U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Act of 1934
T/F PURIFINER, INC.
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(Name of Small Business Issuer in its Charter)
DELAWARE 14-1708544
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
3020 HIGH RIDGE ROAD, SUITE 100, BOYNTON BEACH, FL 33426
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(Address of Principal Executive Offices) (Zip Code)
(561) 547-9499
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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Securities to be registered under Section 12(g) of the Act:
COMMON STOCK, .001 PAR VALUE
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(Title of Class)
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(Title of Class)
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PART I
All discussions herein give effect to a 100:1 forward stock split effected on
June 15, 1995 and a 57:1 forward stock split for all stockholders of record as
of July 1, 1996, except as otherwise specifically set forth. Except as otherwise
specifically described herein, the term "Company" refers to T/F Purifiner, Inc.
and T/F Systems, Inc., as described more fully below.
ITEM 1. DESCRIPTION OF BUSINESS
INTRODUCTION
The Company owns the rights to manufacture, market and distribute
worldwide the Purifiner(TM), a bypass oil purification system that is compatible
for use with substantially all internal combustion engines, generators and other
types of equipment which use oil for their lubrication needs. The Purifiner(TM)
is a bypass ultra filtration system which cleans oil by continuously removing
solid and liquid contaminants from the oil through a filtration and evaporation
process. The Purifiner(TM) has been used successfully to substantially extend
oil drain intervals and the time between engine overhauls to up to three times
longer than historical overhaul intervals. The Company also manufactures (with
one exception) and sells the disposable replacement filter elements ("Elements")
for the Purifiner(TM).
By continuously cleaning the oil and allowing for extended drain
intervals, the Purifiner(TM) has had a demonstrable effect on extending engine
life, reducing oil purchase, disposal and maintenance costs and service time,
while significantly reducing the necessity for the disposal and storage of new
and used oil, thereby enabling users to overcome environmental concerns
associated with such disposal and storage. Additionally, as a result of
operating the engine or equipment with cleaner oil, the Company believes that
end users will experience improved fuel economy.
BACKGROUND AND FORMATION OF T/F PURIFINER, INC.
The patents to the oil purification system that, after further
development, have evolved into the current Purifiner(TM) units, were issued in
the early 1980's. The owners of such patents unsuccessfully attempted to market
and sell the original system under various other tradenames. This was due to
what is believed to be the lack of acceptance by potential customers of the
concept of extended drain intervals and the environmental benefits related
thereto, absence of acceptance and endorsement by engine and vehicle
manufacturers, disbelief that the product was effective and could provide
benefits in a cost effective manner and inadequate capitalization and management
experience of these companies.
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In 1987, T/F Systems, Inc., a Delaware corporation ("Systems"), of which
Richard C. Ford and Willard H. Taylor (deceased) were equal stockholders,
obtained certain limited distribution rights to the Purifiner(TM) in several
states. In 1988, Systems obtained an option to acquire the exclusive
manufacturing and marketing rights to the Purifiner(TM) in the event the then
manufacturer of the Purifiner(TM) was unable to meet its commitment to Systems.
As a result of a default by the manufacturer in meeting its commitment to
Systems, Systems obtained the manufacturing and marketing rights to the
Purifiner(TM) in 1990.
In February 1988, T/F Purifiner, Inc. was incorporated in Delaware under
the name "Econology Systems, Inc." On October 16, 1990, its name was changed to
"T/F Purifiner, Inc." T/F Purifiner, Inc. was inactive until 1991, when it
obtained the distribution and marketing rights to the Purifiner(TM) by virtue of
an assignment from Systems (at the time owned equally by Messrs. Ford and
Taylor). However, System's ownership of the rights to the Purifiner(TM) were
contested in court as to other third parties who were also manufacturing and
marketing a device similar to the Purifiner(TM) in the marketplace, and using
the Purifiner(TM) trademark. Eventually, the court ruled in favor of Systems
with respect to its manufacturing and marketing rights, and in May 1993, all
appeals by the other parties were exhausted. During the time of this litigation
T/F Purifiner continued to market the Purifiner(TM), but with limited success
due to various factors, including the pending litigation and the actions by
these other parties in the marketplace.
Prior to December 31, 1995, T/F Purifiner, Inc. was the exclusive
distributor and Systems was the exclusive manufacturer for the Purifiner(TM). On
December 31, 1995, T/F Purifiner purchased all of the operating assets and
assumed all of the operating liabilities of Systems (except for any benefits
related to a delay damage judgment awarded in December 1994 (currently on
appeal) against the parties discussed above and except for liabilities related
to certain stockholder advances made to Systems by Ford and Taylor) in exchange
for any claims T/F Purifiner had in the delay damage award. Accordingly, T/F
Purifiner currently owns all manufacturing rights previously owned by Systems.
See "Note 11 to Notes to Financial Statements."
Prior to his death in May 1993, Mr. Taylor was the primary financial
partner to Mr. Ford, although Messrs. Taylor and Ford each owned 50% of the
issued and outstanding capital stock of the Company and each contributed equal
amounts of working capital to the Company. Subsequent to his death, the business
activities and growth of the Company have been hampered by insufficient capital,
notwithstanding Mr. Ford's continued investment in the Company.
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STRATEGY
Since the Purifiner(TM) has had limited acceptability in the marketplace,
the Company's strategy has been to obtain product credibility by overcoming long
held beliefs that oil needs to be regularly changed in accordance with
recommended guidelines. As the Company was striving to obtain credibility for
the Purifiner(TM), the concept of extended oil replacement intervals was
becoming more readily accepted. The Company believes that this acceptance was
due, in part, to the introduction of longer life oils and the realization by
consumers, as well as vehicle and engine manufacturers and oil companies, of the
cost, warranty, environmental and other benefits of such extensions.
The Company has expanded its distribution network and direct marketing
activities, primarily focused in the heavy duty truck marketplace, and
internationally. To date the Company has approximately 135 U.S. and Canadian
distributors, of which approximately 80 are active distributors, and
approximately 17 international distributors. The Company also formed a foreign
joint venture effective January 1, 1996 to market the Purifiner(TM) through
Europe, the Middle East, the former Soviet Union, Egypt, and South Africa. See
"TF Purifiner Limited." Additionally, the Company recently entered into a
written Memorandum of Understanding with a private company in India to
distribute the Company's products in India, Nepal, Sri-Lanka and Burma and to
manufacture such products for these markets and for export.
The Company plans on continuing to expand its distribution channels
throughout the world, as well as the number of market segments on which it
focuses. The Company also plans to employ additional direct sales personnel to
establish additional distributors and to market its products to certain national
and other accounts in conjunction with its distributors. The Company also plans
to enter into additional joint ventures in various parts of the world that would
manufacture and/or market its products.
The Company has entered into discussions with two major oil companies to
form strategic alliances for the purpose of marketing the Purifiner(TM) with
certain of their products. The Company also plans to target original equipment
manufacturers ("OEM") for original placement of the Purifiner(TM) on OEM
products. See "Marketing."
There can be no assurance that the Company will be able to successfully
implement its strategy.
PRODUCTS
The Purifiner(TM) is manufactured in six different sizes ranging from 8
to 240 quarts, the use of which is dependent on the oil sump capacity of the
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engine or equipment on which it is placed. The Purifiner(TM) can also be used in
multiples for larger oil sumps. The Purifiner(TM) can easily be installed by
qualified personnel for use with engines and other equipment, typically in 1 1/2
to 2 hours. The Company has also developed a "Hydraulic Batch System" ("HBS")
which is mounted on a hand cart, to give it mobility. The HBS was developed
primarily to allow users to clean 55 gallon drums of used hydraulic oils thereby
enabling the users to reduce their oil purchases, as well as the high costs of
storing and disposing of used oil in compliance with environmental regulations.
The HBS consists primarily of two 60-quart Purifiners(TM), a preheater, pump and
other miscellaneous parts.
Each of the Purifiners(TM) are compatible with substantially all standard
and synthetic oils on the market and work with engines using gasoline, diesel,
propane or natural gas. The Purifiner(TM) (except for the HBS) cannot be used on
engines without a pressurized lubricating system, such as an outboard boat motor
where the oil mixes with the fuel.
The Purifiner(TM) consists of a canister that can be mounted on the
firewall, fender well or the frame of a vehicle and other convenient locations,
depending on the particular application, The canister inlet is either connected
to the engine's oil pressure sending unit or a pressure line for hydraulic
applications and the outlet is connected to the sump. The canister houses the
Element and an evaporation chamber which is heated by an enclosed heating
element. Under pressure from the engine or equipment, engine oil enters the
canister via a metering jet that regulates the flow of oil to approximately
three and six gallons per hour, depending on the size of the Purifiner(TM). The
oil slowly passes through the Element where solid contaminants in the oil are
trapped. The Element contains compacted long strand natural cotton fibers that
retain solid particles as small as approximately one micron in size. A normal
paper oil filter will typically remove particles down to 25-40 microns in size.
According to a paper published by the Society of Automotive Engineers in its SAE
Paper No. 660081 dated January 1966, "[f]iltering the used oil through a 5
micron filter did not significantly reduce the wear rate; however, when the oil
was filtered through a 1 micron filter, there was a significant reduction." The
100% natural cotton filtering media also absorbs water and traps sulfur and
neutralizes the acids that are left in the oil by conventional paper filters.
The slow rate of speed at which the oil passes through the Element helps ensure
maximum contaminant retention.
The Purifiner(TM) also removes liquid contaminants, such as water, fuel
and coolant from the oil. The oil flows slowly over the diffuser plate located
in the dry heated evaporation chamber where it is heated to a temperature of
approximately 200 degrees Fahrenheit, except for the HBS which is slightly
higher. The heating element is sealed in stainless steel and completely isolated
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from direct contact with the oil for safety. The liquid contaminants are thereby
evaporated and then vented out of the Purifiner(TM) before they can recondense
in the oil. These gases and water vapor are vented back into the induction
system and are consumed in the combustion process. On hydraulic applications,
the water vapor is vented into the atmosphere. The cleaned oil then flows back
to the engine crankcase via gravity. These processes continue whenever the
equipment or engine is operating.
The Company also manufactures and distributes replacement Elements for the
Purifiner(TM). The Company generally recommends that for all Purifiners(TM) the
Element be replaced at the engine manufacturer's recommended oil change
interval, or as oil analysis dictates (except that with respect to one model
currently used primarily for gasoline applications only, the Company generally
recommends that the Element be replaced every twelve thousand miles, or as oil
analysis dictates when used for gasoline powered automobiles and vans). The
useful life of oil and the Element is dependent on several factors, including
the quality of the oil used, type of fuel, condition of engine, and the type and
operating environment of the equipment. Accordingly, the above Element change
intervals may vary. All Elements can be changed and an oil sample taken in
approximately five to ten minutes.
The Company has recently received approval from the United States Patent
Office for a patent on a new Element (the "TFP Filter Plus"), which contains
pelletized chemicals being added to the filtering media. The chemicals are
antioxidants which will reduce the amount of oxidation, stabilize the alkalinity
and further help reduce the acid build-up of the oil, which is especially
important on new engines built since enactment of the Clear Air Act of 1992,
which requires tighter specifications for diesel engines. As these engines
consume less oil, the amount of makeup oil that is added and replenishes the
consumed additives in older engines has decreased. The TFP Filter Plus
compensates for this factor.
When the Element is changed, make-up oil is added to replace any oil
retained in the used Element or consumed in the normal engine combustion process
and also to replenish the oil's additives. The Company's performance warranties,
for product used in the United States and Canada, generally require the user to
take a small sample of the used oil for submission to an oil testing laboratory
at the same intervals that the OEM recommends for an oil change. See
"Warranties." The Purifiner(TM) has an oil sample valve to expedite the taking
of the oil sample. The Company also sells prepaid oil sample kits. Users must
maintain a record of the laboratory oil analysis results in order for the
Company's warranties to remain in effect. Management believes that the risk of
losing the manufacturers' warranties encourages customers to complete the oil
analysis and replace Elements in a timely manner, making the Purifiner(TM) more
effective and stimulating recurring Element sales. The Company is also in the
process of patenting a new oil flow meter which will enable the user to visually
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determine when to change the Element. The oil analysis also helps the Company
monitor customer satisfaction, and should a problem arise with a particular
application, the Company and the customer can work together to address the
problem and find a solution on a timely basis. Finally, oil analysis has been
analogized to blood samples for humans, in that through proper analysis other
problems occurring within the engine or equipment, apart from oil contamination,
can be diagnosed and corrective action taken before incurring significant
problems. To date, there have been no significant problems with existing
Purifiners(TM) or warranty claims, although there can be no assurances that such
a trend will continue. Due to the sometimes prohibitive cost of oil analysis and
generally more frequent recommended oil change intervals for engines used in
certain countries outside the United States and Canada, primarily due to the
poor quality of oil and fuel used, not all performance warranties for
Purifiner(TM) products (whether offered by the Company or by the Company's
distributors) used outside the United States and Canada require oil analysis at
the OEM recommended oil change intervals.
The Purifiner(TM) has no moving parts and consequently requires no
significant ongoing maintenance. The Purifiner(TM) has an in-line pre-strainer
to prevent the metering jet from becoming clogged by large contaminant
particles. As long as the Elements are changed at the recommended intervals or
as oil analysis dictates and other standard preventive maintenance procedures
are performed, the Company believes that the Purifiner(TM) can perform as
designed for an indefinite period. Purifiners(TM) used for hydraulic
applications do not require as frequent Element changes since hydraulic oil
applications typically do not contain the level of contaminants as other oil
applications. In order to maintain the Company's performance warranties, users
must, among other things, change the full flow filters once a year or every
50,000 to 60,000 miles, depending on the particular application of the
Purifiner(TM).
The Company has received acknowledgments from Deere & Company, Detroit
Diesel Corporation, Caterpillar, Inc., Ford Motor Company, Mack Trucks, Inc.,
Cummins Engine Company, Inc., Chrysler Motors Corporation, Mercedes Benz of
North American, Inc. and others, who have all stated that the installation and
use of the Purifiner(TM) does not void these manufacturer's warranties. Most
engine manufacturers will accept oil analysis as an alternative to their
recommended oil change intervals. Management believes that the existence of
other longer life oils in the marketplace which allow for extended oil drains
has been and will continue to exert continuing pressure on the use of oil
analysis as an acceptable alternative to engine manufacturer's recommended oil
change intervals, as well as the cost, environmental and other benefits obtained
from extended oil drain intervals.
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MARKETING, DISTRIBUTION AND SALES
The Company's products are expected to be marketed to numerous market
segments, including for use in trucking, marine, bus, recreational vehicle,
generator, construction, mining, industrial and hydraulic applications, and to
automotive and other users of engines or equipment that utilize up to 50 weight
oil for their lubricating needs.
MARKETING
To date, the Company has not expended any material amounts to advertise or
promote its products in the marketplace and has relied upon editorials, trade
shows and other methods to promote its products. In May 1995, the Company was
featured on CNN's FUTURE WATCH program, broadcast throughout the world, which
resulted in the addition of several new distributors and, more importantly,
added to the credibility of the Company's products. The Company was also
featured on CNN's EARTH MATTERS program in early 1996. Additionally, numerous
magazines, including BUSINESS WEEK, DEFENSE NEWS, EQUIPMENT TODAY, MOTOR TREND,
CAR AND DRIVER and others have featured stories on the Company's products.
Additionally, during 1994 and subsequently, the Company's products have achieved
recognition from well known sources, including (i) certification by the
California Environmental Protection Agency's Department of Toxic Substances as a
"Pollution Prevention Technology", (ii) receipt of the State of Florida's 1995
Governor's New Product Award (Small Business Category), (iii) receipt of the
National Society of Professional Engineers 1996 New Product Award "for
innovative use of engineering principals and materials, improved function and
savings in use and benefit to the national economy" (Small Business Category);
and (iv) receipt of the World Trade Center's (Ft. Lauderdale, Florida) 1996
Award for Outstanding Achievement in International Trade (Manufacturing).
Management believes that such recognition has and will continue to enable the
Company to expand its distribution channels and increase the credibility and
acceptance of its products.
In February 1996, the Purifiner(TM) gained the support of the American
Oceans Campaign ("AOC"), a not-for-profit organization devoted to ensuring the
earth's waters are kept free of contamination and pollution. Management believes
that the association with AOC and similar groups will be a cost effective way to
promote the Purifiner(TM) and expand its distribution and direct sales. However,
no assurance can be given that such associations will be successful in promoting
the Company's products.
In April 1996, the Company formed strategic alliances with two companies
to help facilitate retrofit sales of the product at the end user level. First, a
national leasing company will provide lease financing to certain of the
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Company's users, subject to normal credit considerations with respect to the
user. While the Company has had many successful evaluations, many customers have
found the up-front cost to be prohibitive for large scale retrofits. The use of
lease financing will enable the user to immediately benefit from a reduced
maintenance expense and pay for the Purifiner(TM) from such savings over
variable terms.
Secondly, the Company and a national company, whose primary focus has been
to provide remote field installations for equipment in the trucking industry,
have agreed to work together to provide installation services to the Company's
customers, if required. Management believes this installation service will be
beneficial to small fleet operations with limited manpower in their repair
facilities.
With these two new alliances, the Company and its distributor network are
able to provide a complete product package, including the Purifiner(TM),
installation and financing to its customers. Management believes the ability to
provide a turn-key program should provide the Company with a competitive edge.
However, no assurance can be given that these alliances will result in increased
revenues to the Company.
The Company relies on management's ability to determine the existence and
extent of available markets for its product. Company management and consultants
have considerable marketing and sales backgrounds and devote a significant
portion of their time to marketing-related activities. The Company markets its
products at various national trade shows, such as the International Truck Show
in Las Vegas, Nevada, Mid-America Truck Show in Louisville, Kentucky, the
Maintenance Council Show in Orlando, Florida, the International Workboat Show in
New Orleans, Louisiana, ConAgra Show in Las Vegas, Nevada, the Recreational
Vehicle Industry Association Trade Show in Louisville, Kentucky and others.
Eventually, management would like to sell its products directly to OEMs. A
number of international and domestic engine, automobile, truck, bus and other
OEMs are currently evaluating the Company's products, including Volvo-Sweden
(trucks), Navistar International Corporation ("Navistar")(trucks), Freightliner
Corporation (trucks), Perkins Engine Company (engines), Hyster (forklifts) and
Blue Bird Corporation (buses). There can be no assurance that these or other
OEMs will accept the Company's products for original placement on their
production. To date, the Company's customers have requested that the
Purifiners(TM) be installed at a Volvo USA factory (North Carolina) on a very
limited number of vehicles. Certain other manufacturers have agreed to install
the Purifiner(TM) at their production facilities, if requested by their
customers, including Freightliner Corporation, Navistar, Ford Motor Company and
Volvo (US).
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The Purifiner(TM) is installed on a Navistar and Mobil Oil Company show
truck, which is on display at all the major truck shows in the United States.
See Note 10 to the Notes to Financial Statements for a discussion of the
Company's dependence on major customers and export sales.
DISTRIBUTION AND SALES
The Company currently distributes its products through several channels
under the trademark Purifiner(TM). To date, purchasers of the Company's products
have included Coca-Cola Enterprises, Inc., Sysco Foods, Vulcan Chemicals, U.S.
Air Force and others.
The Company has approximately 135 warehouse distributors, of which
approximately 80 are currently active, located in 35 states and Canada,
primarily in the heavy duty trucking industry. These distributors purchase
product directly from the Company and sell to their existing or new customers.
The Company currently has contracts or arrangements with 14 manufacturer's
representatives, primarily in the heavy duty trucking industry whose
responsibilities include the establishment and servicing of warehouse
distributors and direct sales to selected fleets in their defined territories in
exchange for negotiated commission rates, depending on the level of services
provided. The manufacturer's representative contracts are typically for one year
and can be cancelled by either party on 30 to 120 days notice. The Company has
recently established representatives for certain other market segments, such as
marine, recreational vehicles and industrial industries, in defined territories.
NAVISTAR INTERNATIONAL DEALERS
The Company entered into an aftermarket contract with Navistar in the
United States and Canada in September 1995 and January 1996 to provide Navistar
dealers with the Company's product line. This program is administered by
Navistar and, to date, has not resulted in a significant number of new Navistar
dealers participating in the program. However, Navistar is the first major truck
manufacturer that has agreed to an aftermarket program with the Company and has
an exclusive aftermarket arrangement, as defined, through early 1997. Management
plans on working with other truck manufacturers, in addition to Navistar, to
establish other aftermarket programs in the future. No assurance can be made
that such programs will be established or if established that they will be
successful. No assurance can be given that these sales efforts will result in
significant sales to the Company.
DIRECT SALES
The Company directly and/or with the assistance of its manufacturer's
representatives, warehouse distributors or other agents markets its products
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directly to national accounts, which will eventually be sold directly or through
the appropriate distribution channel. Typically, these larger customers, and
some smaller customers, have required an evaluation period to ensure that the
Company's products perform as advertised. Management believes that this
evaluation period will continue to be shortened as the Company's products gain
wider acceptance and support from well known customers, groups or other
companies, such as AOC, Navistar, Perkins and others.
Currently, the Company's products are being tested by various potential
end users, including Mercury Express, Grant Brothers Trucking, New Orleans
Transit Authority, State of Pennsylvania Department of Transportation, Chicago
Transit Authority, Motor Cargo, United States Air Force and United States Navy,
Wal-Mart Corporation, Waste Management, Bell South and others. There can be no
assurance that such tests will be successful and, even if successful, that they
will result in sales for the Company.
In July 1995, the Company's products were issued National Stocking Numbers
by the General Services Administration which the Company believes will enable
the Company to more efficiently sell its products to the U.S. Government and its
agencies.
INTERNATIONAL SALES
The Company directly and/or with the assistance of commission based
manufacturer's representatives has established exclusive and non-exclusive
distributors in various countries, including Australia, Singapore, Malaysia,
Indonesia, Thailand, South Korea, Colombia, Panama, El Salvador, Venezuela,
Chile, Mexico, China, Hong Kong, Brazil and others. The exclusive distributors
are required to purchase minimum quantities of product to maintain their
exclusive status. The majority of these distributors have been established in
1995 and later, and therefore, their and the other distributors' ultimate
success depends upon, among other things, their abilities to successfully
introduce and sell the product in their territories, including obtaining local
evaluations, establishing distribution and other factors similar to those faced
by the Company in the United States. See "TF Purifiner Limited." There can be no
assurance that the Company's international distributors will be successful in
distributing the Company's products in their territories.
TF PURIFINER LIMITED.
Effective January 1, 1996, the Company became a stockholder in TF
Purifiner Limited ("Ltd."), an English company limited by shares and formed
under England's Company's Act 1985. The other stockholders include Centrax, Ltd.
and the current director and general manager of Ltd. Ltd.'s primary purpose is
to market and establish distribution for the Purifiner(TM) throughout Europe,
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the Middle East, the former Soviet Union, Egypt and South Africa (the
"Territory"). In this regard, the Company has granted to Ltd. its rights under
existing licenses and patents with respect to existing patents and trademarks
and its rights with respect to patents pending for future products to allow for
the marketing and distribution of the Purifiner(TM) in the Territory. Ltd. also
has the option to manufacture the products based upon market acceptance and
other factors.
The Company owns approximately 45% of Ltd. and has a 50% voting interest.
The Company is not obligated to fund any of the operations of Ltd., and if the
funding stockholder does not fund Ltd.'s operations, the Company has the right
to take back Ltd.'s manufacturing, marketing and distribution rights, as well as
any patent and trademark rights assigned or to be assigned to Ltd. by the
Company for this Territory. To date, Ltd. is negotiating to establish, has
established new or taken over the servicing of existing Company distributors in
various countries, including the United Kingdom, Greece, Italy, France, Turkey,
the Czech and Slovak Republics, Norway, Denmark, Spain and Portugal. There can
be no assurance that such distributors will be successful in introducing the
Purifiner(TM) in their territories as they will face similar obstacles that the
Company and its other distributors have encountered in introducing an innovative
technology in their territories. Additionally, there can be no assurance that
Ltd.'s other 45% owner (Centrax), who is responsible for the ultimate funding of
Ltd., will continue to fund Ltd.'s operations, and if it discontinues such
funding, it could have a material adverse effect on the Company's operations in
this Territory. Ltd. has also commenced or completed various Purifiner(TM)
evaluation programs, including a large United Kingdom ("U.K.") based fleet based
upon the recommendation of a large international engine manufacturer which test
has been completed. See "Note 13 to the Notes to Financial Statements."
Ltd. currently has a patent pending on a product consisting of a full flow
and bypass oil filter, all housed in one Purifiner(TM) unit, as well as a
side-by-side full-flow and Purifiner(TM) bypass filter design. These patent
pending products were designed primarily for original equipment placement by
OEMs. The Company has the right to distribute this product everywhere other than
the Territory.
MANUFACTURING AND PRODUCTION.
The Company subcontracts for the manufacturing of component parts for its
Purifiners(TM) and manufacturers substantially all of its Elements. The
component parts are assembled, packed and shipped from the Company's facility in
Boynton Beach, Florida to distributors and end users.
The Company currently single sources substantially all of its raw
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materials and component parts from various vendors in the United States.
Substantially all the tools and dies used by certain of the Company's vendors
are owned by the Company. The Company believes that there are alternative
sources of supply, and the Company does not anticipate that the loss of any
single supplier would have a material long term adverse effect on its business,
operations or financial condition. Management intends, subsequent to obtaining
sufficient financing, to obtain additional tooling and dies and to upgrade
certain of its existing manufacturing equipment, and may expand its vendor
network as its volume of sales increase, for the purpose of limiting its
exposure to its single source suppliers. There can be no assurances, however,
that such financing will be obtained or if obtained, on terms that are in the
best interest of the Company or its stockholders.
WARRANTIES.
The Purifiner(TM) is generally warranted to the original user to be free
of defects in material and workmanship for ten years, except for the heating
element which is warranted for five years as well as a six- month performance
warranty. The Company also offers limited 250,000-mile and 100,000-mile
continuous oil purification performance warranties for Class VII and VIII trucks
in the United States and Canada. The Company also offers limited performance
warranties for recreational vehicles, including a twelve-month performance
warranty. The Company maintains $2,000,000 aggregate product liability insurance
coverage with a major U.S. carrier.
COMPETITION.
Although the Company believes it is the largest supplier of bypass oil
purification systems with similar capabilities to the Company's product (see
"Legal Proceedings - Premo Litigation"), the Company effectively competes with
other bypass filtration products such as the T.F. Hudgins, Inc. Spinner unit,
Luberfiner, Inc's bypass filter, and others. Additionally, the Company's
products affect the sales of full flow filters, engine replacement parts and
maintenance, original oil sales and disposal costs, and new engine sales. All of
these products and services are provided by companies that have significantly
greater financial, marketing and operating resources than does the Company. The
Company's direct competitors include Premo Lubrication Technologies, Inc. and
Certified Technologies, Corp.
PATENTS AND TRADEMARKS.
The Company has a license and royalty agreement with the owner of four of
the U.S. patents covering the Company's existing Purifiners(TM), which expire in
November 1997, September 1998 and June 2008. This agreement also covers several
foreign issued and pending patents in several other countries, the earliest of
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which will expire in June 2004. The term of the agreement is for the life of the
patents and any improvements thereto and requires the payment of a 5% royalty
based on the net sales price, as defined, of the covered products. This
agreement also covers the U.S. trademark for which the Company pays a 1% royalty
based on net Element sales, as defined. See Note 8 to the Notes to Financial
Statements. The Company is primarily responsible for maintaining and defending
the integrity of these patents and trademarks.
The Company has registered its trademark and/or logo in substantially all
the countries of the industrialized world (other than in the United States,
where the Company's licensor has registered the trademark). The Company believes
its trademark to be of considerable value and of material importance to its
business.
The Company has patents pending in substantially all industrialized
countries of the world for the TFP Filter Plus and a redesigned Purifiner(TM)
which were filed by the Company in 1994 through 1996, and which have been
approved in the United States and certain other countries as to the TFP Filter
Plus. There can be no assurance that such patents pending will be issued. The
Company believes all its patents and rights thereto to be of considerable value
and of material importance to its business.
GOVERNMENTAL APPROVAL.
The Company's products typically do not require any governmental
approvals. As part of the certification process under the California
Environmental Protection Agency's Department of Toxic Substances, in July of
1994, the Company has obtained an executive order issued by the State of
California Air Resources Board stating that the Purifiner(TM) does not reduce
the effectiveness of applicable vehicle pollution control systems, and may be
installed on all 1993 and older model year vehicles with pressure oil systems.
ENGINEERING AND DEVELOPMENT.
The Company employs one full time employee in the engineering and
development department, who is the inventor and the originator of the Company's
two new patents pending and most recently issued patent licensed to the Company,
who has devoted substantially all of his time to the engineering, development
and enhancement of the Company's products over the last two years, as well as
the evaluation of other products introduced to the Company by other parties.
EMPLOYEES.
At July 15, 1996, the Company had 21 employees, 9 of whom were engaged in
manufacturing, assembly, warehousing and shipping, 6 in marketing and sales, 1
in engineering and development and 6 in administrative positions. None of the
employees are represented by a labor union. The Company believes its employee
relations are good.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
The Company was formed in 1988, and commenced operations in 1991 when it
obtained worldwide manufacturing and marketing rights to the Purifiner(TM)
products in 1993 after a lengthy legal battle. From 1993 to 1995, the Company's
revenues grew from approximately $583,000 to $1,480,000.
The growth in the Company's revenues is primarily due to the increasing
acceptance of the Company's products by the marketplace resulting from various
factors, including the increased credibility of the product by well known
entities and the growing desire of users to reduce maintenance costs, extend
engine life and preserve the environment.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
revenues represented by certain items reflected in the Company's statements of
operations.
PERCENTAGE OF REVENUES
-----------------------------------------------
Three Months
Year Ended December 31 Ended March 31
----------------------- -----------------
1994 1995 1995 1996
---- ---- ---- ----
Net sales 100% 100% 100% 100%
Operating costs and expenses:
Cost of sales (46) (48) (48) (63)
Selling expenses (46) (42) (82) (34)
General and
administrative expenses (47) (36) (62) (30)
Other - - - ( 3)
Total operating costs
and expenses (139) (126) (192) (130)
----- ----- ----- -----
Operating Loss (39%) (26%) (92%) (30%)
===== ===== ===== =====
Three Months Ended March 31, 1996 Compared with Three Months Ended March 31,
1995
Net sales. Net sales increased by 124 % from $191,650 in the first three
months of 1995 to $428,627 in the first three months of 1996. This increase was
primarily attributable to increasing sales made to existing and new domestic and
international customers in 1996 in comparison to the first quarter of 1995,
including approximately $167,000 of sales to Ltd., the Company's newly formed
joint venture in 1996. Approximately, $12,000 of intercompany profit on these
sales have been deferred at March 31, 1996.
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Cost of sales. Cost of sales increased by 190 % from $92,375 in the first
three months of 1995 to $268,338 in the first three months of 1996. This
increase is primarily attributable in part to the 124% increase in sales between
the comparable periods as well as the 39% of first quarter sales being made to
Ltd. at substantially lower than the Company's existing exclusive international
distributor pricing. Finally, the Company's gross margin decreased from 51.8% to
37.4% substantially all due to the sales made to Ltd. in the first quarter of
1996 at these lower sales prices. To the extent additional sales are made by the
Company to Ltd., the Company's aggregate gross margin will be adversely
affected.
Selling expenses. Selling expenses decreased by 7% from $157,963 in the
first three months of 1995 to $147,378 in the first three months of 1996. The
primary reason for this decrease was due to reduced commission expenses in the
first quarter of 1996 versus the 1995 comparable period, offset by increases in
other selling expenses, such as consulting, travel and trade show expenses in
the first quarter of 1996 versus the comparable quarter of 1995. As a percentage
of revenues, selling expenses decreased from 82% in 1995 to 34% in 1996.
General and administrative expenses. General and administrative expenses
increased by 9% from $118,816 in the first three months of 1995 to $129,921 in
the first three months of 1996, and as a percent of revenues. decreased from 62%
to 30%. This dollar increase was generally due to the increased level of
business activity.
Operating loss. As a result of the foregoing, the Company's operating loss
decreased from $177,504 in the first three months of 1995 to $128,960 in the
first three months of 1996.
Interest expense. Interest expense increased by 243% from $2,589 for the
first three months of 1995 to $8,871 for the first three months of 1996. This
change resulted from an increase in average short and long term borrowings
outstanding in the first quarter of 1996 versus the comparable period for 1995.
The increase in loans was used to finance a portion of the Company's activities
in 1995.
Net loss. As a result of the foregoing, the Company's net loss decreased
from $180,093 for the first three months of 1995 to $137,831 for the first three
months of 1996.
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Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Net sales. Net sales increased by 42% from $ 1,038,960 in 1994 to
$1,480,037 in 1995. This increase was attributable to the addition of new
distributors in 1995 and increased sales to existing distributors and new
customers. Of this amount, approximately $207,000 resulted from sales to one
foreign distributor in 1995. Export sales increased from 48% of total revenues
in 1994 to 55% of total revenues in 1995. This increase resulted from increased
sales of TFP products to new and existing foreign distributors.
Cost of sales. Cost of sales increased by 48% from $480,834 in 1994 to
$712,714 in 1995. This increase is primarily attributable to the 42% increase in
sales between the comparable periods. Additionally, the Company's gross margin
decreased to 51.8% in 1995 from 53.7% in 1994, the decrease being primarily
attributable to the increase in export sales (having a lower gross margin than
domestic sales) from $503,000 in 1994 to $821,000 in 1995.
Selling expenses. Selling expenses increased by 29% from $477,470 in 1994
to $616,569 in 1995. This increase was attributable in part to an increase in
trade show related expenses from approximately $27,000 in 1994 to approximately
$42,000 in 1995. The increased selling expenses were also attributable to the
increased commissions and sales department salaries from approximately $221,000
in 1994 to $292,000 in 1995 and a general increase in sales related activities.
As a percentage of sales, selling expenses decreased from 46% in 1994 to 42% in
1995.
General and administrative expenses. General and administrative expenses
increased by 8% from $491,094 in 1994 to $531,646 in 1995. Salary and consulting
expenses increased from approximately $209,000 in 1994 to approximately $252,000
in 1995 as a result of additional employees and consultants. As a percentage of
sales, general and administrative expenses decreased from 47% in 1994 to 36% in
1995.
Operating loss. The Company's operating loss decreased from $410,438 in
1994 to $380,892 in 1995.
Interest expense. Interest expense amounted to $28,915 in 1995 as compared
with interest expense of $9,952 in 1994. This change resulted from the increase
in average short and long term borrowings outstanding in fiscal 1995 versus
fiscal 1994.
Net loss. As a result of the foregoing, the Company's net loss decreased
from $424,197 in 1994 to $409,807 in 1995.
17
<PAGE>
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993
Net sales. Net sales increased by 78% from $583,052 in 1993 to $1,038,960
in 1994. This increase was primarily due to the establishment of new
distributors.
Cost of sales. Cost of sales increased by 34% from $357,609 in 1993 to
$480,834 in 1994. This increase is primarily attributable to the 78% increase in
sales between comparable periods offset by lower costs related to increased
volumes and the commencement of manufacturing operations by the Company versus
purchasing completed goods from a third party for substantially all of 1993. The
Company's gross margin increased from 39.8% in 1993 to 53.7% in 1994 due
primarily to the lower costs associated with commencement of manufacturing
operations and increased volume.
Selling expenses. Selling expenses increased by 78% from $268,934 in 1993
to $477,470 in 1994. As a percentage of sales, selling expenses was 46% in both
1993 and 1994. In 1994, the Company increased its sales personnel and related
expenditures, such as trade shows and incurred increased other sales related
expenses, such as commissions and royalties.
General and administrative expenses. General and administrative expenses
increased by 32% from $371,447 in 1993 to $491,094 in 1994. In 1993 and 1994,
general and administrative expenses consisted primarily of officer s salary,
professional fees and various other general and administrative expenses. The
increase in 1994 was primarily due to the general level of increased business
activity. As a percentage of sales, general and administrative expenses
decreased from 64% in 1993 to 47% in 1994.
Operating loss. The Company's operating loss decreased from $414,938 in
1993 to $410,438 in 1994.
Interest expense. Interest expense increased from $0 in 1993 to $9,952 in
1994 due to increased borrowings, primarily from the principal stockholder,
Richard C. Ford.
Net loss. As a result of the foregoing, the Company's net loss increased
from $410,284 in 1993 to $424,197 in 1994.
Liquidity and Capital Resources
To date, the Company's capital requirements in connection with its
business activities have been and will continue to be significant. The Company
has been dependent upon available cash generated from operations, the proceeds
of sales of its securities to investors and stockholder and other loans to fund
its activities.
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<PAGE>
At March 31, 1996, the Company had a working capital deficiency of
$979,885 and its current ratio (current assets to current liabilities) was $.27,
as compared with a working capital deficiency of $894,117 and a current ratio of
.25 at December 31, 1995. At March 31, 1996, the Company had $88,417 of cash.
Outstanding short-term debt from lenders and stockholders was $849,413 at March
31, 1996 and included a stockholder loan of $502,026 due to the estate of
Willard Taylor (See "Stockholder Litigation"). The Company intends to repay
approximately $100,000 of such short term loans by issuing approximately 20,000
shares of its Common Stock ($5.00 per share) to the lender. The balance of long
term debt was $533,497 at March 31, 1996 and included a stockholder loan of
$502,026 due to Richard C. Ford. The Company intends to repay Mr. Ford's long
term loan of $502,026 by issuing 100,405 shares of its Common Stock ($5.00 per
share) to Mr. Ford.
Subsequent to December 31, 1995, the Company completed the sale to private
investors of 157,377 shares of redeemable Common Stock for $594,000. The Company
received net proceeds, after the payment of offering expenses, of approximately
$583,000 from such sales, of which $284,625 of gross proceeds was received
subsequent to March 31, 1996. Additionally, the Company is in the process of
completing sales to private investors of up to approximately 80,000 shares of
Common Stock for an aggregate of up to $400,000 pursuant to Rule 504 of
Regulation D of the Securities Act of 1933, as amended.
At March 31, 1996, the Company owed approximately $309,000 in current
liabilities to various trade and other unrelated creditors. Of this amount
approximately $56,000 was owed substantially all to various legal firms for
services provided to the Company. These professionals and vendors continue to
provide services to the Company; however, there can be no assurance that they
will continue to do so in the future while all or a portion of such amounts
remains outstanding. The Company intends to use a portion of the above offerings
proceeds and future financings to repay the overdue amounts due to creditors.
Consistent with industry practices, the Company may accept product returns
or provide other credits in the event that a distributor holds excess inventory
of the Company's products. The Company's sales are made on credit terms which
vary significantly depending on the nature of the sale. In addition, the Company
does not hold collateral to secure payment from its United States and Canadian
distributors. Therefore, a default in payment by one or more of the Company's
United States and Canadian distributors or customers could adversely affect the
Company's business, results of operations and financial condition. The Company
believes it has established sufficient reserves to accurately reflect the amount
or likelihood of product returns or credits and uncollectible receivables.
However, there can be no assurance that actual returns and uncollectible
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<PAGE>
receivables will not exceed the Company's reserves. Any significant increase in
product returns or uncollected accounts receivable beyond reserves could have a
material adverse effect on the Company's business, results of operations and
financial condition. The Company has not experienced material product returns or
uncollectible receivables in the past.
Sales of the Company's products will depend principally on end user demand
for such products. The oil filtration industry has historically been competitive
and, as is typically the case with innovative products, the ultimate level of
demand for the Company's products is subject to a high degree of uncertainty.
Developing market acceptance, particularly worldwide, for the Company's existing
and proposed products will require substantial marketing efforts and the
expenditure of a significant amount of funds to inform customers of the
perceived benefits and cost advantages of its products. Accordingly, the Company
believes its selling and general and administrative expense levels will continue
to increase in dollar amount as the Company intends to use a portion of current
and future financing proceeds to fund such business activities.
The Company is not currently generating sufficient revenues to fund its
existing and planned expansion of operations. Accordingly, the Company has
embarked and is implementing plans to raise additional capital, including its
most recent $400,000 offering. The Company intends to use such additional
financing to increase its marketing and sales efforts, such as the hiring of
additional sales personnel and related costs, implementation of an advertising
program, and additional trade shows. Additionally, the Company intends to hire
additional operating/finance personnel, as well as additional manufacturing
supervisory and plant personnel to meet expected production increases, as well
as to assist in the implementation of the Company's planned Indian manufacturing
joint venture.
The above is not an all inclusive listing of the Company's planned
expenditures. In the event that the proceeds of these or other future offerings
or financings are not received, the Company will not be able to implement its
current plans. The inability to obtain additional financing when needed, would
have a material adverse effect on the Company, including possibly requiring the
Company to curtail or cease its operations.
Impact of Inflation
Inflation has not had a significant impact on the Company's operations.
However, any significant decrease in the price for oil or labor, environmental
compliance costs, and engine replacement costs could adversely impact the
Company's end users cost/benefit analysis as to the use of the Company's
products.
20
<PAGE>
Quarterly Fluctuations
The Company's operating results may fluctuate significantly from period to
period as a result of a variety of factors, including product returns,
purchasing patterns of consumers, the length of the Company's sales cycle to key
customers and distributors, the timing of the introduction of new products and
product enhancements by the Company and its competitors, technological factors,
variations in sales by product and distribution channel, and competitive
pricing. Consequently, the Company's product revenues may vary significantly by
quarter and the Company's operating results may experience significant
fluctuations.
ITEM 3. DESCRIPTION OF PROPERTY.
All of the Company's operations are conducted from its 14,500 square foot
facility located in Boynton Beach, Florida. The facility is leased for a term
ending March 31, 1999 at a current annual rate of approximately $78,600.
ITEM 4 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the Company's
Common Stock beneficially owned on July 10, 1996 for (i) each stockholder known
by the Company to be the beneficial owner of five (5%) percent or more of the
Company's outstanding Common Stock, (ii) each of the Company's executive
officers and directors, and (iii) all executive officers and directors as a
group. In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose or to direct the disposition of such security.
A person is also deemed to be a beneficial owner of any securities of which the
person has the right to acquire beneficial ownership within sixty (60) days. At
July 10, 1996, there were 1,310,886 shares of Common Stock outstanding. The
address of each of the persons set forth below is 3020 High Ridge Road, Suite
100, Boynton Beach, Florida 33426, except as otherwise noted.
No. of Shares Percent of
Name and Address or of Common Stock Beneficial
Identity of Group Beneficially Owned Ownership
- ----------------- ------------------ ---------
Richard C. Ford(1)(4) 655,728 50.0%
Richard J. Ford(2)(4) 324,900 24.8%
Byron Lefebvre 29,070 2.2%
All Executive Officers
and Directors as
a group (3 persons) 1,009,698 77.0%
J.W. Taylor(3)(5) 114,000 8.7%
- ------------------------------
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<PAGE>
(1) Includes 11,400 shares owned by Catherine Ford, Mr. Ford's wife, of which
Mr. Ford disclaims beneficial ownership.
(2) Includes 108,300 shares beneficially owned by Traci M. Ford and 108,300
shares beneficially owned by Jennifer D. Ford over which Richard J. Ford
has irrevocable proxy voting power through 2006, but of which he disclaims
beneficial ownership.
(3) Includes 28,500 shares owned by each of Margaret A. Taylor, Barbara A.
Taylor and John F. Taylor, of which James W. Taylor has voting power.
(4) Ownership of approximately 440,000 shares owned by Mr. R.C. Ford and his
children is currently being contested by members of the Taylor Family. See
"Part II, Item 3 - Legal Proceedings-Stockholder Litigation."
(5) The address is c/o N.A.Taylor and Company, 10 W. 9th Avenue, Gloversville,
N.Y. 12078.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names, positions with the Company and
ages of the executive officers and directors of the Company. Directors will be
elected at the Company's annual meeting of stockholders and serve for one year
or until their successors are elected and qualify. Officers are elected by the
Board and their terms of office are, except to the extent governed by employment
contract, at the discretion of the Board.
Name Age Position
---- --- --------
Richard C. Ford 52 President, Secretary, Treasurer,
Chief Executive Officer and Director
Byron Lefebvre 58 Director
Richard J. Ford 25 Vice President
RICHARD C. FORD has been President, Chief Executive Officer and a
Director of the Company since its inception in 1988. Mr. Ford is
also a Director of TF Purifiner Limited.
BYRON LEFEBVRE has been a Director of the Company since February 1994 and has
been an employee of the Company since 1994 and since late 1993 was a consultant
to the Company. From 1985 to 1990, he was President of Refineco Manufacturing,
Inc., the Company which manufactured and marketed the Purifiner(TM) prior to the
Company. He is the inventor of the Purifiner(TM) T/F-8 spin-on unit as well as
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<PAGE>
the inventor of the new TFP Filter Plus and redesigned Purifiner(TM) (patent
pending). During the period from 1990 to May 20, 1996, Mr. Lefebvre controlled
D.B. Filters, Inc., an inactive company since October 1993, which had limited
rights to manufacture the Elements used in the Purifiner(TM) in North America
and owned certain royalty rights related to the TFP Filter Plus. On May 28,
1993, Mr. Lefebvre filed for personal bankruptcy with the United States
Bankruptcy Court for the Southern District of Florida. The case was discharged
on September 27, 1993. Mr. Lefebvre served in the United States Air Force. Mr.
Lefebvre oversees the engineering, development and evaluation of all of the
Company's new products and product enhancements.
RICHARD J. FORD has been with the Company since January 1994, and a Vice
President of the Company since October 1995. Mr. Ford has worked in the
marketing, communications and public relations areas, and undertaken various
special projects for the Company. Mr. Ford is also a Director of TF Purifiner
Limited. Mr. Ford received degrees in English from Florida State University in
1993. Mr. Ford is the son of Richard C. Ford.
ITEM 6. EXECUTIVE COMPENSATION
CASH COMPENSATION
The following table shows, for the three year period ended December 31,
1995, the cash and other compensation paid by the Company to its President and
Chief Executive Officer and to each of the executive officers of the Company who
had annual compensation in excess of $100,000.
Summary Compensation Table
Name and Other All
Principal Annual Other
Position Year Salary Bonus Compensation(1) Compensation(2)
- -------- ---- ------ ----- --------------- ---------------
Richard C. Ford 1995 $104,000 -0- $1,370 $12,000
President, CEO 1994 $104,000 -0- $1,355 $12,000
Treasurer and 1993 $104,000 -0- $1,385 $4,000
Secretary
- --------------
(1) This amount represents payments made by the Company for health insurance
premiums.
(2) This amount represents payments made to Mr. Ford for performing various
product field testing.
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Employment Agreements
The Company currently does not have employment agreements with any of its
executive officers or other employees but does intend to enter into written
agreements with certain of them in the future.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the grant of
options to purchase shares of Common Stock during the fiscal year ended December
31, 1995 to each person named in the Summary Compensation Table.
Number of % of Total
Securities Options/SARs
Underlying Granted to Exercise or
Options/SARs Employees in Base Price Expiration
Name Granted(#) Fiscal Year ($/Shares) Date
- ---- ------------ ------------ ----------- -----------
Richard C. Ford -0- -0- -0- -0-
Incentive and Nonqualified Stock Option Plan
The Board of Directors and a majority of the Company's stockholders intend
to adopt and implement the Company's proposed 1996 Stock Option Plan (the
"Plan").
The Plan will work to increase the employees', board of advisors,
consultants' and non-employee directors' proprietary interest in the Company and
to align more closely their interests with the interests of the Company's
stockholders. The Plan will also maintain the Company's ability to attract and
retain the services of experienced and highly qualified employees and
non-employee directors.
Under the Plan, the Company intends to reserve an aggregate of 650,000
shares of Common Stock for issuance pursuant to options granted under the Plan
("Plan Options"). The Board of Directors or a Committee of the Board of
Directors (the "Committee") of the Company will administer the Plan including,
without limitation, the selection of the persons who will be granted Plan
Options under the Plan, the type of Plan Options to be granted, the number of
shares subject to each Plan Option and the Plan Option price.
Plan Options granted under the Plan may either be options qualifying as
incentive stock options ("Incentive Options") under Section 422 of the Internal
Revenue Code of 1986, as amended, or options that do not so qualify
("Non-Qualified Options"). In addition, the Plan also allows for the inclusion
of a reload option provision ("Reload Option"), which permits an eligible person
to pay the exercise price of the Plan Option with shares of Common Stock owned
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<PAGE>
by the eligible person and receive a new Plan Option to purchase shares of
Common Stock equal in number to the tendered shares. Any Incentive Option
granted under the Plan must provide for an exercise price of not less than 100%
of the fair market value of the underlying shares on the date of such grant, but
the exercise price of any Incentive Option granted to an eligible employee
owning more than 10% of the Company's Common Stock must be at least 110% of such
fair market value as determined on the date of the grant. The term of each Plan
Option and the manner in which it may be exercised is determined by the Board of
the Directors or the Committee, provided that no Plan Option may be exercisable
more than 10 years after the date of its grant and, in the case of an Incentive
Option granted to an eligible employee owning more than 10% of the Company's
Common Stock, no more than five years after the date of the grant.
The exercise price of Non-Qualified Options shall be determined by the
Board of Directors or the Committee.
The per share purchase price of shares subject to Plan Options granted
under the Plan may be adjusted in the event of certain changes in the Company's
capitalization, but any such adjustment shall not change the total purchase
price payable upon the exercise in full of Plan Options granted under the Plan.
Officers, directors, key employees and consultants of the Company and its
subsidiaries (if applicable in the future) will be eligible to receive
Non-Qualified Options under the Plan. Only officers, directors and employees of
the Company who are employed by the Company or by any subsidiary thereof are
eligible to receive Incentive Options.
All Plan Options are nonassignable and nontransferable, except by will or
by the laws of descent and distribution, and during the lifetime of the
optionee, may be exercised only by such optionee. If an optionee's employment is
terminated for any reason, other than his death or disability or termination for
cause, or if an optionee is not an employee of the Company but is a member of
the Company's Board of Directors and his service as a Director is terminated for
any reason, other than death or disability, the Plan Option granted to him shall
lapse to the extent unexercised on the earlier of the expiration date or 30 days
following the date of termination. If the optionee dies during the term of his
employment, the Plan Option granted to him shall lapse to the extent unexercised
on the earlier of the expiration date of the Plan Option or the date one year
following the date of the optionee's death. If the optionee is permanently and
totally disabled within the meaning of Section 22(c)(3) of the Internal Revenue
Code of 1986, the Plan Option granted to him lapses to the extent unexercised on
the earlier of the expiration date of the option or one year following the date
of such disability.
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The Board of Directors or the Committee may amend, suspend or terminate
the Plan at any time, except that no amendment shall be made which (i) increases
the total number of shares subject to the Plan or changes the minimum purchase
price therefor (except in either case in the event of adjustments due to changes
in the Company's capitalization), (ii) affects outstanding Plan Options or any
exercise right thereunder, (iii) extends the term of any Plan Option beyond ten
years, or (iv) extends the termination date of the Plan. Unless the Plan shall
theretofore have been suspended or terminated by the Board of Directors, the
Plan shall terminate on approximately 10 years from the date of the Plan's
adoption. Any such termination of the Plan shall not affect the validity of any
Plan Options previously granted thereunder.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information with respect to the exercise of
options to purchase shares of Common Stock during the fiscal year ended December
31, 1995 to each person named in the Summary Compensation Table and the
unexercised options held as of the end of the 1995 fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
- --------------------------------------------------------------------------------
Number of
Securities Value of
Underlying Unexercised
Shares Unexercised in-the-Money
Acquired Options/SARs Options/SARs
on Value at FY-End (#) at FY-End ($)
Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
- --------------------------------------------------------------------------------
Richard C. Ford 0 0 0 0
President, Chief Executive
Officer, Treasurer, and
Secretary
LONG-TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
- --------------------------------------------------------------------------------
Number Performance Estimated Future Payouts Under
of Shares, or Other Non-stock Price-based Plans
Units or Period Until ------------------------------
Other Rights Maturation Threshold Target Maximum
Name (#) or Payout ($ or #) ($ or #) ($ or #)
- --------------------------------------------------------------------------------
Richard C. Ford 0 0 0 0 0
President, Chief
Executive Officer,
Treasurer, and Secretary
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
TRANSACTION WITH TAYLOR FAMILY. During 1995, the Company had sales of
approximately $91,000 to N.A. Taylor and Company, an affiliate of the Taylor
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Family. Such affiliate is a current warehouse distributor for the Company. From
February 24, 1994 to October 6, 1995, this company was the exclusive master
distributor of the Company's products for the State of New York and also acted
as the Company's manufacturer's representative for the State of New York, for
which it received certain price concessions from the Company.
RELATIONSHIP OF THE COMPANY TO T/F SYSTEMS, INC. On December 31, 1995, the
Company acquired all of the operating assets and assumed all of the operating
liabilities of T/F Systems, Inc., except as previously described. At such time,
T/F Systems, Inc. was owned approximately 75% by Richard C. Ford and his
immediately family and substantially all the other shares were owned by the
Taylor Family. See "Note 11 to the Notes to Financial Statements."
LOANS AND ISSUANCES OF SECURITIES TO AFFILIATES. During 1994, the Company and
Systems received stockholder loans of approximately $462,000 from Richard C.
Ford, the Company's principal stockholder, and his children, Richard J., Traci
M. and Jennifer D. Ford. Such loans bore interest at 10% per annum. In 1994,
$266,000 of such loans were converted into 866,400 shares of the Company's
Common Stock. Additionally, during 1995, Mr. Ford loaned the Company and Systems
$75,500 and was repaid $85,000. For the three months ended March 31, 1996, Mr.
Ford was repaid $13,500 by the Company on certain loans. See "Notes to Financial
Statements."
During 1995, Mr. Richard C. Ford agreed to become personally obligated for
the repayment of certain loans made to the Company of which approximately
$317,000 of principal and accrued interest was outstanding as of March 31, 1996.
D.B. FILTERS, INC. On May 20, 1996, the Company acquired all of the common stock
of D.B. Filters, Inc. ("DB Filters") for $1,275 in cash and 36,309 shares of its
Common Stock with an estimated fair value of approximately $137,000. DB Filters
was owned by two employees of the Company, one of which was Byron Lefebvre, a
Director of the Company. D.B Filter's only assets were the future royalty rights
related to the Company's new Element patent and certain restricted, as defined,
North American Element manufacturing rights. DB Filters had no other material
assets or liabilities at December 3, 1994 and 1995 and no material operations in
1994 and 1995. See "Note 13 to the Notes to Financial Statements."
The Company believes that the transactions referred to above were on terms
no less favorable to the Company than terms which could have been obtained from
unrelated third parties.
ITEM 8. DESCRIPTION OF SECURITIES
The Company is currently authorized to issue up to 20,000,000 shares of
Common Stock, $.001 par value, of which 1,310,886 shares were outstanding as of
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July 10, 1996. The Company is also authorized to issue up to 500,000 shares of
Preferred Stock, par value $.001 per share, no shares of which have previously
been issued.
Common Stock
The Company is authorized to issue up to 20,000,000 shares of Common
Stock, $.001 par value per share. Subject to the dividend rights of the holders
of any outstanding shares of Preferred Stock, holders of shares of Common Stock
are entitled to share, on a ratable basis, such dividends as may be declared by
the Board of Directors out of funds legally available therefor. Upon
liquidation, dissolution or winding up of the Company, after payment to
creditors and holders of any outstanding shares of Preferred Stock, the assets
of the Company will be divided pro rata on a per share basis among the holders
of the Common Stock.
Each share of Common Stock entitles the holders thereof, to one vote.
Holders of Common Stock do not have cumulative voting rights which means that
the holders of more than 50% of shares voting for the election of Directors can
elect all of the Directors if they choose to do so, and in such event, the
holders of the remaining shares will not be able to elect any Directors. The
Company's management or their affiliates own or have the right to vote 1,009,698
shares or approximately 77% of the outstanding Common Stock of the Company at
July 10, 1996. The By-Laws of the Company require that only a majority of the
issued and outstanding shares of Common Stock of the Company need be represented
to constitute a quorum and to transact business at a stockholders' meeting. The
Common Stock has no preemptive, subscription or conversion rights and is not
redeemable by the Company.
Preferred Stock
The Company is authorized to issue 500,000 shares of Preferred Stock, par
value $.001 per share, issuable in such series and bearing such voting,
dividend, conversion, liquidation and other rights and preferences as the Board
of Directors may determine. As of the date hereof, no shares have been issued or
are outstanding. The Preferred Stock is so-called "Blank Check" Preferred Stock,
which means that the Board of Directors of the Company, in its sole discretion,
will be able to issue the shares of Preferred Stock in one or more series of
classes having such terms, designations and preferences as determined by the
Board of Directors and without authorization or confirmation by the stockholders
of the Company.
Options and Warrants
There are currently no outstanding options and warrants to purchase shares
of Common Stock of the Company. However, warrants or options to purchase shares
of Common Stock may be expected to be provided to key employees, members of
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management, directors, board of advisors, and consultants to the Company in the
future under the Company's proposed Plan, other option programs and agreements.
Additionally, pursuant to the Company's offering under Rule 506 of
Regulation D (the "506 offering") of the Securities Act of 1933, as amended (the
"Act") in March through May 1996, if the Company has not registered any amount
of any class of its common stock under the Act, or the Securities and Exchange
Act of 1934, as amended, within two years from the date of issuance, the
investors in the 506 offering have a non-transferable option to sell all or part
of their respective shares to the Company (the "Put Option") by giving the
Company written notice of their election to exercise the Put Option at the "Put
Option Purchase Price." The "Put Option Purchase Price" is the Purchase Price
(which was $3.77 per share or an aggregate of $594,000) plus ten percent (10%)
simple annual interest from the date of original issue. The Company will then be
obligated to pay the Put Option Purchase Price from the proceeds of certain
dividend payments to be received from Ltd., if any, and from excess available
cash as determined by the Company's Board of Directors. 157,377 shares of Common
Stock were sold pursuant to the 506 offering and to the extent that the Company
does not register its common stock as described above, there will be an
aggregate of 157,377 Put Options available to investors in the 506 offering.
CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY
Delaware General Corporation Law
The Delaware General Corporation Law contains a statute designed to
provide Delaware corporations with protection against hostile takeovers. The
takeover statute, which is codified in Section 203 of the Delaware General
Corporation Law ("Section 203"), among other things, prohibits the Company from
engaging in certain business combinations (including a merger) with a person who
is the beneficial owner of 15% or more of the Company's outstanding voting stock
(an "Interested Stockholder") during the three-year period following the date
such person became an Interested Stockholder. This restriction does not apply if
(1) before such person became an Interested Stockholder, the Board of Directors
approved the transaction in which the Interested Stockholder becomes an
Interested Stockholder or approved the business combination; or (2) upon
consummation of the transaction which resulted in the stockholder's becoming an
Interested Stockholder, the Interested Stockholder owned at least 85% of the
voting stock of the Company outstanding at the time the transaction commenced,
excluding for purposes of determining the number of shares outstanding, those
shares owned by (i) persons who are directors and officers and (ii) employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
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tender or exchange offer; or (3) on or subsequent to such date, the business
combination is approved by the Board of Directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least two-thirds of the outstanding voting stock which is not owned
by the Interested Stockholder. The Company may exempt itself from the
requirements of the statute by adopting an amendment to its Certificate of
Incorporation. At the present time, the Board of Directors does not intend to
propose any such amendment.
Certain Anti-Takeover Provisions
In the Certificate of Incorporation
While the Board of Directors of the Company is not aware of any effort
that might be made to obtain control of the Company at the present time, the
Board of Directors, as discussed below, believes that it is appropriate to
include certain provisions as part of the Company's Certificate of Incorporation
to protect the interests of the Company and its stockholders from hostile
takeovers which the Board of Directors might conclude are not in the best
interests of the Company or the Company's stockholders. These provisions may
have the effect of discouraging a future takeover attempt which is not approved
by the Board of Directors but which individual stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the current Board of
Directors or management of the Company more difficult.
The following discussion is a general summary of certain provisions of the
Company's Amended and Restate Certificate of Incorporation ("Certificate of
Incorporation") of the Company which may be deemed to have such an
"anti-takeover" effect. The description of these provisions is necessarily
general and reference should be made in each case to the Certificate of
Incorporation of the Company.
BOARD OF DIRECTORS. Certain provisions of the Company's Certificate of
Incorporation will impede changes in control of the Board of Directors of the
Company. The Certificate of Incorporation provides that if the number of
Directors exceeds six persons, the Board will be divided into three classes, as
nearly equal in number as possible, which shall be elected for staggered
three-year terms.
A classified Board of Directors could make it more difficult for
stockholders, including those holding a majority of the outstanding shares, to
force an immediate change in the composition of a majority of the Board of
Directors. Since the terms of only one-third of the incumbent directors expire
each year, it requires at least two annual elections for the stockholders to
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change a majority, whereas a majority of a non-classified board could be changed
in one year. In the absence of the provisions of the Certificate of
Incorporation classifying the Board, all of the directors would be elected each
year. Management of the Company believes that the staggered election of
directors tends to promote continuity of management because only one-third of
the Board of Directors is subject to election each year. Staggered terms
guarantee that in the ordinary course approximately two-thirds of the directors,
or more, at any one time have had at least one year's experience as directors of
the Company, and moderate the pace of change in the Board by extending the
minimum time required to elect a majority of directors.
The Certificate of Incorporation further provides that any vacancy
occurring in the Board of Directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a two-thirds vote of the directors then in office.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Company's Certificate of Incorporation requires the approval
of the holders of (i) at least 66% of the Company's outstanding shares of voting
stock, and (ii) at least a majority of the Company's outstanding shares of
voting stock, not including shares held by a "Related Person," to approve
certain "Business Combinations" as defined therein, and related transactions.
Under Delaware law, absent this provision, Business Combinations, including
mergers, consolidations and sales of substantially all of the assets of the
Company must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of the Common Stock. For a
discussion of an exception to the majority approval requirement under Delaware
law, see "Certain Restrictions on Acquisition of the Company-- Delaware General
Corporation Law." The increased voting requirements in the Company's Certificate
of Incorporation apply in connection with business combinations involving a
"Related Person," except in cases where the proposed transaction has been
approved in advance by two-thirds of those members of the Company's Board of
Directors who (i) are unaffiliated with the Related Person and (ii) who were
either (a) directors prior to the time when the Related Person became a Related
Person or (b) a member of the Board of Directors on the effective date of the
Certificate of Incorporation (the "Continuing Directors"). The term "Related
Person" is defined to include any individual, corporation, partnership or other
entity which owns beneficially or controls, directly or indirectly, 10% or more
of the outstanding shares of Common Stock of the Company. A "Business
Combination" is defined to include (i) any merger, reorganization, or
consolidation of the Company with or into any Related Person; (ii) any sale,
lease exchange, mortgage, transfer, or other disposition of all or a substantial
part of the assets of the Company or of a subsidiary to any Related Person (the
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term "substantial part" is defined to include more than 25% of the Company's
total assets); (iii) any merger or consolidation of a Related Person with or
into the Company or a subsidiary of the Company; (iv) any sale, lease, exchange,
transfer or other disposition of all or any substantial part of the assets of a
Related Person to the Company or a subsidiary of the Company; (v) the issuance
of any securities of the Company or a subsidiary of the Company to a Related
Person; (vi) the acquisition by the Company or a subsidiary of the Company of
any securities of the Related Person; and (vii) any agreement, contract or other
arrangement providing for any of the above transactions.
RESTRICTIONS ON ACQUISITIONS OF SECURITIES. The Certificate of
Incorporation provides that for a period of five years from the effective date
of the initial registered public offering of the Company's common stock, no
person may acquire, directly or indirectly, the beneficial ownership of more
than 10% of any class of equity security of the Company, unless such offer or
acquisition shall have been approved in advance by a two-thirds vote of the
Company's Continuing Directors. This provision does not apply to any employee
stock benefit plan of the Company. In addition, during such five-year period, no
shares beneficially owned in violation of the foregoing percentage limitation,
as determined by the Company's Board of Directors, shall be entitled to vote in
connection with any matter submitted to stockholders for a vote. Additionally,
the Certificate of Incorporation provides for further restrictions on voting
rights of shares owned in excess of 10% of any class of equity security of the
Company beyond five years after the initial registered public offering.
Specifically, the Certificate of Incorporation provides that if, at any time
after five years from the initial registered public offering, any person
acquires the beneficial ownership of more than 10% of any class of equity
security of the Company, then, with respect to each share voted in excess of
10%, the record holders of voting stock of the Company beneficially owned by
such person shall be entitled to cast only one-hundredth of one vote with
respect to each share voted in excess of 10% of the voting power of the
outstanding shares of voting stock of the Company which such record holders
would otherwise be entitled to cast without giving effect to the provision, and
the aggregate voting power of such record holders shall be allocated
proportionately among such record holders. An exception from the restriction is
provided if the acquisition of more than 10% of the securities received the
prior approval by a two-thirds vote of the Company's Continuing Directors. Under
the Company's Certificate of Incorporation, the restriction on voting shares
beneficially owned in violation of the foregoing limitations is imposed
automatically. In order to prevent the imposition of such restrictions, the
Board of Directors must take affirmative action approving in advance a
particular offer to acquire such shares. Unless the Board took such affirmative
action, the provision would operate to restrict the voting by beneficial owners
of more than 10% of the Common Stock in a proxy contest.
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BOARD CONSIDERATION OF CERTAIN NONMONETARY FACTORS IN THE EVENT OF AN
OFFER BY ANOTHER PARTY. The Certificate of Incorporation of the Company directs
the Board of Directors, in evaluating a Business Combination or a tender or
exchange offer, to consider, in addition to the adequacy of the amount to be
paid in connection with any such transaction, certain specified factors and any
other factors the Board deems relevant, including (i) the social and economic
effects of the transaction on the Company and its subsidiaries, employees,
customers, creditors and other elements of the communities in which the Company
and its subsidiaries operate or are located; (ii) the business and financial
condition and earnings prospects of the acquiring party or parties; and (iii)
the competence, experience and integrity of the acquiring party or parties and
its or their management.
One effect of this provision might be to encourage consultation by an
offeror with the Board of Directors prior to or after commencing a tender offer
in an attempt to prevent a contest from developing. This provision thus may
strengthen the Board of Directors' position in dealing with any potential
offeror which might attempt to effect a takeover of the Company. The provision
will not make a Business Combination regarded by the Board of Directors as being
in the interests of the Company more difficult to accomplish, but it will permit
the Board of Directors to determine that a Business Combination or tender or
exchange offer is not in the interests of the Company (and thus to oppose it) on
the basis of various factors deemed relevant.
AUTHORIZATION OF PREFERRED STOCK. The Company's Certificate of
Incorporation authorizes the issuance of up to 500,000 shares of preferred
stock, which conceivably would represent an additional class of stock required
to approve any proposed acquisition. The Company is authorized to issue
preferred stock from time to time in one or more series subject to applicable
provisions of law, and the Board of Directors is authorized to fix the
designations, powers, preferences and relative participating, optional and other
special rights of such shares, including voting rights (which could be multiple
or as a separate class) and conversion rights. Issuance of the preferred stock
could adversely affect the relative voting rights of holders of the Common
Stock. In the event of a proposed merger, tender offer or other attempt to gain
control of the Company that the Board of Directors does not approve, it might be
possible for the Board of Directors to authorize the issuance of a series of
preferred stock with rights and preferences that would impede the completion of
such a transaction. An effect of the possible issuance of preferred stock,
therefore, may be to deter a future takeover attempt. The Board of Directors has
no present plans or understandings for the issuance of any preferred stock and
does not intend to issue any preferred stock except on terms which the Board of
Directors deems to be in the best interests of the Company and its stockholders.
This preferred stock, none of which has been issued by the Company, together
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with authorized but unissued shares of Common Stock (the Certificate of
Incorporation authorizes the issuance of up to 20,000,000 shares of Common
Stock), also could represent additional capital required to be purchased by an
acquiror.
AMENDMENT OF BYLAWS. The Company's Certificate of Incorporation provides
that the Company's Bylaws may be amended either by a two-thirds vote of the
Company's Board of Directors or by the affirmative vote of the holders of not
less than 66% of the outstanding shares of the Company's capital stock entitled
to vote generally in the election of directors (considered for this purpose as a
single class). Absent this provision, Delaware law provides that a corporation's
bylaws may be amended by the holders of a majority of a corporation's
outstanding capital stock. The Company's Bylaws contain numerous provisions
concerning the Company's governance, such as fixing the number of directors and
determining the number of directors constituting a quorum. By reducing the
ability of a potential corporate raider to make changes in the Company's Bylaws
and to reduce the authority of the Board of Directors or impede its ability to
manage the Company, this provision could have the effect of discouraging a
tender offer or other takeover attempt where the ability to make fundamental
changes through bylaw amendments is an important element of the takeover
strategy of the acquiror.
AMENDMENT OF CERTIFICATE OF INCORPORATION. The Company's Certificate of
Incorporation provides that specified provisions contained in the Certificate of
Incorporation may not be repealed, altered, amended or rescinded except upon the
affirmative vote of not less than 66% of the outstanding shares of the Company's
capital stock entitled to vote generally in the election of directors
(considered for this purpose as a single class). This requirement exceeds the
majority vote of the outstanding stock that would otherwise be required by
Delaware law for the repeal or amendment of a certificate provision. The
specific provisions are those (i) governing the calling of special meetings, the
absence of cumulative voting rights and the requirement that stockholder action
be taken only at annual or special meetings, (ii) requiring written notice to
the Company of nominations for the election of directors and new business
proposals, (iii) governing the number of the Company's Board of Directors, the
filling of vacancies on the Board of Directors and classification of the Board
of Directors, (iv) providing the mechanism for removing directors, (v) limiting
the acquisition of 10% or more of the capital stock of the Company (except, with
the prior approval of the Continuing Directors of the Company), (vi) governing
the requirement for the approval of certain Business Combinations involving a
"Related Person," (vii) regarding the consideration of certain nonmonetary
factors in the event of an offer by another party, (viii) providing for the
indemnification of directors, officers, employees and agents of the Company,
(ix) pertaining to the elimination of the liability of the directors to the
Company and its stockholders for monetary damages,
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with certain exceptions, for breach of fiduciary duty, and (x) governing the
required stockholder vote for amending the Certificate of Incorporation or
Bylaws of the Company. This provision is intended to prevent the holders of less
than 66% of the outstanding stock of the Company from circumventing any of the
foregoing provisions by amending the Certificate of Incorporation to delete or
modify one of such provisions. This provision further provides that such repeal,
alteration, amendment or rescission may be made by the affirmative vote of the
holders of a majority of the outstanding shares of capital stock of the Company
entitled to vote generally in the election of directors (considered for this
purpose as a single class) if the same is first approved by a majority of the
Continuing Directors, as defined above.
BENEFIT PLANS. In addition to the provisions of the Company's Certificate
of Incorporation described above, the Company's proposed 1996 Stock Option Plan
contains provisions which also may discourage hostile takeover attempts which
the Boards of Directors of the Company might conclude are not in the best
interests of the Company, or the Company's stockholders. For a description of
the Company's proposed 1996 Stock Option Plan and the provisions of such plan
relating to changes in control of the Company, see "Executive
Compensation-Incentive and Non-qualified Stock Option Plan."
THE PURPOSE OF AND ANTI-TAKEOVER EFFECT OF THE COMPANY'S CERTIFICATE OF
INCORPORATION. The Board of Directors of the Company and believes that the
provisions described above reduce the Company's vulnerability to takeover
attempts and certain other transactions which have not been negotiated with and
approved by its Board of Directors. The Board of Directors of the Company
believes these provisions are in the best interests of the Company and its
stockholders. In the judgment of the Board of Directors of the Company, the
Board is in the best position to consider all relevant factors and to negotiate
for what is in the best interests of the stockholders and the Company's other
constituents. Accordingly, the Boards of Directors of the Company believe that
it is in the best interests of the Company and its stockholders to encourage
potential acquirors to negotiate directly with the Company's Board of Directors
and that these provisions will encourage such negotiations and discourage
non-negotiated takeover attempts.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause great expense. Although a tender offer or
other takeover attempt may be made at a price substantially above then current
market prices, such offers are sometimes made for less than all the outstanding
shares of a target company. As a result, stockholders may be presented with the
alternative of partially liquidating their investment at a time that may be
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disadvantageous, or retaining their investment in an enterprise which is under
different management and whose objectives may not be similar to those of the
remaining stockholders.
Despite the belief of the Company as to the benefits to stockholders of
these provisions of the Company's Certificate of Incorporation, these provisions
may also have the effect of discouraging a future takeover attempt which would
not be approved by the Company's Board, but pursuant to which the stockholders
may receive a substantial premium for their shares over then current market
prices. As a result, stockholders who might desire to participate in such a
transaction may not have any opportunity to do so. Such provisions will also
render the removal of the Company's Board of Directors and management more
difficult and may tend to stabilize the Company's stock price, thus limiting
gains which might otherwise be reflected in price increases due to a potential
merger or acquisition. The Board of Directors, however, has concluded that the
potential benefits of these provisions outweigh the possible disadvantages.
Pursuant to applicable regulations, at any annual or special meeting of its
stockholders, the Company may adopt additional Certificate of Incorporation
provisions regarding the acquisition of its equity securities that would be
permitted to a Delaware corporation.
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PART II
All discussions herein give effect to a 100:1 forward stock split effected on
June 15, 1995 and a 57:1 forward stock split effected for all stockholders of
record as of July 1, 1996, except as otherwise specifically set forth.
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER STOCKHOLDER MATTERS
As of July 23, 1996, there were approximately 35 stockholders of record of
the Company's Common Stock. The Company's Common Stock is not currently listed
for trading.
The transfer agent for the Company's Common Stock is Florida Atlantic
Stock Transfer, Inc., 5701 N. Pine Island Road, Tamarac, Florida 33321.
The Company has never paid cash dividends on its Common Stock. The Company
presently intends to retain future earnings, if any, to finance the expansion of
its business and does not anticipate that any cash dividends will be paid in the
foreseeable future. The future dividend policy will depend on the Company's
earnings, capital requirements, expansion plans, financial condition and other
relevant factors.
ITEM 2. LEGAL PROCEEDINGS.
LEGAL PROCEEDINGS
Premo Litigation.
On December 8, 1994, the Company, as exclusive licensee of certain
patents, and Robert C. Malt, the patent owner, filed an action against Premo
Lubrication Technologies, Inc. ("Premo") and Charles Borzarelli (collectively
the "Defendants") in the United States District Court for the Southern District
of Florida. The Company and Mr. Malt have alleged that the Defendants have
infringed on one of its patents issued on October 14, 1980, and have
manufactured and sold such devices. The Plaintiffs are seeking adjudication that
(i) Defendants have willfully infringed this patent (and requesting damages for
lost profits or, at a minimum, royalties together with an amount equal to three
times these damages plus interest), (ii) Defendants be permanently enjoined from
the making, using or selling the infringing oil reclamation devices and (iii)
infringing devices in Defendants' possession be forfeited.
The Defendants subsequently filed counterclaims, as amended, against
Plaintiffs alleging that (i) the subject patents are unenforceable and,
furthermore, (ii) that under certain legal doctrines the Plaintiffs are barred
from asserting its claims.
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Additionally, the Defendants allege that the Company engaged in antitrust
violations and various kinds of unfair trade practices and that the Company and
certain of its employees have libeled the Defendant's business and unlawfully
interfered with its business relationships. Management believes that it has
meritorious defenses to all of the counterclaims and that they will eventually
prevail in the litigation. However, there can be no assurance that the Company
will prevail in the litigation, and if not, the outcome could have a material
adverse effect on the Company's operations.
STOCKHOLDER LITIGATION.
On August 26, 1994, the Company and its principal stockholder, Richard C.
Ford ("Ford"), filed an action against the representatives of the Estate of
Willard Taylor in the Circuit Court for the Seventeenth Judicial Circuit in
Broward County, Florida. The suit sought a declaratory judgment essentially to
confirm the validity of various issuance's of Common Stock to Ford and members
of his family by the Company in 1994. Prior to the Common Stock issuances, the
Company obtained an independent appraisal of the value of its Common Stock, and
the Fords paid a purchase price consistent with that valuation. The
representatives of the Estate of Willard Taylor have contested the validity of
the Common Stock issuances and the constitution of the Board of Directors, and
filed a counterclaim seeking to invalidate the issuances and the constitution of
the Board of Directors, claiming a breach of fiduciary duty and requesting the
appointment of a receiver.
Additionally, in June 1995, the Estate demanded repayment of its advances
to the Company in the amount of $502,026 (and $268,742 of advances made to T/F
Systems, Inc. which have not been assumed by the Company pursuant to the
purchase of assets of T/F Systems, Inc.), although no litigation related to this
demand has been filed to date. Management of the Company believes that such
advances are not currently due to the Estate and will contest the required time
of repayment of such advances if any suit related thereto is commenced by the
Estate. In a separate related action, the Estate is also seeking repayment of
certain loans made to Richard C. Ford by Willard Taylor prior to Mr. Taylor's
death in the principal amount of $508,250 which, in turn, were also advanced to
the Company by Ford.
The ultimate outcome of this litigation and demand for the repayment of
the stockholder loans cannot currently be determined. However, management
believes it has meritorious defenses to the counterclaims and current demand for
repayment, and will eventually prevail in its declaratory action and that the
repayment of loans would not result in the current payment of such amounts.
However, in the event an unfavorable outcome against the companies is rendered
in this litigation, the possible remedies may include the redistribution and
rescission of certain stock transactions with
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the Ford family, and possible reconstitution of the Board of Directors. Based
upon the initial pleadings by defendants, it does not appear that a sizable
judgment against the companies for money damages is presently being sought by
the Taylor representatives. Any judgment for money damages, based upon the
pleadings filed thus far, would conceivably be against Richard C. Ford,
individually.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not Applicable.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
On June 15, 1995, the Company undertook a 100 for one (100:1) forward stock
split of its Common Stock (the "1995 Forward Split") and on July 1, 1996, the
Company effected a fifty-seven for one (57:1) forward stock split of its Common
Stock (the "1996 Forward Split"). All figures set forth below give effect to the
1995 Forward Split and the 1996 Forward Split.
On February 10, 1994, the Company issued 5700 shares of Common Stock to Richard
C. Ford in exchange for convertible notes in the amount of $1,750. The issuance
of the share was exempt from the registration requirements of the Securities Act
of 1933, as amended (the "Act") pursuant to Section 4(2) of the Act.
On June 2, 1994, the Company issued 535,800 shares of Common Stock to
Richard C. Ford in exchange for convertible notes in the amount of $164,500. The
issuance of such shares was exempt from the registration requirements of the Act
pursuant to Section 4(2) of the Act.
On August 12, 1994, the Registrant issued 62,700 shares, 62,700 shares and
62,700 shares of Common Stock to Richard J. Ford (the Vice President of the
Company), Jennifer D. Ford and Traci M. Ford, respectively in exchange for
convertible notes in the amount of $19,250, $19,250 and $19,250, respectively.
The issuance of such Shares was exempt from the registration requirements of the
Act pursuant to Section 4(2) of the Act. Richard J. Ford, Jennifer D. Ford and
Traci M. Ford are the children of Richard C. Ford, the Company's President and
Chief Executive Officer.
On December 7, 1994, the Company issued 45,600 shares, 45,600 shares and
45,600 shares of Common Stock to Richard J. Ford (the Vice President of the
Company), Jennifer D. Ford and Traci M. Ford respectively in exchange for
convertible notes in the amount of $14,000, $14,000 and $14,000, respectively.
The issuance of such Shares was exempt from the registration requirements of the
Act pursuant to Section 4(2) of the Act.
On June 5, 1995, the Company issued 11,400 shares and 11,400 shares of
Common Stock to an employee of the Company and to Catherine Ford, respectively,
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in exchange for promissory notes and cash of $3,501, and $3,501, respectively.
The issuance of such Shares was exempt from the registration requirements of the
Act pursuant to Section 4(2) of the Act. Mrs. Ford is the wife of Richard C.
Ford, the Company's President and Chief Executive Officer.
On June 15, 1995 and July 1, 1996, pursuant to recapitalizations effected
by amendments to the Articles of Incorporation, the Company issued an aggregate
of 1,310,886 shares of Common Stock to it its existing stockholders in exchange
for all issued and outstanding Common Stock. The issuance of such shares
pursuant to the recapitalization was exempt from the registration requirements
of the Act pursuant to Section 3(A)(9) of the Act.
Between approximately March 23, 1996 and May 16, 1996, the Company issued
an aggregate of 157,377 shares of Common Stock to investors in the offering of
the Company's Common Stock pursuant to Rule 506 of Regulation D of the Act. The
Company received gross proceeds of $594,000 from this private offering.
On May 20, 1996, the Company issued 7,239 shares and 29,070 shares to
Robert Meyer (an employee of the Company) and Byron Lefebvre (a director and
employee of the Company), respectively, in exchange for all of the outstanding
shares of D.B. Filters, Inc. D.B. Filters, Inc.'s only material assets are
certain future royalty rights and limited North American filter Element
manufacturing rights.
Between July 15 and July 23, 1996, pursuant to the Company's offer and
sale of Common Stock at $5.00 per share, pursuant to Rule 504 of Regulation D of
the Act, the Company has accepted subscriptions for an aggregate of 19,600
shares and received gross proceeds of $98,000 as of July 23, 1996.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article X of the Company's Amended and Restated Certificate of
Incorporation provide for indemnification of officers and directors. The
specific provision of the Amended and Restated Certificate of Amendment related
to such indemnification is as follows:
A. PERSONS. The Corporation shall indemnify, to the extent
provided in paragraphs B, D or F:
(1) any person who is or was a director, officer, employee, or
agent of the Corporation; and
(2) any person who serves or served at the Corporation's request
as a director, officer, employee, agent, partner or trustee of
40
<PAGE>
another corporation, partnership, joint venture, trust or
other enterprise.
B. EXTENT -- DERIVATIVE SUITS. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify him if he satisfied the standard in paragraph C,
for expenses (including attorneys' fees but excluding amounts paid in
settlement) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit.
C. STANDARD -- DERIVATIVE SUITS. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject
of the suit or action, and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the
Corporation, including, but not limited to, the taking of any
and all actions in connection with the Corporation's response
to any tender offer or any offer or proposal of another party
to engage in a Business Combination and approved by the Board
of Directors. However, he shall not be indemnified in respect
of any claim, issue or matter as to which he has been adjudged
liable to the Corporation unless (and only to the extent that)
the court in which the suit was brought shall determine, upon
application, that despite the adjudication but in view of all
the circumstances, he is fairly and reasonably entitled to
indemnity for such expenses a the court shall deem proper.
D. EXTENT -- NONDERIVATIVE SUITS. In case of a threatened, pending or
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a Nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfied the standard in paragraph E, for
amounts actually and reasonably incurred by him in connection with the defense
or settlement of the nonderivative suit, including, but not limited to (i)
expenses (including attorneys' fees), (ii) amounts paid in settlement, (iii)
judgments, and (iv) fines.
41
<PAGE>
E. STANDARD -- NONDERIVATIVE SUITS. In case of a nonderivative suit, a
person named in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject
of the nonderivative suit and in a manner he reasonably
believed to be in, or not opposed to, the best interests of
the Corporation, including, but not limited to, the taking of
any and all actions in connection with the Corporation's
response to any tender offer or any offer or proposal of
another party to engage in a Business Combination not approved
by the Board of Directors and, with respect to any criminal
actions or proceeding, he had no reasonable cause to believe
his conduct was unlawful. The termination of a nonderivative
suit by judgment, order, settlement, conviction, or upon a
plea of no lo contendere or its equivalent shall not, in
itself, create a presumption that the person failed to satisfy
the standard of this subparagraph E(2).
F. DETERMINATION THAT STANDARD HAS BEEN MET. A determination that the
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in subpara- graph C(2) (second sentence), the determination may
be made by:
(1) the Board of Directors by a majority vote of a quorum
consisting of directors of the Corporation who were not
parties to the action, suit or proceeding; or
(2) independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a
quorum) in a written opinion; or
(3) the stockholders of the Corporation.
G. PRORATION. Anyone making a determination under paragraph F may
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. ADVANCE PAYMENT. The Corporation shall pay in advance any expenses
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the Board of Directors authorizes the specific payment; and
42
<PAGE>
(2) the person receiving the payment undertakes in writing to
repay the same if it is ultimately determined that he is not
entitled to indemnification by the Corporation under
paragraphs A through G.
I. NONEXCLUSIVE. The indemnification and advance payment of expenses
provided by paragraphs A through H shall not be exclusive of any other rights to
which a person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. CONTINUATION. The indemnification provided by this Article X shall
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article X
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to his heirs, executors and administrators.
K. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in paragraph
A, against any liability incurred by him in any such position, or arising out of
his status as such, whether or not the Corporation would have power to indemnify
him against such liability under paragraphs A through H.
L. INTENTION AND SAVINGS CLAUSE. It is the intention of this Article X
to provide for indemnification to the fullest extent permitted by the General
Corporation Law of the State of Delaware, and this Article X shall be
interpreted accordingly. If this Article X or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settle with respect to
any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article X that shall not
have been invalidated and to the full extent permitted by applicable law. If the
General Corporation Law of the State of Delaware is amended, or other Delaware
law is enacted, to permit further or additional indemnification of the persons
defined in this Article X A, then the indemnification of such persons shall be
to the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended, or such other Delaware law.
43
<PAGE>
Article XI of the Company's Amended and Restated Article of Incorporation
sets forth the limitations on directors" liability as follows:
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except: (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions that are not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived any improper personal benefit.
If the General Corporation Law of the State of Delaware or other Delaware
law is amended or enacted after the date of filing of this Certificate to
further eliminate or limit the personal liability of directors, then the
liability of a director of the Corporation shall be eliminated or limited
to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as amended, or such other Delaware law. Any repeal or
modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or
modification.
The above indemnification provisions notwithstanding, the Company is aware
that insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
Company pursuant to the foregoing provisions, the Company has been informed that
in the opinion of the Securities and Exchange Commission, such indemnification
is against public policy as express in the act and is therefore unenforceable.
PART F/S
The financial statements and supplementary data are included herein.
FINANCIAL STATEMENTS AND EXHIBITS
The following audited Financial Statements for the Company, including the
audited balance sheet at December 31, 1995 and the related audited statements of
operations, changes in capital deficiency, and cash flows for each of the years
in the two year period ended December 31, 1995 and the unaudited balance sheet
at March 31, 1996 and the related unaudited statements of operations, changes in
capital deficiency, and cash flows for each of the three months ended March 31,
1996 and March 31, 1995.
44
<PAGE>
T/F Purifiner, Inc.
Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors................................................F-2
Audited Financial Statements
Balance Sheet as of December 31, 1995.........................................F-3
Statements of Operations for the years ended December 31, 1994 and 1995.......F-4
Statements of Changes in Capital Deficiency for the years ended
December 31, 1994 and 1995..............................................F-5
Statements of Cash Flows for the years ended December 31, 1994 and 1995.......F-6
Notes to Financial Statements................................................F-7
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
Board of Directors and Shareholders
T/F Purifiner, Inc.
We have audited the accompanying balance sheet of T/F Purifiner, Inc. as at
December 31, 1995, and the related statements of operations, changes in capital
deficiency and cash flows for each of the years in the two-year period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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, the financial statements enumerated above present fairly, in all
material respects, the financial position of T/F Purifiner, Inc. as at December
31, 1995 and the results of its operations and its 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 financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has sustained recurring operating losses, a
working capital deficiency, negative cash flows from operating activities and a
stockholders' capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this undertainty.
/s/Richard A. Eisner & Company, LLP
New York, New York
May 24, 1996
With respect to Note 5
July 1, 1996
F-2
<PAGE>
T/F Purifiner, Inc.
Balance Sheet
December 31, 1995
Assets
Current assets:
Cash $ 31,732
Trade accounts receivable, net of allowance for doubtful
accounts of $3,100 84,122
Inventories 169,627
Prepaid expenses and other current assets 7,949
-----------
Total current assets 293,430
Property and equipment, net 94,616
Patents and trademarks, net of $6,377 of accumulated
amortization 112,516
Other assets 19,100
-----------
$ 519,662
===========
Liabilities and capital deficiency Current liabilities:
Accounts payable - trade $ 163,657
Accrued expenses 165,358
Customer deposits and other 149,487
Note payable - related party 101,804
Accrued interest and other payables - related parties 61,663
Current portion of note payable and capital lease obligation 8,339
Shareholder loans 537,239
-----------
Total current liabilities 1,187,547
Note payable and capital lease obligation 13,994
Other note payable and accrued interest 211,835
Deferred rent 22,293
Liability to equity investee 33,105
Shareholder loans 502,026
-----------
Total liabilities 1,970,800
Commitments and contingencies
Capital deficiency:
Common Stock, $.001 par value, 20,000,000 shares authorized,
1,117,200 shares issued and outstanding 1,117
Additional paid-in-capital 962,375
Accumulated deficit (2,407,630)
Subscription receivables (7,000)
-----------
(1,451,138)
-----------
$ 519,662
===========
See accompanying notes to financial statements
F-3
<PAGE>
T/F Purifiner, Inc.
Statements of Operations
Years ended December 31, 1994 and 1995
1994 1995
---- ----
Net sales $ 1,038,960 $ 1,480,037
Cost of sales 480,834 712,714
----------- -----------
Gross profit 558,126 767,323
Operating expenses:
Selling 477,470 616,569
General and administrative 491,094 531,646
----------- -----------
968,564 1,148,215
----------- -----------
Operating loss (410,438) (380,892)
Other expenses:
Interest expense (9,952) (28,915)
Other (3,807) --
----------- -----------
Net loss $ (424,197) $ (409,807)
=========== ===========
Loss per common share $ (.68) $ (.37)
=========== ===========
Weighted average common shares outstanding 628,311 1,107,510
=========== ===========
See accompanying notes to financial statements.
F-4
<PAGE>
T/F Purifiner, Inc.
Statements of Changes
in Capital Deficiency
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-In- Accumulated Subscription Capital
Shares Amount Capital Deficit Receivables Deficiency
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 228,000 $ 228 $ 559,256 $(1,573,626) $ -- $(1,014,142)
Transaction by TFS - pooled company -- -- 133,000 -- -- 133,000
Conversion of shareholder
and related party loans 866,400 866 265,134 -- -- 266,000
Net loss -- -- -- (424,197) -- (424,197)
-----------------------------------------------------------------------------
Balance at December 31, 1994 1,094,400 1,094 957,390 (1,997,823) -- (1,039,339)
Issuance of common stock,
net of issuance costs 22,800 23 4,985 -- (7,000) (1,992)
Net loss -- -- -- (409,807) -- (409,807)
-----------------------------------------------------------------------------
Balance at December 31, 1995 1,117,200 $ 1,117 $ 962,375 $(2,407,630) $ (7,000) $(1,451,138)
=============================================================================
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
T/F Purifiner, Inc.
Statements of Cash Flows
Years ended December 31, 1994 and 1995
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Operating activities
Net loss $(424,197) $(409,807)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 1,122 5,255
Depreciation and amortization of property and equipment 19,695 25,823
Loss on disposal of equipment 2,831 --
Changes in operating assets and liabilities:
Trade accounts receivable, net (17,785) (26,490)
Inventories 113,962 (12,729)
Prepaid expenses and other current assets (13,688) 8,839
Other assets (700) (15,300)
Accounts payable - trade (66,513) 27,648
Accrued expenses 43,787 76,051
Customer deposits and other 39,750 86,572
Accrued interest and other payables - related parties 9,186 52,477
Deferred rent 18,334 3,959
--------- ---------
Net cash used in operating activities (274,216) (177,702)
Investing activities
Patents and trademarks (26,694) (92,199)
Purchases of property and equipment (66,057) (16,302)
--------- ---------
Net cash used in investing activities (92,751) (108,501)
Financing activities
Payment of issuance costs -- (1,992)
Proceeds from notes payable 9,867 495,000
Payment on notes payable and capital lease obligation (3,054) (199,676)
Proceeds from shareholder loans 462,614 75,500
Payment on shareholder loans (118,400) (85,000)
Borrowing from investee -- 51,340
Repayment to investee -- (18,235)
--------- ---------
Net cash provided by financing activities 351,027 316,937
--------- ---------
(Decrease) increase in cash (15,940) 30,734
Cash balance at beginning of year 16,938 998
--------- ---------
Cash balance at end of year $ 998 $ 31,732
========= =========
Cash paid for interest $ 766 $ 13,052
========= =========
</TABLE>
During 1994 and 1995, the Company entered into capital lease obligations in the
amounts of approximately $20,000 and $2,000, respectively. See Notes 4 and 5 for
description of issuance's of Common Stock.
See accompanying notes to financial statements.
F-6
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements
December 31, 1994 and 1995
1. The Company and Summary of Significant Accounting Policies
The Company
T/F Purifiner Inc. ("TFP" or the "Company"), a Delaware corporation, is engaged
in the manufacturing, distribution and sale of electric mobile oil purification
systems under the trademark "Purifiner" (See Note 11).
The Company holds the exclusive worldwide manufacturing and marketing rights for
the Purifiner products pursuant to various patents (see Note 8). Additionally,
TFP is the owner of pending patents for an improved filtration system and filter
element.
The Company has incurred recurring losses from operations since inception, which
has resulted in cash flow difficulties and the continuing need for additional
financing. These factors raise substantial doubt about the Company's ability to
continue as a going concern. In order to continue as a going concern, the
Company must obtain additional financing, which it is endeavoring to do through
the issuance of additional securities.
The Company is in the process of completing a $400,000 private placement of its
Common Stock and expects to complete additional financings. However, there is no
assurance that the Company can complete these proposed issuances or that it can
obtain adequate additional financing from other sources or that profitable
operations can be sustained. The financial statements do not include any
adjustments relating to the recoverability of recorded asset amounts that might
be necessary as a result of the above 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 differ from those estimates.
Revenue Recognition
Sales are recognized upon shipment. Cash received by the Company prior to
shipment is recorded as a customer deposit. Sales are made to certain customers
F-7
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Revenue Recognition (continued)
under terms allowing certain limited rights of return and other limited product
and performance warranties for which no provision has been made in the
accompanying financial statements. Management believes, based on past experience
and future expectations, that such limited return rights and warranties will not
have a material adverse effect on the Company's financial statements.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
Property and Equipment
Property and equipment is stated at cost. Depreciation is provided using the
straight-line method over the estimated useful lives of the related assets.
Leasehold improvements are amortized over the shorter of the useful lives of the
improvement or the term of the related lease. The estimated useful lives of
property and equipment is 5 years.
Patents and Trademarks
Patents and trademarks are stated at cost, including legal costs incurred to
defend patent rights, and are amortized using the straight-line method over 10
to 15 years.
Engineering and Development
In 1994 and 1995, engineering and development expenses were approximately
$55,000 and $61,000, respectively, and are expensed as incurred.
Impact of Recently Issued Accounting Standards
The Company has adopted the provisions of Financial Accounting Standards Board
Statement ("FASB") No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of" in the first quarter of 1996. FASB
121 requires impairment losses to be recorded on long-lived assets (i.e.:
property and equipment and patent and trademarks) used in operations when
impairment indicators are present and undiscounted cash flows estimated to be
generated by those assets are less than the asset's carrying amount. Based on
current circumstances, the adoption of FASB 121 will not have a material effect
on the Company's financial statements.
F-8
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Impact of Recently Issued Accounting Standards (continued)
In October 1995, FASB No. 123 was issued which introduces a preferable
fair-value based method of accounting for stock-based compensation to employees
and for stock-based arrangements with non-employees. At a minimum, the new
Statement expands required disclosures of stock-based compensation arrangements
with employees and encourages, but does not require, application of the
fair-value recognition provisions in the Statement for stock-based compensation
to employees. The Company anticipates no material effect on its financial
position or results of operations from this new standard which will become
effective in 1996 and will continue to follow the existing accounting standards
for these types of plans.
Credit Risk
The Company minimizes the concentration of credit risk associated with cash by
maintaining its cash with a high quality federally insured financial
institution.
The Company performs ongoing evaluations of its significant trade accounts
receivable customers and generally does not require collateral. An allowance for
doubtful accounts is maintained against trade accounts receivable at levels
which management believes are sufficient to cover potential credit losses. (See
Note 10.)
Loss per Share
Loss per share is calculated by dividing net loss by the weighted average number
of common shares outstanding during each period.
Income Taxes
The Company has elected to be treated as an "S" corporation under the provisions
of the Internal Revenue Code ("IRC"). Accordingly, its taxable income or loss is
includable in the current taxable income of its shareholders, and no federal or
F-9
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
1. The Company and Summary of Significant Accounting Policies (continued)
Income Taxes (continued)
state income tax provision or benefit has been recorded in the accompanying
financial statements. The differences between financial statement loss and
taxable loss related primarily to the treatment of the gain recognized for tax
purposes upon the acquisition of TF Systems, Inc. and the timing of the
deductibility of certain related party accrued expenses. At December 31, 1995,
the Company's tax basis in its inventories and manufacturing rights acquired
from TF Systems, Inc. were approximately $215,000 in excess of their financial
statement basis.
If the Company had been subject to corporate income taxes for 1994 and 1995, it
would not have recorded any income tax expense or benefit in its statements of
operations. On April 1, 1996, the Company ceased to qualify under Subchapter S
of the IRC and, accordingly, is subject to corporate income taxes commencing
April 1, 1996.
2. Inventories
At December 31, 1995, inventories consist of the following:
Raw materials $99,611
Finished goods 57,819
Supplies 12,197
----------
$169,627
==========
3. Property and Equipment
At December 31, 1995, property and equipment consists of the following:
Machinery and equipment $130,415
Furniture and fixtures 23,007
Leasehold improvements 30,030
----------
183,452
Less accumulated depreciation and
amortization (88,836)
----------
$ 94,616
==========
F-10
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
3. Property and Equipment (continued)
At December 31, 1995, machinery and equipment includes approximately $22,000 of
equipment held under a capital lease with related accumulated amortization of
approximately $6,200.
4. Shareholder Loans
At December 31, 1995, the Company had a total of $1,004,052 of unsecured
noninterest bearing shareholder loans payable equally to its principal
shareholder and the estate of a former shareholder. There are no stated due
dates for these shareholder loans. During 1994, the Company and its principal
shareholder instituted legal action against the estate of a former 50% owner of
the Company. This litigation sought a declaratory judgment approving the
dilution of the Estate's interest in the Company from 50% to approximately 10%
as a result of the issuance of additional Common Stock in 1994 to the principal
shareholder and his children. Subsequently, the beneficiaries of the estate
filed counterclaims against the Company and its principal shareholder and his
children seeking declaratory relief, cancellation of additional stock issuances
by the Company, an injunction against further issuances, appointment of a
receiver and damages against Ford individually. In June 1995, the estate
demanded repayment of the shareholder loans due to the estate ($502,026 at
December 31, 1995). The ultimate outcome of this litigation and demand for the
repayment of the shareholder loans cannot currently be determined, however,
management believes it has meritous defenses to the counterclaims and current
demand for repayment and would eventually prevail in its declaratory action and
that the repayment of loans would not result in the current payment of such
amounts. However, in the event an unfavorable outcome against the Company is
rendered, the possible remedy will include the redistribution and rescission of
certain stock transactions with the Ford family. Such loans have been classified
as current in the accompanying balance sheet. The principal shareholder has
agreed not to demand repayment of his loans in the amount of $502,026 prior to
April 1, 1997 and, accordingly, such loans have been classified as long-term in
the accompanying balance sheet.
At December 31, 1995, the Company had a total of $35,213 of unsecured loans due
to its principal shareholder bearing interest at 10% per annum. These loans were
repaid in April 1996. During 1994 and 1995, the Company incurred approximately
$9,000 and $4,000, respectively, of interest expense related to these loans.
F-11
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
4. Shareholder Loans (continued)
During 1994, $266,000 of outstanding convertible notes payable were converted by
the principal shareholder and his children into 866,400 shares of T/F Purifiner,
Inc. Common Stock based upon the estimated fair value of such Common Stock.
At December 31, 1995, the Company had outstanding notes payable to a shareholder
of $101,804, which bear interest at 10% per annum ($9,711 in 1995) and are
collateralized by substantially all the assets of the Company. The notes are a
primary obligation of the principal shareholder and are due on demand.
5. Common Stock
In June 1995, pursuant to agreements entered into on December 15, 1994, TFP
issued an aggregate of 22,800 shares of its Common Stock to two employees, one
of which is related to the principal shareholder, for their estimated fair value
at December 15, 1994 of $7,000. The Company agreed to provide additional
compensation, including the effect of tax consequences, to such parties in order
for them to repay the subscription receivables, prior to their December 31, 1996
due date. On June 6, 1995, the Board of Directors of the Company approved an
increase in authorized shares from 2,000 to 100,000, approved a change in the
par value of Common Stock from no par value to $.01 par value, and approved a
100 to 1 stock split.
On July 1, 1996, the Board of Directors of the Company approved an increase in
authorized Common Stock from 100,000 to 20,000,000, approved a change in the par
value of Common Stock from $.01 par value to $.001 par value and approved a 57
to 1 stock split distribution for common shareholders of record on such date.
All share and per share data presented in the accompanying financial statements
have been restated to reflect the above actions.
6. Leases
In August 1993, TFP entered into a five-year noncancelable operating lease
agreement, as amended, for the Company's manufacturing, warehouse and office
facilities. The lease commenced on April 1, 1994, with payments commencing on
July 1, 1994 and increasing lease payments over the second through fourth years
of its term. The Company has accounted for these lease payments related to this
facility using the straight-line method over the term of this lease and recorded
a deferred rent payable. At December 31, 1995, the schedule of future minimum
lease payments under this lease is as follows:
F-12
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
6. Leases (continued)
1996 $78,000
1997 85,000
1998 87,000
1999 22,000
---------
$272,000
=========
Total rent expense was approximately $53,000 and $75,000 for 1994 and 1995,
respectively.
In December 1994 and February 1995, the Company also entered into a four year
lease obligation for certain office equipment which has been accounted for as a
capital lease. At December 31, 1995, future minimum commitments under this
noncancelable capital lease are as follows:
1996 $7,114
1997 7,114
1998 7,114
1999 1,779
---------
Total minimum lease payments 23,121
Less amount representing interest at 12% (4,781)
Present value of minimum lease payments ---------
($5,520 due in 1996) $ 18,340
=========
7. Notes Payable
At December 31, 1995, the Company has an outstanding note payable,
collateralized by certain equipment, in the amount of $3,993. This note bears
interest at 6.75% per annum and is due in monthly installments of principal and
interest of $265 through 1997.
At December 31, 1995, the Company has an outstanding note payable,
collateralized by a partial interest in any future dividends from its joint
venture established in 1996 (see Note 13), in the amount of $200,000 plus
$11,835 of accrued interest. The note bears interest at 10% per annum and both
principal and interest are due on January 15, 1997. This note is also a primary
obligation of the principal shareholder.
F-13
<PAGE>
TF Purifiner, Inc.
Notes to Financial Statements (continued)
8. Royalties
In connection with the Company being granted worldwide manufacturing and
marketing rights for certain of the Purifiner products in 1990, a royalty
agreement was entered into, the term of which mirrors the life of the related
patents or any improvements thereto. Pursuant to the royalty agreement, the
owner of the patents will receive 5% of the units net sale price, as defined, of
all covered Purifiner products, as defined. Additionally, 1% of the net sales
price of replacement oil filter elements will be paid as a royalty for the use
of the Purifiner U.S.
trademark.
In May 1994, the Company and the patent owner entered into a settlement
agreement relating to the appropriate method of calculating and disbursing both
future and retrospective royalties. As a result of this agreement, the patent
owner is entitled to a minimum annual royalty of $24,000, payable in monthly
installments of $2,000. The monthly royalty may exceed, but never be less than
$2,000, unless the current calendar year monthly average is more than $2,000.
Royalty expense for 1994 and 1995 was approximately $44,000 and $49,000,
respectively.
9. Contingencies
During 1995, the Company commenced a patent infringement case against a
competitor. The competitor subsequently asserted certain counterclaims against
the Company and certain of its employees. The ultimate outcome of these
counterclaims cannot currently be determined at this time but the Company
believes it has meritious defenses and will eventually prevail in these actions.
In April 1996, the Company became a party to an action filed by a former
independent contractor claiming certain commissions and other damages due him
pursuant to an agreement. Pursuant to the agreement, the Company is seeking to
resolve this case through arbitration and, although the ultimate outcome of this
matter cannot be determined at this time, the Company believes it has meritious
defenses and will eventually prevail in this matter.
10. Major Customers and Export Sales
The Company currently operates in a single business segment and its products are
electric mobile oil purification systems, substantially all of which are sold to
distributors and end users for use on transportation vehicles. This could
unfavorably affect the Company's overall exposure to credit risk in as much as
these customers could be affected by similar economic or other conditions.
During 1995, six customers accounted for approximately 36% of the Company's net
sales, one of which accounted for approximately 14% of this amount. In 1995,
export sales aggregated approximately $821,000 in geographic regions as follows:
F-14
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
10. Major Customers and Export Sales (continued)
South American ($343,000), European ($241,000), Asia/Pacific ($207,000) and
others ($30,000). During 1994, six customers accounted for approximately 36% of
the Company's net sales, none of which was in excess of 10%. In 1994, export
sales amounted to approximately $503,000 in geographic regions as follows: South
American ($276,000), European ($27,000), Asia/Pacific ($178,000) and others
($22,000). The loss of business from one or a combination of the Company's
significant customers could adversely effect its operations. During 1994 and
1995, the Company had net sales of approximately $91,000 and $8,400 to an
affiliate of a minority shareholder.
11. Acquisition of T/F Systems, Inc.
On December 31, 1995, TFP purchased all the operating assets and assumed all the
operating liabilities for T/F Systems, Inc. ("TFS"), except for TFS's
shareholder loans of $537,484, and TFS's assets and liabilities related to an
ongoing litigation matter. TFP assigned all its rights and interests to such
litigation matter in return for TFS's net operating assets. During 1994,
$133,000 of outstanding convertible notes payable due to the principal
shareholder and his children were converted into TFS equity and, accordingly,
such amount is included in the accompanying 1994 statement of changes in capital
deficiency as a TFS equity transaction. This transaction has been accounted for
in a manner similar to a pooling-of-interests and, accordingly, all financial
statements have been retroactively restated to include the acquired assets,
liabilities and operations of TFS, except as stated above. Both TFP and TFS were
under common control and have the same shareholders.
Prior to this acquisition, TFS owned the exclusive manufacturing rights for the
Purifiner products and TFP held the marketing rights which were granted to TFP
by TFS. TFS's only revenues were sales of product to TFP which have been
eliminated in accounting for this acquisition. The net losses of TFP and TFS's
acquired operations for 1994 were $351,691 and $72,506, respectively, for an
aggregate net loss of $424,197.
12. Financial Instruments
At December 31, 1995, the carrying amounts and estimated fair values of the
Company's financial instruments which consist of debt, excluding capital leases
and $502,026 of shareholder loans, approximated $844,000 due to the short-term
maturity and interest rates of these instruments. Due to the nature of the
noninterest bearing current shareholder loans of $502,026, the Company is unable
to determine its fair value (See Note 4). The fair market value of cash,
accounts receivable and accounts payable approximates the carrying amounts.
F-15
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
13. Subsequent Events
Effective January 1, 1996, the Company entered into a joint venture agreement
whereby such venture, TF Purifiner Ltd. ("Ltd"), will sell and distribute the
Company's product in Europe, the Middle East and certain African countries. The
Company has an approximate 45% interest in Ltd's operations (50% voting
interest) and will account for Ltd using the equity method. The Company is not
required to fund Ltd and will sell product to Ltd until such time as Ltd decides
to exercise its rights under the agreement to manufacture the Company's
products. Ltd was initially capitalized with approximately $88,000 provided by
one of its shareholders. In December 1995, Ltd advanced the Company
approximately $51,000 to be used to fund certain patent and trademark filings
for the venture's exclusive territory. At December 31, 1995, $33,105 remained
unexpended. During 1995, the Company had sales of approximately $85,000 to one
of Ltd's shareholders, prior to forming this venture, at negotiated prices, and
$14,011 of such amount was included in trade accounts receivable at December 31,
1995.
Subsequent to December 31, 1995, the Company sold 157,377 shares of its Common
Stock for $594,000. The subscription agreements provide that if the Company has
not registered any amount of any class of its Common Stock under the Securities
Act of 1933 or the Securities and Exchange Act of 1934, as amended, within two
years, the shareholders have an option to put the shares back to the Company at
their original purchase price plus 10% per annum from the date of issuance. If
the shareholders exercise their put options the put option purchase price will
be funded from dividends received from Ltd or from excess available cash of the
Company as determined by its Board of Directors. Accordingly, such Common Stock
will be treated as Redeemable Common Stock until the expiration of the put
options. The redemption price will be accreted at the rate of 10% and charged to
additional paid in capital.
On May 20, 1996, the Company acquired all the common stock of DB Filters, Inc.,
an inactive company ("DB Filters"), for $1,275 in cash and 36,309 shares of its
Common Stock with an estimated fair value of approximately $137,000. DB Filters
was owned by two employees of the Company, one of which was also a Director. DB
Filter's only assets were the future royalties related to the Company's patent
pending filter technology and certain restricted, as defined, North American
filter manufacturing rights ("Rights"). The Company will account for this
acquisition using the purchase method of accounting. DB Filters had no material
assets or liabilities at December 31, 1994 and 1995 and no material operations
in 1994 and 1995.
F-16
<PAGE>
T/F Purifiner, Inc.
Contents
Unaudited Condensed Interim
Financial Statements
Page
----
Condensed Balance Sheet as of March 31, 1996...........................F-18
Condensed Statements of Operations for the three
months ended March 31, 1995 and 1996..............................F-19
Condensed Statement of Changes in Redeemable
Common Stock and Capital Deficiency
for the three months ended March 31, 1996.........................F-20
Condensed Statements of Cash Flows for the three
months ended March 31, 1995 and 1996..............................F-21
Notes to Condensed Financial Statements................................F-22
F-17
<PAGE>
T/F Purifiner, Inc.
Condensed Balance Sheet
March 31, 1996
(Unaudited)
Assets
Current assets:
Cash $ 88,417
Trade accounts receivable, net 77,405
Inventories 170,929
Prepaid expenses and other current assets 19,719
-----------
Total current assets 356,470
Property and equipment, net 103,813
Patents and trademarks, net 111,054
Other assets 50,499
-----------
$ 621,836
===========
Liabilities and capital deficiency Current liabilities:
Accounts payable - trade 165,690
Accrued expenses 99,039
Customer deposits and other 151,010
Note payable - related party 100,499
Accrued interest and other payables-related parties 71,203
Current portion of notes payable and capital lease obligation 225,175
Shareholder loans 523,739
-----------
Total current liabilities 1,336,355
Notes payable and capital lease obligation 31,471
Deferred rent 21,798
Liability to equity investee 20,367
Shareholder loans 502,026
Redeemable common stock 311,917
Contingencies
Capital deficiency:
Common Stock, $.001 par value 1,117
Additional paid-in-capital 949,246
Accumulated deficit (2,545,461)
Subscription receivables (7,000)
-----------
(1,602,098)
-----------
$ 621,836
===========
See accompanying notes to financial statements
F-18
<PAGE>
T/F Purifiner, Inc.
Condensed Statements of Operations
Three Months Ended March 31, 1995 and 1996
(Unaudited)
1995 1996
---- ----
Net sales $ 191,650 $ 428,627
Cost of sales 92,375 268,338
----------- -----------
Gross profit 99,275 160,289
Operating expenses:
Selling 157,963 147,378
General and administrative 118,816 129,921
Deferred profit -- 11,950
----------- -----------
276,779 289,249
----------- -----------
Operating loss (177,504) (128,960)
Interest expense (2,589) (8,871)
----------- -----------
Net loss $ (180,093) $ (137,831)
=========== ===========
Loss per common share $ (.16) $ (.12)
=========== ===========
Weighted average common shares outstanding 1,094,400 1,117,200
=========== ===========
See accompanying notes to financial statements.
F-19
<PAGE>
T/F Purifiner, Inc.
Condensed Statements of Changes
in Redeemable Common Stock and Capital Deficiency
(Unaudited)
<TABLE>
<CAPTION>
Redeemable
Common Stock Common Stock Additional Total
------------- --------------- Paid-In- Accumulated Subscription Capital
Shares Amount Shares Amount Capital Deficit Receivables Deficiency
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 - $ - 1,117,200 $1,117 $962,375 $(2,407,630) $(7,000) $(1,451,138)
Proceeds from sale of
redeemable common stock,
net 81,966 309,375 - - (10,587) - - (10,587)
Accrued interest on redeemable
common stock - 2,542 - - (2,542) - - (2,542)
Net loss - - - - - (137,831) - (137,831)
----------------------------------------------------------------------------------------
Balance at March 31, 1996 81,966 $311,917 1,117,200 $1, 117 $949,246 $(2,545,461) $(7,000) $(1,602,098)
========================================================================================
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
T/F Purifiner, Inc.
Condensed Statements of Cash Flows
Three months ended March 31, 1995 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1995 1996
---- ----
<S> <C> <C>
Operating activities
Net loss $(180,093) $(137,831)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization 817 2,568
Depreciation and amortization of property and equipment 7,371 7,561
Changes in operating assets and liabilities:
Trade accounts receivable, net (19,206) 6,717
Inventories (85,617) (1,302)
Prepaid expenses and other current assets (2,828) (11,770)
Other assets 700 (5,368)
Accounts payable - trade 34,890 2,033
Accrued expenses (27,912) (66,319)
Customer deposits and other 175,099 6,678
Accrued interest and other payables - related parties 1,045 9,540
Deferred rent 1,485 (495)
--------- ---------
Net cash used in operating activities (94,249) (187,988)
Investing activities
Patents and trademarks (20,413) (1,106)
Purchases of property and equipment (4,209) (16,758)
--------- ---------
Net cash used in investing activities (24,622) (17,864)
Financing activities
Increase in deferred insurance costs -- (26,031)
Proceeds from redeemable common stock, net -- 298,788
Proceeds from notes payable 185,000 20,000
Payment on notes payable and capital lease obligation (55,967) (3,982)
Proceeds from shareholder loans 50,000 --
Payment on shareholder loans (60,000) (13,500)
Repayment to investee -- (12,738)
--------- ---------
Net cash provided by financing activities 119,033 262,537
--------- ---------
Increase in cash 162 56,685
Cash balance at beginning of period 998 31,732
--------- ---------
Cash at end of period $ 1,160 $ 88,417
========= =========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
T/F Purifiner, Inc.
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation and Company
The unaudited condensed financial statements as of March 31, 1996 and for the
three month periods ended March 31, 1995 and 1996 are unaudited and, in the
opinion of management, include all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of financial position
and results of operations for these interim periods. Such statements have been
prepared on the basis of presentation as more fully described in the Company's
annual financial statements. The results of operations for the three month
period ended March 31, 1996 is not necessarily indicative of the results to be
expected for the entire year.
The Company has incurred recurring losses from operations since inception, which
has resulted in continuing cash flow difficulties and the continuing need for
additional financing. These factors raise substantial doubt about the Company's
ability to continue as a going concern. In order to continue as a going concern,
the Company must obtain additional financing, which it is endeavoring to do
through the issuance of additional securities.
The Company is in the process of completing a $400,000 private placement of its
Common Stock and expects to complete additional financings. However, there is no
assurance that the Company can complete these proposed issuances or that it can
obtain adequate additional financing from other sources or that profitable
operations can be sustained. The financial statements do not include any
adjustments relating to the recoverability of recorded asset amounts that might
be necessary as a result of the above uncertainty.
Deferred issuance costs of approximately $30,250, included in other assets,
represent costs incurred by the Company in connection with the Company's planned
issuances of securities. Such costs will be charged directly against the net
proceeds of the related offering if it is successfully completed or will be
expensed if the offering is abandoned.
2. Inventories
At March 31, 1996, inventories consist of the following:
Raw materials $146,916
Finished goods 12,015
Supplies 11,998
----------
$170,929
==========
F-22
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
3. Shareholder Loans
At December 31, 1995, the Company had a total of $1,004,052 of unsecured
noninterest bearing shareholder loans payable equally to its principal
shareholder and the estate of a former shareholder. There are no stated due
dates for these shareholder loans. During 1994, the Company and its principal
shareholder instituted legal action against the estate of a former 50% owner of
the Company. This litigation sought a declaratory judgment approving the
dilution of the Estate's interest in the Company from 50% to approximately 10%
as a result of the issuance of additional Common Stock in 1994 to the principal
shareholder and his children. Subsequently, the beneficiaries of the estate
filed counterclaims against the Company and its principal shareholder and his
children seeking declaratory relief, cancellation of additional stock issuances
by the Company, an injunction against further issuances, appointment of a
receiver and damages against Ford individually. In June 1995, the estate
demanded repayment of the shareholder loans due to the estate ($502,026 at
December 31, 1995). The ultimate outcome of this litigation and demand for the
repayment of the shareholder loans cannot currently be determined, however,
management believes it has meritous defenses to the counterclaims and current
demand for repayment and would eventually prevail in its declaratory action and
that the repayment of loans would not result in the current payment of such
amounts. However, in the event an unfavorable outcome against the Company is
rendered, the possible remedy will include the redistribution and rescission of
certain stock transactions with the Ford family. Such loans have been classified
as current in the accompanying balance sheet. The principal shareholder has
agreed not to demand repayment of his loans in the amount of $502,026 prior to
April 1, 1997 and, accordingly, such loans have been classified as long-term in
the accompanying balance sheet.
4. Contingencies
During 1995, the Company commenced a patent infringement case against a
competitor. The competitor subsequently asserted certain counterclaims against
the Company and certain of its employees. The ultimate outcome of these
counterclaims cannot currently be determined at this time but the Company
believes it has meritious defenses and will eventually prevail in these actions.
In April 1996, the Company became a party to an action filed by a former
independent contractor claiming certain commissions and other damages due him
pursuant to an agreement. Pursuant to the agreement, the Company is seeking to
resolve this case through arbitration and, although the ultimate outcome of this
matter cannot be determined at this time, the Company believes it has meritious
defenses and will eventually prevail in this matter.
F-23
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
5. Joint Venture
Effective January 1, 1996, the Company entered into a joint venture agreement
whereby such venture, TF Purifiner Ltd. ("Ltd"), will sell and distribute the
Company's product in Europe, the Middle East and certain African countries. The
Company has an approximate 45% interest in Ltd's operations (50% voting
interest) and is accounting for Ltd using the equity method. The Company is not
required to fund Ltd and will sell product to Ltd until such time as Ltd decides
to exercise its rights under the agreement to manufacture the Company's
products. Ltd was initially capitalized with approximately $88,000 provided by
one of its shareholders. In December 1995, Ltd advanced the Company
approximately $51,000 to be used to fund certain patent and trademark filings
for the venture's exclusive territory. At March 31, 1996, $20,376 remained
unexpended. For the three months ended March 31, 1996, the Company had sales of
approximately $167,000 to Ltd, at negotiated prices. At March 31, 1996, $11,950
has been recorded as unrealized intercompany profit related to the inventory
sold to Ltd which is included in Ltd's inventory at March 31, 1996.
At March 31, 1996, summarized financial information of Ltd is as follows:
Total assets $112,000
Total liabilities 228,000
Total revenues 23,000
Gross profit 8,000
Net loss (81,000)
6. Redeemable Common Stock
During the three months ended March 31, 1996, the Company sold 81,966 shares
(75,411 shares subsequent to March 31, 1996) of its Common Stock for gross
proceeds of $309,375 ($284,625 subsequent to March 31, 1996). The subscription
agreements provide that if the Company has not registered any amount of any
class of its Common Stock under the Securities Act of 1933 or the Securities and
Exchange Act of 1934, as amended, within two years, the shareholders have an
option to put the shares back to the Company at their original purchase price
plus 10% per annum from the date of issuance. If the shareholders exercise their
put options the put option purchase price will be funded from dividends received
from Ltd or from excess available cash of the Company as determined by its Board
of Directors. Accordingly, such Common Stock is being treated as Redeemable
Common Stock until the expiration of the put options. The redemption price will
be accreted at the rate of 10% and charged to additional paid in capital.
7. Subsequent Events
On May 20, 1996, the Company acquired all the common stock of DB Filters, Inc.,
an inactive company ("DB Filters"), for $1,275 in cash and 36,309 shares of its
Common Stock with an estimated fair value of approximately $137,000. DB Filters
was owned by two employees of the
F-24
<PAGE>
T/F Purifiner, Inc.
Notes to Financial Statements (continued)
(Unaudited)
7. Subsequent Events (continued)
Company, one of which was a Director. DB Filter's only assets were the future
royalties related to the Company's patent pending filter technology and certain
restricted, as defined, North American filter manufacturing rights ("Rights").
The Company will account for this acquisition using the purchase method of
accounting. DB Filters had no material assets or liabilities at December 31,
1994 and 1995 and no material operations in 1994 and 1995.
On July 1, 1996, the Board of Directors of the Company approved an increase in
authorized Common Stock from 100,000 to 20,000,000, approved a change in the par
value of Common Stock from $.01 par value to $.001 par value and approved a 57
to 1 stock split distribution for common shareholders of record on such date.
All share and per share data presented in the accompanying financial statements
have been restated to reflect the above actions.
F-25
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBITS DESCRIPTION OF DOCUMENT
3.1 Amended and Restated Certificate of Incorporation
of T/F Purifiner, Inc. dated July 24, 1996 (1).
3.2 Bylaws of T/F Purifiner, Inc.(1)
3.3 Memorandum and Articles of Association of TF
Purifiner Limited(1).
10.1 Proposed Form of Stock Option Plan(1).
10.2 Agreement between T/F Systems, Inc. and T/F
Purifiner, Inc. dated March 1, 1991 (with
exhibits)(1).
10.3 Asset Purchase Agreement between T/F Systems, Inc
and T/F Purifiner, Inc. dated December 31,
1995(1).
10.4 Stock Exchange Agreement between D.B. Filters,
Inc., Byron Lefebvre and Robert Meyer, and T/F
Purifiner, Inc. (with exhibits)(1).
10.5 Joint Venture Agreement between T/F Purifiner,
Inc., T/F Systems, Inc., Centrax Limited, The Barr
Family and A.N. Davies (1).
10.6 Lease Agreement between Papeyco Trading
International, Inc. and T/F Purifiner, Inc. dated
August 23, 1993 (1).
27.1 Financial Data Schedule (Electronic filing only)
99.1 Final Judgment in T/F SYSTEMS, INC. V. SOUTHEAST
CAPITAL FINANCING, INC., Case No. CL 90-12772AE in
the Circuit Court of the 15th Judicial Circuit in
and for Palm Beach County, Florida(1).
- --------------
(1) Filed herewith.
45
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this Amendment to its Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized.
T/F PURIFINER, INC.
Date: July 29, 1996 By:/S/RICHARD C. FORD
------------------
Richard C. Ford
President,
Chief Executive Officer,
and Secretary
46
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
T/F PURIFINER, INC.
ARTICLE I
Name
The name of the corporation is T/F Purifiner, Inc. (herein the "Corporation").
ARTICLE II
Registered Office
The address of the Corporation's registered office in the State of
Delaware is 15 North Street, in the City of Dover, County of Kent. The name of
the Corporation's registered agent at such address is Nationwide Information
Systems, Inc.
ARTICLE III
Powers
The purpose of the Corporation is to engage in any lawful business for
which corporations may be incorporated pursuant to the laws of the State of
Delaware. The Corporation shall have all the powers of a corporation organized
under the General Corporation Law of the State of Delaware.
ARTICLE IV
Term
The Corporation is to have perpetual existence.
<PAGE>
ARTICLE V
Capital Stock
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is 20,500,000 of which 20,000,000 are to be
shares of Common Stock, $.001 par value per share, and of which 500,000 are to
be shares of Preferred Stock, $.001 par value per share. The shares may be
issued by the Corporation from time to time as approved by the Board of
Directors of the Corporation without the approval of the stockholders except as
otherwise provided in this Article V or the rules of a national securities
exchange if applicable.
A description of the different classes and series (if any) of the
Corporation's capital stock, and a statement of the relative powers,
designations, preferences and rights of the shares of each class and series (if
any) of capital stock, and the qualifications, limitations or restrictions
thereof, are as follows:
A. COMMON STOCK. Except as provided in this Certificate, the holders of
the Common Stock shall exclusively possess all voting power. Each holder of
shares of Common Stock shall be entitled to one vote for each share held by such
holder, except as otherwise expressly set forth in this Certificate.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preferences over the Common Stock as to the payment of dividends, the full
amount of dividends and sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in preference
to the Common Stock, then dividends may be paid on the Common Stock, and on any
class or series of stock entitled to participate therewith as to dividends, out
of any assets legally available for the payment of dividends, but only when and
as declared by the Board of Directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class having preference
over the Common Stock in any such event, the full preferential amounts to which
they are respectively entitled, the holders of the Common Stock and of any class
or series of stock entitled to participate therewith, in whole or in part, as to
distribution of assets shall be entitled, after payment or provision for payment
of all debts and liabilities of the Corporation, to redeem the remaining assets
of the Corporation available for distribution, in cash or in kind.
Each share of Common Stock shall have the same relative powers,
preferences and rights as, and shall be identical in all respects with, all the
other shares of Common Stock of the Corporation, except as otherwise expressly
set forth in this Certificate.
2
<PAGE>
B. PREFERRED STOCK. Preferred Stock may be issued from time to time in
one or more series, each of such series to have such powers, vote designations,
preferences, qualifications, limitations, restrictions, participations, options
or other relative or special rights, as are stated and expressed herein or, to
the extent permitted by law, in the resolution or resolutions providing for the
issuance of such series, as adopted by the Board of Directors. The Board of
Directors is hereby expressly empowered, subject to the provisions of this
Paragraph, to provide for the issuance of Preferred Stock from time to time in
one or more series and to fix, as to such series, by resolution or resolutions
providing for the issuance of such series:
(1) the number of shares to constitute such series and the title
or designation of the series;
(2) the rate of dividend, whether or not cumulative, and the
extent of further participation in dividends or distributions,
if any;
(3) the price and the terms and conditions, if any, upon which
shares of such series are redeemable;
(4) whether or not the shares of such series shall be subject to
sinking fund provisions for the redemption or purchase of
shares;
(5) the amount, if any, payable upon shares in event of voluntary
or involuntary liquidation of the Corporation;
(6) the terms and conditions, if any, on which shares of such
series are convertible;
(7) the voting power, if any, of such series by determining the
votes (or fraction of a vote) per share and the elections or
events upon which such series may be voted, or may determine
to restrict or eliminate entirely the right of such series to
vote;
(8) such other powers, designations, preferences and relative,
participating, optional or other special rights, and the
qualifications, limitations or restrictions thereof, as and to
the extent permitted by law.
Each share of each series of Preferred Stock shall have the same relative
powers, preferences and rights as, and shall be identical in all respects with,
all the other shares of the Corporation of the same series, except as otherwise
expressly set forth in this Certificate.
3
<PAGE>
ARTICLE VI
Directors
A. NUMBER, VACANCIES. The number of directors of the Corporation shall be
such number, not less than two (2) nor more than twelve (12) , as shall be set
forth from time to time in the bylaws, provided that no action shall be taken to
decrease or increase the number of directors unless at least a majority of the
directors then in office shall concur in said action. Vacancies in the Board of
Directors of the Corporation, however caused, and newly created directorships
shall be filled by a vote of a majority of the directors then in office, whether
or not a quorum, and any director so chosen shall hold office for a term
expiring at the annual meeting of stockholders at which the term of the class to
which the director has been chosen expires and when the director's successor is
elected and qualified.
B. CLASSIFIED BOARD. At such time as the number of directors constituting
the Board of Directors shall be or exceed six in number, the Board of Directors
of the Corporation shall be divided into three classes of directors which shall
be designated Class I, Class II and Class III. The members of each class shall
be elected for a term of three years and until their successors are elected and
qualified. Such classes shall be as nearly equal in number as the then total
number of directors constituting the entire Board of Directors shall permit,
with the terms of office of all members of one class expiring each year. Subject
to the provisions of this Article VI, should the number of directors not be
equally divisible by three, the excess director or directors shall be assigned
to Classes I and II as follows: (i) if there shall be an excess of one
directorship over a number equally divisible by three, such extra directorship
shall be classified as Class I; and (ii) if there be an excess of two
directorships over a number equally divisible by three, one shall be classified
in Class I and the other in Class II. At the first annual meeting of
stockholders, directors of Class I shall be elected to hold office for a term
expiring at the third succeeding annual meeting thereafter. At the second annual
meeting of stockholders, directors of Class II shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
third annual meeting of stockholders, directors of Class III shall be elected to
hold office for a term expiring at the third succeeding annual meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three year terms. Notwithstanding the foregoing, the
director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the Board of Directors shall have been
abolished by action taken to reduce the size of the Board of Directors prior to
said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The Board of Directors shall designate, by the name of the
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incumbent(s), the position(s) to be abolished. Notwithstanding the foregoing, no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as specified in the
immediately preceding paragraph.
ARTICLE VII
Acquisition of Capital Stock
A. FIVE-YEAR PROHIBITION. For a period of five years from the effective
date of the completion of an initial registered public offering of the Common
Stock, no person shall directly or indirectly offer to acquire or acquire the
beneficial ownership of more than 10% of any class of equity security of the
Corporation, unless each offer or acquisition shall have been approved in
advance by a two-thirds vote of the Continuing Directors, as defined in Article
VIII. In addition, for a period of five years from an initial initial public
offering of the Common Stock, and notwithstanding any provision to the contrary
in this Certificate or in the bylaws of the Corporation, where any persons
directly or indirectly acquire beneficial ownership of more than 10% of any
class of equity security of the Corporation in violation of this Article VII,
the securities beneficially owned in excess of 10% shall not be counted as
shares entitled to vote, shall not be voted by any person or counted as voting
shares in connection with any matter submitted to the stockholders for a vote,
and shall not be counted as outstanding for purposes of determining a quorum or
the affirmative vote necessary to approve any matter submitted to the
stockholders for a vote.
B. PROHIBITION AFTER FIVE YEARS. If, at any time after five years from the
effective date of the completion of an initial registered public offering of the
Common Stock, any person shall acquire the beneficial ownership of more than 10%
of any class of equity security of the Corporation without the prior approval by
a two-thirds vote of the Continuing Directors, as defined in Article VIII, then
the record holders of voting stock of the Corporation beneficially owned by such
acquiring person shall have only the voting rights set forth in this paragraph B
on any matter requiring the vote or consent of stockholders. With respect to
each vote in excess of 10% of the voting power of the outstanding shares of
voting stock of the Corporation which such record holders would otherwise be
entitled to cast without giving effect to this paragraph B, the record holders
in the aggregate shall be entitled to cast only one hundredth of a vote, and the
aggregate voting power of such record holders, so limited for all shares of
voting stock of the Corporation beneficially owned by such acquiring person,
shall be allocated proportionately among such record holders. For each such
record holder, this allocation shall be accomplished by multiplying the
aggregate voting power, as so limited, by the outstanding shares of voting stock
of the Corporation beneficially owned by such acquiring person by a fraction
whose numerator is the number of votes represented by the shares of voting stock
of the Corporation and whose denominator is the total number of votes
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represented by the shares of voting stock of the Corporation that are
beneficially owned by such acquiring person. A person who is a record owner of
shares of voting stock of the Corporation that are beneficially owned
simultaneously by more than one person shall have, with respect to such shares,
the right to cast the least number of votes that such person would be entitled
to cast under this paragraph B by virtue of such shares being so beneficially
owned by any of such acquiring persons.
C. DEFINITIONS. The term "person" means an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group acting in concert formed for the purpose of acquiring, holding,
voting or disposing of securities of the Corporation. The term "acquire"
includes every type of acquisition, whether effected by purchase, exchange,
operation or law or otherwise. The term group "acting in concert" includes (a)
knowing participation in a joint activity or conscious parallel action towards a
common goal whether or not pursuant to an express agreement, and (b) a
combination or pooling of voting or other interest in the Corporation's
outstanding shares for a common purpose, pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. The term "beneficial ownership" shall have the meaning defined in
rule 13d-3 of the General Rules and Regulations under the Securities and
Exchange Act of 1934, as amended, as in effect on the date of filing of this
Certificate.
D. EXCLUSION FOR EMPLOYEE BENEFIT PLANS, DIRECTORS, OFFICERS, EMPLOYEES
AND CERTAIN PROXIES. The restrictions contained in this Article VII shall not
apply to (i) any underwriter or member of an underwriting or selling group
involving a public sale or resale of securities of the Corporation or a
subsidiary thereof, provided, however, that upon completion of the sale or
resale of such securities, no such underwriter or member of such selling group
is a beneficial owner of more than 10% of any class of equity security of the
Corporation, (ii) any proxy granted to one or more Continuing Directors, as
defined in Article VIII, by a stockholder of the Corporation or (iii) any
employee benefit plans of the Corporation. In addition, the Continuing Directors
of the Corporation, the officers and employees of the Corporation and its
subsidiaries, the directors of subsidiaries of the Corporation, the employee
benefit plan of the Corporation and its subsidiaries, entities organized or
established by the Corporation or any subsidiary thereof pursuant to the terms
of such plans and trustees and fiduciaries with respect to such plans acting in
such capacity shall not be deemed to be a group with respect to their beneficial
ownership of voting stock of the Corporation solely by virtue of their being
directors, officers or employees of the Corporation or a subsidiary thereof or
by virtue of the Continuing Directors of the Corporation, the officers and
employees of the Corporation and its subsidiaries and the directors of
subsidiaries of the Corporation being subsidiaries or beneficiaries of an
employee benefit plan of the Corporation or a subsidiary of the Corporation.
Notwithstanding the foregoing, no director, officer or employee of the
Corporation or any of its subsidiaries or group of any of them shall be exempt
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from the provisions of this Article VII should any such person or group become a
beneficial owner of more than 10% of any class of equity security of the
Corporation.
E. DETERMINATION. A majority of the Continuing Directors, as defined in
Article VIII, shall have the power to construe and apply the provisions of this
Article VII and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares beneficially owned by any person, (b) whether a person has an
agreement, arrangement or understanding with another as to the matters referred
to in the definition of beneficial ownership, (c) the application of any other
definition or operative provision of this Article VII to the given facts or (d)
any other matter relating to the applicability or effect of this Article VII.
Any constructions, applications, or determinations made by the Continuing
Directors pursuant to this Article VII in good faith and on the basis of such
information and assistance as was then reasonably available for such purpose
shall be conclusive and binding upon the Corporation and its stockholders.
ARTICLE VIII
Approval of Certain Business Combinations
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. (1) Except as otherwise expressly provided in this Article VIII,
the affirmative vote of the holders of (i) at least 66% of the
outstanding shares entitled to vote thereon (and, if any class
or series of shares is entitled to vote thereon separately,
the affirmative vote of the holders of at least 66% of the
outstanding shares of each such class or series), and (ii) at
least a majority of the outstanding shares entitled to vote
thereon, not including shares deemed beneficially owned by a
Related Person (as hereinafter defined), shall be re- quired
in order to authorize any of the following:
(a) any merger or consolidation of the Corporation with or
into a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other
disposition, including without limitation, a mortgage,
or any other capital devise, of all or any Substantial
Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting
securities of a subsidiary) or of a subsidiary, to a
Related Person;
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(c) any merger or consolidation of a Related Person with or
into the Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other disposition
of all or any Substantial Part of the assets of a
Related Person to the Corporation or a subsidiary of the
Corporation;
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of
the Corporation of any securities of a Related Person;
(g) any agreement, contract or other arrangement providing
for any of the transactions described in this Article
VIII.
(2) Such affirmative vote shall be required notwithstanding any
other provision of this Certificate, any provision of law, or
any agreement with any regulatory agency or national
securities exchange which might otherwise permit a lesser vote
or no vote.
(3) The term "Business Combination" as used in this Article VIII
shall mean any transaction which is referred to in any one or
more of subparagraphs A(1)(a) through (g) above.
B. The provisions of paragraph A shall not be applicable to any particular
Business Combination, and such Business Combination shall require only such
affirmative vote as is required by any other provision of this certificate, any
provision of law, or any agreement with any regulatory agency or national
securities exchange, if the Business Combination shall have been approved by a
two-thirds vote of the Continuing Directors (as hereinafter defined); provided,
however, that such approval shall only be effective if obtained at a meeting at
which a Continuing Director Quorum (as hereinafter defined) is present, pursuant
to the unanimous written consent of the directors of the Corporation.
C. For the purposes of this Article VIII the following definitions
apply:
(1) The term "Related Persons" shall mean and include (a) any
individual, corporation, partnership or other person or entity
which together with its "affiliates" (as that term is defined
in Rule 12b-2 of the General Rules and Regulations under the
Securities Act of 1934, as amended) is the aggregate
beneficial owner of 10% or more of the outstanding shares of
the Common Stock of the Corporation; and (b) any "affiliate"
(as that term is defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended) of any such individual,
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corporation, partnership or other person or entity. Without
limitation, any shares of the Common Stock of the Corporation
which any Related Person has the right to acquire pursuant to
any agreement, or upon exercise of conversion rights, warrants
or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
(2) The term "Substantial Part" shall mean more than 25 percent of
the total assets of the Corporation, as of the end of its most
recent fiscal year ending prior to the time the determination
is made.
(3) The term "Continuing Director" shall mean any member of the
Board of Directors of the Corporation who is (i) unaffiliated
with the Related Person and (ii) either (a) was a member of
the board prior to the time that the Related Person became a
Related Person, or (b) is a member of the Board of Directors
on the effective date of this Amended and Restated Certificate
of Incorporation, and any successor of a Continuing Director
who is unaffiliated with the Related Person and is recommended
to succeed a Continuing Director by a majority of Continuing
Directors then on the board.
(4) The term "Continuing Director Quorum" shall mean two-thirds of
the Continuing Directors capable of exercising the powers
conferred on them.
ARTICLE IX
Evaluation of Business Combinations
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the stockholders, when evaluating a
Business Combination (as defined in Article VIII) or a tender or exchange offer,
the Board of Directors of the Corporation may, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant; (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities for which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
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ARTICLE X
Indemnification
A. PERSONS. In addition to any separate contract of indemnificaiton,
the Corporation shall indemnify, to the extent provided in paragraphs B, D or F:
(1) any person who is or was a director, officer, advisory board
member, employee, or agent of the Corporation; and
(2) any person who serves or served at the Corporation's request
as a director, officer, employee, agent, partner or trustee of
another corporation, partnership, joint venture, trust or
other enterprise.
B. EXTENT -- DERIVATIVE SUITS. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify him if he satisfied the standard in paragraph C,
for expenses (including attorneys' fees but excluding amounts paid in
settlement) actually and reasonably incurred by him in connection with the
defense or settlement of the action or suit.
C. STANDARD -- DERIVATIVE SUITS. In case of a threatened, pending or
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject
of the suit or action, and in a manner he reasonably believed
to be in, or not opposed to, the best interests of the
Corporation, including, but not limited to, the taking of any
and all actions in connection with the Corporation's response
to any tender offer or any offer or proposal of another party
to engage in a Business Combination (as defined in Article
VIII) and approved by the Board of Directors. However, he
shall not be indemnified in respect of any claim, issue or
matter as to which he has been adjudged liable to the
Corporation unless (and only to the extent that) the court in
which the suit was brought shall determine, upon application,
that despite the adjudication but in view of all the
circumstances, he is fairly and reasonably entitled to
indemnity for such expenses and a the court shall deem proper.
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D. EXTENT -- NONDERIVATIVE SUITS. In case of a threatened, pending
or completed suit, action or proceeding (whether civil, criminal, administrative
or investigative), other than a suit by or in the right of the Corporation,
together hereafter referred to as a Nonderivative suit, against a person named
in paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify him if he satisfied the standard in paragraph E, for
amounts actually and reasonably incurred by him in connection with the defense
or settlement of the nonderivative suit, including, but not limited to (i)
expenses (including attorneys' fees), (ii) amounts paid in settlement, (iii)
judgments, and (iv) fines.
E. STANDARD -- NONDERIVATIVE SUITS. In case of a nonderivative suit, a
person named in paragraph A shall be indemnified only if:
(1) he is successful on the merits or otherwise; or
(2) he acted in good faith in the transaction which is the subject
of the nonderivative suit and in a manner he reasonably
believed to be in, or not opposed to, the best interests of
the Corporation, including, but not limited to, the taking of
any and all actions in connection with the Corporation's
response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined
in Article VIII) not approved by the Board of Directors and,
with respect to any criminal actions or proceeding, he had no
reasonable cause to believe his conduct was unlawful. The
termination of a nonderivative suit by judgment, order,
settlement, conviction, or upon a plea of no lo contendere or
its equivalent shall not, in itself, create a presumption that
the person failed to satisfy the standard of this subparagraph
E(2).
F. DETERMINATION THAT STANDARD HAS BEEN MET. A determination that the
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in subparagraph C(2) (second sentence), the determination may
be made by:
(1) the Board of Directors by a majority vote of a quorum
consisting of directors of the Corporation who were not
parties to the action, suit or proceeding; or
(2) independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a
quorum) in a written opinion; or
(3) the stockholders of the Corporation.
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G. PRORATION. Anyone making a determination under paragraph F may
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. ADVANCE PAYMENT. The Corporation shall pay in advance any expenses
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if:
(1) the Board of Directors authorizes the specific payment; and
(2) the person receiving the payment undertakes in writing to
repay the same if it is ultimately determined that he is not
entitled to indemnification by the Corporation under
paragraphs A through G.
I. NONEXCLUSIVE. The indemnification and advance payment of expenses
provided by paragraphs A through H shall not be exclusive of any other rights to
which a person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. CONTINUATION. The indemnification provided by this Article X shall
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article X
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to his heirs, executors and administrators.
K. INSURANCE. The Corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in paragraph
A, against any liability incurred by him in any such position, or arising out of
his status as such, whether or not the Corporation would have power to indemnify
him against such liability under paragraphs A through H.
L. INTENTION AND SAVINGS CLAUSE. It is the intention of this Article X
to provide for indemnification to the fullest extent permitted by the General
Corporation Law of the State of Delaware, and this Article X shall be
interpreted accordingly. If this Article X or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settle with respect to
any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article X that shall not
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have been invalidated and to the full extent permitted by applicable law. If the
General Corporation Law of the State of Delaware is amended, or other Delaware
law is enacted, to permit further or additional indemnification of the persons
defined in this Article X, then the indemnification of such persons shall be to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended, or such other Delaware law.
ARTICLE XI
Limitations on Directors' Liability
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions that are not
in good faith or that involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State of
Delaware, or (iv) for any transaction from which the director derived any
improper personal benefit. If the General Corporation Law of the State of
Delaware or other Delaware law is amended or enacted after the date of filing of
this Certificate to further eliminate or limit the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the General Corporation
Law of the State of Delaware, as amended, or such other Delaware law. Any repeal
or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a director of
the Corporation existing at the time of such repeal or modification.
ARTICLE XII
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors of the Corporation is expressly authorized to adopt,
repeal, alter, amend and rescind the bylaws of the Corporation by a vote of a
majority of the Board of Directors.
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders hereto are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles VI, VII, VIII, IX, X, XI and this Article XII may not be
repealed, altered, amended or rescinded in any respect unless the same is
approved by the affirmative vote of the holders of not less than 66% of the
outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) cast at a meeting of
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the stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting); except that such repeal, alteration, amendment or rescission may be
made by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors (considered for this purpose as a single class) if the
same is first approved by a majority of the Continuing Directors as defined in
Article VIII of this Certificate.
IN WITNESS WHEREOF, the Company has caused its corporate seal to be
hereunto affixed and this Certificate to be signed this 24th day of July, 1996.
T/F PURIFINER, INC., a Delaware corporation
By: /S/RICHARD C. FORD, PRESIDENT
-----------------------------
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BY-LAWS
OF
T/F PURIFINER, INC.,
a Delaware corporation
ARTICLE I
STOCKHOLDERS
1. CERTIFICATES REPRESENTING STOCK. Certificates representing stock in the
corporation shall be signed by, or in the name of, the corporation by the
Chairman or Vice Chairman of the Board of Directors, if any, or by the President
or a Vice President and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary of the corporation. Any or all the
signatures on any such certificate may be a facsimile. In case any officer,
transfer agent, or registrar who has signed or whose facsimile signature has
been placed upon a certificate shall have ceased to be such officer, transfer
agent, or registrar before such certificate is issued, it may be issued by the
corporation with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue.
Whenever the corporation shall be authorized to issue more than one
class of stock or more than one series of any class of stock, and whenever the
corporation shall issue any shares of its stock as partly paid stock, the
certificates representing shares of any such class or series or of any such
partly paid stock shall set forth thereon the statements prescribed by the
General Corporation Law. Any restrictions on the transfer or registration of
transfer of any shares of stock of any class or series shall be noted
conspicuously on the certificate representing such shares.
The corporation may issue a new certificate of stock or
uncertificated shares in place of any certificate theretofore issued by it,
alleged to have been lost, stolen, or destroyed, and the Board of Directors may
require the owner of the lost, stolen, or destroyed certificate, or his legal
representative, to give the corporation a bond sufficient to indemnify the
corporation against any claim that may be made against it on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
any such new certificate or uncertificated shares.
2. UNCERTIFICATED SHARES. Subject to any conditions imposed by the
General Corporation Law, the Board of Directors of the corporation may provide
by resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Within a reasonable
time after the issuance or transfer of any uncertificated shares, the
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corporation shall send to the registered owner thereof any written notice
prescribed by the General Corporation Law.
3. FRACTIONAL SHARE INTERESTS. The corporation may, but shall not be
required to, issue fractions of a share. If the corporation does not issue
fractions of a share, it shall (a) arrange for the disposition of fractional
interests by those entitled thereto, (b) pay in cash the fair value of fractions
of a share as of the time when those entitled to receive such fractions are
determined, or (c) issue scrip or warrants in registered form (either
represented by a certificate or uncertificated) or bearer form (represented by a
certificate) which shall entitle the holder to receive a full share upon the
surrender of such scrip or warrants aggregating a full share. A certificate for
a fractional share or an uncertificated fractional share shall, but scrip or
warrants shall not unless otherwise provided therein, entitle the holder to
exercise voting rights, to receive dividends thereon, and to participate in any
of the assets of the corporation in the event of liquidation. The Board of
Directors may cause scrip or warrants to be issued subject to the conditions
that they shall become void if not exchanged for certificates representing the
full shares or uncertificated full shares before a specified date, or subject to
the conditions that the shares for which scrip or warrants are exchangeable may
be sold by the corporation and the proceeds thereof distributed to the holders
of scrip or warrants, or subject to any other conditions which the Board of
Directors may impose.
4. STOCK TRANSFERS. Upon compliance with provisions restricting the
transfer or registration of transfer of shares of stock, if any, transfers or
registration of transfers of shares of stock of the corporation shall be made
only on the stock ledger of the corporation by the registered holder thereof, or
by his attorney thereunto authorized by power of attorney duly executed and
filed with the Secretary of the corporation or with a transfer agent or a
registrar, if any, and, in the case of shares represented by certificates, on
surrender of the certificate or certificates for such shares of stock properly
endorsed and the payment of all taxes due thereon.
5. RECORD DATE FOR STOCKHOLDERS. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which record
date shall not be more than 60 nor less than 10 days before the date of such
meeting. If no record date is fixed by the Board of Directors, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
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the day next preceding the day on which the meeting is held. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
In order that the corporation may determine the stockholders entitled to consent
to corporate action in writing without a meeting, the Board of Directors may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which date shall not be more than 10 days after the date upon which the
resolution fixing the record date is adopted by the Board of Directors. If no
record date has been fixed by the Board of Directors, the record date for
determining the stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the Board of Directors is required by
the General Corporation Law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation by delivery to its registered office in the State of Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. If no record date
has been fixed by the Board of Directors and prior action by the Board of
Directors is required by the General Corporation Law, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
Board of Directors adopts the resolution taking such prior action. In order that
the corporation may determine the stockholders entitled to receive payment of
any dividend or other distribution or allotment of any rights or the
stockholders entitled to exercise any rights in respect of any change,
conversion, or exchange of stock, or for the purpose of any other lawful action,
the Board of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted,
and which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating thereto.
6. MEANING OF CERTAIN TERMS. As used herein in respect of the right to
notice of a meeting of stockholders or a waiver thereof or to participate or
vote thereat or to consent or dissent in writing in lieu of a meeting, as the
case may be, the term "share" or "shares" or "share of stock" or "shares of
stock" or "stockholder" or "stockholders" refers to an outstanding share or
shares of stock and to a holder or holders of record of outstanding shares of
stock when the corporation is authorized to issue only one class of shares of
stock, and said reference is also intended to include any outstanding share or
shares of stock and any holder or holders of record of outstanding shares of
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stock of any class upon which or upon whom the Certificate of Incorporation
confers such rights where there are two or more classes or series of shares of
stock or upon which or upon whom the General Corporation Law confers such rights
notwithstanding that the Certificate of Incorporation may provide for more than
one class or series of shares of stock, one or more of which are limited or
denied such rights thereunder; provided, however, that no such right shall vest
in the event of an increase or a decrease in the authorized number of shares of
stock of any class or series which is otherwise denied voting rights under the
provisions of the Certificate of Incorporation, except as any provision of law
may otherwise require.
7. STOCKHOLDER MEETINGS.
A. Time. The annual meeting shall be held on the date and at
the time fixed, from time to time, by the Board of Directors, provided, that the
first annual meeting shall be held on a date within 13 months after the
organization of the corporation, and each successive annual meeting shall be
held on a date within 13 months after the date of the preceding annual meeting.
A special meeting shall be held on the date and at the time fixed by the Board
of Directors.
B. Place. Annual meetings and special meetings shall be held at
such place, within or without the State of Delaware, as the Board of Directors
may, from time to time, fix. Whenever the directors shall fail to fix such
place, the meeting shall be held at the registered office of the corporation in
the State of Delaware.
C. Call. Annual meetings and special meetings may be called by a
majority of the Board of Directors or by any officer instructed by a majority of
the Board of Directors to call the meeting.
D. Notice or Waiver of Notice. Written notice of all meetings
shall be given, stating the place, date, and hour of the meeting and stating the
place within the city or other municipality or community at which the list of
stockholders of the corporation may be examined. The notice of an annual meeting
shall state that the meeting is called for the election of directors and for the
transaction of other business which may properly come before the meeting, and
shall (if any other action which could be taken at a special meeting is to be
taken at such annual meeting) state the purpose or purposes. The notice of a
special meeting shall in all instances state the purpose or purposes for which
the meeting is called. The notice of any meeting shall also include, or be
accompanied by, any additional statements, information, or documents prescribed
by the General Corporation Law. Except as otherwise provided by the General
Corporation Law, a copy of the notice of any meeting shall be given, personally
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or by mail, not less than 10 days nor more than 60 days before the date of the
meeting, unless the lapse of the prescribed period of time shall have been
waived, and directed to each stockholder at his record address or at such other
address which he may have furnished by request in writing to the Secretary of
the corporation. Notice by mail shall be deemed to be given when deposited, with
postage thereon prepaid, in the United States mail. If a meeting is adjourned to
another time, not more than 30 days hence, and/or to another place, and if an
announcement of the adjourned time and/or place is made at the meeting, it shall
not be necessary to give notice of the adjourned meeting unless the directors,
after adjournment, fix a new record date for the adjourned meeting. Notice need
not be given to any stockholder who submits a written waiver of notice signed by
him before or after the time stated therein. Attendance of a stockholder at a
meeting of stockholders shall constitute a waiver of notice of such meeting,
except when the stockholder attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
stockholders need be specified in any written waiver of notice.
E. Stockholder List. The officer who has charge of the stock
ledger of the corporation shall prepare and make, at least 10 days before every
meeting of stockholders, a complete list of the stockholders, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least 10 days prior to the
meeting, either at a place within the city or other municipality or community
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held. The list shall also be produced and kept at the time and place of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
section or the books of the corporation, or to vote at any meeting of
stockholders.
F. Conduct of Meeting. Meetings of the stockholders shall be
presided over by one of the following officers in the order of seniority and, if
present and acting, the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, the President, a Vice President, or, if none of the foregoing is
in office and present and acting, by a chairman to be chosen by the
stockholders. The Secretary of the corporation, or in his absence, an Assistant
Secretary, shall act as secretary of every meeting, but if neither the Secretary
nor an Assistant Secretary is present the Chairman of the meeting shall appoint
a secretary of the meeting.
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G. Proxy Representation. Every stockholder may authorize another
person or persons to act for him by proxy in all matters in which a stockholder
is entitled to participate, whether by waiving notice of any meeting, voting or
participating at a meeting, or expressing consent or dissent without a meeting.
Every proxy must be signed by the stockholder or by his attorney-in-fact. No
proxy shall be voted or acted upon after three years from its date unless such
proxy provides for a longer period. A duly executed proxy shall be irrevocable
if it states that it is irrevocable and, if, and only as long as, it is coupled
with an interest sufficient in law to support an irrevocable power. A proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
H. Inspectors. The directors, in advance of any meeting, may, but
need not, appoint one or more inspectors of election to act at the meeting or
any adjournment thereof. If an inspector or inspectors are not appointed, the
person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the meeting or at the meeting by the person presiding
thereat. Each inspector, if any, before entering upon the discharge of his
duties, shall take and sign an oath faithfully to execute the duties of
inspectors at such meeting with strict impartiality and according to the best of
his ability. The inspectors, if any, shall determine the number of shares of
stock outstanding and the voting power of each, the shares of stock represented
at the meeting, the existence of a quorum, the validity and effect of proxies,
and shall receive votes, ballots, or consents, here and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the result, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the person presiding at the meeting, the inspector or inspectors, if
any, shall make a report in writing of any challenge, question, or matter
determined by him or them and execute a certificate of any fact found by him or
them.
I. Quorum. The holders of a majority of the outstanding shares
of stock shall constitute a quorum at a meeting of stockholders for the
transaction of any business. The stockholders present may adjourn the meeting
despite the absence of a quorum.
J. Voting. Each share of stock shall entitle the holders thereof
to one vote. Directors shall be elected by a plurality of the votes of the
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shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Any other action shall be authorized by a
majority of the votes cast except where the General Corporation Law prescribes a
different percentage of votes and/or a different exercise of voting power, and
except as may be otherwise prescribed by the provisions of the Certificate of
Incorporation and these ByLaws. In the election of directors, and for any other
action, voting need not be by ballot.
8. STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the General
Corporation Law to be taken at any annual or special meeting of stockholders, or
any action which may be taken at any annual or special meeting of stockholders,
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted. Prompt notice of the
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
Action taken pursuant to this paragraph shall be subject to the provisions of
Section 228 of the General Corporation Law.
ARTICLE II
DIRECTORS
1. FUNCTIONS AND DEFINITION. The business and affairs of the corporation
shall be managed by or under the direction of the Board of Directors of the
corporation. The Board of Directors shall have the authority to fix the
compensation of the members thereof. The use of the phrase "whole board" herein
refers to the total number of directors which the corporation would have if
there were no vacancies.
2. QUALIFICATIONS AND NUMBER. A director need not be a stockholder, a
citizen of the United States, or a resident of the State of Delaware. The number
of directors constituting the whole board shall be at least one. Subject to the
foregoing limitation and except for the first Board of Directors, such number
may be fixed from time to time by action of the stockholders or of the Board of
Directors. The number of directors may be increased or decreased by action of
the stockholders or of the directors.
3. ELECTION AND TERM. The first Board of Directors, unless the members
thereof shall have been named in the Certificate of Incorporation, shall be
elected by the incorporator or incorporators and shall hold office until the
first annual meeting of stockholders and until their successors are elected and
qualified or until their earlier resignation or removal. Any director may resign
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at any time upon written notice to the corporation. Thereafter, directors who
are elected at an annual meeting of stockholders, and directors who are elected
in the interim to fill vacancies and newly created directorships, shall hold
office until the next annual meeting of stockholders and until their successors
are elected and qualified or until their earlier resignation or removal. Except
as the General Corporation Law may otherwise require, in the interim between
annual meetings of stockholders or of special meetings of stockholders called
for the election of directors and/or for the removal of one or more directors
and for the filling of any vacancy in that connection, newly created
directorships and any vacancies in the Board of Directors, including unfilled
vacancies resulting from the removal of directors for cause or without cause,
may be filled by the vote of a majority of the remaining directors then in
office, although less than a quorum, or by the sole remaining director.
4. MEETINGS.
A. Time. Meetings shall be held at such time as the Board of
Directors shall fix, except that the first meeting of a newly elected Board of
Directors shall be held as soon after its election as the directors may
conveniently assemble.
B. Place. Meetings shall be held at such place within or without
the State of Delaware as shall be fixed by the Board of Directors.
C. Call. No call shall be required for regular meetings for
which the time and place have been fixed. Special meetings may be called by or
at the direction of the Chairman of the Board, if any, the Vice Chairman of the
Board, if any, of the President, or of a majority of the directors in office.
D. Notice or Actual or Constructive Waiver. No notice shall be
required for regular meetings for which the time and place have been fixed.
Written, oral, or any other mode of notice of the time and place shall be given
for special meetings in sufficient time for the convenient assembly of the
directors thereat. Notice need not be given to any director or to any member of
a committee of directors who submits a written waiver of notice signed by him
before or after the time stated therein. Attendance of any such person at a
meeting shall constitute a waiver of notice of such meeting, except when he
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Neither the business to be transacted at, nor the purpose
of, any regular or special meeting of the directors need be specified in any
written waiver of notice.
E. Quorum and Action. A majority of the whole Board of Directors
shall constitute a quorum except when a vacancy or vacancies prevents such
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majority, whereupon a majority of the directors in office shall constitute a
quorum, provided, that such majority shall constitute at least one-third of the
whole Board of Directors. A majority of the directors present, whether or not a
quorum is present, may adjourn a meeting to another time and place. Except as
herein otherwise provided, and except as otherwise provided by the General
Corporation Law, the vote of the majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors. The
quorum and voting provisions herein stated shall not be construed as conflicting
with any provisions of the General Corporation Law and these By-Laws which
govern a meeting of directors held to fill vacancies and newly created
directorships in the Board of Directors or action of disinterested directors.
Any member or members of the Board of Directors or of any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any such committee, as the case may be, by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other.
F. Chairman of the Meeting. The Chairman of the Board, if any and
if present and acting, shall preside at all meetings. Otherwise, the Vice
Chairman of the Board, if any and if present and acting, or the President, if
present and acting, or any other director chosen by the Board of Directors,
shall preside.
5. REMOVAL OF DIRECTORS. Except as may otherwise be provided by the
General Corporation Law, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors.
6. COMMITTEES. The Board of Directors may, by resolution passed by a
majority of the whole Board of Directors, designate one or more committees, each
committee to consist of one or more of the directors of the corporation. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee. In the absence or disqualification of any member of any such
committee or committees, the member or members thereof present at any meeting
and not disqualified from voting, whether or not he or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise the powers and authority of the Board of Directors
in the management of the business and affairs of the corporation with the
exception of any authority the delegation of which is prohibited by Section 141
of the General Corporation Law, and may authorize the seal of the corporation to
be affixed to all papers which may require it.
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7. WRITTEN ACTION. Any action required or permitted to be taken at any
meeting of the Board of Directors or any committee thereof may be taken without
a meeting if all members of the Board of Directors or committee, as the case may
be, consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee.
ARTICLE III
OFFICERS
The officers of the corporation shall consist of a President, a Secretary,
a Treasurer, and, if deemed necessary, expedient, or desirable by the Board of
Directors, a Chairman of the Board, a Vice Chairman of the Board, an Executive
Vice President, one or more other Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers with such
titles as the resolution of the Board of Directors choosing them shall
designate. Except as may otherwise be provided in the resolution of the Board of
Directors choosing him, no officer other than the Chairman or Vice Chairman of
the Board of Directors, if any, need be a director. Any number of offices may be
held by the same person, as the directors may determine.
Unless otherwise provided in the resolution choosing him, each officer
shall be chosen for a term which shall continue until the meeting of the Board
of Directors following the next annual meeting of stockholders and until his
successor shall have been chosen and qualified.
All officers of the corporation shall have such authority and perform such
duties in the management and operation of the corporation as shall be prescribed
in the resolutions of the Board of Directors designating and choosing such
officers and prescribing their authority and duties, and shall have such
additional authority and duties as are incident to their office except to the
extent that such resolutions may be inconsistent therewith. The Secretary or an
Assistant Secretary of the corporation shall record all of the proceedings of
all meetings and actions in writing of stockholders, directors, and committees
of directors, and shall exercise such additional authority and perform such
additional duties as the Board shall assign to him. Any officer may be removed,
with or without cause, by the Board of Directors. Any vacancy in any office may
be filled by the Board of Directors.
ARTICLE IV
CORPORATE SEAL
The corporate seal shall be in such form as the Board of Directors shall
prescribe.
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ARTICLE V
FISCAL YEAR
The fiscal year of the corporation shall be fixed, and shall be subject to
change, by the Board of Directors.
ARTICLE VI
AMENDMENT OF BY-LAWS
The power to adopt, alter, amend or repeal By-Laws shall be vested in the
Board of Directors. The fact that such power has been so conferred upon the
directors shall not divest the stockholders of the power, nor limit their power
to adopt, amend or repeal By-Laws. By-Laws adopted by the Board of Directors or
by the stockholders may be repealed or changed, new By-Laws may be adopted by
the stockholders, and the stockholders may prescribe in any By-Law made by them
that such By-Law shall not be altered, amended or repealed by the Board of
Directors.
11
MEMORANDUM AND ARTICLES
OF ASSOCIATION
OF
TF PURIFINER LIMITED
Company Number: 3139787
The Companies Act 1985
Company Limited by Shares
Memorandum and Articles
of Association of
TF PURIFINER LIMITED
INCORPORATED ON THE 20TH DAY OF DECEMBER 1995
<PAGE>
THE COMPANIES ACT 1985
- ----------------------
COMPANY LIMITED BY SHARES
- -------------------------
MEMORANDUM OF ASSOCIATION
of
TF PURIFINER LIMITED
(As altered by Special Resolution passed on the 28th day of February 1996)
1.* The Company's name is "TF PURIFINER LIMITED".
2. The Company's registered office is to be situated in England and Wales.
3. The Company's objects are:
(A) (i) To carry on business as a general commercial company.
(ii) To carry on all or any of the businesses of general merchants and
traders manufacturers assemblers distributors importers exporters agents for the
sale of and wholesale and retail dealers in goods wares produce products
commodities fancy goods handicrafts and merchandise of every description to act
as agents for and to enter into agreements of all kinds on behalf of such
persons firms or companies as may be thought expedient and to negotiate assign
mortgage pledge for cash or otherwise any such agreements and the payments due
thereunder and any property the subject thereof to carry on all or any of the
businesses of mail order specialists credit and discount traders cash and carry
traders manufacturers' agents commission and general agents brokers factors
warehousemen and agents in respect of raw and manufactured goods of all kinds
general railway shipping and forwarding agents and transport contractors to
create establish and maintain an organisation for the marketing selling
servicing distribution or introduction of the products merchandise goods wares
and commodities dealt in or services rendered by any persons firms or companies
and to participate in undertake perform and carry out all kinds of commercial
trading and financial operations ordinarily performed by import export and
general merchants factors shipping agents traders distributors capitalists and
financiers either on the Company's own account or otherwise and to open and
establish shops stalls stores markets and depots for the sale collection and
distribution of the goods dealt in by the Company.
- --------------------------------------------------------------------------------
*The Company's name was on the 13th day of March 1996 changed from
"DENEFLEET LIMITED".
<PAGE>
(B) To carry on any other trade or business of any description which may seem to
the Company capable of being advantageously carried on in connection with or
ancillary to the other objects of the Company.
(C) To purchase, sell, exchange, improve, rent, let on lease, hire, surrender,
license, accept surrenders of and otherwise acquire, deal with and hold any
estate or interest in any lands, buildings, easement, rights, privileges, or
other property, chattels and effects or any interest or right in relation
thereto.
(D) To erect, pull down, repair, alter, develop, construct, lay down, enlarge,
maintain or otherwise deal with any buildings, factories, stores, shops, plan
and machinery, road, railways, tramways, sidings, bridges, reservoirs and works
necessary or convenient for the Company's business and to contribute to the
performance of any the above.
(E) To purchase or otherwise acquire all or any part of the business or assets
or any person, firm or company, carrying on or formed to carry on any business
which the company is authorised to carry on or possessed of property of any
description suitable to the purpose of the Company, and to pay cash or to issue
any shares, stocks, debentures, or debenture stock of the Company as the
consideration for such purchase or acquisition and to undertake any liabilities
or obligations relating to the business or property so purchased or acquired.
(F) To apply for, purchase or otherwise acquire and hold or deal in any manner
with any patents, licences, concessions, secret processes or other property
which may seem to the Company capable of being dealt with by or to be beneficial
or convenient to the pursuit of any trade or business of the Company and to
grant rights and interests thereout.
(G) To sell, improve, let, licence, develop, manage, turn to account, exchange,
grant royalty, share of profits or otherwise, grant easement and other rights in
and over and in any other manner deal with or dispose of the undertaking or any
part thereof and all or any of the property and assets for the time being of the
Company on such terms and for such consideration as the Company may approve.
(H) To invest and deal with the moneys of the Company not immediately required
for the purposes of the Company in or upon such securities and subject to such
conditions as may from time to time be determined.
(I) To lend money to any person, firm or company upon such terms and with or
without security and subject to such conditions as may from time to time be
determined.
(J) To give all kinds of indemnities either with or without the Company
receiving any consideration or advantage and to guarantee the payment of the
capital or principal (together with any premium) of any debentures, debenture
<PAGE>
stock, bonds, mortgages, charges, obligations, dividends, securities, moneys or
shares or interest thereon, or the performance of any contracts or engagements
of any person, firm or company.
(K) To borrow or raise or secure the payment of money in such manner as shall
from time to time be determined for the purposes of or in connection with the
Company's trade or business and in particular by the issue of debentures or
debenture stock, charged upon all or any of the Company's undertaking or
property and by reissuing any debenture at any time paid off, and by becoming a
member of any building society.
(L) To mortgage and charge the undertaking and all or any of the real and
personal property and assets, present and future, and all or any of the uncalled
capital for the time being of the Company and to issue at par or at a premium or
discount and for such consideration and with and subject to such rights, powers,
privileges and conditions as may be thought fit, debentures or debenture stock,
either, permanent or redeemable or repayable, and collaterally or further to
secure any securities of the Company by a trust deed or other assurances.
(M) To issue and deposit and securities which the Company has power to issue by
way of mortgage to secure any sum less than the nominal amount of such
securities, and also by way of security for the performance of any contracts or
obligations of the Company or of its customers or other persons, firms, or
companies having dealings with the Company or in whose business or undertakings
the Company is interested whether directly or indirectly.
(N) To pay for any property or rights of any description acquired by the Company
either in cash, by instalments, or otherwise, of fully or partly paid-up shares,
either with or without preferred or deferred or other special rights or
restrictions in respect of dividend, repayment of capital, voting or otherwise,
or by any securities which the Company has power to issue, or partly, in one way
and partly in another, and generally on such terms as the Company may determine.
(O) To accept payment for any property or rights of any description sold or
otherwise disposed of or dealt with by the Company either in cash, by
instalments or otherwise, or in fully or partly paid-up shares of any company,
either with or without preferred or deferred or other special rights or
restrictions in respect of dividend, repayment of capital, voting or otherwise,
or in debentures or debenture stock, mortgages or other securities of any
company or companies, or partly in one mode and partly in another, and generally
on such terms as the Company may determine and to hold, dispose of or otherwise
deal with any shares, stock or securities so acquired.
(P) To draw, make, accept, endorse, negotiate, discount, execute and issue
promissory notes, bills of exchange, debentures, warrants and other negotiable
instruments.
<PAGE>
(Q) To purchase, subscribe for, or otherwise acquire and hold shares, stocks,
debentures, debenture stock or other interest in or obligations or any other
company or corporation.
(R) To purchase or otherwise acquire and undertake all or any part of the
business, property, assets, liabilities and transactions of any person, firm or
company carrying on any business which the Company is authorised to carry on.
(S) To establish or promote or join or assist in establishing or promoting any
other company or companies for the purpose of acquiring all or any of the assets
and liabilities of the Company or for any other purpose the promotion of which
shall be in any manner calculated or appear to the Company to advance directly
or indirectly the objects or interests of the Company.
(T) To amalgamate with any other company or companies whose objects are or
include objects similar to those of the Company or any of them, whether by sale
or purchase (for fully or partly paid up shares or otherwise) of the
undertaking, subject to the liabilities of this or any such other company or
companies as aforesaid, with or without winding up by sale or purchase (for
fully or partly paid up shares or otherwise) of all or a controlling interest in
the shares or stock of the or any such other company as aforesaid, or by
partnership, or any arrangement of the nature of partnership, or in any other
manner.
(U) To enter into any partnership or joint-purse arrangement or arrangement for
sharing profits, union of interests or co-operation with any person, firm or
company whose objects are or include objects similar to those of the Company or
any of them.
(V) To establish, support and maintain and to aid and procure the establishment,
support and maintenance of any non-contributory or contributory pension or
superannuation funds or other trust funds or funds calculated to benefit, and
give or procure the giving of donations, gratuities, pensions, allowances, or
enrolments to any persons who are or were at anytime employed by or in the
service of the Company (including any Director holding a salaried office or
employment in the Company) or of any other company which is for the time being
the Company's holding company, or a subsidiary of the Company (as defined by
s.736 of the Companies Act 1985) or the families and dependants of such persons,
and subsidise or subscribe to any institution, association, clubs or funds
calculated to be for the benefit of or to advance interests and well-being of
the Company or of any such other companies or persons as aforesaid, and to make
payments for or towards the insurance of any such persons as aforesaid.
(W) To subscribe or guarantee money for or organise, assist any national, local,
charitable, benevolent, public, general or useful object, or for any exhibition
or for any purpose which may appear to further, whether directly or indirectly,
the objects of the Company or the interests of its members or employees.
<PAGE>
(X) To pay out of the funds of the Company all costs and expenses of and
incidental to the formation and registration of the company and the issue of its
capital and debentures including brokerage and commission, and to remunerate any
person, firm or company for services rendered or to be rendered in placing or
assisting to place any of the shares in the Company's capital or any debentures,
debenture stock or other securities of the Company or in or about the formation
or promotion of the Company or the conduct of its business.
(Y) To remunerate the Directors of the Company in any manner the Company may
think fit and to pay or provide pensions for or make payments to or for the
benefit of Directors and ex-Directors of the Company or their families,
dependants and connections.
(Z) To distribute among the members in specie any property of the Company, or
any proceed of sale or disposal of any property of the Company.
(AA) To do all or any of the things authorised by this Memorandum in any part of
the world, and either as principals or as agents, trustees, contractors or
otherwise, and either alone or in conjunction with others and either by or
through agents, trustees, subcontractors or otherwise.
(BB) To do all such other things as are incidental or conducive to the
attainment of the above objects or any of them.
And it is declared that the foregoing objects of the Company shall be separate
and distinct objects of the Company, and none of the said objects shall be
deemed to be subsidiary to or limited in any way by any other object or objects.
4. The liability of the members is limited.
5. The Company's share capital is (pound)100 divided into 100 shares of
(pound)1 each.
<PAGE>
We, the subscribers to this Memorandum of Association, wish to be formed into a
company pursuant to this Memorandum; and we agree to take the number of shares
shown opposite our respective names.
NAMES AND ADDRESSES OF SUBSCRIBERS Number of Shares taken
by each Subscriber
KEITH STEPHEN DUNGATE ONE
188 BRAMPTON ROAD
BEXLEYHEATH
KENT DA7 4SY
BILL LAWRENCE ONE
83 COMPTON PLACE
ERITH
KENT DA8 1RY
TOTAL SHARES TAKEN TWO
- ------------------ ---
Dated: this 1st day of November 1995
Witness to the above Signatures
PHILIP LAWRENCE
123 HEATHDENE DRIVE
UPPER BELVEDERE
KENT DA17 6HY
PROPOSED FORM OF
STOCK OPTION PLAN
T/F PURIFINER, INC.
1996 STOCK OPTION PLAN
----------------------
1. GRANT OF OPTIONS; GENERALLY. In accordance with the provisions
hereinafter set forth in this stock option plan, the name of which is the T/F
PURIFINER, INC. 1996 STOCK OPTION PLAN (the "Plan"), the Board of Directors (the
"Board") or, the Compensation Committee (the "Stock Option Committee") of T/F
Purifiner, Inc. (the "Corporation") is hereby authorized to issue from time to
time on the Corporation's behalf to any one or more Eligible Persons, as
hereinafter defined, options to acquire shares of the Corporation's $.001 par
value common stock (the "Stock").
2. TYPE OF OPTIONS. The Board or the Stock Option Committee is
authorized to issue options which meet the requirements of Section ss.422 of the
Internal Revenue Code of 1986, as amended (the "Code"), which options are
hereinafter referred to collectively as ISOs, or singularly as an ISO. The Board
or the Stock Option Committee is also, in its discretion, authorized to issue
options which are not ISOs, which options are hereinafter referred to
collectively as NSOs, or singularly as an NSO. The Board or the Stock Option
Committee is also authorized to issue "Reload Options" in accordance with
Paragraph 8 herein, which options are hereinafter referred to collectively as
Reload Options, or singularly as a Reload Option. Except where the context
indicates to the contrary, the term "Option" or "Options" means ISOs, NSOs and
Reload Options.
3. AMOUNT OF STOCK. The aggregate number of shares of Stock which may
be purchased pursuant to the exercise of Options shall be 650,000 shares. Of
this amount, the Board or the Stock Option Committee shall have the power and
authority to designate whether any Options so issued shall be ISOs or NSOs,
subject to the restrictions on ISOs contained elsewhere herein. If an Option
ceases to be exercisable, in whole or in part, the shares of Stock underlying
such Option shall continue to be available under this Plan. Further, if shares
of Stock are delivered to the Corporation as payment for shares of Stock
purchased by the exercise of an Option granted under this Plan, such shares of
Stock shall also be available under this Plan. If there is any change in the
number of shares of Stock on account of the declaration of stock dividends,
recapitalization resulting in stock split-ups, or combinations or exchanges of
shares of Stock, or otherwise, the number of shares of Stock available for
purchase upon the exercise of Options, the shares of Stock subject to any Option
and the exercise price of any outstanding Option shall be appropriately adjusted
by the Board or the Stock Option Committee. The Board or the Stock Option
Committee shall give notice of any adjustments to each Eligible Person granted
an Option under this Plan, and such adjustments shall be effective and binding
on all Eligible Persons. If because of one or more recapitalizations,
reorganizations or other corporate events, the holders of outstanding Stock
receive something other than shares of Stock then, upon exercise of an Option,
the Eligible Person will receive what the holder would have owned if the holder
had exercised the Option immediately before the first such corporate event and
not disposed of anything the holder received as a result of the corporate event.
<PAGE>
4. ELIGIBLE PERSONS.
(a) With respect to ISOs, an Eligible Person means any individual
who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days.
(b) With respect to NSOs, an Eligible Person means (i) any
individual who has been employed by the Corporation or by any subsidiary of the
Corporation, for a continuous period of at least sixty (60) days, (ii) any
director of the Corporation or any subsidiary of the Corporation, (iii) any
member of the Corporation's advisory board member or of any of the Corporation's
subsidiar(ies), or (iv) any consultant of the Corporation or by any subsidiary
of the Corporation.
5. GRANT OF OPTIONS. The Board or the Stock Option Committee has the
right to issue the Options established by this Plan to Eligible Persons. The
Board or the Stock Option Committee shall follow the procedures prescribed for
it elsewhere in this Plan. A grant of Options shall be set forth in a writing
signed on behalf of the Corporation or by a majority of the members of the Stock
Option Committee. The writing shall identify whether the Option being granted is
an ISO or an NSO and shall set forth the terms which govern the Option. The
terms shall be determined by the Board or the Stock Option Committee, and may
include, among other terms, the number of shares of Stock that may be acquired
pursuant to the exercise of the Options, when the Options may be exercised, the
period for which the Option is granted and including the expiration date, the
effect on the Options if the Eligible Person terminates employment and whether
the Eligible Person may deliver shares of Stock to pay for the shares of Stock
to be purchased by the exercise of the Option. However, no term shall be set
forth in the writing which is inconsistent with any of the terms of this Plan.
The terms of an Option granted to an Eligible Person may differ from the terms
of an Option granted to another Eligible Person, and may differ from the terms
of an earlier Option granted to the same Eligible Person.
6. OPTION PRICE. The option price per share shall be determined by the
Board or the Stock Option Committee at the time any Option is granted, and shall
be not less than (i) in the case of an ISO, the fair market value, (ii) in the
case of an ISO granted to a ten percent or greater stockholder, 110% of the fair
market value, or (iii) in the case of an NSO, not less than 75% of the fair
market value (but in no event less than the par value) of one share of Stock on
the date the Option is granted, as determined by the Board or the Stock Option
Committee. Fair market value as used herein shall be:
(a) If shares of Stock shall be traded on an exchange or
over-the-counter market, the closing price or the closing bid price of such
Stock on such exchange or over-the-counter market on which such shares shall be
traded on that date, or if such exchange or over-the-counter market is closed or
if no shares shall have traded on such date, on the last preceding date on which
such shares shall have traded.
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<PAGE>
(b) If shares of Stock shall not be traded on an exchange or
over-the-counter market, the value as determined by the Board of Directors or
the Stock Option Committee of the Corporation.
7. PURCHASE OF SHARES. An Option shall be exercised by the tender to
the Corporation of the full purchase price of the Stock with respect to which
the Option is exercised and written notice of the exercise. The purchase price
of the Stock shall be in United States dollars, payable in cash or by check, or
in property or Corporation stock, if so permitted by the Board or the Stock
Option Committee in accordance with the discretion granted in Paragraph 5
hereof, having a value equal to such purchase price. The Corporation shall not
be required to issue or deliver any certificates for shares of Stock purchased
upon the exercise of an Option prior to (i) if requested by the Corporation, the
filing with the Corporation by the Eligible Person of a representation in
writing that it is the Eligible Person's then present intention to acquire the
Stock being purchased for investment and not for resale, and/or (ii) the
completion of any registration or other qualification of such shares under any
government regulatory body, which the Corporation shall determine to be
necessary or advisable.
8. GRANT OF RELOAD OPTIONS. In granting an Option under this Plan, the
Board or the Stock Option Committee may include a Reload Option provision
therein, subject to the provisions set forth in Paragraphs 20 and 21 herein. A
Reload Option provision provides that if the Eligible Person pays the exercise
price of shares of Stock to be purchased by the exercise of an ISO, NSO or
another Reload Option (the "Original Option") by delivering to the Corporation
shares of Stock already owned by the Eligible Person (the "Tendered Shares"),
the Eligible Person shall receive a Reload Option which shall be a new Option to
purchase shares of Stock equal in number to the tendered shares. The terms of
any Reload Option shall be determined by the Board or the Stock Option Committee
consistent with the provisions of this Plan.
9. STOCK OPTION COMMITTEE. The Stock Option Committee may be appointed
from time to time by the Corporation's Board of Directors. The Board may from
time to time remove members from or add members to the Stock Option Committee.
The Stock Option Committee shall be constituted so as to permit the Plan to
comply in all respects with the provisions set forth in Paragraph 20 herein. The
members of the Stock Option Committee may elect one of its members as its
chairman. The Stock Option Committee shall hold its meetings at such times and
places as its chairman shall determine. A majority of the Stock Option
Committee's members present in person shall constitute a quorum for the
transaction of business. All determinations of the Stock Option Committee will
be made by the majority vote of the members constituting the quorum. The members
may participate in a meeting of the Stock Option Committee by conference
telephone or similar communications equipment by means of which all members
participating in the meeting can hear each other. Participation in a meeting in
that manner will constitute presence in person at the meeting. Any decision or
determination reduced to writing and signed by all members of the Stock Option
Committee will be effective as if it had been made by a majority vote of all
members of the Stock Option Committee at a meeting which is duly called and
held.
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<PAGE>
10. ADMINISTRATION OF PLAN. In addition to granting Options and to
exercising the authority granted to it elsewhere in this Plan, the Board or the
Stock Option Committee is granted the full right and authority to interpret and
construe the provisions of this Plan, promulgate, amend and rescind rules and
procedures relating to the implementation of the Plan and to make all other
determinations necessary or advisable for the administration of the Plan,
consistent, however, with the intent of the Corporation that Options granted or
awarded pursuant to the Plan comply with the provisions of Paragraph 20 and 21
herein. All determinations made by the Board or the Stock Option Committee shall
be final, binding and conclusive on all persons including the Eligible Person,
the Corporation and its stockholders, employees, officers and directors and
consultants. No member of the Board or the Stock Option Committee will be liable
for any act or omission in connection with the administration of this Plan
unless it is attributable to that member's willful misconduct.
11. PROVISIONS APPLICABLE TO ISOS. The following provisions shall apply
to all ISOs granted by the Board or the Stock Option Committee and are
incorporated by reference into any writing granting an ISO:
(a) An ISO may only be granted within ten (10) years from
_____________, 1996, the date that this Plan was originally adopted by the
Corporation's Board of Directors.
(b) An ISO may not be exercised after the expiration of ten (10)
years from the date the ISO is granted.
(c) The option price may not be less than the fair market value of
the Stock at the time the ISO is granted.
(d) An ISO is not transferrable by the Eligible Person to whom it is
granted except by will, or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the Eligible Person.
(e) If the Eligible Person receiving the ISO owns at the time of the
grant stock possessing more than ten (10%) percent of the total combined voting
power of all classes of stock of the employer corporation or of its parent or
subsidiary corporation (as those terms are defined in the Code), then the option
price shall be at least 110% of the fair market value of the Stock, and the ISO
shall not be exercisable after the expiration of five (5) years from the date
the ISO is granted.
(f) The aggregate fair market value (determined at the time the ISO
is granted) of the Stock with respect to which the ISO is first exercisable by
the Eligible Person during any calendar year (under this Plan and any other
incentive stock option plan of the Corporation) shall not exceed $100,000.
(g) Even if the shares of Stock which are issued upon exercise of an
ISO are sold within one year following the exercise of such ISO so that the sale
4
<PAGE>
constitutes a disqualifying disposition for ISO treatment under the Code, no
provision of this Plan shall be construed as prohibiting such a sale.
(h) This Plan was adopted by the Corporation on __________, 1996, by
virtue of its approval by the Corporation's Board of Directors. Approval by the
stockholders of the Corporation is to occur prior to ____________, 1996.
12. DETERMINATION OF FAIR MARKET VALUE. In granting ISOs under this
Plan, the Board or the Stock Option Committee shall make a good faith
determination as to the fair market value of the Stock at the time of granting
the ISO.
13. RESTRICTIONS ON ISSUANCE OF STOCK. The Corporation shall not be
obligated to sell or issue any shares of Stock pursuant to the exercise of an
Option unless the Stock with respect to which the Option is being exercised is
at that time effectively registered or exempt from registration under the
Securities Act of 1933, as amended, and any other applicable laws, rules and
regulations. The Corporation may condition the exercise of an Option granted in
accordance herewith upon receipt from the Eligible Person, or any other
purchaser thereof, of a written representation that at the time of such exercise
it is his or her then present intention to acquire the shares of Stock for
investment and not with a view to, or for sale in connection with, any
distribution thereof; except that, in the case of a legal representative of an
Eligible Person, "distribution" shall be defined to exclude distribution by will
or under the laws of descent and distribution. Prior to issuing any shares of
Stock pursuant to the exercise of an Option, the Corporation shall take such
steps as it deems necessary to satisfy any withholding tax obligations imposed
upon it by any level of government.
14. EXERCISE IN THE EVENT OF DEATH OF TERMINATION OR EMPLOYMENT.
(a) If an optionee shall die (i) while an employee of the
Corporation or a Subsidiary or (ii) within three months after termination of his
employment with the Corporation or a Subsidiary because of his disability, or
retirement or otherwise, his Options may be exercised, to the extent that the
optionee shall have been entitled to do so on the date of his death or such
termination of employment, by the person or persons to whom the optionee's right
under the Option pass by will or applicable law, or if no such person has such
right, by his executors or administrators, at any time, or from time to time. In
the event of termination of employment because of his death while an employee or
because of disability, his Options may be exercised not later than the
expiration date specified in Paragraph 5 or one year after the optionee's death,
whichever date is earlier, or in the event of termination of employment because
of retirement or otherwise, not later than the expiration date specified in
Paragraph 5 hereof or one year after the optionee's death, whichever date is
earlier.
(b) If an optionee's employment by the Corporation or a Subsidiary
shall terminate because of his disability and such optionee has not died within
the following three months, he may exercise his Options, to the extent that he
shall have been entitled to do so at the date of the termination of his
5
<PAGE>
employment, at any time, or from time to time, but not later than the expiration
date specified in Paragraph 5 hereof or one year after termination of
employment, whichever date is earlier.
(c) If an optionee's employment shall terminate by reason of his
retirement in accordance with the terms of the Corporation's tax-qualified
retirement plans or with the consent of the Board or the Stock Option Committee
or involuntarily other than by termination for cause, and such optionee has not
died within the following three months, he may exercise his Option to the extent
he shall have been entitled to do so at the date of the termination of his
employment, at any time and from to time, but not later than the expiration date
specified in Paragraph 5 hereof or thirty (30) days after termination of
employment, whichever date is earlier. For purposes of this Paragraph 14,
termination for cause shall mean termination of employment by reason of the
optionee's commission of a felony, fraud or willful misconduct which has
resulted, or is likely to result, in substantial and material damage to the
Corporation or a Subsidiary, all as the Board or the Stock Option Committee in
its sole discretion may determine.
(d) If an optionee's employment shall terminate for any reason other
than death, disability, retirement or otherwise, all right to exercise his
Option shall terminate at the date of such termination of employment.
15. CORPORATE EVENTS. In the event of the proposed dissolution or
liquidation of the Corporation, a proposed sale of all or substantially all of
the assets of the Corporation, a merger or tender for the Corporation's shares
of Common Stock the Board of Directors shall declare that each Option granted
under this Plan shall terminate as of a date to be fixed by the Board of
Directors; provided that not less than thirty (30) days written notice of the
date so fixed shall be given to each Eligible Person holding an Option, and each
such Eligible Person shall have the right, during the period of thirty (30) days
preceding such termination, to exercise his Option as to all or any part of the
shares of Stock covered thereby, including shares of Stock as to which such
Option would not otherwise be exercisable. Nothing set forth herein shall extend
the term set for purchasing the shares of Stock set forth in the Option.
16. NO GUARANTEE OF EMPLOYMENT. Nothing in this Plan or in any writing
granting an Option will confer upon any Eligible Person the right to continue in
the employ of the Eligible Person's employer, or will interfere with or restrict
in any way the right of the Eligible Person's employer to discharge such
Eligible Person at any time for any reason whatsoever, with or without cause.
17. NONTRANSFERABILITY. No Option granted under the Plan shall be
transferable other than by will or by the laws of descent and distribution.
During the lifetime of the optionee, an Option shall be exercisable only by him.
18. NO RIGHTS AS STOCKHOLDER. No optionee shall have any rights as a
stockholder with respect to any shares subject to his Option prior to the date
of issuance to him of a certificate or certificates for such shares.
6
<PAGE>
19. AMENDMENT AND DISCONTINUANCE OF PLAN. The Corporation's Board of
Directors may amend, suspend or discontinue this Plan at any time. However, no
such action may prejudice the rights of any Eligible Person who has prior
thereto been granted Options under this Plan. Further, no amendment to this Plan
which has the effect of (a) increasing the aggregate number of shares of Stock
subject to this Plan (except for adjustments pursuant to Paragraph 3 herein), or
(b) changing the definition of Eligible Person under this Plan, may be effective
unless and until approval of the stockholders of the Corporation is obtained in
the same manner as approval of this Plan is required. The Corporation's Board of
Directors is authorized to seek the approval of the Corporation's stockholders
for any other changes it proposes to make to this Plan which require such
approval, however, the Board of Directors may modify the Plan, as necessary, to
effectuate the intent of the Plan as a result of any changes in the tax,
accounting or securities laws treatment of Eligible Persons and the Plan,
subject to the provisions set forth in this Paragraph 19, and Paragraphs 20 and
21.
20. COMPLIANCE WITH RULE 16B-3. This Plan is intended to comply in all
respects with Rule 16b-3 ("Rule 16b-3") promulgated by the Securities and
Exchange Commission under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with respect to participants who are subject to Section 16 of
the Exchange Act, and any provision(s) herein that is/are contrary to Rule 16b-3
shall be deemed null and void to the extent appropriate by either the Stock
Option Committee or the Corporation's Board of Directors.
21. COMPLIANCE WITH CODE. The aspects of this Plan on ISOs is intended to
comply in every respect with Section 422 of the Code and the regulations
promulgated thereunder. In the event any future statute or regulation shall
modify the existing statute, the aspects of this Plan on ISOs shall be deemed to
incorporate by reference such modification. Any stock option agreement relating
to any Option granted pursuant to this Plan outstanding and unexercised at the
time any modifying statute or regulation becomes effective shall also be deemed
to incorporate by reference such modification and no notice of such modification
need be given to optionee.
If any provision of the aspects of this Plan on ISOs is determined
to disqualify the shares purchasable pursuant to the Options granted under this
Plan from the special tax treatment provided by Code Section 422, such provision
shall be deemed null and void and to incorporate by reference the modification
required to qualify the shares for said tax treatment.
22. COMPLIANCE WITH OTHER LAWS AND REGULATIONS. The Plan, the grant and
exercise of Options thereunder, and the obligation of the Corporation to sell
and deliver Stock under such options, shall be subject to all applicable federal
and state laws, rules, and regulations and to such approvals by any government
or regulatory agency as may be required. The Corporation shall not be required
to issue or deliver any certificates for shares of Stock prior to (a) the
listing of such shares on any stock exchange or over-the-counter market on which
the Stock may then be listed and (b) the completion of any registration or
qualification of such shares under any federal or state law, or any ruling or
regulation of any government body which the Corporation shall, in its sole
7
<PAGE>
discretion, determine to be necessary or advisable. Moreover, no Option may be
exercised if its exercise or the receipt of Stock pursuant thereto would be
contrary to applicable laws.
23. DISPOSITION OF SHARES. In the event any share of Stock acquired by
an exercise of an Option granted under the Plan shall be transferable other than
by will or by the laws of descent and distribution within two years of the date
such Option was granted or within one year after the transfer of such Stock
pursuant to such exercise, the optionee shall give prompt written notice thereof
to the Corporation or the Stock Option Committee.
24. NAME. The Plan shall be known as the "T/F Purifiner 1996 Stock
Option Plan."
25. NOTICES. Any notice hereunder shall be in writing and sent by
certified mail, return receipt requested or by facsimile transmission (with
electronic or written confirmation of receipt) and when addressed to the
Corporation shall be sent to it at its office, 3020 High Ridge Road, Suite 100,
Boynton Beach, Florida 33426 and when addressed to the Committee shall be sent
to it 3020 High Ridge Road, Suite 100, Boynton Beach, Florida 33426, subject to
the right of either party to designate at any time hereafter in writing some
other address, facsimile number or person to whose attention such notice shall
be sent.
26. HEADINGS. The headings preceding the text of Sections and
subparagraphs hereof are inserted solely for convenience of reference, and shall
not constitute a part of this Plan nor shall they affect its meaning,
construction or effect.
27. EFFECTIVE DATE. This Plan, the T/F Purifiner, Inc. 1996 Stock Option
Plan, was adopted by the Board of Directors of the Corporation on
____________________. The effective date of the Plan shall be the same date.
Dated as of _________, 1996.
T/F PURIFINER, INC.
By:___________________________
Its: President
8
<PAGE>
[NSO GRANT FORM]
T/F PURIFINER, INC.
3020 High Ridge Road, Suite 100
Boynton Beach, Florida 33426
Date: __________
___________
___________
___________
Dear __________:
The Board of Directors of T/F Purifiner, Inc.(the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1996 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. TYPE OF OPTION. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
3. TIME OF EXERCISE. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. METHOD OF EXERCISE. The Options shall be exercised by written notice
to the Chairman of the Board of Directors at the Corporation's principal place
of business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to
1
<PAGE>
the Corporation in full payment for the Stock or that number of already owned
shares of Stock equal in value to the total Exercise Price of the Option. We
shall make delivery of the shares of Stock subject to the conditions described
in Section 13 of the Plan.
5. TERMINATION OF OPTION. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of grant
pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your employment
terminates with the Corporation and any of its subsidiaries included in the
Plan, if such employment termination occurs by reason of your death or by reason
of your permanent disability (as defined above).
6. SECURITIES LAWS.
The Option and the shares of Stock underlying the Option have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. BINDING EFFECT. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
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<PAGE>
8. DATE OF GRANT. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:_______________________________
President
AGREED AND ACCEPTED:
____________________
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Date: ________________
T/F PURIFINER, INC.
3020 High Ridge Road, Suite 100
Boynton Beach, Florida 33426
________________
________________
________________
Dear _______________:
The Board of Directors of T/F Purifiner, Inc.(the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1996 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and under-stand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. TYPE OF OPTION. You are granted an ISO. Please see in particular
Section 11 of the Plan.
2. RIGHTS AND PRIVILEGES. Subject to the conditions hereinafter set
forth, we grant you the right to purchase __________ shares of Stock at
$__________ per share, the current fair market value of a share of Stock. The
right to purchase the shares of Stock accrues in __________ installments over
the time periods described below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
<PAGE>
3. TIME OF EXERCISE. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. METHOD OF EXERCISE. The Options shall be exercised by written notice
to the Chairman of the Board of Directors at the Corporation's principal place
of business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. TERMINATION OF OPTION. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) _____________, 199___, being __________ years from the date of
grant pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of thirty (30) days following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
(c) The expiration of 12 months following the date your employment
terminates with the Corporation and any of its subsidiaries included in the
Plan, if such employment termination occurs by reason of your death or by reason
of your permanent disability (as defined above).
6. SECURITIES LAWS.
The Option and the shares of Stock underlying the Option have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
2
<PAGE>
7. BINDING EFFECT. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. DATE OF GRANT. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:_______________________________
President
AGREED AND ACCEPTED:
____________________
3
<PAGE>
[NSO GRANT FORM
WITH RELOAD OPTIONS]
T/F PURIFINER, INC.
3020 High Ridge Road, Suite 100
Boynton Beach, Florida 33426
Date: __________
___________
___________
___________
Dear __________:
The Board of Directors of T/F Purifiner, Inc. (the "Corporation") is
pleased to award you an Option pursuant to the provisions of the 1996 Stock
Option Plan (the "Plan"). This letter will describe the Option granted to you.
Attached to this letter is a copy of the Plan. The terms of the Plan also set
forth provisions governing the Option granted to you. Therefore, in addition to
reading this letter you should also read the Plan. Your signature on this letter
is an acknowledgement to us that you have read and understand the Plan and that
you agree to abide by its terms. All terms not defined in this letter shall have
the same meaning as in the Plan.
1. TYPE OF OPTION. You are granted an NSO. Please see in particular
Section 11 of the Plan.
2. RIGHTS AND PRIVILEGES.
(a) Subject to the conditions hereinafter set forth, we grant you
the right to purchase __________ shares of Stock at $__________ per share, the
current fair market value of a share of Stock. The right to purchase the shares
of Stock accrues in __________ installments over the time periods described
below:
The right to acquire __________ shares accrues on __________.
The right to acquire __________ shares accrues on __________.
(b) In addition to the Option granted hereby (the "Underlying
Option"), the Corporation will grant you a reload option (the "Reload Option")
as hereinafter provided. A Reload Option is hereby granted to you if you acquire
shares of Stock pursuant to the exercise of the Underlying Option and pay for
1
<PAGE>
such shares of Stock with shares of Common Stock already owned by you (the
"Tendered Shares"). The Reload Option grants you the right to purchase shares of
Stock equal in number to the number of Tendered Shares. The date on which the
Tendered Shares are tendered to the Corporation in full or partial payment of
the purchase price for the shares of Stock acquired pursuant to the exercise of
the Underlying Option is the Reload Grant Date. The exercise price of the Reload
Option is the fair market value of the Tendered Shares on the Reload Grant Date.
The fair market value of the Tendered Shares shall be the low bid price per
share of the Corporation's Common Stock on the Reload Grant Date. The Reload
Option shall vest equally over a period of __________ (___) years, commencing on
the first anniversary of the Reload Grant Date, and on each anniversary of the
Reload Grant Date thereafter; however, no Reload Option shall vest in any
calendar year if it would allow you to purchase for the first time in that
calendar year shares of Stock with a fair market value in excess of $100,000,
taking into account ISOs previously granted to you. The Reload Option shall
expire on the earlier of (i) __________ (___) years from the Reload Grant Date,
or (ii) in accordance with Paragraph 5(b), or (iii) in accordance with Paragraph
5(c) as set forth herein. If vesting of the Reload Option is deferred, then the
Reload Option shall vest in the next calendar year, subject, however, to the
deferral of vesting previously provided. Except as provided herein the Reload
Option is subject to all of the other terms and provisions of this Agreement
governing Options.
3. TIME OF EXERCISE. The Option may be exercised at any time and from
time to time beginning when the right to purchase the shares of Stock accrues
and ending when they terminate as provided in Section 5 of this letter.
4. METHOD OF EXERCISE. The Options shall be exercised by written notice
to the Chairman of the Board of Directors at the Corporation's principal place
of business. The notice shall set forth the number of shares of Stock to be
acquired and shall contain a check payable to the Corporation in full payment
for the Stock or that number of already owned shares of Stock equal in value to
the total Exercise Price of the Option. We shall make delivery of the shares of
Stock subject to the conditions described in Section 13 of the Plan.
5. TERMINATION OF OPTION. To the extent not exercised, the Option shall
terminate upon the first to occur of the following dates:
(a) __________, 199_, being __________ years from the date of grant
pursuant to the provisions of Section 2 of this Agreement; or
(b) The expiration of three months following the date your
employment terminates with the Corporation and any of its subsidiaries included
in the Plan for any reason, other than by reason of death or permanent
disability. As used herein, "permanent disability" means your inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
not less than 12 months; or
2
<PAGE>
(c) The expiration of 12 months following the date your employment
terminates with the Corporation and any of its subsidiaries included in the
Plan, if such employment termination occurs by reason of your death or by reason
of your permanent disability (as defined above).
6. SECURITIES LAWS.
The Option and the shares of Stock underlying the Option have not
been registered under the Securities Act of 1933, as amended (the "Act"). The
Corporation has no obligations to ever register the Option or the shares of
Stock underlying the Option. All shares of Stock acquired upon the exercise of
the Option shall be "restricted securities" as that term is defined in Rule 144
promulgated under the Act. The certificate representing the shares shall bear an
appropriate legend restricting their transfer. Such shares cannot be sold,
transferred, assigned or otherwise hypothecated without registration under the
Act or unless a valid exemption from registration is then available under
applicable federal and state securities laws and the Corporation has been
furnished with an opinion of counsel satisfactory in form and substance to the
Corporation that such registration is not required.
7. BINDING EFFECT. The rights and obligations described in this letter
shall inure to the benefit of and be binding upon both of us, and our respective
heirs, personal representatives, successors and assigns.
8. DATE OF GRANT. The Option shall be treated as having been granted
to you on the date of this letter even though you may sign it at a later date.
Very truly yours,
By:_______________________________
President
AGREED AND ACCEPTED:
____________________
________
3
AGREEMENT BETWEEN
T/F SYSTEMS, INC.
AND T/F PURIFINER, INC.
DATED MARCH 1, 1991
(WITH EXHIBITS)
AGREEMENT
---------
This Agreement is effective the first day of March, 1991, and is by and
between T/F Systems, Inc., a corporation of Delaware, having an office and place
of business at 14402 Cypress Island Court, Palm Beach Gardens, Florida 33410
(hereinafter "TFS"), and T/F Purifiner, Inc., a corporation of Delaware, having
an office and place of business at 14402 Cypress Island Court, Palm Beach
Gardens, Florida 33410 (hereinafter "TFP").
On July 30, 1987, Willard H. Taylor and Richard C. Ford (hereinafter "TF")
entered into a distribution and manufacturing agreement (Exhibit A hereto) with
Refineco Manufacturing Company, Inc., then a Florida corporation with a
principal place of business at 3553 Northwest 10th Avenue, Oakland Park, Florida
33309 (hereinafter "Refineco"), for electric refiners, filters and accessories
primarily for engines in vehicles and vessels (hereinafter "refiners") which are
sold under the trademark PURIFINER, and also covered by patents. Subsequently,
that Agreement, pursuant to its terms, was assigned by TF, effective December 4,
1987, to TFS (Exhibit B hereto). Further, worldwide manufacturing and marketing
rights under the Agreement were provided to TFS from Refineco by documents dated
June 18, 1990 and December 10, 1988 (attached hereto as Exhibit C). These
Agreements related to electric refiners, filters and accessories primarily for
engines in vehicles and vessels (hereinafter "refiners") which are sold under
the trademark PURIFINER, and also covered by patents.
Since TFS has worldwide manufacturing and marketing rights with respect to
refiners sold under the trademark PURIFINER;
Since TFS desires to protect its viability for profitability and not to
expose its manufacturing rights to the refiners to the uncertainty of marketing
and other costs of worldwide distribution of the products with no assurance of
profitability;
Since TFS has manufacturing interest and the capability to arrange for
manufacture and is interested in doing the same, for refiners; and
Since TFS is fully aware that TFP may in the future undertake financing
obligations and/or private or public offering of its shares in order to obtain
required funds to properly market the refiners;
Now, therefore, in consideration of the mutual promises set forth in this
Agreement and for the purposes set forth above, TFP and TFS hereby agree as
follows:
1. TFS agrees to sell on an exclusive basis all refiners manufactured by
it to TFP. The cost of sale will be the actual manufacturing cost to TFS plus a
fifteen percent (15%) mark-up over direct cost. Billings from TFS and TFP shall
be on a monthly basis, acceptable terms mutually agreed to from time to time.
<PAGE>
2. TFP is hereby granted by TFS worldwide marketing rights to the
refiners, and will assume all costs of distribution of the refiners including,
but not limited to, all advertising, marketing, selling and distribution costs.
3. TFS will be entitled to and receive a ten percent (105%) net profit
after all costs of manufacturing and other costs of expenses including tooling
amortization and royalty payments due on the sale of refiners pursuant to the
Agreements of July 30, 1987 and June 18, 1990 mentioned above.
4. TFP will not buy refiners from any other source without the express
written approval of TFS.
5. TFS does not warrant that it has any rights aside from those set forth
in the July 30, 1987, December 10, 1988 and June 18, 1990 Agreements.
6. TFS will use, on any literature associated with the refiners sold
pursuant to this Agreement, some sort of indication that TFS is the licensee of
the "PURIFINER" trademark, and may, if TFP desires, reference the patents
covering the refiners as long as those patents are in force.
7. This Agreement will remain in force for fifteen (15) years from the
effective date thereof, at which time it may be renewed by agreement between the
parties. When the patents covering the refiners sold pursuant to the Agreement
expire, royalty payments will no longer be due by TFS to other entities, and
that will no longer be considered a cost to TFS for determining the sales price
of refiners to TFP; however, royalty for the PURIFINER trademark will continue
to be a cost to TFS as long as the trademark is being used and the underlying
Agreements are in force.
8. Neither party will assign any rights or obligations under this
Agreement to any other entity without the written approval of the other party,
which approval will not be unreasonably withheld.
9. Upon breach of this Agreement by either party, the breaching party
will be notified of the breach in writing and will have fifteen (15) days to
correct the breach. If it is not corrected within fifteen (15) days then the
non-breaching party may terminate this Agreement in addition to any other
remedies that it may have.
10. This is the complete understanding between the parties and may not be
modified except in writing and signed by the parties.
11. This Agreement and all terms and provisions thereof will be
interpreted in accordance with the laws of the State of Florida, the courts of
which (Federal and State) will have exclusive jurisdiction.
2
<PAGE>
12. If any provision of this Agreement should be considered invalid by a
court of competent jurisdiction, then the parties will work to reform the
Agreement so as to remove the invalid provision yet effect the intent of the
parties in entering into this Agreement, and the Agreement shall not, merely
because one provision is deemed invalid or unenforceable, terminate.
13. The signatures below indicate complete agreement with the terms set
forth above, executed this 2nd day of September, 1991.
T/F SYSTEMS, INC.
Corporate Seal By: /S/ RICHARD C. FORD
---------------------------------
Richard C. Ford, President
T/F PURIFINER, INC.
By: /S/ WILLARD H. TAYLOR
---------------------------------
Willard H. Taylor, Vice President
Corporate Seal
3
<PAGE>
EXHIBIT A
---------
AGREEMENT
---------
THIS AGREEMENT, made this 30TH day of July, 1987, by and between Refineco
Manufacturing Company, Inc., a Florida corporation, with its principal place of
business at 3553 N.W. 10th Avenue, Oakland Park, Florida 33309 ("REFINECO"), as
Party of the First Part, and WILLARD H. TAYLOR, a natural person residing at
Fort Lauderdale, Florida, and RICHARD C. FORD, a natural person residing in
Jupiter, Florida (collectively "TF").
W I T N E S S E T H:
-------------------
REFINECO is a manufacturing company which manufacturers electric mobile
oil refiners, filters, and accessories ("PRODUCTS"), and sells them under the
trademark "PUREFINER", and is in need of working capital and is desirous of
enlisting the efforts and abilities of TF in distributing PRODUCTS.
TF are interested in loaning working capital to REFINECO, properly secured
and in distributing PRODUCTS.
In consideration of the mutual promises set forth in this Agreement,
REFINECO and TF agree as follows:
1. TF agrees to lend to REFINECO the sum of One Hundred Thousand and
no/100 ($100,000.00) Dollars (the "Loan Amount"). Earlier, TF had required that
REFINECO sever all connections with one William D. Wessinger, in connection with
an exclusive contract for distribution which was entered into between REFINECO
and Wessinger. REFINECO has met with Wessinger, and Wessinger has demanded
<PAGE>
excessive consideration for cancellation of the said distribution agreement,
even though REFINECO represents that Wessinger has not lived up to his
requirements and obligations under said contract. REFINECO represents that it
has given notice to said William D. Wessinger of the termination of said
exclusive contract for distribution of products of REFINECO. REFINECO agrees
that it will defend itself in the event of any litigation which may be brought
by Wessinger against REFINECO, for alleged breach of contract. REFINECO
represents to TF that Wessinger is in default of his undertakings under the said
distribution contract, and that Wessinger has provided no sales of consequence
to REFINECO. By acceptance of the loan amount, REFINECO specifically warrants
that it has no other in-force and/or applicable other agreements which are in
conflict with this agreement, or the rights transferred to TF by this Agreement.
2. Interest will also be paid on THE LOAN AMOUNT. The interest will be
due on each yearly anniversary of the effective date of this agreement, and will
be payable at the rate of 8% per annum, simple interest. Whenever the THE LOAN
AMOUNT is repaid, such as pursuant to any of the conditions set forth in
paragraph 5, below, in addition to the principal being repaid an interest
payment will also be made in the amount of 8% of the THE LOAN AMOUNT times the
number of months since the last anniversary payment (if any). The loan repayment
will not be considered satisfied unless this interest payment is also made. THE
LOAN AMOUNT, plus the appropriate amount of interest at the time of repayment,
is "THE REPAY AMOUNT".
3. THE REPAY AMOUNT will be secured by financing statements signed by
REFINECO and recorded in the records of the Patent and Trademark Office with
2
<PAGE>
respect to U.S. Patents 4,189,351, 4,227,969, and 4,289,583, and the trademark
"PUREFINER", and any presently pending patent applications or intellectual
property rights subsequently acquired by REFINECO. Attached as Exhibits A and B
are a financing statement that will be executed by REFINECO when THE LOAN AMOUNT
is conveyed to REFINECO, and the financing statements will be returned to to TF
for recordation in the records of the Patent and Trademark Office, and the State
of Florida. Upon THE REPAY AMOUNT being actually received by TF, TF will file
releases of the financing statements.
4. TF will become a master distributor of PRODUCTS, and will have
exclusive rights to distribute PRODUCTS for all fields of use, in the States of
Florida, New York, New Jersey, and Massachusetts. TF will be required to carry
an inventory of PRODUCTS sufficient to service the territorial markets assigned
to TF. Initially, the amount of inventory required to be carried shall be
determined by TF, but after 365 days, REFINECO and TF shall consult regarding
the setting of inventory levels by meeting, reviewing sales, areas in which
sales are being made, and the areas wherein are required additional amount of
PRODUCTS. Inventories shall then be adjusted so that the supply of PRODUCTS in a
sales area shall be sufficient to support such markets as determined by TF and
PRODUCTS jointly. There are no initial minimum inventory requirements (aside
form what TF reasonably believe is adequate to support sales efforts in the
States of Florida, New York, New Jersey, and Massachusetts. The $20,500.00
presently due to be paid in September, 1987, from REFINECO to TF shall be
utilized to purchase initial inventory of products for resale by TF in the
market area assigned to TF by REFINECO.
3
<PAGE>
5. THE REPAY AMOUNT will become completely due and immediately payable
upon the occurrence of any one of the three following events:
A. Three years from the effective date of this Agreement.
B. If REFINECO become insolvent, bankrupt, files for bankruptcy,
files for reorganization, or otherwise loses control of its destiny.
C. Should REFINECO enter into any agreement or understanding to sell
REFINECO, or any part thereof (including but not limited to its patent rights or
trademark rights), or to recapitalize (e.g. make a public stock or bond
offering). In this latter event, (C), TF, at their sole option, may elect to
accept, in lieu of THE REPAY AMOUNT, one per cent (1%) of the common voting
stock in REFINECO (just prior to any sale of all or part of REFINECO, or any
recapitalization).
D. REFINECO shall have the continuing right and option to pre-pay,
in full, at any time, THE REPAY AMOUNT.
E. Regardless of whether REFINECO has paid THE REPAY AMOUNT to TF,
TF shall have a continuing option, during the full term of three years from date
hereof, to purchase 1% of all stock of REFINECO, at the purchase price of
$100,000.00, payable in cash, or if THE REPAY AMOUNT has not, at the time TF
desires to exercise this option to purchase stock, been fully paid to TF, TF may
cause such unpaid portion of THE REPAY AMOUNT as it may wish to be credited
against the said stock purchase price.
6. At any time, whether or not THE REPAY AMOUNT is then due, TF may, at
their sole option, convert THE REPAY AMOUNT to one per cent (1%) of the common
4
<PAGE>
voting stock of REFINECO at the time of conversion. The time of conversion will
be considered the time when TF delivers a written demand to REFINECO by hand, or
to a cable or telex company for deliver to REFINECO, or deposits the written
demand addressed to REFINECO in the U.S. registered or certified mail.
7. TF will not engage in the sale of or manufacture of any electrical oil
refiners, filters, or accessories except PRODUCTS, for the duration of this
Agreement, and will not disclose confidential information to others not under an
obligation of confidentiality with REFINECO.
8. TF will not assign any rights or obligations under this Agreement to
any other entity without the written approval of REFINECO, which approval shall
not be unreasonably withheld, except that TF may assign their rights and
obligations under this Agreement to any entity (whether partnership,
corporation, joint venture, etc.) in which they have an ownership interest
(either individually or collectively) of greater than ten per cent (10%), or in
which any child of either Taylor or Ford has an ownership interest, either
individually or collectively with Taylor and Ford, of greater than ten per cent
(10%). In no event, however, shall the interests, territorial assignment, and
rights created hereunder be sold, transferred, or assigned to any entity which
is owned more than five per cent by any company which has a substantive interest
in the oil or petroleum business, either distribution, refining, producing,
transporting or otherwise.
9. Notwithstanding any other provision of this Agreement, should REFINECO
become insolvent to the point that it cannot continue operations, come under the
jurisdiction of the bankruptcy court, and not be released within sixty (60) days
5
<PAGE>
thereafter from such jurisdiction, file for bankruptcy, file for reorganization,
or otherwise lose control of its destiny, or no longer shall be able to supply
PRODUCTS to TF for a continuous period of one hundred five (105) days, TF will
automatically be entitled to commence manufacturing under the non-exclusive
right to manufacture granted to TF simultaneously herewith, and to use, and sell
PRODUCTS in territories assigned to TF under this Agreement (the States of
Florida, New York, New Jersey and Massachusetts), said rights to manufacture to
be under any patent rights of REFINECO, under Patent Numbers 4,189,351,
4,227,969 and 4,289,583, and any presently pending patent applications or
intellectual property rights acquired by REFINECO, or of any entity that may
become owner of the rights, and apply the PURIFINER trademark to the PRODUCTS.
TF will pay to REFINECO, or any entity taking the place of REFINECO under such
circumstances, a royalty of five percent (5%) of TF's sale price of PRODUCTS.
This royalty obligation will remain in full force and effect during the life of
any patents which cover PRODUCTS, but will be reduced to one per cent (1%), upon
the expiration of all patents, which one per cent (1%) rate will be for the
right to use the PURIFINER trademark. If REFINECO is able to reconstitute its
financial status, so that it may continue to manufacture and sell its products,
it may cancel the rights of TF to manufacture products normally manufactured by
REFINECO, by paying any additional costs to TF which TF may have actually
incurred due to the temporary inability of REFINECO to manufacture products for
resale.
10. The provision of paragraphs 4, 7, 8 and 9 of this Agreement wil
remain in effect indefinitely, unless breached by one of the parties, in which
6
<PAGE>
case the breaching party will have thirty (30) days to remedy the breach, after
written notification of the breach by the non-breaching party; otherwise, they
will be in default.
11. Taylor is providing funds of Fifty Thousand and no/100 ($50,000.00)
Dollars as of date of this agreement, July 30, 1987, and Ford is to provide
funds of Fifty Thousand and no/100 ($50,000.00) Dollars and or about August 6,
1987. In the event, for any reason whatsoever, Ford funds are not forthcoming by
August 15, 1987, Taylor has the option to replacing Ford in this agreement by
providing the funds.
12. This is the entire Agreement between REFINECO and TF and any
modifications may be made only in writing. This Agreement will be interpreted in
accordance with the laws of the State of Florida, with jurisdiction by Florida
Courts.
13. The signatures below indicate complete agreement to the terms se
forth above.
Dated this 30TH
day of July, 1987.
REFINECO MANUFACTURING COMPANY, INC.
/S/ BYRON LEFEBVRE
--------------------------------------
BY: BYRON LEFEBVRE, President and CEO
/S/ JELLE P. SCHOEN
--------------------------------------
By: JELLE P. SCHOEN,
Chairman of the Board
Dated this 30TH
day of July, 1987.
/S/ WILLARD H. TAYLOR
-------------------------------------
WILLARD H. TAYLOR
/S/ RICHARD C. FORD
-------------------------------------
RICHARD C. FORD
7
<PAGE>
STATE OF FLORIDA
COUNTY OF BROWARD
Before me personally appeared the above persons to me well known and known to me
to be the persons described in and who executed the foregoing instrument, and
acknowledged to and before me that they executed said instrument for the
purposes therein expressed.
WITNESS my hand and official seal, this 30TH day of JULY , A.D., 1987.
8
<PAGE>
EXHIBIT B
---------
ASSIGNMENT OF AGREEMENT
-----------------------
This Agreement is effective the 4TH day of DECEMBER, 1987 and is by and
between T/F Systems, Inc., a Delaware corporation with an office and place of
business c/o N.A. Taylor Co., Inc., 10 W. 9th Avenue, Gloversville, New York
12078 ("Systems"), on the one hand, and Williard H. Taylor, a natural person
residing in Fort Lauderdale, Florida, and Richard C. Ford, a natural person
residing in Jupiter, Florida (collectively "TF") on the other hand.
TF have an Agreement dated July 30, 1987 with Refineco Manufacturing
Company, Inc., a copy of which Agreement is attached hereto, and TF are desirous
of operating under that Agreement via Systems, and have the right to assign this
Agreement to Systems, its assigns, successors, and legal representatives, since
Systems is an appropriate assignee pursuant to paragraph 8 of that Agreement.
Therefore, in consideration of one dollar ($1.00), and other good and
valuable considerations not specified herein, paid by Systems to TF, TF hereby
grant, assign, and transfer their entire right and interest pursuant to and in
the Agreement of July 30, 1987 to Systems. TF agree to provide Refineco with a
copy of this executed Agreement.
/S/ WILLIARD H. TAYLOR /S/ RICHARD C. FORD
- ------------------------------ --------------------------
Williard H. Taylor Richard C. Ford
Date: 12/4/87 Date: 12/4/87
------------------------- ---------------------
Accepted by T/F Systems Inc.
By:
-----------------------
Name:
Title: Vice President
Date: 12/4/87
------------------------
<PAGE>
EXHIBIT C
---------
June 18, 1990
T/F SYSTEMS, INC.
246 Hampton
Jupiter, FL 33458
Re: Refineco Manufacturing Company, Inc.
Dear Gentlemen:
This is to confirm that since Refineco Manufacturing Company, Inc. has not
fulfilled the conditions and promises I described in my letter to you dated
December 10, 1988, T/F Systems, Inc. has obtained exclusive worldwide
manufacturing and marketing rights with respect to all products produced under
the following properties:
1. U.S. Patent 4,189,351
2. U.S. Patent 4,227,969
3. U.S. Patent 4,289,583
4. Trademark "Purefiner"
5. All pending patents of Refineco
We expect payment of the royalties pursuant to our agreement dated July 30, 1987
and the aforementioned letter dated December 10, 1988.
Very truly yours,
/s/ Byron Lefebvre
REFINECO MANUFACTURING COMPANY, INC.
Byron Lefebvre, President
Sworn to and subscribed before me
this 18TH day of June, 1990.
/S/ SHIRLEY D. BALDONI
- -------------------------------
NOTARY PUBLIC, State of Florida
at Large
My Commission Expires:
<PAGE>
REFINECO
PURIFINER
December 10, 1988
Richard C. Ford
President
T/F Systems, Inc.
4385 Westroads Dr.
West Palm Beach, Fl. 33407
Dear Richard,
Refineco recognizes the fact that we are in breach of our agreement with T/F
Systems in that we have lost control of our destiny and have not been able to
fill your orders for over 105 days.
We know that you can exercise your rights stated in your agreement, dated July
30, 1987, but that you are giving Refineco a chance to rectify its breach under
the following conditions:
1. That Purifiner Distribution Midwest corp., which will be getting the
world-wide manufacturing and marketing rights and will be in production and
furnish T/F Systems product on an exclusive basis for their territory within 18
months.
2. If number one does not occur and T/F Systems decides to exercise its
manufacturing rights and marketing rights, they shall then be able to
manufacture and market the PURIFINER and filters world-wide on an exclusive
basis and pay the same Royalty as specified in the July 30, 1987 agreement with
Refineco Manufacturing Co., Inc.
We all hope that everythig work out well and that you will not have to exercise
your rights.
Sincerely,
/s/ Byron Lefebvre
Byron Lefebvre Richard C. Ford
President President
T/F Systems, Inc.
CC: Frank DePaul /s/ Richard C. Ford
Ron Holmes
ASSET PURCHASE AGREEMENT
BETWEEN
T/F SYSTEMS, INC.
AND
T/F PURIFINER, INC.
DATED DECEMBER 31, 1995
ASSET PURCHASE AGREEMENT
------------------------
THIS ASSET PURCHASE AGREEMENT (the "Agreement') is made as of the 31st day
of December, 1995, by and between T/F SYSTEMS, INC., a Delaware corporation (the
"Seller"), and T/F PURIFINER, INC., a Delaware corporation (the "Buyer").
W I T N E S S E T H:
WHEREAS, Seller desires to sell and assign to Buyer and buyer desires to
purchase and assume from Seller certain assets and liabilities of Seller
according to the terms and conditions hereinafter provided.
NOW, THEREFORE, in consideration of the mutual promises and the agreements
and covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
1. PURCHASE AND SALE OF ASSETS.
1.1 ASSETS PURCHASED. Subject to the terms and conditions set
forth in this Agreement, Seller hereby sells, transfers, conveys and delivers to
Buyer and Buyer hereby purchases from Seller, as of the date hereof (the
"Closing Date") all of the assets, properties and rights of Seller of every type
and description, wherever located as the same shall exist at the close of
business on the Closing Date (except for the Excluded Assets (hereinafter
defined)) (collectively, the "Assets").
1.2 ASSETS NOT PURCHASED.The assets of Seller which are not being
sold, conveyed, assigned or transferred hereunder are all of Seller's rights and
interests in and to the proceeds of that certain Final Judgment in civil
litigation styled T/F SYSTEMS, INC. V. SOUTHEAST CAPITAL FINANCING, ETC., ET
AL., Case No. CL 90 12772 AE, and all of the bond proceeds and other revenues
related thereto (collectively, the "Excluded Assets").
1.3 LIABILITIES ASSUMED. Subject to the terms and conditions set
forth in this Agreement, Seller hereby agrees to transfer and assign, and Buyer
hereby agrees to assume and perform and pay when due, all of the debts,
liabilities, claims, obligations and contracts of Seller of every kind,
character or description, whether accrued, absolute, contingent or otherwise
existing at the Closing Date (except for the Excluded Liabilities (hereinafter
defined)) (collectively, the "Liabilities").
1.4 LIABILITIES NOT ASSUMED. The liabilities of Seller which are
not being assumed by Buyer hereunder are the following:
<PAGE>
1.4.1 Seller's obligation to repay that certain loan owed to
Richard C. Ford in the amount of $268,742.35 (the "Ford Loan");
1.4.2 Seller's obligation to repay that certain loan owed to
the Estate of Willard H.Taylor in the amount of $268,742.35 (the "Taylor Loan");
1.4.3 Seller's liability in respect of those professional
fees owed for the prosecution and collection of the Excluded Assets (the
"Professional Fees") (the Ford Loan, Taylor Loan and Professional Fees are
collectively referred to herein as the "Excluded Liabilities"); and
1.4.4 Seller's liability for repayment of bond proceeds
received in respect of the Excluded Assets.
1.5 TRANSFER COSTS. Buyer hereby agrees to pay all transfer costs
and taxes, documentary stamp taxes and amounts, recording costs, and all sales,
transfer and license taxes, if any, resulting from the transactions contemplated
by this Agreement.
2. PURCHASE PRICE. In addition to the assumption by Buyer of the
Liabilities, in consideration for the consummation by Buyer of the transactions
contemplated hereunder, Buyer does hereby assign to Seller any and all of Buyer
rights and interests in and to the Excluded Assets (the "Purchase Price").
3. SELLER'S WARRANTIES AND REPRESENTATIONS. Seller warrants and
represents to Buyer the following:
3.1 Seller is a corporation duly organized, validly existing, and
in good standing under the laws of the State of Delaware;
3.2 Seller is owner of all of the Assets and at the Closing Date
shall have good and marketable title to the Assets free and clear of all liens
and encumbrances except for (i) the lien of Larry Freedman on Seller's assets in
respect of a promissory note payable to him with an outstanding balance of
$101,804 and (ii) the lien of Caterpillar Financial Co. on a forklift in respect
of a loan to Seller with an outstanding balance of $3,993; and
3.3 Seller has full authorization and right to enter into this
Agreement and by signing this Agreement is not in breach of the terms of any
other agreement or judgment or order of a judicial or administrative agency to
or by which Seller is or may be bound to any third party.
4. BUYER'S WARRANTIES AND REPRESENTATIONS. Buyer warrants and represents
to Seller the following:
2
<PAGE>
4.1 Buyer is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware; and
4.2 Buyer has full authorization and right to enter into this
Agreement and by signing this Agreement is not in breach of the terms of any
other agreement or judgment or order of a judicial or administrative agency to
or by which Buyer is or may be bound to any third party.
5. INDEMNITY.
5.1 In the event that any of the Excluded Assets have been pledged
by Seller as collateral security for any of the Liabilities and any of the
Excluded Assets are foreclosed, levied upon or acquired by a creditor of Seller
(the "Foreclosed Asset") in complete or partial satisfaction of any of the
Liabilities (the "Foreclosure"), Buyer agrees to indemnify Seller for the fair
market value of the Foreclosed Asset within one (1) year of the Foreclosure.
5.2 Except as specifically provided for in Section 5.1 above, Seller
agrees to indemnify Buyer on demand from and against all other liabilities,
obligations, losses, damages, penalties, claims, actions, suits, costs and
expenses, including legal expenses, of whatever kind and nature, imposed on,
incurred or asserted against Buyer, its agents, officers, attorneys, employees,
directors, successors and assigns in any way relating to or arising out of the
Excluded Assets and/or Excluded Liabilities.
6. CLOSING.
6.1 The consummation of the purchase and sale contemplated hereby
(the "Closing") shall take place at the offices of Seller on the Closing Date,
or such other time and place as shall be agreed upon by the parties in writing.
6.2 At Closing, Seller shall deliver or cause to be delivered to
Buyer such bills of sale, endorsements, assignments and other good sufficient
instruments of conveyance and transfer as shall be effective to vest in Buyer
all of Seller's right, title and interest in and to the Assets.
6.3 Simultaneously, upon the consummation of the transfers above,
Seller, through its officers, agents and employees, will put Buyer into full
possession and enjoyment of the Assets conveyed and transferred under this
Agreement.
7. MISCELLANEOUS.
7.1 BINDING EFFECT. All of the terms and provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
3
<PAGE>
the parties and their respective legal representatives, successors and permitted
assigns, whether so expressed or not.
7.2 AMENDMENTS. The provisions of this Agreement may not be
amended, supplemented, waived or changed orally, but only by a writing signed by
the party as to whom enforcement of any such amendment supplement, waiver or
modification is sought and making specific reference to this Agreement.
7.3 SEVERABILITY. If any provision of this Agreement or any other
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be inapplicable
and deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible. If any provision of this Agreement may be
construed in two or more ways, one of which would render the provision invalid
or otherwise voidable or unenforceable and another of which would render the
provision valid and enforceable, such provision shall have the meaning which
renders it valid and enforceable.
7.4 NOTICES. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
(including electronic transmission) and shall be (as elected by the person
giving such notice) hand delivered by messenger or courier service,
electronically transmitted, or mailed (airmail if international) by registered
or certified mail (postage prepaid), return receipt requested, addressed to:
If to Buyer: If to Seller:
T/F Purifiner, Inc. T/F Systems, Inc.
3020 High Ridge Road, Suite 100 3020 High Ridge Road, Suite 100
Boynton Beach, Florida 33426 Boynton Beach, Florida 33426
Attn: President Attn: President
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date of transmission with
confirmed answer back if by electronic transmission; and (c) on the date upon
which the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable, as the case may be, if
mailed.
7.5 SURVIVAL. All covenants, agreements, representations and
warranties made herein or otherwise made in writing by any part pursuant hereto
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
4
<PAGE>
7.6 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, are not to be considered a part of the Agreement
and shall not limit or otherwise affect in any way the meaning or interpretation
of this Agreement.
7.7 THIRD PARTIES. Unless expressly stated herein to the contrary,
nothing in this Agreement, whether express or implied, is intended to confer any
rights or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective legal representatives, successors
and permitted assigns. Nothing in this Agreement is intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provision give any third persons any right of
subrogation or action over or against any party to this Agreement.
7.8 GOVERNING LAW. This Agreement and all transactions contemplated
by this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Florida.
7.9 FURTHER ASSURANCES. The parties hereby agree from time to time
to execute and deliver such further and other transfers, assignments and
documents and do all matters and things which may be convenient or necessary to
more effectively and completely carry out the intentions of this Agreement.
7.10 ENTIRE AGREEMENT. This Agreement represents the entire
understanding and agreement between the parties with respect to the subject
matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and between such parties.
IN WITNESS WHEREOF, each of the parties hereto has dully executed this
Agreement the day and year first above written.
T/F/ SYSTEMS, INC., a Delaware
corporation
By: /S/ RICHARD C. FORD, PRESIDENT
------------------------------
Richard C. Ford, President
T/F/ PURIFINER, INC., a Delaware
corporation
By: /S/ RICHARD C. FORD, PRESIDENT
------------------------------
Richard C. Ford, President
5
STOCK EXCHANGE AGREEMENT
BETWEEN
D.B. FILTERS, INC.,
BYRON LEFEBVRE AND ROBERT MEYER,
AND
T/F PURIFINER, INC.
(WITH EXHIBITS)
STOCK EXCHANGE AGREEMENT
------------------------
This Stock Exchange Agreement (this "Agreement") is made as of the 23rd
day of March, 1996, by and between D.B. Filters, Inc., a Florida corporation
("DB"), Mr. Byron Lefebvre, as owner of 80.1% and Robert Meyer, as owner of
19.9% of DB outstanding common stock ("Shareholders"), and T/F Purifiner, Inc.,
a Delaware corporation ("TFP").
WITNESSETH:
WHEREAS, Shareholders desire to exchange and transfer to TFP and TFP
desires to acquire all the outstanding shares, representing 100% of DB according
to the terms and conditions herein provided.
NOW, THEREFORE, in consideration of the mutual promises and the agreements
and covenants contained in this Agreement, and for other good and valuable
considerations, the receipt and adequacy of which are hereby acknowledged, the
parties hereby agree as follows:
1. SHARES. Subject to the terms and conditions set forth in this
Agreement, Shareholders hereby exchange, transfer, convey and deliver to TFP and
TFP hereby acquires from Shareholders, as of the date hereof (the "Closing
Date") all of the outstanding shares of DB representing 100% ownership of DB.
1.1 TRANSFER COSTS. TFP hereby agrees to pay all transfer costs and
taxes, documentary stamp taxes and amounts, recording costs, and all sales,
transfer and license taxes, if any, resulting from the transaction contemplated
by this Agreement.
2. PURCHASE PRICE. Buyer agrees to issue to Shareholders .027777% of its
Common Stock, which shares will be equivalent to 50,000 shares after TFP
completes its stock split in anticipation of a proposed initial public offering
through Whale Securities, L.P.
3. DB AND SHAREHOLDERS WARRANTIES AND REPRESENTATIONS. DB and its
Shareholders warrant and represent to TFP the following:
3.1 DB is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Florida.
3.2 DB is owner of all its Assets and Liabilities (listed on
Appendix A) and at the Closing Date shall have good and marketable title to the
Assets free and clear of all liens and encumbrances, and
<PAGE>
3.3 Shareholders are owners of 100% of the common stock of DB and
at the Closing Date shall have good and marketable title to the DB common stock
free and clear of all liens and encumbrances.
3.4 DB and Shareholders have full authorization and right to enter
into this Agreement and by signing this Agreement are not in breach of the terms
of any other agreement or judgment or order of a judicial or administrative
agency to or by which DB or Shareholders are or may be bound to any third party.
4. TFP WARRANTIES AND REPRESENTATIONS. TFP warrants and represents to
Shareholders the following:
4.1 TFP is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware; and
4.2 TFP has full authorization and right to enter into this
Agreement and by signing this Agreement is not in breach of the terms of any
other agreement or judgment or order of a judicial or administrative agency to
or by which TFP is or may be bound to any third party.
5. INDEMNITY.
5.1 DB and its Shareholders agree to indemnify TFP on demand from
and against all other liabilities, obligations, losses, damages, penalties,
claims, actions, suits, costs and expenses, including legal expenses, of
whatever kind and nature, imposed on, incurred or asserted against TFP, its
agents, officers, attorneys, employees, directors, successors and assigns in any
way relating to or arising out of the acquisition of DB's common stock or from
any misrepresentation by DB or its Shareholders as to the assets, liabilities or
equity of DB at the Closing Date of this merger.
6. CLOSING.
6.1 The consummation of the stock exchange contemplated hereby (the
"Closing") shall take place at the offices of TFP on the Closing Date, or such
other time and place as shall be agreed upon by the parties in writing.
6.2 At Closing, Shareholders shall deliver or cause to be delivered
to TFP such share certificates and other good sufficient instruments of
conveyance and transfer as shall be effective to vest in TFP all of
Shareholders' right, title and interest in and to the Shares.
6.3 Simultaneously, upon the consummation of the exchanges above,
Shareholders through its officers, agents and employees, will put TFP into full
2
<PAGE>
possession and enjoyment of the Shares conveyed and transferred under this
Agreement.
7. MISCELLANEOUS.
7.1 BINDING EFFECT. All of the terms and provisions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties and their respective legal representatives, successors and permitted
assigns, whether so expressed or not.
7.2 AMENDMENTS. The provisions of this Agreement may not be
amended, supplemented, waived or changed orally, but only by a writing signed by
the party as to whom enforcement of any such amendment, supplement, waiver or
modification is sought and making specific reference to this Agreement.
7.3 SEVERABILITY. If any provision of this Agreement or any other
agreement entered into pursuant hereto is contrary to, prohibited by or deemed
invalid under applicable law or regulation, such provision shall be inapplicable
and deemed omitted to the extent so contrary, prohibited or invalid, but the
remainder hereof shall not be invalidated thereby and shall be given full force
and effect so far as possible. If any provision of this Agreement may be
construed in two or more ways, one of which would render the provision invalid
or otherwise voidable or unenforceable and another of which would render the
provision valid and enforceable, such provision shall have the meaning which
renders it valid and enforceable.
7.4 NOTICES. All notices, requests, consents and other
communications required or permitted under this Agreement shall be in writing
(including electronic transmission) and shall be (as elected by the person
giving such notice) hand delivered by messenger or courier service,
electronically transmitted, or mailed (airmail if international) by registered
or certified mail (postage prepaid), return receipt requested, addressed to:
<TABLE>
<CAPTION>
If to TFP: If to DB or Shareholders:
<S> <C> <C>
T/F Purifiner, Inc. Byron Lefebvre Robert Meyer
3020 High Ridge Road, Suite 100 DB Filters, Inc. 3020 High Ridge Road
Boynton Beach, Florida 33426 1400 NE 7th Court # 309 Suite 100
Attn: President Fort Lauderdale, FL 33334 Boynton Beach, FL 33426
</TABLE>
or to such other address as any party may designate by notice complying with the
terms of this Section. Each such notice shall be deemed delivered (a) on the
date delivered if by personal delivery; (b) on the date of transmission with
confirmed answer back if by electronic transmission; and (c) on the date upon
which the return receipt is signed or delivery is refused or the notice is
designated by the postal authorities as not deliverable, as the case may be, if
mailed.
3
<PAGE>
7.5 SURVIVAL. All covenants, agreements, representations and
warranties made herein or otherwise made in writing by any party pursuant hereto
shall survive the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby.
7.6 HEADINGS. The headings contained in this Agreement are for
convenience of reference only, are not to be considered a part of the Agreement
and shall not limit or otherwise affect in any way the meaning or interpretation
of this Agreement.
7.7 THIRD PARTIES. Unless expressly stated herein to the contrary,
nothing in this Agreement, whether expressed or implied, is intended to confer
any rights or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective legal representatives. successors
and permitted assigns. Nothing in this Agreement is intended to relieve or
discharge the obligation or liability of any third persons to any party to this
Agreement, nor shall any provisions give any third persons any right of
subrogation or action over or against any party to this Agreement.
7.8 GOVERNING LAW. This Agreement and all transactions contemplated
by this Agreement shall be governed by, and construed and enforced in accordance
with, the laws of the State of Florida.
7.9 FURTHER ASSURANCES. The parties hereby agree from time to time
to execute and deliver such further and other transfers, assignments and
documents and do all matters and things which may be convenient or necessary to
more effectively and completely carry out the intentions of this Agreement.
7.10 ENTIRE AGREEMENT. This Agreement represents the entire
understanding and agreement between the parties with respect to the subject
matter hereof, and supersedes all other negotiations, understandings and
representations (if any) made by and between such parties.
4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
Agreement the day and year first above written.
T/F Purifiner, Inc.
a Delaware corporation
By: /S/ RICHARD C. FORD
---------------------------------
Richard C. Ford, President
D.B. Filters, Inc.
a Florida corporation
By: /S/ BYRON LEFEBVRE
---------------------------------
Byron Lefebvre, President
/S/ BYRON LEFEBVRE
---------------------------------
Byron Lefebvre, Individually
/S/ ROBERT MEYER
---------------------------------
Robert Meyer, Individually
5
<PAGE>
FIRST AMENDMENT TO STOCK EXCHANGE AGREEMENT
This First Amendment to Stock Exchange Agreement dated as of March 23,
1996 is made as of March 23, 1996 by and among DB Filters, Inc., Mr. Byron
Lefebvre and Mr. Robert Meyer and T/F Purifiner, Inc.
WITNESSETH
WHEREAS, the parties are parties to the Stock Exchange Agreement
referenced above (the "Stock Exchange Agreement").
NOW, THEREFORE in consideration of the mutual promises and the agreements
and covenants contained in this Agreement and for other good and valuable
consideration, the receipt and adequacy of which we hereby acknowledge, the
parties hereby agree as follows:
1) The "Closing Date" as such term is defined in the Stock Exchange
Agreement shall be May 20, 1996, not withstanding anything to the contrary
contained in the Stock Exchange Agreement.
IN WITNESS WHEREOF, each of the parties hereto has duly executed this
First Amendment as of the date and year first written above.
T/F Purifiner, Inc.
By: /S/ RICHARD C. FORD
------------------------------
Richard C. Ford
President
D.B. Filters, Inc.
By: /S/ BYRON LEFEBVRE
-----------------------------
Byron Lefebvre
President
/S/ BYRON LEFEBVRE
-----------------------------
Byron Lefebvre
Individually
/S/ ROBERT MEYER
-----------------------------
Robert Meyer
Individually
<PAGE>
APPENDIX A
DB FILTERS, INC.
Assets: $0
Liabilities, including all contingent
and unasserted liabilities: $0
Rights:
100% ownership of the bypass filter royalty rights pursuant to Assignment
agreement with T/F Purifiner, Inc., dated April 14, 1994, and 100% ownership
interest to the North American filter element manufacturing rights pursuant to
Agreement with T/F Purifiner, Inc. and TF Systems, Inc., dated November 26,
1993.
<PAGE>
ASSIGNMENT
----------
WHEREAS, I Byron Lefebvre, residing in Ft. Lauderdale, Florida
(hereinafter ASSIGNOR), have invented certain new and useful Improvements in a
by-pass oil filter for the purpose of reducing risk of oxidation and
acidification in engine oil and/or method of production and/or use thereof,
disclosed in Exhibit A attached to this Agreement, and any subsequent
improvements therein (hereafter collectively "The Invention"); and
WHEREAS, T/F Purifiner, Inc., a Delaware corporation having a place of
business at 3020 High Ridge Road, Suite 100, Boynton, Florida 33426 (hereinafter
ASSIGNEE), is desirous of acquiring the entire right, title and interest in and
to The Invention and any Letters Patent that may be granted therefor in the
United States and in any and all foreign countries.
NOW, THEREFORE, in consideration of the mutual promises and undertakings
hereinafter contained, and for other good and valuable consideration by each of
the parties hereto to the other given, receipt and sufficiency of which is
hereby mutually acknowledged, it is hereby agreed by and between the parties
hereto as follows:
ASSIGNOR hereby does sell, assign and transfer unto ASSIGNEE, the full and
exclusive right, title and interest in and to The Invention in the United States
and its territorial possessions and in all foreign countries, and the entire
right, title and interest in and to any and all Letters Patent which may be
granted therefor in the United States and its territorial possessions and in any
and all foreign countries, and in and to any and all divisions, reissues,
continuations, continuation-in-parts and extensions thereof, as well as the
<PAGE>
right of priority thereto under any international convention to which the United
States is a party.
ASSIGNOR hereby authorizes and requests the Patent and Trademark Office
Officials in the United States and any and all foreign countries to issue any
and all of said Letters Patent, for The Invention, to said ASSIGNEE, as the
assignee of my entire right, title and interest in and to the same, for the sole
use and enjoyment of said ASSIGNEE, its successors and assigns.
Further, ASSIGNOR agrees to communicate to ASSIGNEE, or its appointed
legal representatives, any facts known to ASSIGNOR respecting The Invention, and
testify in any legal proceedings, sign all lawful papers, execute all
divisional, continuation, continuation-in-part, renewal and/or reissue
applications, execute all necessary assignment papers to cause any and all of
said Letters Patent to be issued to said ASSIGNEE, its successors and assigns,
to obtain and enforce proper protection for The Invention in the United States
and in any and all foreign countries, without any additional consideration.
ASSIGNEE agrees to pay ASSIGNOR as consideration for this sale of The
Invention to ASSIGNOR a use-based payment consisting of five percent (5%) of the
direct cost plus 15% of producing units of The Invention. All payments or
reports provided for under this Agreement shall be made by ASSIGNEE to ASSIGNOR
on a quarter-yearly basis beginning on the effective date of this Agreement with
subsequent payments or reports being made on or before the first day of April,
July, October, and January in each year during the term of this Agreement.
2
<PAGE>
ASSIGNEE agrees to furnish on the due date of each quarter-yearly payment or
report specified above, a statement of the previous quarter's direct cost of
producing the certified by ASSIGNEE's chief accounting officer, or any other
officer senior to the chief accounting officer, coupled with any
dollar-use-based payment due.
The use-based payments set forth above will be made until the expiration
(or holding of invalidity or unenforceability) of the last to expire US patent
for The Invention. Also, if within eight years of the filing of an application
for The Invention in the United States no patent has issued for The Invention,
however, then all use-based payments will terminate at that time, regardless of
the existence of any patents in any other countries for The Invention
Since ASSIGNEE has full and exclusive right, title, and interest to The
Invention ASSIGNEE will pay for and be solely in charge of patent applications
for The Invention in the United States and all foreign countries that ASSIGNEE
- -- at its sole option -- decides to pursue. ASSIGNEE will also pay all fees
necessary keep all patents granted for The Invention. Also ASSIGNEE has the sole
option of deciding whether or not to pursue infringers of any patents to issue
for The Invention. If the AssIGNEE does successfully pursue infringers, however,
the ASSIGNEE will pay to the ASSIGNOR ten percent (10%) of any net monetary
recovery (that is the gross monetary recovery minus the cost of proceeding
against the infringer) actually received by ASSIGNEE.
If either party fails to fulfill any obligation under this agreement,
notice will be given by the wronged party of the breach, and if the breach is
not cured within thirty (30) days, the wronged party may take whatever legal
3
<PAGE>
action is available and appropriate to enforce the terms of this agreement or to
collect damages for the breach, however recision is not an available remedy to
either party.
This agreement is to be interpreted in accordance with the laws of the
State of Florida, the Courts (Federal and State) of which have exclusive
jurisdiction over any matter arising under this agreement.
This is the only agreement between the parties with respect to this
matter, and no change can be made to this agreement except in writing and signed
by both parties.
IN WITNESS WHEREOF, the parties hereto have affixed their names and seals,
by themselves or their officers thereunto duly authorized, to be effective on
the day and year first above written. See Schedule A which shall become a part
of this Agreement.
ASSIGNOR:
By: /S/ BYRON LEFEBVRE
----------------------------
Byron Lefebvre
ASSIGNEE: T/F Purifiner, Inc.
By: /S/ RICHARD FORD
----------------------------
Name: Richard Ford
Title: President
4
<PAGE>
AGREEMENT
Whereas, Byron Lefebvre, Robert Meyer and Heather Lefebvre are entitled to
receive a 5% royalty (as defined) pursuant to the assignment of a new bypass oil
filter patent to T/F Purifiner, Inc., dated April 15, 1994.
Whereas, such parties have agreed to contribute all rights obtained in the above
agreement to DB Filters, Inc., a Florida Corporation.
The below signed parties do hereby approve and agree to contribute such rights
to DB Filters, Inc. effective as of the date below.
/S/ ROBERT MEYER /S/ HEATHER LEFEBVRE /S/ BYRON LEFEBVRE
- ----------------------- ------------------------ -----------------------
Robert Meyer Heather Lefebvre Byron Lefebvre
Dated: February 15, 1995
<PAGE>
AGREEMENT
Whereas, Byron Lefebvre and T/F Purifiner, Inc. and TF Systems, Inc. are the
parties to an agreement dated November 26, 1993 related to Byron Lefebvre's
ownership of the exclusive rights to manufacture the Purifiner oil filter
elements for T/F Purifiner, Inc./TF Systems, Inc. for North America and other
rights and obligations.
Whereas, Byron Lefebvre is desirous of contributing all such rights and
obligations to DB Filters, Inc., a Florida corporation.
The below signed parties do hereby approve/consent and agree to contribute all
such rights and obligations to DB Filters, Inc. as of the date below.
Consented to by: Approved and Agreed to by:
/S/ RICHARD C. FORD /S/ BYRON LEFEBVRE
- ------------------------------- ---------------------------------------
Richard C. Ford, President Byron Lefebvre, as President of
T/F Purifiner, Inc. DB Filters, Inc. and Individually
TF Systems, Inc.
Dated: February 15, 1995
JOINT VENTURE AGREEMENT
BETWEEN
T/F PURIFINER, INC.,
T/F SYSTEMS, INC.,
CENTRAX LIMITED,
THE BARR FAMILY
AND
A.N. DAVIES
Joint Venture Agreement
DATED: 18TH December 1995
-------------------------
(1) TF Purifiner, Inc.
(2) TF Systems, Inc.
(3) Centrax Limited
(4) The Barr Family
(5) A.N. Davies
<PAGE>
THIS AGREEMENT is made this eighteenth day of December 1995 and is between:
(1) TF PURIFINER, INC. ("TF Inc."), a Delaware Corporation of 3020 High
Ridge Road, Suite 100, Boynton Beach, Florida 33426, United States
of America.
(2) TF SYSTEMS, INC. ("TFS"), a Delaware Corporation of 3020 High Ridge
Road, Suite 100, Boynton Beach, Florida 33426, United States of
America.
(3) CENTRAX LIMITED ("Centrax") whose registered office is at Swift
House, 12A Upper Berkeley Street, London, WlH 7PE.
(4) MR. R. H. H. BARR on his own behalf and on behalf of Mr. C. R. Barr
and Mr. R. A. Barr c/o Centrax Ltd, Shaldon Road, Newton Abbot,
Devon, TQ12 4SQ ("The Barr family").
(5) A.N. DAVIES ("AND") of Caseley Close, Lustleigh, Devon, TQ13 9TN
WHEREAS:
(a) TF Inc. and TFS are in the business of designing, developing,
manufacturing and marketing mobile bypass oil refining units and
filters under the trademark "Purifiner" (hereinafter referred to as
the "Products").
(b) TF Inc. is the exclusive licensee of the US patent Nos. 4,189,351;
4,227,969; 4,289,583; 4,943,352 and pending patent applications and
(TF Inc.) is the registered proprietor of the registered trademarks
in the Territory set out in the Appendix 4 the ("Mark").
(c) TF Inc. and TFS are the owners of the Rights as defined in Clause 2.
IT IS AGREED AS FOLLOWS:
CLAUSE 1. FORMATION OF JOINT VENTURE:
1.1 The parties hereby agree to establish a new Joint Venture Company
having the name TF Purifiner (Europe) Limited ("TF Ltd") and TF
Inc. agrees to make such name available for use by TF Ltd with
it's Articles of Association in the form annexed as Appendix 3 or
such other form of Articles as TF Ltd may from time to time
resolve.
1.2 The business of TF Ltd shall be the exploitation of the Rights in
the Territories or such other activities as TF Ltd may from time
to time resolve.
<PAGE>
CLAUSE 2. RIGHTS:
2.1 TF Inc. and TFS jointly and severally warrant to Centrax, to the
Barr family and to AND that they have all necessary rights to
make possess market or dispose of in any way whatever and to
import to and to commercially exploit the Products in the
Territories referred to in Clause 14 ("the Territory") together
with the right to offer to do any of the foregoing together with
the right to use the Mark ("the Rights") and that they have the
right to assign to Ltd the Rights contained in Clause 2.2.
2.2 By and subject to the terms of this Agreement, TF Ltd is hereby
assigned by TFS and TF Inc. the irrevocable and exclusive rights
to exploit the Rights free of charge in respect of all of the
Products of TF Inc. and TFS (as now existing and developed in the
future) in perpetuity except for royalty payments as defined in
10.2.
2.3 For the avoidance of doubt, TF Inc. and/or TFS shall not be
entitled to exercise their Rights, in the Territory covered by
this Agreement, unless TF Ltd otherwise agrees.
CLAUSE 3. APPROVAL OF MEMBERS:
The provisions of this Agreement are conditional on and will not
take effect until the terms of this Agreement are approved by an
ordinary resolution of the Board members of TF Inc. and TFS in
general meeting and TF Inc. and TFS shall use best endeavors to
procure this as expeditiously as possible and, once obtained, the
provision hereof will apply and in the event that approval is not
obtained by 1st January 1996 this Agreement shall be of no
further force or effect.
CLAUSE 4. SHARE STRUCTURE:
The shareholding in TF Ltd shall be structured as follows:
(1) There shall be an authorized and issued share capital of
55,000 shares, value (pound)1 sterling each to be paid up
by Centrax to be issued in three classes carrying the
rights set out in the Articles of Association as follows:
2
<PAGE>
25,000 'A' shares to Centrax, the Barr Family or a
company representing the Barr family (voting)
25,000 'B' shares to be held by TF Inc.(voting)
5,000 'C' shares to AND (non-voting)
For a shareholder which is a corporation, it shall be
permitted for any class of share to be registered in the
name of an individual provided that such individual holds
the shares as nominee of the shareholder concerned and
written evidence acceptable to the Board of Directors is
produced demonstrating that appointment.
CLAUSE 5. FUNDING:
5.1 If additional financing in excess of the original paid up capital
of(pound)55,000 is needed such additional financing can be
provided either by bank borrowing by TF Ltd or directly or
indirectly by Centrax or the Barr family or a company
representing the Barr family either as capital, non interest
bearing loans or interest bearing loans as determined and agreed
by the voting Directors of the TF Ltd Board and the Centrax Ltd
Board for commercially sound reasons.
5.2 Subject to Clause 5.1, Centrax or the Barr family agree to
support and fund present and future TF Ltd operations until TF
Ltd is self-funding. "Self Funding" shall mean a situation where
TF Ltd is trading without indebtedness to Centrax, or with other
financial support, security or guarantee provided by Centrax or
the Barr family. It is the intention of the parties that TF Ltd
should become self funding as soon as practicable.
CLAUSE 6. DURATION:
6.1 In the event that:- TF Inc. or TFS cease to trade or enters into
liquidation then the Rights assigned under Clause 2.2 shall
continue as the property of TF Ltd including the ownership of all
patents, copyright, design and trademarks relevant to the
Territory.
6.2 In the case of TF Ltd liquidation or closure the Rights will
revert to TF Inc. and TFS.
3
<PAGE>
CLAUSE 7. OWNERSHIP:
7.1 If Centrax ceases to trade or if the Barr family transfers the
whole of their shares in Centrax (more than 50%) as part of a
disposal of Centrax's undertaking, it is agreed by the parties
that those members of the Barr family, or a company representing
the Barr family, who have signed Appendix 6, shall purchase from
Centrax it's shareholding in TF Ltd and take an assignment and
novation of Centrax's rights and obligations under this
Agreement. Thereafter, if any member of the Barr family or a
company representing the Barr family wish to sell their shares in
TF Ltd it will be in accordance with the Articles of Association.
7.2 In the event that the Ford family's holding in TF Inc. falls
below 50% of the voting shares in TF Inc. for whatever reason AND
the Ford family loses executive control of the Board of TF Inc.,
then the 'A' shareholders will have the right to appoint three
voting Directors in respect of the 'A' shares and the 'B'
shareholders will have the right to appoint two voting 'B'
Directors.
CLAUSE 8. DIVIDEND POLICY:
Dividend Policy will be at the discretion of the Directors but
with a minimum payment of 30% of post tax profit after deducting
losses in prior years.
CLAUSE 9. INTELLECTUAL PROPERTY:
Such continued patent copyright design and trademark protection
incurred since May 24, 1995 and agreed by the parties for all
current and future Products in the Territories (as defined in
Appendix 1) will be paid for by TF Ltd. All such rights in the
Territory will be assigned to TF Ltd in perpetuity on the same
basis as in Clause 2.2.
CLAUSE 10. TECHNICAL DEVELOPMENTS:
10.1 The intellectual property rights to any improvements to the
Products produced by TF Ltd shall be the property of TF Ltd. TF
Ltd agrees that the irrevocable exclusive rights to manufacture
and market such improvements outside the Territory will ~e
assigned back to TF Inc. on a similar royalty free basis to the
assignment granted herein save that TF Ltd gives no warranty as
to it's ability to grant such rights or that the exploitation of
the same will not infringe the rights
4
<PAGE>
of third parties save for a warranty that it has not licensed any
third party to exploit the same.
10.2 The rights of all present or future developed designs or improve-
ments or replacement for Products produced by TF Inc. or TFS
shall be conferred to TF Ltd. on the same basis as set out herein
save that in respect of the present royalty agreement that TF
Inc. has in respect to filter elements with Byron Lefebvre and
royalty payments to Robert " Malt, TF Ltd agrees not to act in
any manner to cause TF Inc. to breach those agreements.
CLAUSE 11. INDEMNITY:
TF Inc. and TFS hereby indemnify TF Ltd against all and any loss
costs claim or demand in relation to the use of the Rights and in
relation to any claims regarding the manufacturing or marketing
or intellectual property in the Products in the Territory that
may be made by any third party.
CLAUSE 12. ADMINISTRATION OF TF LTD:
Will be initially as listed hereunder subject to change from time
to time as approved by the Board of TF Ltd.
The auditors shall be:- KPMG, Linacre House, Southernhay East,
Exeter, Devon, England The bankers shall be:- Barclays Bank PLC,
40 Courtenay Street, Newton Abbot, Devon, England The solicitors
shall be:- Messrs Bevan Ashford, Curzon House, Southernhay West,
Exeter, Devon, EX4 3LY, England The Registered Office shall be:-
C/O Messrs Bevan Ashford, Curzon House, Southernhay West, Exeter,
Devon, EX4 3LY, England The Company Secretary shall be:- To be
appointed
The Accounting Reference Date shall be:- December 31st 1996
Secretarial and personnel services shall be provided by TF Ltd.
The following shall be the Directors of TF Ltd.
Richard Henry Howard Barr Richard Charles Ford
Charles Robert Barr Lawrence Arnold Freedman
Albert Neal Davies
5
<PAGE>
Unless otherwise determined by the Board, the business premises
of TF Ltd shall be located at:- C/O Centrax, Shaldon Road, Newton
Abbot, Devon, TQ12 4SQ, England
CLAUSE 13. MANUFACTURE OF THE PRODUCTS:
13.1 The manufacture of the Products will commence in the Territory,
through TF Ltd as soon as the Board of TF Ltd deem it
appropriate. All design detail drawings and production processes
will be passed to TF Ltd on the signing of this Agreement to
allow production to proceed in the Territory as appropriate.
Until such time as the manufacture of the Products by TF Ltd
occurs in the Territory, TF Inc. will supply the Products against
an agreed schedule and price structure as stated in Appendix 2.
13.2 On signing of this Agreement, TF Ltd shall have the right to
purchase individual items direct from the established US sourcing
which TF Inc. and TFS will make available to TF Ltd as TF Ltd
deems desirable and shall have the right to use TF Inc. and TFS
existing tooling associated thereto on a no charge basis.
13.3 On this Agreement coming into effect by the passing of the reso-
lutions required by Clause 3, the terms of payment requiring 100%
of the purchase price of the units, as defined in Appendix 2
attached, purchased from TF Inc., to be paid by wire transfer
upon the placing of orders, will become valid providing that this
amount will at no time exceed the outstanding balance of $100,000
of unfilled orders and until such time as production commences in
the Territory or an alternative source of supply is agreed.
CLAUSE 14. THE TERRITORY:
The Territory covered by the Agreement is specified in Appendix I
attached.
CLAUSE 15. SUPPORT SERVICES:
TF Inc. and TFS undertake to fully support TF Ltd in all
technical and commercial matters. When TF Ltd requests a visit
from TF Inc. or TFS personnel to it's Territory, TF Ltd will pay
such personnel's reasonable out of pocket expenses.
6
<PAGE>
CLAUSE 16. COSTS:
16.1 Subject to Clause 16.2, the parties shall bear their own costs of
and incidental to the preparation, execution and implementation
of this Agreement.
16.2 Centrax will be entitled to charge TF Ltd all reasonable costs
and expenses incurred arising by virtue of Centrax's investment
and expenditure in setting up an outlet for the Products in the
Territory and in particular those items or heads of cost set out
in Appendix 5 but credit being given for revenue received.
Reasonable costs to be approved by the Board of Directors of TF
Ltd.
CLAUSE 17. CONFIDENTIALITY AND RESTRICTED INFORMATION:
Each Director of each of the parties hereto and of TF Ltd shall
be entitled, whilst he holds office, to make full disclosure to
any shareholder appointing him of any information relating to TF
Ltd which that Director may acquire, but the shareholder and the
Director receiving such information shall, for the duration of
the Agreement and for one year thereafter, keep the same in
strict confidence unless otherwise agreed.
CLAUSE 18. DUTY OF ACTION:
Each party shall, from time to time, do all such acts and execute
all such documents as may reasonably be necessary in order to
give effect to the provisions of this Agreement.
CLAUSE 19. NOTICES AND SERVICE:
Any notice or other information required or authorized under this
Agreement shall be given by hand, telex, cable, facsimile or
prepaid registered first class post (or datapost in the case of
notices on any party outside the UK) to the relevant parties at
the address of the registered or principal office of the relevant
party (or to any such address as may be given by that party in
writing from time to time).
Service shall be deemed to have occurred and been effected two
working days after the date of sending.
CLAUSE 20. ANNOUNCEMENTS:
Except as required by law or the requirements of any stock
exchange, no party shall make any press or public announcements
7
<PAGE>
concerning any aspect of this Agreement without first obtaining
the agreement of the other parties to the text of that
announcement.
CLAUSE 21. NATURE OF AGREEMENT:
Nothing in this Agreement shall create or be deemed to create a
partnership or the relationship of principal and agent between
the parties or any of them. This Agreement contains the entire
Agreement between the parties with respect to it's subject matter
and may not be modified except by an instrument in writing signed
by the duly authorized representatives of the party.
If any provision of this Agreement is held by any court or other
competent authority to be invalid or unenforceable in whole or in
part, this Agreement shall continue to be valid as to it's other
provisions and the remainder of the effected provision.
No failure or delay by any part in exercising any of it's rights
under this Agreement shall be deemed to be a waiver thereof and
no waiver of a breach of any provision of this Agreement shall be
deemed to be a waiver of any subsequent breach of the same of any
other provision.
CLAUSE 22. ARBITRATION:
Any dispute between the parties arising from this Agreement shall
be referred to and determined by arbitration under the
International Arbitration Rules of the London Court of
International Arbitration.
This Clause shall not preclude the making of an application to
the Court for injunctive relief.
CLAUSE 23. JURISDICTION:
This Agreement shall be governed by and construed in accordance
with the Laws of England.
The parties hereby agree to submit to the non-exclusive
jurisdiction of the English Courts.
8
<PAGE>
CLAUSE 24. BINDING NATURE:
The benefit and burden of this Agreement shall be binding on any
permitted transferee of the shares in TF Ltd.
CLAUSE 25. BREACH OF AGREEMENT:
If any of the parties hereto fails to fulfill any obligation
hereunder any injured party may give written notice of the breach
to the defaulting party and if the breach is not remedied within
30 days the injured party may take whatever legal action is
available to enforce the terms of this Agreement and to recover
damages for breach provided always that rescission or termination
shall not be a remedy available to any party. The election of any
one or more remedy by any of the parties hereto shall not
constitute a waiver by such party of the right to pursue any
other available remedy.
CLAUSE 26. ARTICLES OF ASSOCIATION
In the event of conflict the terms of Clause 7.2 hereof will
prevail over those of the Articles of Association.
AS WITNESS whereof the parties have signed this Agreement the day and year first
before hand
SIGNED BY: RICHARD C. FORD )
------------------------------
/s/conformed )
for and on behalf of TF Purifiner, Inc. )
in the presence of:
SIGNED BY: RICHARD C. FORD )
------------------------------
/s/conformed )
for and on behalf of TF Systems, Inc. )
in the presence of:
SIGNED BY: RICHARD ANTHONY BARR )
for and on behalf of Centrax Limited )
in the presence of: )
9
<PAGE>
SIGNED BY: RICHARD HENRY HOWARD BARR )
for and on behalf of Barr family )
in the presence of: )
SIGNED BY: ALBERT NEAL DAVIES )
in the presence of: )
10
<PAGE>
APPENDIX
--------
TERRITORY
---------
COMPRISING OF THE FOLLOWING COUNTRIES:
--------------------------------------
E.E.C. COUNTRIES E.F.T.A COUNTRIES SOVIET UNION
- ---------------- ----------------- ------------
(former)
Belgium Austria Comprising:-
Denmark Finland Armenia
France Iceland Belarus
Germany Norway Estonia
Greece Sweden Georgia
Irish Republic Switzerland Kazakhstan
Italy Kyrgyzstan
Luxembourg Latvia
Netherlands Lithuania
Portugal Moldova
Spain Russia
United Kingdom Tajikistan
Ukraine
Uzbekistan
EASTERN EUROPEAN MIDDLE EAST YUGOSLAVIA
- ---------------- ----------- ----------
(former)
Albania Arab Emirates Comprising:-
Bulgaria Bahrain Bosnia
Cyprus Iran Croatia
Czech Republic Iraq Herzegovina
Gibraltar Israel Macedonia
Hungary Jordan Serbia
Malta Kuwait Slovenia
Poland Lebanon
Romania Oman
Slovakia Qatar
Turkey Saudi Arabia
Syria
Yemen
AFRICA
- ------
Egypt
S. African Republic
All other territories world-wide, with the exception of USA and Mexico, to be
open to supply by Agreement with TF Inc.
<PAGE>
<TABLE>
<CAPTION>
Appendix 2
TF PURIFINER, INC. 1995/1996 PRICES TO TF PURIFINER (EUROPE) LTD
----------------------------------------------------------------
Batch
UNITS TF-8 TF-12 TF-24 TF-40 TF-60 TF-240 Refiner
- ----- ---- ----- ----- ----- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Suggested W/D
Selling Price $134 $278 $308 $359 $384 $539 $3,521
Cost TF (RM, Labour
and Malt Royalty) $58.30 $96.05 $109 $124.10 $129.45 $148.85 $1,250.30
Current J.V. Cost/Unit $86 $141 $160 $182 $189 $217 $1,826
FILTERS (PER CASE)
- ------------------
Current W/D Selling Price $97 $87 $53 $74 $85 $119
Cost TF (RM, Labour and
Malt Royalty) $57.65 $21.32 $13.20 $17.26 $22.33 $27.41
J.V. Cost/Case $65.15 $31.80 $19.70 $25.75 $33.35 $40.90
Filter Royalty (5.75%)
plus* $3.99 $2.63 $2.00 $2.40 $2.86 $3.31
J.V. Cost/Case $69.14 $34.43 $21.70 $28.15 $36.21 $44.21
* Additional cost for changes to filter for increased cotton ($.50, improved
felt pads ($.20) and additive cost (for $.48 case to $.96 case) Subject to
normal future price increases related to inflation and supported cost
increases
</TABLE>
<PAGE>
APPENDIX 3
----------
Draft 11 December 1995:
The Companies Act 1985 - 1989
----------------------
COMPANY LIMITED BY SHARES
----------------------
ARTICLES OF ASSOCIATION
OF
T.F. PURIFINER (EUROPE) LIMITED
(adopted by Special Resolution passed on [_______________]
199___)
================================================================================
PRELIMINARY
1. The regulations contained in Table A in the Companies (Tables A to F)
Regulations 1985 (as amended so as to affect companies first registered
on the date of the adoption of these Articles) shall, except as
hereinafter provided and so far as not excluded by or inconsistent with
the provisions of these Articles, apply to the Company to the exclusion
of all other regulations or Articles of Association. References herein
to regulations in the said Table A unless otherwise stated.
SHARE CAPITAL
2. The share capital of the Company at the date of the adoption of these
Articles is(pound)55,000 divided in 25,000 'A' Shares of (pound)1 each
and 5,000 'C' Shares of(pound)1 each. In the event that any 'A' Shares
are transferred to a holder of 'B' Shares they shall automatically
become denominated as 'B' Shares as the case may be and vice versa. The
said 'A' 'B' and 'C' shares shall carry the respective voting rights
and rights to appoint and remove Directors and be subject to the
restrictions on transfer hereinafter provided, but in all other
respects shall be identical and rank pari passu in all respects.
<PAGE>
ISSUE OF SHARES
3. Subject to Section 80 of the Companies Act 1985, all unissued shares
shall be at the disposal of the Directors and Section 89(1) of the
Companies Act 1985 shall not apply.
TRANSFER OF SHARES
4.1 Subject to the provisions of Regulation 24 any shares may at any time
be transferred:-
(a) by any individual member to the spouse mother father sister
brother child or grandchild "privileged relation" of such member;
or
(b) by any such individual member to trustees to be held upon trust
for such member and/or any privileged relation of such member
("the family trusts")
(c) by any member being a company to a member of the same group of
companies as the transferor company;
(d) by any person entitled to shares in consequence of the death or
bankruptcy of an individual member to any person or trustee to
whom such individual member, if not dead or bankrupt, would be
permitted hereunder to transfer the same; or
4.2 If a person to whom shares have been transferred pursuant to Article
4.1(b) shall cease to be a privileged relation or trustee, such person
shall be bound, if and when required in writing by the Directors so to
do, to give a transfer notice in respect of the shares concerned
4.3 If a transferee company ceases to be a member of the same group as the
transferor company from which (whether directly or by a series of
transfers under Article 4.1 shares derived) it shall be the duty of the
transferee company to notify the Directors of the Company in writing
that such event has occurred and the transferee company shall be bound,
if and when required in writing by the Directors so to do, to give a
transfer notice in respect of those Shares
4.4 Except as provided in paragraphs 4.1 to 4.3 no share in the Company
shall be transferred by any member or other person entitled to transfer
the same otherwise than in accordance with the following provisions:-
(a) Any member or other person proposing to transfer any share
(hereinafter referred to as "the proposing transferor") shall
2
<PAGE>
give notice in writing
(hereinafter called "the transfer notice") to the Company that he
desires to transfer the same. A transfer notice shall, on receipt
by the Company, constitute the Company the agent of the proposing
transferor for the sale to any member of the Company or any
person approved by the Directors as eligible to be a member of
the Company of the shares referred to therein at the fair value
to be determined in accordance with sub Article (b) hereof. A
transfer notice shall not be revocable except with the sanction
of the Directors
(b) The fair value of the shares included in a transfer notice shall
be determined within 30 clear days of the transfer notice by the
Auditor for the time being of the Company who shall at the
request and expense of the Company certify in writing the sum
which in his opinion is the fair value of the shares included int
he transfer notice as at the date of the transfer notice. In
certifying the fair value of the shares the Auditor shall be
considered to be acting as an expert and not as an arbitrator and
accordingly any provisions of law or statute relating to
arbitration shall not apply
(c) Within 10 clear days of the receipt of the Auditor's certificate
any share included in any transfer notice shall in the first
place be offered at the fair value by written notice (hereinafter
called "the offer notice") to the other shareholders pro-rata
amongst those other Shareholders their respective shareholdings.
The offer notice shall specify the date of receipt by the Company
of the transfer notice and the fair value of the shares as
certified by the Auditor and shall invite the offeree to accept
all or any of the shares so offered. The offer notice shall
further limit the time in which the offer may be accepted (being
not more than twenty clear days from the date of the offer
notice) and if any person does not before expiry of such limit
accept by notice in writing any share offered to him the offer in
respect of any such share shall lapse
(d) In the event any share comprised in the offer notice is not
agreed to be purchased within the time for acceptance of the
offer contained in the offer notice any share not so taken by the
offeree named in the offer notice shall forthwith be offered by
notice in writing at the fair value (hereinafter called "the
option notice") to the members (other than the proposing
transferor or to
3
<PAGE>
the member who did not accept the offer notice) as nearly as
maybe in proportion to the shares held by them respectively. The
option notice shall limit the time in which the offer may be
accepted (being not more than 10 clear days from the date of the
option notice) and if any member does not before expiry of such
limit claim by notice in writing any share offered to him it
shall be applied in accordance with sub Article (e) below. The
Directors shall apply any share representing fractional
entitlements in such manner as they shall think fit
(e) If any share comprised in the option notice is not agreed to be
purchased the member serving the transfer notice may forthwith
offer any such share at not less than the fair value to any other
person
(f) The Directors may refuse to register a transfer of a share under
this Article 4.4 if the transferee is not an existing member of
the Company.
(g) The provisions of this Article 4.4 shall not apply if all of the
'A' Members and 'B' Members of the Company consent in writing
PROCEEDING AT GENERAL MEETINGS
5. Unless agreed by the holders of a majority of the issued 'A' Shares and
'B' Shares all general meetings of the Company shall be held in the UK.
6. The quorum at any General Meeting shall be two or more members present
in person or by proxy including one person being or representing a
holder of any of the 'A' Shares and one person being or representing a
holder of any of the 'B' Shares provided that if within thirty minutes
of the time appointed for the meeting such quorum is not present such
meeting shall be adjourned in accordance with Regulation 41. Regulation
40 shall be modified accordingly.
7. Subject to the provisions of the Act a resolution in writing signed by
all the members for the time being entitled to receive notice of and
attend and vote at General Meetings of the Company shall be as
effective as if the same had been passed at a General Meeting of the
Company duly convened and held and may consist of several documents
signed by one or more persons. In the case of a corporation a
resolution in writing may be signed on its behalf by a Director or the
Secretary thereof or by its duly appointed attorney or duly authorised
representative. Regulation 53 shall be extended accordingly.
4
<PAGE>
VOTE OF MEMBERS
8. On a show of hands every member who is the holder of 'A' Shares or the
holder of 'B' Shares present in person shall have one vote, and on a
poll every member who is the holder of 'A' Shares or the holder of 'B'
Shares present in person or by proxy shall have one vote for every
share of which he is the holder. Any Shareholder being the holder of
'C' Shares shall have no right to vote in respect of those 'C' Shares
whether on a show of hands or on a poll. Regulation 54 shall not apply.
9. An instrument appointing a proxy (and, where it is signed on behalf of
the appointor by an attorney, the letter or power of attorney or a duly
certified copy thereof) must either be delivered at such place or one
of such places (if any) as may be specified for that purpose in or by
way of note to the notice convening the meeting (or, if no place is so
specified, at the registered office) at least one hour before the time
appointed for holding the meeting or adjourned meeting or (in the case
of a poll taken otherwise than at or on the same day as the meeting or
adjourned meeting) for the taking of the poll at which it is to be used
or be delivered to the Secretary (or the chairman of the meeting) on
the day and at the place of, but in any event before the time appointed
for holding, the meeting or adjourned meeting or poll. An instrument of
proxy shall not be treated as valid until such delivery shall have been
effected. Regulation 62 shall not apply.
NUMBER OF DIRECTORS
10. The maximum number of Directors shall be five and shall consist of two
persons who shall be designated as 'A' Directors (and shall be deemed
to have been appointed under Article 12 by the holders of the 'A'
Shares) and two persons who shall be designated at 'B' Directors (and
shall be deemed to have been appointed under Article 12 by the holders
of the 'B' Shares) and one person who shall be designated as the 'C'
Director (and shall be deemed to have been appointed under Article 12
by the holders of the 'C' Shares). Regulation 64 shall not apply.
ALTERNATE DIRECTORS
11. The holders of a majority of any one class of shares may at any time
appoint any person (including another Director) to be the alternate
Director of any Director of the relevant class and may at any time
terminate such appointment. Any such appointment or termination of
appointment shall be effected in like manner as provided in Article 14
hereof. The same person may be appointed as the alternate Director of
5
<PAGE>
more than one Director. Regulations 65 to 68 shall not apply.
11.1 The appointment of an alternate Director shall determine on the
happening of any event which if he were a Director would cause him to
vacate such office or if the Director of whom he is the alternate
ceases to be a Director.
11.2 An alternate Director shall be entitled to receive notices of all
meetings of the Directors and of all committees of Directors of which
the Director of whom he is the alternate is a member to attend and vote
and be counted in the quorum at any such meeting at which the Director
of whom he is the alternate is not personally present and generally to
perform all the functions of the Director of whom he is the alternate
in his absence and the provisions of these Articles shall apply as if
he were a Director of the relevant class. If he shall be himself a
Director or shall attend any such meeting as an alternate for more than
one Director his voting rights shall be cumulative.
APPOINTMENT AND REMOVAL OF DIRECTORS
12. The holders of a majority of the 'A' Shares may from time to time
appoint up to two persons to be Directors, and the holders of a
majority of the 'B' Shares may from time to time appoint up to two
persons to be Directors and the holders of the majority of the 'C'
Shares may from time to time appoint one person to be a non-voting
Director. In these Articles the expressions 'A' Director and 'B'
Director and 'C' Director respectively designate Directors according to
the class of shares holders of a majority of which have appointed or
are deemed to have appointed them. The Directors shall not be subject
to retirement by rotation. Regulations 73 to 80 shall not apply.
13. The office of a Director shall be vacated in any of the events
specified in Regulation 81 and also if he shall be removed from office
by the holders of a majority of the relevant class of shares.
14. Any such appointment or removal by the holders of a majority of the
relevant class of shares shall be in writing served on the Company and
signed by the holders of a majority of the issued 'A' Shares or 'B'
Shares or 'C' Shares (as the case may be). In the case of a corporation
such documents may be signed on its behalf by a Director or the
Secretary thereof or by its duly appointed attorney or duly authorised
representative.
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PROCEEDINGS OF DIRECTORS
15. The 'A' Directors and the 'B' Directors and the 'C' Director shall be
entitled to receive notice in accordance with these Articles and to
attend meetings of the Board of Directors. Only the 'A' Directors and
the 'B' Directors will be entitled to vote on resolutions of the Board
of Directors and otherwise conduct the business affairs of the Company
and the 'C' Director shall have no such rights as aforesaid.
16. Unless otherwise agreed by a majority for the time being of the 'A'
Directors and of the 'B' Directors Board Meetings shall be held no less
than two times in every year and twenty-one days' notice shall be given
to each of the Directors of all meetings of the Board, at the address
(within or outside the United Kingdom) notified from time to time by
each Director to the Secretary of the Company and all such meetings
(unless otherwise agreed) shall be held in the United Kingdom. Each
such notice shall contain, inter alia, an agenda specifying in
reasonable detail the matters to be discussed at the relevant meeting,
shall be accompanied by all relevant papers for discussion at such
meeting and, if sent to an address outside the United Kingdom, shall be
sent by courier or by telefax.
17. A quorum at a meeting of Directors shall be two of which one shall be
an 'A' Director and one a 'B' Director, provided that if within thirty
minutes of the time appointed for the holding of any meeting of the
Directors either an 'A' Director or a 'B' Director shall not be present
the Directors present shall resolve to adjourn that meeting to a
specified place and time (which shall not be earlier than three nor
later than seven days after the date originally fixed for the meeting).
An alternate Director shall be counted in the quorum in the same
capacity as his appointor but so that not less than two individuals
will constitute the quorum. Regulation 89 shall not apply.
18. No Director shall be appointed otherwise than as provided in these
Articles. Regulation 90 shall be modified accordingly.
19. Unless the parties otherwise agree there shall be no chairman of the
Board. If a chairman is appointed the person appointed shall not have
a casting vote.
20. All business arising at any meeting of the Directors or of any
committee of the Directors shall be determined only by resolution
provided that if at any quorate meeting an 'A' Director is not present
in person or represented by an alternate the votes of the 'A' Directors
present in person represented by an alternate director shall be pro
tanto increased so that such 'A' Directors shall be entitled to cast
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the same aggregate number of votes as would be cast by all 'A'
Directors if they were all present this proviso also applying to the
'B' Directors mutatis mutandis.
21. On any matter in which a Director is in any way interested provided
that he declares his interest in the manner provided by Section 317 of
the Act he may nevertheless vote and be taken into account for the
purposes of a quorum and (save as otherwise agreed) may retain for his
own absolute use and benefit all profits and advantages directly or
indirectly accruing to him thereunder or in consequence thereof.
Regulations 94 and 98 shall be modified accordingly.
22. A resolution determined on without any meeting of the Directors and
evidenced by writing signed by all the Directors entitled to vote shall
be valid and effective for all purposes as a resolution of the
Directors passed at a meeting duly convened, held and constituted and
the resolution may be contained in several documents in like form each
signed by one or more Directors. Regulation 93 of Table A shall not
apply.
23. Any director enabled to participate in the proceedings of a meeting by
means of a telephone or other communication device which allows all the
other Directors present at such meetings whether in person or by means
of such communication device, to hear at all times such Director and
such Director to hear at all times all other Directors present at such
meeting (whether in person or by means of such type of communication
device) shall be deemed to be present at such meeting and shall be
counted when reckoning a quorum.
INDEMNITY
24. Subject to the provisions of and so far as may be permitted by law,
every Director, Auditor, Secretary or other officer of the Company
shall be entitled to be indemnified by the Company against all costs,
charges, losses, expenses and liabilities incurred by him in the
execution and discharge of his duties or in relation thereto including
any liability incurred by him in defending any proceedings, civil or
criminal, which relate to anything done or omitted or alleged to have
been done or omitted by him as an officer or employee of the Company
and in which judgment is given in his favour (or the proceedings are
otherwise disposed of without any finding or admissions of any material
breach of duty on his part) or in which he is acquitted or in
connection with any application under any statute for relief from
liability in respect of any such act or omission in which relief is
granted to him by the Court. Regulation 118 shall not apply.
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DIRECTORS' LIABILITY INSURANCE
25. Without prejudice to any other provision of these Articles the
directors may purchase and maintain insurance for or for the benefit of
any persons who are or were at any time directors, officers or
employees of the Company, or of any company which is a subsidiary or
subsidiary undertaking of the Company, or of any other company in which
the Company has any interest whether direct or indirect or which is in
any way allied to or associated with the Company or any such
subsidiary, or of any of the predecessors in business of the Company or
any such other company as aforesaid, or who are or were at any time
trustees of any pension fund in which any employees of the Company or
of any such predecessor or other company or subsidiary undertaking as
aforesaid are or have been interested. Including (without prejudice to
the generality of the foregoing) insurance against any liability
incurred by such persons in respect of any act or omission in the
actual or purported execution and/or discharge of their duties and/or
in exercise or purported exercise of their powers and/or otherwise in
relation to their duties, powers, or offices in relation to the Company
or any such predecessor or other company or subsidiary undertaking as
aforesaid or any such pension fund. No director or former director
shall be accountable to the Company or its members for any benefit
provided pursuant to this Article 21 and the receipt of any such
benefit shall not disqualify any person from being or becoming a
director of the Company.
SEAL
26.1 In the first sentence of Regulation 101 of Table A, the words "Any seal
adopted by the Company" shall be substituted for the words "The Seal".
26.2 Every share certificate shall be sealed with the seal (if any) of the
Company or may be signed by a director and the secretary or by two
directors, and the second sentence of Regulation 6 of Table A shall be
amended accordingly.
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APPENDIX FOUR
TRADEMARK DETAILS
REGISTERED/FILED APPLICATION NO. REGISTRATION NO.
---------------- --------------- ----------------
Benelux 1/4/94 798438 532234
CIS (Russia 2/10/94 157571 115666
Czechoslovakia 3/10/95
Denmark 7/22/94 03666/1993 04816/1994
Finland 9/5/94 2521/93 133965
France 6/8/93 93/471240
Germany 10/15/91 T31320/7WZ 2005055
Hungary 6/10/93 135039 M9202203
Italy 6/11/93 93C001089
Macedonia 10/95
Norway 6/8/93 932711
Poland 4/15/94 108799 75,922
Portugal 6/16/93 292580
Spain 6/10/93 1766608
Sweden 3/31/94 93-5373 256993
Switzerland 6/18/93 8276/1993 413956
United Kingdom 1/5/91 1451914 1451914
LEASE AGREEMENT
BETWEEN
PAPEYCO TRADING INTERNATIONAL, INC.
AND
T/F PURIFINER, INC.
DATED AUGUST 23, 1993
LEASE AGREEMENT
THIS LEASE, made this 23 day of August, 1993, by and between Papeyco
Trading International, Inc., hereinafter called the "Landlord" and T.F.
Purifiner, Inc., hereinafter called "Tenant";
BASIC TERMS
- -----------
1.01 A. Landlord: Papeyco Trading International, Inc.
45 O'Connor Street, Suite 1900
Ottawa, Ontario K1P 1A4
B. Tenant: T.F. Purifiner, Inc.
C. Address of Tenant: Suite 100
3020 High Ridge Road
Boynton Beach, FL 33426
D. Premises: 12,000 square feet of space in Project located as shown
on Exhibit "A" attached hereto.
E. Building: The Building in which the Premises is located.
F. Project: The land, improvements and appurtenances commonly
referred to as Out parcel to the Boynton Beach Distribution Center and
located at High Ridge Road, in Boynton Beach, Florida.
Said Project is depicted on Exhibit "A" attached hereto.
G. Lease Term: The lease terms shall commence on the following date
September, 1, 1993 ("Commencement Date"): the date the Tenant commences
its business operations in the Premises, and runs for 4 years. Upon lease
execution the tenant shall deliver an amount equals to the base rent,
which shall serve as the first months rent.
H. Rent: All sums, moneys or payments required to be paid by Tenant to
Landlord pursuant to Section 6.01 of this Lease;
I. Base Rent: $3,100 per month, plus applicable Florida sales taxes.
(See section 6.02 of this Lease).
J. Security Deposit: $3,100 .
K. Tenant's Proportionate Share: 20%.
<PAGE>
L. Base Year: The calendar year in which this Lease commences.
1.02 EFFECT OF REFERENCE TO BASIC TERMS:
Each reference in this Lease to any of the Basic Terms contained in
Section 1.01 shall be construed to incorporate into such reference all of the
definitions set forth in Section 1.01.
PREMISES
2.01 In consideration of the rents, covenant, agreements and conditions
hereinafter provided to be paid, kept, performed and observed, the Landlord
leases to the Tenant and the Tenant hereby rents from the Landlord the Premises
described in Section 1.01 (D).
2.02 RESERVATIONS BY LANDLORD:
Landlord excepts and reserves the roof and exterior walls of the Building,
and further reserves the right to place, install, maintain, carry through,
repair or replace such utility lines, pipes, wires, appliances, tunnelling, and
the like in, over, through and upon the Premises as may be reasonably necessary
or advisable for the servicing of the Premises or any other portions of the
Project.
Notwithstanding any provision in this Lease to the contrary, it is agreed
that Landlord reserves the right, without invalidating this Lease or modifying
any provisions thereof, at any time and from time to time, (i) to make
alterations, changes and additions to the Building and other improvements in the
Project, (ii) to add additional areas to the Project and/or to exclude areas
therefrom, (iii) to construct additional buildings and other improvements in the
Project, (iv) to remove or relocate the whole or any part of any building or
other improvement in the Project, and (v) to relocate any other tenant in the
Project. It is further understood that the existing layout of the buildings,
walks, roadways, parking areas, entrances, exists, and other improvements shall
not be deemed to be a warranty, representation or agreement on the part of the
Landlord that the Project will remain exactly as presently built, it being
understood and agreed that Landlord may change the number, dimensions and
locations of the walks, buildings, and parking spaces as Landlord shall deem
proper.
COMMENCEMENT AND EXPIRATION DATES
3.01 Lease Commencement Date. The Lease Commencement Date shall be:
(i) The date specified in Section G, unless notice is delivered
pursuant to Subsection 3.01 (ii) or unless Tenant occupies
earlier, pursuant to Subsection 3.01 (iii).
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(ii) Such earlier or later date as may be specified in a notice
delivered to Tenant at least 30 days before such date upon
which the Premises, together with the common facilities for
access and service thereto, have been completed; or
(iii) If Tenant shall occupy the Premises for Permitted Uses prior
to the date specified in Section G or in the notice provided
under subsection 3.01 (ii), the date of such early occupancy.
USE
4.01 The Premises hereby leased shall be used by the Tenant for the purpose of
design, manufacturing and marketing of oil refining systems, and for no other
purposes. Tenant shall, at Tenant's expense, comply promptly with all applicable
statutes, ordinances, rules, regulations, orders and requirements in effect
during the term or any part of the term hereof regulating the use by Tenant of
the Premises. Tenant shall not use or permit the use of the Premises in any
manner that will tend to create waste or a nuisance, or will tend to
unreasonably disturb such other tenants in the Project. Tenant, its employees
and all persons visiting or doing business with the Tenant in the Premises shall
be bound by and shall observe the Rules and Regulations attached to this Lease,
as Exhibit "B", and such further and other reasonable rules and regulations made
hereafter by the Landlord relating to the Project or the Premises of which
notice in writing shall be given to the Tenant and all such rules and
regulations shall be deemed to be incorporated into and form a part of this
Lease.
TERM
5.01 To have and to hold the Leased Premises for and during the Term described
in Section 1.01 (G) above subject to the payment of the Rent and the full an
timely performance by Tenant of the covenants and conditions herein set forth.
At the termination or expiration of this Lease, Tenant will vacate and surrender
the premises to the Landlord in accordance with the terms hereof and the
Premises will be in broom- clean condition.
BASE RENT
6.01 Tenant covenants to pay without notice, deduction, set-off or abatement to
Landlord the Base Rent specified in Section 1.01 (I) in lawful money of the
United States in equal monthly installments in advance on the first day of each
month during the Lease Term. Rental for any partial month shall be prorated on a
per diem basis. Rentals shall be payable to Landlord at c/o Real Estate
Recovery, Inc., 927 Clint Moore Road, Boca Raton, FL 33487 or such other place
as Landlord may designate from time to time in writing. Tenant shall pay the
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first full month's rent upon execution of this Lease. Tenant agrees to, and
shall, pay all applicable sales taxes due and payable in connection with any
rent or other payment due Landlord hereunder.
BASE RENT SCHEDULE
6.02 The base rent due as per Section 6.01 for the Lease will be as follows:
NOTE: Months 1-3 or 9/1/93 through 11/30/93 shall be at no charge.
Months 4 to 12 $3.10 per Sq. Ft. Net Net Net
Months 13 to 24 $3.75 per Sq. Ft. Net Net Net
Months 25 to 36 $4.40 per Sq. Ft. Net Net Net
Months 37 to 48 $4.95 per Sq. Ft. Net Net Net
6.03 ADDITIONAL CHARGES
Tenant shall also pay the following charges, which shall be considered,
for purposes of default, as additional rent:
(a) Management fee: Tenant shall pay to Landlord on a monthly
basis a management fee equal to N/A % of the annual Base Rent.
------------
(b) Real Estate Taxes and Assessments: For each calendar year, or
part thereof during the term of this Lease, Tenant shall pay its Proportionate
Share of all real estate taxes and assessments, levied and assessed against the
Premises and Buildings, and all other improvements within the Project. Tenant's
proportionate share shall be the total amount of such taxes and assessments,
multiplied by a fraction the numerator of which shall be the number of square
feet of floor area within the Premises, and the denominator of which shall be
the number of square feet of rentable floor area within the Building in the
Project at the time such taxes were levied or assessed.
Such real estate taxes and assessments shall be paid by the Tenant
to the Landlord in equal monthly installments on the first day of each calendar
month during the term of this Lease. Said charges shall be based upon Landlord's
estimated costs for the real estate taxes and assessments for the calendar year.
The amount due for all partial calendar years shall be prorated on a per diem
basis.
Within forty-five (45) days after the end of each calendar year, the
Landlord shall furnish Tenant with a statement of the actual amount of Tenant's
proportionate share of such real estate taxes and assessments for the preceding
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<PAGE>
calendar year. Within fifteen (15) days after receipt of said statement by the
Tenant, the Tenant shall pay to the Landlord any deficiency due to the Landlord.
Any surplus paid by the Tenant shall be credited against the next ensuing
instalment of Landlord's estimate for Tenant's Proportionate Share of such real
estate taxes and assessments.
(c) Municipal, County, State or Federal Taxes, Excluding Real Estate
Taxes: Tenant shall pay all taxes assessed against any leasehold interest of
Tenant or any fixtures, furnishings, equipment, stock-in-trade, or other
personal property of any kind owned, installed, or used in or on the premises.
(d) Rental Taxes: Should any governmental taxing authority levy,
assess, or impose any tax, excise or assessment (other than an income or
franchise tax) upon or against the rentals payable by Tenant to Landlord, either
by way of substitution for or in addition to any existing tax on land and
buildings or otherwise, Tenant shall pay any such tax, excise or assessment
thereof.
(e) Insurance: Tenant agrees to reimburse Landlord its Proportionate
Share {Computed the same as in Subsection 6.03 (b)} of the total cost of
premiums for Landlord's insurance coverages {excluding the amount thereof
attributable to insuring the Common Areas, for which provision has been made in
Subsection 6.03 (f)}.
Said insurance reimbursements shall be paid by the Tenant to the
Landlord in equal monthly installments on the first day of each calendar month
during the Term of the Lease. Said charges shall be based upon Landlord's
estimated costs for the insurance reimbursements for the calendar year. The
amount due for all partial calendar years shall be prorated on a per diem basis.
Within forty-five (45) days after the end of each calendar year, the
Landlord shall furnish Tenant with a statement of the actual amount of Tenant's
Proportionate Share of such insurance reimbursements for the preceding calendar
year. Within fifteen (15) days after receipt of said statement by the Tenant,
the Tenant shall pay to the Landlord any deficiency due the Landlord. Any
surplus paid by the Tenant shall be credited against the next ensuing instalment
of Landlord's estimate for Tenant's Proportionate Share of such insurance
reimbursements.
(f) Common Area Expenses: Tenant agrees to pay to Landlord in the
manner herein after provided, Tenant's Proportionate Share of all costs and
expenses paid or incurred by Landlord on operating, policing, and protecting,
lighting, providing sanitation, water and sewer and other services for,
insuring, repairing, replacing and maintaining the common areas and all other
facilities used in the maintenance or operation of, the Project. Such costs and
expenses shall include, but shall not be limited to, the cost of: Illumination
and maintenance of common signs, refuse disposal, water, gas, sewage,
electricity and other utilities (without limitation), including any and all
usage, service, hook up, connection, availability and/or standby fees or charges
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<PAGE>
pertaining to same, maintenance and operation of any temporary or permanent
utility, compliance with rules, regulations and orders of governmental
authorities pertaining to air pollution control, including the cost of
monitoring air quality, cleaning, lighting, striping and landscaping curbs,
gutters, sidewalks, drainage and irrigation ditches, conduits, pipes located on
or adjacent to the Project; premiums for liability, casualty, and property
insurance: personal property taxes; licensing fees and taxes: audit fees and
expenses, supplies; depreciation of maintenance equipment used in the operation
or maintenance of the common areas: total compensation and benefits (including
premiums for workmen's compensation and other insurance paid to or on behalf of
employees involved in the performance of the work specified in this subsection.
The Proportionate Share to be paid by Tenant shall be that portion of the
foregoing costs and expenses which the number of square feet of floor area in
the leased Premises bears to the total number of square feet of gross leasable
area of the Building in the Project.
For the period of September 1, 1993, through December 31, 1993,
until notified by Landlord otherwise, the common area expense (CAM) shall be
based on $1.89/sf or $1,890, monthly. No more than 10% increase per year. CAM
includes 6.03 A through F. At no time shall the CAM rate be less than $1.89/sf
throughout the term of the Lease.
Tenant's Proportionate Share of such costs and expenses for each
lease year shall be paid in monthly installments on the first day of each
calendar month, in advance, in an amount estimated by Landlord from time to
time. Subsequent to the end of each lease year, Landlord shall furnish Tenant
with a statement of the actual amount of Tenant's Proportionate Share of such
cost and expenses for such period. If the total amount by Tenant under this
subsection for any such year shall be less than the actual amount due from
Tenant for such year as shown on such statement, Tenant shall pay to Landlord
the difference between the amount, paid by Tenant and the actual amount due,
such deficiency to be paid within ten (10) days after the furnishing of each
such statement, and (if the total amount paid by Tenant hereunder for any such
year shall exceed such actual amount due from Tenant hereunder for any such year
shall exceed such actual amount due from Tenant for such year, such excess shall
be credited against the next instalment due from Tenant to Landlord under this
subsection.
UTILITIES AND SERVICES
7.01 Tenant shall contract in its own name and pay for all charges for
electricity, gas, fuel, telephone, trash hauling, and any other services or
utilities used in or assessed against the Premises.
QUIET ENJOYMENT
8.01 Landlord covenants that the Tenant, on timely paying the rent herein
provided and keeping, performing, and observing the covenants, agreements and
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<PAGE>
conditions herein required of the Tenant, shall peaceably and quietly hold and
enjoy the Premises for the term aforesaid, subject, however, to the terms of
this Lease.
ASSIGNMENT AND SUBLETTING
9.01 The Tenant shall not assign or hypothecate this Lease or sublet all or any
part of the Premises without the prior written consent of Landlord, which
consent may be withheld in the sold and absolute discretion of Landlord.
DAMAGE OR DESTRUCTION
10.01 If the Premises, the Building or the Project described above or any part
thereof is damaged by fire or other casualty, cause or condition whatsoever and
the Landlord shall determine not to restore said Premises, Building or Project,
Landlord may by written notice to the Tenant given within sixty (60) days after
such damage, terminate this Lease as to all of the Premises covered by the
Lease. Such termination shall become effective as of the date of the damage. If
this Lease is not terminated as above provided and if said Premises are made
partially or wholly untenantable as aforesaid, Landlord, at its expense, shall
restore the same with reasonable promptness to the condition in which Landlord
furnished the Premises to Tenant at the commencement of the term of this Lease
as to those items that were provided to the Premises at Landlord's expense
without any reimbursement by Tenant. Landlord shall be under not obligation to
restore any alteration, improvements or additions to the Premises made by Tenant
or paid for by Tenant, including, but not limited to, any of the initial tenant
finish done or paid for by Tenant, or any subsequent charges, alterations or
additions made by Tenant.
If, as a result of fire or other casualty, cause or condition whatsoever
the Premises are made partially or wholly untenantable and, if Landlord has not
given the sixty (60) days notice above provided for an fails within one hundred
twenty (120) days after such damage occurs to eliminate substantial interference
with Tenant's use of said Premises or substantially to restore said Premises,
the Tenant may terminate this Lease as of the end of said one hundred twenty
(120) days by written notice to landlord given not later than five (5) days
after expiration of said one hundred twenty (120) day period. If the Premises
are rendered totally untenantable but this Lease in not terminated, all rent
shall abate from the date of the fire or other relevant cause or condition until
the Premises are ready for occupancy and reasonable accessible to Tenant.
If a portion of the Premises is untenantable, rent shall be prorated on a
per diem basis and apportioned in accordance with the portion of the Premises
which is usable by the Tenant until the damaged part is ready for the Tenant's
occupancy. In all cases, due allowance shall be made for reasonable delay caused
by adjustment of insurance loss, strikes, labor difficulties or any cause beyond
Landlord's reasonable control. For the purposes of this Lease, said Premises
shall be considered tenantable so long as and to the extent that the Premises
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<PAGE>
are occupied by Tenant or usable (whether or not actually occupied). In any
event, Tenant shall be responsible for the removal, or restoration, when
applicable, of all its damaged property and debris from the Premises, upon
request by Landlord or reimburse Landlord for the cost of removal.
LANDLORD'S RIGHTS
11.01 Landlord reserves the following rights:
(a) To change the name of the Building or the Project without
notice or liability of the Landlord to Tenant;
(b) During the last ninety (90) days of the term or any renewal
thereof, or any part thereof, if during or prior to that time
the Tenant has vacated the Premises, to decorate, remodel,
repair, alter or otherwise prepare the Premises for
reoccupancy;
(c) To exhibit the Premises to others and to display "For Lease"
signs on the Premises during the last one hundred eighty (180)
days of the term or any renewal thereof;
(d) To remove abandoned or unlicensed vehicles and vehicles that
are unreasonably interfering with the use of the parking lot
by others from the parking lot and charging the responsible
tenant for the expense of removing said vehicles; and
(e) To take any and all measures, including making inspection,
repairs, alterations, additions and improvements to the
Premises or the Building or to the Project as may be necessary
or desirable for the safety, protection or preservation of the
Premises or the Building or the Project or the Landlord's
interests, or as may be necessary or desirable in the
operation of the Premises or the Building or the Project.
The Landlord may enter upon the Premises at any time or times for
the purpose of exercising any or all of the foregoing rights hereby reserved
without being deemed guilty of an eviction or disturbance of the Tenant's use or
possession and without being liable in any manner to the Tenant.
HOLDING OVER
12.01 In the event of holding over by Tenant after the expiration or termination
of this Lease without the consent in writing of the Landlord, Tenant shall be
deemed a Tenant at sufferance and shall, unless otherwise prohibited by
applicable law, pay as liquidated damages, double rent for the entire holdover
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period and all reasonable attorney's fees and expenses incurred by Landlord in
enforcing its rights hereunder. Any holding over with consent of Landlord shall
constitute Tenant a month-to-month tenant.
SIGNS AND ADVERTISEMENTS
13.01 Tenant shall not put upon nor permit to be put upon any part of the
Premises, the Building or the Project, any signs, billboards or advertisements
whatever in any location or any location or any form without (a) the prior
written consent of Landlord, which consent may be withheld in the sold and
absolute discretion of Landlord, and (b) complying with all applicable laws,
regulations, permits, rules and ordinances.
MORTGAGE AND TRANSFER
14.01 Landlord shall have the right to transfer, mortgage, pledge or otherwise
encumber, assign and convey, in whole or in part, the Premises, the Building,
the Project, this Lease, and all or any part of the rights now or thereafter
existing and all rents and amounts payable to Landlord under the provisions
hereof. Nothing herein contained shall limit or restrict any such rights, and
the rights of the Tenant under this Lease shall be subject and subordinate to
all instruments executed and to be executed in connection with the exercise of
any such rights, including, but not limited to, the lien of any mortgage, deed
of trust, or security agreement now or hereafter placed upon Landlord's interest
in the covenants and agrees to execute and deliver upon demand such further
security agreement as shall be requested by the Landlord and/or mortgagee or
proposed mortgagee or holder of any security agreement and hereby irrevocably
appoints the Landlord as its agent and attorney to execute and deliver any such
instrument for and in the name of the Tenant.
EMINENT DOMAIN
15.01 If the Premises or any substantial part thereof shall be taken by any
competent authority under the power of eminent domain or be acquired for any
public or quasi-public use or purpose, the term of this Lease shall cease and
terminate upon the date when the possession of said Premises or the part thereof
so taken shall be required for such use or purpose and without apportionment of
the award and Tenant shall have no claim against Landlord for the value of any
unexpired term of this Lease. If any condemnation proceeding shall be instituted
in which it is sought to take any part of the Project or to change the grade of
any street or alley adjacent to the Premises and such taking or change of grade
makes it necessary or desirable to remodel the Building or the Project to
conform to the changed grade, Landlord shall have the right to cancel this Lease
after having given written notice of cancellation designated in the notice. In
either of said events rent at the then current rate shall be apportioned as of
the date of termination. No money or other consideration shall be payable by the
Landlord to the Tenant for the right of cancellation and the Tenant shall have
no right to share in the condemnation award or in any judgement for damages
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caused by the taking or the change of grade. Nothing in this paragraph shall
preclude an award being made by the taking authority to Tenant for loss of
business or depreciation to and cost of removal of equipment or fixtures.
LANDLORD'S INABILITY TO PERFORM
16.01 If, by reason of inability to obtain and utilize labor, materials or
supplies; circumstances directly or indirectly the results of a state of war of
national or local emergency; any laws, rules, orders, regulations or
requirements of any governmental authority now or hereafter in force; strikes or
riots; accident in, damage to or the making of repairs, replacements, or
improvements to, the Premises or any of the equipment thereof; or by reason of
any other cause beyond the reasonable control of the Landlord, the Landlord
shall be unable to perform or shall be delayed in the performance, such events
or circumstances or inability shall not render Landlord liable in any respect
for damages to either person or property, constitute a total or partial
eviction, constructive or otherwise, work an abatement of rent or relieve Tenant
from the fulfillment of any covenant or agreement contained in this Lease.
BANKRUPTCY OR ASSIGNMENT TO TRUSTEE
17.01 To the fullest extent permitted by applicable law, neither this Lease nor
any interest therein nor any estate hereby created shall pass to any trustee or
receiver in bankruptcy or to any other receiver or assignee for the benefit of
creditors or otherwise by operation of law during the term of this Lease or any
renewal thereof.
COMMON AREAS
18.01 The term "Common Areas" means all the areas of the Project not intended
for renting and, instead, designed for the common use and benefit of the
Landlord and all of the tenants, their employees, agents, customers and
invitees. The Common Areas include, but not by way of limitation, parking lots,
truck courts, landscaped and vacant areas, driveways, and walks and curbs with
facilities appurtenant to each as such areas may exist from time to time.
Landlord shall operate and maintain the Common Areas of the Project. Landlord
hereby grants to Tenant the nonexclusive revocable use of the Common Areas by
Tenant, Tenant's employees, agents, customers and invitees which use shall be
subject at all times to such reasonable, uniform and non-discriminatory rules
and regulations as may from time to time be established by Landlord. Tenant
covenants and agrees to abide by any rules or regulations promulgated by
Landlord.
ACCEPTANCE OF PREMISES
19.01 Landlord will complete the Premises in accordance with the Exhibit
attached hereto as Exhibit " ". Tenant acknowledges that it will examine the
Premises before taking possession hereunder. Unless Tenant furnished Landlord
10
<PAGE>
with a notice in writing specifying any defect in the construction of the
Premises prior to taking possession, such taking of possession shall be
conclusive evidence as against the Tenant that at the time thereof the Premises
were in good order and satisfactory condition.
19.02 MAINTENANCE AND CARE BY TENANT:
Tenant shall be responsible for all maintenance and repair to the
Premises of whatsoever kind or nature that is not hereinafter set forth
specifically as the obligation of Landlord. Tenant shall take good care of the
Premises and fixtures, and keep them in good repair free from filth,
overloading, danger of fire or any pest or nuisance, and Tenant shall repair any
damage or breakage done by Tenant or Tenant's agents, employees or invitees,
including damage done to the Building by Tenant's equipment or installations.
Tenant shall be responsible for the repair and replacement of all glass and
plate glass on the Premises. Tenant shall furnish and pay for the upkeep,
maintenance, repair and periodic servicing of the heating, ventilation and air
conditioning system servicing the Premises. At the end of the term of this Lease
or any renewal hereof, Tenant shall quit and surrender the Premises broom clean
in as good condition as when received by Tenant, normal wear and tear excepted.
In the event Tenant fails to maintain the Premises as provided for herein
Landlord shall have the right, but not the obligation, to perform such
maintenance as is required of in which event Tenant shall reimburse Landlord for
its costs in providing such maintenance or repairs together with a ten (10%)
percent charge (equal to 10% of said costs) for Landlord's overhead and Tenant
shall promptly reimburse Landlord for the amount so billed to Tenant by
Landlord.
INSURANCE
21.01 Tenant covenants and agrees to maintain on the Premises at all times
during the term of this Lease, and during all renewal thereof, a policy or
policies of comprehensive public liability and property damage insurance with
not less than $1,000,000.00 combined single limit for both bodily injury and
property damage. Each policy of insurance shall name as the insured thereunder
both the Tenant and the Landlord. Each such liability insurance policy shall be
of the type commonly known as the Owner's, Landlord's and Tenant's Insurance and
shall be obtained from a company satisfactory to Landlord. The original of each
such policy of insurance or certified duplicates thereof shall be delivered by
Tenant to Landlord on or before ten (10) days prior to occupancy of the premises
by Tenant, said policy shall contain a provision stating that it cannot be
cancelled or modified unless the insurance company first provides at least ten
(10) days prior written notice to Landlord of said cancellation or modification.
11
<PAGE>
21.02 MUTUAL SUBROGATION:
Landlord and Tenant do each hereby release the other from any and
all liability or responsibility (to the other or anyone claiming through or
under them by way of subrogation or otherwise) for any loss or damage to
property caused by faire, any of the extended coverage perils or any other
insured peril, even if such fire or other casualty shall have been caused by the
fault or negligence of the other party and in force and effect only with respect
to loss or damage occurring during such time as the Landlord's and Tenant's
policies shall contain a clause or endorsement to the effect that any such
release shall not adversely affect or impair said policies or prejudice the
right of the releasor to recover thereunder. Landlord and Tenant each agree that
its polices will include such a clause or endorsement. Tenant shall comply with
all insurance regulations so the lowest fire, lightning, explosion, extended
coverage and liability insurance rates may be obtained; and nothing shall b done
or kept in or on the Premises by Tenant which will cause an increase in the
premium for any such insurance on the Premises or the Building or on any
contents located therein, over the rate usually obtained for the proper use of
the Premises permitted by this Lease or which will cause cancellation of any
such insurance.
21.03 INDEMNIFICATION OF LANDLORD:
Tenant shall indemnify the Landlord and save it harmless from and
against any and all loss (including loss of rentals payable by the Tenant or
other tenants) and against all claims, actions, damages, liability and expenses
in connection with loss of life, bodily and personal injury or damage to real
property arising from any occurrence in, upon or at the Premises or any part
thereof or Building or Project, or occasioned wholly or in part by any act or
omission of the Tenant, its agents, contractors, employees, servants, licensees,
concessionaires or invitees or by anyone permitted to be on the Premises or
Building or Project by the Tenant. Tenant assumes all risks of and Landlord
shall not be liable for injury to person or damage to property resulting form
the condition of the Premises or from the bursting or leaking of any and all
pipes, utility lines, connections, or air conditioning or heating equipment in,
on or about the Premises, or from water or rain which may leak into, issue or
flow from any part of the Building. Tenant agrees, at all times, to indemnify
and hold Landlord harmless against all actions, claims, demands, costs, damages
or expenses of any kind which may be brought or made against the Landlord or
which the Landlord may pay or incur by reason of Tenant's occupancy of the
Premises or its negligent performance of or failure to perform any of its
obligations under this Lease. In case the Landlord shall, without fault on its
part, be made a party to any litigation commenced by or against the Tenant, then
the Tenant shall protect and hold the Landlord harmless and shall pay all costs,
expenses and reasonable attorney's fees incurred or paid by the Landlord in
connection with such litigation.
12
<PAGE>
USE OF COMMON AREAS BY TENANT
22.01 Tenant shall not use any part of the Project exterior to the Premises for
outside storage. No trash, crates, pallets, or refuse shall be permitted
anywhere on the Project outside of the Premises by Tenant except in enclosed
metal containers to be located as directed by Landlord. Tenant shall not park
any trucks or trailers, loaded or empty, except in front of the docks on the
concrete apron provided for such purposes.
DEFAULT AND REMEDIES
23.01 In the event:
(a) Tenant shall at any time fail to pay rent when due; or
(b) Tenant shall fail to keep, perform or observe any other
covenant, agreement, condition or undertaking hereunder and
shall fail to remedy such default within ten (10) days after
written notice thereof has been mailed by Landlord to Tenant;
or
(c) The Premises shall be vacated or abandoned by Tenant;
Landlord shall have the right, without further notice to or demand upon the
Tenant, to re-enter and take exclusive possession of the Premises with or
without force or legal process, and to refuse to allow Tenant to enter the same
or have possession thereof; to change the locks on the doors to the Premises;
take possession of any furniture or other property in or upon the Premises
(Tenant hereby, to the fullest extent permitted by applicable law, waiving the
benefit of all ex-exemptions by law), sell the same at public or private sale
without notice and apply the proceeds thereof to the costs of sale, payment of
damages and payment due of the rent under this Lease; all without being liable
to the Tenant for any damages or to and prosecution therefor; and
(i) As agent of the Tenant to relet the Premises for the balance of
the term of this Lease or for a shorter or longer term and receive
the rents therefor, applying them first to the payment of the
expense of such reletting and, second, to the payment of damages
suffered to the Premises and rent due and to become due under this
Lease, Tenant remaining liable for and hereby agreeing to pay
Landlord any deficiency; or
(ii) To cancel and terminate the remaining term of this Lease,
re-enter and take possession of the Premises free of this Lease and
thereafter this Lease shall be null and void and the rent in such
case shall be apportioned and paid on and up to the date of such
entry. Thereafter both parties shall be released and relieved from
13
<PAGE>
and of any and all obligations thereafter to accrue hereunder.
Tenant shall be liable for all loss and damage resulting from such
breach or default; or
(iii) Accelerate rent payments due or to become due at the rates
applicable during the period which the default occurs, and sue for
said rent.
All rights and remedies expressly provided in this Lease for
Landlord's protection shall be cumulative of any other rights and remedies
provided by law. Landlord shall be entitled to recover from Tenant its
reasonable attorney's fees and costs incurred in enforcing its rights hereunder.
A waiver by Landlord of a breach or default by Tenant under the
terms and conditions of this Lease shall no be construed to be a waiver of any
subsequent breach or default of any other term or condition of this Lease, and
the failure of Landlord to assert any breach or to declare a default by Tenant
shall not be construed to constitute a waiver thereof so long as such breach or
default continues unremedied.
Any and all sums due under this Lease from Tenant to Landlord and
not paid on the due date shall bear interest from the due date at the highest
rate then allowable by applicable law until fully paid.
NOTICES
25.01 Except as otherwise herein provided, whenever by the terms of this Lease
notice shall or may be given to the Landlord or to the Tenant, such notice shall
be in writing and shall be deemed to have been properly served if sent by
certified mail return receipt requested, postage prepaid, to Landlord at the
place where rent is payable and to Tenant at the Premises. The date of mailing
shall be deemed the date of service.
PERSONS BOUND
26.01 The agreements, covenants and conditions of this Lease shall be binding
upon and inure to the benefit of the heirs, legal representatives, successors
and assigns of each of the parties hereto, except that no assignment,
encumbrance or subletting by Lessee, unless permitted by the provisions of this
Lease, without the prior written consent of Landlord shall vest any right in the
assignee, encumbrancee or sublessee of Tenant. This lease contains the entire
agreement in writing signed by the Landlord and Tenant after the date hereof.
The singular herein, in referring to Landlord or tenant, shall be deemed to
include the plural where the context so requires. If there be more than one
Tenant herein named, the provisions of this Lease shall be applicable to and
binding upon such Tenants jointly and severally.
9
14
<PAGE>
SECURITY DEPOSIT
27.01 Tenant herewith deposits with Landlord the sum of $3,100 as security for
the performance by Tenant of every covenant and condition of this Lease. Such
deposit may be mingled with other funds of Landlord and shall bear no interest.
If Tenant shall default with respect to any covenant or condition of this Lease,
Landlord may apply from time to time without prejudice to any other remedy the
whole or any part of such Security Deposit to the payment of any sum in default.
Following any such application of the Security Deposit, Tenant shall pay to
Landlord on demand the amount so applied in order to restore the Security
Deposit to its original amount. This includes, but is not limited to, applying
the Security Deposit first to any restoration and/or cleanup costs necessary
over and above normal wear and tear of the vacated space. It is understood that
the Security Deposit is not to be considered as the last month's rent under the
Lease. Should Tenant comply with all of the covenants and conditions of this
Lease, the Security Deposit or any balance thereof shall be returned to Tenant
at the expiration of the term hereof. If Landlord transfers its interest in the
Premises during the term of this Lease, Landlord may assign the Security Deposit
to the transferee and thereafter Landlord shall have no further liability for
the return of such Security Deposit.
LATE PAYMENT
28.01 Tenant's failure to make any rental payment or other payment required of
Tenant hereunder within ten (10) days of the due date therefor shall result in
the imposition of a service charge for such late payment in the amount of five
percent (5%) of the late payment.
29.01 Does not exist.
PARTIAL INVALIDITY
30.01 If any term, covenant, condition or provision of this Lease or the
application thereof to any person or circumstances shall, to any extent be
invalidated, unenforceable or violate a party's legal rights, then such term,
covenant, condition or provision shall be deemed to be null and void and
unenforceable, however, all other provisions of this Lease, or the application
of such term or provision to persons or circumstances other than those to which
are held invalid, unenforceable or violative of legal rights, shall not be
affected thereby, and each and every other term, condition, covenant and
provision of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
CAPTIONS
31.01 The captions used throughout this Lease are for convenience of reference
only and shall in no way be held to explain, modify, amplify, or aid in the
interpretation, construction or meaning of any provisions in this Lease.
15
<PAGE>
ENTIRE AGREEMENT
32.01 This Lease contains the entire agreement between the parties hereto and no
modification of this Lease shall be binding upon the parties hereto unless
evidenced by an agreement in writing signed by the Landlord and the Tenant after
the date hereof. If there be more than one Tenant named herein, the provisions
of this Lease shall be applicable to and binding upon such tenants jointly and
severally.
TRANSFERS BY LANDLORD
33.01 Landlord shall have the right to transfer and assign, in whole or in part,
all its rights and obligations hereunder and in the Building and the Premises
and the Project referred to herein; and in such event and upon such transfer
Landlord shall be released from any further obligations hereunder, and Tenant
agrees to look solely to such successor in interest of Landlord for the
performance of such obligations.
EFFECTIVE DELIVERY OF THIS LEASE
34.01 Landlord has delivered a copy of this Lease to Tenant for Tenant's review
and the delivery hereof does not constitute an offer to Tenant or an option to
lease. This Lease shall not be effective until a copy executed by both Landlord
and Tenant is delivered to and accepted by Landlord.
RULES AND REGULATIONS
35.01 Tenant will comply with the reasonable rules and regulations of the
Building adopted and altered by Landlord from time to time as well as the rules
and regulations other applicable restrictions adopted by the property owners'
association, if any, having jurisdiction over the Premises or any portion
thereof or having jurisdiction over the common area of the Project.
LIMITATION OF LIABILITY
36.01 The liability of Landlord to Tenant for any default by Landlord under the
terms of this Lease shall be limited to the interest of the Landlord in the
Building and the Premises, and Tenant agrees to look solely to Landlord's
interest in the Building and the Premises for the recovery of any judgment from
the Landlord, it being intended that Landlord shall not be personally liable for
any judgment or deficiency.
TIME OF PERFORMANCE
37.01 Except as expressly otherwise herein provided, with respect to all
required acts of Tenant, time is of the essence of this Lease.
16
<PAGE>
RECORDATION
38.01 Tenant agrees not to record this Lease or any memorandum hereof, but
Landlord may record this Lease or memorandum thereof, at its sole election, and
Tenant agrees to execute such memorandum upon request by Landlord.
APPLICABLE LAW / VENUE
39.01 This Lease is entered into in the State of Florida and shall be governed
by the applicable laws of the State of Florida. Venue shall be in the courts of
Palm Beach County, Florida and both parties consent to the jurisdiction of those
courts with respect to any legal action concerning this Lease.
IN WITNESS WHEREOF, the parties have signed triplicate copies hereof.
WITNESSES:
Papeyco Trading International, Inc.
_________________________________ BY:_/s/__(unintelligible)
Landlord
_________________________________ T/F Purifiner, Inc.
_________________________________ BY: RICHARD C. FORD, PRESIDENT
--------------------------
_________________________________
17
<PAGE>
ADDENDUM TO LEASE AGREEMENT
This Addendum shall be incorporated into that certain Lease Agreement
executed by and between the Landlord, Papeyco Trading International, Inc., and
the Tenant, T.F. Purifiner, Inc., to allow for the following provisions:
ASSIGNMENT OF ANNUITY:
As additional consideration, the parties have negotiated the assignment of an
Annuity Contract as issued by The Guardian Insurance & Annuity Company, Inc.
Contract No. 210094083 held in the name of Richard C. Ford, 14402 Cypress Island
Court, Palm Beach Gardens, Florida. Said assignment shall be in favor of Papeyco
Trading International, Inc. The value of the annuity as of August 6, 1993, is
$22,256.38 and shall be assigned for a period of one year from rent commencement
expiring December 1, 1994. In the event of a default under the terms and
conditions of the lease, the Landlord may negotiate the annuity for an amount
equal to the delinquency. But not more than fifteen thousand dollars.
IMPROVEMENT OF THE LEASED PREMISES:
The Landlord shall cause the placement of a demising wall, which shall delineate
the space to be occupied by the tenant. This shall be completed at the sole
expense of the Landlord.
Upon execution of the lease, the Tenant may proceed to improve the warehouse or
the office space of the building to be occupied, at their sole expense. The
Tenant may improve the warehouse to air condition same, but in the event of a
default during the lease term expiring August 31, 1997, the Landlord may seize
the air conditioning improvements as additional consideration to apply to
amounts due under the lease.
Improvements made by the Tenant shall be accomplished without any recording
instruments affecting title to the building. The Landlord shall cause a title
search to be accomplished upon completion of the improvements as additional
consideration to apply to amounts due under the lease.
Improvements made by the Tenant shall be accomplished without any recording
instruments affecting title to the building. The Landlord shall cause a title
search to be accomplished upon completion of the improvements to the warehouse
by the Tenant.
<PAGE>
All other terms and conditions set forth in the Lease Agreement shall remain the
same. This Addendum shall be incorporated and remain a part of the lease between
the parties set forth above.
LANDLORD: TENANT:
By:__(Unintelligible)______________ By:_/s/ Richard C. Ford, President
Papeyco Trading International, Inc. Date T.F. Purifiner, Inc. 8/23/96
<PAGE>
SECOND ADDENDUM TO LEASE AGREEMENT
This Second Addendum shall be incorporated with the terms and conditions
of that certain Lease Agreement dated August 23, 1993, by and between Papeyco
Trading International, Inc. ("Lessor") and T. F. Purifiner, Inc. ("Lessee").
The following amendments shall be effective April 1, 1994, which hereafter
shall be referred to as the lease commencement date of the agreement.
ASSIGNMENT OF ANNUITY/CERTIFICATE OF DEPOSIT:
As additional consideration, the Lessee shall place $15,000 in the form of
an Assignment of an Annuity or Certificate of Deposit with the Lessor for
a period of one year with an expiration of April 1, 1995, by May 1, 1994.
AMENDMENT TO THE LEASE TERM:
The Lessee shall extend the term of the lease for a fifth year pursuant to
the terms set forth in Section 6.01 of the Lease Agreement, based upon the
rent schedule in Months 37 through 48 at $4.95. The fifty year shall
commence in Month 49 and extend through Month 60 from April 1, 1994, at
the same rate of $4.95/sf.
RENT COMMENCEMENT:
Pursuant to the terms of the Lease Agreement a period of three months
shall be granted to the Lessee as rent concession. Accordingly, the rent
commencement shall be effective July 1, 1994.
PURCHASE OF AIR CONDITIONING EQUIPMENT:
At the time of the delivery of the assignment of the annuity or
certificate of deposit, the Lessor shall purchase the air conditioning
units installed by Lessee for an amount of $9,000 and other valuable
considerations.
This Second Addendum and its terms shall be incorporated within the Lease
Agreement and all other terms and conditions of the Lease shall remain the same.
This Addendum supersedes all other letters between the parties.
LESSOR: LESSEE:
PAPEYCO TRADING INTERNATIONAL, INC. T. F. PURIFINER, INC.
By:_(Unintelligble)_________________ By: RICHARD C. FORD, PRESIDENT
--------------------------
Dated this 8th day of April, 1994.
- ------------------------------------ -----------------------------
Witness Witness
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF T/F PURIFINER, INC. FOR THE THREE MONTHS ENDED MARCH 31,
1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 88,417
<SECURITIES> 0
<RECEIVABLES> 77,405
<ALLOWANCES> 2,500
<INVENTORY> 170,929
<CURRENT-ASSETS> 356,470
<PP&E> 200,210
<DEPRECIATION> 96,397
<TOTAL-ASSETS> 621,836
<CURRENT-LIABILITIES> 1,336,355
<BONDS> 0
311,397
0
<COMMON> 1,117
<OTHER-SE> (1,603,215)
<TOTAL-LIABILITY-AND-EQUITY> 621,836
<SALES> 428,627
<TOTAL-REVENUES> 428,627
<CGS> 268,338
<TOTAL-COSTS> 268,338
<OTHER-EXPENSES> 289,249
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,871
<INCOME-PRETAX> (137,831)
<INCOME-TAX> 0
<INCOME-CONTINUING> (137,831)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (137,831)
<EPS-PRIMARY> (.12)
<EPS-DILUTED> (.12)
</TABLE>
FINAL JUDGMENT IN
T/F SYSTEMS, INC. V.
SOUTHEAST CAPITAL FINANCING, INC.,
CASE NO. CL 90-12772AE
IN THE CIRCUIT COURT OF THE
15TH JUDICIAL CIRCUIT IN AND FOR
PALM BEACH COUNTY, FLORIDA
<PAGE>
IN THE CIRCUIT COURT OF THE 15TH
JUDICIAL CIRCUIT IN AND FOR PALM
BEACH COUNTY, FLORIDA
CASE NO. CL 90-12772 AE
T/F SYSTEMS, INC.,
Plaintiff,
vs. FINAL JUDGMENT
- --- --------------
SOUTHEAST CAPITAL FINANCING,
INC., etc., et al.,
Defendants.
- ------------------------------/
THIS ACTION was tried before the Court. On the evidence presented, it is
hereby ADJUDGED
1. That pursuant to a contract with Refineco Manufacturing Co., Inc.
dated January 15, 1989, Defendant, PURIFINER DISTRIBUTION CORPORATION ("PDC")
was obligated to pay Plaintiff T/F SYSTEMS, INC. ("T/F") the sum of $110,000.00
on or before February 26, 1989.
2. That PDC has never paid the referenced sum to T/F.
3. That Defendant SOUTHEAST CAPITAL FINANCING, INC. ("SCFI"), in a
contract with PDC, assumed PDC's obligation to pay T/F the sum of $110,000.
4. That SCFI has never paid referenced sum to T/F.
5. That the sum owed to T/F bears interest at the rate of 8% from
February 26, 1989.
6. That PDC and SCFI are jointly and severally liable to T/F for
damages in the amount of $100,000, with interest at that rate of 8% from
February 26, 1989, to the date of this Judgment and interest at the statutory
rate of 12% per annum from the date of this Judgment until paid, for which let
execution issue.
<PAGE>
7. The letter agreement dated December 10, 1988 (the "12/10/88") between
Plaintiff T/F and Refineco Manufacturing Co., Inc., ("Refineco") is a valid and
enforceable contract under Florida law.
8. In the 12/10/88 Agreement, Refineco promises that PDC will begin
production of PURIFINER products and that PDC will furnish T/F with product for
distribution in its four-state territory within eighteen (18) months, or before
June 10, 1990. In the event that PDC failed to meet these obligations, the
12/10/88 Agreement conditionally assigned to T/F the exclusive rights to
manufacture and market PURIFINER products on a worldwide basis (the "Exclusive
Rights"), so long as T/F pays a royalty specified in the July 30, 1987 agreement
between T/F and Refineco (the "7/30/87 Agreement"). The royalty specified in the
7/30/87 Agreement is 5% of T/F's sale price of products which it actually
manufactures and sells. By the terms of the 7/30/87 Agreement, this royalty is
owed to Refineco or "any entity taking the place of Refineco".
9. Defendant PDC had actual notice of the terms of the 12/10/88 Agreement
before entering into its contracts with Refineco dated January 15, 1989 and
March 8, 1989. As a result, PDC agreed to assume the product on and performance
obligations described in the 12/10/88 Agreement upon entering into its contracts
with Refineco.
10. As of June 10, 1990, PDC had neither entered into production of
PURIFINER products nor had it supplied T/F with PURIFINER product sufficient to
meet the distribution neeeds of T/F. As a result, the conditional assignment of
the Exclusive Rights became effective on June 10, 1990. As of that date, T/F
became the owner of the Exclusive Rights.
11. The Exclusive Rights which T/F obtained on June 10, 1990 include the
following:
-- The exclusive right to manufacture and market products under United
States Patents 4,189,351; 4,227,969; 4,289,593 and 4,943,352
-- The exclusive right to manufacture and market products under all of
Refineco's foreign patents.
2
<PAGE>
-- The right to use the PURIFINER trademark on all products T/F
manufactures and markets.
These Exclusive Rights shall continue in force as long as T/F pays to Refineco
or "any entity taking the place of Refineco" the 5% royalty specified in the
7/30/87 Agreement.
12. ROBERT C. MALT ("MALT"") became the owner of all of the Refineco
patents as more particularly detailed in the Final Judgment of Foreclosure dated
July 27, 1990 in Case No. CL 89-1853 AG in the Circuit Court in and for the
Fifteenth Judicial Circuit of Palm Beach County, Florida, upon purchasing those
patents at the foreclosure sale, and receiving the Certificate of Title to the
patents dated September 21, 1990 and recorded in Official Record Book 6589, Page
7 of the Public Records of Palm Beach County, Florida.
13. PDC took an Assignment of the Refineco patents from Refineco in May of
1989, with actual knowledge of MALT's lien on said patents, and MALT's pending
foreclosure suit. The Assignment of those patents was thus inferior to MALT' s
lien, and PURIFINER's interest was foreclosed by MALT's Final Judgment and the
Certificate of Title. As of September 21, 1990, PURIFINER lost title to the
Refineco patents.
14. PURIFINER has been manufacturing the patented products, and
marketing same outside of its licensed territory, without the permission or
license of ROBERT C. MALT.
15. PURIFINER DISTRIBUTION CORP. shall immediately cease and desist from
manufacturing the patented products, and marketing same outside of its
authorized territory as defined in its Distribution Agreement.
16. T/F SYSTEMS, INC. shall account to ROBERT MALT for all patented
products manufactured since September 21, 1990 and pay to MALT a royalty of five
percent (5%) of the list price of those units.
17. The Court reserves jurisdiction of this cause for the purposes of
entering awards of costs as appropriate.
3
<PAGE>
18. The Court retains jurisdiction of this action for purposes of
enforcing its Final Judgment herein.
DONE AND ORDERED in Chambers, at West Palm Beach, Palm Beach County,
Florida, this 16th day of September, 1991.
/S/ EDWARD A. GARRISON
----------------------------------
EDWARD A. GARRISON, Circuit Judge
Copies furnished:
DAVID SALES, Esquire
P.O. Drawer 3626
West Palm Beach, FL 33402
ESTHER A. ZARETSKY, Esquire
1655 Palm Beach Lakes Blvd., Suite 900
West Palm Beach, FL 33401
GARRY GLICKMAN, Esquire
1601 Forum Place, Suite 1101
West Palm Beach, FL 33401
DELMER C. GOWING, III, Esquire
222 Lakeview Avenue, Suite 800
West Palm Beach, FL 33401
4
