to the
parties at the addresses provided below unless any such party provides
written notice of a change of address:
If to Prolong: Prolong Super Lubricants
1210 North Barsten Way
Anaheim, CA 92806
Attn: Mr. Jerry Grant
If to Norris Racing: Norris Racing, Inc.
16823 Colegrove Drive
Dallas, TX 75248
Attn: Mr. Eric Norris
If to BDM: Barnes Dyer Marketing, Inc.
15510 Rockfield Blvd., Suite C
Irvine, CA 92618
Attn: Mr. Matt Stowe
13. Attorneys Fees
--------------
The prevailing party in any action to enforce the terms of this agreement
shall be entitled to their reasonable attorneys fees and costs.
5
<PAGE>
14. ENTIRE AGREEMENT
----------------
This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes any and all prior
agreements, arrangements, communications or understandings, whether oral or
written. No alteration, change, modification or waiver to this Agreement
shall be valid or binding unless the same is in writing and signed by a
duly authorized representative of the party to be bound thereby.
15. LAW GOVERNING
-------------
This Agreement shall be interpreted and construed according to the laws of
the State of California.
Agreed to and executed on , 1996.
---------------
PROLONG SUPER LUBRICANTS NORRIS RACING, INC.
By: By:
--------------------- -------------------------
Its: Its:
------------------ ---------------------
Fed. Tax I.D. Number:
-------
BARNES DYER MARKETING, INC.
By:
-------------------
Its:
------------------
6
<PAGE>
EXHIBIT 10.11
STANDARD INDUSTRIAL LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Parties. This Lease, dated, for reference purposes only, April 20, 1990, is
made by and between Coronado Investors Properties (herein called "Lessor") and
Pro-Long International (hereinafter called "Lessee").
2. Premises. Lessor hereby leases to Lessee and Lessee leases from Lessor for
the term, at the rental, and upon all of the conditions set forth herein, that
certain real property situated in the County of Orange, State of California,
commonly known as 1210 North Barsten Way, Anaheim, CA 92806 and described as an
approximate 7,013 SQ.FT. industrial building AP#344-322-17. Said real property
including the land and all improvements therein, is herein called "the
Premises".
3. Term.
3.1 Term. The term of this Lease shall be for 36 months commencing on
January 1, 1991 and ending on December 31, 1993 unless sooner terminated
pursuant to any provision hereof.
3.2 Delay in Possession. Notwithstanding said commencement date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date,
Lessor shall not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Lessee hereunder or
extend the term hereof, but in such case, Lessee shall not be obligated to pay
rent until possession of the Premises is tendered to Lessee; provided, however,
that if Lessor shall not have delivered possession of the Premises within sixty
(60) days from said commencement date, Lessee may, at Lessee's option, by notice
in writing to Lessor within ten (10) days thereafter, cancel this Lease in which
event the parties shall be discharged from all obligations hereunder; provided
further, however, that if such written notice of Lessee is not received by
Lessor within said ten (10) day period, Lessee's right to cancel this Lease
hereunder shall terminate and be of no further force or effect.
3.3 Early Possession. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
4. Rent. Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $3,997.41, in advance, on the 1st day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof of $ -0- as rent for January
1991. Rent for any period during the term hereof which is for less than one
month shall be a pro rata portion of the monthly installment. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof
$3,857.15 as security for Lessee's faithful performance of Lessee's obligations
hereunder. If Lessee fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease, Lessor may use,
apply or retain all or any portion of said deposit for the payment of any rent
or other charge it default or for the payment of any other sum to which Lessor
may become obligated by reason of Lessee's default, or to compensate Lessor for
any loss or damage which Lessor may suffer thereby. If Lessor so uses or applies
all or any portion of said deposit, Lessee shall within ten (10) days after
written demand therefor deposit cash with Lessor in an amount sufficient to
restore said deposit to the full amount hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent shall,
from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the legal use of
sales, administration and warehousing of lubrication products, or any other use
which is reasonably comparable and for no other purpose.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in its state existing
on the date that the Lease term commences, but without regard to the use for
which Lessee will use the Premises, does not violate any covenants or
restrictions of record, or any applicable building code, regulation or ordinance
in effect on such Lease term commencement date. In the event it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after written notice from Lessee to promptly, at Lessor's sole cost and
expense, rectify any such violation. In the event Lessee does not give to Lessor
written notice of the violation of this warranty within six months from the date
that the Lease term commences, the correction of same shall be the obligation of
the Lessee at Lessee's sole cost. The warranty contained in this paragraph
6.2(a) shall be of no force or effect if, prior to the date of this Lease,
Lessee was the owner or occupant of the Premises, and, in such event, Lessee
shall correct any such violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises,
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee clean and free of debris
on Lease commencement date (unless Lessee is already in possession) and Lessor
further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. In the event that it is determined that this
warranty has been violated, then it shall be the obligation of Lessor, after
receipt of written notice from Lessee setting forth with specificity the nature
of the violation, to promptly at Lessor's sole cost, rectify such violation.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises in their condition existing as of the Lease commencement date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal county and state laws, ordinances
and regulations governing and regulating the use of the Premises, and any
covenants or restrictions of record and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. Maintenance, Repairs and Alterations.
7.1 Lessor's Obligations. Subject to the provisions of Paragraph 6, 7.2 and
9 and except for damage caused by any negligent or intentional act or omission
of Lessee, Lessee's agents, employees or invitees in which event Lessee shall
repair the damage. Lessor at Lessor's expense, shall keep in good order,
condition and repair the foundations, exterior walls and the exterior roof of
the Premises. Lessor shall not, however, be obligated to paint such exterior,
nor shall Lessor be required to maintain the interior surface or exterior walls,
windows, doors or plate glass, Lessor shall have no obligation to make repairs
under this Paragraph 7.1 until a reasonable time after receipt of written notice
of the need for such repairs. Lessee expressly waives the benefits of any
statute now or hereafter in effect which would otherwise afford Lessee the right
to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 6, 7.1 and 9, Lessee at
Lessee's expense shall keep in good order, condition and repair the Premises and
every part thereof (whether or not the damaged portion of the Premises or the
means of repairing the same are reasonably and readily accessable to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning. (Lessee shall procure and
Initials: ______
<PAGE>
maintain at Lessee's expense, an air conditioning system maintenance contract)
ventilating, electrical and lighting facilities and equipment within the
Premises, fixtures, interior walls and interior surface of exterior walls,
ceilings, windows, doors, plate glass, and skylights, located within the
Premises, and all landscaping, driveways, parking lots, fences and signs located
in the Premises and all sidewalks and parkways adjacent to the Premises.
(b) If Lessee fails to perform Lessee's obligations under this Paragraph
7.2 or under any other paragraph of this Lease, Lessor may at Lessor's option
enter upon the Premises after 10 days prior written notice to Lessee (except in
the case of emergency, in which case no notice shall be required) perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at the maximum rate
then allowed by law shall be due and payable as additional rent to Lessor
together with Lessee's next rental installment.
(c) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishings and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines, power
panels, electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing on the premises in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this Lease in any event, whether or not in
excess of $2,500 in cumulative cost, Lessee shall make no change or alteration
to the exterior of the Premises nor the exterior of the building(s) on the
Premises without Lessor's prior written consent. As used in this Paragraph 7.3
the term "Utility Installation" shall mean carpeting, window coverings, air
lines, power panels, electrical distribution systems, lighting fixtures, space
heaters, air conditioning, plumbing, and fencing. Lessor may require that Lessee
remove any or all of said alterations, improvements, additions or Utility
Installations at the expiration of the term, and restore the Premises to their
prior condition. Lessor may require Lessee to provide Lessor, at Lessee's sole
cost and expense, a lien and completion bond in an amount equal to one and one-
half times the estimated cost of such improvements to insure Lessor against any
liability for mechanic and materialmen's liens and to insure completion of the
work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, Lessor may require that
Lessee remove any or all of the same.
(b) Any alterations, improvements, additions or Utility Installations in or
about the Premises that Lessee shall desire to make and which requires the
consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials furnished
or alleged to have been furnished to or for Lessee at or for use in the Premises
which claims are or may be secured by any mechanics or materialmen's lien
against the Premises or any interest therein. Lessee shall give Lessor not less
than ten (10) days notice prior to the commencement of any work in the Premises,
and Lessor shall have the right to post notices of non-responsibility in or on
the Premises as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises upon the condition that if Lessor
shall require, Lessee shall furnish to Lessor a surety bond satisfactory to
Lessor in an amount equal to such contested lien claim or demand indemnifying
Lessor against liability for the same and holding the Premises free from the
effect of such lien or claim. In addition, Lessor may require Lessee to pay
Lessor's attorneys fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal as set forth in Paragraph 7.3(a),
all alterations, improvements, additions and Utility Installations whether or
not such Utility Installations constitute trade fixtures of Lessee), which may
be made on the Premises, shall become the property of Lessor and remain upon and
be surrendered with the Premises at the expiration of the term. Nothwithstanding
the provisions of this Paragraph 7.3(d), Lessee's machinery and equipment other
than that which is affixed to the Premises so that it cannot be removed without
material damage to the Premises shall remain the property of Lessee and may be
removed by Lessee subject to the provisions of Paragraph 7.2(c).
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Combined Single
Limit Bodily Injury and Property Damage Insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises and all other areas appurtenant thereto. Such insurance shall be in an
amount not less than $500,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragragh 8. The
limits of said insurance shall not however limit the liability of Lessee
hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not else than $500,000
per occurrence.
8.3 Property Insurance. Lessor shall obtain and keep in force during the
term of this Lease a policy or policies of insurance covering loss or damage to
the Premises but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof as the same may exist
from time to time, providing protection against all perils included within the
classification of the extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a tender having a lien on the Premises)
special extended perils (all risk as such term is used in the insurance
industry) but not plate glass insurance. In addition, the Lessor shall obtain
and keep in force, during the term of this Lease a policy of rental value
insurance covering a period of one year, with loss payable to Lessor, which
insurance shall also cover all real estate taxes and insurance costs for said
period.
(b) Lessee shall pay any such premium increases to Lessor within 30
days after receit by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such increase attributable
to the Premises and showing in reasonable detail the manner in which such amount
was computed. If the term of this Lease shall not expire concurrently with the
expiration of the period covered by such insurance, Lessee's liability for
premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
holding a "General Policyholders Rating" of at least B plus, or such other
rating as may be required by a lender having a lien on the Premises, as set
forth in the most current issue of "Best's Insurance Guide". Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancellable or subject to reduction of
coverage or other modification except after thirty (30) days prior written
notice to Lessor. Lessee shall at least thirty (30) days prior to the expiration
of such policies, furnish Lessor with renewals or binders thereof or Lessor may
order such insurance and charge the cost thereof to Lessee, which amount shall
be payable by Lessee upon demand. Lessee shall not do or permit to be done
anything which shall invalidate the insurance policies referred to in Paragraph
8.3.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other
for loss or damage arising out of or incident to the perils insured against
under paragraph 8.3, which perils occur in, on or about the Premises whether due
to the negligence of Lessor or Lessee or their agents, employees, contractors
and/or invitees. Lessee and Lessor shall upon obtaining the policies of
insurance required hereunder, give notice to the insurance carriers or carriers
that the foregoing mutual waiver of subrogation is contained in this Lease.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises or from the
conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the Premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any breach or default of the performance of any obligation on
Lessee's part to be performed under the terms of this Lease or arising from any
negligence of the Lessee or any of Lessee's agents, contractors or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon and in case any action or proceeding be brought against Lessor by reason
of any such claim, Lessee upon notice from Lessor shall be the same at Lessee's
expense by counsel satisfactory to Lessor. Lessee, as a material part of the
consideration to Lessor hereby assumes all risk of damage to property or injury
to persons, in, upon or about the Premises arising from any cause and Lessee
hereby waives all claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for damage to the goods, wares, merchandise or other property of
Lessee. Lessee's employees, invitees, customers, or any other person in or about
the Premises, nor shall Lessor be liable for injury to the person of Lessee.
Lessee's employees, agents, or contractors, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause whether the said damage or injury results from conditions arising upon the
Premises or upon other portions of the building of which the Premises are a part
of from other sources or places and regardless of whether the cause of such
damage or injury or the means of repairing the same is inaccessible to Lessor.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant, if any of the building in which the Premises are located.
Initials: _______
<PAGE>
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2 PARTIAL DAMAGE--INSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6 if at any time during the term of this Lease there
is damage which is an insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage then Lessor shall,
at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements, as soon as reasonably possible and this Lease shall
continue in full force and effect.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. Subject to the provisions of
Paragraphs 9.4, 9.5 and 9.6 if at any time during the term of the Lease there is
damage which is not an insured Loss and which falls within the classification of
Premises Partial Damage or Premises Building Partial Damage unless caused by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense) Lessor may at Lessor's option either (i) repair such damage
as soon as reasonably possible at Lessor's expense, in which event this Lease
shall continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of the occurrence of such damage of
Lessor's intention to cancel and terminate this Lease, as of the date of the
occurrence of such damage. In the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such Damage at Lessee's expense
without reimbursement from Lessor, in which event this Lease shall continue in
full force and effect, and Lessee shall proceed to make such repairs as soon as
reasonably possible. If Lessee does not give such notice within such 10-day
period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4 TOTAL DESTRUCTION. If at any time during the term of this Lease
there is damage, whether or not an insured Loss (including destruction required
by any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction this Lease
shall automatically terminate as of the date of such total destruction.
9.5 DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an insured Loss, which falls within the
classification of Premises Partial Damage, Lessor may at Lessor's option cancel
and terminate this Lease as of the date of occurrence of such damage by giving
written notice to Lessee of Lessor's election to do so within 30 days after the
date of occurrence of such damage.
(b) Notwithstanding Paragraph 9.5(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all no later than 20 days after the occurrence of an
insured Loss falling within the classification of Premises Partial Damage during
the last six months of the term of this Lease. If Lessee duly exercises such
option during said 20 day period, Lessor shall, at Lessor's expense, repair such
damage as soon as reasonably possible and this Lease shall continue in full
force and effect. If Lessee fails to exercise such option during said 20 day
period, then Lessor may at Lessor's option terminate and cancel this Lease as of
the expiration of said 20 day period by giving written notice to Lessee of
Lessor's election to do so within 10 days after the expiration of said 20 day
period, notwithstanding any term or provision in the grant of option to the
contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraphs 9.2 or 9.3 and
Lessor or Lessee repairs or restores the Premises Pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired. Except for abatement
of rent, if any, Lessee shall have no claim against Lessor for any damage
suffered by reason of any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, Lessee may at
Lessee's option cancel and terminate this Lease by giving Lessor written notice
of Lessee's election to do so at any time prior to the commencement of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance rent and any advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises, provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1990 1991. Such payment shall be made by Lessee within thirty (30) days
after receipt of Lessor's written statement setting forth the amount of such
increase and the computation thereof. If the term of this Lease shall not expire
concurrently with the expiration of the tax fiscal year, Lessee's liability for
increased taxes for the last partial lease year shall be prorated on an annual
basis.
10.2 ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefor the entirety of any increase in
real property tax if assessed solely by reason of additional improvements placed
upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee levy assessment or charge (i) in substitution of, partially
or totally, any tax, fee, levy, assessment or charge hereinabove included within
the definition of real property tax, or (ii) the nature of which was
hereinbefore included within the definition of "real property tax," or (iii)
which is imposed for a service or right not charged prior to June 1, 1978, or if
previously charged, has been increased since June 1, 1978, or (iv) which is
imposed as a result of a transfer, either partial or total, of Lessor's interest
in the Premises or which is added to a tax or charge hereinbefore included
within the definition of real property tax by reason of such transfer, or (v)
which is imposed by reason of this transaction, any modifications or changes
hereto, or any transfers hereof.
10.4 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon if any such services are not separately metered to
Lessee. Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in this Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void and shall constitute a breach of
this Lease.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of Paragraph 12.1
hereof, Lessee may assign or sublet the Premises or any portion thereof, without
Lessor's consent, to any corporation which controls, is controlled by or is
under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, provided that said assignee assumes, in full, the
obligations of Lessee under this Lease. Any such assignment shall not, in any
way, affect or limit the liability of Lessee under the terms of this Lease even
if after such assignment or subletting the terms of this Lease are materially
changed or altered without the consent of Lessee, the consent of whom shall not
be necessary.
12.3 NO RELEASE OF LESSEE. Regardless of Lessor's consent, no
subletting or assignment shall release Lessee of Lessee's obligation or alter
the primary liability of Lessee to pay the rent and to perform all other
obligations to be performed by Lessee hereunder. The acceptance of rent by
Lessor from any other person shall not be deemed to be a waiver by Lessor of any
provision hereof. Consent to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting. In the event of default by
any assignee of Lessee or any successor of Lessee in the performance of any of
the terms hereof, Lessor may proceed directly against Lessee without the
necessity of exhausting remedies against said assignee. Lessor may consent to
subsequent assignments or subletting of this Lease or amendments or
modifications to this Lease with assignees of Lessee without notifying Lessee,
or any successor of Lessee, and without obtaining its or their consent thereto
and such action shall not relieve Lessee of liability under this Lease.
12.4 ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorney's fee incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
Initials:________
<PAGE>
13. DEFAULTS: REMEDIES.
13.1 DEFAULTS. The occurrence of any one or more of the following events
shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee
(b) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due where such
failure shall continue for a period of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quit pursuant to applicable Unlawful Detainer statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee,
other than described in paragraph (b) above, where such failure shall continue
for a period of 30 days after written notice thereof from Lessor to Lessee,
provided, however, that if the nature of Lessee a default is such that more than
30 days are reasonably required for its cure then Lessee shall not be deemed to
be in default if Lessee commenced such cure within said 30-day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or assignment
for the benefit of creditors. (ii) Lessee becomes a debtor as defined in 11
U.S.C. (S)101 or any successor statute thereto (unless in the case of a petition
filed against Lessee, the same is dismissed within 60 days) (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in the Lease
where possession is not restored to Lessee within 30 days, or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within 30 days. Provided, however, in the event that
any provision of this paragraph 13.1(d) is contrary to any applicable law, such
provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder and any
of them, was materially false.
13.2 REMEDIES. In the event of any such material default or breach by Lessee,
Lessor may at any time thereafter, with or without notice or demand and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such default or breach.
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession of the Premises to Lessor. In such event Lessor
shall be entitled to recover from Lessee all damages incurred by Lessor by
reason of Lessee's default including, but not limited to, the cost of recovering
possession of the Premises: expenses of relating including necessary renovation
and alteration of the Premises reasonable attorney's fees, and any real estate
commission actually paid, the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for the balance of
the term after the time of such award exceeds the amount of such rental loss for
the same period that Lessee proves could be reasonably avoided, that portion of
the leasing commission paid by Lessor pursuant to Paragraph 15 applicable to the
unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the Premises
in such event Lessor shall be entitled to enforce all of Lessor's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor
fails to perform obligations required of Lessor within a reasonable time but in
no event later than thirty (30) days after written notice by Lessee to Lessor
and to the holder of a first mortgage or deed of trust covering the Premises
whose name and address shall have theretofore been furnished to Lessee in
writing, specifying wherein Lessor has failed to perform such obligation
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for performance then Lessor shall not be in
default if Lessor commences performance within such 30-day period and thereafter
diligently prosecutes the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's or signee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee. Lessee
shall pay to Lessor a late charge equal to 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly notwithstanding paragraph 4 or
any other provision of this Lease to the contrary.
13.5 IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected, for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment when due before
delinquency, of any or all such real property taxes and insurance premiums. If
the amounts paid to Lessor or Lessee under the provisions of this paragraph are
insufficient to discharge the obligations of Lessee to pay such real property
taxes and insurance premiums as the same become due. Lessee shall pay to Lessor,
upon Lessor's demand, such additional sums necessary to pay such obligations.
All moneys paid to Lessor under this paragraph may be intermingled with other
moneys of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain, or sold under the threat of the exercise of said
power (all of which are herein called "condemnation") this Lease shall terminate
as to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent dominant or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. In the event that this Lease is not terminated by reason of
such condemnation, Lessor shall to the extent of severance damages received by
Lessor in connection with such condemnation, repair any damage to the Premises
caused by such condemnation except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall pay any amount in excess of
such severance damages required to complete such repair.
15. BROKER'S FEE.
(a) Upon execution of this Lease by both parties, Lessor shall pay to
Grubb & Ellis (2.5% gross lease consideration)
- --------------------------------------------------------------------------------
Licensed real estate broker(s) a fee as set forth in a separate agreement
between Lessor and said broker(s), or in the event there is no separate
agreement between Lessor and said broker(s), the sum of $3,780.55, for brokerage
---------
services rendered by said broker(s) to Lessor in this transaction.
(b) Lessor further agrees that if Lessee exercises any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or if Lessee acquires any rights to
the Premises or other premises described in this Lease which are substantially
similar to what Lessee would have acquired had an Option herein granted to
Lessee been exercised, or if Lessee remains in possession of the Premises after
the expiration of the term of this Lease after having failed to exercise an
Option, or if said broker(s) are the procuring cause of any other lease or sale
entered into between the parties pertaining to the Premises and, or any adjacent
property in which Lessor has an interest, then as to any of said transactions.
Lessor shall pay said broker(s) a fee in accordance with the schedule of said
broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease whether such
transfer is by agreement or by operation of law shall be deemed to have assumed
Lessor's obligation under this Paragraph 15. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than ten (10) days prior
written notice from Lessor execute, acknowledge and deliver to Lessor, a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults, if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance and (iii) that not more than one
month's rent has been paid in advance of such failure may be considered by
Lessor as a default by Lessee under this Lease.
<PAGE>
(c) If Lessor desires to finance, refinance, or sell the Premises, or any
part thereof, Lessee hereby agrees to deliver to any lender or purchaser
designated by Lessor such financial statements of Lessee as may be reasonably
required by such lender or purchaser. Such statements shall include the past
three years' financial statements of Lessee. All such financial statements
shall be received by Lessor and such lender or purchaser in confidence and shall
be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean only the
owner or owners at the time in question of the fee title or a lessee's interest
in a ground lease of the Premises, and except as expressly provided in Paragraph
15. In the event of any transfer of such title or interest, Lessor herein named
(and in case of any subsequent transfers then the grantor) shall be relieved
from and after the date of such transfer of all liability as respects Lessor's
obligations thereafter to be performed, provided that any funds in the hands of
Lessor or the then grantor at the time of such transfer, in which Lessee has an
interest, shall be delivered to the grantee. The obligations contained in this
lease to be performed by Lessor shall, subject as aforesaid, be binding on
Lessor's successors and assigns, only during their respective periods of
ownership.
18. SEVERABILITY. The invalidity of any provision of this Lease as determined
by a court of competent jurisdiction, shall in no way affect the validity of
any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law from the date due. Payment of such interest shall not
excuse or cure any default by Lessee under this Lease, provided, however, that
interest shall not be payable on late charges incurred by Lessee nor on any
amounts upon which charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease shall be deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
agreement or understanding pertaining to any such matter shall be effective.
This Lease may be modified in writing only, signed by the parties in interest at
the time of the modification. Except as otherwise stated in this Lease, Lessee
hereby acknowledges that neither the real estate broker listed in Paragraph 15
hereof nor any cooperating broker on this transaction nor the Lessor or any
employees or agents of any of said persons has made any oral or written
warranties or representations to Lessee relative to the condition or use by
Lessee of said Premises and Lessee acknowledges that Lessee assumes all
responsibility regarding the Occupational Safety Health Act, the legal use and
adaptability of the Premises and the compliance thereof with all applicable laws
and regulations in effect during the term of this Lease except as otherwise
specifically stated in this Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to
Lessee or to Lessor at the address noted below the signature of the respective
parties, as the case may be. Either party may by notice to the other specify a
different address for notice purposes except that upon Lessee's taking
possession of the Premises, the Premises shall constitute Lessee's address for
notice purposes. A copy of all notices required or permitted to be given to
Lessor hereunder shall be concurrently transmitted to such party or parties at
such addresses as Lessor may from time to time hereafter designate by notice to
Lessee.
24. WAIVERS. No waiver by Lessor or any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of any act,
shall not be deemed to render unnecessary the obtaining of Lessor a consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of
the Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, but all options and rights of
first refusal, if any, granted under the terms of this Lease shall be deemed
terminated and be of no further effect during said month to month tenancy.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by
Lessee shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of Paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, at Lessor's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation or security now or
hereafter placed upon the real property of which the Premises are a part and to
any and all advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions thereof.
Notwithstanding such subordination, Lessee's right to quiet possession of the
Premises shall not be disturbed if Lessee is not in default and so long as
Lessee shall pay the rent and observe and perform all of the provisions of this
Lease, unless this Lease is otherwise terminated pursuant to its terms. If any
mortgagee, trustee or ground lessor shall elect to have this Lease prior to the
lien of its mortgage, deed of trust or ground lease, and shall give written
notice thereof to Lessee, this Lease shall be deemed prior to such mortgage,
deed of trust or ground lease, whether this Lease is dated prior or subsequent
to the date of said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination or to make this Lease prior to the lien of any
mortgage, deed of trust or ground lease, as the case may be. Lessee's failure to
execute such documents within 10 days after written demand shall constitute a
material default by Lessee hereunder, or, at Lessor's option, Lessor shall
execute such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee
does hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to his
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same,
showing the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises any ordinary "For Sale"
signs and Lessor may at any time during the last 120 days of the term hereof
place on or about the Premises any ordinary "For Lease" signs, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraph 33 hereof, wherever in this Lease the
consent of one party is required to an act of the other party, such consent
shall not be unreasonably withheld.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and
observing and performing all of the covenants, conditions and provisions on
Lessee's part to be observed and performed hereunder, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease. The individuals executing this Lease on behalf of
Lessor represent and warrant to Lessee that they are fully authorized and
legally capable of executing this Lease on behalf of Lessor and that such
execution is binding upon all parties holding an ownership interest in the
Premises.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Options" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right or option to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor or
the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL. Each Option granted to Lessee in this Lease are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any
Initials:
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<PAGE>
Lease Affiliate as defined in paragraph 12.2 of this Lease. The Options herein
granted to Lessee are not assignable separate and apart from this Lease.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple options
to extend or renew this Lease a later option cannot be exercised unless the
prior option to extend or renew this Lease has been so exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(b) or 13.1(c) and continuing until the default alleged in said
notice of default is cured or, (ii) during the period of time commencing on the
day after a monetary obligation to Lessor is due from Lessee and unpaid (without
any necessity for notice thereof to Lessee) continuing until the obligation is
paid, or (iii) at any time after an event of default described in paragraphs
13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to give notice of
such default to Lessee) or (iv) in the event that Lessor has given to Lessee
three or more notices of default under paragraph 13.1(b) where a late charge
becomes payable under paragraph 13.4 for each of such defaults, or paragraph
13.1(c), whether or not the defaults are cured, during the 12 month period prior
to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 30 days after such obligation becomes due (without any necessity
of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to commence to
cure a default specified in paragraph 13.1(c) within 30 days after the date that
Lessor gives notice to Lessee of such default and/or Lessee fails thereafter to
diligently prosecute said cure to completion, or (iii) Lessee commits a default
described in paragraph 13.1(a), 13.1(d) or 13.1(e) (without any necessity of
Lessor to give notice of such default to Lessee), or (iv) Lessor gives to Lessee
three or more notices of default under paragraph 13.1(b), where a late charge
becomes payable under paragraph 13.4 for each such default, or paragraph
13.1(c), whether or not the defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may make from
time to time for the management, safety, care and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. Lessor reserves to itself the rights, from time to time, to grant
such easements, rights and dedications that Lessor deems necessary or desirable,
and to cause the recordation of Parcel Maps and restrictions so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum if it shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership each individual executing this Lease on behalf of such entity
represents and warrants that he or she is duly authorized to execute and deliver
this Lease on behalf of said entity. If Lessee is a corporation, trust or
partnership. Lessee shall, within thirty (30) days after execution of this
Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. ADDENDUM. Attached hereto is an addendum or addends containing paragraphs
51 through 51 which constitutes a part of this Lease.
47. Lessee shall have the right to paint over the forest green color to match
the light brown building color or choose a color to match Pro-Long's company
color.
48. Lessee shall have the right to sublease subject property at Lessee's option
with the prior consent of the landlord.
50. Base rent shall increase by a flat (5%) five percent per annum on the 12th
and 24th months.
51. See attached Toxic or Hazardous Substances addendum.
52. Lessee shall pay landscaping/association fees of $114 month.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND BY EXECUTION OF THIS LEASE SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO. THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR
OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
Executed at Yorba Linda, CA Coronado Investors Properties
----------------------------- --------------------------------
on By /s/ GLEN WARNER - PARTNER
-------------------------------------- ------------------------------
Glen Warner - Partner
Address By
--------------------------------- ------------------------------
- ---------------------------------------- LESSOR (Corporate seal)
Executed at Tustin, CA. Pro-Long International
---------------------------- --------------------------------
on 4/20/90 By /s/ ELTON ALDERMAN
-------------------------------------- ------------------------------
Elton Alderman - President
Address 14081 Yorba St. By
- ---------------------------------------- ------------------------------
OR. CO. 92680 LESSEE (Corporate seal)
- ----------------------------------------
NOTE: THESE FORMS ARE OFTEN MODIFIED TO MEET CHANGING REQUIREMENTS OF LAW AND
NEEDS OF THE INDUSTRY ALWAYS WRITE OR CALL TO MAKE SURE YOU ARE UTILIZING??????/
<PAGE>
51. Toxic or Hazardous Substances. Lessee shall not use, store or permit toxic
-----------------------------
waste or other hazardous substances or materials on the Premises during the
term of this Lease, without the prior written consent of Lessor. In the
event Lessee desires to use or store toxic or hazardous substances on the
Premises (including but not limited to petroleum based fuels), Lessee shall
request such use in an application to Lessor which shall explain in detail
the types of chemicals/substances which Lessee desires to use, the proposed
location and manner of storage of same and the manner of disposition of such
chemicals/substances or by-products or remains thereof. Lessee shall deliver
to Lessor copies of all studies, reports and other information submitted by
Lessee to any governmental entity or agency regulating the use of such
substances and materials, concurrently with the delivery of same to such
government agency or entity. In no event shall lessee store any
chemicals/substances in underground tanks. The proposed use of such
chemicals/substances shall be approved, if necessary, by the local fire
department and the exterior of the Premises shall clearly set forth a label
as to the chemicals/substances located within the Premises. In the event
that any such wastes, substances or materials are hereinafter found on,
under or about the Premises except as expressly allowed by Lessor, Lessee
shall take all necessary and appropriate actions and shall spend all
necessary sums to cause the same to be cleaned up and immediately removed
from the Premises, and Lessor shall in no event be liable or responsible
for any costs or expenses incurred in so doing. Lessee shall at all times
observe and satisfy the requirements of, and maintain the Premises in
compliance with, all federal, state and local environmental protection,
occupational, health and safety and similar laws, ordinances, restrictions,
licenses and regulations, including but not limited to, the Federal Water
Pollution Control Act (33 U.S.C. Section 1251 et seq.), Safe Drinking Water
Act (42 U.S.C. section 3000(f) et seq.), Toxic Substances Control Act (15
U.S.C. Section 2601 et seq.), Clean Air Act (42 U.S.C. Section 7401 et
seq.), Comprehensive Environmental Response of Compensation and Liability
Act (42 U.S.C. Section 9601 et seq.), California Health and Safety Code
(Section 25100 et seq., Section 39000 et seq.), California Water Code
(Section 13000 et seq.). Should Lessee at any time receive any notice of
violation of any laws, including those aforementioned, or by given a
citation with respect thereto, Lessee shall (i) immediately notify Lessor of
such violation or citation, (ii) provide Lessor with copy of same, (iii)
cure the deficiency set forth in the violation or citation within fifteen
(15) days after the date of receipt thereof and (iv) immediately provide
Lessor with proof of the curing of such deficiency or complained of matter.
Should Lessee at any time default in or fail to perform or observe any of
its obligations under this Addendum Paragraph 51, lessor shall have the
right, but not the duty, without limitation upon any of the Lessor's rights
pursuant hereto, to perform the same, and Lessee agrees to pay to Lessor on
demand, all costs and expenses incurred by attorneys' fees together with
interest from the date of expenditure at the highest rate allowed by law.
Lessee hereby indemnifies Lessor and holds harmless for any loss incurred by
or liability imposed on Lessor by reason of Lessee's failure to perform or
observe any of its
Initial: __________
__________
1 of 2 pages
<PAGE>
obligations or agreements under this Addendum Paragraph 51, including but not
limited to any damage, liability, fine, penalty, punitive damage, cost or
expense (including without limitation all clean up and removal costs and
expenses) arising from or out of any claim, action, suit or providing for
personal injury (including sickness, disease or death), tangible
or intangible property damage, compensation for lost wages, business income,
profits, or other economic loss, damage to the natural resources or the
environment, nuisance, pollution, contamination, leaks, spill, release or other
adverse effect on the environment. Lessor may enter the Premises at any time,
without notice for the purpose of ascertaining compliance by Lessee with the
requirements of this Addendum Paragraph 51. If Lessee is a corporation or is a
partnership whose general partners are corporations, the undersigned
unconditionally personally guarantees the performance by Lessee of all duties of
Lessee under this Addendum Paragraph 51 and the payment of all sum required
hereby.
Agreed and Accepted:
Landlord: [Illegible signature] Lessee: Elton Alderman
--------------------- -----------------
Date 4-23-90 Date 4/21/90
------------------- ----------------
2 of 2 pages
<PAGE>
EXHIBIT 10.12
PROLONG INTERNATIONAL CORPORATION
1997 STOCK INCENTIVE PLAN
This 1997 STOCK INCENTIVE PLAN (the "Plan") is hereby established by
PROLONG INTERNATIONAL CORPORATION, a Nevada corporation (the "Company"), and
adopted by its Board of Directors as of the ____ day of June, 1997 (the
"Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
--------------------
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
--------
ability to attract and retain the services of qualified employees, officers and
directors (including non-employee officers and directors), and consultants and
other service providers upon whose judgment, initiative and efforts the
successful conduct and development of the Company's business largely depends,
and (b) to provide additional incentives to such persons or entities to devote
their utmost effort and skill to the advancement and betterment of the Company,
by providing them an opportunity to participate in the ownership of the Company
and thereby have an interest in the success and increased value of the Company.
ARTICLE 2.
DEFINITIONS
-----------
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
-------------
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
------------------
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
-----
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
-----------------
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of securities of the Company possessing more than fifty
percent (50%) of the total combined voting power of all outstanding securities
of the Company; (ii) a merger or consolidation in which the Company is not the
surviving entity, except for a transaction in which the holders of the
outstanding voting securities of the Company immediately prior to such merger or
consolidation hold, in the aggregate, securities possessing more than fifty
percent (50%) of the total combined voting power of all outstanding voting
securities of the surviving entity immediately after such merger or
consolidation; (iii) a reverse merger in which the Company is the surviving
entity but in which securities possessing more than fifty percent (50%) of the
total combined voting power of all outstanding voting securities of the Company
are transferred to or acquired by a person or persons different from the persons
holding those securities immediately prior to such merger;
<PAGE>
(iv) the sale, transfer or other disposition (in one transaction or a series of
related transactions) of all or substantially all of the assets of the Company;
or (v) the approval by the shareholders of a plan or proposal for the
liquidation or dissolution of the Company.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
---------
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock, $0.001 par value
------------
of the Company, subject to adjustment pursuant to Section 4.2 hereof.
2.8 DISABILITY. "Disability" means permanent and total disability as
----------
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.9 EFFECTIVE DATE. "Effective Date" means the date on which the Plan is
--------------
adopted by the Board, as set forth on the first page hereof.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
--------------
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
-----------------
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
NASDAQ market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such NASDAQ market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such NASDAQ market system or such exchange on the next preceding
day for which a closing sale price is reported.
(b) If the Common Stock is not then listed or admitted to trading on
a NASDAQ market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall be
conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated and
----------------
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
--------------------------
Option Agreement with respect to an Incentive Option.
2
<PAGE>
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of
-----------
the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
-------------------
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means
-----------------------------
an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
-------
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
------
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
----------------
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
--------
2.21 PARTICIPANT. "Participant" means an individual or entity who holds an
-----------
Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
--------------
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
----------------
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
-----------------
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
----------------
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
------------------------
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
---------------
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
3
<PAGE>
ARTICLE 3.
ELIGIBILITY
-----------
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company or
-----------------
of an Affiliated Company (including members of the Board if they are employees
of the Company or of an Affiliated Company) are eligible to receive Incentive
Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
-------------------------------------------
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
--------------------
Options or Rights to Purchase in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 500,000 shares.
ARTICLE 4.
PLAN SHARES
-----------
4.1 SHARES SUBJECT TO THE PLAN. A total of 2,500,000 shares of Common
--------------------------
Stock may be issued under the Plan, subject to adjustment as to the number and
kind of shares pursuant to Section 4.2 hereof. For purposes of this limitation,
in the event that (a) all or any portion of any Option or Right to Purchase
granted or offered under the Plan can no longer under any circumstances be
exercised, or (b) any shares of Common Stock are reacquired by the Company
pursuant to an Incentive Option Agreement, Nonqualified Option Agreement or
Stock Purchase Agreement, the shares of Common Stock allocable to the
unexercised portion of such Option or such Right to Purchase, or the shares so
reacquired, shall again be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding shares
----------------------------
of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
ARTICLE 5.
OPTIONS
-------
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
----------------
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement
4
<PAGE>
shall be in such form and contain such additional terms and conditions, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable, including, without limitation, the imposition of
any rights of first refusal and resale obligations upon any shares of Common
Stock acquired pursuant to an Option Agreement. Each Option Agreement may be
different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
--------------
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Shareholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be made
-------------------------
upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and provisions for
-------------------------------
termination of each Option shall be as fixed by the Administrator, but no Option
may be exercisable more than ten (10) years after the date it is granted. An
Incentive Option granted to a person who is a 10% Shareholder on the date of
grant shall not be exercisable more than five (5) years after the date it is
granted.
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and become
-------------------------------
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
---------------------------------
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5
<PAGE>
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
-----------------------------
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an
---------------------
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6.
RIGHTS TO PURCHASE
------------------
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an Offeree
---------------------------
entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with
-------------------------------
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions, payment
-------------------------
of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock
may be made, in the discretion of the Administrator, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Offeree that have been
held by the Offeree for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Offeree's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of Section
-----------------------
6.2 hereof, an Offeree shall have the rights of a shareholder with respect to
the Restricted Stock purchased pursuant to the Right to Purchase, including
voting and dividend rights, subject to the terms, restrictions and conditions as
are set forth in the Stock Purchase Agreement. Unless the Administrator shall
determine otherwise, certificates evidencing shares of Restricted Stock shall
remain in the
6
<PAGE>
possession of the Company until such shares have vested in accordance with the
terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
------------
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement. In the event of
termination of a Participant's employment, service as a director of the Company
or Service Provider status for any reason whatsoever (including death or
disability), the Stock Purchase Agreement may provide, in the discretion of the
Administrator, that the Company shall have the right, exercisable at the
discretion of the Administrator, to repurchase (i) at the original Purchase
Price, any shares of Restricted Stock which have not vested as of the date of
termination, and (ii) at Fair Market Value, any shares of Restricted Stock which
have vested as of such date, on such terms as may be provided in the Stock
Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
---------------------------
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
---------
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
--------------------------
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
--------------------------
7.1 ADMINISTRATOR. Authority to control and manage the operation and
-------------
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
---------------------------
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to
7
<PAGE>
Purchase; (i) to provide for rights of first refusal and/or repurchase rights;
(j) to amend outstanding Option Agreements and Stock Purchase Agreements to
provide for, among other things, any change or modification which the
Administrator could have provided for upon the grant of an Option or Right to
Purchase or in furtherance of the powers provided for herein; and (k) to make
all other determinations necessary or advisable for the administration of the
Plan, but only to the extent not contrary to the express provisions of the Plan.
Any action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
-----------------------
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
-----------------
8.1 CHANGE IN CONTROL. In order to preserve a Participant's rights in the
-----------------
event of a Change in Control of the Company, (i) the time period relating to the
exercise or realization of all outstanding Options, Rights to Purchase and
Restricted Stock shall automatically accelerate immediately prior to the
consummation of such Change in Control, and (ii) with respect to Options and
Rights to Purchase, the Administrator in its discretion may, at any time an
Option or Right to Purchase is granted, or at any time thereafter, take one or
more of the following actions: (A) provide for the purchase or exchange of each
Option or Right to Purchase for an amount of cash or other property having a
value equal to the difference, or spread, between (x) the value of the cash or
other property that the Participant would have received pursuant to such Change
in Control transaction in exchange for the shares issuable upon exercise of the
Option or Right to Purchase had the Option or Right to Purchase been exercised
immediately prior to such Change in Control transaction and (y) the Exercise
Price of such Option or the Purchase Price under such Right to Purchase, (B)
adjust the terms of the Options and Rights to Purchase in a manner determined by
the Administrator to reflect the Change in Control, (C) cause the Options and
Rights to Purchase to be assumed, or new rights substituted therefor, by another
entity, through the continuance of the Plan and the assumption of outstanding
Options and Rights to Purchase, or the substitution for such Options and Rights
to Purchase of new options and new rights to purchase of comparable value
covering shares of a successor corporation, with appropriate adjustments as to
the number and kind of shares and Exercise Prices, in which event the Plan and
such Options and Rights to Purchase, or the new options and rights to purchase
substituted therefor, shall continue in the manner and under the terms so
provided, or (D) make such other provision as the Administrator may consider
equitable. If the Administrator does not take any of the forgoing actions, all
Options and Rights to Purchase shall terminate upon the consummation of the
Change in Control and the Administrator shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction.
8
<PAGE>
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
-------------------------------------
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
----------
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionees more favorable tax treatment than that applicable
to Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
----------------
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
---------------
10.1 WITHHOLDING. The Company shall have the power to withhold, or require
-----------
a Participant to remit to the Company, an amount sufficient to satisfy any
applicable Federal, state, and local tax withholding requirements with respect
to any Options exercised or Restricted Stock issued under the Plan. To the
extent permissible under applicable tax, securities and other laws, the
Administrator may, in its sole discretion and upon such terms and conditions as
it may deem appropriate, permit a Participant to satisfy his or her obligation
to pay any such tax, in whole or in part, up to an amount determined on the
basis of the highest marginal tax rate applicable to such Participant, by (a)
directing the Company to apply shares of Common Stock to which the Participant
is entitled as a result of the exercise of an Option or as a result of the
purchase of or lapse of restrictions on Restricted Stock or (b) delivering to
the Company shares of Common Stock owned by the Participant. The shares of
Common Stock so applied or delivered in satisfaction of the Participant's tax
withholding obligation shall be valued at their Fair Market Value as of the date
of measurement of the amount of income subject to withholding.
9
<PAGE>
ARTICLE 11.
MISCELLANEOUS
-------------
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under
----------------------
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
---------------------------------
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to limit the
right of the Company or any Affiliated Company to discharge any Participant at
any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
--------------------
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
10
<PAGE>
PROLONG INTERNATIONAL CORPORATION
STOCK OPTION AGREEMENT
----------------------
TYPE OF OPTION (CHECK ONE): [ ] INCENTIVE [ ] NONQUALIFIED
This Stock Option Agreement (the "Agreement") is entered into as of
__________, 19__, by and between PROLONG INTERNATIONAL CORPORATION, a Nevada
corporation (the "Company") and __________________________________ (the
"Optionee") pursuant to the Company's 1997 Stock Incentive Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the
---------------
"Option") to purchase all or any portion of a total of ___________________
(_______) shares (the "Shares") of the Common Stock of the Company at a purchase
price of_________________________ ($_______) per share (the "Exercise Price"),
subject to the terms and conditions set forth herein and the provisions of the
Plan. If the box marked "Incentive" above is checked, then this Option is
intended to qualify as an "incentive stock option" as defined in Section 422 of
the Internal Revenue Code of l986, as amended (the "Code"). If this Option fails
in whole or in part to qualify as an incentive stock option, or if the box
marked "Nonqualified" is checked, then this Option shall to that extent
constitute a nonqualified stock option.
2. VESTING OF OPTION. The right to exercise this Option shall vest in
-----------------
installments, in the amounts and on the dates set forth below, provided that
Optionee remains in the "Continuous Service" (as defined in Section 3 below) of
the Company as of the date of vesting:
(a) From and after the date of this Agreement (the "Vesting
Commencement Date") and until one (1) year from the Vesting
Commencement Date, the option may not be exercised as to any of
the Shares subject to the Option;
(b) one-fifth, or 20%, of the number of Shares subject to this Option
(rounded to the nearest whole number) shall vest on the first
anniversary of the Vesting Commencement Date;
(c) an additional one-fifth, or 20%, of the number of Shares subject
to this Option (rounded to the nearest whole number) shall vest
annually thereafter for three (3) successive years, commencing on
the date that is one year after the first anniversary of the
Vesting Commencement Date and continuing on the same date of each
annual period thereafter; and
(d) the remaining Shares subject to this Option shall vest on the
fifth anniversary of the Vesting Commencement Date.
No additional shares shall vest after the date of termination of Optionee's
Continuous Service, but this Option shall continue to be exercisable in
accordance with Section 3 hereof with respect to that number of shares that have
vested as of the date of termination of Optionee's Continuous Service.
3. TERM OF OPTION. Optionee's right to exercise this Option shall
--------------
terminate upon the first to occur of the following:
(a) the expiration of ten (10) years from the date of this Agreement;
(b) the expiration of one (1) month from the date of termination of
Optionee's
1
<PAGE>
Continuous Service if such termination occurs for any reason other than
permanent disability or death; provided, however, that if Optionee dies during
such one-month period the provisions of Section 3(d) below shall apply;
(c) the expiration of one (1) year from the date of termination of
Optionee's continuous service if such termination is due to permanent disability
of Optionee (as defined in Section 22(e)(3) of the Code);
(d) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to Optionee's death or
if death occurs during the one-month period following termination of Optionee's
Continuous Service pursuant to Section 3(b) above; or
(e) upon the consummation of a "Change in Control" (as defined in
Section 2.4 of the Plan), unless otherwise provided pursuant to Section 11
below.
As used herein, the term "Continuous Service" means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or by
a corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code), or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the Company
until Optionee resigns, is removed from office, or Optionee's term of office
expires and he or she is not reelected, or (iii) so long as Optionee is engaged
as a consultant or service provider to the Company or other corporation referred
to in clause (i) above.
4. EXERCISE OF OPTION. On or after the vesting of any portion of this
------------------
Option in accordance with Sections 2 or 11 hereof, and until termination of the
right to exercise this Option in accordance with Section 3 above, the portion of
this Option which has vested may be exercised in whole or in part by the
Optionee (or, after his or her death, by the person designated in Section 5
below) upon delivery of the following to the Company at its principal executive
offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional Shares may
be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment
of the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
the Optionee in connection with the exercise of this Option (unless the Company
and Optionee shall have made other arrangements for deductions or withholding
from Optionee's wages, bonus or other compensation payable to Optionee, or by
the withholding of Shares issuable upon exercise of this Option or the delivery
of Shares owned by the Optionee in accordance with Section 10.1 of the Plan,
provided such arrangements satisfy the requirements of applicable tax laws); and
(d) a letter, if requested by the Company, in such form and substance
as the Company may require, setting forth the investment intent of the Optionee,
or person designated in Section 5 below, as the case may be.
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under
--------------------------------
this Agreement may not be assigned or transferred except by will or by the laws
of descent and
2
<PAGE>
distribution, and may be exercised during the lifetime of the Optionee only by
such Optionee. Any attempt to sell, pledge, assign, hypothecate, transfer or
dispose of this Option in contravention of this Agreement or the Plan shall be
void and shall have no effect. If the Optionee's Continuous Service terminates
as a result of his or her death, and provided Optionee's rights hereunder shall
have vested pursuant to Section 2 hereof, Optionee's legal representative, his
or her legatee, or the person who acquired the right to exercise this Option by
reason of the death of the Optionee (individually, a "Successor") shall succeed
to the Optionee's rights and obligations under this Agreement. After the death
of the Optionee, only a Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
------------------------------------------
(a) Optionee represents and warrants that this Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Shares under the Securities Act
of l933, as amended (the "Securities Act"), on the basis of certain exemptions
from such registration requirement. Accordingly, Optionee agrees that his or her
exercise of the Option may be expressly conditioned upon his or her delivery to
the Company of an investment certificate including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing thereof and an agreement by Optionee that the
certificates evidencing the Shares may bear a legend indicating such non-
registration under the Securities Act and the resulting restrictions on
transfer. Optionee acknowledges that, because Shares received upon exercise of
an Option may be unregistered, Optionee may be required to hold the Shares
indefinitely unless they are subsequently registered for resale under the
Securities Act or an exemption from such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan.
7. RIGHT OF FIRST REFUSAL.
----------------------
(a) The Shares acquired pursuant to the exercise of this Option may
be sold by the Optionee only in compliance with the provisions of this Section
7, and subject in all cases to compliance with the provisions of Section 6(b)
hereof. Prior to any intended sale, Optionee shall first give written notice
(the "Offer Notice") to the Company specifying (i) his or her bona fide
intention to sell or otherwise transfer such Shares, (ii) the name and address
of the proposed purchaser(s), (iii) the number of Shares the Optionee proposes
to sell (the "Offered Shares"), (iv) the price for which he or she proposes to
sell the Offered Shares, and (v) all other material terms and conditions of the
proposed sale.
(b) Within 30 days after receipt of the Offer Notice, the Company or its
nominee(s) may elect to purchase all or any portion of the Offered Shares at the
price and on the terms and conditions set forth in the Offer Notice by delivery
of written notice (the "Acceptance Notice") to the Optionee specifying the
number of Offered Shares that the Company or its nominees elect to purchase.
Within 15 days after delivery of the Acceptance Notice to the Optionee, the
Company and/or its nominee(s) shall deliver to the Optionee payment of the
amount of the purchase price of the Offered Shares to be purchased pursuant to
this Section 7, against delivery by the Optionee of a certificate or
certificates representing the Offered Shares to be purchased, duly endorsed for
transfer to the Company or such nominee(s), as the case may be. Payment shall be
made on the same terms as set forth in the Offer Notice or, at the election of
the Company or its nominees(s), by check or wire transfer of funds. If the
Company and/or its nominee(s) do not elect to purchase all of the Offered
Shares, the Optionee shall be entitled to sell
3
<PAGE>
the balance of the Offered Shares to the purchaser(s) named in the Offer Notice
at the price specified in the Offer Notice or at a higher price and on the terms
and conditions set forth in the Offer Notice; provided, however, that such sale
or other transfer must be consummated within 60 days from the date of the Offer
Notice and any proposed sale after such 60-day period may be made only by again
complying with the procedures set forth in this Section 7.
(c) The Optionee may transfer all or any portion of the Shares to a trust
established for the sole benefit of the Optionee and/or his or her spouse or
children without such transfer being subject to the right of first refusal set
forth in this Section 7, provided that the Shares so transferred shall remain
subject to the terms and conditions of this Agreement and no further transfer of
such Shares may be made without complying with the provisions of this Section 7.
(d) Any Successor of Optionee pursuant to Section 5 hereof, and any
transferee of the Shares pursuant to this Section 7, shall hold the Shares
subject to the terms and conditions of this Agreement and no further transfer of
the Shares may be made without complying with the provisions of this Section 7.
(e) The provisions of this Section 7 shall not apply to a sale of the
Shares to the Company pursuant to Section 8 below.
(f) The rights provided the Company and its nominee(s) under this Section
7 shall terminate upon the closing of the initial public offering of shares of
the Company's Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act.
8. COMPANY'S REPURCHASE RIGHT.
--------------------------
(a) The Company shall have the right (but not the obligation) to
repurchase (the "Repurchase Right") any or all of the Shares acquired pursuant
to the exercise of this Option in the event that the Optionee's Continuous
Service (as defined in Section 3 above) should terminate for any reason
whatsoever, including without limitation Optionee's death, disability, voluntary
resignation or termination by the Company with or without cause. Upon exercise
of the Repurchase Right, the Optionee shall be obligated to sell his or her
Shares to the Company, as provided in this Section 8. The Repurchase Right may
be exercised by the Company at any time during the period commencing on the date
of termination of Optionee's Continuous Service and ending sixty (60) days after
the last to occur of the following:
(i) the termination of Optionee's Continuous Service;
(ii) the expiration of Optionee's right to exercise this Option
pursuant to Section 3 hereof; or
(iii) in the event of Optionee's death, receipt by the Company of
notice of the identity and address of Optionee's Successor (as defined in
Section 5 hereof).
(b) The purchase price for Shares repurchased hereunder (the
"Repurchase Price") shall be the Fair Market Value per share of Common Stock
(determined in accordance with Section 2.11 of the Plan) as of the date of
termination of Optionee's Continuous Service.
(c) Written notice of exercise of the Repurchase Right, stating the
number of Shares to be repurchased and the Repurchase Price per Share, shall be
given by the Company to the Optionee or his or her Successor, as the case may
be, during the period specified in Section 8(a) above.
(d) The Repurchase Price shall be payable, at the option of the
Company, by
4
<PAGE>
check or by cancellation of all or a portion of any outstanding indebtedness of
Optionee to the Company, or by any combination thereof. The Repurchase Price
shall be paid without interest within thirty (30) days after delivery of the
notice of exercise of the Repurchase Right, against delivery by the Optionee or
his or her Successor of a certificate or certificates representing the Shares to
be repurchased, duly endorsed for transfer to the Company.
(e) The rights provided the Company under this Section 8 shall
terminate upon the closing of the initial public offering of shares of the
Company's Common Stock pursuant to a registration statement filed with and
declared effective by the Securities and Exchange Commission under the
Securities Act.
9. RESTRICTIVE LEGENDS.
-------------------
(a) Optionee hereby acknowledges that federal securities laws and the
securities laws of the state in which he or she resides may require the
placement of certain restrictive legends upon the Shares issued upon exercise of
this Option, and Optionee hereby consents to the placing of any such legends
upon certificates evidencing the Shares as the Company, or its counsel, may deem
necessary or advisable.
(b) In addition, all stock certificates evidencing the Shares shall be
imprinted with a legend substantially as follows:
"THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER, REPURCHASE RIGHTS AND A RIGHT OF
FIRST REFUSAL IN FAVOR OF THE CORPORATION AND/OR ITS NOMINEE(S), AS
SET FORTH IN A STOCK OPTION AGREEMENT DATED________ , 19__ . TRANSFER
OF THESE SHARES MAY BE MADE ONLY IN COMPLIANCE WITH THE PROVISIONS OF
SAID AGREEMENT, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF
SAID CORPORATION. SUCH TRANSFER RESTRICTIONS, REPURCHASE RIGHTS AND
RIGHT OF FIRST REFUSAL ARE BINDING ON TRANSFEREES OF THESE SHARES."
10. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event
---------------------------------------------
that the outstanding shares of Common Stock of the Company are hereafter
increased or decreased or changed into or exchanged for a different number or
kind of shares or other securities of the Company by reason of a
recapitalization, stock split, combination of shares, reclassification, stock
dividend or other change in the capital structure of the Company, then
appropriate adjustment shall be made by the Administrator to the number of
Shares subject to the unexercised portion of this Option and to the Exercise
Price per share, in order to preserve, as nearly as practical, but not to
increase, the benefits of the Optionee under this Option, in accordance with the
provisions of Section 4.2 of the Plan.
11. CHANGE IN CONTROL. In the event of a Change in Control (as
-----------------
defined in Section 2.4 of the Plan) of the Company, (i) the vesting of this
Option pursuant to Section 2 above shall automatically accelerate immediately
prior to the consummation of such Change in Control, and (ii) the Administrator
in its discretion may take one or more of the following actions: (A) provide for
the purchase or exchange of this Option for an amount of cash or other property
having a value equal to the difference, or spread, between (x) the value of the
cash or other property that the Optionee would have received pursuant to such
Change in Control transaction in exchange for the shares issuable upon exercise
of this Option had this Option been exercised immediately prior to such Change
in Control transaction and (y) the Exercise Price, (B) adjust the terms of this
Option in a manner determined by the Administrator to reflect the Change in
Control, (C) cause this Option to be assumed, or new rights substituted
therefor, by another entity, through the continuance of the Plan and the
assumption of this Option, or the substitution for this Option of a
5
<PAGE>
new option of comparable value covering shares of a successor corporation, with
appropriate adjustments as to the number and kind of shares and Exercise Price,
in which event the Plan and this Option, or the new option substituted therefor,
shall continue in the manner and under the terms so provided, or (D) make such
other provision as the Administrator may consider equitable. If the
Administrator does not take any of the forgoing actions, this Option shall
terminate upon the consummation of the Change in Control and the Administrator
shall cause written notice of the proposed transaction to be given to the
Optionee not less than fifteen (15) days prior to the anticipated effective date
of the proposed transaction.
12. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option
------------------------------
nor the exercise hereof shall be construed as granting to the Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved.
13. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this option by
---------------------
will or by the laws of descent and distribution) shall have no rights as a
shareholder with respect to any Shares covered by this Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares, notwithstanding the exercise of this Option.
14. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested by
----------------------------
the Company or the managing underwriter of any proposed public offering of the
Company's securities, Optionee will not sell or otherwise transfer or dispose of
any Shares held by Optionee without the prior written consent of the Company or
such underwriter, as the case may be, during such period of time, not to exceed
180 days following the effective date of the registration statement filed by the
Company with respect to such offering, as the Company or the underwriter may
specify.
15. INTERPRETATION. This Option is granted pursuant to the terms of the
--------------
Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.
16. NOTICES. Any notice, demand or request required or permitted to be
-------
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention: the
Chief Financial Officer, and if to the Optionee, at his or her most recent
address as shown in the employment or stock records of the Company.
17. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this Agreement,
---------------------------------
the Company will furnish to the Optionee copies of all annual and other periodic
financial and informational reports that the Company distributes generally to
its shareholders.
18. GOVERNING LAW. The validity, construction, interpretation, and
-------------
effect of this Option shall be governed by and determined in accordance with the
laws of the State of California.
19. SEVERABILITY. Should any provision or portion of this Agreement
------------
be held to be unenforceable or invalid for any reason, the remaining provisions
and portions of this Agreement shall be unaffected by such holding.
20. COUNTERPARTS. This Agreement may be executed in two or more
------------
counterparts, each
6
<PAGE>
of which shall be deemed an original and all of which together shall be deemed
one instrument.
21. CALIFORNIA CORPORATE SECURITIES LAW. The sale of the shares that are
-----------------------------------
the subject of this Agreement has not been qualified with the Commissioner of
Corporations of the State of California and the issuance of such shares or the
payment or receipt of any part of the consideration therefor prior to such
qualification is unlawful, unless the sale of such shares is exempt from such
qualification by Section 25100, 25102 or 25105 of the California Corporate
Securities Law of l968, as amended. The rights of all parties to this Agreement
are expressly conditioned upon such qualification being obtained, unless the
sale is so exempt.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PROLONG INTERNATIONAL CORPORATION "OPTIONEE"
By: __________________________ ___________________________
(Signature)
Name: ________________________
Title:________________________ ---------------------------
(Type or print name)
7
<PAGE>
CONSENT OF SPOUSE
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I acknowledge that I have read the foregoing Stock Option Agreement (the
"Agreement") and that I know its contents. I am aware that by its provisions, my
spouse agrees, among other things, to a right of first refusal, to the granting
of rights to purchase and to the imposition of certain restrictions on the
transfer of the shares of PROLONG INTERNATIONAL CORPORATION, a Nevada
corporation, which my spouse acquires upon exercise of such option (the
"Shares") including my community interest therein (if any), which rights and
restrictions may survive my spouse's death. I hereby consent to such rights and
restrictions.
I further agree that in the event of a dissolution of the marriage between
me and my spouse, in connection with which I secure or am awarded the Shares or
any interest therein through property settlement agreement or otherwise, I shall
receive and hold said Shares subject to all the provisions and restrictions
contained in the foregoing Agreement, including any option of the Company to
purchase such Shares or interest from me.
I also acknowledge that I have been advised to obtain independent counsel
to represent my interests with respect to the Agreement but that I have declined
to do so and I hereby expressly waive my right to such independent counsel.
Date: ___________, 199_ ____________________________________
(Signature of Spouse of Optionee)
____________________________________
(Type or print name)
<PAGE>
EXHIBIT 21.1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
The Registrant's only subsidiary is its wholly-owned subsidiary, Prolong Super
Lubricants, Inc.
