<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OF THE
SECURITIES EXCHANGE ACT OF 1934
ZEROS USA, INC.
(Exact Name of Registrant as Specified in Its Charter)
Texas 76-0520236
----- ----------
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
507 North Belt East, Suite 550, Houston, Texas 77060
- ---------------------------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
281-448-6083
------------
(Issuer's Telephone Number, including Area Code)
Securities to be registered pursuant to Section 12(b) the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
------------------- ------------------------------
Securities to be registered pursuant to Section 12(g) the Act:
Common
------
(Title of Class)
<PAGE> 2
INFORMATION REQUIRED IN
REGISTRATION STATEMENT
ITEM 1. BUSINESS.
ZEROS USA, Inc., (the "Company") with its administrative headquarters
at 507 North Belt East, Suite 550, Houston, Texas 77060, was incorporated in
Texas on November 12, 1996, and has become successor through a change of
domicile from Utah to Texas, by merger with ZEROS USA, Inc., a Utah
corporation, which was incorporated February 14, 1997, as Gunner Holdings,
Inc., ("Gunner") with its name changed March 15, 1997. Gunner was incorporated
in Utah to issue shares on the basis of one share of Gunner for each ten shares
of Gunner Energy Corporation ("Gunner Energy") to 113 non control shareholders
of record in Gunner Energy, a dormant Utah corporation. These corporate
restructurings created a Texas domiciled company to facilitate raising both
debt and equity funds in the private or public markets. See Exhibit 3(i) for
the Articles of Incorporation of the Company and Exhibit 3(ii) for its By-laws.
M. Ltd., a company incorporated in the Bahamas and controlled by UCBM
Management, 43 Elizabeth Street, Nassau, Bahamas, conveyed as of November 15,
1996, the exclusive world wide rights to current and future technology for the
treatment of different types of hazardous waste including patented and patent
pending processes to the Company. The initial process is named "Zero-emission
Energy Recycling Oxidation System," ("ZEROS") and is an on-site closed
technology capable of recovering energy resources and marketable products from
toxic and non-toxic waste sources which currently are causing disposal problems
for numerous industrial concerns by a proprietary non-incinerating process. This
conveyance also included the retention rights by M. Ltd., to any improvements
and related technologies, whether patentable or not, discovered or invented by
ZEROS. The next generations are processes called Bio-Dynamics and Aqua-Dynamics
technologies which are parallel processes providing remediation of inorganic
materials. These processes also are in the patent pending state. Subsequent
improvements and expansions are currently in various stages prior to being
finalized. Pursuant to the agreement with M. Ltd., these technologies are
assignable to M. Ltd., because of the basic nature of the technology that was
acquired by the Company from M. Ltd. The agreement provides further that all
costs incurred in the development and filing of the patent applications are to
be paid by the Company. See "Description of the ZEROS Technologies." The current
and potential subsequent acquisitions were made in exchange for the promise by
the Company to pay an initial sum of $4,000,000 within the first eight years of
this agreement plus an additional $3,000,000 for each of the next four plants
sold by the Company. The ongoing obligation to pay M. Ltd., includes a 5%
royalty on gross income generated by use of any of the ZEROS equipment and the
obligation to pay all legal fees necessary to complete this transfer. The legal
fees in conjunction with this conveyance were $30,000 and have already been paid
by the Company. The Company is also obligated to pay all costs on subsequent
technology for environmentally friendly treatment of waste. See "Certain
Relationships and Related Transactions" herein and Exhibit 10 (A) (1) for a copy
of the Master License Agreement with M. Ltd. The Company is already generating
income from acquisition of the ZEROS technology by selling non exclusive
territorial licenses, and is in the process of selling or leasing the equipment
required to utilize the technologies. Cash collections from the initial payments
on the license sales are expected to commence during the first quarter of
calendar 1998.
2
<PAGE> 3
The Company anticipates that cash receipts will be generated earlier from
progress payments from the sale of the ZEROS equipment, however, there can be
no assurance that this will be the case. The Company also expects to receive
continuing royalty payments from the users of the ZEROS equipment on the gross
revenues generated by the tipping fees at the input stations, the sale of
recoverable products and fees for additional services to be performed on an
ongoing basis to the owner-operators of the equipment. The only income booked
to date is for the sale of three ZEROS licenses. The Company anticipates
generating additional revenues by the sale and distribution of the additional
licenses that its Licensees are authorized to sell. One Licensee has already
contracted to sell a license with the initial payment due May 31, 1998. There
can be no assurance that such sales will continue to occur, and that those
licenses and systems already sold will generate sufficient revenues to cause
the Company to continue to be profitable.
Clark, the president and largest shareholder of the Company, filed
the patent applications for the ZEROS process and the Bio-Dynamics. The patent
applications were prepared by Clark and legal staff and submitted by Clark to
the U.S. Box Patent Office for its filing assistance. This filing process is
authorized by the U.S. Patent Office.
It must be realized that there are significant risks attributable to
patent infringement, reverse engineering and technology theft. These are
possibilities for which the patent process provides limited deterrence.
Clark has more than twenty years' experience in management and
operation of OCS, Inc., primarily in the fields of oilwell blowouts, failures,
fires and quality assurance management, in addition to his extensive efforts in
developing and improving the ZEROS technology. If the Company or M. Ltd., feels
compelled to defend any or all of the patents, the contemplated costs may be of
such magnitude that they conceivably could be beyond the financial capabilities
of both the Company and M. Ltd.
PENDING ACQUISITION OF OCS ASSETS.
OCS, Inc., ("OCS") has been active in the oilwell blowout, failure and
quality assurance management business for more than twenty years and intends to
remain active in that business. The Company has reached an agreement in
principle to acquire all of the assets capable of being used in the manufacture
of the ZEROS equipment from OCS as soon as practicable after a transaction that
is mutually beneficial can be structured. Independent professionals need to
approve the details as both the Company and OCS are controlled by Clark. Both
entities hope this transaction can be finalized by the end of September of
1997, but there can be no assurance that this will be the case.
Clark is the control shareholder in the Company and the sole
shareholder of OCS. In the opinion of the Company, OCS provides staff,
experience and know-how as an International Standards Organization ("ISO")
certifying entity in the manufacturing of ZEROS equipment. Additionally, having
the manufacturing process controlled in this manner will provide certain
technology and proprietary secrecy for the Company. OCS will provide the
Licensee with a
3
<PAGE> 4
turn-key installation, training for safety, proper use of the equipment and
operational assistance. On-going maintenance, upkeep and parts replacement
services also will be provided to the Licensee by the Company. See "Certain
Relationships and Related Transactions" for a discussion on the relationship of
Clark and the Company. The Company intends to make all of its equipment
available to OCS so that OCS can manufacture and inspect the equipment for the
purchasers of the ZEROS equipment. The Company believes that the ISO
certification is an essential element in the manufacturing of the equipment,
without which no equipment can be marketed, to meet the requirements of both the
Licensees and their contractual obligations for hazardous waste cleanup which in
many instances will be at major corporations and governmental facilities. The
Company believes that OCS has the requisite expertise including the staff to
perform these tasks. There can be no assurance that any or all of the projected
revenue sources will materialize or that there will be a public market for the
common stock of the Company. As an interim arrangement and in exchange for the
Company's receiving a financial benefit for any ZEROS equipment manufactured by
OCS, the Company has transferred 1,000,000 shares of its common stock to OCS.
SALE OF ZEROS LICENSES.
The Company currently sells its licenses to a ZEROS licensed company
in conjunction with the execution of the relevant agreements. When the sale is
made with the efforts of a Licensee, this Licensee receives the right to own up
to 10% of the new Licensee.
The Company sold three non-exclusive territorial licenses for total
payments of $2,700,000 each, each payable in $900,000 payments annually over
three years plus other ongoing financial obligations of the Licensees including
the requirement that the authorized user purchase the ZEROS equipment from the
Company and pay a 15% royalty fee on the gross income generated by the use of
the ZEROS equipment by the Licensee or other authorized user. This non-
exclusive territorial license permits the Licensee to either purchase ZEROS
equipment for its own use or act as an authorized representative of the Company
in the sale or lease of ZEROS equipment to independent third parties. To date
one of the Licensees has referred a new Licensee to the Company which is
included in the Licensees referred to herein. One third of the royalty received
by the Company, or 5%, will be payable to M. Ltd., within 30 days of the
Company's receipt of the royalties in accordance with the Master License
Agreement between the Company and M. Ltd. Additionally, the Company
contemplates assessing fees to cover additional services that it will provide
to the Licensees and users.
Each of the Licensees or possible Licensees contemplates the
installation of ZEROS authorized equipment for its own account or that of an
affiliate. All of the agreements entered into to date by the Company require
that at least one ZEROS plant be installed and that the Licensee present a
minimum of five qualified license purchase referrals during the term of the
agreement. Even though the contract Licensees and/or purchasers of the
equipment have the financial capabilities in the opinion of the Company to
acquire at least one plant, there can be no assurance that the Licensees will
continue to meet the financial terms of their agreement or that they or the
Company will be able to secure the required financing to permit the
construction of the plants should it be necessary. The Company and the Licensee
are currently in negotiations with
4
<PAGE> 5
several potential sources for this financing. It is quite early in this process
and success cannot be assured.
The current Licensees are:
1) C. PAT RAMSAY ("Ramsay"), an individual, as of February
27, 1997 owner of ZEROS Piney Creek Corporation, a Mississippi corporation,
("ZPC") with a non-exclusive territorial license for the state of Mississippi
organized so that ZPC could establish a waste disposal facility in connection
with the development of a poultry processing business and a value-added service
of forest products operation in Holmes County, Mississippi, an approved Federal
Empowerment Zone.
ZPC has the right to receive up to 10% of the equity in a new Licensee
if ZPC makes the requisite introductions.
ZPC has agreed to pay $900,000 per annum, payable annually for three
years in payment for this non-exclusive territorial license. Ramsay has further
secured this deferred payment by personally guaranteeing it. The total ZEROS
equipment is projected to cost ZPC $23,700,000. Ramsay anticipates that funding
for the purchase of the equipment will be through a financial institution
secured by a U.S. Department of Agriculture Guarantee (Rural Development
Administration). There, of course, can be no assurance that this financing will
be completed, and if completed, when it will occur. Ramsay has contracted with
Capital American Associates, Inc., ("Capital") a related party of the Company,
for assistance in obtaining the US government guaranteed financing on the
purchase of the ZEROS equipment. Capital believes that its financing fees for
arranging such transactions are competitive with others and less than some other
companies. See Exhibit 10 (B) (1) for a copy of the agreement selling ZPC to
Ramsay. Also, see "Certain Relationships and Related Transactions" for a more
detailed discussion about Capital.
2) ROBERT MARTIN BUILDERS, INC. ("Martin"), as of March 31,
1997 owns 100% of ZEROS California Corporation ("ZCC"), which holds the rights
to ZEROS and ZEROS Bio-Dynamics technology as a non-exclusive Licensee for the
state of California. The License price of $2,700,000 is payable at the rate of
$900,000 per annum and is secured by all of the stock of ZCC and its assets as
well as a personal guarantee by Robert Martin.
ZCC is bidding for the waste disposal, clean-up and site remediation
at the Alameda Naval Station, Hunters Point Naval Station and Treasure Island
in the San Francisco Bay area. The Company and Martin believe that these three
contracts will approximate $130,000,000 annually. There are 12 base closures
projected to occur in the Bay area, each of which requires similar types
5
<PAGE> 6
of cleanup efforts. ZCC is hopeful of obtaining contracts on at least some of
them. There, of course, can be no assurance that bids will be submitted, and if
submitted, will be successful. ZCC, Martin and the Company believe that this
ZEROS equipment can be financed by assignment of the base closure remediation
contracts. Military officials and base closure organizations are urging the
immediate implementation of cost-effective systems that can remediate without
incineration and provide 100% destruction removal efficiency ("DRE"). The
Company is of the opinion that its equipment can do this. Until the financing
contracts are finalized, the Company, Martin and ZCC can have no assurance that
there will be adequate financial capability to permit manufacture of the
equipment to commence. Additionally, even though the ZEROS equipment and
technology are acceptable to the base closure groups and various military
officials, until contracts are signed there can be no assurance that ZCC will
obtain the contracts. See Exhibit 10 (B) (2) for a copy of the agreement to sell
ZCC to Martin.
Robert Martin and some of his family members have also purchased from
the Company a total of $100,000 of the One Year 10% Secured Debentures at face
amount. This transaction was separate and apart from his purchase of ZCC.
3) RICHARD AND KIM LAWSON ("LAWSON") of Thermal, California, effective
May 31, 1997, have purchased a license from the Company through a referral and
introduction by ZCC. In conjunction with the assistance of the Company they
formed Lawson ZEROS Corporation ("LZC"), with ZCC purchasing 10% of LZC. LZC
is obligated to pay $900,000 annually for three years.
LAWSON is the owner-operator of an 80 acre landfill facility in
Thermal, California. The ZEROS equipment, once delivered and operational, will
be utilized by LAWSON to dispose of green waste and shrubbery, construction
project demolition waste and used tires. The ZEROS equipment will permit them to
eliminate the burying of waste in its landfill and recycle waste previously
buried into commercially salable by-products. See Exhibit 10 (B) (3) for a copy
of the agreement with LAWSON.
It is the current intent of the Company to provide assistance to LZC
in attempting to obtain financing to pay for the manufacture of the ZEROS
authorized equipment that LZC will require.
Each of the two proposed purchasers of the ZEROS authorized equipment
has executed a separate Financial Services Agreement ("FSA") with Capital which
requires Capital to perform certain services which include preparing a business
plan and the documents necessary for submission to the governmental agencies
for guarantees and credit insurance to meet the disclosure requirements for the
contemplated financing and other related activities. For these "best efforts"
services Capital is paid a series of fees and reimbursement of approved
expenses. The fees in these instances currently are: Application and Financial
Documentation Preparation $650, due at signing of FSA; $275 for preparation of
presentation package due when the package is
6
<PAGE> 7
accepted by the Client; and 1% fees for each of Credit Insurance Placement and
Funding Placement. These latter two are contingent and due upon acceptance of
coverage by the Client and at funding, respectively. Additionally, expenses
incurred on behalf of the Client are subject to reimbursement when there is
prior approval. Even though each of the two initial Licensees or purchasers of
the ZEROS non-exclusive territorial licenses and systems have utilized the
services of Capital, there is no obligation for any potential Licensee or
equipment purchaser to do so. Capital believes that it can perform the required
services more efficiently and at a lesser cost to the user than others might.
There is, of course, no assurance that this will continue to be so or that any
other user will select Capital. The Company does not share in any of the fees
collected by Capital and is independent of Capital. See "Contracts" for a more
detailed discussion of each of the contracts, "Description of Property" and
"Certain Relationships and Related Transactions" for a more detailed discussion
of the arrangements between the Company and Capital. Also see Exhibit 20 (3) for
a copy of the form of Financial Services Agreement used by Capital.
BUSINESS OF THE ISSUER.
ZEROS BUSINESS DEVELOPMENT AND MARKETING DIVISION.
The ZEROS Business Development and Marketing Division sells non-
exclusive territorial licenses and sells and leases the equipment, arranges for
the manufacture of and the installation of the equipment required to operate
the various ZEROS facilities and collects royalties on the tipping fees and the
waste by-products sold as a result of the operation of the equipment. In
addition, the Company intends to provide additional ongoing services to the
users to permit the equipment to operate more efficiently and thereby to permit
the Company to receive additional percentages of the revenues collected by the
owner-operators to pay for these support services that will be provided on an
ongoing basis.
ZEROS QUALITY ASSURANCE DIVISION.
The ZEROS Quality Assurance Division was established to monitor the
manufacture, installation and operation of the various ZEROS authorized
equipment that will be manufactured and installed by approved entities. The
Company is committed to ensuring that the ZEROS plants perform in accordance
with the specifications and capabilities disclosed in its literature. The
Quality Assurance Division is charged with this responsibility.
7
<PAGE> 8
DESCRIPTION OF THE ZEROS TECHNOLOGIES.
ZERO-EMISSION ENERGY RECYCLING OXIDATION SYSTEM
("ZEROS").
The ZEROS technology is a closed, energy recycling process, operating
as a thermal oxidation process. There is no incineration. There is no
smokestack. It is classified by the Environmental Protection Agency ("EPA") as
"Air Quality Exempt" under present regulations as it has demonstrated 100% DRE
(Destruction and Removal Efficiency) and zero % emissions. On April 29, 1997 the
Company received a letter from the Texas Natural Resource Conservation
Commission stating, inter alia, that the system will not create a new source of
air contaminants or increased emissions of air contaminants from existing
sources and on that basis, no permit will be required from the Office of Air
Quality. See Exhibit 20 (2) for a copy of this letter.
The closed process has several advantages. Recycled flue gas can be
recirculated at temperatures of up to 1200 degrees C. Since no ambient air is
brought into the system, all nitrous oxide ("NOx") is eliminated unless nitrogen
is present in the waste being processed. Additionally, the actual amount of
exhaust flue gas in pound-mass is greatly diminished. In a standard
incinerator system, the primary chamber temperature is controlled by a
combination of fuel, waste feed, injected water, or excess air. With one major
exception it is similar in the ZEROS process. In the ZEROS process the term
"excess air" no longer applies. Oxygen is not derived from excessive amounts of
ambient air but is supplied through the burner from an Oxidizer source. Going
from excess-oxygen to no-oxygen is achieved through a flow control valve. The
recycled flue gas also has a higher heat transfer capability than air at
elevated temperatures. This emissivity factor is as much as 20% higher than
ambient air at the same temperatures. It promotes higher efficiency when these
flue gases are cooled in a waste heat boiler or other heat recovery process or
system. Additionally, at elevated temperatures the recycled flue gas has the
benefit of being reactive with carbon and some hydrocarbons to form a CO
syngas. Hence, purification of all the CO2 balance stream gas for product
gas could be further reduced by using CO2 reaction with carbon to form a CO
synthetic fuel gas. This heat recovery process lends itself most naturally to
electrical co-generation which is much more efficient in this technology than
with other systems and water purifications.
The Secondary Combustion Chamber ("SCC") can now be supplied with the
precise amount of oxygen to complete oxidation of the fuel and flue gas
constituents coming from the Primary Combustion Chamber. Any unburned carbon,
carbon-monoxide, or other products of incomplete combustion are treated the
same as a normal system, again, with the exception that no ambient air is
brought into the system. Thus, no NOx are formed at the burner or in the
chamber. SCC temperatures are determined from a waste profile characterization.
Several configurations can be used to complete the system from the
SCC. For the material balance indicated, SCC gases are cooled to 250 degrees C
to enter the baghouse. Clean, filtered flue gas is then ready for recycling
while the remaining exit balance gas stream is super purified to liquid or
solid carbon dioxide. The recycled flue gas is kept at the higher operating
temperature to stay well above any acid gas dew point. On each process cycle,
more acid gas is removed for scrubbing than is left in the system. This
prevents a build-up of acid gas in the plant.
8
<PAGE> 9
The high recycle flue gas temperature means that less energy is required to
bring the entire equipment up to operating parameters than if outside ambient
air were being used.
Because the exit flue gas is brought to a complete halt in the CO2
processing stage, this is the only system of which the Company is aware that
can demonstrate 100% Destruction and Removal Efficiency (DRE) and because an
equal weight of the mass balance is demonstrated, zero % emissions is achieved.
The Company believes that some of the advantages of the Zero-emission
Energy Recycling System are:
The process responds to public concerns about smokestack emissions
There is no "Exhaust Stack"
There are no "Emissions"
There are no Atmosphere/Ozone Impacts
The Air Quality Exemption is achievable
No "Emergency Stack Opening" is required
Gas Velocities are not a factor
There is increased system control
There are no Air Dispersion Models or Health Risk Models
Produces relatively free of cost of electrical energy by co-generation
There are revenues from operations by the sale of resultant products
ZEROS BIO-DYNAMICS AND ZEROS AQUA-DYNAMICS TECHNOLOGIES
ZEROS Bio-Dynamics Technology is a nonthermal parallel process for
remediating and cleaning organic hydrocarbons and chlorinated hydrocarbons and
inorganic metals from soils with no emissions while then destroying any toxins
removed in a non-polluting thermal energy recycling process. This process is
comprised of the following steps:
1. The ZEROS process destroying heavily contaminated
hydrocarbons and other organic contaminates, producing
carbon dioxide but no emissions.
2. The ZEROS Bio-Dynamics process utilizing an enclosed
scrubber and the carbon dioxide produced by the ZEROS
process to solvent clean all hydrocarbons from the soils.
3. The soils that have metals contamination are treated with
acid and the acid then neutralized and processed through
the ZEROS process leaving clean soil.
4. Additionally, the excess carbon dioxide from the ZEROS
process is injected into injection water wells and
recovered and used as quench water for the ZEROS thermal
process to moderate combustion chamber temperatures, by
which the hydrocarbon contamination of the water is
remediated.
9
<PAGE> 10
MANUFACTURE OF THE ZEROS EQUIPMENT.
The Company currently intends to enter into contracts with OCS which
would authorize OCS to manufacture ZEROS equipment for owner-operators of the
plants. OCS is an independent company, wholly owned by Clark, president and
largest shareholder of the Company. The Company and OCS have agreed in
principle that OCS will convey all of its assets that can be used in the
manufacture of ZEROS equipment as soon as independent professionals can
structure a transaction that is mutually beneficial. Until this transaction is
consummated, the Company has designated OCS as an authorized manufacturer of
ZEROS authorized equipment. Because OCS has agreed to permit ZEROS to receive a
fee for all ZEROS authorized equipment manufactured by OCS until the
transaction referred to herein closes, the Company has transferred 1,000,000
shares of its common stock to OCS. This stock is included in the common shares
owned by Clark, reported elsewhere in this document as Clark is the sole owner
of OCS.
OCS is located in Highlands, Texas just east of Houston, and owns a
100,000 square foot facility with storage, welding and machine works equipment
as well as an industrial laboratory for testing, inspecting and qualifying
ZEROS equipment. This facility is capable of producing four ZEROS facilities
simultaneously during a 150 day period and a total of eight per year. OCS is an
oilwell control services company, engaged in oilwell blowout, fire, failure
and quality assurance management services and construction and has been in
business for more than 23 years. It has serviced more than 1,950 oilwell
blowouts, failures and fires during the time it has been in business. It is an
ISO certifying manufacturer. The Company currently anticipates that OCS will be
responsible for the manufacture of the ZEROS equipment in their Highlands
facility. See "Certain Relationships and Related Transactions."
PRINCIPAL MARKETS.
Every facility that emits waste through a smokestack or has
potentially hazardous waste as a by-product from its business becomes a
potential customer directly or indirectly through an intermediary that wishes to
solve this disposal problem. It includes governmental agencies such as the
Department of Defense, especially the military base closure remediation
contractors, Department of Agriculture, Department of Energy, Department of
Interior-Bureau of Reclamation, Department of Transportation, Environmental
Protection Agency, Department of Commerce, Department of Health and Human
Resources and the State Department plus international, state and local agencies
and governments as well as major industries such as public utilities,
petrochemical companies, mining and milling groups and other industries located
throughout the world. Also see "Potential Customers and/or Clients."
POTENTIAL CUSTOMERS AND/OR CLIENTS.
The Company has established goals for the next five years focusing on
the agri-industrial, biomedical and export trade areas for the sale of
licenses, equipment and the execution of royalty agreements. Currently,
the Company has received more than 30 inquiries and requests for proposals.
They range from a British concern seeking alternative ways to dispose of the
"Mad Cow" waste, military base closure contractors, poultry, swine and cattle
processors, biomedical
10
<PAGE> 11
organizations and various petrochemical companies. There, of course, can be no
assurance that any of these inquiries will result in contracts, or if they do,
that they will be profitable.
To the extent that financial resources permit, the Company intends to
accelerate its marketing campaign by increasing its efforts in the following
broad areas: industrial, agricultural, export trade, military base operations
and biomedical. These efforts will be enhanced by continuous presentation of
technical papers and articles to professional publications and trade show
exhibitions, as well as an advertising campaign.
Once clients have executed contracts for the acquisition of the
equipment, an extensive in-service training and education program will
commence. It will be a continuous process with planned updates throughout the
entire life of the equipment. The Company has a commitment to ongoing
improvement of the equipment and perpetual education of the Licensees and their
appropriate employees. See also "Contracts/Clients/Licensees" elsewhere in this
section.
COMPETITION.
Competition includes many private trash and waste companies and
several publicly-held waste management companies such as Allwaste, Laidlaw,
Allied Waste Industries, BFI, Inc., International Technologies and Waste
Management, Inc. These companies primarily transport and store or bury waste in
landfills or incinerate or treat the waste with chemicals. Any of these
procedures over time could cause contamination of aquifers and the
environment. If landfills are used, they can also cause economic hardships to
the neighboring properties. If incineration is used, the emissions in certain
instances create negative atmospheric problems, either actually or by
perception, including, in certain instances, acid rain and ozone problems. The
equipment being marketed by the Company does none of these. Consequently, it
could be stated that these companies are not competitors, but actually
prospective clients. The aforementioned companies do not eliminate waste.
CONTRACTS/CLIENTS/LICENSEES.
The Company currently has three executed license agreements. They are:
1. ZEROS PINEY CREEK CORPORATION, owned by C. Pat Ramsay, which will
be providing services in Holmes County, Mississippi located in a Federal
Empowerment Zone scheduled for funding commitments of federal, state and local
government monies in excess of $130,000,000 for the development of poultry farms
and a forest products operation. Prior to implementing the poultry and forest
products operations these projects are required to have in place a compliant
plan for handling the hazardous waste and litter produced by the operations. An
estimated $23,700,000 system for ZPC processing business and value-added forest
products operation is being negotiated with the Company in order to meet this
condition precedent to the commencement of the development of the two activities
in northern Mississippi.
11
<PAGE> 12
The ZPC System has the following features that the Company believes to be
beneficial:
Destruction Removal Efficiency 100%
Waste is recycled to clean salable by-products which include:
gas
steam for industrial and co-generation use
carbon dioxide gases and solvents
carbonic fluids and refrigerants (replacing freon)
dry ice
solid fuel stock
metal additives for steel production
ZPC contemplates using a U.S. Department of Agriculture loan guarantee
to finance its equipment purchase. They have contracted with Capital for
assistance in attempting to obtain this guarantee and the underlying financing.
They will purchase the equipment from the Company and also pay an ongoing 15%
license royalty payment to the Company. Pursuant to the technology transfer
agreement between the Company and M. Ltd., the Company will remit 5%, or one
third, of this royalty to M. Ltd. There, of course, can be no assurance that the
US Government Guarantee for the purchase of equipment will be obtained.
2. ZEROS CALIFORNIA CORPORATION was formed in conjunction with the
assistance of the Company and transferred to Robert Martin Builders, Inc.,
("Martin") for the purchase of a non-exclusive territorial license, $2,700,000
payable in three equal annual payments of $900,000. ZCC will also pay the
Company a 15% royalty based upon gross income generated from the use of the
ZEROS units. ZCC has structured an alliance with a group of government
contractors qualified to perform contract work on the military bases in
conjunction with the large number of base closures scheduled to occur in
California within the next two years by using ZEROS equipment and technology.
The estimated cost of the appropriate equipment is $22,300,000 which ZCC and the
Company believe can be financed by assignment of base closure remediation
contracts. Both the Company and Martin believe that more than $2.1 billion of
cleanup and base remediation monies will be used for the various military
bases scheduled for closure during the next sixty months.
ZCC has the bonding capacity required for contracting for site
remediation with the ZEROS technology. This equipment placed for utilization
will be mobile so it can be moved from base to base to perform its required
tasks. ZCC is negotiating with several parties, one of whom is expected to
purchase the ZEROS equipment and lease it to ZCC. ZCC is also obligated to pay
a royalty of 15% of the gross income generated by the use of its own ZEROS
authorized system to the Company. The Company is obligated to remit 5%, or one
third of the royalty, to M. Ltd., as part of its technology acquisition
agreement. Gross income is defined as all income generated from tipping fees
at the input station and from the sale of all products produced by each ZEROS
unit before deducting operating expenses and taxes. There, of course, can be
no assurance that ZCC will be successful in these negotiations to provide
sufficient financing to permit the leasing of the ZEROS equipment to ZCC.
12
<PAGE> 13
3. LAWSON ZEROS CORPORATION, a California corporation ("LZC") was
formed in conjunction with the assistance of the Company and transferred to
Richard and Kim Lawson ("LAWSON") of Thermal, California. Because the LZC
license was arranged through ZCC, ZCC owns 10% of LZC. For the License, LAWSON
contracted to pay $2,700,000 to the Company in three annual payments of
$900,000. LZC will also pay the Company a royalty of 15% of the gross income
generated by its use of the ZEROS authorized plants.
The Company and Capital are assisting LZC in attempting to obtain the
financing to permit the manufacture of the ZEROS authorized equipment to be
sold or leased to LZC. The Company believes that this facility should provide
an acceptable test and demonstration service for the military, government and
potential Licensees. To date no firm commitment from a financing source has
been obtained. There can be no assurance that such financing will be
available, and if available, that it will be at a cost sufficient to permit a
profit to the Company.
GOVERNMENTAL APPROVALS AND POTENTIAL FUTURE REGULATIONS.
The ZEROS process is currently exempt from EPA and the Department of
Environmental Quality regulation because there is no smokestack or emissions
to regulate or measure as described by Title 40 and the Environmental Impact
Statements required. On April 29, 1997 the Company received a letter from the
Texas Natural Resource Conservation Commission confirming this. See Exhibit 20
(2) for a copy of this letter.
While no one can be totally sure of the direction of future
governmental regulatory actions, the ZEROS process has zero emissions as there
is no smokestack. This gives the Company a reasonable degree of comfort that
future regulations, even if more restrictive, should not adversely affect its
future operations. There can be no assurance that this will be the case.
Consequently, with some of the present methods of disposing of waste being
banned by the EPA because of the hazards of burying, burning or adding chemical
compounds, the ZEROS technology may actually be aided by increases in
regulation. Of course, there can be no assurance that this trend will continue,
or if it does continue, that no one else will develop a competitive system or a
better one.
RESEARCH AND DEVELOPMENT.
As part of the Master License Agreement executed by the Company with
M. Ltd., as of December 1, 1996, ZEROS has agreed to pay M. Ltd., $4,000,000
within eight years of the execution of this agreement plus $3,000,000 for each
of the four subsequent systems plus a 5% royalty on future gross income. As
part of this Master License Agreement, M. Ltd., is entitled to royalties and the
stated fees pursuant to an exclusive license to the Company on all improvements
and additions to the ZEROS technologies regardless of whether patentable or non-
patentable in the general area of hazardous waste cleanup. The Company is also
required to pay the agreed upon royalties for improvements to the ZEROS
technology even if the Company develops them. The agreement also provides for
the Company to file for patent
13
<PAGE> 14
protection for M. Ltd., if it is determined that this is appropriate with the
expenditures to be paid by the Company. See Exhibit 10 (A) (1) for a copy of
the Master License Agreement.
EMPLOYMENT.
The Company currently has no employees on its payroll. To maximize
available resources, the Company relies on the staff personnel of Capital as
well as independent contract professionals, on an "as needed" basis. Currently,
the Company plans to use OCS as the authorized ZEROS equipment manufacturer.
The relations with all of these individuals is excellent. It does not
anticipate any significant difficulty in increasing its personnel
capabilities including hiring on a full time basis the necessary executives and
staff personnel should circumstances require and finances permit.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION.
The Company was organized on November 12, 1996. The only cash
generated during the initial period of operations, from November 12, 1996 to
March 31, 1997 $885,500, came from the private placement of debentures. The
revenues of $3,383,845 were generated by the sale of ZEROS licenses.
Negotiations are in varying stages with regard to the sale or lease of ZEROS
equipment. Even though the total estimated cost of these plants has been
defined within reasonable parameters, the financing necessary to commence
manufacturing has not been finalized. Therefore, until the buyer of the ZEROS
equipment can make the required payment, the Company cannot be totally assured
of the sale of the equipment.
During the first fiscal quarter of FY 1998, the period from April 1,
1997 through June 30, 1997, the Company continued its efforts to sell the
non-exclusive territorial licenses for the ZEROS technology as well as
continuing its improvements of the ZEROS technology. The Company also raised
an additional $894,760 by the sale of additional one year debentures. One new
contract was executed during this time period, the licensee being introduced
to the Company by one of the two prior licensees. The terms of the sale are
disclosed in the discussion of the Licensee. See, "Richard and Kim Lawson
(LAWSON)."
The Company plans to obtain adequate financing to permit the
manufacture of the ZEROS authorized equipment described above to be able to
service the full needs of its Licensees and owner-operators of the ZEROS
authorized facilities. The Company believes that it may be necessary to raise
additional funds even if all ZEROS authorized plants are sold. The Company
believes, however, that if it is able to offer leasing as an additional option,
it should increase its revenues as some prospects have a need but not the
financial capabilities to purchase ZEROS authorized equipment. Present
indications are that the plant for Lawson will be financed by an independent
third party. Manufacture of all ZEROS authorized plants will commence once the
required funds are on hand or the Company is fully satisfied that the acquirer
can meet the equipment purchase obligations in a timely manner. The Company has
had preliminary discussions with several companies who are in the business of
arranging financing to provide the required financing for the equipment to be
leased to LZC. Even though the discussions are quite preliminary, the Company
and Capital believe that such financing can be obtained on terms and
14
<PAGE> 15
conditions adequate to meet LZC's needs. Of course, there can be no assurance
that such financing can be obtained, or if obtained, that the terms will be
favorable enough to produce a profit for the Company and LZC.
Through June 30, 1997 the private placements totaled $1,780,260 in
one year 10% secured debentures. In the opinion of the Company it has
sufficient capital to permit it to operate for at least the next twelve months.
Of course, there can be no assurance that adequate financing can be obtained to
permit the Company to secure and implement additional contracts.
REVENUE SOURCES.
The Company anticipates that it will continue to obtain revenues from
the sale of licenses to independent third parties to use the ZEROS technology.
These licenses are currently priced at $2,000,000 per license plus an
additional $700,000 for the right to make deferred payments. The Company
anticipates that it will earn up to 20% of the sales price of the equipment as
a manufacturing profit by contractual arrangement with the company
manufacturing the ZEROS authorized system. The Company has entered into an
agreement with OCS in which the Company will obtain a profit should OCS
manufacture the ZEROS equipment for an authorized user. To obtain this benefit,
the Company has transferred 1,000,000 shares of common stock to OCS. The Master
License Agreement with M. Ltd., requires the payment of $4,000,000 within the
first eight years after the effective date of this agreement and an additional
$3,000,000 to be paid for each of the first four plants sold by the Company to
other Licensees. Licensees are obligated to purchase or lease the equipment
from or through the ZEROS authorized manufacturer. The prices of the equipment
are based roughly upon the size, design and capacity of the equipment which
therefore bears some relationship to the manufacturing cost. The agreements
with the Licensees provide that they pay a 15% royalty on the tipping fees and
on the sale of by-products from operation of the ZEROS equipment of which 5%,
or one third, is remitted to M. Ltd., within thirty days of receipt.
MARKETING EFFORTS.
The Company intends to market aggressively the ZEROS technology and
equipment, utilizing its relationship with Capital to assist the prospective
licensees and buyers in arranging financing for the purchase of the equipment.
It intends to pursue leads from users, staff personnel, trade shows and
conferences as well as hire a professional marketing staff. Effective July 1,
1997 the Company has increased its space requirements by adding additional
space in 507 North Belt East in Houston to have a dedicated marketing office.
15
<PAGE> 16
ITEM 3. DESCRIPTION OF PROPERTY.
The Company currently subleases its administrative offices adequately
furnished with furniture, computers, telephones and facsimile equipment with
approximately 4,500 square feet at 507 North Belt East, Suites 155 and 550,
Houston, Texas 77060, from Capital. It leases furnished space including office
equipment plus reimburses direct out-of-pocket expenses for such items as
postage and office supplies.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Listed below is the security ownership of any person, (including any
group), who is known to the small business issuer to be the beneficial owner
of more than five percent of any class of the small business issuer's voting
securities. A large percentage of the shares owned by Clark, the president of
the Company, are committed for exchange of the debentures sold by the Company
and for the exercise of warrants that he has issued to officers, directors,
Capital and professionals who have been and will be providing their services to
the Company, in addition to the debentures holders being entitled to purchase
warrants from Clark until March 31, 1998. In one known instance he will
receive voting convertible preferred shares approximately equal to the common
shares he transfers. See Note 3.
<TABLE>
<CAPTION>
Name and Amount And Percent
Title of Address of Beneficial Nature Of Of
Class Owner Beneficial Owner Class
-------- --------------------- ---------------- -------
<S> <C> <C> <C>
Steve Clark
COMMON 507 North Belt East, Suite 550
Houston, TX 77060 10,000,000(1) 80.26
CAG Trust(6)
507 North Belt East, Suite 550
Houston, TX 77060 1,000,000 8.0
VOTING Steve Clark
CONVERTIBLE 507 North Belt East, Suite 550 4,507,000 39.19(2)
PREFERRED Houston, Texas 77060
CAG Trust(6)
507 North Belt East, Suite 550 421,245 3.66
Houston, Texas 77060
</TABLE>
Note 1. Clark has agreed to distribute from the shares that he
owns to certain of the officers, directors and staff of the Company and of CAG
Trust for the benefit of the shareholders of Capital, 600,000 shares of common
stock in the Company as additional compensation to them. Clark has also
agreed to compensate Jesse Blanco by issuing 100,000 shares of common stock of
the Company for services rendered.
16
<PAGE> 17
The officers, directors and staff where also issued 1,400,000 common
stock purchase warrants ("Warrants") by Clark as additional compensation.
Each of these warrants along with $1.25 can acquire one share of common stock
in the Company from Clark at any time until March 31, 1998.
Additionally, Clark is offering warrants at the rate of two warrants
for each dollar face amount of debentures purchased by the debenture holders at
the purchase price of $0.25 per warrant any time until March 31, 1998, said
warrants expiring March 31, 2003. Each warrant entitles the holder to purchase
one share of common stock. There is protection against dilution. These warrants
which have been offered to debenture holders are in addition to the conversion
rate of two common shares for each one dollar of face amount until the
maturity, one year from the issuance of the specific debenture. The shares
issuable in exchange for the debentures are to be issued by the Company. Since
none of these common shares have been transferred by Clark and conceivably
might not be, they are listed in his total of shares owned, but are restricted
from transfer by him aside from pursuant to this obligation. See "Debentures"
for a more detailed explanation of the conversion feature of the one year
debentures and "Preferred Stock" for a more detailed explanation on the terms
and conditions of the voting and nonvoting preferred stock.
Note 2. All preferred shares will be convertible into common shares at
the rate of one share of common for each share of preferred with protection
against dilution.
Note 3. As consideration for the common shares provided by Clark for
debenture exchange and issuance pursuant to the warrants that he has issued or
has granted the right to purchase or may issue and to exchange to the Company
for use in possible conversion of the debentures, the Company transferred
3,000,000 shares of voting preferred stock to Clark. This was accomplished by
a Redemption Agreement between the Company and Clark on July 24, 1997.
17
<PAGE> 18
Listed below is the security ownership of the named officers and
directors.
<TABLE>
<CAPTION>
Name and Amount And Percent
Title of Address of Nature Of Of
Class Beneficial Owner Beneficial Owner Class
-------- ---------------- ---------------- -------
<S> <C> <C> <C>
Steve Clark
COMMON 507 North Belt East, Suite 550
Houston, TX 77060 10,000,000(1) 80.26
Jesse Blanco
507 North Belt East, Suite 550
Houston, TX 77060 200,000 1.6
Chet Gutowsky
507 North Belt East, Suite 550
Houston, TX 77060 100,000 .8
R. J. Simmons, Jr.
507 North Belt East, Suite 550
Houston, TX 77060 120,000 .96
Susan Smith
507 North Belt East, Suite 550
Houston, Texas 77060 170,000 1.36
Celso B. Suarez, Jr.
507 North Belt East, Suite 550
Houston, TX 77060 120,000 .96
officers and directors, total 10,710,000 83.4
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
VOTING Steve Clark
CONVERTIBLE 507 North Belt East, Suite 550
PREFERRED Houston, Texas 77060 4,507,000(2) 39.2(2)
Jesse Blanco
507 North Belt East, Suite 550
Houston, Texas 77060 346,809(2) 3.0(2)
Chet Gutowsky
507 North Belt East, Suite 550
Houston, Texas 77060 259,999(2) 2.26(2)
R. J. Simmons, Jr.
507 North Belt East, Suite 550
Houston, Texas 77060 251,999(2) 2.19(2)
Susan Smith
507 North Belt East, Suite 550
Houston, Texas 77060 358,949(2) 3.12(2)
Celso B. Suarez, Jr.
507 North Belt East, Suite 550
Houston, Texas 77060 253,999(2) 2.21(2)
officers and directors, total 5,978,755
WARRANTS Jesse Blanco 400,000
(issued by S.
Clark) Chet Gutowsky 200,000
R. J. Simmons, Jr. 220,000
Susan Smith 270,000
Celso B. Suarez, Jr. 220,000
officers and directors, total 1,310,000(1)
</TABLE>
Note 4. The Company has not issued any warrants. All warrants
enumerated above were granted by Clark and not by the Company. Therefore,
the exercise of any or all of these warrants will not change the outstanding
shares. See footnote 1 in the table above for further details.
Note 5. CAG Trust is a business trust created for the benefit of the
shareholders of Capital, a related party to the Company. It is also the owner
of 250,005 shares of voting convertible preferred shares and 200,000 warrants.
These numbers are not included in the tables above.
19
<PAGE> 20
As of August 1, 1997, the Company authorized as additional
compensation for services rendered. The following voting preferred shares as
compensation to certain of the officers, directors and on behalf of Capital, the
CAG Trust. The preferred shares authorized for issuance to the officers,
directors and the CAG Trust are voting, whereas the preferred shares authorized
for issuance to all others are nonvoting. There is protection against dilution
to preserve the percentages of ownership, but not in the event of the issuance
of additional common or preferred shares for reasonable value. The Company also
authorized issuance of the following voting preferred shares for each of the
first five license placements. Since three licenses have been placed, preferred
shares for the three are authorized for issuance. The Company is obligated to
issue the number of shares contained in the column, "Shares per new licenses,"
for each of the fourth and fifth license placed. The shares issuable for the
first three are included in the totals above:
<TABLE>
<CAPTION>
Bonus Shares per Total license Total
Name Shares new license shares shares
---- ------- ----------- ------------- ---------
<S> <C> <C> <C> <C>
Steve Clark 7,000 500,000 1,500,000 1,507,000
Jesse Blanco 96,810 83,333 249,999 346,809
Chet Gutowsky 1,000 83,333 249,999 259,999
R. J. Simmons, Jr 2,000 83,333 249,999 251,999
Susan Smith 108,950 83,333 249,999 358,949
Celso B. Suarez, Jr. 4,000 83,333 249,999 253,999
CAG Trust 171,240 83,335 250,005 421,245
Total 391,000 1,000,000 3,000,000 3,400,000
</TABLE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Following are the names, ages and business experience for the past
five years of all directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Steve Clark 50 President, Director
Jesse Blanco 50 General Counsel, Secretary, Director
Chet Gutowsky 50 Chief Financial Officer, Director
R. J. Simmons, Jr. 73 Director
Susan Smith 48 Assistant Secretary, Director
Celso B. Suarez, Jr. 40 Director
</TABLE>
20
<PAGE> 21
STEVE CLARK is the principal organizer of the Company and is Chief Executive
Officer and a director. He originally negotiated for the acquisition of the
ZEROS technology on behalf of OCS and Blowout and Failure ("BAF"), two
companies wholly owned by him. He has served as the President of these
companies for more than the past five years. These companies specialize in the
oilwell blowout, failures and fires business as well as project management,
construction supervision, inspection, testing and quality assurance consulting
and management. When he realized the potential significance of the ZEROS
technology he directed the access to the technology to a separate company.
Earlier versions of the ZEROS equipment and technology have been used
successfully by OCS in providing toxic waste handling services for its clients.
CHET GUTOWSKY is the Treasurer and Chief Financial Officer of the Company as
well as a director. He received his M.B.A. in finance from the University of
Texas.
JESSE BLANCO is the Secretary and General Counsel of the Company as well as a
director. For more than the past five years he has been practicing law as a
sole practitioner as a member of the Texas Bar. He has a J.D. from the
University of Houston and was formerly Assistant Dean of the University of
Houston College of Law.
SUSAN SMITH is the Assistant Secretary of the Company as well as a director.
She has been president of Capital American Associates, Inc., a related party to
the Company for the past three years. Prior to that she was Director of Client
Services for a Houston area staff leasing company. She has a background in
insurance, credit guarantee programs and export-trade development. She is a
graduate of Louisiana Tech University with a Bachelor of Arts. She is the
daughter of Raymond Jefferson Simmons, Jr.
CELSO B. SUAREZ, JR., is a director of the Company and has been engaged in the
private practice of law for the past five years. He received his J.D. from
Drake University and his undergraduate degree from the University of Houston.
RAYMOND JEFFERSON (R.J.) SIMMONS, JR., is a director of the Company. He retired
from United Gas Pipe Line Company, a division of United Energy, in 1986 as
Executive Vice President. He has served on committees of the Gas Research
Institute, the International Gas Union and the Pipeline Research Committee. He
is the father of Susan Smith.
21
<PAGE> 22
ITEM 6. EXECUTIVE COMPENSATION.
None of the officers currently receive salaries. They each have other
employment and are compensated by the Company on a consulting basis for the
services actually provided.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long
------------------- Term
----
Name And Principal Position Year Salary(1) Other
- --------------------------- ---- --------- -----
<S> <C> <C> <C> <C>
Steve Clark, President 1997 0 $1,000 monthly car allowance None
Jesse Blanco, Secretary, General Counsel 1997 0 $1,000 monthly car allowance None
Chet Gutowsky, Chief Financial Officer
and Treasurer 1997 0 None None
</TABLE>
Note 1: None of the officers of the Company currently receive salaries. They
each are paid as self-employed consultants for the actual time they consult
with the Company. The Company intends to employ at least some of the officers
under employment contracts once they believe the financial condition of the
Company permits.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
STEVE CLARK.
Steve Clark is President, Chief Executive Officer and largest
shareholder of the Company. He is also the sole owner of OCS, Inc., and BAF. He
initially negotiated for the transfer of the ZEROS technology with M. Ltd., on
behalf of these two previously named companies. When he realized the potential
significance of the ZEROS systems he shifted his focus to place the technology
in a separate company to be able to offer shares to interested parties and to
separate the ZEROS activities from the exposure of the businesses of the other
two companies. As part of his negotiations with M. Ltd., initially on behalf of
OCS and BAF and subsequently on behalf of the Company, he agreed to handle all
patent applications and obligated the Company to pay the out-of-pocket costs.
CAPITAL AMERICAN ASSOCIATES, INCORPORATED.
Capital is a capital-financial development company specializing in
providing businesses with resources for export trade, working capital and
credit protection plans for domestic and international accounts receivable.
Capital has established a business trust, CAG Trust ("CAG"), to hold investment
assets solely for the benefit of its shareholders. Therefore, all shares in the
Company that would otherwise be owned by Capital are owned by CAG and are
disclosed in that manner herein.
Capital subleases the furnished office space to the Company as well
as provides the necessary administrative services and equipment to the Company
on a month-to-month basis, for
22
<PAGE> 23
which they are reimbursed on an out-of-pocket or pro rata basis. CAG owns
1,000,000 common shares and 421,245 voting convertible preferred shares of the
Company. CAG is to receive an additional 83,335 for each of the next two ZEROS
licenses placed. The controlling shareholders of Capital and CAG are not 5% or
greater shareholders of the Company or employees, although several of the
Capital employees are shareholders and/or directors in the Company.
Attached as Exhibit 20 (3) to this document is the standard Financial
Services Agreement used by Capital. It contains its normal fees and expenses.
M. LTD.
M. Ltd., conveyed the ZEROS technology to the Company for an initial
sum of $4,000,000 to be paid within the first eight years of the execution of
the agreement plus an additional $3,000,000 for each of the next four equipment
systems sold by the Company to other Licensees in addition to an ongoing 5%
royalty payment of gross income generated by the operation of the equipment
relating to the ZEROS technology. The Company is obligated to pay for and file
any subsequent patent applications on ZEROS related technology for the benefit
of M. Ltd. This permits the Company to obtain the exclusive world wide rights to
all subsequent technology for the costs referred to above. The agreement also
states that Clark initiated the discussions with M. Ltd., in his capacity as
sole shareholder of BAF and OCS, Inc. When he realized the profit potential for
the ZEROS technology, the probable need for capital to maximize this potential
and the possible liabilities that exist for BAF and OCS because of their full-
time involvement in the oil well industry, he decided to organize the Company,
and conclude the negotiations for the acquisition of the ZEROS technologies with
M. Ltd., in the name of this new entity, the Company. See Exhibit 10(A)(1)
attached for a copy of the agreement between M. Ltd., and the Company which
gave the Company the exclusive license to market the ZEROS technology.
BLOWOUT & FAILURE, INC.(BAF).
BAF, also wholly owned by Clark, was originally founded in 1980
to provide oil industry clients with quality certifications, standardizations,
inspections, testing and audits under National and ISO codes for processes and
operations procedures.
BAF currently owns a 1976 Piper Cheyenne II airplane for which it
and the Company have executed an Aircraft Reimbursement Agreement in which the
Company agreed to pay 120 regular payments of at least $16,000 per month to
provide for a minimum of twenty hours of access per month at the rate of $800.00
per hour. Each additional hour shall be billed at $800.00 per hour. The
effective date was April 1, 1997. The Company has also placed a non-interest
bearing security deposit of $16,000 with BAF, which is to be returned at the
conclusion of the reimbursement agreement. The executives of the Company have
numerous sales and service obligations to visit locations not efficiently served
by commercial airlines. See Exhibit 10(A)(2) for a copy of the Aircraft
Reimbursement Agreement.
23
<PAGE> 24
OCS, INC.
OCS, Inc., ("OCS") also wholly owned by Clark, was founded in 1975
as a group of energy industry service companies specializing in quality
assurance consulting and management, oil well failure and blowout control,
general industrial inspections, oil rig construction and repair, and project
management and construction supervision. Both the Company and OCS have reached
an agreement in principle whereby OCS will transfer all of the assets capable
of being used in the manufacturing of the ZEROS equipment once independent
professionals can prepare an agreement that is mutually beneficial. Until such
a transaction occurs, OCS will act as an authorized manufacturer of ZEROS
authorized equipment under an agreement between the parties. In exchange for
the Company's receiving a share of the manufacturing profits, the Company has
transferred 1,000,000 shares of common stock to OCS. See Exhibit 10 (A) (2)
"Agreement in Principle to Acquire OCS Assets."
ITEM 8. LEGAL PROCEEDINGS.
To date there have been no legal proceedings out of the ordinary
course of business nor is there any litigation pending which could have a
material adverse effect upon the Company.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
To date there has been no public market for the common shares of the
Company.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
During the past twelve months the Company has sold the following
unregistered securities.
10% ONE YEAR SECURED DEBENTURES.
During the period from December 1996 to March 1997 the Company issued
a total of $855,000 of one year 10% Secured Debentures to family, friends and
other accredited investors with the minimum purchase of one $10,000 face amount
debenture. They were all issued at face amount and each one dollar of Secured
Debenture is secured by two shares of Common Stock currently owned by
Clark. Each dollar of the debentures is convertible into two shares of common
stock at the maturity of the debentures at the option of the debenture holder
by exchange with the Company. Additionally, the debenture holders have the
right to acquire common stock purchase warrants from Clark for $0.25 per
warrant at the rate of two warrants for each dollar of face amount of
debentures until March 31, 1998. These warrants can be used to acquire an equal
amount of common shares of the Company from Clark for $1.50 per share until
March 31, 2003. These warrants have protection against dilution. Interest is
due and payable at the maturity of the Secured Debenture and is waived by the
holder if the Secured Debenture is exchanged for the Common Stock. The
debentures mature one year from the actual date of issuance. Therefore, the
debentures mature at different dates depending upon the date of sale. Sales
were made by officers and directors of the Company and no commissions were paid
in
24
<PAGE> 25
connection with the sales. The debenture holders have the right to exchange
their debentures for the common shares at any time prior to the maturity of the
debentures.
During the period April 1997 through June 1997 the Company sold an
additional $925,260 of the 10% one year secured debentures in a subsequent
private placement. The combined sales of the 10% one year secured debentures
were made to fewer than 35 non-accredited investors plus accredited investors.
Here again, the officers and directors of the Company made all of the sales
without payment of commissions by the Company.
Clark has agreed to exchange up to 4,000,000 of common shares that he
currently owns with the Company for up to 3,000,000 Golden Preferred Shares to
satisfy the exchange provisions of the debentures from common shares. He also
has agreed to retain, unencumbered save for this obligation, the required number
of common shares for any warrants that he might sell to debenture holders from
the common shares that he currently owns.
COMMON STOCK.
The Company exchanged 100,000 shares of its common stock with Capital
American Associates, Inc., for 20,000 shares of Genesis Capital Corporation
("Genesis") $10.00 stated value 6% convertible preferred stock. This preferred
stock is convertible into common at the rate of ten shares of common for each
share of preferred. The common stock of Genesis was quoted recently on the
over-the-counter bulletin board at about $0.25 per share and is recorded on the
books at $25,000 capital contribution.
ITEM 11. DESCRIPTION OF SECURITIES.
COMMON SHARES.
The Company has 20,000,000 shares $0.001 par value authorized and
12,490,000 issued and outstanding.
PREFERRED SHARES.
The Company currently has two classes of convertible preferred shares
authorized and outstanding.
GOLDEN PREFERRED (VOTING PREFERRED).
This class of preferred has a par value of $0.001 with 11,500,000
shares authorized and 6,400,000 outstanding or currently issuable. Each share
of the voting preferred is entitled to one vote, similar to the common stock,
and receives a dividend of 0.06 shares of common stock, payable annually. The
Company will round up to the next whole number any fractional shares payable in
the total annual dividend to each shareholder.
25
<PAGE> 26
NONVOTING PREFERRED.
The Company has authorized 8,500,000 shares of nonvoting preferred
stock with a par value of $0.001 and dividends payable in common shares at the
rate of 0.10 shares of common stock for each share of nonvoting preferred. The
Company will round up to the next whole number of common shares issuable as the
stock dividend payable to the shareholder in lieu of issuing fractional shares.
WARRANTS.
The Company has no warrants outstanding. All warrants that have been
issued or may be issued were or will be issued by Clark, the president and
largest shareholder of the Company. Any resultant exercise of warrant rights
would be satisfied by Clark's issuing instructions to the Company for the
transfer of his shares. None would be issued by the Company. Clark has agreed to
retain an adequate number of common shares to satisfy all of his obligations
pursuant to his actual or potential issuance of warrants. See Exhibit 20 (1) for
the form of warrant issued by Clark.
ONE YEAR 10% SECURED DEBENTURES.
The Company has $1,780,260 of face amount 10% debentures outstanding,
issued privately in two offerings during December 1996 and March 1997, and
then April through June 1997 to family, friends and accredited investors. They
are secured by two shares of Common Stock for each $1.00 of debenture issued.
Each debenture matures one year from its date of issuance during the period of
the offering. Therefore, the maturity dates are spread throughout the period
from December 1997 to June 1998. At the option of the debenture holder at
maturity they can exchange one dollar face amount of debentures plus accrued
interest for two shares of common stock by presenting their debentures to the
Company. Additionally, Clark has agreed to sell two warrants to debenture
holders for each dollar face amount of debentures at the price of $0.25 per
warrant until March 31, 1998. These non transferable warrants can be exchanged
for common shares currently owned by Clark by presenting one warrant and $1.50
for each share of common stock desired at any time until March 31, 2003. Clark
has guaranteed the purchaser of these nontransferable warrants the normal
protection against dilution. Also, see "Recent Sales of Unregistered
Securities" for further information.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company has a one year Directors and Officers Insurance and
Company Reimbursement Policy issued by National Union Fire Insurance Company of
Pittsburgh, PA effective April 15, 1997. It has an aggregate limit of $500,000
with a $20,000 retention. See Exhibit 20 (4) for a copy of the policy.
Paragraph 2.17 of the By-laws of the Company provides, "The Board of
Directors shall authorize the Company to pay or reimburse any present or former
Director or officer of the Company any costs or expenses actually and
necessarily incurred by that officer in any action, suit, or proceeding to
which the officer is made a party by reason of holding that position,
26
<PAGE> 27
provided, however, that no officer shall receive such indemnification if
finally adjudicated therein to be liable for negligence or misconduct in
office. This indemnification shall extend to good-faith expenditures incurred
in anticipation of threatened or proposed litigation. The Board of Directors
may, in proper cases, extend the indemnification to cover the good-faith
settlement of any such action, suit or proceeding, whether firmly instituted or
not." Paragraph 2.18 of the By-laws also provides, "The Company may purchase
and maintain insurance on behalf of any Director, officer, employee or agent of
the Company, or on behalf of any person serving at the request of the Company
as a Director, officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise, against any liability asserted
against that person and incurred by that person in any such corporation,
whether or not the Company has the power to indemnify that person against
liability for any of those acts."
ITEM 13. FINANCIAL STATEMENTS.
Attached herein are the required financial statements.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) The following financial statements are filed herein as part of the
registration statement.
(b) The following exhibits required by Item 601 of Regulation S-B are
attached.
- 3(i) Articles of Incorporation
- 3(ii) By-laws
- 5 Opinion re: legality
- 10(A)(1) Contract for Master Licensee Acquisition from M. Ltd.
- 10(A)(2) Agreement in Principle to Acquire OCS Assets
- 10(A)(3) Contract for Aircraft Reimbursement from BAF
- 10(B)(1) Contract with Ramsay
- 10(B)(2) Contract with Martin
- 10(B)(3) Contract with Lawson
- 20(1) Form of warrant issued by Steve Clark
- 20(2) Texas Natural Resources letter dated April 29, 1997
- 20(3) Form of Capital American Associates, Inc. Financial
Services Agreement
- 20(4) Directors and Officers Insurance Policy
27
<PAGE> 28
ZEROS USA, Inc. and Subsidiary
---------------------------------
Consolidated Financial Statements
---------------------------------
Inception (November 12, 1996)
to March 31, 1997
<PAGE> 29
[GRANT, PALMA & WALKER, P.C. LETTERHEAD]
Independent Auditor's Report
July 3, 1997
To the Board of Directors and Stockholders
ZEROS USA, Inc.
Houston, Texas
We have audited the accompanying consolidated balance sheet of ZEROS
USA, Inc. and Subsidiary as of March 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from inception (November 12, 1996) to March 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of ZEROS USA, Inc. and
Subsidiary as of March 31, 1997, and the results of its operations and its cash
flows for the initial period then ended in conformity with generally accepted
accounting principles.
/s/ GRANT, PALMA & WALKER, P.C.
Houston, Texas
<PAGE> 30
ZEROS USA, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 1997
Assets
<TABLE>
<S> <C>
Current assets:
Cash $ 299,741
Contracts receivable, current net of an
allowance for doubtful contracts
of $0 (Note 2) 1,800,000
----------
Total current assets 2,099,741
----------
Property and equipment:
Office equipment 16,292
Less accumulated depreciation (815)
----------
Property and equipment, net 15,477
----------
other assets:
Contracts receivable, noncurrent (Note 2) 2,729,752
Master license costs 30,000
Investment (Note 3) 25,000
organizational costs less
amortization of $2,665 63,385
Permit costs 10,000
----------
2,858,137
----------
Total assets $4,973,355
==========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE> 31
ZEROS USA, Inc. and Subsidiary
Consolidated Balance Sheet
March 31, 1997
Liabilities and Stockholders' Equity
<TABLE>
<S> <C>
Current liabilities:
Debentures payable (Note 5) $ 885,500
Accounts payable 59,992
Accrued interest 9,957
Deferred income taxes (Note 8) 639,600
----------
Total current liabilities 1,595,049
Long-term contract payable (Note 6) 45,096
Deferred income taxes (Note 8) 399,320
Deferred revenue, licensing contracts (Note 7) 1,127,948
Minority interest 3,235
----------
Total liabilities 3,170,648
----------
Stockholders' equity (Notes 9 and 12):
Common stock, no par value,
1,000,000 shares authorized,
1,000,000 issued and outstanding 26,000
Retained earnings 1,776,707
----------
Total stockholders' equity 1,802,707
----------
Total liabilities and
stockholders' equity $4,973,355
==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE> 32
ZEROS USA, Inc. and Subsidiary
Consolidated Statement of Operations
From Inception (November 12, 1996) to March 31, 1997
<TABLE>
<S> <C>
Revenues - licensing (Notes 1 and 11) $ 3,383,845
General and administrative expenses 536,792
Other income (expense)
Interest expense (55,053)
Interest income 18,172
----------
Earnings before income taxes
and minority interest 2,810,172
Income taxes (Note 8) 1,038,920
----------
Net earnings before minority interest 1,771,252
Minority interest in net loss of
consolidated subsidiary (Notes 1 and 12) 5,455
----------
Net earnings $1,776,707
==========
Earnings per share (Notes 1 and 12) $ 1.78
==========
Earnings per share pro-forma (Note 12) $ .15
==========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE> 33
ZEROS USA, Inc. and Subsidiary
Consolidated Statement of Stockholders' Equity
March 31, 1997
<TABLE>
<CAPTION>
Common Stock Total
---------------------- Retained Stockholders'
Shares Amount Earnings Equity
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Balance at
November 12, 1996
(inception) 0 $ 0 $ 0 $ 0
Stock issuance 900,000 1,000 1,000
Stock issuance 100,000 25,000 25,000
Net earnings 1,776,707 1,776,707
--------- --------- ---------- ----------
Balance at
March 31, 1997 1,000,000 $ 26,000 $1,776,707 $1,802,707
========= ========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-5-
<PAGE> 34
ZEROS USA, Inc. and Subsidiary
Consolidated Statement of Cash Flows
From Inception (November 12, 1296) to March 31, 1997
<TABLE>
<S> <C>
Cash flows due to operating activities:
Net earnings $ 1,776,707
Adjustments to reconcile net earnings
to net cash provided (used) by
operating activities:
Depreciation and amortization 3,480
Minority interest in loss of
consolidated subsidiary (5,455)
(Increase) decrease in:
contract receivables, trade (3,401,804)
Increase (decrease) in:
Accounts payable, trade 60,992
Accrued interest 9,957
Deferred income taxes 1,038,920
Accrued interest on contract payable 45,096
------------
Net cash provided (used) by
operating activities (472,107)
------------
Cash flows provided (used) from investing activities:
Purchase of equipment (16,292)
Organization costs (57,360)
Master license costs (30,000)
Permit costs (10,000)
Net cash provided (used) by
investing activities (113,652)
------------
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE> 35
ZEROS USA, Inc. and Subsidiary
Consolidated Statement of Cash Flows
From Inception (November 12, 1296) to March 31, 1997
<TABLE>
<S> <C>
Cash flows provided (used) by
financing activities:
Proceeds from debentures 885,500
--------
Net cash provided (used) by
financing activities 885,500
--------
Increase (decrease) in cash and
cash equivalents 299,741
Cash and cash equivalents,
beginning of period 0
--------
Cash and cash equivalents,
end of period $299,741
========
Supplemental cash flow information
non-cash items:
Common stock (900,000 shares) issued
for services rendered $1,000
Common stock (100,000 shares) issued
for investment in preferred stock
of capital corporation at fair value $25,000
</TABLE>
See accompanying notes to consolidated financial statements.
-7-
<PAGE> 36
ZEROS USA, Inc. and Subsidiary Notes to
Consolidated Financial Statements
From Inception (November 12, 1996) to March 31, 1997
Note 1 - Significant accounting policies
Organization
ZEROS USA, Inc. (the "Company") formerly "ZEROS," Inc. (Note 12) was
incorporated in the state of Texas on November 12, 1996. The Company develops
and sells technology for industrial waste systems. The Company has a master
license on the system (the "System") called "Zero Emission Energy Recycling
Oxidation System" or "ZEROS" - an energy recycling oxidation system. The
Company sells licenses for the System to sub-licensees both nationally and
internationally. The books and records of the Company are prepared on the
accrual basis for financial reporting purposes and the cash basis for federal
income tax purposes. The Company has elected a March 31 fiscal year end for
both financial and tax reporting purposes. The financial statements include the
records of the majority (91%) owned subsidiary, ZEROS USA, Inc. - Utah, a Utah
corporation. The subsidiary had no active operations from inception to March
31, 1997. All significant intercompany transactions have been eliminated in
consolidation.
Revenue recognition
The Company sells sub-licenses to the System and recognizes revenue on
licenses based upon milestones in the contract process. The milestones include
contract signing and delivery of the technology (75%), training on the
technology (15%) and testing of the system equipment (10%).
Organization costs
Organization costs, primarily legal costs, are being amortized over a
sixty month (60) period.
Investment
Investments are recorded at an estimated fair market value based upon
the investment held available for sale criteria in accordance with FASB #115 -
Accounting for Certain Debt and Equity Securities.
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided
on an accelerated method over the estimated useful lives of the assets as
follows:
Office equipment 5 year
-8-
<PAGE> 37
Property and equipment (continued)
All expenditures for major renewals and betterments are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
When property and equipment are retired or disposed of the related costs and
accumulated depreciation are removed from the applicable accounts and any gain
or loss is reflected in income. Depreciation expense from inception to March
31, 1997 was $815.
Acquisition
In February 1997 the Company acquired the majority stock (91%) of
Gunner Holdings, Inc. - a Utah corporation and changed its name to ZEROS USA,
Inc. - Utah. The acquisition was accounted for by using the purchase method for
business combinations. Under the purchase method the purchase price of $90,000
was allocated to assets acquired and liabilities assumed.
Income taxes
The Company accounts for its income taxes using the Financial
Accounting Standards Board Statement No.109, "Accounting for Income Taxes"
(SFAS No. 109) which requires the establishment of a deferred tax asset or
liability for taxable amounts and operating loss and tax credit carryforwards.
Deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be "cash equivalents" for purposes of
the statement of cash flows.
Concentration of credit risk
The Company extends credit to its customers. The Company may extend
certain credit during the normal course of business operations which may be
unsecured. A substantial portion of the customers' ability to pay their debts
(Note 13) to the Company is dependent on the waste management economic sector.
-9-
<PAGE> 38
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Earnings per share
Net earnings per share is based upon the weighted average number of
shares of common stock outstanding. For the period from inception (November 12,
1996) to March 31, 1997 an amount of one million shares was used to compute the
earnings per share. Primary and fully diluted earnings per share are the same
for the period. 11,490,000 shares were used to compute earnings per share pro
forma to give effect to the restructuring of common stock in June 1997 (Note
12). Primary and fully diluted earnings per share are the same for the
pro-forma period.
Note 2 - Contracts receivable
The Company utilized installment contracts to finance the sale of
sub-licenses by the Company. The terms of each contract indicate a license
price of $2,700,000 to be paid in three annual installments of $900,000. These
contracts are secured by certain assets and guarantees of the licensees and
their guarantors. Unamortized discount is based upon an imputed interest rate
of 9%. The analysis of the contracts at March 31, 1997 is as follows:
<TABLE>
<S> <C>
Total contracts receivable $5,400,000
Less current amount 1,800,000
----------
Contracts receivable, noncurrent 3,600,000
Unamortized discount (870,248)
----------
Noncurrent contracts less
unamortized amount $2,729,752
----------
</TABLE>
The Company at March 31, 1997 had two contracts with three year terms.
One contract matures in February 2000 and the other contract matures in March
2000. The contracts include the right of the licensor to charge the licensee a
royalty of 15% of gross income for each operating system. Each licensee obtains
a geographical area and is allowed to sell sub-licenses subject to the approval
of the licensor. The licensor is obligated primarily to provide a training
program and counsel on operational assistance.
Note 3 - Investment
The Company holds an investment in preferred stock of a capital
corporation company with a 6% dividend per annum. The Company holds twenty
thousand shares of preferred stock recorded
-10-
<PAGE> 39
Note 3 - Investment (continued)
at an estimated market value of $25,000. Each preferred stock share is
convertible into ten shares of common stock at the end of two years (December
1998). The common stock of the capital corporation is traded on the NASDAQ
exchange (bulletin board) with a trading range of 1/2 to 1/8 per share at March
31, 1997. The investment is held as available for sale based upon a contributed
cost of $25,000 and estimated fair market value of $25,000. No additional
valuation allowance has been recorded.
Note 4 - Master license costs
The Company acquired a master license for the energy recycling
oxidation system in January 1997. The major terms of the acquisition of the
master license indicates that the Company is to pay $4,000,000 plus certain
legal costs for the master license to a foreign entity ("the Master Licensor")
which is controlled by the President of the Company.
The Company paid $30,000 in legal costs to transfer the master
licensing rights. Per the contract the initial master license cost of
$4,000,000 has been earned by the licensor upon the signing of the contract.
The $4,000,000 contract amount is payable in January 2005. The present value of
the contract of $1,926,848 reflects a discount of 9% imputed interest rate and
has been deferred until paid. The master license cost has been initially
recorded at legal transfer costs of $30,000.
Per the contract an additional $12,000,000 in master licensing costs
will be earned by the Master Licensor when the sale of four equipment systems
occurs by the Company at the rate of $3,000,000 per equipment system sale.
These costs will be payable as the equipment systems construction deposits are
collected.
The contract also indicates that the Company will pay certain
commissions and fees to the Master Licensor as follows:
(1) 5% of license fees sold to third parties.
(2) 5% of gross profit resulting from sales of energy recycling
systems by the licensee to sub-licensees.
(3) 5% of gross income resulting from the sale of products
produced from energy recycling systems sold through
sub-licensees.
(4) 5% royalty fees on gross income on units owned and operated by
the licensee (ZEROS USA, Inc.).
-11-
<PAGE> 40
Note 5 - Debentures payable
The Company has $885,500 debentures payable to various individuals and
entities. The debentures including interest are due and payable on various
dates ranging from January 1, 1998 to March 15, 1998. The interest rate on the
debentures is 10% per annum. Each dollar of debenture is securitized by two
shares of Company common stock owned by the Company's President. Effective June
1997, the Company authorized 20 million shares of common stock to complete the
securitization of Company stock for the debenture holders. The debentures are
also exchangeable during the term of the debenture into Company common stock
from the President's shares of common stock.
Note 6 - Long term contract payable
The Company has entered into a long term contract payable for the
purchase of the exclusive master license of the "ZEROS" System Technology (Note
4). The purchase price of the contract is $4,000,000 due in January 2005.
Interest expense has been imputed at 9% per annum for the contract with the
calculation as follows:
<TABLE>
<S> <C>
Contract amount $ 4,000,000
Unamortized discount (2,028,056)
Deferred recognition (1,926,848)
-----------
Contract payable long term $ 45,096
===========
</TABLE>
Note 7 - Deferred revenue
Deferred revenue is recorded based upon milestones achieved in the
contract process (Note 2). The milestones include the contract signing and
delivery of the technology (75%), training on the technology (15%) and
engineering support in testing of the equipment used in the system (10%). The
analysis of deferred revenue at March 31, 1997 is as follows:
<TABLE>
<S> <C>
Total contract revenue $ 5,400,000
Less discount on imputed interest at 9% (888,207)
-----------
Total licensing income 4,511,793
Less current portion (3,383,845)
-----------
Total deferred revenue $ 1,127,948
===========
</TABLE>
The deferred revenue represents deferred revenue on installment
contracts from licensees with maturity dates in February and March of 2000.
-12-
<PAGE> 41
Note 8 - Income taxes
The Company's deferred tax assets relate principally to non-deductible
accrued expenses, a net operating loss carryforward, and deferred revenue.
Deferred tax liabilities relate to contracts receivable that are not recognized
for taxable income purposes.
A summary of deferred tax assets and liabilities follows:
<TABLE>
<S> <C>
Deferred tax assets:
Temporary differences,
primarily deferred revenue $ 442,863
Net operating loss carryforward 192,866
Asset valuation reserve 0
-----------
635,729
Deferred tax liabilities (1,674,649)
-----------
Net deferred tax liabilities $ 1,038,920
===========
</TABLE>
The net operating loss of $522,000 as of March 31, 1997, expires in
the year ending March 31, 2012. The provision for income taxes in the statement
of income for the period ended March 31, 1997, includes the following:
<TABLE>
<S> <C>
Current tax expense $ 0
Deferred income taxes primarily
related to contracts receivable:
Deferred - current 639,600
Deferred - noncurrent 399,320
-----------
Provision for income taxes $ 1,038,920
===========
</TABLE>
Note 9 - Stockholders' equity
In November 1996 the Company was formed with one million shares of
authorized common stock at no par value. The Company issued 900,000 shares of
common stock to its President for a stated value of $1,000 for services
rendered. The Company also issued 100,000 shares of common stock to a business
trust in exchange for twenty thousand shares of preferred stock of a capital
corporation valued at an estimated market value of $25,000.
Note 10 - Related Party transactions
The Company incurred approximately $34,900 in administrative fees for
office expenses from a company controlled by a shareholder. The Company
incurred master license transfer costs of $30,000 from a foreign corporation
controlled by the President and will pay fees and royalties for this master
license based upon certain terms of the agreement with an initial contract
amount of $4,000,000. The Company incurred air charter travel expenses and
administrative expenses of approximately $93,400 and $30,000 respectively from
entities under the control of the President of the Company.
-13-
<PAGE> 42
Note 11 - Major customers
The Company had revenue from licenses sold to two licensees at
approximately $1,692,000 for each licensee. Each sub-license represents
approximately 50% of total revenue.
Note 12 - Subsequent events
In April 1997 the Company entered into a loan agreement with a bank
for a line of credit of $75,000 secured by a certificate of deposit of $78,000
at the bank. The bank line of credit is due in April 1998 at an interest rate
of 7%. As of June 1997 the Company also obtained additional debentures payable
proceeds totaling $808,410. The additional debentures are at 10% per annum
maturing between April 1998 and June 1998 with principal and interest due at
maturity. Each dollar of debenture is securitized by two shares of Company
common stock owned by the Company's President. The debentures are also
exchangeable during the term of the debenture into Company common stock from
the President's shares of common stock.
In June 1997 the Company amended its articles of incorporation to
authorize twenty million shares of common stock at a $.001 par value and ten
million shares of preferred stock at a $5 stated value. The Company also
changed its name from "ZEROS", inc. to ZEROS USA, Inc. The Company then issued
8,100,000 of common stock at $.001 par value to the President for services
rendered in June 1997 fair valued at $8,100 and 900,000 shares rendered in June
1997 of common stock at $.001 to another shareholder for services fair valued
at $900. Effective June 1997 in conjunction with the merger of the parent and
the subsidiary, the Company also purchased the minority shares interest in the
subsidiary by exchanging 1,490,000 shares of common stock of the parent for the
minority shares of the subsidiary on a one share of minority interest for a one
share of parent Company common stock basis.
The effect of earnings per share calculation based upon the
restructuring and merger of the common stock of the Company and Subsidiary is
as follows:
<TABLE>
<CAPTION>
Before After
Restructuring Restructuring
and and
Merger Merger
------ ------
<S> <C> <C>
Primary earnings per share $1.78 .15
Fully diluted earnings per share $1.78 .15
</TABLE>
The net earnings per share before the restructuring and merger is
based upon 1,000,000 shares outstanding. The net pro forma earnings per share
after the merger is based upon the 11,490,000 shares of common stock
outstanding after the restructuring and merger of the common stock. Primary and
fully diluted earnings per share were the same for the period.
-14-
<PAGE> 43
Note 13 - Financial instruments
The Company's financial instruments consist of cash, contracts
receivable, an investment in preferred stock, a long term contract payable, and
debentures payable.
Cash
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits and a money market investment
account at a brokerage firm. The Company has not experienced any losses and it
believes it is not exposed to any significant credit risks affecting cash. At
March 31, 1997, $88,542 of its cash at a bank was maintained in excess of
federally insured amounts.
Investment
Management believes this investment in preferred stock (Note 3) is
fairly stated at its estimated net realizable value and a reserve for
additional valuation allowances is not required.
Contracts receivable
Management believes the carrying value of contracts receivable (Note
2) is fairly stated at estimated net realizable values and a reserve for
uncollectibility is not required. Management also believes the carrying value
of these contracts receivable represents fair value of these financial
instruments because terms are similar to those in the lending market for
comparable loans with comparable risks using an imputed interest rate of 9%
(Note 2).
Long-term contract payable
Management believes the carrying value of the long term contract
payable represents the fair value of this financial instrument because its
terms are similar to those in the lending market for comparable loans with
comparable risks utilizing a present value rate of 9% (Note 6).
Debentures payable
Management believes the carrying value of debentures payable
represents fair value of these financial instruments because terms are similar
to those in the lending market for comparable loans with comparable risks.
-15-
<PAGE> 44
ZEROS USA, Inc.
--------------------------------
Financial Statements
--------------------------------
Three months ended June 30, 1997
<PAGE> 45
ZEROS USA, Inc.
Balance Sheet - Unaudited
June 30, 1997
Assets
<TABLE>
<S> <C>
Current assets:
Cash $299,248
Certificates of deposit 275,000
Contracts receivable, current net of an
allowance for doubtful contracts
of $0 (Note 2) 2,700,000
-----------
Total current assets 3,274,248
-----------
Property and equipment:
Office equipment 19,644
Less accumulated depreciation (1,713)
-----------
Property and equipment, net 17,931
-----------
Other assets:
Contracts receivable, noncurrent (Note 2) 4,211,361
Master license costs 30,000
Investment (Note 3) 25,000
Due from affiliate 216,663
Organizational costs less
amortization of $5,967 60,083
Permit costs 10,000
Deposits 40,000
-----------
Total other assets 4,593,107
-----------
Total assets $ 7,885,286
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-1-
<PAGE> 46
ZEROS USA, Inc.
Balance sheet - Unaudited
June 30, 1997
Liabilities and Stockholders' Equity
<TABLE>
<S> <C>
Current liabilities:
Note payable (Note 5) $ 275,000
Debentures payable (Note 6) 1,780,260
Accrued interest 41,922
Deferred income taxes (Note 9) 982,692
-----------
Total current liabilities 3,079,874
Long-term contract payable (Note 7) 90,191
Deferred income taxes (Note 9) 485,498
Deferred revenue, licensing contracts (Note 8) 1,691,923
-----------
Total liabilities 5,347,486
-----------
Stockholders' equity (Note 10):
Common stock, $.001 par value,
20,000,000 shares authorized,
11,490,000 issued and outstanding 11,490
Paid in capital 26,745
Retained earnings 2,499,565
-----------
Total stockholders' equity 2,537,800
-----------
Total liabilities and
stockholders' equity $ 7,885,286
===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-2-
<PAGE> 47
ZEROS USA, Inc.
Statement of Operations - Unaudited
Three months ended June 30, 1997
<TABLE>
<S> <C>
Revenues - licensing (Notes 1 and 12) $ 1,691,923
General and administrative expenses 590,032
Other income (expense)
Interest expense (77,060)
Interest income 127,297
------------
Earnings before income taxes 1,152,128
Income taxes (Note 9) 429,270
------------
Net earnings before $ 722,858
============
Earnings per share (Note 1) $ .65
============
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-3-
<PAGE> 48
ZEROS USA, Inc.
Statement of Stockholders' Equity - Unaudited
Three months ended June 30. 1997
<TABLE>
<CAPTION>
Common Stock
------------------------ Paid in Retained
Shares Amount Capital Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at
March 31, 1997 1,000,000 $ 26,000 $ 0 $1,776,707
Amendment of
articles of
incorporation,
June 24, 1997 to
change common stock
to $.001 par value
from no par value 0 (25,000) 25,000
Issuance of common
stock for services
by the company's
President 8,100,000 8,100
Issuance of common
stock for services
by a stockholder 900,000 900
Issuance of common
stock to minority
stockholder of
subsidiary related
to merger 1,490,000 1,490 1,745
Net earnings 722,858
----------- ----------- ----------- -----------
Balance at
June 30, 1997 11,490,000 $ 11,490 $ 26,745 $ 2,499,565
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-4-
<PAGE> 49
ZEROS USA, Inc.
Statement of Cash Flows - Unaudited
Three months ended June 30, 1997
<TABLE>
<S> <C>
Cash flows due to operating activities:
Net earnings $ 722,858
Adjustments to reconcile net earnings
to net cash provided (used) by
operating activities:
Depreciation and amortization 4,201
Common stock issued for services
rendered to the Company 9,000
(Increase) decrease in:
Contract-receivables, trade (1,817,635)
Increase (decrease) in:
Accounts payable, trade (59,992)
Accrued interest 31,965
Deferred income taxes 429,270
Accrued interest on contract payable: 45,096
----------
Net cash provided (used) by
operating activities (635,237)
----------
Cash flows provided (used) from investing
activities:
Deposits (40,000)
Purchase of certificates of deposit (275,000)
Purchase of equipment (3,353)
Due from affiliate (216,663)
----------
Net cash provided (used) by
investing activities (535,016)
----------
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-5-
<PAGE> 50
ZEROS USA, Inc.,
Statement of Cash Flows - Unaudited
Three months ended June 30, 1997
<TABLE>
<S> <C>
Cash flows provided (used) by
financing activities:
Proceeds from debentures 894,760
Proceeds from bank note payable 275,000
----------
Net cash provided (used) by
financing activities 1,169,760
----------
Increase (decrease) in cash and
cash equivalents (493)
cash and cash equivalents,
beginning of period 299,741
----------
Cash and cash equivalents,
end of period $ $299,248
==========
Supplemental cash flow information
non-cash items:
Common stock (9,000,000 shares) issued
for services rendered to the Company $ 9,000
==========
Common stock (1,490,000 shares) issued
to the subsidiary minority shareholders,
(see Note 9) in connection with the
merger of subsidiary into the Company $ 3,235
==========
</TABLE>
The accompanying notes are an integral part
of these financial statements.
-6-
<PAGE> 51
ZEROS USA, Inc.
Notes to Financial Statements - Unaudited
Three months ended June 30, 1997
Note 1 - Significant accounting policies
Organization
ZEROS USA, Inc. (the "Company") formerly "ZEROS", inc. was
incorporated in the state of Texas on November 12, 1996. The Company develops
and sells technology for industrial waste systems. The Company has a master
license on the system (the "System") called "Zero Emission Energy Recycling
Oxidation System" or "ZEROS" - an energy recycling oxidation system. The
Company sells licenses for the System to sub-licensees both nationally and
internationally. The books and records of the Company are prepared on the
accrual basis for financial reporting purposes and the cash basis for federal
income tax purposes. The Company has elected a March 31 fiscal year end for
both financial and tax reporting purposes.
Basis of presentation and interim period
The accompanying unaudited financial statements, which are for the
interim period, may not include all disclosures provided in the annual audited
financial statements. In the opinion of the Company, the accompanying unaudited
financial statements contain all adjustments (which are of a normal recurring
nature) necessary for a fair presentation of the financial statements. The
results of operations for the three months ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
Revenue recognition
The Company sells sub-licenses to the System and recognizes revenue on
licenses based upon milestones in the contract process. The milestones include
contract signing and delivery of the technology (75%), training on the
technology (15%) and testing of the system equipment (10%).
Organization costs
Organization costs, primarily legal costs, are being amortized over a
sixty month (60) period. Amortization expense for the 3 months ended June 30,
1997 was $3,303.
Investment
Investments are recorded at an estimated fair market value based upon
the investment held available for sale criteria in accordance with FASB #115 -
Accounting for Certain Debt and Equity Securities.
-7-
<PAGE> 52
Note 1 - Significant accounting policies (continued)
Property and equipment
Property and equipment are recorded at cost. Depreciation is provided
on an accelerated method over the estimated useful lives of the assets as
follows:
Office equipment 5 year
All expenditures for major renewals and betterments are capitalized.
Expenditures for maintenance and repairs are charged to expense as incurred.
When property and equipment are retired or disposed of the related costs and
accumulated depreciation are removed from the applicable accounts and any gain
or loss is reflected in income. Depreciation expense for the 3 months ended
June 30, 1997 was $898.
Acquisition
In February 1997 the Company acquired the majority stock (91%) of
Gunner Holdings, Inc. - a Utah corporation and changed its name to ZEROS USA,
Inc. - Utah. In June 1997, the subsidiary corporation was merged into ZERO USA,
Inc. by issuance of 1,490,000 shares of parent stock on a one share for one
share basis to minority shareholders of the subsidiary and the merger of the
subsidiary into the parent under applicable state corporate law.
Income taxes
The Company accounts for its income taxes using the Financial
Accounting Standards Board Statement No.109, "Accounting for Income Taxes"
(SFAS No.109) which requires the establishment of a deferred tax asset or
liability for taxable amounts and operating loss and tax credit carryforwards.
Deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely
than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of
changes in tax laws and rates on the date of enactment.
Cash and cash equivalents
The Company considers all highly liquid investments with a maturity of
three months or less, when purchased, to be "cash equivalents" for purposes of
the statement of cash flows.
-8-
<PAGE> 53
Note 1 - Significant accounting policies (continued)
Concentration of credit risk
The Company extends credit to its customers. The Company may extend
certain credit during the normal course of business operations which may be
unsecured. A substantial portion of the customers' ability to pay their debts
(Note 14) to the Company is dependent on the waste management economic sector.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.
Earnings per share
Net earnings per share is based upon the weighted average number of
shares of common stock outstanding. For the three months ended June 30, 1997,
1,115,275 shares was used to compute the earnings per share. Primary and fully
diluted earnings per share are the same for the period.
Note 2 - Contracts receivable
The Company utilized installment contracts to finance the sale of
sub-licenses by the Company. The terms of each contract indicate a license
price of $2,700,000 to be paid in three annual installments of $900,000. These
contracts are secured by certain assets and guarantees of the licensees and
their guarantors. Unamortized discount is based upon an imputed interest rate
of 9%. The analysis of the contracts at June 30, 1997 is as follows:
<TABLE>
<S> <C>
Total contracts receivable $ 8,100,000
Less current amount 2,700,000
-----------
Contracts receivable, noncurrent 5,400,000
Unamortized discount (1,188,639)
-----------
Noncurrent contracts less
unamortized amount $ 4,211,361
===========
</TABLE>
The Company at June 30, 1997 had three contracts with three year
terms. The contracts mature in February 2000, March 2000 and April 2000. The
contracts include the right of the licensor to charge the licensee a royalty of
15% of gross income for each operating system. Each licensee obtains a
geographical area and is allowed to sell sub-licenses subject to the approval
of the licensor. The licensor is obligated primarily to provide a training
program and counsel on operational assistance.
-9-
<PAGE> 54
Note 3 - Investment
The Company holds an investment in preferred stock of a capital
corporation company with a 6% dividend per annum. The Company holds twenty
thousand shares of preferred stock recorded at an estimated market value of
$25,000. Each preferred stock share is convertible into ten shares of common
stock at the end of two years (December 1998). The common stock of the capital
corporation is traded on the NASDAQ exchange (bulletin board) with a trading
range of 1/2 to 1/8 per share at June 30, 1997. The investment is held as
available for sale based upon a contributed cost of $25,000 and estimated fair
market value of $25,000. No additional valuation allowance has been recorded.
Note 4 - Master license costs
The Company acquired a master license for the energy recycling
oxidation system in January 1997. The major terms of the acquisition of the
master license indicates that the Company is to pay $4,000,000 plus certain
legal costs for the master license to a foreign entity ("the Master Licensor")
which is controlled by the President of the Company.
The Company paid $30,000 in legal costs to transfer the master
licensing rights. Per the contract the initial master license cost of
$4,000,000 has been earned by the licensor upon the signing of the contract.
The $4,000,000 contract amount is payable in January 2005. The present value of
the contract at its signing date of $1,926,848 reflects a discount of 9%
imputed interest rate and has been deferred until paid. The master license cost
has been initially recorded at the transfer costs of $30,000.
Per the contract an additional $12,000,000 in master licensing costs
will be earned by the Master Licensor when the sale of four equipment systems
occurs by the Company at the rate of $3,000,000 per equipment system sale.
These costs will be payable as the equipment systems construction deposits are
collected.
The contract also indicates that the Company will pay certain
commissions and fees to the Master Licensor as follows:
(1) 5% of license fees sold to third parties.
(2) 5% of gross profit resulting from sales of energy recycling
systems by the licensee to sub-licensees.
(3) 5% of gross income resulting from the sale of products
produced from energy recycling systems sold through
sub-licensees.
(4) 5% royalty fees on gross income on units owned and operated by
the licensee (ZEROS USA, Inc.).
-10-
<PAGE> 55
Note 5 - Notes Payable
At June 30, 1997 notes payable consisted of:
<TABLE>
<S> <C>
Bank note, due April, 1998 with,
interest at 7.0%, collateralized
by $75,000 certificate of deposit $ 75,000
Bank note, interest due quarterly
at 7.35% and principal due May,
1998 collateralized by $100,000
certificate of deposit 100,000
Bank note, interest due quarterly
at 7.35% and principal due May,
1998 collateralized by $100,000
certificate of deposit 100,000
--------
$275,000
========
</TABLE>
Note 6 - Debentures payable
The Company has $1,780,260 debentures payable to various individuals
and entities. The debentures including interest are due and payable on various
dates ranging from January 1, 1998 to June 1, 1998. The interest rate on the
debentures is 10% per annum. Each dollar of debenture is securitized by two
shares of Company common stock owned by the Company's President. Effective June
1997, the Company authorized 20 million shares of common stock to complete the
securitization of Company stock for the debenture holders. The debentures are
exchangeable during the term of the debenture into Company common stock from
the President's shares of common stock.
Note 7 - Long term contract Payable
The Company has entered into a long term contract payable for the
purchase of the exclusive master license of the "ZEROS" System Technology (Note
4). The purchase price of the contract is $4,000,000 due in January 2005.
Interest expense has been imputed at 9% per annum for the contract with the
calculation as follows:
<TABLE>
<S> <C>
Contract amount $ 4,000,000
Unamortized discount (1,982,961)
Deferred recognition of cost (1,926,848)
-----------
Contract payable long term $ 90,191
===========
</TABLE>
Note 8 - Deferred revenue
Deferred revenue is recorded based upon milestones achieved in the
contract process (Note 2). The milestones include the contract signing and
delivery of the technology (75%), training on the technology (15%) and
engineering support
-11-
<PAGE> 56
Note 8 - Deferred revenue (continued)
in testing of the equipment used in the system (10%). The analysis of deferred
revenue at June 30, 1997 is as follows:
<TABLE>
<CAPTION>
For 3 months From contract signing
ended June 30, 1997 date to June 30,
------------------- ---------------------
<S> <C> <C>
Total contract revenue $ 2,700,000 $ 8,100,000
Less discount inputed
interest of 9% (444,103) (1,332,310)
----------- -----------
Total licensing income 2,255,897 6,767,690
Less portion recognized (1,691,923) (5,075,767)
----------- -----------
Deferred revenue $ 563,974 $ 1,691,923
=========== ===========
</TABLE>
The deferred revenue represents deferred revenue on installment
contracts from licensees with maturity dates in February, March, and April of
the year 2000.
Note 9 - Income taxes
The Company's deferred tax assets relate principally to non-deductible
accrued expenses, a net operating loss carryforward, and deferred revenue.
Deferred tax liabilities relate to contracts receivable that are not recognized
for taxable income purposes.
A summary of deferred tax assets and liabilities follows:
<TABLE>
<S> <C>
Deferred tax assets:
Temporary differences,
primarily deferred revenue $ 674,346
Net operating loss carryforward 412,594
Asset valuation reserve 0
-----------
1,086,940
Deferred tax liabilities (2,555,130)
-----------
Net deferred tax liabilities $ 1,468,190
===========
</TABLE>
The net operating losses of $1,116,025 as of June 30, 1997, begins to
expire in the year ending March 31, 2012. The provision for income taxes in
the statement of income for the 3 month period ended June 30, 1997, includes
the following:
<TABLE>
<S> <C>
Current tax expense $ 0
Deferred income taxes primarily
related to contracts receivable:
Deferred - current 343,092
Deferred - noncurrent 86,178
-----------
Provision for income taxes $ 429,270
===========
</TABLE>
-12-
<PAGE> 57
Note 10 Stockholders' equity
In June 1997 the Company amended its articles of incorporation to
authorize twenty million shares of common stock at a $.001 par value and ten
million shares of preferred stock at a $5 stated value. The Company also
changed its name from "ZEROS", inc. to ZEROS USA, Inc. The Company then issued
8,100,000 of common stock at $.001 par value to the President for services
rendered in June 1997 fair valued at $8,100 and 900,000 shares rendered in June
1997 of common stock at $.001 to another shareholder for services fair valued
at $900. Effective June 1997 in conjunction with the merger of the parent and
the subsidiary, the Company also purchased the minority shares interest in the
subsidiary by exchanging 1,490,000 shares of common stock of the parent for the
minority shares of the subsidiary on a one share of minority interest for a one
share of parent Company common stock basis.
Note 11 - Related party transactions
The Company incurred approximately $57,975 in administrative fees for
office expenses from a company controlled by a shareholder.
The Company incurred master license transfer costs of $30,000 from a
foreign corporation controlled by the President and will pay fees and royalties
for this master license based upon certain terms of the agreement with an
initial contract amount of $4,000,000.
The Company incurred air charter travel expenses of approximately
$143,452 from entities under the control of the President of the Company. In
April 1997 the Company entered into an aircraft reimbursement agreement with an
related party which requires the Company to pay 120 regular payments of $16,000
per month for aircraft rental plus other expenses. The commitments for the next
five years based upon a fiscal year ending March 31, are as follows:
<TABLE>
<S> <C>
1998 $ 192,000
1999 192,000
2000 192,000
2001 192,000
2002 192,000
Thereafter 960,000
-----------
Total $ 1,920,000
===========
</TABLE>
At June 30, 1997, $216,663 is carried as an account receivable from an
affiliated company.
-13-
<PAGE> 58
Note 12 - Major customers
The Company since its inception in November 12, 1996, has had revenue
from licenses sold to three licensees of approximately $1,692,000 each. Each
sublicense represents one-third of total revenue since inception of the
Company.
Note 13 - Subsequent events
As Of July 1997 the Company also obtained additional debenture proceeds
totaling $146,600. The additional debentures are at 10% per annum maturing in
July 1998 with principal and interest due at maturity. Each dollar of debenture
is securitized by two shares of Company common stock owned by the Company's
President. The debentures are also exchangeable during the term of the
debenture into Company common stock from the President's shares of common
stock.
The system equipment purchase (OCS assets purchase) from a related
party is currently under discussion. Currently, the Company anticipates
issuance of preferred stock to acquire the OCS assets.
Note 14 - Financial instruments
The Company's financial instruments consist of cash, certificate of
deposit, contracts receivable, an investment in preferred stock, a long term
contract payable, note payable, and debentures payable.
Cash
The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits and a money market investment
account at a brokerage firm. The Company has not experienced any losses and it
believes it is not exposed to any significant credit risks affecting cash. At
June 30, 1997, $306,822 of its cash in banks wan maintained in excess of
federally insured amounts.
Certificates of Deposit
The Company has one year certificates of deposit with the bank which
exceed federally insured limits. The Company has not experienced any losses and
believes it is not exposed to any significant risks affecting certificates of
deposit.
Investment
Management believes this investment in preferred stock (Note 3) is
fairly stated at its estimated not realizable value and a reserve for
additional valuation allowances is not required.
-14-
<PAGE> 59
Note 14 - Financial instruments (continued)
Contracts receivable
Management believes the carrying value of contracts receivable (Note
2) is fairly stated at estimated net realizable values and a reserve for
uncollectibility is not required. Management also believes the carrying value
of these contracts receivable represents fair value of these financial
instruments because terms are similar to those in the lending market for
comparable loans with comparable risks using an imputed interest rate of 9%
(Note 2).
Long-term contract payable
Management believes the carrying value of the long term contract
payable represents the fair value of this financial instrument because its
terms are similar to those in the lending market for comparable loans with
comparable risks utilizing a present value rate of 9% (Note 7).
Notes payable
Management believes the carrying value of notes payable approximates
fair value of these financial instruments.
Debentures payable
Management believes the carrying value of debentures payable
represents fair value of these financial instruments because terms are similar
to those in the lending market for comparable loans with comparable risks.
-15-
<PAGE> 60
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized
Zeros USA, Inc.
By /s/ STEVE CLARK
--------------------------------
Steve Clark
President and
Chief Executive officer
Pursuant to the requirements of the Securities Exchange act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
By /s/ STEVE CLARK President
--------------------------------
Steve Clark
By /s/ JESSE BLANCO General Counsel and Secretary
--------------------------------
Jesse Blanco
By /s/ CHET GUTOWSKY CFO August 8, 1997
--------------------------------
Chet Gutowsky
By /s/ R. J. SIMMONS, JR. Director
--------------------------------
R. J. Simmons, Jr.
By /s/ SUSAN S. SMITH Director
--------------------------------
Susan S. Smith
By /s/ CELSO B. SUAREZ, JR. Director
--------------------------------
Celso B. Suarez, Jr.
</TABLE>
<PAGE> 61
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
- 3(i) Articles of Incorporation
- 3(ii) By-laws
- 5 Opinion re: legality
- 10(A)(1) Contract for Master Licensee Acquisition from M. Ltd.
- 10(A)(2) Agreement in Principle to Acquire OCS Assets
- 10(A)(3) Contract for Aircraft Reimbursement from BAF
- 10(B)(1) Contract with Ramsay
- 10(B)(2) Contract with Martin
- 10(B)(3) Contract with Lawson
- 20(1) Form of warrant issued by Steve Clark
- 20(2) Texas Natural Resources letter dated April 29, 1997
- 20(3) Form of Capital American Associates, Inc. Financial
Services Agreement
- 20(4) Directors and Officers Insurance Policy
</TABLE>
<PAGE> 1
EXHIBIT 3(i)
[THE STATE OF TEXAS LOGO]
SECRETARY OF STATE
CERTIFICATE OF INCORPORATION
OF
"ZEROS" USA, INC.
CHARTER NUMBER 1421711-00
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Incorporation for the above named corporation have been
received in this office and are found to conform to law.
ACCORDINGLY, the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Incorporation.
Issuance of this Certificate of Incorporation does not authorize the use of a
corporate name in this state in violation of the rights of another under the
federal Trademark Act of 1946, the Texas trademark law, the Assumed Business
or Professional Name Act, or the common law.
Dated: November 12, 1996
Effective: November 12, 1996
[THE STATE OF TEXAS SEAL] /s/ ANTONIO O. GARZA, JR.
---------------------------------------
Antonio O. Garza, Jr. BW
Secretary of State
<PAGE> 2
---------------------------
FILED
in the Office of the
Secretary of State of Texas
NOV 12 1996
Corporations Section
---------------------------
===============================================================================
ARTICLES OF INCORPORATION
OF
"ZEROS" USA, inc.
(A Close Corporation)
===============================================================================
ARTICLE ONE
The name of the Corporation is " ZEROS" USA, inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is the transaction
of any and all lawful business for which a corporation may be incorporated
under the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the Corporation shall have
authority to issue is One Million (1,000,000). The shares shall have no par
value.
ARTICLE FIVE
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of $1,000.00, consisting
of money, labor done or property actually received.
------------------------------------------------------------
ARTICLES OF INCORPORATION OF
"ZEROS" USA, inc., PAGE 1
<PAGE> 3
ARTICLE SIX
The street address of its initial Registered Office, and the name of
its initial Registered Agent at this address, is as follows:
Steve Clark
1730 Hillcrest
Baytown, Texas 77520
ARTICLE SEVEN
The number of initial Directors is one. The name and address of the
initial director is:
Steve Clark
1730 Hillcrest
Baytown, Texas 77520
ARTICLE EIGHT
This Corporation is a close corporation.
ARTICLE NINE
The name and address of the Incorporator is:
Marilyn S. Hershman
408 W.17th Street, Suite 101
Austin, Texas 78701-1207
(512) 474-2002
IN WITNESS WHEREOF: I have hereunto set my hand this 12th day of
November, 1996.
/s/ MARILYN S. HERSHMAN
--------------------------------------
Marilyn S. Hershman, Incorporator
------------------------------------------------------------
ARTICLES OF INCORPORATION OF
"ZEROS" USA, inc., PAGE 2
<PAGE> 4
[THE STATE OF TEXAS LOGO]
SECRETARY OF STATE
CERTIFICATE OF CORRECTION
OF
ZEROS USA, INC.
CHARTER NO.1421711-0
The undersigned, as Secretary of State of Texas, hereby certifies that the
attached Articles of Correction, duly executed pursuant to the provisions of
the Texas Miscellaneous Corporation Laws Act, have been received in this office
and are found to conform to law.
ACCORDINGLY the undersigned, as Secretary of State, and by virtue of the
authority vested in the Secretary by law, hereby issues this Certificate of
Correction and attaches hereto a copy of the Articles of Correction.
Dated: August 1, 1997
[THE STATE OF TEXAS SEAL] /s/ ANTONIO O. GARZA, JR. pac
---------------------------------------
Antonio O. Garza, Jr.
Secretary of State
<PAGE> 5
---------------------------
FILED
in the Office of the
Secretary of State of Texas
AUG 01 1997
Corporations Section
---------------------------
===============================================================================
ARTICLES OF CORRECTION
===============================================================================
ARTICLE ONE
The name of the entity is "Zeros" USA, inc.
ARTICLE TWO
The document to be corrected is the Articles of Incorporation, which
was filed in the Office of the Secretary of State on November 12, 1996.
ARTICLE THREE
Article Eight of the Articles of Incorporation erroneously stated
"This corporation is a close corporation."
Article Eight should be omitted.
DATED this 1st day of August, 1997.
by /s/ MARILYN S. HERSHMAN
------------------------------------
Marilyn S. Hershman
Acting Assistant Secretary
<PAGE> 6
[THE STATE OF TEXAS SEAL]
THE STATE OF TEXAS
SECRETARY OF STATE
MAY 14, 1997
JESSE BLANCO, JR.
P.O. BOX 680305
SAN ANTONIO, TX 78268
RE:
"ZEROS" USA, INC.
CHARTER NUMBER 01421711-00
IT HAS BEEN OUR PLEASURE TO APPROVE AND PLACE ON RECORD YOUR ARTICLES OF
AMENDMENT.
THE APPROPRIATE EVIDENCE IS ATTACHED FOR YOUR FILES AND THE ORIGINAL HAS BEEN
FILED IN THIS OFFICE.
PAYMENT OF THE FILING FEE IS ACKNOWLEDGED BY THIS LETTER.
IF WE CAN BE OF FURTHER SERVICE AT ANY TIME, PLEASE LET US KNOW.
/s/ ANTONIO O. GARZA
[STATE OF TEXAS SEAL] -----------------------------------------
Antonio O. Garza, Jr., Secretary of State
<PAGE> 7
[THE STATE OF TEXAS SEAL]
THE STATE OF TEXAS
SECRETARY OF STATE
CERTIFICATE OF AMENDMENT
FOR
"ZEROS" USA,
CHARTER NUMBER, 01421711
THE UNDERSIGNED, AS SECRETARY OF STATE OF THE STATE OF TEXAS, HEREBY
CERTIFIES THAT THE ATTACHED ARTICLES OF AMENDMENT FOR THE ABOVE NAMED ENTITY
HAVE BEEN RECEIVED IN THIS OFFICE AND ARE FOUND TO CONFORM TO LAW.
ACCORDINGLY THE UNDERSIGNED, AS SECRETARY OF STATE, AND BY VIRTUE OF
THE AUTHORITY VESTED IN THE SECRETARY BY LAW, HEREBY ISSUES THIS CERTIFICATE OF
AMENDMENT.
DATED MAY 7, 1997
EFFECTIVE MAY 7, 1997
/s/ ANTONIO O. GARZA
[SEAL] -------------------------------------
Antonio O. Garza, Secretary of State
<PAGE> 8
---------------------------
IN THE OFFICE OF THE
SECRETARY OF STATE OF TEXAS
MAY 07 1997
CORPORATIONS SECTION
---------------------------
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of article 4.04 of the Texas Business Corporation
Act, the undersigned corporation adopts the following articles of amendment to
its articles of incorporation:
ARTICLE ONE
The name of the corporation is ZEROS USA, Inc.
ARTICLE TWO
The following amendment to the articles of incorporation was adopted by the
board of directors of the corporation on May 2, 1997.
The amendment alters or changes article 4 of the original articles of
incorporation and the full text of the provision altered is as follows:
THE NUMBER OF AUTHORIZED SHARES SHALL BE 20 MILLION, WITH A PAR VALUE OF $0.01
PER SHARE.
ARTICLE THREE
No shares have been issued.
Dated May 2, 1997
ZEROS USA, Inc.
/s/ JESSE BLANCO, JR.
--------------------------------
By: Jesse Blanco, Jr., Secretary
<PAGE> 9
SECRETARY OF STATE
RECEIVED
97 JUN 30 PM 1:26
CORPORATIONS SECTION
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
Pursuant to the provisions of article 4.04 of the Texas Business Corporation
Act, the undersigned corporation adopts the following articles of amendment to
its articles of incorporation:
ARTICLE ONE
The name of the corporation is ZEROS USA, Inc.
ARTICLE TWO
The following amendment to the articles of incorporation was adopted by the
board of directors of the corporation on March 10, 1997.
The amendment alters or changes article 4 of the original articles of
incorporation and the full text of the provision altered is as follows:
THE NUMBER OF AUTHORIZED SHARES SHALL BE 20 MILLION, WITH A PAR VALUE OF $0.01
PER SHARE.
ARTICLE THREE
The number of shares of common stock of the corporation outstanding/authorized
at the time of such adoption was 10,000,000; and the number of shares entitled
to vote thereon was 10.000,000.
ARTICLE FOUR
The holders of all of the shares outstanding and entitled to vote on said
amendment have signed a consent in writing pursuant to Article 9.10 adopting
said amendment and any written notice required by Article 9.10 has been given.
Dated June 24, 1997
ZEROS USA, Inc.
/s/ JESSE BLANCO, JR.
--------------------------------
By: Jesse Blanco, Jr., Secretary
<PAGE> 10
SECRETARY OF STATE
RECEIVED
97 JUN 30 PM 1:26
CORPORATIONS SECTION
ARTICLES OF MERGER
OF
ZEROS USA, INC.
(SUBSIDIARY CORPORATION)
INTO
"ZEROS" USA, INC.
(PARENT CORPORATION)
Pursuant to the provisions of Article 5.16 of the Texas Business
Corporation Act, "ZEROS" USA, inc., the Parent Corporation, a corporation
organized under the laws of the state of Texas, and owning at least ninety
percent of the shares of ZEROS USA, inc., the Subsidiary Corporation, a
corporation organized under the laws of the state of Utah, hereby execute the
following articles of merger:
1. Attached as Exhibit "A," is a copy of the resolution of the Board of
Directors of "ZEROS" USA, inc., the Parent Corporation, adopted on
March 10, 1997.
2. The number of outstanding shares of each class of the subsidiary
corporation and the number of shares of each class owned by the
surviving corporation is.
<TABLE>
<CAPTION>
Number of Shares Number of Shares Number of Shares
Class Authorized Outstanding Owned by Parent
----- ---------------- ---------------- ----------------
<S> <C> <C> <C>
Common 20,000,000 11,490,000 100%
.001 Par Value
Preferred 10,000,000 -0- 1005
$5.00 Stated Value
</TABLE>
Dated June 30, 1997
ZEROS USA. Inc.
/s/ JESSE BLANCO, JR.
------------------------------------
By: Jesse Blanco, Jr., Secretary
<PAGE> 11
RESOLUTION
The Board of Directors of ZEROS USA, Inc., a corporation organized
under the laws of the State of Texas, resolves as follows:
To approve the merger of ZEROS USA, Inc., a corporation organized
under the laws of the State of Utah, into ZEROS USA, Inc., the Texas
corporation;
That the Texas corporation will issue one share of its common stock to
each shareholder of record on the date of the merger for each share of stock of
the Utah corporation;
That the Texas corporation, will assume all the assets and liabilities
of the Utah corporation, and;
That the Texas corporation will accept 10 million shares of preferred
stock authorized from the Utah corporation for capitalization purposes in the
assumption of all assets and liabilities.
This will become effective upon the approval of the Shareholders and
the Board of Directors of ZEROS USA, Inc., the Utah corporation.
March 10, 1997
ZEROS USA, Inc.
/s/ JESSE BLANCO
-----------------------------
By Jesse Blanco, Secretary
<PAGE> 12
FILED
in the Office of the
Secretary of State of Texas
AUG 05 1997
Corporation Section
OFFICE OF THE (SEAL) CORPORATIONS SECTION
SECRETARY OF STATE P.O. Box 13697
Austin, Texas 78711-3697
ARTICLES/CERTIFICATE OF CORRECTION
This correction is submitted pursuant to article 1302-7.01, Texas Miscellaneous
Corporation Laws Act for a corporation or limited liability company, or pursuant
to section 2.13, Texas Revised Limited Partnership Act for a limited
partnership, to correct a document which is an inaccurate record of the entity
action, contains an inaccurate or erroneous statement, or was defectively or
erroneously executed, sealed, acknowledged or verified.
ARTICLE ONE
The name of the entity is ZEROS USA, INC.
ARTICLE TWO
The document to be corrected is the ARTICLES OF MERGER which was filed in the
Office of the Secretary of State on the 30th day of June, 1997.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is:
Paragraph #2 of the document is incorrect under Preferred.
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the document
reads as follows:
Paragraph #2 of the document under preferred should indicate 20 million at a
par value of .001.
By: /s/ SUSAN SMITH
-----------------------------
Susan Smith
Its Assistant Secretary
An Authorized Corporate Officer or Director
or Limited Liability Company Member or Manager
or Limited Partnership General Partner
<PAGE> 13
FILED
in the Office of the
Secretary of State of Texas
AUG 05 1997
Corporation Section
OFFICE OF THE (SEAL) CORPORATIONS SECTION
SECRETARY OF STATE P.O. Box 13697
Austin, Texas 78711-3697
ARTICLES/CERTIFICATE OF CORRECTION
This correction is submitted pursuant to article 1302-7.01, Texas Miscellaneous
Corporation Laws Act for a corporation or limited liability company, or pursuant
to section 2.13, Texas Revised Limited Partnership Act for a limited
partnership, to correct a document which is an inaccurate record of the entity
action, contains an inaccurate or erroneous statement, or was defectively or
erroneously executed, sealed, acknowledged or verified.
ARTICLE ONE
The name of the entity is ZEROS USA, INC.
ARTICLE TWO
The document to be corrected is the Articles of Amendment to the Articles of
Incorporation which was filed in the Office of the Secretary of State on the
30th day of June, 1997.
ARTICLE THREE
The inaccuracy, error, or defect to be corrected is:
The following was left off in error under ARTICLE TWO of the Articles of
Amendment to the Articles of Incorporation.
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the document
reads as follows:
Please refer to the attached Exhibit A.
By: /s/ SUSAN SMITH
-----------------------------
Susan Smith
Its Assistant Secretary
An Authorized Corporate Officer or Director
or Limited Liability Company Member or Manager
or Limited Partnership General Partner
<PAGE> 14
ARTICLES/CERTIFICATE OF CORRECTION
ARTICLE FOUR
As corrected, the inaccurate, erroneous, or defective portion of the document
reads as follows:
There are a total of 20 million shares of Preferred stock authorized,
divided into two classes as follows:
1. 11,500,000 shares of Golden Preferred as a voting stock having
a par value of $0.001 and a stated value of $3.00 per share
with a 6% per annum per share dividend.
2. 8,500,000 shares of Preferred Stock as a non voting stock
having a par value of $0.001 and a stated value of $5.00 per
share with a 6% per annum per share dividend.
EXHIBIT A
<PAGE> 1
EXHIBIT 3(ii)
===============================================================================
BYLAWS OF
ZEROS USA, Inc.
===============================================================================
CONTENTS OF INITIAL BYLAWS
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
1.00 CORPORATE CHARTER AND BYLAWS
1.01 Corporate Charter Provisions.............................. 3
1.02 Registered Agent or Office--Requirement
of Filing Changes with Secretary of State............... 3
1.03 Initial Business Office................................... 4
1.04 Amendment of Bylaws....................................... 4
2.00 DIRECTORS AND DIRECTORS' MEETINGS
2.01 Action Without Meeting.................................... 4
2.02 Telephone Meetings........................................ 4
2.03 Place of Meetings......................................... 4
2.04 Regular Meetings.......................................... 5
2.05 Call of Special Meeting................................... 5
2.06 Quorum.................................................... 5
2.07 Adjournment--Notice of Adjourned Meetings................. 5
2.08 Conduct of Meetings....................................... 6
2.09 Powers of the Board of Directors.......................... 6
2.10 Board Committees--Authority to Appoint.................... 6
2.11 Transactions with Interested Directors.................... 6
2.12 Number of Directors....................................... 7
2.13 Term of Office............................................ 7
2.14 Removal of Directors...................................... 7
2.15 Vacancies................................................. 7
2.15(a) Declaration of Vacancy............................ 7
2.15(b) Filling Vacancies by Directors.................... 8
2.15(c) Filling Vacancies by Shareholders................. 8
2.16 Compensation.............................................. 8
2.17 Indemnification of Directors and Officers................. 8
2.18 Insuring Directors, Officers, and Employees............... 8
</TABLE>
- -------------------------------------------------------------------------------
BYLAWS, PAGE 1
<PAGE> 2
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
3.00 SHAREHOLDERS' MEETINGS
3.01 Action without Meeting.................................... 9
3.02 Telephone Meetings........................................ 9
3.03 Place of Meetings......................................... 9
3.04 Notice of Meetings........................................ 9
3.05 Voting List...............................................10
3.06 Votes per Share...........................................10
3.07 Cumulative Voting.........................................10
3.08 Proxies...................................................11
3.09 Quorum....................................................11
3.09(a) Quorum of Shareholders............................11
3.09(b) Adjourn for Lack or Loss of Quorum................11
3.10 Voting by Voice or ]Ballot................................11
3.11 Conduct of Meetings.......................................11
3.12 Annual Meetings...........................................12
3.13 Failure to Hold Annual Meeting............................12
3.14 Special Meetings..........................................12
4.00 OFFICERS
4.01 Title and Appointment.....................................13
4.01(a) Chairman........................................13
4.01(b) President.......................................13
4.01(c) Vice President..................................13
4.01(d) Secretary.......................................14
4.01(e) Treasurer.......................................14
4.01(f) Assistant Secretary or Assistant Treasurer......15
4.02 Removal and Resignation...................................15
4.03 Vacancies.................................................15
4.04 Compensation..............................................15
5.00 AUTHORITY TO EXECUTE INSTRUMENTS
5.01 No Authority Absent Specific Authorization ................16
5.02 Execution of Certain Instruments...........................16
6.00 ISSUANCE AND TRANSFER OF SHARES
6.01 Classes and Series of Shares..............................16
6.02 Certificates for Fully Paid Shares........................16
6.03 Consideration for Shares..................................17
6.04 Replacement of Certificates...............................17
6.05 Signing Certificates--Facsimile Signatures................17
6.06 Transfer Agents and Registrars............................17
6.07 Conditions of Transfer....................................17
6.08 Reasonable Doubts as to-Right to Transfer.................18
</TABLE>
- -------------------------------------------------------------------------------
BYLAWS, PAGE 2
<PAGE> 3
<TABLE>
<CAPTION>
ARTICLE PAGE
- ------- ----
<S> <C>
7.00 CORPORATE RECORDS AND ADMINISTRATION
7.01 Minutes of Corporate Meetings.............................18
7.02 Share Register............................................18
7.03 Corporate Seal............................................19
7.04 Books of Account..........................................19
7.05 Inspection of Corporate Records...........................19
7.06 Fiscal Year...............................................19
7.07 Waiver of Notice..........................................20
7.08 Issuance, of Close Corporation Shares.....................20
7.09 Management Under Shareholders' Agreement..................20
8.00 ADOPTION OF INITIAL BYLAWS.......................................21
</TABLE>
ARTICLE ONE-CORPORATE CHARTER AND BYLAWS
1.01 CORPORATE CHARTER PROVISIONS
The Corporation's Charter authorizes one million (1,000,000) shares to
be issued. The officers and transfer agents issuing shares of the Corporation
shall ensure that the total number of shares outstanding at any given time does
not exceed this number. Such officers and agents shall advise the Board at
least annually of the authorized shares remaining available to be issued. No
shares shall be issued for less than the par value stated in the Charter. Each
charter provision shall be observed until amended by Restated Articles or
Articles of Amendment duly filed with the Secretary of State.
1.02 REGISTERED AGENT AND OFFICE-REQUIREMENT OF FILING
CHANGES WITH SECRETARY OF STATE
The address of the Registered office provided in the Articles of
Incorporation, as duly filed with the Secretary of State for the State of
Texas, is: 1730 Hillcrest, Baytown, Texas 77520.
The name of the Registered Agent of the Corporation at such address, as
set forth in its Articles of Incorporation, is: Steve Clark
The Registered Agent or Office may be changed by filing a Statement of
Change of Registered Agent or Office or Both with the Secretary of State, and
not otherwise. Such filing shall be made promptly with each change.
Arrangements for each change in Registered Agent or office shall ensure that
the Corporation is not exposed to the possibility of a default judgment. Each
successive Registered Agent shall be of reliable character and
- -------------------------------------------------------------------------------
BYLAWS, PAGE 3
<PAGE> 4
well informed of the necessity of immediately furnishing the papers of any
lawsuit against the Corporation to its attorneys.
1.03 INITIAL BUSINESS OFFICE
The address of the initial principal business office of the
Corporation is hereby established as: 1730 Hillcrest, Baytown, Texas 77520.
The Corporation may have additional business offices within the State
of Texas, and where it may be duly qualified to do business outside of Texas,
as the Board of Directors may from time to time designate or the business of
the Corporation may require.
1.04 AMENDMENT OF BYLAWS
The Shareholders or Board of Directors, subject to any limits imposed
by the Shareholders, may amend or repeal these Bylaws and adopt new Bylaws. All
amendments shall be upon advice of counsel as to legality, except in emergency.
Bylaw changes shall take effect upon adoption unless otherwise specified.
Notice of Bylaws changes shall be given in or before notice given of the first
Shareholders' meeting following their adoption.
ARTICLE TWO-DIRECTORS AND DIRECTORS' MEETINGS
2.01 ACTION BY CONSENT OF BOARD WITHOUT MEETING
Any action required or permitted to be taken by the Board of Directors
may be taken without a meeting, and shall have the same force and effect as a
unanimous vote of Directors, if all members of the Board consent in writing to
the action. Such consent may be given individually or collectively.
2.02 TELEPHONE MEETINGS
Subject to the notice provisions required by these Bylaws and by the
Business Corporation Act, Directors may participate in and hold a meeting by
means of conference call or similar communication by which all persons
participating can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting, except participation for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
2.03 PLACE OF MEETINGS
Meetings of the Board of Directors shall be held at the business
office of the Corporation or at such other place within or without the State of
Texas as may be designated by the Board.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 4
<PAGE> 5
2.04 REGULAR MEETINGS
Regular meetings of the Board of Directors shall be held, without call
or notice, immediately following each annual Shareholders' meeting, and at such
other regularly repeating times as the Directors may determine.
2.05 CALL OF SPECIAL MEETING
Special meetings of the Board of Directors for any purpose may be
called at any time by the President or, if the President is absent or unable or
refuses to act, by any Vice President or any two Directors. Written notices of
the special meetings, stating the time and place of the meeting, shall be
mailed ten days before, or telegraphed or personally delivered so as to be
received by each Director not later than two days before, the day appointed for
the meeting. Notice of meetings need not indicate an agenda. Generally, a
tentative agenda will be included, but the meeting shall not be confined to any
agenda included with the notice.
Meetings provided for in these Bylaws shall not be invalid for lack of
notice if all persons entitled to notice consent to the meeting in writing or
are present at the meeting and do not object to the notice given. Consent may
be given either before or after the meeting.
Upon providing notice, the Secretary or other officer sending notice
shall sign and file in the Corporate Record Book a statement of the details of
the notice given to each Director. If such statement should later not be found
in the Corporate Record Book, due notice shall be presumed.
2.06 QUORUM
The presence throughout any Directors' meeting, or adjournment
thereof, of a majority of the authorized number of Directors shall be necessary
to constitute a quorum to transact any business, except to adjourn. If a quorum
is present, every act done or resolution passed by a majority of the Directors
present and voting shall be the act of the Board of Directors.
2.07 ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS
A quorum of the Directors may adjourn any Directors' meeting to meet
again at a stated hour on a stated day. Notice of the time and place where an
adjourned meeting will be held need not be given to absent Directors if the
time and place is fixed at the adjourned meeting. In the absence of a quorum, a
majority of the Directors present may adjourn to a set time and place if notice
is duly given to the absent members, or until the time of the next regular
meeting of the Board.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 5
<PAGE> 6
2.08 CONDUCT OF MEETINGS
At every meeting of the Board of Directors, the Chairman of the Board,
if there is such an officer, and if not, the President, or in the President's
absence, a Vice President designated by the President, or in the absence of
such designation, a Chairman chosen by a majority of the Directors present,
shall preside. The Secretary of the Corporation shall act as Secretary of the
Board of Directors' meetings. When the Secretary is absent from any meeting,
the Chairman may appoint any person to act as Secretary of that meeting.
2.09 POWERS OF THE BOARD OF DIRECTORS
The business and affairs of the Corporation and all corporate powers
shall be exercised by or under authority of the Board of Directors, subject to
limitations imposed by law, the Articles of Incorporation, any applicable
Shareholders' agreement, and these Bylaws.
2.10 BOARD COMMITTEES AUTHORITY TO APPOINT
The Board of Directors may designate an executive committee and one or
more other committees to conduct the business and affairs of the Corporation to
the extent authorized. The Board shall have the power at any time to change the
powers and membership of, fill vacancies in, and dissolve any committee.
Members of any committee shall receive such compensation as the Board of
Directors may from time to time provide. The designation of any committee and
the delegation of authority thereto shall not operate to relieve the Board of
Directors, or any member thereof, of any responsibility imposed by law.
2.11 TRANSACTIONS WITH INTERESTED DIRECTORS
Any contract or other transaction between the Corporation and any of
its Directors (or any corporation or firm in which any of its Directors are
directly or indirectly interested) shall be valid for all purposes
notwithstanding the presence of that Director at the meeting during which the
contract or transaction was authorized, and notwithstanding the Director's
participation in that meeting. This section shall apply only if the contract or
transaction is just and reasonable to the Corporation at the time it is
authorized and ratified, the interest of each Director is known or disclosed to
the Board of Directors, and the Board nevertheless authorizes or ratifies the
contract or transaction by a majority of the disinterested Directors present.
Each interested Director is to be counted in determining whether a quorum is
present, but shall not vote and shall not be counted in calculating the
majority necessary to carry the vote. This section shall not be construed to
invalidate contracts or transactions that would be valid in its absence.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 6
<PAGE> 7
2.12 NUMBER OF DIRECTORS
The number of Directors of this Corporation shall be five. No Director
need be a resident of Texas or a Shareholder. The number of Directors may be
increased or decreased from time to time by amendment to these Bylaws. Any
decrease in the number of Directors shall not have the effect of shortening the
tenure which any incumbent Director would otherwise enjoy.
2.13 TERM OF OFFICE
Directors shall be entitled to hold office until their successors are
elected and qualified. Election for all Director positions, vacant or not
vacant, shall occur at each annual meeting of the Shareholders and may be held
at any special meeting of Shareholders called specifically for that purpose.
2.14 REMOVAL OF DIRECTORS
The entire Board of Directors or any individual Director may be
removed from office by a vote of Shareholders holding a majority of the
outstanding shares entitled to vote at an election of Directors. However, if
less than the entire Board is to be removed, no one of the Directors may be
removed if the votes cast against his removal would be sufficient to elect him
if then cumulatively voted at an election of the entire Board of Directors. No
director may be so removed except at an election of the class of Directors of
which he is a part. If any or all Directors are so removed, new Directors may
be elected at the same meeting. Whenever a class or series of shares is
entitled to elect one or more Directors under authority granted by the Articles
of Incorporation, the provisions of this Paragraph apply to the vote of that
class or series and not to the vote of the outstanding shares as a whole.
2.15 VACANCIES
Vacancies on the Board of Directors shall exist upon the occurrence of
any of the following events: (a) the death, resignation, or removal of any
Director; (b) an increase in the authorized number of Directors; or (c) the
failure of the Shareholders to elect the full authorized number of Directors to
be voted for at any annual, regular, or special Shareholders' meeting at which
any Director is to be elected.
2.15(a) DECLARATION OF VACANCY
A majority of the Board of Directors may declare vacant the office of
a Director if the Director: (a) is adjudged incompetent by a court order; (b)
is convicted of a crime involving moral turpitude; (c) or fails to accept the
office of Director, in
- --------------------------------------------------------------------------------
BYLAWS, PAGE 7
<PAGE> 8
writing or by attending a meeting of the Board of Directors, within thirty (30)
days of notice of election.
2.15(b) FILLING VACANCIES BY DIRECTORS
Vacancies other than those caused by an increase in the number of
Directors may be filled temporarily by majority vote of the remaining
Directors, though less than a quorum, or by a sole remaining Director. Each
Director so elected shall hold office until a qualified successor is elected at
a Shareholders' meeting.
2.15(c) FILLING VACANCIES BY SHAREHOLDERS
Any vacancy on the Board of Directors, including those caused by an
increase in the number of Directors shall be filled by the Shareholders at the
next annual meeting or at a special meeting called for that purpose. Upon the
resignation of a Director tendered to take effect at a future time, the Board
or the Shareholders may elect a successor to take office when the resignation
becomes effective.
2.16 COMPENSATION
Directors shall receive such compensation for their services as
Directors as shall be determined from time to time by resolution of the Board.
Any Director may serve the Corporation in any other capacity as an officer,
agent, employee, or otherwise, and receive compensation therefor.
2.17 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Board of Directors shall authorize the Corporation to pay or
reimburse any present or former Director or officer of the Corporation any
costs or expenses actually and necessarily incurred by that officer in any
action, suit, or proceeding to which the officer is made a party by reason of
holding that position, provided, however, that no officer shall receive such
indemnification if finally adjudicated therein to be liable for negligence or
misconduct in office. This indemnification shall extend to good-faith
expenditures incurred in anticipation of threatened or proposed litigation. The
Board of Directors may, in proper cases, extend the indemnification to cover
the good-faith settlement of any such action, suit, or proceeding, whether
formally instituted or not.
2.18 INSURING DIRECTORS, OFFICERS, AND EMPLOYEES
The Corporation may purchase and maintain insurance on behalf of any
Director, officer, employee, or agent of the Corporation, or on behalf of any
person serving at the request of the Corporation as a Director, officer,
employee, or agent of
- --------------------------------------------------------------------------------
BYLAWS, PAGE 8
<PAGE> 9
another corporation, partnership, joint venture, trust, or other enterprise,
against any liability asserted against that person and incurred by that person
in any such corporation, whether or not the Corporation has the power to
indemnify that person against liability for any of those acts.
ARTICLE THREE-SHAREHOLDERS' MEETINGS
3.01 ACTION WITHOUT MEETING
Any action that may be taken at a meeting of the Shareholders under
any provision of the Texas Business Corporation Act may be taken without a
meeting if authorized by a consent or waiver filed with the Secretary of the
Corporation and signed by all persons who would be entitled to vote on that
action at a Shareholders' meeting. Each such signed consent or waiver, or a
true copy thereof, shall be placed in the Corporate Record Book.
3.02 TELEPHONE MEETINGS
Subject to the notice provisions required by these Bylaws and by the
Business Corporation Act, Shareholders may participate in and hold a meeting by
means of conference call or similar communication by which all persons
participating can hear each other. Participation in such a meeting shall
constitute presence in person at such meeting, except participation for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
3.03 PLACE OF MEETINGS
Shareholders' meetings shall be held at the business office of the
Corporation, or at such other place within or without the State of Texas as may
be designated by the Board of Directors or the Shareholders.
3.04 NOTICE OF MEETINGS
The President, the Secretary, or the officer or persons calling a
Shareholders' Meeting, shall give notice, or cause it to be given, in writing
to each Director and to each Shareholder entitled to vote at the meeting at
least ten (10) but not more than sixty (60) days before the date of the
meeting. Such notice shall state the place, day, and hour of the meeting, and,
in case of a special meeting, the purpose or purposes for which the meeting is
called. Such written notice may be given personally, by mail, or by other
means. Such notice shall be addressed to each recipient at such address as
appears on the Books of the Corporation or as the recipient has given to the
Corporation for
- --------------------------------------------------------------------------------
BYLAWS, PAGE 9
<PAGE> 10
the purpose of notice. Meetings provided for in these Bylaws shall not be
invalid for lack of notice if all persons entitled to notice consent to the
meeting in writing or are present at the meeting in person or by proxy and do
not object to the notice given. Consent may be given either before or after the
meeting. Notice of the reconvening of an adjourned meeting is not necessary
unless the meeting is adjourned more than thirty days past the date stated in
the notice, in which case notice of the adjourned meeting shall be given as in
the case of any special meeting. Notice may be waived by written waivers signed
either before or after the meeting by all persons entitled to the notice.
3.05 VOTING LIST
At least ten (10), but not more than sixty (60), days before each
Shareholders' meeting, the officer or agent having charge of the Corporation's
share transfer books shall make a complete list of the Shareholders entitled to
vote at that meeting or any adjournment thereof, arranged in alphabetical
order, with the address and the number of shares held by each. The list shall
be kept on file at the Registered Office of the Corporation for at least ten
(10) days prior to the meeting, and shall be subject to inspection by any
Director, officer, or Shareholder at any time during usual business hours. The
list shall also be produced and kept open at the time and place of the meeting
and shall be subject, during the whole time of the meeting, to the inspection
of any Shareholder. The original share transfer books shall be prima facie
evidence as to the Shareholders entitled to examine such list or transfer books
or to vote at any meeting of Shareholders. However, failure to prepare and to
make the list available in the manner provided above shall not affect the
validity of any action taken at the meeting.
3.06 VOTES PER SHARE
Each outstanding share, regardless of class, shall be entitled to one
(1) vote on each matter submitted to a vote at a meeting of Shareholders,
except to the extent that the voting rights of the shares of any class or
classes are limited or denied pursuant to the Articles of Incorporation. A
Shareholder may vote in person or by proxy executed in writing by the
Shareholder, or by the Shareholder's duly authorized attorney-in-fact.
3.07 CUMULATIVE VOTING
Subject to any limitation stated in the Articles of Incorporation,
every Shareholder entitled to vote at any election of Directors may cumulate
votes. For this purpose, each Shareholder shall have a number of votes equal to
the number of
- --------------------------------------------------------------------------------
BYLAWS, PAGE 10
<PAGE> 11
Directors to be elected multiplied by the number of votes to which the
Shareholder's shares are entitled. The Shareholder may cast all these votes for
one candidate or may distribute the votes among any number of candidates. The
candidates receiving the highest number of votes are elected, up to the number
of vacancies to be filled. No Shareholder may cumulate votes unless that
Shareholder gives written notice of his or her intention to do so to the
Secretary of the Corporation on or before the day preceding the election at
which the votes will be cumulated. If any Shareholder gives written notice as
provided above, all Shareholders may cumulate their votes.
3.08 PROXIES
A Shareholder may vote either in person or by proxy executed in
writing by the Shareholder or his or her duly authorized attorney in fact.
Unless otherwise provided in the proxy or by law, each proxy shall be revocable
and shall not be valid after eleven (11) months from the date of its execution.
3.09 QUORUM
3.09(a) QUORUM OF SHAREHOLDERS
As to each item of business to be voted on, the presence (in person or
by proxy) of the persons who are entitled to vote a majority of the outstanding
voting shares on that matter shall constitute the quorum necessary for the
consideration of the matter at a Shareholders' meeting. The vote of the holders
of a majority of the shares entitled to vote on the matter and represented at a
meeting at which a quorum is present shall be the act of the Shareholders'
meeting.
3.09(b) ADJOURNMENT FOR LACK OR LOSS OF QUORUM
No business may be transacted in the absence of a quorum, or upon the
withdrawal of enough Shareholders to leave less than a quorum, other than to
adjourn the meeting from time to time by the vote of a majority of the shares
represented at the meeting.
3.10 VOTING BY VOICE OR BALLOT
Elections for Directors need not be by ballot unless a Shareholder
demands election by ballot before the voting begins.
3.11 CONDUCT OF MEETINGS
Meetings of the Shareholders shall be chaired by the President, or, in
the President's absence, a Vice President designated by the President, or, in
the absence of such designation, any other person chosen by a majority of the
Shareholders of the Corporation present in person or by proxy and
- --------------------------------------------------------------------------------
BYLAWS, PAGE 11
<PAGE> 12
entitled to vote. The Secretary of the Corporation, or, in the Secretary's
absence, an Assistant Secretary, shall act as Secretary of all meetings of the
Shareholders. In the absence of the Secretary or Assistant Secretary, the
Chairman shall appoint another person to act as Secretary of the meeting.
3.12 ANNUAL MEETINGS
The time, place, and date of the annual meeting of the Shareholders of
the Corporation, for the purpose of electing Directors and for the transaction
of any other business as may come before the meeting, shall be set from time to
time by a majority vote of the Board of Directors. If the day fixed for the
annual meeting shall be on a legal holiday in the State of Texas, such meeting
shall be held on the next succeeding business day. If the election of Directors
is not held on the day thus designated for any annual meeting, or at any
adjournment thereof, the Board of Directors shall cause the election to be held
at a special meeting of the Shareholders as soon thereafter as possible.
3.13 FAILURE TO HOLD ANNUAL MEETING
If, within any 13 month period, an annual Shareholders' Meeting is not
held, any Shareholder may apply to a court of competent jurisdiction in the
county in which the principal office of the Corporation is located for a
summary order that an annual meeting be held.
3.14 SPECIAL MEETINGS
A special Shareholders' meeting may be called at any time by: (a) the
President; (b) the Board of Directors; or (c) one or more Shareholders holding
in the aggregate one-tenth or more of all the shares entitled to vote at the
meeting. Such meeting may be called for any purpose. The party calling the
meeting may do so only by written request sent by registered mail or delivered
in person to the President or Secretary. The officer receiving the written
request shall within ten (10) days from the date of its receipt cause notice of
the meeting to be sent to all the Shareholders entitled to vote at such a
meeting. If the officer does not give notice of the meeting within ten (10)
days after the date of receipt of the written request, the person or persons
calling the meeting may fix the time of the meeting and give the notice. The
notice shall be sent pursuant to Section 3.04 of these Bylaws. The notice of a
special Shareholders' meeting must state the purpose or purposes of the meeting
and, absent consent of every Shareholder to the specific action taken, shall be
limited to purposes plainly stated in the notice, notwithstanding other
provisions herein.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 12
<PAGE> 13
ARTICLE FOUR-OFFICERS
4.01 TITLE AND APPOINTMENT
The officers of the Corporation shall be a President and a Secretary,
as required by law. The Corporation may also have, at the discretion of the
Board of Directors, a Chairman of the Board, one or more Vice Presidents, a
Treasurer, one or more Assistant Secretaries, and one or more Assistant
Treasurers. Any two or more offices, including President and Secretary, may be
held by one person. All officers shall be elected by and hold office at the
pleasure of the Board of Directors, which shall fix the compensation and tenure
of all officers.
4.01(a) CHAIRMAN OF THE BOARD
The Chairman, if there shall be such an officer, shall, if present,
preside at the meetings of the Board of Directors and exercise and perform such
other powers and duties as may from time to time be assigned to the Chairman by
the Board of Directors or prescribed by these Bylaws.
4.01(b) PRESIDENT
Subject to such supervisory powers, if any, as may be given to the
Chairman, if there is one, by the Board of Directors, the President shall be
the chief executive officer of the Corporation and shall, subject to the
control of the Board of Directors, have general supervision, direction, and
control of the business and officers of the Corporation. The President shall
have the general powers and duties of management usually vested in the office
of President of a corporation; shall have such other powers and duties as may
be prescribed by the Board of Directors or the Bylaws; and shall be ex officio
a member of all standing committees, including the executive committee, if any.
In addition, the President shall preside at all meetings of the Shareholders
and in the absence of the Chairman, or if there is no Chairman, at all meetings
of the Board of Directors.
4.01(c) VICE PRESIDENT
Any Vice President shall have such powers and perform such duties as
from time to time may be prescribed by these Bylaws, by the Board of Directors,
or by the President. In the absence or disability of the President, the senior
or duly appointed Vice President, if any, shall perform all the duties of the
President, pending action by the Board of Directors. When so acting, such Vice
President shall have all the powers of, and be subject to all the restrictions
on, the President.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 13
<PAGE> 14
4.01(d) SECRETARY
The Secretary shall:
(1) See that all notices are duly given in accordance with the
provisions of these Bylaws and as required by law. In case of the absence or
disability of the Secretary, or the Secretary's refusal or neglect to act,
notice may be given and served by an Assistant Secretary or by the Chairman,
the President, any Vice President, or by the Board of Directors.
(2) Keep the minutes of corporate meetings, and the Corporate
Record Book, as set out in Section 7.01 hereof.
(3) Maintain, in the Corporate Record Book, a record of all share
certificates issued or cancelled and all shares of the Corporation cancelled or
transferred.
(4) Be custodian of the Corporation's records and of any seal
which the Corporation may from time to time adopt. When the Corporation
exercises its right to use a seal, the Secretary shall see that the seal is
embossed on all share certificates prior to their issuance and on all documents
authorized to be executed under seal in accordance with the provisions of these
Bylaws.
(5) In general, perform all duties incident to the office of
Secretary, and such other duties as from time to time may be required by
Sections 7.01, 7.02, and 7.03 of these Bylaws, by these Bylaws generally, by
the Board of Directors, or by the President.
4.01(e) TREASURER
The Treasurer shall:
(1) Have charge and custody of, and be responsible for, all funds
and securities of the Corporation, and deposit all funds in the name of the
Corporation in those banks, trust companies, or other depositories that shall
be selected by the Board of Directors.
(2) Receive, and give receipt for, monies due and payable to the
Corporation.
(3) Disburse or cause to be disbursed the funds of the Corporation
as may be directed by the Board of Directors, taking proper vouchers for those
disbursements.
(4) If required by the Board of Directors or the President, give
to the Corporation a bond to assure the faithful performance of the duties of
the Treasurer's office and the restoration to the Corporation of all corporate
books, papers, vouchers, money, and other property of whatever kind in the
- --------------------------------------------------------------------------------
BYLAWS, PAGE 14
<PAGE> 15
Treasurer's possession or control, in case of the Treasurer's death,
resignation, retirement, or removal from office. Any such bond shall be in a
sum satisfactory to the Board of Directors, with one or more sureties or a
surety company satisfactory to the Board of Directors.
(5) In general, perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to the
Treasurer by Sections 7.04 and 7.05 of these Bylaws, by these Bylaws generally,
by the Board of Directors, or by the President.
4.01(f) ASSISTANT SECRETARY AND ASSISTANT TREASURER
The Assistant Secretary or Assistant Treasurer shall have such powers
and perform such duties as the Secretary or Treasurer, respectively, or as the
Board of Directors or President may prescribe. In case of the absence of the
Secretary or Treasurer, the senior Assistant Secretary or Assistant Treasurer,
respectively, may perform all of the functions of the Secretary or Treasurer.
4.02 REMOVAL AND RESIGNATION
Any officer may be removed, either with or without cause, by vote of a
majority of the Directors at any regular or special meeting of the Board, or,
except in case of an officer chosen by the Board of Directors, by any committee
or officer upon whom that power of removal may be conferred by the Board of
Directors. Such removal shall be without prejudice to the contract rights, if
any, of the person removed. Any officer may resign at any time by giving
written notice to the Board of Directors, the President, or the Secretary of
the Corporation. Any resignation shall take effect on the date of the receipt
of that notice or at any later time specified therein, and, unless otherwise
specified therein, the acceptance of that resignation shall not be necessary to
make it effective.
4.03 VACANCIES
Upon the occasion of any vacancy occurring in any office of the
Corporation, by reason of death, resignation, removal, or otherwise, the Board
of Directors may elect an acting successor to hold office for the unexpired
term or until a permanent successor is elected.
4.04 COMPENSATION
The compensation of the officers shall be fixed from time to time by
the Board of Directors, and no officer shall be prevented from receiving a
salary by reason of the fact that the officer is also a Shareholder or a
Director of the Corporation, or both.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 15
<PAGE> 16
ARTICLE FIVE-AUTHORITY TO EXECUTE INSTRUMENTS
5.01 NO AUTHORITY ABSENT SPECIFIC AUTHORIZATION
These Bylaws provide certain authority for the execution of
instruments. The Board of Directors, except as otherwise provided in these
Bylaws, may additionally authorize any officer or officers, agent or agents, to
enter into any contract or execute and deliver any instrument in the name of
and on behalf of the Corporation, and such authority may be general or confined
to specific instances. Unless expressly authorized by these Bylaws or the Board
of Directors, no officer, agent, or employee shall have any power or authority
to bind the Corporation by any contract or engagement nor to pledge its credit
nor to render it pecuniarily liable for any purpose or in any amount.
5.02 EXECUTION OF CERTAIN INSTRUMENTS
Formal contracts of the Corporation, promissory notes, deeds, deeds of
trust, mortgages, pledges, and other evidences of indebtedness of the
Corporation, other corporate documents, and certificates of ownership of liquid
assets held by the Corporation shall be signed or endorsed by the President or
any Vice President and by the Secretary or the Treasurer, unless otherwise
specifically determined by the Board of Directors or otherwise required by law.
ARTICLE SIX-ISSUANCE AND TRANSFER OF SHARES
6.01 CLASSES AND SERIES OF SHARES
The Corporation may issue one or more classes or series of shares, or
both. Any of these classes or series may have full, limited, or no voting
rights, and may have such other preferences, rights, privileges, and
restrictions as are stated or authorized in the Articles of Incorporation. All
shares of any one class shall have the same voting, conversion, redemption, and
other rights, preferences, privileges, and restrictions, unless the class is
divided into series. If a class is divided into series, all the shares of any
one series shall have the same voting, conversion, redemption, and other
rights, preferences, privileges, and restrictions. There shall always be a
class or series of shares outstanding that has complete voting rights except as
limited or restricted by voting rights conferred on some other class or series
of outstanding shares.
6.02 CERTIFICATES FOR FULLY PAID SHARES
Neither shares nor certificates representing shares may be issued by
the Corporation until the full amount of the
- --------------------------------------------------------------------------------
BYLAWS, PAGE 16
<PAGE> 17
consideration has been received. When the consideration has been paid to the
Corporation, the shares shall be deemed to have been issued and the certificate
representing the shares shall be issued to the shareholder.
6.03 CONSIDERATION FOR SHARES
Shares may be issued for such consideration as may be fixed from time
to time by the Board of Directors, but not less than the par value stated in
the Articles of Incorporation. The consideration paid for the issuance of
shares shall consist of money paid, labor done, or property actually received,
and neither promissory notes nor the promise of future services shall
constitute payment nor partial payment for shares of the Corporation.
6.04 REPLACEMENT OF CERTIFICATES
No replacement share certificate shall be issued until the former
certificate for the shares represented thereby shall have been surrendered and
cancelled, except that replacements for lost or destroyed certificates may be
issued, upon such terms, conditions, and guarantees as the Board may see fit to
impose, including the filing of sufficient indemnity.
6.05 SIGNING CERTIFICATES-FACSIMILE SIGNATURES
All share certificates shall be signed by the officer(s) designated by
the Board of Directors. The signatures of the foregoing officers may be
facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar, either of which is not the Corporation itself or an
employee of the Corporation. If the officer who has signed or whose facsimile
signature has been placed on the certificate has ceased to be such officer
before the certificate issued, the certificate may be issued by the Corporation
with the same effect as if he or she were such officer on the date of its
issuance.
6.06 TRANSFER AGENTS AND REGISTRARS
The Board of Directors may appoint one or more transfer agents or
transfer clerks, and one or more registrars, at such times and places as the
requirements of the Corporation may necessitate and the Board of Directors may
designate. Each registrar appointed, if any, shall be an incorporated bank or
trust company, either domestic or foreign.
6.07 CONDITIONS OF TRANSFER
The party in whose name shares of stock stand on the books of the
Corporation shall be deemed the owner thereof as regards the Corporation,
provided that whenever any transfer of shares
- --------------------------------------------------------------------------------
BYLAWS, PAGE 17
<PAGE> 18
shall be made for collateral security, and not absolutely, and prior written
notice thereof shall be given to the Secretary of the Corporation, or to its
transfer agent, if any, such fact shall be stated in the entry of the
transfer.
6.08 REASONABLE DOUBTS AS TO RIGHT TO TRANSFER
When a transfer of shares is requested and there is reasonable doubt
as to the right of the person seeking the transfer, the Corporation or its
transfer agent, before recording the transfer of the shares on its books or
issuing any certificate therefor, may require from the person seeking the
transfer reasonable proof of that person's right to the transfer. If there
remains a reasonable doubt of the right to the transfer, the Corporation may
refuse a transfer unless the person gives adequate security or a bond of
indemnity executed by a corporate surety or by two individual sureties
satisfactory to the Corporation as to form, amount, and responsibility of
sureties. The bond shall be conditioned to protect the Corporation, its
officers, transfer agents, and registrars, or any of them, against any loss,
damage, expense, or other liability for the transfer or the issuance of a new
certificate for shares.
ARTICLE SEVEN-CORPORATE RECORDS AND ADMINISTRATION
7.01 MINUTES OF CORPORATE MEETINGS
The Corporation shall keep at the principal office, or such other
place as the Board of Directors may order, a book recording the minutes of all
meetings of its Shareholders and Directors, with the time and place of each
meeting, whether such meeting was regular or special, a copy of the notice
given of such meeting, or of the written waiver thereof, and, if it is a
special meeting, how the meeting was authorized. The record book shall further
show the number of shares present or represented at Shareholders' meetings, and
the names of those present and the proceedings of all meetings.
7.02 SHARE REGISTER
The Corporation shall keep at the principal office, or at the office
of the transfer agent, a share register showing the names of the Shareholders,
their addresses, the number and class of shares issued to each, the number and
date of issuance of each certificate issued for such shares, and the number and
date of cancellation of every certificate surrendered for cancellation. The
above information may be kept on an information storage device such as a
computer, provided that the device is capable of reproducing the information in
clearly legible form. If the Corporation is taxed under Internal Revenue Code
Section 1244 or
- --------------------------------------------------------------------------------
BYLAWS, PAGE 18
<PAGE> 19
Subchapter S, the officer issuing shares shall maintain the appropriate
requirements regarding issuance.
7.03 CORPORATE SEAL
The Board of Directors may at any time adopt, prescribe the use of, or
discontinue the use of, such corporate seal as it deems desirable, and the
appropriate officers shall cause such seal to be affixed to such certificates
and documents as the Board of Directors may direct.
7.04 BOOKS OF ACCOUNT
The Corporation shall maintain correct and adequate accounts of its
properties and business transactions, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus, and
shares. The corporate bookkeeping procedures shall conform to accepted
accounting practices for the Corporation's business or businesses. Subject to
the foregoing, the chart of financial accounts shall be taken from, and
designed to facilitate preparation of, current corporate tax returns. Any
surplus, including earned surplus, paid-in surplus, and surplus arising from a
reduction of stated capital, shall be classed by source and shown in a separate
account. If the Corporation is taxed under Internal Revenue Code Section 1244
or Subchapter S, the officers and agents maintaining the books of account shall
maintain the appropriate requirements.
7.05 INSPECTION OF CORPORATE RECORDS
A Director or Shareholder demanding to examine the Corporation's books
or records may be required to first sign an affidavit that the demanding party
will not directly or indirectly participate in reselling the information and
will keep it confidential other than in use for proper purposes reasonably
related to the Director's or Shareholder's role. A Director who insists on
examining the records while refusing to sign this affidavit thereby resigns as
a Director.
7.06 FISCAL YEAR
The fiscal year of the Corporation shall be as determined by the Board
of Directors and approved by the Internal Revenue Service. The Treasurer shall
forthwith arrange a consultation with the Corporation's tax advisers to
determine whether the Corporation is to have a fiscal year other than the
calendar year. If so, the Treasurer shall file an election with the Internal
Revenue Service as early as possible, and all correspondence with the IRS,
including the application for the Corporation's Employer Identification Number,
shall reflect such non-calendar year election.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 19
<PAGE> 20
7.07 WAIVER OF NOTICE
Any notice required by law or by these Bylaws may be waived by
execution of a written waiver of notice executed by the person entitled to the
notice. The waiver may be signed before or after the meeting.
7.08 ISSUANCE OF CLOSE CORPORATION SHARES
So long as the Corporation is closely held, the officer or transfer
agent charged with issuing shares shall maintain a running account showing the
total number of Shareholders, and shall issue shares only to so many
Shareholders as allowed by applicable close corporation law. So long as a close
corporation shareholders' agreement may be in effect, such officer or agent
shall ensure that a copy of the agreement is provided to the transferee in each
share transaction. Said officer or agent shall further comply with all
additional requirements for issuance of close corporation shares according to
the advice of legal counsel.
7.09 MANAGEMENT UNDER SHAREHOLDERS' AGREEMENT
At such times as the Corporation may be operating under a Certificate
of Incorporation for a close corporation issued by the Secretary of State, and
consistent with such Certificate and Charter, the Shareholders of the
Corporation may enter into a shareholders' agreement. The agreement may provide
that so long as the Corporation retains its status as a close corporation,
certain of the Corporation's activities shall be regulated as provided in said
agreement.
A copy of such agreement, as it may be amended from time to time,
shall be attached hereto and its terms, while in effect, shall control over any
inconsistent provisions hereof. Prominent notation shall be made on the back of
all share certificates issued advising that management of the Corporation may
be governed by such agreement. Upon the sale or transfer of any shares of the
Corporation, the transferor shall provide the transferee with a copy of such
agreement.
- --------------------------------------------------------------------------------
BYLAWS, PAGE 20
<PAGE> 21
ARTICLE EIGHT-ADOPTION OF INITIAL BYLAWS
The foregoing bylaws were adopted by the Board of Directors on
December 3, 1996.
/s/ STEVE CLARK
-------------------------------------
Director
/s/ CHET GUTOWSKY
-------------------------------------
Director
/s/ CELSO B. SUAREZ, JR.
-------------------------------------
Director
/s/ JESSE BLANCO
-------------------------------------
Director
Attested to, and certified by:
Corporate
Seal
/s/ JESSE BLANCO
- -------------------------------------
Secretary
- --------------------------------------------------------------------------------
BYLAWS, PAGE 21
<PAGE> 1
EXHIBIT 5
BRUCE F. FEIN, P.C.
3000 RICHMOND AVENUE, SUITE 190
HOUSTON, TEXAS 77098
(713) 526-9909
FAX (713) 526-9939
August 6, 1997
Board of Directors ZEROS USA, Inc.
507 North Belt East, Suite 550
Houston, Texas 77060
Gentlemen:
In our capacity as special securities counsel for ZEROS USA, inc. (the
"Company"), we have participated in the corporate proceedings relative to the
filing by the Company of a FORM 10-SB for 12,490,000 common shares with $0.001
par value (the "common shares") as set out and described in the Company's
Registration Statement on Form 10-SB (File No. 34-______) under the Securities
Act of 1934 (the "Registration Statement"). We have also participated in the
preparation and filing of the Registration Statement.
Based upon the foregoing and upon our examination of originals (or
copies certified to our satisfaction) of such corporate records of the Company
and other documents as we have deemed necessary as a basis for the opinions
hereinafter expressed, and assuming the accuracy and completeness of all
information supplied us by the Company, having regard for the legal
considerations which we deem relevant, we are of the opinion that:
(1) The Company is a corporation duly organized and validly existing
under the laws of the State of Texas;
(2) All requisite corporate action and all action required by the
laws of the State of Texas with respect to the authorization and
issuance of common stock ;
(3) The maximum of 12,490,000 shares of common stock, issued and
distributed prior to the filing of the Form 10-SB, are validly
issued, fully paid and nonassessable;
We hereby consent to the use of this opinion as an exhibit to the Form
10-SB and to the references to our firm in the Form 10-SB.
Very truly yours,
/s/ BRUCE F. FEIN
Bruce F. Fein
<PAGE> 1
EXHIBIT 10(A)(1)
MASTER LICENSE AGREEMENT
ZERO-EMISSION ENERGY RECYCLING OXIDATION SYSTEM
"ZEROS"
This Master License Agreement is made at Houston, Texas as of November
15, 1996, by and between M, Ltd., hereinafter referred to in this Agreement as
"M, Ltd.," or "Grantor," and ZEROS USA, Inc., hereinafter referred to in this
Agreement as "ZEROS" or "Licensee."
In consideration of the mutual covenants made in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, Grantor and Licensee agree as follows:
RECITALS
1. Legal Status of M, Ltd.
M, Ltd., is an international business corporation duly organized,
validly existing, and in good standing under the laws of the Bahamas, with
corporate power to own property and carry on its business as it is now being
conducted. M, Ltd., has its principal office and place of business at 43
Elizabeth, Nassau, Bahamas.
2. Legal Status of Licensee
Licensee is a business corporation incorporated pursuant to the laws
of the State of Texas, with power to own property and carry on business as
contemplated by this Agreement. Licensee has its principal office and place of
business at 507 North Belt East, Suite 550, Houston, Texas 77060.
3. Business of M, Ltd.
3.1. M, Ltd., owns various technologies and has licensed other
entities, foreign and domestic, to use and sell said
technologies, providing for a royalty, free, open and
unlimited access to said technologies.
3.2. M, Ltd., contracts with parties to develop new technologies
and to improve technologies currently owned by M, Ltd., for
the benefit of both itself and its licensees.
3.3. Previous to this transaction, M, Ltd., obtained, inter alia,
all of the rights and interests to technology to recycle
energy using hazardous and non-hazardous wastes, including
toxic wastes.
3.4. M, Ltd., is interested in the business of permitting other
parties to develop new technologies for the benefit of M,
Ltd., and developing business opportunities related to
recycling energy using hazardous and non-hazardous wastes,
including toxic wastes by licensing the operation of energy
recycling oxidation systems to others.
Page 1 of 17
<PAGE> 2
3.5. All services are offered in connection with and through the
use of various patents, trademarks and trade names and certain
related words, letters, and symbols, hereinafter collectively
referred to as "proprietary marks;" and in connection with
certain designs of signs, buildings, and logos, hereafter
collectively referred to as "indicia."
4. Desire of Licensee
4.1. Licensee desires the exclusive, international master license
for the energy recycling oxidation system, including the use
of any extant patents, proprietary marks and indicia.
4.2. Licensee desires the master license to sell to others
operating licenses and energy recycling oxidation systems,
including the use of any extant patents, proprietary marks and
indicia.
4.3. Licensee desires to derive the benefits of M, Ltd.'s
information, experience, advice, guidance, know-how, and
customer goodwill.
GRANT, TERM, AND INITIAL FEE
5. Grant of License
Grantor grants to Licensee, and Licensee hereby accepts from Grantor
the right and license for the term indicated, on the terms and conditions
hereinafter set forth:
5.1. To develop business opportunities related to recycling energy
using hazardous and non-hazardous wastes, including toxic
wastes.
5.2. To sell to industrial customers, developed either by Grantor
or Licensee, operating licenses and to sell or lease
zero-emission energy recycling oxidation systems under terms
and conditions approved by Grantor and Licensee.
5.3. To sell to biomedical customers, developed either by Grantor
or Licensee, operating licenses and to sell or lease
zero-emission energy recycling oxidation systems under the
terms and conditions approved by Grantor and Licensee.
5.4. To use, in connection with specific contracts to sell said
zero-emission energy recycling oxidation licenses and to sell
or lease systems, Grantor's proprietary marks, and indicia.
5.5. To use for marketing purposes, any and all information
regarding Grantor's patents, subject to Grantor's approval.
6. Geographical Area
The geographical area assigned by Grantor to Licensee is unlimited and
shall include any and all territories, foreign and domestic.
7. Exclusivity of License
The master license granted herein to the energy recycling system shall
be exclusive within the geographical area designated in Paragraph 6, above.
Grantor shall have the right to be paid a
Page 2 of 17
<PAGE> 3
commission by Licensee more fully described in Paragraph 10, below, for any and
all other operating licenses or energy recycling system sold by Licensee
pursuant to this License Agreement, to any other entity so long as Licensee
continues to perform according to the terms of this contract, subject to the
provisions of Paragraph 9, hereinbelow.
8. Term
The term of this Agreement and of the right and license herein granted
shall commence on November 15, 1996, and shall continue perpetually unless
terminated in accordance with the terms hereof.
9. License Fee
Licensee will concurrently with the execution of this Agreement pay to
Grantor, or has agreed to pay to Grantor, upon terms and conditions agreed to
by Grantor and Licensee, the sum of $4,000,000.00 as the fee for the right and
license herein granted, and the sum of $12,000,000.00 as a royalty payment, for
a total sum of $16,000,000.00. The master license fee is due and payable on or
before eight years from the date of this agreement. The $12,000,000.00 royalty
payment is to paid at the rate of $3,000,000.00 per system for each of the
first four equipment systems sold by Licensee to other licensees and as the
construction deposit for each equipment system is collected from each of the
other licensees. Said fees are in addition to any and all amounts payable to
Grantor for implementation of any new technology developed by Grantor for
additional measuring instruments, computers, special tools, spare parts, and
related transporting equipment, or for any other reason.
10. Commissions
Grantor has a right to be paid the following commissions:
10.1. Five percent of any license fees or permits resulting from
cash collected from the sales to third parties originated by
Licensee;
10.2. Five percent of the gross income resulting from cash collected
from the sale of energy recycling systems originated by
Licensee; and
10.3. Five percent of the gross income resulting from cash collected
from tipping fees.
10.4. Five percent of the value of any and all by-products produced
from the operation of any energy recycling systems originally
sold through the Licensee;
for the term indicated in Paragraph 8, above, and for so long as Licensee
continues to perform according to the terms of this contract. Said commissions
shall be paid by Licensee to Grantor within thirty days after Licensee collects
any funds from any other party within Licensee's geographical area. Said
commissions shall apply only to those licenses and systems sold through
Licensee after the date of this License Agreement indicated above.
Page 3 of 17
<PAGE> 4
PATENTS, PROPRIETARY MARKS,
INDICIA, AND CONFIDENTIAL INFORMATION
11. Validity and Use of Patent
Licensee hereby acknowledges the validity of Grantor's patents in the
United States, Canada, Mexico, and any other country bound by applicable,
international agreements, and acknowledges that the same are the sole property
of Grantor. Licensee shall use the patents only for so long as the right and
license granted herein remain in force, and only in connection with the purpose
of developing business opportunities to operate and/or sell energy recycling
systems and in the manner and for the purposes specified in this Agreement.
Licensee shall not, either during or after the term of this Agreement, do
anything, or aid or assist any other party to do anything, which would infringe
on, harm, impair, or contest the rights claimed by Grantor, in and to any of
the patents.
12. Validity and Use of Propriety Marks
Licensee hereby acknowledges the validity of the proprietary marks and
acknowledges that the same are the sole property of Grantor. The Licensee shall
use the proprietary marks only for so long as the right and license granted
herein remain in force, and only in connection with the purpose of developing
business opportunities to operate and/or sell energy recycling systems and in
the manner and for the purposes specified in this Agreement. Licensee shall
not, either during or after the term of this Agreement, do anything, or aid or
assist any other party to do anything, which would infringe on, harm, impair,
or contest the rights claimed by Grantor in and to any of the proprietary
rights.
13. Validity and Use of Indicia
Licensee acknowledges the validity of the indicia and that the same
are the exclusive property of Grantor. Licensee shall not, either during or
after the term of this Agreement, utilize any of the indicia except in
accordance with the terms of this Agreement.
14. Confidential Nature of Grantor's System
14.1. Licensee hereby acknowledges that Grantor is the sole owner of
all patents and proprietary rights in and to the
zero-emissions, energy recycling oxidation system, to the
obtaining and performance of contracts for the utilization of
said system, and to all material and information now or
hereafter revealed to Licensee under this Agreement relating
to the system.
14.2. Licensee acknowledges that the system in its entirety
constitutes trade secrets of Grantor, which are revealed to
Licensee solely to enable Licensee to develop business
opportunities to operate and/or sell energy recycling systems.
Such trade secrets include, but are not limited to, product
catalogues, price lists, training manuals, policy manuals,
sales promotion aids, business forms, accounting procedures,
marketing reports, informational bulletins, and inventory
systems.
Page 4 of 17
<PAGE> 5
14.3. Licensee agrees that both during and after the term of this
Agreement:
14.3.1. Licensee will not reveal any of such trade secrets to
any other person, FIRM, or entity, and will take all
reasonable steps to prevent any other person, firm or
entity from discovering the trade secrets.
14.3.2. Licensee will not use the trade secrets in connection
with any business or venture whatsoever, except for
the purpose of developing business opportunities to
operate and/or sell energy recycling systems pursuant
to the terms of this and other related contracts.
15. Goodwill
Grantor acknowledges that all goodwill which may arise from Licensee's
use of the patents, proprietary marks, the indicia, the trade secrets, or the
license or Grantor's system of operation is and shall at all times hereinafter
be the sole and exclusive property of Licensee and shall inure to the sole
benefit of Licensee.
OBLIGATIONS OF GRANTOR
16. Initial Obligation
Grantor agrees to sell to Licensee a license and related rights for
the operation and/or sale of energy recycling systems known as ZEROS.
17. Training Program
Grantor acknowledges the competence of Licensee to independently
develop instruction programs for all aspects of owning and operating
the systems for such of its management and supervisory personnel as
Licensee may reasonably designate and to develop all future training
programs as may be necessary.
18. Improvements in System
Grantor conveys to Licensee a complete system and relies on Licensee
to independently develop all improvements and additions to the system to the
same extent and in the same manner as they would have been implemented by
Grantor if it were operating the system.
19. Management and Operation Assistance
Grantor acknowledges the competence of Licensee regarding management
and operation of the system and conveys to Licensee all current
information regarding the management and operation of the system, and
further makes available to Licensee the benefits of Grantor's current
information, experience, advice, and knowledge.
Page 5 of 17
<PAGE> 6
20. Advertising
Licensee may from time to time purchase and place advertising
promoting the system and the services provided and furnished by it. All
decisions regarding whether to utilize national, regional, or local
advertising, or some combination thereof, and regarding selection of the
particular media, as well as advertising content, shall be within the sole
discretion of Licensee.
21. Sale of Units by Licensee
21.1. Licensee shall have the right to sell individual units to
third parties during the term of this Agreement and subject to
the terms hereinafter set forth.
21.2. The prices, delivery terms, terms of payment, and other terms
relating to the sale of such units by Licensee to third
parties shall be determined at Grantor's sole discretion.
22. Payment of Royalties
Licensee agrees to pay as a royalty for the benefit of Grantor five
percent of the gross income generated by the use of its own units during the
stated term.
23. Definition of Gross Income
For the purposes of Paragraph 22, above, "gross income" is defined as
all income generated from tipping fees at the input station and from the sale
of all products produced by each unit before deducting operating expenses and
taxes.
24. Reports and Records
24.1. Licensee shall submit to Licensee each month a true and
correct accounting providing a statement of total gross income
generated from each unit on forms provided by Grantor,
containing all information called for by such forms is and
certified to by Licensee.
24.2. Within sixty days after the close of Licensee's fiscal year,
Licensee shall furnish a statement, on forms provided by
Grantor, showing the total gross income for said preceding
fiscal year, as finally adjusted and reconciled after the
closing and review of Licensee's books and records for such
fiscal year. If such statement discloses that less gross
income was generated than what the system recorded and was
paid for such fiscal year, Licensee shall pay to Grantor at
the time of submitting such statement, the amount of any such
underpayment. Any overpayment shall be credited by Grantor to
Licensee's account.
24.3. Licensee shall maintain its books and records in such manner
as to clearly and accurately reflect the total gross income
generated by the various units. All books and records shall be
preserved for a period of not less than five years after the
close of the Licensee's fiscal year to which they relate.
Page 6 of 17
<PAGE> 7
25. Grantor's Right to Inspect Instruments, Books and Records
All instruments, books and records maintained by Licensee relating to
operation of the various units shall be open at all reasonable times to
inspection and verification by Grantor, or any of its representatives. Grantor
shall be entitled at any time to have the Licensee's instruments, books and
records examined or audited at Grantor's expense, and the Licensee shall
cooperate fully with the party or parties making such examination or audit on
behalf of Grantor.
LICENSEE'S AGREEMENTS WITH
RESPECT TO OPERATION OF UNITS
26. General
The units are operated most efficiently and economically if they are
run twenty-four hours a day. In that connection, as much as is possible,
allowing reasonable "down-time" for turnarounds, other regular maintenance and
repairs, Licensee must require all units Licensee sells to be kept operating
around the clock throughout the year during the term of this Agreement, and
will at all times assure that all units are operated diligently so as to
maximize the revenues and profits therefrom.
27. Marketing
Notwithstanding that it is understood that some contracts for
utilization of the units will be provided by Grantor to Licensee, Licensee
shall at all times actively promote the use and sale of the units and will use
his best efforts to cultivate, develop, and expand the market therefore
whenever possible.
28. Maintenance and Inventory
Licensee agrees that Licensee at a times during the term of this
Agreement maintain an inventory of units, subject to reasonable business
standards and judgment, adequate to fulfill the public demand and to promptly
satisfy prospective customers seeking to purchase its units to recycle energy
and dispose of toxic wastes.
29. Managerial Responsibility
Licensee agrees that at all times during the term of this Agreement,
Licensee will assure that each operator of a unit:
29.1. Shall devote its/his full time and effort to the active
management and operation of their respective unit(s).
29.2. Shall reserve and exercise ultimate authority and
responsibility with respect to the management and operation of
their respective unit(s).
Page 7 of 17
<PAGE> 8
30. Design and Appearance
Licensee acknowledges that the design and appearance of both the
exterior and interior of any building housing a unit is part of the system's
indicia, subject to modification from time to time by Grantor, and that it is
essential to the integrity of the system that as great a degree of uniformity
as possible be maintained among the various units. Therefor, Licensee agrees
that:
30.1. Licensee will not make any change, or allow any third party to
make any change, addition, or alteration of any kind to the
structural elements of the building housing a unit without the
prior written consent of Grantor.
30.2. Licensee will at Licensee's sole expense, or require any third
party to at his/its sole expense, maintain the interior and
exterior painting of the buildings at the sites where the
unit(s) may be located.
30.3. Licensee will follow, or require any third party to follow,
Grantor's reasonable instructions with respect to floor layout
and character of equipment layout and interior furnishing.
31. Site Maintenance
Licensee will maintain, or require any third party to maintain, its
respective premises in a clean, wholesome, attractive, and safe condition, and
will cause them to be kept in good maintenance and repair.
32. Standards of Operation
Licensee will at all times give, or require any third party to at all
times give, prompt, courteous, and efficient service to the public, will
perform, or cause to be performed, work competently and in a workmanlike manner,
and in all business dealings with members of the public, and Licensee will be
governed, or will require any third parties to be governed, by the highest
standards of honesty, integrity, fair dealing, and ethical conduct. Licensee
will do nothing, nor allow any party to do nothing, which would tend to
discredit, dishonor, reflect adversely upon, or in any manner injure the
reputation of Grantor or Licensee.
33. Advertising Materials
Licensee will not use, nor allow any third party to use, display,
publish, broadcast, or in any manner disseminate any advertising or promotional
material unless the same has first been approved by Grantor.
34. Insurance
34.1. Licensee and/or any of his customers, shall be responsible for
all loss or damage arising out of or relating to the operation
of the units or arising out of the acts or omissions
Page 8 of 17
<PAGE> 9
or failure to act of the Licensee, or any of his customers,
agents, servants, or contractors in connection with the
rendering of service by Licensee and/or any of its customers,
and for all claims for damage to property or for injury or
death of any person or persons directly or indirectly
resulting therefrom.
34.2. Licensee agrees to indemnify, or cause any third party to
indemnify, and hold Grantor harmless from and against any and
all such claims, loss, and damage, described in subparagraph
34.1, above, including costs and reasonable attorney's fees.
34.3. Licensee shall obtain, or cause any third party to obtain, and
at all times during the term of this Agreement maintain in
force and pay the premiums for public liability insurance with
complete operations coverage. Limits of liability for bodily
injury shall be not less than $1,000,000.00 for each injury,
$5,000,000.00 for all injuries in each accident, and of not
less than $1,000,000.00 for property damage in each
occurrence. Such limits of liability shall be increased and
modified, or additional types of coverage shall be obtained by
Licensee or any of his customers at their sole cost and
expense at the direction of Grantor when reasonably required
by changed circumstances.
34.4. The policies of insurance referred to in subparagraph 34.3,
above, shall expressly insure both the Licensee, any of its
customers, and Grantor, and shall require the insurer to
defend both the Licensee and his customers and Grantor, in any
action based on personal injury or property damage suffered as
a result of or arising out of the occupancy or operation of a
unit. The Licensee shall furnish to Grantor a certified copy
or certificate with respect to each such policy, evidencing
coverage as set forth above. Such policies shall not be
canceled, amended, or modified except on ten day's prior
written notice to Grantor.
35. Financial Information
In addition to any other reports required of Licensee by this
Agreement, the Licensee shall submit to Grantor within ninety days after the
end of each fiscal year of Licensee copies of complete income tax returns or
complete audited financial statements in a form prescribed by Grantor,
including balance sheet, profit and loss statement, and statement of source and
disposition of funds.
36. Compliance With Laws
Licensee shall comply with all federal, state, county, municipal or
other statutes, laws, ordinances, regulations, rules, or orders of any
governmental or quasi-governmental entity, body, agency, commission, board, or
official applicable to the operation of any unit.
37. Compliance With Policies, Regulations, and Procedures
Licensee shall be required to develop and promulgate for itself and
all other Licensees, lawful and reasonable policies, regulations, and
procedures, in connection with the operation of any unit, including but not
limited to, standards, techniques, and procedures in the installation of
equipment or the rendering of services; selection, supervision, and training of
personnel; sales, advertising techniques, programs, and procedures, maintenance
programs and appearance of any and all sites and
Page 9 of 17
<PAGE> 10
premises; and policies and procedures relating to payment, credit, accounting,
and financial reporting policies and procedures.
38. Right to Inspect Operating Site
Grantor, through its authorized representatives, shall have the right
at all reasonable times, to visit any permanent or temporary site where a unit
is being operating for the purpose of inspecting the equipment on hand,
inspecting the nature and quality of services rendered, examining and auditing
Licensee's instruments, books and records, and observing the manner and method
of operating the site.
TRANSFERABILITY
39. General
Except as set forth in Paragraphs 40 through 4 1, below, and subject
to all the terms and provisions thereof below, Licensee shall not make or
permit any assignment of this Agreement or of any rights or interests herein.
40. Transfer to Controlled Corporation
Licensee may at any time assign and transfer this Agreement to a
corporation organized and operated for the sole purpose of conducting the
business for which the Licensee is authorized and licensed hereunder, subject
to the following conditions:
40.1. Such assignment and transfer shall be evidenced by a written
instrument, satisfactory in form and substance to Grantor, in
which said corporation expressly assumes all obligations of
Licensee hereunder.
40.2. Licensee shall execute and deliver to Grantor a guaranty of
the payment of such corporation's debts to Grantor, if any.
40.3. Licensee shall remain bound and liable to Grantor, with
respect to all nonmonetary obligations of Licensee under this
agreement whether then accrued or thereafter arising.
41. Consent by Grantor to Transfer
41.1. Licensee shall not make any sale, assignment, or other
transfer of this Agreement, or any rights or interest herein
without first obtaining the consent of Grantor.
41.2. Licensee shall notify Grantor in writing of the proposed sale,
assignment, or transfer, setting forth in detail the nature of
the item or interest to be sold, assigned, transferred, the
name and address of the proposed purchaser, assignee, or
transferee, and the consideration, if any, therefor.
41.3. Subject to prior compliance with the provisions of Paragraph
40, above, Grantor shall consent to the proposed transaction
provided the following conditions are fulfilled:
Page 10 of 17
<PAGE> 11
41.3.1. It is demonstrated to the reasonable satisfaction of Grantor
that the proposed purchaser, assignee, or transferee possesses
the business experience and capability, credit standing, and
financial resources necessary to successfully operate the
business in accordance with this Agreement.
41.3.2. The proposed purchaser, assignee, transferee, or person to
assume all the duties and responsibilities outlined in this
Agreement, is approved by Grantor, and successfully completes
the training course offered by Grantor.
41.3.3. Any sale, assignment, or transfer of this Agreement shall be
evidenced by a written instrument, in form and substance
reasonably satisfactory to Grantor, in which the purchaser,
assignee, or transferee expressly assumes all obligations of
Licensee hereunder, whether accrued at the time of such
assignment, sale or transfer, or arising thereafter, and
agrees to be bound by all the terms and provisions of this
Agreement to the same extent and in the same manner as the
Licensee.
42. Sale of Business-Right of First Refusal
42.1. In the event Licensee proposes to sell to any party other than
a controlled corporation the business operated pursuant to
this Agreement, Licensee must first submit to Grantor a copy
of any written offer made or received, or if none, a statement
in writing of all the terms of the proposed sale and identity
of the proposed purchaser.
42.2. Grantor shall have the irrevocable first right and option to
purchase the business on the same terms as stated in such
written offer or statement. Grantor may exercise such right
and option by notifying the Licensee in writing of its
election to exercise within fourteen days after Grantor
receives the written offer or statement.
42.3. If Grantor does not so notify Licensee within the fourteen-day
period, the sale to the third party may be consummated, but
only on the same terms and conditions as set forth in the
written offer or statement to Grantor, and only on the
Licensee's obtaining Grantor's consent.
43. Arbitration
In the event of any dispute from Grantor's failure or refusal to grant
consent to any sale, assignment, or transfer pursuant to provisions above, such
dispute shall be submitted to arbitration in accordance with the terms and
conditions below.
DEFAULT AND TERMINATION
44. Termination by Licensee
Licensee may terminate this Agreement at any time and without cause by
giving to Grantor written notice of such termination not less than thirty days
prior to the date of termination.
Page 11 of 17
<PAGE> 12
45. Termination by Grantor
On the happening of any of the following events, Grantor may notify
the Licensee in writing of Licensee's default under this Agreement, stating
Licensee's obligation to cure the default, and itemizing the specific steps to
be taken by Licensee. On failure by Licensee to cure such default within thirty
days after receipt of such notice, Grantor may terminate this Agreement by
written notice of termination to be effective fifteen days after receipt
thereof.
45.1. Failure by Licensee to make any payments of money payable and
due to Grantor pursuant to this Agreement.
45.2. Failure by Licensee to submit to Grantor when due any reports
required pursuant to this Agreement.
45.3. Failure by Licensee to maintain and operate its operating
site(s) in accordance with good business practices.
45.4. Failure by Licensee to perform any obligations imposed on
Licensee by any provision of this Agreement.
45.5. Willful and material falsification by Licensee of any report,
statement, or other written data furnished to Licensee.
45.6. Willful and repeated deception of customers of Licensee
relative to the nature or quality of services rendered.
46. Arbitration
46.1. In the event Grantor gives Licensee any notice of default or
termination and Licensee disputes the right of Grantor to
terminate the Agreement or in the event of any dispute,
Licensee may make a written demand on Grantor, at any time
prior to or within ten days after Licensee's receipt of notice
of termination or the failure or refusal of Grantor to grant
consent as described in Paragraph 41, above. Such dispute
shall be submitted to arbitration in accordance with the rules
and procedures for commercial arbitration of the American
Arbitration Association or any successor organization, and in
accordance with and subject to all the provisions of the
Uniform Arbitration Act as in force in the State of Texas. The
place of arbitration shall be Houston, Texas.
46.2. The procedure for selection of the arbitrator shall be as may
be prescribed by said Association or its successor, provided,
however, that if said Association or a successor is not in
existence or does not provide such a procedures, then Grantor
and Licensee shall each select one arbitrator and said
arbitrators shall select a third.
46.3. The arbitrator or arbitrators shall have full power to
determine all issues of fact and of law necessary to determine
whether Grantor has the right to terminate the Agreement
pursuant to the notice or notices given, or what, if any,
remedy Licensee may be entitled to due to the failure of
refusal of Grantor as described in Paragraph 41, above, and
the determination of the arbitrators thereon shall be final
and conclusive, and binding on the parties hereto, subject
only to the provisions of the Uniform Arbitration Act. Any
such determination of an issue of fact or law made by the
arbitrators, however, shall be binding
Page 12 of 17
<PAGE> 13
on the parties hereto only with respect to and in connection
with the particular arbitration proceeding and the specific
final decision or award of the arbitrators made therein, and
shall not be binding on the parties hereto for any other
purpose.
46.4. The cost of arbitration shall be taxed and borne as provided
in the Uniform Arbitration Act.
46.5. The serving of proper and timely demand for arbitration shall
suspend the running of any period for curing a default or
shall suspend the effectiveness of any termination of this
Agreement, as the case may be, until the decision or award of
the arbitrators is made.
47. Automatic Termination
The Agreement shall terminate immediately on the occurrence of any of
the following events, without the necessity of notice of any kind by either
party.
47.1. The termination of Licensee's right to possession of the
premises designated in Paragraph 2, above, subject, however,
to the provisions of Paragraph 48, below.
47.2. The adjudication of Licensee as a Debtor as that term is
defined in the federal Bankruptcy Code, 11 U.S.C., or the
filing of any petition by or against Licensee, under the
federal Bankruptcy Code or the laws of any state or territory
relating to relief of debtors, for reorganization,
arrangement, or other similar relief provided therein, unless
such petition filed against Licensee is dismissed within sixty
days.
47.3. The making by Licensee of a general assignment for the benefit
of creditors.
47.4. The appointment of any receiver, trustee, sequestrator, or
similar officer to take charge of Licensee's business, or any
attachment, execution, levy, seizure, or appropriation by any
legal process of Licensee's interest in this Agreement, unless
the appointment of such officer is vacated or discharged or
the effect of such legal process is otherwise released within
sixty days.
48. Relocation of Licensee's Offices
If Licensee's right to possession of the premises designated in
Paragraph 2, above, is terminated, prior to expiration of the terms of this
Agreement, and is without fault or affirmative action on the part of Licensee,
then, within ninety days after Licensee notifies Grantor that such termination
has occurred or will occur, Grantor shall propose to Licensee a new location
from which Licensee may maintain its offices for the remainder of the term of
this Agreement.
49. Obligations On and After Termination
On termination of this Agreement, whether by lapse of time, by
termination, by mutual consent of the parties, by operation of law, or in any
other manner, Licensee shall cease to be an official holder of the license to
any products or services of Grantor, and Licensee and all persons directly or
indirectly owning any interest in Licensee or in any way associated with or
related to Licensee shall:
Page 13 of 17
<PAGE> 14
49.1. Promptly cause Licensee to pay sums owing from Licensee to
Grantor.
49.2. Immediately and permanently discontinue the use of any and all
of the patents, proprietary marks, the trade secrets, the
indicia, and the license of the units.
49.3. Immediately and permanently remove, destroy, or obliterate, at
Licensee's expense, all signs containing any of Grantor's
proprietary marks or indicia.
49.4. Promptly destroy or surrender to Grantor all stationery,
letterheads, forms, printed matter, promotional displays, and
advertising containing any of the patents, proprietary marks
or indicia of Grantor.
49.5. Immediately and permanently discontinue all advertising placed
by Licensee as an authorized license holder.
49.6. Sell to Grantor all or such part of any Grantor's unit(s) on
hand as of the date of termination as Grantor may request in
writing.
49.7. Thereafter refrain from doing anything tending to indicate
that Licensee is or was a license holder, or is or was in any
way associated with Grantor.
50. General Provisions Regarding Termination
50.1. Termination of this Agreement under any circumstances shall
not abrogate, impair, release, or extinguish any debt,
obligation, or liability of Licensee to Grantor which may have
accrued hereunder.
50.2. All covenants and agreements of Licensee which by their terms
or by reasonable implication are to be performed, in whole or
in part, after the termination of this Agreement, shall
survive such termination, including but not limited to,
Licensee's obligation to maintain the secrecy and
confidentiality of the patents and trade secrets.
MISCELLANEOUS PROVISIONS
51. Licensee Not Agent
The Agreement does not in any way create the relationship of principal
and agent between Grantor and Licensee, and in no circumstances shall the
Licensee be considered an agent of Grantor nor shall Grantor consider Licensee
an agent.
52. Non-Waiver
No failure by Grantor to take action on account of any default by
Licensee, whether in a single instance or repeatedly, shall constitute a waiver
of any such default or of the performance required of Licensee.
53. Invalidity
If any provision of this Agreement shall be invalid or unenforceable,
such provision shall be deemed modified in scope or application to the extent
necessary to render the same valid or shall be
Page 14 of 17
<PAGE> 15
excised from this Agreement as the situation may require, and this Agreement
shall be construed and enforced as if such provision had been included herein
as so modified in scope or application or as if such provision had not been
included herein.
54. Notices
Any notice or demand given or made pursuant to the terms of the
Agreement shall be deemed to be properly given when deposited in the United
States mail, registered or certified, postage prepaid, addressed in the
following manner:
54.1. If given to Grantor, it shall be addressed to Grantor's
address stated above, or at such changed address as Grantor
may from time to time designate.
54.2. If given to Licensee, it shall be addressed to Licensee's
address stated above, or at such changed address as Licensee
may from time to time designate.
55. Entire Agreement
This written Agreement contains the entire agreement between the
parties. There are merged herein all prior and collateral representations,
promises, and conditions in connection with the subject matter hereof any
representation, promise, or condition not incorporated herein shall not be
binding on either party. Any matter not specifically granted by this Agreement,
is not available to Licensee without specific written consent and authorization
from Grantor.
56. Cost of Enforcement or Defense
In the event Grantor is required to employ legal counsel or to incur
other expense to enforce any obligation of Licensee under this Agreement, or to
defend against any claim, demand, action, or proceeding by reason of Licensee's
failure to perform any obligation imposed on Licensee by this Agreement, and
provided that legal action is filed by or against Grantor and such action or
its settlement establishes Licensee's default under this Agreement, Grantor
shall be entitled to recover from Licensee the amount of all reasonable
attorneys' fees of such counsel and all other expenses incurred in enforcing
such obligation or in defending against such claim, demand, action, or
proceeding.
57. Controlling Law
This Agreement, including all matters relating to its validity,
construction, performance, and enforcement, shall be governed by laws of the
State of Texas.
Page 15 of 17
<PAGE> 16
Executed at Houston, Texas, on the day and year first written
M, Ltd.
/s/ PETER RIGA
------------------------------------
By: Peter Riga, Attorney for M, Ltd.
ZEROS USA, INC.
/s/ JESSE BLANCO, JR.
------------------------------------
By: Jesse Blanco, Jr., Secretary
Page 16 of 17
<PAGE> 17
CURRENT ADDRESSES
M, Ltd.
43 Elizabeth
Nassau, Bahamas
ZEROS USA, Inc.
507 North Belt East, Suite 550
Houston, Texas 77006
Page 17 of 17
<PAGE> 1
EXHIBIT 10(A)(2)
JESSE BLANCO
GENERAL COUNSEL
ZEROS USA, INC.
P.O. BOX 680305
SAN ANTONIO, TEXAS 78268
TELEPHONE (210) 509-7194
May 2, 1997
Mr. Steve Clark
OCS, Inc.
P.O. Box Z
Highlands, Texas 77562
RE: Letter of Intent to Transfer Assets
Dear Mr. Clark:
This letter will memorialize the terms of the contemplated agreement
for the transfer of assets of OCS, Inc. ("OCS"), to ZEROS USA, Inc. ("ZEROS").
Pursuant to the agreement that will be entered into between the
parties, ZEROS shall transfer to OCS the following consideration:
/ / $100,000.00 in cash
/ / 3,000,000 shares of ZEROS USA, Inc., Golden Preferred Stock
o Annual Common Stock Dividend at 6% per annum
o Stock convertible to Common Stock at the rate of one share of
Common for each one share of Golden Preferred Stock after two years
o ZEROS USA, Inc., to have a redemption agreement of $1.65 per share
exercisable in no less than one year and at the option of ZEROS
ZEROS further anticipates all other terms and conditions regarding
warranties by seller, compliance regarding bulk sales, and covenants not to
compete to follow provisions ordinarily allowed under Texas law.
Please do not hesitate to call me if you should have any questions.
Very yours,
/s/ JESSE BLANCO
Jesse Blanco
JB
<PAGE> 1
EXHIBIT 10(A)(3)
REIMBURSEMENT AGREEMENT
This Reimbursement Agreement pertains to the terms and conditions for
the reimbursement of expenses related to the use of an airplane and is made
effective as of April 1, 1997 between M, Ltd., P.O. Box B, Highlands, Texas
77562, and ZEROS USA, Inc. (herein sometimes referred to as "ZEROS" or
"Operator"), 507 North Belt East, Suite 550, Houston, Texas 77060 and states
the agreement of the parties as follows:
PURPOSE. The purpose of this agreement is for M, Ltd., to make
available to ZEROS its airplane for transporting its officers and directors in
the ordinary course of business.
SUBJECT EQUIPMENT. The equipment that is the subject of this Agreement
is described on the attached Exhibit "A."
PAYMENT TERMS. For the right to use said airplane in the ordinary
course of business and to provide for the reimbursement of expenses related
thereto, ZEROS shall make 120 regular monthly payments of at least $16,000.00
each to provide for a minimum of twenty hours of access per month at a rate of
$800.00 per hour. Each additional hour of use beyond the minimum twenty hours
per month shall be billed at a rate of $800.00. The regular payments and
additional charges, if any, shall be due on the first day of each month, with
the first payment due on March 1, 1997, as a deposit. The payments shall be
due whether or not ZEROS has received notice of a payment due.
SECURITY DEPOSIT. In addition to the regular payment charge, ZEROS
shall pay a security deposit of $16,000.00 at the time that this Agreement is
signed. This deposit will be returned to ZEROS USA, Inc., at the termination of
this Agreement, subject to the option of M, Ltd., to apply it against access
charges and damages. Any amounts refundable to ZEROS shall be paid at the time
this Agreement is terminated. The security deposit shall not bear interest.
CARE AND OPERATION OF EQUIPMENT. The equipment may only be used and
operated in a careful and proper manner. Its use must comply with all laws,
ordinances, and regulations relating to the operation, possession, use, or
maintenance of the equipment, including carrying on board all registration
and/or licensing documentation required by any pertinent and applicable federal
regulation.
MAINTENANCE AND REPAIR. The operator shall make every reasonable
effort to maintain the equipment in good repair and operating condition,
allowing for reasonable wear and tear. M, Ltd., shall pay all costs required to
maintain the equipment in good operating condition.
RISK OF LOSS OR DAMAGE. The operator of said aircraft assumes all
risks of loss or damage to the equipment from any cause, and agrees to return
it to M, Ltd., in the condition received from M, Ltd., with the exception of
normal wear and tear. Extraordinary expenses related to equipment failure
encountered while the equipment is being operated by the operator, including
labor, material, parts, and similar items, may be prorated as appropriate
between M, Ltd, and the operator.
<PAGE> 2
AGREEMENT NON-EXCLUSIVE. It is understood by the parties that from
time to time other parties, including but not limited to M, Ltd., will have
access to the aircraft. Hence, this Agreement is not a lease and does not
provide ZEROS an exclusive right to use said airplane.
TERM OF AGREEMENT. This Agreement shall begin on the above effective
date and shall last for ten years.
RIGHT OF INSPECTION. M, Ltd., shall have the right to inspect the
equipment during normal business hours.
OPTION TO RENEW. If ZEROS is not in default upon the expiration of
this Agreement, ZEROS shall have first option to operate the airplane on such
terms as the parties may agree at that time.
ACCEPTANCE OF EQUIPMENT. The operator shall inspect the equipment
delivered pursuant to this Agreement. ZEROS shall immediately notify M, Ltd., of
any discrepancies between such equipment and the description of the equipment in
the Equipment Schedule. If ZEROS fails to provide such notice before accepting
delivery of the equipment, ZEROS will be conclusively presumed to have accepted
the equipment as specified in the Equipment Schedule.
OWNERSHIP AND STATUS OF EQUIPMENT. M, Ltd., shall be deemed to have
retained title to the equipment at all times, unless M, Ltd., transfers the
title by sale. ZEROS shall immediately advise M, Ltd., regarding any notice of
any claim, levy, lien, or legal process issued against the equipment.
INDEMNITY OF M, Ltd., FOR LOSS OR DAMAGES. If the equipment is damaged
or destroyed while under the control of operator, M, Ltd., shall have the option
of requiring ZEROS to repair the airplane to a state of good working order, or
replace the airplane with a like aircraft in good repair, which equipment shall
become the property of the M, Ltd., and subject to this Agreement.
LIABILITY AND INDEMNITY. Liability for injury, disability, and death
of workers and other persons caused by operating, handling, or transporting the
equipment during the term of this Agreement is the obligation of ZEROS, and
ZEROS shall indemnify and hold M, Ltd., harmless from and against all such
liability. ZEROS shall maintain liability insurance of at least $1,000,000.00.
CASUALTY INSURANCE. ZEROS shall insure the equipment in an amount of
at least $1,000,000.00.
DEFAULT. The occurrence of any of the following shall constitute a
default under this Agreement:
A. The failure to make a required payment under this Agreement
when due.
Initials:_____
Page 2 of 5
<PAGE> 3
2. The violation of any other provision or requirement that is
not corrected within ten days after written notice of the
violation is given.
C. The insolvency or bankruptcy of ZEROS.
4. The subjection of any of ZEROS's property to any levy,
seizure, assignment, application or sale for or by any
creditor or government agency.
RIGHTS ON DEFAULT. If ZEROS is in default under this Agreement, without
notice to or demand on ZEROS, M, Ltd., may take possession of the equipment as
provided by law, deduct the costs of recovery (including attorney fees and
legal costs), repair, and related costs, and hold ZEROS responsible for any
deficiency. M Ltd., shall be obligated to mitigate the damages from the
default, only as required by law.
NOTICE. All notices required or permitted under this Agreement shall be
deemed delivered when delivered in person or by mail, postage prepaid,
addressed to the appropriate party at the address shown for that party at the
beginning of this Agreement.
ASSIGNMENT. ZEROS shall not assign or sublet any interest in this
Agreement or the equipment or permit the equipment to be used by anyone other
than by ZEROS' employees, without M Ltd.'s, prior written consent.
ENTIRE AGREEMENT AND MODIFICATION. This Agreement constitutes the
entire agreement between the parties. No modification or amendment of this
Agreement shall be effective unless in writing and signed by both parties. This
Agreement replaces any and all prior agreements between the parties.
APPLICABLE LAW. M, Ltd., and ZEROS agree that this Agreement is entered
into pursuant the provisions of Part 91 of the Federal Aviation Regulations.
GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of Texas.
SEVERABILITY. If any portion of this Agreement shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall
continue to be valid and enforceable. If a court finds that any provision of
this Agreement is invalid or unenforceable, but that by limiting such
provision, it would become valid and enforceable, then such provision shall be
deemed to be written, construed, and enforced as so limited.
Initials:_____
Page 3 of 5
<PAGE> 4
WAIVER. The failure of either party to enforce any provision of this
Agreement shall not be construed as a waiver or limitation of that party's
right to subsequently enforce and compel strict compliance with every provision
of this Agreement.
CERTIFICATION. ZEROS certifies that the application, statements, trade
references, and financial reports submitted to M Ltd., are true and correct and
any material misrepresentation will constitute a default under this Agreement.
ARBITRATION. Any controversy or claim relating to this Agreement,
including the construction or application of this Agreement, will be settled by
binding arbitration under the rules of the American Arbitration Association,
and any judgment granted by the arbitrator(s) may be enforced in any court of
proper jurisdiction.
M, Ltd.,
By: /s/ STEVE CLARK
-----------------------------------
Steve Clark, President
ZEROS USA, Inc.
By: /s/ JESSE BLANCO, JR.
-----------------------------------
Jesse Blanco, Jr.,Secretary
Initials:_____
Page 4 of 5
<PAGE> 5
EXHIBIT A
EQUIPMENT SCHEDULE
Equipment Description:
Initials:_____
Page 5 of 5
<PAGE> 1
EXHIBIT 10(B)(1)
AGREEMENT FOR SALE OF
ZEROS APPROVED LICENSE
This Agreement for Sale of ZEROS Approved License is made at Houston,
Texas as of the 28th day February, 1997 by and between ZEROS USA, Inc.,
hereinafter referred to in this Agreement as "ZEROS;" and ZEROS Piney Creek
Corporation, hereinafter referred to in this Agreement as "ZPCC" or "Licensee."
In consideration of the mutual covenants made in this Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are
acknowledged, ZEROS, and Licensee agree as follows:
RECITALS
1. Legal Status of ZEROS
ZEROS is a Texas corporation duly organized, validly existing, and in good
standing under the laws of said state, with power to own property and carry on
business as contemplated by this Agreement. ZEROS has its principal office and
place of business at 507 North Belt East, Suite 550, Houston, Texas 77060.
2. Legal Status of Licensee
Licensee is a Mississippi Corporation duly organized, validly existing, and in
good standing under the laws of said state, with power to own property and
carry on business as contemplated by this Agreement. Licensee has its principal
office and place of business at P.O. Box 1532, Yazoo City, Mississippi 39194.
3. Business of ZEROS
3.1. ZEROS is the holder of a master license to sell and operate energy
recycling systems using hazardous and non-hazardous toxic wastes.
Said master license was originally obtained from M, Ltd., a Bahamian
corporation not a party to this Agreement.
3.2. ZEROS is engaged in the business of developing business opportunities
related to recycling energy using hazardous and non-hazardous toxic
wastes using ZEROS Bio-Dynarnic technology.
3.3. ZEROS is engaged further in the business of licensing the operation of
energy recycling oxidation systems using ZEROS Bio-Dynamic technology
by others directly or through its licensees.
3.4. ZEROS is engaged further in the business of selling energy recycling
systems using ZEROS Bio-Dynamic technology.
3.5. ZEROS makes available from time to time certain contracts to provide
remediation services which are offered and sold by ZEROS and/or its
licensees for prospective customers.
3.6. All services are offered in connection with and through the use of
various patents, trademarks and trade names and certain related words,
letters, and symbols, hereinafter collectively
Page 1 of 16
<PAGE> 2
referred to as "proprietary marks;" and in connection with certain
designs of signs, buildings,and logos, hereafter collectively referred
to as "indicia."
4. Desire of Licensee
4.1. Licensee desires to purchase a license from ZEROS to operate one or
more energy recycling oxidation systems using ZEROS Bio-Dynarnic
technology, including the use of any extant patents, proprietary marks
and indicia.
4.2. Licensee desires to purchase a license from ZEROS to sell to others
operating licenses and energy recycling oxidation systems using ZEROS
Bio-Dynamic technology, including the use of any extant patents,
proprietary marks and indicia.
4.3. Licensee desires to derive the benefits of ZEROS' information,
experience, advice, guidance, know-how, and customer goodwill.
GRANT, TERM, AND INITIAL FEE
5. Grant of License
ZEROS, under the authority of the master license originally granted to it by M,
Ltd., grants to Licensee and Licensee hereby accepts from ZEROS the right and
license for the term indicated, on the terms and conditions hereinafter set
forth, and limited to the geographical area indicated in Paragraph 6, below.
5.1. To develop business opportunities related to recycling energy using
hazardous and non-hazardous wastes, including toxic wastes.
5.2. To operate energy recycling oxidation systems using ZEROS Bio-Dynamic
technology and all other extant and available patents, proprietary
marks and indicia.
5.3. To use, in connection with the operation of its own energy recycling
system(s), ZEROS' proprietary marks, indicia and patents.
5.4. To sell to industrial customers, developed either by ZEROS or
Licensee, operating licenses and zero-emission energy recycling
oxidation systems using ZEROS Bio-Dynamic technology under terms and
conditions approved by ZEROS.
5.5. To sell to bio-medical customers, developed either by ZEROS or
Licensee, operating licenses and zero-emission energy recycling
oxidation systems using ZEROS Bio-Dynamic technology under the terms
and conditions approved by ZEROS.
5.6. To use, in connection with specific contracts to sell by and through
ZPCC said zero-emission energy recycling oxidation licenses and
systems using ZEROS Bio-Dynamic technology, and ZEROS' proprietary
marks, and indicia.
5.7. To use for marketing purposes, limited information regarding ZEROS'
patents, subject to ZEROS' approval.
Page 2 of 16
<PAGE> 3
6. Geographical Area
The geographical area assigned by ZEROS to Licensee shall be
identified as:
The state of Mississippi.
7. Non-Exclusivity of License Rights to Operate
The license granted herein to own and operate an energy recycling system shall
not be exclusive within the geographical area designated in Paragraph 6, above.
Notwithstanding that the license being purchased by Licensee is not exclusive
within the geographical area, Licensee shall have the right to be paid a
commission by ZEROS USA, Inc., more fully described in Paragraph I 1, below,
for any other operating license or energy recycling system sold after the date
of this License Agreement indicated above, to any other entity within
Licensee's geographical area so long as Licensee continues to perform according
to the terms of this contract, subject to the provisions of Paragraph I 0,
hereinbelow.
8. Term
The term of this Agreement and of the right and license herein granted shall
commence on February 28, 1997, and shall continue perpetually unless terminated
in accordance with the terms hereof.
9. License Fee
Licensee will concurrently with the execution of this Agreement pay to ZEROS,
or has agreed to pay to ZEROS upon terms and conditions agreed to by ZEROS and
Licensee, the sum of $2,000,000.00, as the fee for the right and license herein
granted. Said fee shall be deemed fully earned by ZEROS on the execution and
delivery of this Agreement by ZEROS to Licensee. Said fee is in addition to any
and all amounts payable to ZEROS for implementation of any new technology
developed by ZEROS, for additional measuring instruments, computers, special
tools, spare parts, and related transporting equipment, or for any other
reason.
10. Commissions
Licensee shall have a right to be paid the following commissions:
10.1. ten percent of any license fees or permits resulting from sales to
third parties originated by Licensee;
10.2. one percent of the gross income resulting from sales of energy
recycling systems originated by Licensee; and
10.3. ten percent of the shares of stock issued for any corporation formed
for a new licensee referred to ZEROS by licensee within Licensee's
geographical area identified in Paragraph 6, above, for the term
indicated in Paragraph 8, above, and for so long as Licensee continues
Page 3 of 16
<PAGE> 4
to perform according to the terms of this contract. Said commission
shall be paid by Licensee to ZEROS within thirty days after Licensee
collects any funds from any other party within Licensee's
geographical area. Said commission shall apply only to those
licenses and systems sold through Licensee after the date of this
License Agreement indicated above.
PATENTS, PROPRIETARY MARKS,
INDICIA, AND CONFIDENTIAL INFORMATION
11. Validity and Use of Patent
Licensee hereby acknowledges the validity of ZEROS' patents in the United
States, Canada, Mexico, and any other country bound by applicable,
international agreements, and acknowledges that the same are the sole property
of ZEROS. Licensee shall use the patents only for so long as the right and
license granted herein remain in force, and only in connection with the purpose
of developing business opportunities to operate and/or sell energy recycling
systems and in the manner and for the purposes specified in this Agreement.
Licensee shall not, either during or after the term of this Agreement, do
anything, or aid or assist any other party to do anything, which would infringe
on, harm, impair, or contest the rights claimed by ZEROS in and to any of the
patents.
12. Validity and Use of Proprietary Marks
Licensee hereby acknowledges the validity of the proprietary marks and
acknowledges that the same are the sole property of the ZEROS. The Licensee
shall use the proprietary marks only for so long as the right and license
granted herein remain in force, and only in connection with the purpose of
developing business opportunities to operate and/or sell energy recycling
systems and in the manner and for the purposes specified in this Agreement.
Licensee shall not, either during or after the term of this Agreement, do
anything, or aid or assist any other party to do anything, which would infringe
on, harm, impair, or contest the rights claimed by ZEROS in and to any of the
proprietary rights.
13. Validity and Use of Indicia
Licensee acknowledges the validity of the indicia and that the same are the
exclusive property of ZEROS. Licensee shall not, either during or after the
term of this Agreement, utilize any of the indicia except in accordance with
the terms of this Agreement.
14. Confidential Nature of ZEROS' System
14.1. Licensee hereby acknowledges that ZEROS is the sole owner of all
patents and proprietary rights in and to the zero-emissions, energy
recycling oxidation system (hereinafter "ZEROS"), to the obtaining
and performance of contracts for the utilization of said system, and
to all material and information now or hereafter revealed to
Licensee under this Agreement relating to ZEROS.
Page 4 of 16
<PAGE> 5
14.2. Licensee acknowledges that ZEROS in its entirety constitutes trade
secrets of ZEROS which are revealed to Licensee solely to enable
Licensee to develop business opportunities to operate and/or sell
energy recycling systems. Such trade secrets include, but are not
limited to, product catalogues, price lists, training manuals,
policy manuals, sales promotion aids, business forms, accounting
procedures, marketing reports, informational bulletins, and
inventory systems.
14.3. Licensee agrees that both during and after the term of this
Agreement:
14.3.1. Licensee will not reveal any of such trade secrets to any
other person, firm, or entity, and will take all reasonable
steps to prevent any other person, firm, or entity from
discovering the trade secrets.
14.3.2. Licensee will not use the trade secrets in connection with
any business or venture whatsoever, except for the purpose
of developing business opportunities to operate and/or sell
energy recycling systems pursuant to the terms of this and
other related contracts.
15. Goodwill
ZEROS acknowledges that all goodwill which may arise from Licensee's use of the
patents, proprietary marks, the indicia, the trade secrets, or the license or
ZEROS' system of operation within the designated geographical area only is and
shall at all times hereinafter be the sole and exclusive property of Licensee
and shall inure to the sole benefit of Licensee.
OBLIGATIONS OF ZEROS
16. Initial Obligation
ZEROS agrees to sell to Licensee a license and related rights within the
geographical area designated in Paragraph 6, above, for the operation and/or
sale of energy recycling systems known as ZEROS.
17. Training Program
ZEROS agrees to instruct Licensee in all aspects of owning and operating the
systems by providing a training program for Licensee and such of its management
and supervisory personnel as Licensee may reasonably designate.
18. Improvements in System
ZEROS agrees to make available for a fee to Licensee all improvements and
additions to the system to the same extent and in the same manner as they would
have been implemented by ZEROS if it were operating the system.
Page 5 of 16
<PAGE> 6
19. Management and Operation Assistance
ZEROS agrees to counsel and to assist Licensee on a continuing basis with
respect to the management and operation of the system, and will make available
to Licensee the benefits of ZEROS' information, experience, advice, and
knowledge.
20. Advertising
Licensee may from time to time purchase and place advertising promoting ZEROS
and the services provided and furnished by it. All decisions regarding whether
to utilize national, regional, or local advertising, or some combination
thereof, and regarding selection of the particular media, as well as
advertising content, shall be within the sole discretion of ZEROS.
21. Sale of ZEROS Units by Licensee
21.1. Licensee shall have the right to sell individual ZEROS units to
third parties during the term of this Agreement and subject to the
terms hereinafter set forth.
21.2. The prices, delivery terms, terms of payment, and other terms
relating to the sale of such ZEROS units by Licensee to third
parties shall be determined at ZEROS' sole discretion.
22. Payment of Royalties
Licensee agrees to pay as a royalty for the benefit of ZEROS 15% of the gross
income generated by the use of its own ZEROS units during the stated term.
23. Definition of Gross Income
For the purposes of Paragraph 22, above, "gross income" is defined as all
income generated from tipping fees at the input station and from the sale of
all products produced by each ZEROS unit operated by licensee before deducting
operating expenses and taxes.
24. Reports and Records
24.1. Licensee shall submit to Grantor each month a true and correct
accounting providing a statement of total gross income generated
from each ZEROS unit on forms provided by ZEROS containing all
information called for by such forms and certified to by Licensee.
24.2. Within sixty days after the close of Licensee's fiscal year,
Licensee shall finish a statement, on forms provided by ZEROS,
showing the total gross income for said preceding fiscal year, as
finally adjusted and reconciled after the closing and review of
Licensee's books and records for such fiscal year. If such statement
discloses that less gross income was generated than what the ZEROS
recorded and was paid for such fiscal year, Licensee shall
Page 6 of 16
<PAGE> 7
pay to ZEROS at the time of submitting such statement the amount of
any such underpayment. Any overpayment shall be credited by ZEROS to
Licensee's account.
24.3. Licensee shall maintain its books and records in such manner as to
clearly and accurately reflect the total gross income generated by
the various ZEROS units. All books and records shall be preserved
for a period of not less than five years after the close of the
Licensee's fiscal year to which they relate.
25. ZEROS' Right to Inspect Instruments, Books and Records
All instruments, books and records maintained by Licensee relating to operation
of the various ZEROS units shall be open at all reasonable times to inspection
and verification by ZEROS or any of its representatives. ZEROS shall be
entitled at any time to have the Licensee's instruments, books and records
examined or audited at ZEROS' expense, and the Licensee shall cooperate fully
with the party or parties making such examination or audit on behalf of ZEROS.
LICENSEE'S AGREEMENTS WITH
RESPECT TO OPERATION OF ZEROS UNITS
26. General
The ZEROS units are operated most efficiently and economically if they are run
twenty-four hours a day. In that connection, as much as is possible, allowing
reasonable "down-time" for turnarounds, other regular maintenance and repairs,
Licensee must require all ZEROS units Licensee operates or sells to be kept
operating around the clock throughout the year during the term of this
Agreement, and will at all times assure that all ZEROS units are operated
diligently so as to maximize the revenues and profits therefrom.
27. Marketing
Notwithstanding that it is understood that some contracts for utilization of
the ZEROS units will be provided by ZEROS to Licensee, Licensee shall at all
times actively promote the use and sale of ZEROS units and will use his best
efforts to cultivate, develop, and expand the market therefor whenever
possible.
28. Maintenance and Inventory
Licensee agrees that Licensee at all times during the term of this Agreement
maintain an inventory of ZEROS units, subject to reasonable business standards
and judgment, adequate to fulfill the public demand and to promptly satisfy
prospective customers seeking to use his services to recycle energy and dispose
of toxic wastes.
Page 7 of 16
<PAGE> 8
29. Managerial Responsibility
Licensee agrees that at all times during the term of this Agreement, Licensee
will assure that each operator of a ZEROS unit:
29.1. Shall devote its/his full time and effort to the active management
and operation of their respective ZEROS unit(s).
29.2. Shall reserve and exercise ultimate authority and responsibility
with respect to the management and operation of their respective
various ZEROS unit(s).
30. ZEROS Design and Appearance
Licensee acknowledges that the design and appearance of both the exterior and
interior of any building housing a ZEROS unit is part of the ZEROS' indicia,
subject to modification from time to time by ZEROS, and that it is essential to
the integrity of the system that as great a degree of uniformity as possible be
maintained among the various ZEROS units. Accordingly, Licensee agrees that:
30.1. It will not make any change, or allow any third party or alteration
of any kind to the structural elements of the building housing a
ZEROS unit without the prior written consent of ZEROS.
30.2. It will at its sole expense, or require any third party to at its
sole expense, maintain the interior and exterior painting of the
buildings at the sites where the ZEROS units may be located.
30.3. It will follow, or require any third party to follow, ZEROS'
reasonable instructions with respect to floor layout and character of
equipment layout and interior furnishing.
31. Site Maintenance
Licensee will maintain, or require any third party to maintain, its respective
premises in a clean, wholesome, attractive, and safe condition, and will cause
them to be kept in good maintenance and repair.
32. Standards of Operation
Licensee will at all times give, or require any third party to at all times
give, prompt, courteous, and efficient service to the public, will perform, or
cause to be performed, work competently and in a workmanlike manner, and in all
business dealings with members of the public or the ZEROS will be governed, or
will required any third parties to be governed, by the highest standards of
honesty, integrity, fair dealing, and ethical conduct. Licensee will do
nothing, nor allow any party to do nothing, which would tend to discredit,
dishonor, reflect adversely upon, or in any manner injure the reputation of
ZEROS or Licensee.
Page 8 of 16
<PAGE> 9
33. Advertising Materials
Licensee will not use, nor allow any third party to use, display, publish,
broadcast, or in any manner disseminate any advertising or promotional material
unless the same has first been approved by ZEROS.
34. Insurance
34.1. Licensee and/or its customers, shall be responsible for all loss or
damage arising out of or relating to the operation of the ZEROS
units or arising out of the acts or omissions or failure to act of
the Licensee, or any of its customers, agents, servants, or
contractors in connection with the rendering of service by Licensee
and/or any of its customers, and for all claims for damage to
property or for injury or death of any person or persons directly or
indirectly resulting therefrom.
34.2. Licensee agrees to indemnify, or cause any third party to indemnify,
and hold ZEROS harmless from and against any and all such claims,
loss, and damage, described in subparagraph 33.1, above, including
costs and reasonable attorney's fees.
34.3. Licensee shall obtain, or cause any third party to obtain, and at
all times during the term of this Agreement maintain in force and
pay the premiums for public liability insurance with complete
operations coverage. Limits of liability for bodily injury shall be
not less than $1,000,000.00 for each injury, $5,000,000.00 for all
injuries in each accident, and of not less than $1,000,000.00 for
property damage in each occurrence. Such limits of liability shall
be increased and modified, or additional types of coverage shall be
obtained by Licensee or any of his customers at their sole cost and
expense at the direction of ZEROS when reasonably required by
changed circumstances.
34.4. The policies of insurance referred to in subparagraph 34.3, above,
shall expressly insure both the Licensee, any of his customers, and
the ZEROS and shall require the insurer to defend both the Licensee
and its customers and the ZEROS in any action based on personal
injury or property damage suffered as a result of or arising out of
the occupancy or operation of a ZEROS unit. The Licensee shall
furnish to the ZEROS a certified copy or certificate with respect to
each such policy, evidencing coverage as set forth above. Such
policies shall not be canceled, amended, or modified except on ten
day's prior written notice to ZEROS.
35. Financial information
In addition to any other reports required of Licensee by this Agreement, the
Licensee shall submit to ZEROS, within ninety days after the end of each fiscal
year of Licensee, complete financial statements in a form prescribed by ZEROS,
including balance sheet, profit and loss statement, and statement of source and
disposition of funds.
Page 9 of 16
<PAGE> 10
36. Compliance With Laws
Licensee shall comply with all federal, state, county, municipal, or other
statutes, laws, ordinances, regulations, rules, or orders of any governmental
or quasi-governmental entity, body, agency, commission, board, or official
applicable to the operation of any ZEROS unit.
37. Compliance With Policies, Regulations, and Procedures
Licensee shall at all times comply with all lawful and reasonable policies,
regulations, and procedures promulgated or prescribed from time to time by
ZEROS in connection with the operation of any ZEROS unit, including but not
limited to, standards, techniques, and procedures in the installation of
equipment or the rendering of services; selection, supervision, and training of
personnel; sales, advertising techniques, programs, and procedures, maintenance
and appearance of any ZEROS sites and premises; and policies and procedures
relating to payment, credit, accounting, and financial reporting policies and
procedures.
38. ZEROS' Right to Inspect ZEROS OPERATING SITE
ZEROS, through its authorized representatives, shall have the right at all
reasonable times, to visit any permanent or temporary site where a ZEROS unit
is being operating for the purpose of inspecting the equipment on hand,
inspecting the nature and quality of services rendered, examining and auditing
Licensee's instruments, books and records, and observing the manner and method
of operating the site.
TRANSFERABILITY
39. General
Except as set forth in Paragraphs 40 through 41, below, and subject to all the
terms and provisions thereof below, Licensee shall not make or permit any
assignment of this Agreement or of any rights or interests herein.
40. Transfer to Controlled Corporation
Licensee may at any time assign and transfer this Agreement to a
corporation organized and operated for the sole purpose of conducting
the business for which the Licensee is authorized and licensed
hereunder, subject to the following conditions:
40.1. Such assignment and transfer shall be evidenced by a written
instrument, satisfactory in form and substance to ZEROS, in which
said corporation expressly assumes all obligations of Licensee
hereunder.
40.2. Licensee shall execute and deliver to ZEROS a guaranty of the
payment of such corporation's debts to ZEROS, if any.
Page 10 of 16
<PAGE> 11
40.3. Licensee shall remain bound and liable to ZEROS with respect to all
nonmonetary obligations of Licensee under this agreement whether
then accrued or thereafter arising.
41. Consent by ZEROS to Transfer
41.1. Licensee shall not make any sale, assignment, or other transfer of
this Agreement, or any rights or interest herein without first
obtaining the consent of ZEROS.
41.2. Licensee shall notify ZEROS in writing of the proposed sale,
assignment, or transfer, setting forth in detail the nature of the
item or interest to be sold, assigned, transferred, the name and
address of the proposed purchaser, assignee, or transferee, and the
consideration, if any, therefor.
41.3. Subject to prior compliance with the provisions of Paragraph 40,
above, the ZEROS shall consent to the proposed transaction, provided
the following conditions are fulfilled:
41.3.1. It is demonstrated to the reasonable satisfaction of ZEROS
that the proposed purchaser, assignee, or transferee
possesses the business experience and capability, credit
standing, and financial resources necessary to successfully
operate the business in accordance with this Agreement.
41.3.2. The proposed purchaser, assignee, transferee, or person to
assume all the duties and responsibilities outlined in this
Agreement, is approved by ZEROS and successfully completes
the training course offered by ZEROS.
41.3.3. Any sale, assignment, or transfer of this Agreement shall
be evidenced by a written instrument, in form and substance
reasonably satisfactory to ZEROS, in which the purchaser,
assignee, or transferee expressly assumes all obligations
of Licensee hereunder, whether accrued at the time of such
assignment, sale or transfer, or arising thereafter, and
agrees to be bound by all the terms and provisions of this
Agreement to the same extent and in the same manner as the
Licensee.
42. Sale of Business-ZEROS' Right of First Refusal
42.1. In the event Licensee proposes to sell to any party other than a
controlled corporation the business operated pursuant to this
Agreement, Licensee must first submit to ZEROS a copy of any written
offer made or received, or if none, a statement in writing of all
the terms of the proposed sale and identity of the proposed
purchaser.
42.2. ZEROS shall have the irrevocable first right and option to purchase
the business on the same terms as stated in such written offer or
statement. The ZEROS may exercise such right and option by notifying
the Licensee in writing of its election to exercise within fourteen
days after the ZEROS receives the written offer or statement.
42.3. If ZEROS does not so notify Licensee within the fourteen-day period,
the sale to the third party may be consummated, but only on the same
terms and conditions as set forth in the written offer or statement
to ZEROS and only on the Licensee's obtaining ZEROS' consent.
Page 11 of 16
<PAGE> 12
43. Arbitration
In the event of any dispute from ZEROS' failure or refusal to grant consent to
any sale, assignment, or transfer pursuant to provisions above, such dispute
shall be submitted to arbitration in accordance with the terms and conditions
below.
DEFAULT AND TERMINATION
44. Termination by Licensee
Licensee may terminate this Agreement at any time and without cause by giving
to ZEROS written notice of such termination not less than thirty days prior to
the date of termination.
45. Termination by ZEROS
On the happening of any of the following events, ZEROS may notify the Licensee
in writing of Licensee's default under this Agreement, stating Licensee's
obligation to cure the default, and itemizing the specific steps to be taken by
Licensee. On failure by Licensee to cure such default within thirty days after
receipt of such notice, ZEROS may terminate this Agreement by written notice of
termination to be effective fifteen days after receipt thereof.
44.1. Failure by Licensee to make any payments of money payable and due to
ZEROS pursuant to this Agreement.
44.2. Failure by Licensee to submit to ZEROS when due any reports required
pursuant to this Agreement.
44.3. Failure by Licensee to maintain and operate its operating site(s) in
accordance with good business practices.
44.4. Failure by Licensee to perform any obligations imposed on Licensee
by any provision of this Agreement.
44.5. Willful and material falsification by Licensee of any report,
statement, or other written data furnished to Licensee.
44.6. Willful and repeated deception of customers of Licensee relative to
the nature or quality of services rendered.
45. Arbitration
45.1. In the event ZEROS gives Licensee any notice of default or
termination and Licensee disputes the right of ZEROS to terminate
the Agreement or in the event of any dispute, Licensee may make a
written demand on ZEROS, at any time prior to or within ten days
after Licensee's receipt of notice of termination or the failure or
refusal of ZEROS to grant consent as described in Paragraph 4 1,
above. Such dispute shall be submitted to arbitration in accordance
with the rules and procedures for commercial arbitration of the
American Arbitration Association or any successor organization, and
in accordance with and subject
Page 12 of 16
<PAGE> 13
to all the provisions of the Uniform Arbitration Act as in force in
the State of Texas. The place of arbitration shall be Houston,
Texas.
45.2. The procedure for selection of the arbitrator shall be as may be
prescribed by said Association or its successor, provided, however,
that if said Association or a successor is not in existence or
does not provide such a procedure, then ZEROS and Licensee shall
each select one arbitrator and said arbitrators shall select a
third.
45.3. The arbitrator or arbitrators shall have full power to determine all
issues of fact and of law necessary to determine whether ZEROS has
the right to terminate the Agreement pursuant to the notice or
notices given, or what, if any, remedy Licensee may be entitled to
due to the failure of refusal of ZEROS as described in Paragraph 41,
above, and the determination of the arbitrators thereon shall be
final and conclusive, and binding on the parties hereto, subject
only to the provisions of the Uniform Arbitration Act. Any such
determination of an issue of fact or law made by the arbitrators,
however, shall be binding on the parties hereto only with respect to
and in connection with the particular arbitration proceeding and the
specific final decision or award of the arbitrators made therein,
and shall not be binding on the parties hereto for any other
purpose.
45.4. The cost of arbitration shall be taxed and borne as provided in the
Uniform Arbitration Act.
45.5. The serving of proper and timely demand for arbitration shall
suspend the running of any period for curing a default or shall
suspend the effectiveness of any termination of this Agreement, as
the case may be, until the decision or award of the arbitrators is
made.
46. Automatic Termination
The Agreement shall terminate immediately on the occurrence of any of the
following events, without the necessity of notice of any kind by either party.
46.1. The termination of Licensee's right to possession of the premises
designated in Paragraph 2, above, subject, however, to the
provisions of Paragraph 48, below.
46.2. The adjudication of Licensee as a Debtor as that term is defined in
the federal Bankruptcy Code, 11 U.S.C., or the filing of any
petition by or against Licensee, under the federal Bankruptcy Code
or the laws of any state or territory relating to relief of debtors,
for reorganization, arrangement, or other similar relief provided
therein, unless such petition filed against Licensee is dismissed
within sixty days.
46.3. The making by Licensee of a general assignment for the benefit of
creditors.
46.4. The appointment of any receiver, trustee, sequestrator, or similar
officer to take charge of Licensee's business, or any attachment,
execution, levy, seizure, or appropriation by any legal process of
Licensee's interest in this Agreement, unless the appointment of
such officer is vacated or discharged or the effect of such legal
process is otherwise released within sixty days.
Page 13 of 16
<PAGE> 14
47. Relocation of Licensee's Offices
If Licensee's right to possession of the premises designated in Paragraph 2,
above, is terminated, prior to expiration of the terms of this Agreement, and
is without fault or affirmative action on the part of Licensee, then, within
ninety days after Licensee notifies ZEROS that such termination has occurred
or will occur, ZEROS shall propose to Licensee a new location from which
Licensee may maintain its offices for the remainder of the term of this
Agreement.
48. Obligations On or After Termination
On termination of this Agreement, whether by lapse of time, by termination, by
mutual consent of the parties, by operation of law, or in any other manner,
Licensee shall cease to be an official holder of the license to any products or
services of ZEROS, and Licensee and all persons directly or indirectly owning
any interest in Licensee or in any way associated with or related to Licensee
shall:
48.1. Promptly cause Licensee to pay sums owing from Licensee to ZEROS.
48.2. Immediately and permanently discontinue the use of any and all of
the patents, proprietary marks, the trade secrets, the indicia, and
the license of the ZEROS units, of ZEROS.
48.3. Immediately and permanently remove, destroy, or obliterate, at
Licensee's expense, all signs containing any of ZEROS' proprietary
marks or indicia.
48.4. Promptly destroy or surrender to ZEROS all stationery, letterheads,
forms, printed matter, promotional displays, and advertising
containing any of the patents, proprietary marks or indicia of
ZEROS.
48.5. Immediately and permanently discontinue all advertising placed by
Licensee as an authorized license holder.
48.6. Sell to ZEROS all or such part of any ZEROS unit(s) on hand as of
the date of termination as ZEROS may request in writing.
48.7. Thereafter refrain from doing anything tending to indicate that
Licensee is or was a license holder, or is or was in any way
associated with ZEROS.
49. General Provisions Regarding Termination
49.1. Termination of this Agreement under any circumstances shall not
abrogate, impair, release, or extinguish any debt, obligation, or
liability of Licensee to ZEROS which may have accrued hereunder.
49.2. All covenants and agreements of Licensee which by their terms or by
reasonable implication are to be performed, in whole or in part,
after the termination of this Agreement, shall survive such
termination, including but not limited to, Licensee's obligation to
maintain the secrecy and confidentiality of the patents and trade
secrets.
Page 14 of 16
<PAGE> 15
MISCELLANEOUS PROVISIONS
50. Licensee Not Agent of ZEROS
The Agreement does not in any way create the relationship of principal and
agent between ZEROS and Licensee, and in no circumstances shall the Licensee be
considered an agent of ZEROS nor shall ZEROS consider Licensee an agent.
51. Non-Waiver
No failure by ZEROS to take action on account of any default by Licensee,
whether in a single instance or repeatedly, shall constitute a waiver of any
such default or of the performance required of Licensee.
52. Invalidity
If any provision of this Agreement shall be invalid or unenforceable, such
provision shall be deemed modified in scope or application to the extent
necessary to render the same valid or shall be excised from this Agreement as
the situation may require, and this Agreement shall be construed and enforced
as if such provision had been included herein as so modified in scope or
application or as if such provision had not been included herein.
53. Notices
Any notice or demand given or made pursuant to the terms of the Agreement shall
be deemed to be properly given when deposited in the United States mail,
registered or certified, postage prepaid, addressed in the following manner:
53.1. If given to ZEROS, it shall be addressed to ZEROS' address stated
above, or at such changed address as ZEROS may from time to time
designate.
53.2. If given to Licensee, it shall be addressed to Licensee's address
stated above, or at such changed address as Licensee may from time
to time designate.
54. Entire Agreement
This written Agreement contains the entire agreement between the parties. There
are merged herein all prior and collateral representations, promises, and
conditions in connection with the subject matter hereof. Any representation,
promise, or condition not incorporated herein shall not be binding on either
party. Any matter not specifically granted by this Agreement, is not available
to Licensee without specific written consent and authorization from ZEROS.
Page 15 of 16
<PAGE> 16
55. Cost of Enforcement or Defense
In the event ZEROS is required to employ legal counsel or to incur other
expense to enforce any obligation of Licensee under this Agreement, or to
defend against any claim, demand, action, or proceeding by reason of Licensee's
failure to perform any obligation imposed on Licensee by this Agreement, and
provided that legal action is filed by or against ZEROS and such action or its
settlement establishes Licensee's default under this Agreement, ZEROS shall be
entitled to recover from Licensee the amount of all reasonable attorneys' fees
of such counsel and all other expenses incurred in enforcing such obligation or
in defending against such claim, demand, action, or proceeding.
56. Controlling Law
This Agreement, including all matters relating to its validity, construction,
performance, and enforcement, shall be governed by laws of the State of Texas.
Executed at Houston, Texas, on the day and year first written above.
ZEROS USA, Inc.
/s/ STEVE CLARK
--------------------------------------
By: Steve Clark, President
Zeros Piney Creek Corporation
/s/ C. PAT RAMSAY
--------------------------------------
By: C. Pat Ramsay
Page 16 of 16
<PAGE> 17
CONTRACT ADDENDUM
ZEROS PINEY CREEK CORPORATION
The undersigned ZEROS approved Permit holder hereby agrees to an amended
Contract Payment schedule on the ZEROS Piney Creek Corporation transaction as
follows:
<TABLE>
<CAPTION>
Contract Payment Date: Amount Due:
<S> <C>
February 28, 1998 $ 900,000.00
February 28, 1999 $ 900,000.00
February 28, 2000 $ 900,000.00
--------------
Total: $ 2,700,000.00
</TABLE>
The undersigned agrees that all payments are fully earned when paid and are not
refundable.
This agreement shall be effective February 28, 1997 the date concurrent with
the Agreement for the transfer for ZEROS Piney Creek Corporation to the
undersigned.
ZEROS Piney Creek Corporation
By: /s/ C. PAT RAMSAY
--------------------------------
ZERO USA, inc.
By: /s/ STEVE CLARK
--------------------------------
<PAGE> 18
Confirmation of the Agreement Transactions
ZEROS USA, inc.
Zeros Piney Creek Corporation
July 1, 1997
The undersigned parties hereby acknowledge and confirm the following Agreement
Transaction:
1. That the parties have revised and modified by mutual agreement and
consent in their hand the original agreements and documents for
internal business reasons.
2. That the effective date of the Agreement for the Transfer of the Stock
of ZEROS Piney Creek Corporation by ZEROS USA, inc. to C. Pat Ramsay
is February 28, 1997.
Executed the 1st day of July 1997.
ZEROS USA, inc.
By: /s/ JESSE BLANCO
--------------------------------
Zero Piney Creek Corporation
By: /s/ C. PAT RAMSAY
--------------------------------
/s/ C. PAT RAMSAY
------------------------------------
C. Pat Ramsay
<PAGE> 1
EXHIBIT 10(B)(2)
AGREEMENT FOR SALE OF
ZEROS INDIAN APPROVED LICENSE
This Agreement for Sale of ZEROS Indian Approved License ("ZIA) is
made at Houston, Texas as of March 31, 1997, by and between ZEROS USA, Inc.,
hereinafter referred to in this Agreement as "ZEROS," and ZEROS CALIFORNIA
CORPORATION, hereinafter referred to in this Agreement as "Licensee."
In consideration of the mutual covenants made in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, ZEROS and Licensee agree as follows:
RECITALS
1. Legal Status of ZEROS
ZEROS is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Texas, with corporate power to
own property and carry on its business as it is now being conducted.
ZEROS has its principal office and place of business at 507 North Belt
East, Suite 550, Houston, Texas 77060.
2. Legal Status of Licensee
Licensee is a California Stock Corporation incorporated pursuant to
the laws of the State of California, with power to own property and
carry on business as contemplated by this Agreement. Licensee has its
principle office and place of business at 47320 Verdugo Road, Banning,
California 92220.
3. Business of ZEROS
a. ZEROS is engaged in the business of developing business
opportunities related to recycling energy using hazardous and
non-hazardous toxic wastes.
b. ZEROS is engaged further in the business of licensing the
operation of energy recycling oxidation systems by others.
c. ZEROS is engaged further in the business of selling energy
recycling systems.
d. ZEROS makes available from time to time certain contracts to
its current customers to provide remediation services which
are offered and sold by ZEROS.
e. All services are offered in connection with and through the
use of various patents, trademarks and trade names and certain
related words, letters, and symbols, hereinafter collectively
referred to as "proprietary marks," and in connection with
certain designs of signs, buildings, and logos, hereafter
collectively referred to as "indicia."
Page 1 of 16
<PAGE> 2
4. Desire of Licensee
a. Licensee desires to have the right to operate one or more
energy recycling oxidation systems, including the use of any
extant patents, proprietary marks and indicia.
b. Licensee desires to purchase a license to sell to others
operating licenses and energy recycling oxidation systems,
including the use of any extant patents, proprietary marks and
indicia.
c. Licensee desires to derive the benefits of ZEROS' information,
experience, advice, guidance, know-how, and customer goodwill.
GRANT, TERM, AND INITIAL FEE
5. Grant of License
ZEROS grants to Licensee, and Licensee hereby accepts from ZEROS, the
right and license for the term indicated, on the terms and conditions
hereinafter set forth, and limited to the geographical area indicated
in Paragraph 6, below.
a. To develop business opportunities related to recycling energy
using hazardous and non-hazardous wastes, including toxic
wastes.
b. To operate energy recycling oxidation systems using all extant
and available patents, proprietary marks and indicia.
c. To use, in connection with the operation of its own energy
recycling system(s), ZEROS' proprietary marks, indicia and
patents.
d. To sell to industrial customers, developed either by ZEROS or
Licensee, operating licenses and zero-emission energy
recycling oxidation systems under terms and conditions
approved by ZEROS.
e. To sell to bio-medical customers, developed either by ZEROS or
Licensee, operating licenses and zero-emission energy
recycling oxidation systems under the terms and conditions
approved by ZEROS.
f. To use, in connection with specific contracts to sell said
zero-emission energy recycling oxidation licenses and systems,
ZEROS' proprietary marks, and indicia.
g. To use for marketing purposes, limited information regarding
ZEROS' patents, subject to ZEROS' approval.
6. Geographical Area
The geographical area assigned by ZEROS to Licensee shall be
identified as:
The State of California.
Page 2 of 16
<PAGE> 3
7. Non-Exclusivity of License Rights to Operate
The license granted herein to own and operate an energy recycling
system shall not be exclusive within the geographical area designated
in Paragraph 6, above. Notwithstanding that the license being
purchased by ZEROS is not exclusive within the geographical area,
Licensee shall have the right to be paid a commission by ZEROS USA,
Inc., for fully described in Paragraph 10, below, for any other
operating license or energy recycling system sold after the date of
this License Agreement indicated above, to any other entity within
Licensee's geographical area so long as Licensee continues to perform
according to the terms of this contract, subject to the provisions of
Paragraph 9, hereinbelow.
8. Term
The term of this Agreement and of the right and license herein granted
shall commence on March 31, 1997 and shall continue perpetually unless
terminated in accordance with the terms hereof.
9. License Fee
Licensee will concurrently with the execution of this Agreement pay to
ZEROS, or has agreed to pay to ZEROS upon terms and conditions agreed
to by ZEROS and Licensee, the sum of $2,700,000, as the fee for the
right and license herein granted. Said fee shall be deemed fully
earned by ZEROS on the execution and delivery of this Agreement by
ZEROS to Licensee. Said fee is in addition to any and all amounts
payable to ZEROS for implementation of any new technology developed by
ZEROS, for additional measuring instruments, computers, special tools,
spare parts, and related transporting equipment, or for any other
reason.
10. Commissions
Licensee shall have a right to be paid the following commissions:
a. ten percent of any license fees or permits resulting from
sales to third parties originated by Licensee.
b. one percent of the gross income resulting from sales of energy
recycling systems originated by Licensee; and
c. one percent of the gross income resulting from the sale of
products produced from the operation of any energy recycling
systems originally sold through the Licensee;
within Licensee's geographical area identified in Paragraph 6, above,
for the term indicated in Paragraph 8, above, and for so long as
Licensee continues to perform according to the terms of this contract.
Said commission shall be paid by ZEROS to Licensee within thirty days
after ZEROS collects any funds from any other party within Licensee's
geographical area.
Page 3 of 16
<PAGE> 4
Said commission shall apply only to those licenses and systems sold
through Licensee after the date of this License Agreement indicated
above.
PATENTS, PROPRIETARY MARKS,
INDICIA, AND CONFIDENTIAL INFORMATION
11. Validity and Use of Patent
Licensee hereby acknowledges the validity of ZEROS' patents in the
United States, Canada, Mexico, and any other country bound by
applicable, international agreements, and acknowledges that the same
are the sole property of ZEROS. Licensee shall use the patents only
for so long as the right and license granted herein remain in force,
and only in connection with the purpose of developing business
opportunities to operate and/or sell energy recycling systems and in
the manner and for the purposes specified in this Agreement. Licensee
shall not, either during or after the term of this Agreement, do
anything, or aid or assist any other party to do anything, which would
infringe on, harm, impair, or contest the rights claimed by ZEROS in
and to any of the patents.
12. Validity and Use of Propriety Marks
Licensee hereby acknowledges the validity of the proprietary marks and
acknowledges that the same are the sole property of the ZEROS. The
Licensee shall use the proprietary marks only for so long as the right
and license granted herein remain in force, and only in connection
with the purpose of developing business opportunities to operate
and/or sell energy recycling systems and in the manner and for the
purposes specified in this Agreement. Licensee shall not, either
during or after the term of this Agreement, do anything, or aid or
assist any other party to do anything, which would infringe on, harm,
impair, or contest the rights claimed by ZEROS in and to any of the
proprietary rights.
13. Validity and Use of Indicia
Licensee acknowledges the validity of the indicia and that the same
are the exclusive property of ZEROS. Licensee shall not, either
during or after the term of this Agreement, utilize any of the indicia
except in accordance with the terms of this Agreement.
14. Confidential Nature of ZEROS' System
a. Licensee hereby acknowledges that ZEROS is the sole owner of
all patents and proprietary rights in and to the
zero-emissions, energy recycling oxidation system (hereinafter
"ZEROS"), to the obtaining and performance of contracts for
the utilization of said system, and to all material and
information now or hereafter revealed to Licensee under this
Agreement relating to ZEROS.
Page 4 of 16
<PAGE> 5
b. Licensee acknowledges that ZEROS in its entirety constitutes
trade secrets of ZEROS which are revealed to Licensee solely
to enable Licensee to develop business opportunities to
operate and/or sell energy recycling systems. Such trade
secrets include, but are not limited to, product catalogues,
price lists, training manuals, policy manuals, sales promotion
aids, business forms, accounting procedures, marketing
reports, informational bulletins, and inventory systems.
c. Licensee agrees that both during and after the term of this
Agreement:
i. Licensee will not reveal any of such trade secrets to
any other person, firm, or entity, and will take all
reasonable steps to prevent any other person, firm,
or entity from discovering the trade secrets.
ii. Licensee will not use the trade secrets in connection
with any business or venture whatsoever, except for
the purpose of developing business opportunities to
operate and/or sell energy recycling systems pursuant
to the terms of this and other related contracts.
15. Goodwill
ZEROS acknowledges that all goodwill which may arise from Licensee's
use of the patents, proprietary marks, the indicia, the trade secrets,
or the license or ZEROS' system of operation within the designated
geographical area only is and shall at all times hereinafter be the
sole and exclusive property of Licensee and shall inure to the sole
benefit of Licensee.
OBLIGATIONS OF ZEROS
16. Initial Obligation
ZEROS agrees to sell to Licensee a license and related rights within
the geographical area designated in Paragraph 6, above, for the
operation and/or sale of energy recycling systems known as ZEROS.
17. Training Program
ZEROS agrees to instruct Licensee in all aspects of owning and
operating the systems by providing a training program for Licensee and
such of its management and supervisory personnel as Licensee may
reasonably designate.
18. Improvements in System
ZEROS agrees to make available for a fee to Licensee all improvements
and additions to the system to the same extent and in the same manner
as they would have been implemented by ZEROS if it were operating the
system.
Page 5 of 16
<PAGE> 6
19. Management and Operation Assistance
ZEROS agrees to counsel and to assist Licensee on a continuing basis
with respect to the management and operation of the system, and will
make available to Licensee the benefits of ZEROS' information,
experience, advice, and knowledge.
20. Advertising
Licensee may from time to time purchase and place advertising
promoting ZEROS and the services provided and furnished by it. All
decisions regarding whether to utilize national, regional, or local
advertising, or some combination thereof, and regarding selection of
the particular media, as well as advertising content, shall be within
the sole discretion of ZEROS.
21. Sale of ZEROS Units by Licensee
a. Licensee shall have the right to sell individual ZEROS units
to third parties during the term of this Agreement and subject
to the terms hereinafter set forth.
b. The prices, delivery terms, terms of payment, and other terms
relating to the sale of such ZEROS units by Licensee to third
parties shall be determined at ZEROS' sole discretion.
22. Payment of Royalties
Licensee agrees to pay as a royalty for the benefit of ZEROS 15% of
the gross income generated by the use of its own ZEROS units during
the stated term.
23. Definition of Gross Income
For the purposes of Paragraph 22, above, "gross income" is defined as
all income generated from tipping fees at the input station and from
the sale of all products produced by each ZEROS unit before deducting
operating expenses and taxes.
24. Reports and Records
a. Licensee shall submit to Licensee each month a true and
correct accounting providing a statement of total gross income
generated from each ZEROS unit on forms provided by ZEROS
containing all information called for by such forms and
certified to by Licensee.
b. Within sixty days after the close of Licensee's fiscal year,
Licensee shall furnish a statement, on forms provided by
ZEROS, showing the total gross income for said preceding
fiscal year, as finally adjusted and reconciled after the
closing and review of Licensee's books and records for such
fiscal year. If such statement discloses that
Page 6 of 16
<PAGE> 7
less gross income was generated than what the ZEROS recorded
and was paid for such fiscal year, Licensee shall pay to ZEROS
at the time of submitting such statement, the amount of any
such underpayment. Any overpayment shall be credited by ZEROS
to Licensee's account.
c. Licensee shall maintain its books and records in such manner
as to clearly and accurately reflect the total gross income
generated by the various ZEROS units. All books and records
shall be preserved for a period of not less than five years
after the close of the Licensee's fiscal year to which they
relate.
25. ZEROS' Right to Inspect Instruments, Books and Records
All instruments, books and records maintained by Licensee relating to
operation of the various ZEROS units shall be open at all reasonable
times to inspection and verification by ZEROS or any of its
representatives. ZEROS shall be entitled at any time to have the
Licensee's instruments, books and records examined or audited at
ZEROS' expense, and the Licensee shall cooperate fully with the party
or parties making such examination or audit on behalf of ZEROS.
LICENSEE'S AGREEMENTS WITH
RESPECT TO OPERATION OF ZEROS UNITS
26. General
The ZEROS units are operated most efficiently and economically if they
are run twenty-four hours a day. In that connection, as much as is
possible, allowing reasonable "down-time" for turnarounds, other
regular maintenance and repairs, Licensee must require all ZEROS units
Licensee operates or sells to be kept operating around the clock
throughout the year during the term of this Agreement, and will at all
times assure that all ZEROS units are operated diligently so as to
maximize the revenues and profits therefrom.
27. Marketing
Notwithstanding that it is understood that some contracts for
utilization of the ZEROS units will be provided by ZEROS to Licensee,
Licensee shall at all times actively promote the use and sale of ZEROS
units and will use his best efforts to cultivate, develop, and expand
the market therefor whenever possible.
28. Maintenance and Inventory
Licensee agrees that Licensee at all times during the term of this
Agreement maintain an inventory of ZEROS units, subject to reasonable
business standards and judgment, adequate to fulfill the public demand
and to promptly satisfy prospective customers seeking to use his
services to recycle energy and dispose of toxic wastes.
Page 7 of 16
<PAGE> 8
29. Managerial Responsibility
Licensee agrees that at all times during the term of this Agreement,
Licensee will assure that each operator of a ZEROS unit:
a. Shall devote its/his full time and effort to the active
management and operation of their respective ZEROS unit(s).
b. Shall reserve and exercise ultimate authority and
responsibility with respect to the management and operation of
their respective various ZEROS unit(s).
30. ZEROS Design and Appearance
Licensee acknowledges that the design and appearance of both the
exterior and interior of any building housing a ZEROS unit is part of
the ZEROS' indicia, subject to modification from time to time by
ZEROS, and that it is essential to the integrity of the system that as
great a degree of uniformity as possible be maintained among the
various ZEROS units. Accordingly, Licensee agrees that:
a. He will not make any change, or allow any third party to make
any change, addition, or alteration of any kind to the
structural elements of the building housing a ZEROS unit
without the prior written consent of ZEROS.
b. He will at his sole expense, or require any third party to at
his/its sole expense, maintain the interior and exterior
painting of the buildings at the sites where the ZEROS units
may be located.
C. He will follow, or require any third party to follow, ZEROS'
reasonable instructions with respect to floor layout and
character of equipment layout and interior furnishing.
31. Site Maintenance
Licensee will maintain, or require any third party to maintain, its
respective premises in a clean, wholesome, attractive, and safe
condition, and will cause them to be kept in good maintenance and
repair.
32. Standards of Operation
Licensee will at all times give, or require any third party to at all
times give, prompt, courteous, and efficient service to the public,
will perform, or cause to be performed, work competently and in a
workmanlike manner, and in all business dealings with members of the
public or the ZEROS will be governed, or will required any third
parties to be governed, by the highest standards of honesty,
integrity, fair dealing, and ethical conduct. Licensee will do
nothing, nor allow any party to do nothing, which would tend to
discredit, dishonor, reflect adversely upon, or in any manner injure
the reputation of ZEROS or Licensee.
Page 8 of 16
<PAGE> 9
33. Advertising Materials
Licensee will not use, nor allow any third party to use, display,
publish, broadcast, or in any manner disseminate any advertising or
promotional material unless the same has first been approved by ZEROS.
34. Insurance
a. Licensee and/or any of his customers, shall be responsible for
all loss or damage arising out of or relating to the operation
of the ZEROS units or arising out of the acts or omissions or
failure to act of the Licensee, or any of his customers,
agents, servants, or contractors in connection with the
rendering of service by Licensee and/or any of his customers,
and for all claims for damage to property or for injury or
death of any person or persons directly or indirectly
resulting therefrom.
b. Licensee agrees to indemnify, or cause any third party to
indemnify, and hold ZEROS harmless from and against any and
all such claims, loss, and damage, described in subparagraph
33.a, above, including costs and reasonable attorney's fees.
C. Licensee shall obtain, or cause any third party to obtain, and
at all times during the term of this Agreement maintain in
force and pay the premiums for public liability insurance with
complete operations coverage. Limits of liability for bodily
injury shall be not less than $1,000,000.00 for each injury,
$5,000,000.00 for all injuries in each accident, and of not
less than $1,000,000.00 for property damage in each
occurrence. Such limits of liability shall be increased and
modified, or additional types of coverage shall be obtained by
Licensee or any of his customers at their sole cost and
expense at the direction of ZEROS when reasonably required by
changed circumstances.
d. The policies of insurance referred to in subparagraph 33.c,
above, shall expressly insure both the Licensee, any of his
customers, and the ZEROS and shall require the insurer to
defend both the Licensee and his customers and the ZEROS in
any action based on personal injury or property damage
suffered as a result of or arising out of the occupancy or
operation of a ZEROS unit. The Licensee shall furnish to the
ZEROS a certified copy or certificate with respect to each
such policy, evidencing coverage as set forth above. Such
policies shall not be canceled, amended, or modified except on
ten day's prior written notice to ZEROS.
35. Financial Information
In addition to any other reports required of Licensee by this
Agreement, the Licensee shall submit to ZEROS, within ninety days
after the end of each fiscal year of Licensee, complete financial
statements in a form prescribed by ZEROS, including balance sheet,
profit and loss statement, and statement of source and disposition of
funds.
Page 9 of 16
<PAGE> 10
36. Compliance With Laws
Licensee shall comply with all federal, state, county, municipal, or
other statutes, laws, ordinances, regulations, rules, or orders of any
governmental or quasi-governmental entity, body, agency, commission,
board, or official applicable to the operation of any ZEROS unit.
37. Compliance With Policies, Regulations, and Procedures
Licensee shall at all times comply with all lawful and reasonable
policies, regulations, and procedures promulgated or prescribed from
time to time by ZEROS in connection with the operation of any ZEROS
unit, including but not limited to, standards, techniques, and
procedures in the installation of equipment or the rendering of
services; selection, supervision, and training of personnel; sales,
advertising techniques, programs, and procedures, maintenance and
appearance of any ZEROS sites and premises; and policies and
procedures relating to payment, credit, accounting, and financial
reporting policies and procedures.
38. ZEROS' Right to Inspect ZEROS OPERATING SITE
ZEROS, through its authorized representatives, shall have the right at
all reasonable times, to visit any permanent or temporary site where a
ZEROS unit is being operating for the purpose of inspecting the
equipment on hand, inspecting the nature and quality of services
rendered, examining and auditing Licensee's instruments, books and
records, and observing the manner and method of operating the site.
TRANSFERABILITY
39. General
Except as set forth in Paragraphs 40 through 41, below, and subject to
all the terms and provisions thereof below, Licensee shall not make or
permit any assignment of this Agreement or of any rights or interests
herein.
40. Transfer to Controlled Corporation
Licensee may at any time assign and transfer this Agreement to a
corporation organized and operated for the sole purpose of conducting
the business for which the Licensee is authorized and licensed
hereunder, subject to the following conditions:
a. Such assignment and transfer shall be evidenced by a written
instrument, satisfactory in form and substance to ZEROS, in
which said corporation expressly assumes all obligations of
Licensee hereunder.
b. Licensee shall execute and deliver to ZEROS a guaranty of the
payment of such
Page 10 of 16
<PAGE> 11
corporation's debts to ZEROS, if any.
c. Licensee shall remain bound and liable to ZEROS with respect
to all nonmonetary obligations of Licensee under this
agreement whether then accrued or thereafter arising.
41. Consent by ZEROS to Transfer
a. Licensee shall not make any sale, assignment, or other
transfer of this Agreement, or any rights or interest herein
without first obtaining the consent of ZEROS.
b. Licensee shall notify ZEROS in writing of the proposed sale,
assignment, or transfer, setting forth in detail the nature of
the item or interest to be sold, assigned, transferred, the
name and address of the proposed purchaser, assignee, or
transferee, and the consideration, if any, therefor.
c. Subject to prior compliance with the provisions of Paragraph
40, above, the ZEROS shall consent to the proposed
transaction, provided the following conditions are fulfilled:
i. It is demonstrated to the reasonable satisfaction of
ZEROS that the proposed purchaser, assignee, or
transferee possesses the business experience and
capability, credit standing, and financial resources
necessary to successfully operate the business in
accordance with this Agreement.
ii. The proposed purchaser, assignee, transferee, or
person to assume all the duties and responsibilities
outlined in this Agreement, is approved by ZEROS and
successfully completes the training course offered by
ZEROS.
iii. Any sale, assignment, or transfer of this Agreement
shall be evidenced by a written instrument, in form
and substance reasonably satisfactory to ZEROS, in
which the purchaser, assignee, or transferee
expressly assumes all obligations of Licensee
hereunder, whether accrued at the time of such
assignment, sale or transfer, or arising thereafter,
and agrees to be bound by all the terms and
provisions of this Agreement to the same extent and
in the same manner as the Licensee.
42. Sale of Business-ZEROS' Right of First Refusal
a. In the event Licensee proposes to sell to any party other than
a controlled corporation the business operated pursuant to
this Agreement, Licensee must first submit to ZEROS a copy of
any written offer made or received, or if none, a statement in
writing of all the terms of the proposed sale and identity of
the proposed purchaser.
b. ZEROS shall have the irrevocable first right and option to
purchase the business on the same terms as stated in such
written offer or statement. The ZEROS may exercise such right
and option by notifying the Licensee in writing of its
election to exercise within fourteen days after the ZEROS
receives the written offer or statement.
c. If ZEROS does not so notify Licensee within the fourteen-day
period, the sale to the third
Page 11 of 16
<PAGE> 12
party may be consummated, but only on the same terms and
conditions as set forth in the written offer or statement to
ZEROS and only on the Licensee's obtaining ZEROS' consent.
43. Arbitration
In the event of any dispute from ZEROS' failure or refusal to grant
consent to any sale, assignment, or transfer pursuant to provisions
above, such dispute shall be submitted to arbitration in accordance
with the terms and conditions below.
DEFAULT AND TERMINATION
44. Termination by Licensee
Licensee may terminate this Agreement at any time and without cause by
giving to ZEROS written notice of such termination not less than
thirty days prior to the date of termination.
45. Termination by ZEROS
On the happening of any of the following events, ZEROS may notify the
Licensee in writing of Licensee's default under this Agreement,
stating Licensee's obligation to cure the default, and itemizing the
specific steps to be taken by Licensee. On failure by Licensee to cure
such default within thirty days after receipt of such notice, ZEROS
may terminate this Agreement by written notice of termination to be
effective fifteen days after receipt thereof
a. Failure by Licensee to make any payments of money payable and
due to ZEROS pursuant to this Agreement.
b. Failure by Licensee to submit to ZEROS when due any reports
required pursuant to this Agreement.
C. Failure by Licensee to maintain and operate its operating
site(s) in accordance with good business practices.
d. Failure by Licensee to perform any obligations imposed on
Licensee by any provision of this Agreement.
e. Willful and material falsification by Licensee of any report,
statement, or other written data furnished to Licensee.
f. Willful and repeated deception of customers of Licensee
relative to the nature or quality of services rendered.
46. Arbitration
a. In the event ZEROS gives Licensee any notice of default or
termination and Licensee disputes the right of ZEROS to
terminate the Agreement or in the event of any dispute,
Licensee may make a written demand on ZEROS, at any time prior
to or
Page 12 of 16
<PAGE> 13
within ten days after Licensee's receipt of notice of
termination or the failure or refusal of ZEROS to grant
consent as described in Paragraph 41, above. Such dispute
shall be submitted to arbitration in accordance with the rules
and procedures for commercial arbitration of the American
Arbitration Association or any successor organization, and in
accordance with and subject to all the provisions of the
Uniform Arbitration Act as in force in the State of Texas. The
place of arbitration shall be Houston, Texas.
b. The procedure for selection of the arbitrator shall be as may
be prescribed by said Association or its successor, provided,
however, that if said Association or a successor is not in
existence or does not provide such a procedures, then ZEROS
and Licensee shall each select one arbitrator and said
arbitrators shall select a third.
c. The arbitrator or arbitrators shall have full power to
determine all issues of fact and of law necessary to determine
whether ZEROS has the right to terminate the Agreement
pursuant to the notice or notices given, or what, if any,
remedy Licensee may be entitled to due to the failure of
refusal of ZEROS as described in Paragraph 41, above, and the
determination of the arbitrators thereon shall be final and
conclusive, and binding on the parties hereto, subject only to
the provisions of the Uniform Arbitration Act. Any such
determination of an issue of fact or law made by the
arbitrators, however, shall be binding on the parties hereto
only with respect to and in connection with the particular
arbitration proceeding and the specific final decision or
award of the arbitrators made therein, and shall not be
binding on the parties hereto for any other purpose.
d. The cost of arbitration shall be taxed and borne as provided
in the Uniform Arbitration Act.
e. The serving of proper and timely demand for arbitration shall
suspend the running of any period for curing a default or
shall suspend the effectiveness of any termination of this
Agreement, as the case may be, until the decision or award of
the arbitrators is made.
47. Automatic Termination
The Agreement shall terminate immediately on the occurrence of any of
the following events, without the necessity of notice of any kind by
either party.
a. The termination of Licensee's right to possession of the
premises designated in Paragraph 2, above, subject, however,
to the provisions of Paragraph 48, below.
b. The adjudication of Licensee as a Debtor as that term is
defined in the federal Bankruptcy Code, 11 U.S.C., or the
filing of any petition by or against Licensee, under the
federal Bankruptcy Code or the laws of any state or territory
relating to relief of debtors, for reorganization,
arrangement, or other similar relief provided therein, unless
such petition filed against Licensee is dismissed within sixty
days.
c. The making by Licensee of a general assignment for the benefit
of creditors.
d. The appointment of any receiver, trustee, sequestrator, or
similar officer to take
Page 13 of 16
<PAGE> 14
charge of Licensee's business, or any attachment, execution,
levy, seizure, or appropriation by any legal process of
Licensee's interest in this Agreement, unless the appointment
of such officer is vacated or discharged or the effect of such
legal process is otherwise released within sixty days.
48. Relocation of Licensee's Offices
If Licensee's right to possession of the premises designated in
Paragraph 2, above, is terminated, prior to expiration of the terms of
this Agreement, and is without fault or affirmative action on the part
of Licensee, then, within ninety days after Licensee notifies ZEROS
that such termination has occurred or will occur, ZEROS shall propose
to Licensee a new location from which Licensee may maintain its
offices for the remainder of the term of this Agreement.
49. Obligations On and After Termination
On termination of this Agreement, whether by lapse of time, by
termination, by mutual consent of the parties, by operation of law, or
in any other manner, Licensee shall cease to be an official holder of
the license to any products or services of ZEROS, and Licensee and all
persons directly or indirectly owning any interest in Licensee or in
any way associated with or related to Licensee shall:
a. Promptly cause Licensee to pay sums owing from Licensee to
ZEROS.
b. Immediately and permanently discontinue the use of any and all
of the patents, proprietary marks, the trade secrets, the
indicia, and the license of the ZEROS units, of ZEROS.
c. Immediately and permanently remove, destroy, or obliterate,
at Licensee's expense, all signs containing any of ZEROS'
proprietary marks or indicia.
d. Promptly destroy or surrender to ZEROS all stationery,
letterheads, forms, printed matter, promotional displays, and
advertising containing any of the patents, proprietary marks
or indicia of ZEROS.
e. Immediately and permanently discontinue all advertising placed
by Licensee as an authorized license holder.
f. Sell to ZEROS all or such part of any ZEROS unit(s) on hand
as of the date of termination as ZEROS may request in writing.
g. Thereafter refrain from doing anything tending to indicate
that Licensee is or was a license holder, or is or was in any
way associated with ZEROS.
50. General Provisions Regarding Termination
a. Termination of this Agreement under any circumstances shall
not abrogate, impair, release, or extinguish any debt,
obligation, or liability of Licensee to ZEROS which may have
accrued hereunder.
Page 14 of 16
<PAGE> 15
b. All covenants and agreements of Licensee which by their terms
or by reasonable implication are to be performed, in whole or
in part, after the termination of this Agreement, shall
survive such termination, including but not limited to,
Licensee's obligation to maintain the secrecy and
confidentiality of the patents and trade secrets.
MISCELLANEOUS PROVISIONS
51. Licensee Not Agent of ZEROS
The Agreement does not in any way create the relationship of principal
and agent between ZEROS and Licensee, and in no circumstances shall
the Licensee be considered an agent of ZEROS nor shall ZEROS consider
Licensee an agent.
52. Non-Waiver
No failure by ZEROS to take action on account of any default by
Licensee, whether in a single instance or repeatedly, shall constitute
a waiver of any such default or of the performance required of
Licensee.
53. Invalidity
If any provision of this Agreement shall be invalid or unenforceable,
such provision shall be deemed modified in scope or application to the
extent necessary to render the same valid or shall be excised from
this Agreement as the situation may require, and this Agreement shall
be construed and enforced as if such provision had been included
herein as so modified in scope or application or as if such provision
had not been included herein.
54. Notices
Any notice or demand given or made pursuant to the terms of the
Agreement shall be deemed to be properly given when deposited in the
United States mail, registered or certified, postage prepaid,
addressed in the following manner:
a. If given to ZEROS, it shall be addressed to ZEROS' address
stated above, or at such changed address as ZEROS may from
time to time designate.
b. If given to Licensee, it shall be addressed to Licensee's
address stated above, or at such changed address as Licensee
may from time to time designate.
55. Entire Agreement
This written Agreement contains the entire agreement between the
parties. There are merged herein all prior and collateral
representations, promises, and conditions in connection with the
Page 15 of 16
<PAGE> 16
subject matter hereof. Any representation, promise, or condition not
incorporated herein shall not be binding on either party. Any matter
not specifically granted by this Agreement, is not available to
Licensee without specific written consent and authorization from
ZEROS.
56. Cost of Enforcement or Defense
In the event ZEROS is required to employ legal counsel or to incur
other expense to enforce any obligation of Licensee under this
Agreement, or to defend against any claim, demand, action, or
proceeding by reason of Licensee's failure to perform any obligation
imposed on Licensee by this Agreement, and provided that legal action
is filed by or against ZEROS and such action or its settlement
establishes Licensee's default under this Agreement, ZEROS shall be
entitled to recover from Licensee the amount of all reasonable
attorneys' fees of such counsel and all other expenses incurred in
enforcing such obligation or in defending against such claim, demand,
action, or proceeding.
57. Controlling Law
This Agreement, including all matters relating to its validity,
construction, performance, and enforcement, shall be governed by laws
of the State of Texas.
Executed at Houston, Texas, on the day and year first written above.
ZEROS USA, Inc.
/s/ STEVE CLARK
------------------------------------
By: Steve Clark, President
Zeros California Corporation
/s/ ROBERT MARTIN
------------------------------------
By: Robert Martin
Page 16 of 16
<PAGE> 17
AGREEMENT
ZEROS CALIFORNIA CORPORATION
This Agreement is made at Houston, Texas, as of this 31st day of March
1997 by ZEROS USA, Inc., hereinafter referred to as "ZEROS," and Robert Martin
Builders, Inc., hereinafter referred to as "RMB."
Recitals
1. ZEROS USA, Inc., is a business corporation incorporated pursuant to the
laws of the state of Texas, with power to own property and carry on
business as contemplated by this Agreement. Licensee has its principal
office and place of business at 507 North Belt East, Suite 550, Houston,
Texas 77060.
2. Robert Martin Builders, Inc. is a corporation conducting business in the
state of California and having its place of business at 47320 Verdugo Road,
Banning, California, 92220.
3. ZEROS has formed and desires to transfer to RMB 100,000 shares of the stock
of ZEROS California Corporation, which company owns all of the following
assets:
3.1. ZEROS Approved License, including the right to use ZEROS and ZEROS
Bio-Dynamics technology
3.2. The trade name of "ZEROS California Corporation"
4. RMB, agrees to accept from ZEROS all of the stock of ZEROS California
Corporation, which company owns all the assets described in paragraph 3
above.
Consideration
5. Now, therefore, ZEROS shall transfer to RMB on the books of ZEROS
California Corporation and on the terms and conditions set forth in this
Agreement all of the stock of ZEROS California Corporation.
6. ZEROS shall transfer to ZCC up to 1O% of the stock issued for all future
corporations formed for new, additional licensees in the state of
California originated by "ZCC". Said stock will inure to ZCC fully paid
and non-assessable when the pertinent terms of the contract are met.
Page 1 of 7
<PAGE> 18
7. RMB shall make the following contract payments on the dates indicated:
<TABLE>
<CAPTION>
Contract Payment Due Due Date Amount Due
-------------------- -------- ----------
<S> <C> <C>
1 3-31-98 $ 140,000.00
2 3-31-99 140,000.00
3 3-31-00 140,000.00
4 3-31-01 140,000.00
5 3-31-02 $ 2,140,000.00
</TABLE>
Additional Consideration
8. RMB shall be further required, as additional consideration, to comply with
the following milestone terms and conditions:
8.1. Present a minimum of five qualified license purchase referrals
during the term of the contract.
8.2. Install at least one ZEROS plant in the state of California.
8.2.1. RMB may install the plant for ZCC's interest or for a third
party.
8.2.2. A plant installed by a third party will entitle ZCC to a 1O%
commission for the placement of a license and 1% of the
purchase price of a ZEROS plant to that third party.
Payment of Consideration
9. The stock of ZEROS California Corporation shall be transferred at the time
and place indicated at paragraph 13 below.
1O. The payment to ZEROS of the consideration referenced in paragraph 6 also
shall be paid at the place indicated at paragraph 13 below.
Page 2 of 7
<PAGE> 19
Warranties by ZEROS
11. ZEROS hereby warrants and represents to RMB that:
11.1. The financial records for said business, previously inspected by
RMB, contain a full and complete record and account of affairs of
said business and accurately set forth all liabilities, and other
matters pertaining to the fiscal or financial condition of said
business through March 31, 1997; furthermore, that there have been
no material changes in the financial condition of said business
since then, nor will there be prior to the time set for
consummation of this Agreement, except transactions normal to said
business;
11.2. ZEROS is the sole owner of said business and shares of stock of
said business with full right to sell or dispose of the stock of
said business as ZEROS may choose and no other person or persons
whatsoever have any claim, right, title, interest, or lien, in, to
or on said business except as shown on the financial records of
said business inspected by RMB;
11.3. No litigation, actions, or proceedings, legal, equitable,
administrative, through arbitration, or otherwise, are pending or
threatened that might affect said business or the consummation of
the purchase and sale described in this Agreement;
11.4. ZEROS owes no obligations and has contracted no liabilities
affecting said business or that might affect this Agreement that
are not shown on the financial records inspected by RMB;
11.5. ZEROS shall execute and deliver to RMB a Stock Transfer
Confirmation of the shares of ZEROS California Corporation.
Compliance with Bulk Sales Law
12. The transfer of the assets of ZEROS California Corporation, described in
this Agreement is not subject to the Bulk Transfer Provisions of the
California Uniform Commercial Code.
Time and Place of Transfer
13. This Agreement shall be consummated at 507 North Belt East, Suite 550,
Houston, Texas 77060, on the date first entered.
Page 3 of 7
<PAGE> 20
Conduct of Business
14. Pending consummation of this Agreement ZEROS shall continue to operate said
business in the same manner as it has been operated by ZEROS in the past.
Inventory
15. A complete inventory of the assets of the business is attached hereto and
marked as Exhibit "A."
Costs and Expenses
16. All costs and expenses incurred in this Agreement in the manner prescribed
by this Agreement shall be borne by ZEROS and RMB in the following manner:
16.1. Each party, ZEROS and RMB, having been represented by its or their
attorney in this transaction, shall pay the fee of the attorney
who represented it or them in negotiating this Agreement and
supervising the terms described in it;
16.2. Any and all closing costs and expenses arising from the
performance of this Agreement, if any, shall be borne by the
parties, ZEROS and RMB, in equal proportions.
Indemnity Agreement by ZEROS
17. Except as otherwise expressly provided in this Agreement, RMB shall
indemnify and hold ZEROS and the property of ZEROS, including said business
and the assets of said business, free and harmless from any and all claims,
losses, damages, injuries, and liabilities arising from or on account of
RMB's operation of said business or RMB's ownership of any of the assets of
said business that are subject to this Agreement.
No Representations
18. RMB agrees with and represent to ZEROS that said assets of said business,
and the financial records of said business described above have been
inspected by RMB, and that said assets subject to this Agreement are being
transferred to RMB as a result of such inspection and not as a result of
any representations made by ZEROS or by any agent of ZEROS that are not
incorporated in this Agreement.
Page 4 of 7
<PAGE> 21
Covenant Not to Compete
19. ZEROS agrees that it will not at any time immediately following the
consummation of this agreement directly or indirectly engage in, or have
any substantial interest in or in common with any person, firm, or
corporation that engages in inspection services similar to, or competitive
with the business described in this Agreement so long as ZCC shall engage
in such businesses in the same area. This covenant does not limit ZEROS
from conducting consulting services or inspection services in the same
service area of ZCC.
Entire Agreement
20. This Agreement constitutes the sole and only agreement between ZEROS and
RMB respecting said business described in this Agreement, and correctly
sets forth the obligations of ZEROS and RMB to each other as of this date.
Any agreements or representations respecting said business not expressly
set forth in this Agreement are null and void.
Notices
21. Any and all notices or other communications required or permitted by this
Agreement or by law to be served on or given to either party hereto, ZEROS
or RMB, by the other party to this Agreement shall be in writing and shall
be deemed duly served as follows:
21.1. On ZEROS: 507 North Belt East, Suite 550, Houston, Texas 77060.
21.2. On Robert Martin Builders, Inc.: 47320 Verdugo Road, Banning,
California, 92220.
Either party may change the party's address for the purposes of this
Paragraph by giving the other party written notice by certified mail,
return receipt requested, of the new address in the manner set forth above.
Attorney's Fees
22. Should any arbitration be commenced between the parties to this Agreement
concerning said business, this Agreement, or the rights and duties of
either in relation thereto, the party, ZEROS or RMB, prevailing in such
arbitration shall be entitled, in addition to such other relief as may be
granted, to a reasonable sum as and for attorney's fees in such arbitration
that shall be determined by the arbitrator or in a separate action brought
for that purpose.
Page 5 of 7
<PAGE> 22
No Assignment
23. Neither this Agreement nor any interest therein shall be assigned by ZEROS
or RMB without the written consent of the other.
Binding on Heirs
24. This Agreement shall be binding on and shall inure to the benefit of the
heirs, executors, administrators, successors, and assigns of the parties
hereto, but nothing contained in this Paragraph shall be construed as a
consent to any assignment of this contract by either ZEROS or RMB.
Law Governing Agreement
25. This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas.
ZEROS USA, Inc.,
/s/ STEVE CLARK
---------------------------------
By: Steve Clark, President
Robert Martin Builders, Inc.
/s/ ROBERT MARTIN
---------------------------------
Robert Martin, President
Page 6 of 7
<PAGE> 23
EXHIBIT A
ASSETS
ZEROS License
Trade Name of ZEROS CALIFORNIA CORPORATION
Page 7 of 7
<PAGE> 24
CONTRACT ADDENDUM
ZEROS CALIFORNIA CORPORATION
The undersigned ZEROS approved Permit holder hereby agrees to an amended
Contract Payment schedule on the ZEROS California Corporation transaction as
follows:
<TABLE>
<CAPTION>
Contract Payment Date: Amount Due:
- ---------------------- -----------
<S> <C>
March 31, 1998 . . . . . . . . . . . . . $ 900,000.00
March 31, 1999 . . . . . . . . . . . . . $ 900,000.00
March 31, 2000 . . . . . . . . . . . . . $ 900,000.00
-------------
Total: . . . . . . . . . . . . . . . $2,700,000.00
</TABLE>
The undersigned agrees that all payments are as above and are not refundable.
This agreement shall be effective March 31, 1997 the date concurrent with the
Agreement for the transfer for ZEROS California Corporation to the undersigned.
ZEROS California Corporation
By: /s/ ROBERT MARTIN
-------------------------
ZEROS USA, inc.
By: /s/ STEVE CLARK
-------------------------
<PAGE> 25
Confirmation of the Agreement Transactions
ZEROS USA, inc.
Robert Martin Builders, Inc.
July 1, 1997
The undersigned parties hereby acknowledge and confirm the following Agreement
Transaction:
1. That the parties have revised and modified by mutual agreement and consent
in their hand the original agreements and documents for internal business
reasons.
2. That the effective date of the Agreement for the Transfer of the Stock
of ZEROS California Corporation by ZEROS USA, inc. to Robert Martin
Builders, Inc. is March 31, 1997.
Executed the 1st day of July 1997.
ZEROS USA, inc.
By: /s/ STEVE CLARK
--------------------------------
Robert Martin Builders, Inc.
By: /s/ ROBERT MARTIN
--------------------------------
ZEROS California Corporation, Inc.
By: /s/ ROBERT MARTIN
---------------------------------
<PAGE> 1
EXHIBIT 10(B)(3)
AGREEMENT FOR SALE OF
ZEROS APPROVED LICENSE
LAWSONS ZEROS CORPORATION
This Agreement for the Sale of a ZEROS Approved License is made at
Houston, Texas as of May 31, 1997 by and between ZEROS USA, Inc., hereinafter
referred to in this Agreement as "ZEROS;" ZEROS CALIFORNIA CORPORATION,
hereinafter referred to in this Agreement as "ZCC" or "Grantor;" and, LAWSON
ZEROS CORPORATION, hereinafter referred to in this Agreement as "LZC" or
"Licensee." In consideration of the mutual covenants made in this Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are acknowledged, ZEROS, ZCC, and Licensee agree as follows:
RECITALS
1. Legal Status of ZEROS
ZEROS is a Texas corporation duly organized, validly existing, and in good
standing under the laws of said state, with power to own property and carry on
business as contemplated by this Agreement. ZEROS has its principal office and
place of business at 507 North Belt East, Suite 550, Houston, Texas 77060.
2. Legal Status of ZCC
ZCC is a California Stock Corporation duly organized, validly existing, and in
good standing under the laws of said state, with corporate power to own
property and carry on its business as it is now being conducted. ZCC has its
principal office and place of business at 47320 Verdugo Road, Banning,
California 92220.
3. Legal Status of Licensee
Licensee is a California Stock Corporation duly organized, validly existing,
and in good standing under the laws of said state, with power to own property
and carry on business as contemplated by this Agreement. Licensee has its
principal office and place of business at 88-800 Avenue #70 Thermal, California
92274.
4. Business of ZEROS
4.1. ZEROS is the holder of a master license to sell and operate
energy recycling systems using hazardous and non-hazardous
toxic wastes. Said master license was originally obtained from
M, Ltd., a Bahamian corporation not a party to this Agreement.
4.2. ZEROS is engaged in the business of developing business
opportunities related to recycling energy using hazardous and
non-hazardous toxic wastes.
Page 1 of 18
<PAGE> 2
4.3. ZEROS is engaged further in the business of licensing the
operation of energy recycling oxidation systems by others
directly or through its licensees.
4.4. ZEROS is engaged further in the business of selling energy
recycling systems.
4.5. ZEROS makes available from time to time certain contracts to
provide remediation services which are OFFERED and sold by
ZEROS and/or its licensees for prospective customers.
4.6. All services are offered in connection with and through the
use of various patents, trademarks and trade names and certain
related words, letters, and symbols, hereinafter collectively
referred to as "proprietary marks;" and in connection with
certain designs of signs, buildings, and logos, hereafter
collectively referred to as "indicia."
5. Business of ZCC
5.1. ZCC is engaged in the business of developing business
opportunities related to recycling energy using hazardous and
non-hazardous toxic wastes.
5.2. ZCC is engaged further in the business of licensing the
operation of energy recycling oxidation systems by others.
5.3. ZCC makes available from time to time certain contracts to
provide remediation services which are offered and sold by
ZEROS and ZCC to prospective customers.
5.4. All services are offered in connection with and through the
use of various patents, trademarks and trade names and certain
related words, letters, and symbols, hereinafter collectively
referred to as "proprietary, marks;" and in connection with
certain designs of signs, buildings, and logos, hereafter
collectively referred to as "indicia."
6. Desire of Licensee
6.1. Licensee desires to purchase a license from ZEROS by and
through the license currently owned by ZCC a new approved
license to operate one or more energy recycling oxidation
systems, including the use of any extant patents, proprietary
marks and indicia.
6.2. Licensee desires to purchase a license from ZEROS by and
through the license currently owned by ZCC a new approved
license to sell to others operating licenses and energy
recycling oxidation systems, including the use of any extant
patents, proprietary marks and indicia.
6.3. Licensee desires to derive the benefits of ZEROS' and ZCC's
information, experience, advice, guidance, know-how, and
customer goodwill.
Page 2 of 18
<PAGE> 3
GRANT, TERM, AND INITIAL FEE
7. Grant of License
ZEROS, under the authority of the master license originally granted to it by M,
Ltd., grants to Licensee by and through ZCC, and Licensee hereby accepts from
ZEROS by and through ZCC, the right and license for the term indicated, on the
terms and conditions hereinafter set forth, and limited to the geographical
area indicated in Paragraph 8, below.
7.1. To develop business opportunities related to recycling energy
using hazardous and non-hazardous wastes, including toxic
wastes.
7.2. To OPERATE energy recycling oxidation system using all extant
and available patents, proprietary marks and indicia.
7.3. To use, in connection with the operation of its own recycling
system(s), ZEROS' proprietary marks, indicia and patents.
7.4. To sell to industrial customers, developed either by ZEROS,
ZCC, or Licensee, operating licenses and zero-emission energy
recycling oxidation systems under terms and conditions
approved by ZEROS.
7.5. To sell to bio-medical customers, developed either by ZEROS,
ZCC, or Licensee, operating licenses and zero-emission energy
recycling oxidation systems under the terms and conditions
approved by ZEROS.
7.6. To use, in connection with specific contracts to sell by and
through ZCC said zero-emission energy recycling oxidation
licenses and systems, ZEROS' proprietary marks, and indicia.
7.7. To use for marketing purposes, limited information regarding
ZEROS' patents, subject to ZEROS' approval.
8. Geographical Area
The geographical area assigned by ZEROS to Licensee shall be identified as:
Within the boundaries of the state of California.
Page 3 of 18
<PAGE> 4
9. Non-Exclusivity of License Rights to Operate
The license granted herein to own and operate an energy recycling system shall
not be exclusive within the geographical area designated in Paragraph 8, above.
Notwithstanding that the license being purchased by Licensee is not exclusive
within the geographical area, Licensee shall have the right to be paid a
commission by ZEROS USA, Inc., more fully described in Paragraph 12, below, for
any other operating license or energy recycling system sold after the date of
this License Agreement indicated above, to any other entity within Licensee's
geographical area so long as Licensee continues to perform according to the
terms of its contract, subject to the provisions of Paragraph 12, herein below.
10. Term
The term of this Agreement and of the right and license herein granted shall
commence on May 31st, 1997, and shall continue perpetually unless terminated in
accordance with the terms hereof.
11. License Fee
Licensee will concurrently with the execution of this Agreement pay to ZEROS,
or has agreed to pay to ZEROS upon terms and conditions agreed to by ZEROS and
Licensee, the sum of $2,000,000.00, as the fee for the right and license herein
granted. Said fee shall be deemed fully earned by ZEROS on the execution and
delivery of this Agreement by ZEROS to Licensee. Said fee is in addition to any
and all amounts payable to ZEROS for implementation of any new technology
developed by ZEROS, for additional measuring instruments, computers, special
tools, spare parts, and related transporting equipment, Or for any other
reason.
12. Commissions
License and ZCC shall have a right to be paid the following commissions from
future sales:
12.1. Licensee and ZCC to receive 10% of License fee to be
distributed pursuant to the determination by ZEROS.
12.2. Licensee and ZCC to receive I% of price of ZEROS equipment
sold to be distributed pursuant to the determination by ZEROS.
12.3. Licensee and ZCC will receive a distribution of up to 10% of
the stock of any corporation purchased by other licensees.
Such stock will inure to Licensee and ZCC as fully paid and
non-assessable. Stock distribution to be determined by ZEROS
USA, as stated within Licensee's geographical area identified
in Paragraph 8, above, for the term indicated in Paragraph 10,
above, and for so long as Licensee and ZCC continue to perform
according to the Terms of this contract. Said commission shall
Page 4 of 18
<PAGE> 5
be paid by ZEROS to Licensee and ZCC as appropriate, within
thirty days after Licensee collects any funds from any other
party within Licensee's geographical area. Said commission
shall apply only to those licenses and systems sold through
Licensee after the date of this License Agreement indicated
above.
PATENTS, PROPRIETARY MARKS,
INDICIA, AND CONFIDENTIAL INFORMATION
13. Validity and Use of Patent
Licensee hereby acknowledges the validity of ZEROS' patents in the United
States, Canada, Mexico, and any other country bound by applicable,
international agreements, and acknowledges that the same are the sole property
of ZEROS, Licensee shall use the patents only for so long as the right and
license granted herein remain in force, and only in connection with the purpose
of developing business opportunities to operate and/or sell energy recycling
systems and in the manner and for the purposes specified in this Agreement.
Licensee shall not, either during or after the term of this Agreement, do
anything, or aid or assist any other party to do anything, which would infringe
on, harm, impair, or contest the rights claimed by ZEROS in and to any of the
patents.
14. Validity and Use of Propriety Marks
Licensee hereby acknowledges the validity of the proprietary marks and
acknowledges that the same are the sole property of ZEROS. The Licensee shall
use the proprietary marks only for so long as the right and license granted
herein remain in force, and only in connection with the purpose of developing
business opportunities to operate and/or sell energy recycling systems and in
the manner and for the purposes specified in this Agreement. Licensee shall
not, either during or after the term of this Agreement, do anything, or aid or
assist any other party lo do anything, which would infringe on, harm, impair,
or contest the rights claimed by ZEROS in and to any of the proprietary rights.
15. Validity and Use of Indicia
Licensee acknowledges the validity of the indicia and that the same are the
exclusive property of ZEROS. Licensee shall not, either during or after the
term of this Agreement, utilize any of the indicia except in accordance with
the terms of this Agreement.
16. Confidential Nature of ZEROS' System
16.1. Licensee hereby acknowledges that ZEROS is the sole owner of
all patents and proprietary rights in and to the zero-
emissions energy recycling oxidation system (hereinafter
"ZEROS"), to the obtaining and performance of contracts for
the utilization of said system, and to all material and
information now or hereafter revealed to Licensee under this
Agreement relating to ZEROS.
Page 5 of 18
<PAGE> 6
16.2. Licensee acknowledges that ZEROS in its entirety constitutes
trade secrets of ZEROS which are revealed to Licensee solely
to enable Licensee to develop business opportunities to
operate and/or sell energy recycling systems. Such trade
secrets include, but are not limited to, product catalogues,
price lists, training manuals, policy manuals, sales promotion
aids, business forms, accounting procedures, marketing
reports, informational bulletins, and inventory systems.
16.3 Licensee agrees that both during and after the term of this
Agreement:
16.3.1. Licensee will not reveal any of such trade secrets to
any other person, firm, or entity, and will take all
reasonable steps to prevent any other person, firm,
or entity from discovering the trade secrets.
16.3.2. Licensee will not use the trade secrets in connection
with any business or venture whatsoever, except for
the purpose of developing business opportunities to
operate and/or sell energy recycling systems pursuant
to the terms of this and other related contracts.
17. Goodwill
ZEROS acknowledges that all goodwill which may arise from Licensee's use of the
patents, proprietary marks, the indicia, the trade secrets, or the license or
ZEROS' system of operation within the designated geographical area only is and
shall at all times hereinafter be the sole and exclusive property of Licensee
and shall inure to the sole benefit of Licensee.
OBLIGATIONS OF ZEROS
18. Initial Obligation
ZEROS agrees to sell to Licensee a license and related rights within the
geographical area designated in Paragraph 8, above, for the operation and/or
sale of energy recycling systems known as ZEROS.
19. Training Program
ZEROS agrees to instruct Licensee in all aspects of owning and operating the
systems by providing a training program for Licensee and such of its management
and supervisory personnel as Licensee may reasonably designate.
Page 6 of 18
<PAGE> 7
20. Improvements in System
ZEROS agrees to make available for a fee to Licensee all improvements and
additions to the system to the same extent and in the same manner as they would
have been implemented by ZEROS if it were operating the system.
21. Management and Operation Assistance
ZEROS agrees to counsel and to assist Licensee on a continuing basis with
respect to the management and operation of the system, and will make available
to Licensee the benefits of ZEROS' information, experience, advice, and
knowledge.
22. Advertising
Licensee may from time to time purchase and place advertising promoting ZEROS
and the services provided and furnished by it. All decisions regarding whether
to utilize national, regional, or local advertising, or some combination
thereof, and regarding selection of the particular media, as well as
advertising content, shall be within the sole discretion of ZEROS.
23. Sale of ZEROS Units by Licensee
23.1. Licensee shall have the right to sell individual ZEROS units
to third parties during the term of this Agreement and subject
to the terms hereinafter set forth.
23.2. The prices, delivery, terms, terms of payment, and other terms
relating to the sale of such ZEROS units by Licensee to third
parties shall be determined at ZEROS' sole discretion.
24. Payment of Royalties
Licensee agrees to pay as a royalty for the benefit of ZEROS 15% of the gross
income generated by the use of its own ZEROS units during the stated term.
25. Definition of Gross Income
For the purposes of Paragraph 24, above, "gross income" is defined as all
income generated from tipping fees at the input station and from the sale of all
products produced by each ZEROS unit before deducting operating expenses and
taxes.
Page 7 of 18
<PAGE> 8
26. Reports and Records
26.1. Licensee shall submit to Grantor each month a true and correct
accounting providing a statement of total gross income
generated from each ZEROS unit on forms provided by ZEROS
containing all information called for by such forms and
certified to by Licensee.
26.2. Within sixty days after the close of Licensee's fiscal year,
Licensee shall furnish a statement, on forms provided by
ZEROS, showing the total gross income for said preceding
fiscal year, as finally adjusted and reconciled after the
closing and review of Licensee's books and records for such
fiscal year. If such statement discloses that less gross
income was generated than what ZEROS recorded and was paid for
such fiscal year, Licensee shall pay to ZEROS at the time of
submitting such statement, the amount of any such
underpayment. Any overpayment shall be credited by ZEROS to
Licensee's account.
26.3. Licensee shall maintain its books and records in such manner
as to clearly and accurately reflect the total gross income
generated by the various ZEROS units. All books and records
shall be preserved for a period of not less than five years
after the close of the Licensee's fiscal year to which they
relate.
27. ZEROS' Right to Inspect Instruments, Books and Records
All instruments, books and records maintained by Licensee relating to operation
of the various ZEROS units shall be open at all reasonable times to inspection
and verification by ZEROS or any of its representatives. ZEROS shall be
entitled at any time to have the Licensee's instruments, books and records
examined or audited at ZEROS' expense, and the Licensee shall cooperate fully
with the party or parties making such examination or audit on behalf of ZEROS.
LICENSEE'S AGREEMENTS WITH
RESPECT TO OPERATION OF ZEROS UNITS
28. General
The ZEROS units are operated most efficiently and economically if they are run
twenty-four hours a day. In that connection, as much as is possible, allowing
reasonable "down-time" for turnarounds, other regular maintenance and repairs,
Licensee must require that all ZEROS units which Licensee operates or sells to
be kept operating around the clock throughout the year during the term of this
Agreement, and will at all times assure that all ZEROS units are operated
diligently so as to maximize the revenues and profits therefrom.
Page 8 of 18
<PAGE> 9
29. Marketing
Notwithstanding that it is understood that some contracts for utilization of
the ZEROS units will be provided by ZEROS to Licensee, Licensee shall at all
times actively promote the use and sale of ZEROS units and will use its best
efforts to cultivate, develop, and expand the market therefor whenever
possible.
30. Managerial Responsibility
Licensee agrees that at all times during the term of this Agreement, Licensee
will assure that each operator of a ZEROS unit:
30.1. Shall devote its/its full time and effort to the active
management and operation of their respective ZEROS unit(s).
30.2. Shall reserve and exercise ultimate authority and
responsibility with respect to the management and operation of
their respective various ZEROS unit(s).
31. ZEROS Design and Appearance
Licensee acknowledges that the design and appearance of both the exterior and
interior of any building housing a ZEROS unit is part of the ZEROS' indicia,
subject to modification from time to time by ZEROS, and that it is essential to
the integrity of the system that as great a degree of uniformity as possible be
maintained among the various ZEROS units. Accordingly, Licensee agrees that:
31.1 It will not make any change, or allow any third party to make
any change, addition, or alteration of any kind to the
structural elements of the building housing a ZEROS unit
without the prior written consent of ZEROS.
31.2. It will at its sole expense, or require any third party to at
its sole expense, maintain the interior and exterior painting
of the buildings at the sites where the ZEROS units may be
located.
31.3. It will follow, or require any third party to follow, ZEROS'
reasonable instructions with respect to floor layout and
character of equipment layout and interior furnishing.
Page 9 of 18
<PAGE> 10
32. Site Maintenance
Licensee will maintain, or require any third party to maintain, its respective
premises in a clean, wholesome, attractive, and safe condition, and will cause
them to be kept in good maintenance and repair.
33. Standards of Operation
Licensee will at all times give, or require any third party to at all times
give, prompt, courteous, and efficient service to the public, will perform, or
cause to be performed, work competently and in a workmanlike manner, and in all
business dealings with members of the public or ZEROS will be governed, or will
require any third parties to be governed, by the highest standards of honesty,
integrity, fair dealing, and ethical conduct. Licensee will do nothing, nor
allow any party to do anything, which would tend to discredit, dishonor,
reflect adversely upon, or in any manner injure the reputation of ZEROS or
Licensee.
34. Advertising Materials
Licensee will not use, nor allow any third party to use, display, publish,
broadcast, or in any manner disseminate any advertising or promotional material
unless the same has first been approved by ZEROS.
35. Insurance
35.1. Licensee and/or any of its customers, shall be responsible for
all loss or damage arising out of or relating to the operation
of the ZEROS units or arising out of the acts or omissions or
failure to act of the Licensee, or any of its customers,
agents, servants, or contractors in connection with the
rendering of service by Licensee and/or any of its customers,
and for all claims for damage to property or for injury or
death of any person or persons directly or indirectly
resulting therefrom.
35.2. Licensee agrees to indemnify, or cause any third party to
indemnify, and hold ZEROS harmless from and against any and
all such claims, loss, and damage, described in subparagraph
35.1, above, including costs and reasonable attorney's fees.
35.3. Licensee shall obtain, or cause any third party to obtain, and
at all times during the term of this Agreement maintain in
force and pay the premiums for public liability insurance with
complete operations coverage. Limits of liability for bodily
injury shall be not less than $1,000,000.00 for each injury,
$5,000,000.00 for all injuries in each accident, and of not
less than $1,000,000.00 for property damage in each
occurrence. Such limits of liability shall be increased and
modified, or additional types of coverage shall be obtained by
Licensee or any of its customers at their sole
Page 10 of 18
<PAGE> 11
cost and expense at the direction of ZEROS when reasonably
required by changed circumstances.
35.4. The policies of insurance referred to in subparagraph 33.c,
above, shall expressly insure both the Licensee, any of its
customers, and ZEROS and shall require the insurer to defend
both the Licensee and its customers and ZEROS in any action
based on personal injury or property damage suffered as a
result of or arising out of the occupancy or operation of a
ZEROS unit. The Licensee shall furnish to ZEROS a certified
copy or certificate with respect to each such policy,
evidencing coverage as set forth above. Such policies shall
not be canceled, amended, or modified except on thirty day's
prior written notice to ZEROS.
36. Financial Information
In addition to any other reports required of Licensee by this Agreement, the
Licensee shall submit to ZEROS, within ninety days after the end of each fiscal
year of Licensee, complete financial statements in a form prescribed by ZEROS.
including balance sheet, profit and loss statement, and statement of source and
disposition of funds.
37. Compliance With Laws
Licensee shall comply With all federal state, county, municipal, or other
statutes, laws, ordinances, regulations, rules, or orders of any governmental
or quasi-governmental entity, body, agency, commission, board, or official
applicable to the operation of any ZEROS unit.
38. Compliance With Policies, Regulations, and Procedures
Licensee shall at all times comply with all lawful and reasonable policies,
regulations, and procedures promulgated or prescribed from time to time by
ZEROS in connection with the operation of any ZEROS unit, including but not
limited to, standards, techniques, and procedures in the installation of
equipment or the rendering of services, selection, supervision, and training of
personnel; sales, advertising techniques, programs, and procedures, maintenance
and appearance of any ZEROS sites and premises; and policies and procedures
relating to payment, credit, accounting, and financial reporting policies and
procedures.
39. ZEROS' Right to Inspect Operating Site
ZEROS, through its authorized representatives, shall have the right at all
reasonable times, to visit any permanent or temporary site where a ZEROS unit
is being operated for the purpose of inspecting the equipment on hand,
inspecting the nature and quality of services rendered, examining and auditing
Licensee's instruments, books and records, and observing the manner and method
of operating the site.
Page 11 of 18
<PAGE> 12
TRANSFERABILITY
40. General
41. Except as set forth in Paragraphs 41 through 42, below, and subject to
all the terms and provisions thereof below, Licensee shall not make or
permit any assignment of this Agreement or of any rights or interests
herein.
42. Transfer to Controlled Corporation
Licensee may at any time assign and transfer this Agreement to a corporation
organized and operated for the sole purpose of conducting the business for
which the Licensee is authorized and licensed hereunder, subject to the
following conditions:
42.1. Such assignment and transfer shall be evidenced by a written
instrument, satisfactory in form and substance to ZEROS, in
which said corporation expressly assumes all obligations of
Licensee hereunder.
42.2. Licensee shall execute and deliver to ZEROS a guaranty of the
payment of such corporation's debts to ZEROS, if any.
42.3. Licensee shall remain bound and liable to ZEROS with respect
to all non-monetary obligations of Licensee under its
agreement whether then accrued or thereafter arising.
43. Consent by ZEROS to Transfer
43.1. Licensee shall not make any sale, assignment, or other
transfer of this Agreement, or any rights or interest herein
without first obtaining the consent of ZEROS.
43.2. Licensee shall notify ZEROS in writing of the proposed sale,
assignment, or transfer, setting forth in detail the nature of
the item or interest to be sold, assigned, transferred, the
name and address of the proposed purchaser, assignee, or
transferee, and the consideration, if any, therefor.
43.3. Subject to prior compliance with the provisions of Paragraph
40, above, ZEROS shall consent to the proposed transaction,
provided the following conditions are fulfilled:
43.3.1. It is demonstrated to the reasonable satisfaction of
ZEROS that the proposed purchaser, assignee, or
transferee possesses the business experience and
capability, credit standing, and financial resources
necessary to successfully operate the business in
accordance with this Agreement.
Page 12 of 18
<PAGE> 13
43.3.2. The proposed purchaser, assignee, transferee, or
person to assume all the duties and responsibilities
outlined in this Agreement, is approved by ZEROS and
successfully completes the training course offered by
ZEROS.
43.3.3. Any sale, assignment, or transfer of this Agreement
shall be evidenced by a written instrument, in form
and substance reasonably satisfactory to ZEROS, in
which the purchaser, assignee, or transferee
expressly assumes all obligations of Licensee
hereunder, whether accrued at the time of such
assignment, sale or transfer, or arising thereafter,
and agrees to be bound by all the terms and
provisions of this Agreement to the same extent and
in the same manner as the Licensee.
44. Sale of Business-ZEROS' Right of First Refusal
44.1. In the event Licensee proposes to sell to any party other than
a controlled corporation the business operated pursuant to
this Agreement, Licensee must first submit to ZEROS a copy of
any written offer made or received, or if none, a statement in
writing of all the terms of the proposed sale and identity of
the proposed purchaser.
44.2. ZEROS shall have the irrevocable first right and option to
purchase the business on the same terms as stated in such
written offer or statement. The ZEROS may exercise such right
and option by notifying the Licensee in writing of its
election to exercise within fourteen days after the ZEROS
receives the written offer or statement.
44.3. If ZEROS does not so notify, Licensee within the fourteen-day
period, the sale to the third party may be consummated, but
only on the same terms and conditions as set forth in the
written offer or statement to ZEROS and only on the Licensee's
obtaining ZEROS' consent.
45. Arbitration
In the event of any dispute from ZEROS' failure or refusal to grant consent to
any sale, assignment, or transfer pursuant to provisions above, such dispute
shall be submitted to arbitration in accordance with the terms and conditions
below.
DEFAULT AND TERMINATION
46. Termination by Licensee
Licensee may terminate this Agreement at any time and without cause by giving
to ZEROS written notice of such termination not less than thirty days prior to
the date of termination.
Page 13 of 18
<PAGE> 14
47. Termination by ZEROS
On the happening of any of the following events, ZEROS may notify the Licensee
in writing of Licensee's default under this Agreement, stating Licensee's
obligation to cure the default, and itemizing the specific steps to be taken by
Licensee. On failure by Licensee to cure such default within thirty days after
receipt of such notice, ZEROS may terminate this Agreement by written notice of
termination to be effective fifteen days after receipt thereof.
47.1. Failure by Licensee to make any payments of money payable and
due to ZEROS pursuant to this Agreement.
47.2. Failure by Licensee to submit to ZEROS when due any reports
required pursuant to this Agreement.
47.3. Failure by Licensee to maintain and operate its operating
site(s) in accordance with good business practices.
47.4. Failure by Licensee to perform any obligations imposed on
Licensee by any provision of this Agreement.
47.5. Willful and material falsification by Licensee of any report,
statement, or other written data furnished to Licensee.
47.6. Willful and repeated deception of customers of Licensee
relative to the nature or quality of services rendered.
48. Arbitration
48.1. In the event ZEROS gives Licensee any notice of default or
termination and Licensee disputes the right of ZEROS to
terminate this Agreement or in the event of any dispute,
Licensee may make a written demand on ZEROS, at any time prior
to or within ten days after Licensee's receipt of notice of
termination or the failure or refusal of ZEROS to grant
consent as described in Paragraph 43, above. Such dispute
shall be submitted to arbitration in accordance with the rules
and procedures for commercial arbitration of the American
Arbitration Association or any successor organization, and in
accordance with and subject to all the provisions of the
Uniform Arbitration Act as in force in the State of Texas. The
place of arbitration shall be Houston, Texas.
48.2. The procedure for selection of the arbitrator shall be as may
be prescribed by said Association or its successor, provided,
however, that if said Association or a successor is not in
existence or does not provide such a procedures, then ZEROS
and Licensee shall each select one arbitrator and said
arbitrators shall select a third.
Page 14 of 18
<PAGE> 15
48.3. The arbitrator or arbitrators shall have full power to
determine all issues of fact and of law necessary to determine
whether ZEROS has the right to terminate this Agreement
pursuant to the notice or notices given, or what, if any,
remedy Licensee may be entitled to due to the failure of
refusal of ZEROS as described in Paragraph
48.4. 43, above, and the determination of the arbitrators thereon
shall be final and conclusive, and binding on the parties
hereto, subject only to the provisions of the Uniform
Arbitration Act. Any such determination of an issue of fact or
law made by the arbitrators, however, shall be binding on the
parties hereto only with respect to and in connection with the
particular arbitration proceeding and the specific final
decision or award of the arbitrators made therein, and shall
not be binding on the parties hereto for any other purpose.
48.5. The cost of arbitration shall be taxed and borne as provided
in the Uniform Arbitration Act.
48.6. The serving of proper and timely demand for arbitration shall
suspend the running of any period for curing a default or
shall suspend the effectiveness of any termination of this
Agreement, as the case may be, until the decision or award of
the arbitrators is made.
49. Automatic Termination
This Agreement shall terminate immediately on the occurrence of any of the
following events, without the necessity of notice of any kind by either party.
49.1. The termination of Licensee's right to possession of the
premises designated in Paragraph 2, above, subject, however,
to the provisions of Paragraph 50, below.
49.2. The adjudication of Licensee as a Debtor as that term is
defined in the federal Bankruptcy Code, 11 U.S.C., or the
filing of any petition by or against Licensee, under the
federal Bankruptcy Code or the laws of any state or territory
relating to relief of debtors, for reorganization,
arrangement, or other similar relief provided therein, unless
such petition filed against Licensee is dismissed within sixty
days.
49.3. The making by Licensee of a general assignment for the benefit
of creditors.
Page 15 of 18
<PAGE> 16
49.4. The appointment of any receiver, trustee, sequestrator, or
similar officer to take charge of Licensee's business, or any
attachment, execution, levy, seizure, or appropriation by any
legal process of Licensee's interest in this Agreement, unless
the appointment of such officer is vacated or discharged or
the effect of such legal process is otherwise released within
sixty days.
50. Relocation of Licensee's Offices
If Licensee's right to possession of the premises designated in Paragraph 2,
above, is terminated, prior to expiration of the terms of this Agreement, and
is without fault or affirmative action on the part of Licensee, then, within
ninety days after Licensee notifies ZEROS that such termination has occurred or
will occur, ZEROS shall propose to Licensee a new location from which Licensee
may maintain its offices for the remainder of the term of this Agreement.
51. Obligations On and After Termination
On termination of this Agreement, whether by lapse of time, by
termination, by mutual consent of the parties, by operation of law, or
in any other manner, Licensee shall cease to be an official holder of
the license to any products or services of ZEROS, and Licensee and all
persons directly or indirectly owning any interest in Licensee or in
any way associated with or related to Licensee shall:
51.1. Promptly cause Licensee to pay sums owing from Licensee to
ZEROS.
51.2. Immediately and permanently discontinue the use of any and all
of the patents, proprietary marks, the trade secrets, the
indicia, and the license of the ZEROS units, of ZEROS.
51.3. Immediately and permanently remove, destroy, or obliterate, at
Licensee's expense, all signs containing any of ZEROS'
proprietary marks or indicia.
51.4. Promptly destroy or surrender to ZEROS all stationery,
letterheads, forms, printed matter, promotional displays, and
advertising containing any of the patents, proprietary marks
or indicia of ZEROS.
51.5. Immediately and permanently discontinue all advertising placed
by Licensee as an authorized license holder.
51.6. Sell to ZEROS all or such part of any ZEROS unit(s) on hand as
of the date of termination as ZEROS may request in writing.
Page 16 of 18
<PAGE> 17
51.7. Thereafter refrain from doing anything tending to indicate
that Licensee is or was a license holder, or is or was in any
way associated with ZEROS.
52. General Provisions Regarding Termination
52.1. Termination of this Agreement under any circumstances shall
not abrogate, impair, release, or extinguish any debt,
obligation, or liability of Licensee to ZEROS which may have
accrued hereunder.
52.2. All covenants and agreements of Licensee which by their terms
or by reasonable implication are to be performed, in whole or
in part, after the termination of this Agreement, shall
survive such termination, including but not limited to,
Licensee's obligation to maintain the secrecy and
confidentiality of the patents and trade secrets.
MISCELLANEOUS PROVISIONS
53. Licensee Not Agent of ZEROS
This Agreement does not in any way create the relationship of principal and
agent between ZEROS and Licensee, and in no circumstances shall the Licensee be
considered an agent of ZEROS nor shall ZEROS consider Licensee an agent.
54. Non-Waiver
No failure by ZEROS to take action on account of any default by Licensee,
whether in a single instance or repeatedly, shall constitute a waiver of any
such default or of the performance required of Licensee.
55. Invalidity
If any provision of this Agreement shall be invalid or unenforceable, such
provision shall be deemed modified in scope or application to the extent
necessary to render the same valid or shall be excised from this Agreement as
the situation may require, and this Agreement shall be construed and enforced
as if such provision had been included herein as so modified in scope or
application or as if such provision had not been included herein.
56. Notices
Any notice or demand given or made pursuant to the terms of this Agreement
shall be deemed to be properly given when deposited in the United States mail,
registered or certified, postage prepaid, addressed in the following manner:
Page 17 of 18
<PAGE> 18
56.1. If given to ZEROS, it shall be addressed to ZEROS' address
stated above, or at such changed address as ZEROS may from
time to time designate.
56.2. If given to Licensee, it shall be addressed to Licensee's
address stated above, or at such changed address as Licensee
may from time to time designate.
57. Entire Agreement
This written Agreement contains the entire agreement between the parties. There
are merged herein all prior and collateral representations, promises, and
conditions in connection with the subject matter hereof Any representation,
promise, or condition not incorporated herein shall not be binding on either
party. Any matter not specifically granted by this Agreement, is not available
to Licensee without specific written consent and authorization from ZEROS.
58. Cost of Enforcement or Defense
In the event ZEROS is required to employ legal counsel or to incur other
expense to enforce any obligation of Licensee under this Agreement, or to
defend against any claim, demand, action, or proceeding by reason of Licensee's
failure to perform any obligation imposed on Licensee by this Agreement, and
provided that legal action is filed by or against ZEROS and such action or its
settlement establishes Licensee's default under this Agreement, ZEROS shall be
entitled to recover from Licensee the amount of all reasonable attorneys' fees
of such counsel and all other expenses incurred in enforcing such obligation or
in defending against such claim, demand, action, or proceeding.
59. Controlling Law
This Agreement, including all matters relating to its validity, construction,
performance, and enforcement, shall be governed by laws of the State of Texas.
Executed at Houston, Texas, on the day and year first written above.
ZEROS USA, Inc. ZERO California Corporation
/s/ STEVE CLARK /s/ ROBERT B. MARTIN
- -------------------------------- --------------------------------------
By: Steve Clark, President By: Robert B. Martin
Lawson ZEROS Corporation Lawsons ZEROS Corporation
/s/ RICHARD LAWSON /s/ KIM LAWSON
- -------------------------------- --------------------------------------
By: Richard Lawson By: Kim Lawson
Page 18 of 18
<PAGE> 1
EXHIBIT 20 (1)
FORM OF
WARRANT TO PURCHASE
COMMON STOCK OF
ZEROS USA, INC.
FROM STEVE L. CLARK
No. W-
Void after 5:00 P.M. Central Standard Time on _________________.
This is to verify that, FOR VALUE RECEIVED, ________________________,
(hereinafter referred to as the "Holder") is entitled to purchase, subject to
the terms and conditions hereof, from Steve L. Clark ("Clark") common shares in
ZEROS USA, Inc., a Texas corporation ("Company"), _____________ common shares
in the Capital Stock, of the Company (the "Common Stock") at any time during
the period following the receipt of this Warrant (the "Commencement Date") and
ending at 5:00 P.M. Central Standard Time on ______________, (the "Termination
Date") at an exercise price of $!.___ per share. The number of shares of
Common Stock purchasable upon exercise of this Warrant and the exercise price
per share shall be subject to adjustment from time to time upon the occurrence
of certain events as set forth below.
The Common Shares or any other shares or other units of stock or other
securities or property, or any combination thereof then receivable upon
exercise of this Warrant, as adjusted from time to time, are sometimes referred
to hereinafter as "Exercise Shares." This exercise price per share as from
time to time in effect is referred to hereinafter as the "Exercise Price."
1. EXERCISE OF WARRANT; ISSUANCE OF EXERCISE SHARES.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole
or in part at any time or from time to time on or after the Commencement Date
and until and including the Termination Date, upon surrender on any business
day to Clark at his principal office, presently located at the address of the
Company set forth in Paragraph 9 hereof, (or such other office of the Company,
if any, as shall theretofore have been designated by Clark by written notice to
the Holder), together with: (i) a completed and executed Notice of Warrant
Exercise in the form set forth in Appendix A hereto and made a part hereof and
(ii) payment of the full Exercise Price for the amount of Exercise Shares set
forth in the Notice of Warrant Exercise, in lawful money of the United States
of America by certified check or cashier's check, made payable to the order of
Clark.
In the event that this Warrant shall be duly exercised in part prior
to the Termination Date, Clark shall issue a new Warrant or Warrants of like
tenor evidencing the rights of the Holder
<PAGE> 2
thereof to purchase the balance of the Exercise Shares purchasable under the
Warrant so surrendered that shall not have been purchased.
No adjustments shall be made for any cash dividends on Exercise Shares
issuable upon exercise of the Warrant. Clark shall cancel Warrant Certificates
surrendered upon exercise of Warrants.
(b) ISSUANCE OF EXERCISE SHARES; DELIVERY OF WARRANT CERTIFICATE.
Clark shall cause the Company, within ten (10) business days of the exercise of
this Warrant or as soon thereafter as is practicable, issue in the name of and
cause to be delivered to the Holder (or such other person or persons, if any,
as the Holder shall have designated in the Notice of Warrant Exercise) one or
more certificates representing the Exercise Shares to which the Holder (or such
other person or persons) shall be entitled upon such exercise under the terms
hereof. Such certificate or certificates shall be deemed to have been issued
and the Holder (or such other person or persons so designated) shall be deemed
to have become the record holder of the Exercise Shares as of the date of the
due exercise of this Warrant.
(c) EXERCISE SHARES FULLY PAID AND NON-ASSESSABLE. The Company
agrees to cooperate fully, be bound by this Certificate and covenants that all
Exercise Shares issuable upon the due exercise of the Warrant represented by
this Warrant Certificate will, upon issuance in accordance with the terms
hereof, be duly authorized, validly issued, fully paid and non-assessable and
free and clear of all taxes (other than taxes which, pursuant to Paragraph 2
hereof, neither Clark nor the Company shall be obligated to pay) or liens,
charges, and security interests created by the Company or Clark with respect to
the issuance thereof.
(d) RESERVATION OF EXERCISE SHARES. At any time following the
Commencement Date, before taking any action which would cause an adjustment
pursuant to this Paragraph increasing the number of shares of capital stock
constituting the Exercise Shares, Clark will take any action which may, in the
opinion of his counsel, be necessary in order that Clark have remaining, after
such adjustment, a number of shares of such capital stock sufficient to permit
the exercise of all the then outstanding Warrants of like tenor immediately
after such adjustment. Clark may, but shall not be limited to reserve and keep
available, out of the aggregate of his common shares of capital stock, Exercise
Shares upon exercise of Warrants, through the Termination Date, the number of
Exercise Shares deliverable upon the full exercise of this Warrant and all
other Warrants of like tenor then outstanding.
(e) FRACTIONAL SHARES. Clark shall not be required to issue
fractional shares of capital stock upon the exercise of this Warrant or to
deliver Warrant Certificates which evidence fractional shares of capital stock.
In the event that any fraction of an Exercise Share would, except for the
provisions of this subparagraph (e), be issuable upon the exercise of this
Warrant, Clark shall pay to the Holder exercising the Warrant an amount in cash
equal to such fraction multiplied by the Current Market Value of the Exercise
Share. For purposes of this subparagraph (e), the current Market Value shall
be determined as follows:
(i) if the Exercise Shares are traded in the over-the-counter
market and not on any established securities exchange and not in the NASDAQ
Reporting System, the average of the mean between the last bid and asked prices
per share, as reported by the National Quotation
2
<PAGE> 3
Bureau, Inc. or an equivalent, generally accepted reporting service, for the
last business day prior to the date on which this Warrant is exercised, or if
not so reported, the average of the closing bid and asked prices for an
Exercise Share as furnished to the Clark by any member of the National
Association of Securities Dealers, Inc., selected by the Clark for that
purpose.
(ii) if the Exercise Shares are listed or traded on a
recognized securities exchange or in the NASDAQ National Market System, the
closing price on the principal established securities exchange on which they
are so listed or traded or in the NASDAQ national Market System, as the case
may be, on the last business day prior to the date of the exercise of this
Warrant. The closing price referred to in this clause (ii) shall be the last
reported sales price or, in case no such reported sale takes place on such day,
the average of the reported closing bid and asked prices, in either case on the
principal recognized securities exchange on which the Exercise Shares are then
listed or in the NASDAQ Reporting System; or
(iii) if no such closing price or closing bid and asked
prices are available, as determined in any reasonable manner as may be
prescribed by the Board of Directors of the Company.
2. PAYMENT OF TAXES. Clark need not pay any documentary stamp taxes,
if any, attributable to the initial issuance of Exercise Shares upon the
exercise of this Warrant. Furthermore, Clark shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrant Certificates or any certificates for Exercise Shares in
a name other than that of the Holder of a Warrant Certificate surrendered upon
the exercise of a Warrant, and Clark shall not be required to have issued or
have delivered such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to Clark the amount of such tax
or shall have established to the satisfaction of Clark or the Company that such
tax has been paid.
3. MUTILATED OR MISSING WARRANT CERTIFICATES. In case any Warrant
Certificate shall be mutilated, lost, stolen or destroyed, Clark may in his
discretion issue, in exchange and substitution for and upon cancellation of the
mutilated Warrant Certificate, or in lieu of and in substitution for the
Warrant Certificate lost, stolen or destroyed, a new Warrant Certificate or
Warrant Certificates of like tenor and in the same aggregate denomination, but
only (i) in the case of loss, theft or destruction, upon receipt of evidence
satisfactory to Clark of such loss, theft or destruction of such Warrant
Certificate and indemnity or bond, if requested, also satisfactory to them and
(ii) in the case of mutilation, upon surrender of the mutilated Warrant.
Applicants for such substitute Warrant Certificates shall also comply with such
other reasonable regulations and pay such other reasonable charges as Clark or
his counsel may prescribe.
4. RIGHTS OF HOLDER. The Holder shall not, solely by virtue of
anything contained in this Warrant Certificate, be entitled to any right
whatsoever, either in law or equity, of a stockholder of the Company, including
without limitation, the right to receive dividends or to vote or to consent or
to receive notice as a shareholder in respect of the meetings of shareholders
or the election of directors of the Company or other matters.
3
<PAGE> 4
5. ADJUSTMENT OF EXERCISE SHARES AND EXERCISE PRICE. The Exercise price
and the number and kind of Exercise Shares purchasable upon the exercise of
this Warrant shall be subject to adjustment from time to time upon the
happening of certain events as hereinafter provided. The Exercise Price in
effect at any time and the number and kind of securities purchasable upon
exercise of each Warrant shall be subject to adjustment as follows:
(a) In the case the Company shall (i) subdivide or reclassify its
outstanding Common Stock into a greater number of shares, or (ii) combine or
reclassify its outstanding Common Stock into a smaller number of shares, the
Exercise Price in effect on the effective date of such subdivision, combination
or reclassification shall be proportionally adjusted so that the Holder of this
Warrant exercised after such date shall be entitled to receive the aggregate
number and kind of shares which, if this Warrant had been exercised by such
Holder immediately prior to such date, he would have owned upon such exercise
and been entitled to receive upon such subdivision, combination or
reclassification. For example, if the Company declares a one for four reverse
split and the Exercise Price immediately prior to such event was $1.00 per
share, the adjusted Exercise Price immediately after such event would be $4.00
per share. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) Whenever the Exercise Price payable upon exercise of each warrant
is adjusted pursuant to Subsection (a) above, the number of Exercise Shares
purchasable upon exercise of this Warrant shall simultaneously be adjusted by
multiplying the number of Exercise Shares initially issuable upon exercise of
this Warrant by the Exercise Price in effect on the date hereof and dividing
the product so obtained by the Exercise Price, as adjusted.
(c) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01)
in such price; provided, however, that any adjustments which by reason of this
Subsection (c) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Paragraph (5) shall be made to the nearest cent or to
the nearest one-hundredth of a share, as the case may be. Anything in the
Paragraph (5) to the contrary notwithstanding, the Company shall be entitled,
but shall not be required, to make such changes in the Exercise Price, in
addition to those required by this Paragraph (5), as it, in its sole
discretion, shall determine to be advisable in order that any dividend or
distribution in shares of Common Stock, subdivision, reclassification or
combination of Common Stock (excluding cash dividends) referred to hereinabove
in this Paragraph (5) hereafter made by the Company to the holders of its
Common Stock shall not result in any tax to the holders of its Common Stock or
securities convertible into Common Stock.
(d) Whenever the Exercise Price is adjusted, as herein provided,
Clark shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of Shares issuable upon exercise of each Warrant to be
mailed to the Holders, at their last addresses appearing in the Warrant
Register. Clark may retain a firm of independent certified public accountants
selected by the Board of Directors (who may be the regular accountants employed
by the Company) to make any computation required by this Paragraph (5), and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment.
4
<PAGE> 5
(e) Whenever the Exercise Price shall be adjusted as required by the
provisions of the foregoing Paragraph, Clark shall forthwith file in the
custody of the secretary or an Assistant Secretary of the Company at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the Holder and the
Company shall, forthwith after each adjustment aside from the prescribed
increase in the Exercise Price, mail a copy by certified mail of such
certificate to the Holder.
6. RESTRICTIONS ON TRANSFERABILITY; RESTRICTIVE LEGEND. Neither this
Warrant nor the Exercise Shares shall be transferable except in accordance with
the provisions of this Paragraph.
(a) RESTRICTIONS ON TRANSFER; INDEMNIFICATION. Neither this
Warrant nor any Exercise Shares may be offered for sale or sold, or otherwise
transferred or sold in any transaction which would constitute a sale thereof
within the meaning of the Securities Act of 1933, as amended (the "1933 Act"),
unless (i) such security has been registered for sale under the 1933 Act and
registered or qualified under applicable state securities laws relating to the
offer and sale of securities, (ii) exemptions from the registration
requirements of the 1933 Act and the registration or qualification requirements
of all such state securities laws are available and the Company shall have
received an opinion of counsel satisfactory to the Company that the proposed
sale or other disposition of such securities may be effected without
registration under the 1933 Act and would not result in any violation of any
applicable state securities laws relating to the registration or qualification
of securities for sale, such counsel and such opinion to be satisfactory to the
Company.
5
<PAGE> 6
The Company intends this Warrant to be non transferable.
The Holder agrees to indemnify and hold harmless Clark and the Company
against any loss, damage, claim or liability arising from the disposition of
this Warrant or any Exercise Share held by such holder or any interest therein
in violation of the provisions of this Paragraph (6).
(b) RESTRICTIVE LEGENDS. Unless and until otherwise permitted by
this Paragraph 6, this Warrant, each Warrant Certificate issued to the Holder
or to any transferee or assignee of this Warrant, and each Certificate
representing Exercise Shares issued upon exercise of this Warrant or to any
transferee of the person to whom the Exercise Shares were issued, shall bear a
legend setting forth the requirements of Paragraph (a) of this Paragraph 6,
together with such other legend or legends as may otherwise be deemed necessary
or appropriate by counsel to Clark and the Company.
(c) NOTICE OF PROPOSED TRANSFERS. Prior to any transfer, offer to
transfer or attempted transfer of this Warrant or any Exercise Share, the
holder of such security shall give written notice to Clark of such holder's
intention to effect such transfer. Each such notice shall (x) describe the
manner and circumstances of the proposed transfer in sufficient detail, and
shall contain an undertaking by the person giving such notice to furnish such
other information as may be required, to enable counsel to render the opinions
referred to below, and shall (y) designate the counsel for the person giving
such notice, such counsel to be satisfactory to Clark. The person giving such
notice shall submit a copy thereof to the counsel designated in such notice and
Clark shall submit a copy thereof to his counsel, and the following provisions
shall apply:
(i) If, in the opinion of each such counsel, the proposed
transfer of this Warrant or Exercise Share, as appropriate, may be effected
without registration of such security under the 1933 Act, the Company shall, as
promptly as practicable, so notify the holder of such security in accordance
with the terms of the notice delivered by such holder to Clark and the Company.
Each certificate evidencing the securities thus to be transferred (and each
certificate evidencing any untransfered balance of the securities evidenced by
such certificate) shall bear the restrictive legends referred to in
subparagraph (b) above, unless in the opinion of each such counsel such legend
is not required in order to insure compliance with the 1933 Act.
(ii) If, in the opinion of either of such counsel, the
proposed transfer of securities may not be effected without registration under
the 1933 Act, the Company shall, as promptly as practicable, so notify the
holder thereof. However, the Company shall have no obligation to register such
securities under the 1933 Act.
The holder of the securities giving the notice under this subparagraph
(c) shall not be entitled to transfer any of the securities until receipt of
notice from the Company under Paragraph (i) of this subparagraph (c) if, in the
opinion of counsel to the Company, such restrictive legend is no longer
necessary.
6
<PAGE> 7
7. NOTICES. All notices or other communications under this
Warrant Certificate shall be in writing and shall be deemed to have been given
if delivered by hand or mailed by certified mail, postage prepaid, return
receipt requested, addressed as follows:
If to Clark
Steve L. Clark
507 North Belt East, Suite 550
Houston, Texas 77060
If to the Company:
ZEROS USA, Inc.
507 North Belt East, Suite 550
Houston, Texas 77060
Attention:
----------------
and to the Holder:
------------------------------------
------------------------------------
------------------------------------
at the address of the Holder appearing on the books of Clark
or the Company's transfer agent, if any.
Either Clark, the Company or the Holder may from time to time change
the address to which notices to it are to be mailed hereunder by notice in
accordance with the provisions of the Paragraph 7.
8. SUPPLEMENTS AND AMENDMENTS. Clark may from time to time supplement
or amend this Warrant Certificate without the approval of any holders of
Warrants in order to cure any ambiguity or to correct or supplement any
provision contained herein which may be defective or inconsistent with any
other provision, or to make any other provisions in regard to matters or
questions herein arising hereunder which Clark may deem necessary or desirable
and which shall not materially adversely affect the interests of the Holder.
9. SUCCESSORS AND ASSIGNS. This Warrant shall inure to the benefit of
and be binding on the respective successors, assigns and legal representatives
of the Holder and Clark.
10. SEVERABILITY. If for any reason any provision, paragraph or terms
of this Warrant Certificate is held to be invalid or unenforceable, all other
valid provisions herein shall remain in full
7
<PAGE> 8
force and effect and all terms, provisions and paragraphs of this Warrant shall
be deemed to be severable.
11. GOVERNING LAW. This warrant shall be deemed to be a contract made
under the laws of the state of Texas and for all purposes shall be governed by
and construed in accordance with the laws of said State.
12. HEADINGS. Paragraph and subparagraph headings, used herein are
included for convenience of reference only shall not affect the construction of
this Warrant Certificate nor constitute a part of this Warrant Certificate for
any other purpose.
IN WITNESS WHEREOF, Clark and the Company has caused these presents to
be duly executed as of the ________ day of _________, 1997.
ZEROS USA, INC.
By:
------------------------
Title:
ATTEST:
By:
-------------------------
Title:
STEVE L. CLARK
---------------------------
8
<PAGE> 9
APPENDIX A
NOTICE OF WARRANT EXERCISE
Pursuant to a Warrant by and between the undersigned, Steve L. Clark
and ZEROS USA, inc., a Texas corporation (the "Company"), dated as of
_____________, 1997, the undersigned hereby irrevocably elects to exercise its
warrant to the extent of purchasing ________________ common shares of Capital
Stock (the "Warrant Shares"), of the Company as provided for therein.
The undersigned hereby represents and agrees that the Warrant Shares
purchased pursuant hereto are being purchased for investment and not with a
view to the distribution or resale thereof, and that the undersigned
understands that said Warrant Shares have not been registered under the
Securities Act of 1933, as amended.
Payment of the full Purchase Price of the Warrant Shares is enclosed
herewith, in the form of a check made payable to Steve L. Clark.
The undersigned request that a certificate for the Warrant Shares be
issued in the name of :
-----------------------------------------
-----------------------------------------
-----------------------------------------
(Please print name, address and social security number)
Dated: , 199
------------------------------------------ --
Address:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Signature:
----------------------------------------------
9
<PAGE> 1
EXHIBIT 20(2)
[TEXAS NATURAL RESOURCE CONSERVATION COMMISSION LETTERHEAD]
April 29, 1997
Mr. Steve Clark
Zeros U.S.A., Inc.
P.O. Box Z
Highlands, Texas 77562
Re: Permit Requirements
ZEROS Recycling System
Highlands, Harris County
Dear Mr. Clark:
This is in response to your letter dated March 26, 1997 concerning the proposed
construction and testing of your Zero-Emission Energy Recycling Oxidation
System. We understand this unit will use natural gas only during the tests, and
that the unit has no emissions to the atmosphere.
After evaluation of the information which you have furnished, we have
determined that your proposed construction and testing will not create a new
source of air contaminants or increase emissions of air contaminants from
existing sources. On this basis, no permit will be required from the Office of
Air Quality. You are reminded that regardless of whether a construction permit
is required, this facility must be in compliance with all air quality rules and
regulations of the Texas Natural Resource Conservation Commission at all times.
Your cooperation in this matter is appreciated. If you have further questions,
please contact me at (512) 239-1079.
Sincerely,
/s/ LAWSON L. PAYNE
Lawson L. (Skect) Payne
Coatings and Combustion Section
New Source Review Permits Division
LP/bg
cc: Ms. Karen Atkinson, Air Program Manager, Houston
Mr. Rob Barrett, Director, Harris County Pollution Control Department,
Pasadena
<PAGE> 1
EXHIBIT 20(3)
FINANCIAL SERVICES AGREEMENT
CAPITAL AMERICAN ASSOCIATES, INCORPORATED
AND
---------------------
This Agreement, entered into this _____________ day of ______________, 1997 by
and between Capital American Associates, Incorporated (hereinafter referred to
as "Capital") and ____________________________ (hereinafter referred to as
"Client").
WITNESSETH AS FOLLOWS:
Whereas, Capital is organized to provide capital-financial and business
development services, and;
Whereas, Client is a business organization interested in purchasing the
services of Capital;
NOW, THEREFORE, it is agreed between the parties as follows:
SECTION I: SERVICES PROVIDED BY CAPITAL
A. Review Client's past business and individual records, documents,
reports and business-financial plan.
B. Draft and prepare a business plan document for the review and approval
of Client.
C. Prepare documents for submittal to government agencies for guarantees
and credit insurance to enable financing for Client.
D. Identify business and financial resources and advise Client on the
following:
1. Investors, Lenders, Surety Companies and Financing Groups
2. Government Guarantees, Credit Insurance and Private Guarantors
3. Financial, Capitalization and Business Development Strategies
E. Make business and financial presentations at the direction and
instruction of Client. Such activity will only be conducted subject to
final and written approval of Client.
F. Work with Client's representatives to define best alternatives for
business and financial development.
G. Communicate regularly with Client's representatives to advise on
development of business and financial alternatives. Maintain an "on
call" position with Client during the term of this contract.
SECTION II: FEES
Client agrees to compensate Capital for services and expenses on a transaction
by transaction basis as is approved by the parties.
Fee agreements on transactions are to be made as ADDENDUMS to this Agreement
and require prior approval by the parties.
<PAGE> 2
SECTION III: GENERAL CONDITIONS
A. Capital is to use its best-efforts to perform the services as provided
in Section I of this Agreement.
B. Client agrees to allow Capital reasonable access to Client's place of
business, books, records and documents to permit Capital to perform its
services as completely as possible.
Client further agrees to cooperate with Capital on all reasonable
requests made by Capital in the performance of this contract.
C. Client understands and acknowledges that Capital has made no express or
implied warranties apart from this Agreement.
SECTION IV: CONCLUSION
This Agreement, executed in duplicate, shall remain in effect for five (5)
years from the date of signing. It sets forth the entire contract between the
parties and may be canceled, modified or amended only by a written instrument
executed by each of the parties thereto.
This Agreement shall be construed as a Texas Contract.
Witness: the hand and seals of the parties hereto, each duly authorized, the
day and year first written above.
BY:
----------------------------------
CLIENT
BY:
----------------------------------
CAPITAL AMERICAN ASSOCIATES, INC.
<PAGE> 3
ADDENDUM ECI
EXPORT CREDIT INSURANCE AND FINANCIAL SERVICES
SCHEDULE OF FEES AND EXPENSES
This Addendum is made a part of the Financial Services Agreement between Client
and Capital American Associates, Inc. dated ____________, 1997 and shall run
concurrently with said agreement.
1. Application and Financial Documentation Preparation
(Due at signing of Financial Services Agreement) $650
2. Preparation of packages for presentation to banks,
lenders, and investors. Per presentation fee (Due
with presentation as approved by the Client and
presented) $275
3. Credit Insurance Placement Fee is one percent (1%) of the amount of
coverage placed. (Due when coverage is accepted by the Client)
4. Placement Fee. Based on one percent (1%) of the amount of funding obtained
funding by sources presented by Capital American. (Due at funding)
5. Client agrees to reimburse Capital American for expenses incurred on
behalf of Client and Client's project, subject to expense having the prior
approval of Client.
DATED:
---------------------------------
BY: CLIENT
------------------------------------
BY: CAPITAL AMERICAN ASSOCIATES, INC.
------------------------------------
<PAGE> 1
EXHIBIT 20(4)
NATIONAL UNION
FIRE INSURANCE COMPANY POLICY NUMBER:
OF PITTSBURGH, PA.(R) 485-25-20
A CAPITAL STOCK COMPANY RENEWAL OF:
ADMINISTRATIVE OFFICES:
70 PINE STREET, NEW YORK, N.Y. 10270-0150
DIRECTORS AND OFFICERS INSURANCE AND COMPANY REIMBURSEMENT POLICY
NOTICE: EXCEPT TO SUCH EXTENT AS MAY OTHERWISE BE PROVIDED HEREIN, THE COVERAGE
OF THIS POLICY IS LIMITED GENERALLY TO LIABILITY FOR ONLY THOSE CLAIMS THAT ARE
FIRST MADE AGAINST THE INSUREDS AND REPORTED TO THE INSURER DURING THE POLICY
PERIOD. PLEASE READ THE POLICY CAREFULLY AND DISCUSS THE COVERAGE THEREUNDER
WITH YOUR INSURANCE AGENT OR BROKER.
NOTICE: THE LIMIT OF LIABILITY AVAILABLE TO PAY JUDGMENTS OR SETTLEMENTS SHALL
BE REDUCED BY AMOUNTS INCURRED FOR LEGAL DEFENSE. AMOUNTS INCURRED FOR LEGAL
DEFENSE SHALL BE APPLIED AGAINST THE RETENTION AMOUNT.
NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND; HOWEVER, THE INSURER
MAY, AND IN CERTAIN CIRCUMSTANCES MUST, ADVANCE DEFENSE COSTS PAYMENTS PRIOR TO
THE FINAL DISPOSITION OF A CLAIM.
DECLARATIONS
ITEM 1. NAMED CORPORATION: ZEROS USA INCORPORATED
MAILING ADDRESS: BOX Z
HIGHLANDS, TX 77562
STATE OF INCORPORATION OF THE NAMED CORPORATION:
Texas
ITEM 2. SUBSIDIARY COVERAGE: any past, present or future Subsidiary of the
Named Corporation
ITEM 3. POLICY PERIOD: From April 15, 1997 to April 15, 1998 (12:01 A.M.
Standard Time at the address stated in Item 1)
ITEM 4. LIMIT OF LIABILITY: $500,000 aggregate for Coverages A and B combined
(including Defense Costs)
ITEM 5. RETENTION:
Company Reimbursement and indemnifiable Loss: $20,000 for Loss arising
from claims
alleging the same
Wrongful Act or
related Wrongful
Acts.
ITEM 6. PREMIUM: $5,500
/s/ [ILLEGIBLE] Apr 17, 1997
---------------------------------------
BUSINESS INSURANCE AGENCY, INC. Authorized Representative
1000 N. POST OAK ROAD
NUMBER 255
HOUSTON, TX 77055 ---------------- -------------
285079 Countersignature Countersigned
Date At
<PAGE> 2
NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA.(R)
DIRECTORS AND OFFICERS INSURANCE AND COMPANY REIMBURSEMENT POLICY
In consideration of the payment of the premium, and in reliance upon the
statements made to the Insurer by application forming a part hereof and its
attachments and the material incorporated therein, National Union Fire
Insurance Company of Pittsburgh, PA.(R) herein called the "Insurer", agrees as
follows:
1. INSURING AGREEMENTS
COVERAGE A: DIRECTORS AND OFFICERS INSURANCE
This policy shall pay the Loss of each and every Director or Officer of
the Company arising from any claim or claims first made against the
Directors or Officers and reported to the Insurer during the Policy Period
or the Discovery Period (if applicable) for any alleged Wrongful Act in
their respective capacities as Directors or Officers of the Company,
except for and to the extent that the Company has indemnified the
Directors or Officers. The Insurer shall, in accordance with and subject
to Clause 9, advance to each and every Director and Officer the Defense
Costs of such claim or claims prior to their final disposition.
COVERAGE B: COMPANY REIMBURSEMENT INSURANCE
This policy shall reimburse the Company for Loss arising from any claim or
claims which are first made against the Directors or Officers and reported
to the Insurer during the Policy Period or the Discovery Period (if
applicable) for any alleged Wrongful Act in their respective capacities as
Directors or Officers of the Company, but only when and to the extent that
the Company has indemnified the Directors or Officers for such Loss
"pursuant to law, common or statutory, or contract, or the Charter or
By-laws of the Company duly effective under such law which determines and
defines such rights of indemnity.
2. DEFINITIONS
(a) The "Company" means the Named Corporation designated in Item 1 of the
Declarations and any Subsidiary thereof.
(b) "Defense Costs" means reasonable and necessary fees, costs and
expenses consented to by the Insurer (including premiums for any
appeal bond, attachment bond or similar bond, but without any
obligation to apply for or furnish any such bond) resulting solely
from the investigation, adjustment, defense and appeal of any claim
against the Insureds, but excluding salaries of Officers or employees
of the Company.
(c) "Insured(s)", or "Director(s) or Officer(s)", means any past, present
or future duly elected or appointed Directors or Officers of the
Company. Coverage will automatically apply to all new Directors or
Officers after the inception date of this policy.
(d) "Loss" means damages, judgments, settlements and Defense Costs;
however, Loss shall not include civil or criminal fines or penalties
imposed by law, punitive or exemplary damages, the multiplied portion
of multiplied damages, taxes, any amount for which the Insureds are
not financially liable or which are without legal recourse to the
Insureds, or matters which may be deemed uninsurable under the law
pursuant to which this policy shall be construed.
(e) "Policy Period" means the period of time from the inception date
shown in Item 3 of the Declarations to the earlier of the expiration
date shown in Item 3 of the Declarations or the effective date of
cancellation of this policy; however, to the extent that coverage
under this policy replaces coverage in other policies terminating at
noon standard time on the inception date of such coverage hereunder,
then such coverage as is provided by this policy shall not become
effective until such other coverage has terminated.
-1-
<PAGE> 3
(f) "Subsidiary" means a corporation or which the Named Corporation owns
on or before the inception of the Policy Period more than 50% of the
issued and outstanding voting stock either directly or indirectly
through one or more of its Subsidiaries.
"Subsidiary" also means any corporation which becomes a Subsidiary
during the Policy Period but only upon the condition that within 90
days of its becoming a Subsidiary, the Named Corporation shall have
provided the Insurer with full particulars of the new Subsidiary and
agreed to any additional premium and/or amendment of the provisions
of this policy required by the Insurer relating to such new
Subsidiary. Further, coverage as shall be afforded to the new
Subsidiary is conditioned upon the Named Corporation paying when due
any additional premium required by the Insurer relating to such new
Subsidiary. A corporation becomes a Subsidiary when the Named
Corporation owns more than 50% of the issued and outstanding voting
stock either directly or indirectly through one or more of its
Subsidiaries.
(g) "Wrongful Act" means any breach of duty, neglect, error,
misstatement, misleading statement, omission or act by the Directors
or Officers of the Company in their respective capacities as such, or
any matter claimed against them solely by reason of their status as
Directors or Officers of the Company.
3. EXTENSIONS
Subject otherwise to the terms hereof, this policy shall cover Loss
arising from any claims made against the estates, heirs, or legal
representatives of deceased Directors or Officers, and the legal
representatives of Directors or Officers in the event of their
incompetency, insolvency or bankruptcy, who were Directors or Officers at
the time the Wrongful Acts upon which such claims are based were
committed.
4. EXCLUSIONS
The Insurer shall not be liable to make any payment for Loss in connection
with any claim or claims made against the Directors or Officers:
(a) arising out of, based upon or attributable to the gaining in fact of
any personal profit or advantage to which they were not legally
entitled;
(b) arising out of, based upon or attributable to the committing in fact
of any criminal or deliberate fraudulent act;
(c) arising out of, based upon or attributable to the payment to the
Insureds of any remuneration without the previous approval of the
stockholders of the Company, which payment without such previous
approval shall be held to have been illegal;
(d) arising out of, based upon or attributable to profits in fact made
from the purchase or sale by the Insureds of securities of the
Company within the meaning of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of
any state statutory law;
(The Wrongful Act of any Director or Officer shall not be imputed to any
other Director or Officer for the purpose of determining the applicability
of the foregoing exclusions 4(a) through 4(d))
(e) alleging, arising out of, based upon or attributable to any attempt,
whether successful or unsuccessful, by any person or entity to
acquire securities of the Company against the opposition of the Board
of Directors of the Company ("Board"), or any action, whether
successful or unsuccessful, by the Company or the Board to resist
such attempts; however, this exclusion shall not apply if, before
taking any such resistive action, the Company or the Board has
obtained a written opinion (1) from independent legal counsel that
such resistive action is a lawful exercise of the Board's business
judgment and (2)
-2-
<PAGE> 4
from an independent investment banking firm that the price of such
acquisition of securities is inadequate, and that any financial
transaction approved by the Board which is resistive of such
acquisition is fair to the Company and its shareholders;
(f) alleging, arising out of, based upon or attributable to any failure
or omission on the part of the Insureds or the Company to effect and
maintain insurance;
(g) alleging, arising out of, based upon or attributable to the facts
alleged, or to the same or related Wrongful Acts alleged or
contained, in any claim which has been reported, or in any
circumstances of which notice has been given, under any policy of
which this policy is a renewal or replacement or which it may succeed
in time;
(h) alleging, arising out of, based upon or attributable to any pending
or prior litigation as of the inception date of this policy, or
alleging or derived from the same or essentially the same facts as
alleged in such pending or prior litigation;
(i) which are brought by any Insured or the Company; or which are brought
by any security holder of the Company, whether directly or
derivatively, unless such claim(s) is instigated and continued
totally independent of, and totally without the solicitation of, or
assistance of, or active participation of, or intervention of, any
Insured or the Company; provided, however, this exclusion shall not
apply to wrongful termination of employment claims brought by a
former employee other than a former employee who is or was a Director
of the Company;
(j) alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly;
(1) the actual, alleged or threatened discharge, dispersal, release
or escape of pollutants, or
(2) any direction or request to test for, monitor, clean up, remove,
contain, treat, detoxify or neutralize pollutants,
including but not limited to claims alleging damage to the Company or
its shareholders.
Pollutants includes (but is not limited to) any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke, vapor,
soot, fumes, acids, alkalis, chemicals and waste. Waste includes (but
is not limited to) materials to be recycled, reconditioned or
reclaimed;
(k) alleging, arising out of, based upon or attributable to any act or
omission in their capacities as directors or officers of any other
entity other than the Company, or by reason of their status as a
director or officer of such other entity;
(l) for violation(s) of any of the responsibilities, obligations or
duties imposed upon fiduciaries by the Employee Retirement Income
Security Act of 1974 or amendments thereto or any similar provisions
of state statutory law or common law,
(m) for bodily injury, sickness, disease, death or emotional distress of
any person, or damage to or destruction of any tangible property,
including the loss of use thereof, or for injury from oral or written
publication of a libel or slander or of other defamatory or
disparaging material or of material that violates a person's right of
privacy;
(n) of any Subsidiary for any alleged Wrongful Act occurring at any time
when the Named Corporation did not own more than 50% of the issued
and outstanding voting stock of such Subsidiary either directly or
indirectly through one or more of its Subsidiaries.
-3-
<PAGE> 5
5. LIMIT OF LIABILITY-(FOR ALL LOSS-INCLUDING DEFENSE COSTS)
The limit of liability stated in Item 4 of the Declarations is the limit
of the Insurer's liability for all Loss, under Coverage A and Coverage B
combined, arising out of all claims first made against the Insureds and
reported to the Insurer during the Policy Period and the Discovery Period
(if applicable); however, the limit of liability for the Discovery Period
shall be part of, and not in addition to, the limit of liability for the
Policy Period. Further, any claim which is made subsequent to the Policy
Period or Discovery Period (if applicable) which pursuant to Clause 8(b)
or 8(c) is considered made during the Policy Period or Discovery Period
shall also be subject to the one aggregate limit of liability stated in
Item 4 of the Declarations.
DEFENSE COSTS ARE NOT PAYABLE BY THE INSURER IN-ADDITION TO THE LIMIT OF
LIABILITY. DEFENSE COSTS ARE PART OF LOSS AND AS SUCH ARE SUBJECT TO THE
LIMIT OF LIABILITY FOR LOSS.
6. RETENTION-INDEMNIFIED OR INDEMNIFIABLE LOSS
The Insurer shall only be liable for the amount of Loss arising from a
claim which is in excess of the retention amount stated in Item 5 of the
Declarations, such retention amount to be borne by the Company and/or the
Insureds and shall remain uninsured, with regards to all Loss under
Coverage A or B for which the Company has indemnified or is permitted or
required to indemnify the Insured(s). A single retention amount shall
apply to Loss arising from all claims alleging the same Wrongful Act or
related Wrongful Acts,
7. COINSURANCE CLAUSE
The Insurer shall be liable to pay 95% of Loss excess of the retention
amount described in Clause 6 up to the Limit of Liability described in
Clause 5, it being a condition of this insurance that the remaining 5% of
each and every Loss shall be carried by the Company and the Insureds at
their own risk and be uninsured.
8. NOTICE/CLAIM REPORTING PROVISIONS
NOTICE HEREUNDER SHALL BE GIVEN IN WRITING TO NATIONAL UNION FIRE
INSURANCE COMPANY OF PITTSBURGH, PA,(R). FINANCIAL SERVICES CLAIMS
DEPARTMENT, 70 PINE STREET, NEW YORK, N.Y. 10270-0150.
IF MAILED, THE DATE OF MAILING OF SUCH NOTICE SHALL CONSTITUTE THE DATE
THAT SUCH NOTICE WAS GIVEN AND PROOF OF MAILING SHALL BE SUFFICIENT PROOF
OF NOTICE.
(a) The Company or the Insureds shall, as a condition precedent to the
obligations of the Insurer under this policy, give written notice to
the Insurer as soon as practicable during the Policy Period, or
during the Discovery Period (if applicable), of any claim made
against the Insureds.
(b) If during the Policy Period or during the Discovery Period (if
applicable) written notice of a claim has been given to the Insurer
pursuant to Clause 8(a) above, then any claim which is subsequently
made against the Insureds and reported to the Insurer alleging,
arising out of, based upon or attributable to the facts alleged in
the claim of which such notice has been given, or alleging any
Wrongful Act which is the same as or related to any Wrongful Act
alleged in the claim of which such notice has been given, shall be
considered made at the time such notice was given.
(c) If during the Policy Period or during the Discovery Period (if
applicable) the Company or the Insureds shall become aware of any
circumstances which may reasonably be expected to give rise to a
claim being made against the Insureds and shall give written notice
to the Insurer of the circumstances and the reasons for anticipating
such a claim, with full particulars as to dates and persons involved,
then any claim which is subsequently made against the Insureds and
reported to the Insurer alleging, arising out of, based upon or
attributable to such circumstances or alleging any Wrongful Act which
is the same as or
-4-
<PAGE> 6
related to any Wrongful Act alleged or contained in such
circumstances, shall be considered made at the time such notice of
such circumstances was given.
9. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF
DEFENSE COSTS)
Under Coverage A, except as hereinafter stated, the Insurer shall advance
Defense Costs prior to the final disposition of the claim, unless such
Defense Costs have been advanced by the Company. Such advance payments by
the Insurer shall be repaid to the Insurer by the Insureds, severally
according to their respective interests, in the event and to the extent
that the Insureds shall not be entitled under the terms and. conditions of
this policy to payment of such Loss. Notwithstanding the foregoing, if the
Company is required or permitted to advance such Defense Costs in
accordance with the fullest application of law, common or statutory, or
contract, or the Charter or By-laws of the Company, then the Insurer
assumes no duty to advance Defense Costs prior to the final disposition of
the claim and the retention amount as stated in item 5 of the Declarations
shall apply to such Loss. In such case, however, the Insurer may, in its
absolute discretion, advance all or any part of such Defense Costs prior
to the final disposition of the claim and in such event the advance
payments by the Insurer shall be repaid to the Insurer by the Company or
the Insureds, severally according to their respective interests, in the
event and to the extent that the Company or the Insureds shall not be
entitled under the terms and conditions of this policy to payment of such
Loss.
Under Coverage B, the Insurer assumes no duty to reimburse Defense Costs
prior to the final disposition of the claim. The Insurer may, in its
absolute discretion, reimburse all or any part of such Defense Costs prior
to the final disposition of the claim. In such event, however, such
advance payments by the Insurer shall be repaid to the Insurer by the
Company or the Insureds, severally according to their respective
interests, in the event and to the extent that the Company or the Insureds
shall not be entitled under the terms and conditions of this policy to
payment of such Loss.
THE INSURER DOES NOT, HOWEVER, UNDER THIS POLICY, ASSUME ANY DUTY TO
DEFEND. THE INSUREDS SHALL NOT ADMIT OR ASSUME ANY LIABILITY, ENTER INTO
ANY SETTLEMENT AGREEMENT, STIPULATE TO ANY JUDGMENT OR INCUR ANY DEFENSE
COSTS WITHOUT THE PRIOR WRITTEN CONSENT OF THE INSURER. ONLY THOSE
SETTLEMENTS, STIPULATED JUDGMENTS AND DEFENSE COSTS WHICH HAVE BEEN
CONSENTED TO BY THE INSURER SHALL BE RECOVERABLE AS LOSS UNDER THE TERMS
OF THIS POLICY. THE INSURER'S CONSENT SHALL NOT BE UNREASONABLY WITHHELD,
PROVIDED THAT THE INSURER SHALL BE ENTITLED TO EFFECTIVELY ASSOCIATE IN
THE DEFENSE AND THE NEGOTIATION OF ANY SETTLEMENT OF ANY CLAIM IN ORDER TO
REACH A DECISION AS TO REASONABLENESS.
The Insurer shall have the right to effectively associate with the Company
and the Insureds in the defense and settlement of any claim that appears
reasonably likely to involve the Insurer, including but not limited to
effectively associating in the negotiation of a settlement. The Insureds
shall defend and contest any such claim. The Company and the Insureds
shall give the Insurer full cooperation and such information as it may
reasonably require.
With respect to the Defense Costs and any joint settlement of any claim
made against the Company and the Insureds, such Defense Costs and joint
settlement having been consented to by the insurer, the Company and the
Insureds and the Insurer agree to use their best efforts to determine a
fair and proper allocation of the amounts as between the Company and the
Insureds and the Insurer.
10. DISCOVERY CLAUSE
If the Insurer shall cancel or refuse to renew this policy the Named
Corporation shall have the right, upon payment of an additional premium of
75% of the full annual premium, to a period of one year following the
effective date of such cancellation or nonrenewal (herein referred to as
the Discovery Period) in which to give written notice to the Insurer of
claims first made against the Insureds during said one year period for any
Wrongful Act occurring prior to the end of the
-5-
<PAGE> 7
Policy Period and otherwise covered by this policy. As used herein, "full
annual premium" means the premium level in effect immediately prior to the
end of the Policy Period.
The rights contained in this clause shall terminate, however, unless
written notice of such election together with the additional premium due
is received by the Insurer within ten (10) days of the effective date of
cancellation or non-renewal. The additional premium for the Discovery
Period shall be fully earned at the inception of the Discovery Period. The
Discovery Period is not cancellable. This clause and the rights contained
herein shall not apply to any cancellation resulting from non-payment of
premium.
The offer by the Insurer of renewal terms, conditions, limits of
liability and/or premiums different from those of the expiring policy
shall not constitute refusal to renew.
11. CANCELLATION CLAUSE
This policy may be cancelled by the Named Corporation at any time only by
mailing written prior notice to the Insurer or by surrender of this policy
to the Insurer or its authorized agent. This policy may also be cancelled
by or on behalf of the Insurer by delivering to the Named Corporation or
by mailing to the Named Corporation, by registered, certified, or other
first class mail, at the Named Corporation's address as shown in Item 1 of
the Declarations, written notice stating when, not less than thirty (30)
days thereafter, the cancellation shall be effective. The mailing of such
notice as aforesaid shall be sufficient proof of notice. The Policy Period
terminates at the date and hour specified in such notice, or at the date
and time of surrender,
If this policy shall be cancelled by the Named Corporation, the Insurer
shall retain the customary short rate proportion of the premium hereon.
If this policy shall be cancelled by the Insurer, the Insurer shall retain
the pro rata proportion of the premium hereon.
Payment or tender of any unearned premium by the Insurer shall not be a
condition precedent to the effectiveness of cancellation but such payment
shall be made as soon as practicable.
If the period of limitation relating to the giving of notice is prohibited
or made void by any law controlling the construction thereof, such period
shall be deemed to be amended so as to be equal to the minimum period of
limitation permitted by such law.
12. TERMINATION OF COVERAGE FOR SUBSEQUENT WRONGFUL ACTS AFTER CERTAIN
TRANSACTIONS
If during the Policy Period:
1. the Named Corporation shall consolidate with or merge into, or
sell all or substantially all of its assets to, any other person
or entity or group or persons and/or entities acting in concert;
or
2. any person or entity or group of persons and/or entities acting
in concert shall acquire an amount of the outstanding securities
representing more than 50% of the voting power for the election
of Directors of the Named Corporation, or acquires the voting
rights of such an amount of such securities;
(either of the above events herein referred to as the
"Transaction")
then, there shall be no coverage afforded by any provision of this policy
(including but not limited to Clause 10 Discovery Clause) for any alleged
Wrongful Act occurring after the effective date of Transaction.
The Named Corporation shall give the Insurer written notice of the
Transaction as soon as practicable, but not later than 30 days after the
effective date of the Transaction.
-6-
<PAGE> 8
13. SUBROGATION
In the event of any payment under this policy, the Insurer shall be
subrogated to the extent of such payment to all the Company's and the
Insureds' rights of recovery therefor, and the Company and the Insureds
shall execute all papers required and shall do everything that may be
necessary to secure such rights including the execution of such documents
necessary to enable the Insurer effectively to bring suit in the name of
the Company and/or the Insureds.
14. OTHER INSURANCE
Such insurance as is provided by this policy shall apply only as excess
over any other valid and collectible insurance.
15. NOTICE AND AUTHORITY
It is agreed that the Named Corporation shall act on behalf of its
Subsidiaries and all Insureds with respect to the giving and receiving of
notice of claim or cancellation, the payment of premiums and the receiving
of any return premiums that may become due under this policy, the receipt
and acceptance of any endorsements issued to form a part of this policy
and the exercising or declining to exercise any right to a Discovery
Period.
16. ASSIGNMENT
This policy and any and all rights hereunder are not assignable without
the written consent of the Insurer.
17. ACTION AGAINST INSURER
No action shall lie against the Insurer unless, as a condition precedent
thereto, there shall have been full compliance with all of the terms of
this policy, nor until the amount of the Insureds' obligation to pay shall
have been finally determined either by judgment against the Insureds after
actual trial or by written agreement of the Insureds, the claimant and the
Insurer.
Any person or Organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be entitled to
recover under this policy to the extent of the insurance afforded by this
policy. No person or Organization shall have any right under this policy
to join the Insurer as a party to any action against the Insureds or the
Company to determine the Insureds' liability, nor shall the Insurer be
impleaded by the Insureds or the Company or their legal representatives,
Bankruptcy or insolvency of the Company or the Insureds or of their
estates shall not relieve the Insurer of any of its obligations hereunder.
IN WITNESS WHEREOF, the Insurer has caused this policy to be signed by its
President and a Secretary and countersigned on the Declarations Page by a
duly authorized representative of the Insurer.
/s/ ELIZABETH M. TUCK /s/ [ILLEGIBLE]
SECRETARY PRESIDENT
-7-
<PAGE> 9
NOTICE TO POLICYHOLDER OF
National Union Fire Insurance Company of Pittsburgh, Pa.
- --------------------------------------------------------------------------------
This notice is to inform you of our loss control programs available in the
State of Texas.
We have Field Safety Representatives with the experience and expertise to
provide accident/loss prevention services reasonably commensurate with the
hazard, loss experience, size and nature of your business operation.
Our services may include loss prevention surveys, risk exposure analysis, staff
training, counseling, accident and loss analysis, worker health and safety
evaluations, risk improvement recommendations, educational material and
literature related to your specific profession or industry.
In the event you decide not to utilize our loss control services and opt to use
your own safety department or hire an outside contractor, the service must be
provided by qualified loss prevention representatives who are recognized by the
State of Texas.
If you elect not to utilize our loss control services we require you to provide
us with the following information (on your company letterhead stationery,
signed by an officer of your firm):
o Acknowledgement of our offer of loss control services and your
written rejection.
o Your reasons for selection of an alternative.
o Your alternative loss control program, which must be reasonably
commensurate with the risk.
o Verification of the qualification of those who will be performing
your loss control services.
o Acknowledgement that quarterly summaries of activities outlined in
your loss control program will be submitted to us for review.
If you have any questions or wish to discuss this matter, contact our Texas
Loss Control Service Coordinating Unit, AIG Consultants, Inc. at
1-800-221-0651.
<PAGE> 10
National Union Fire Insurance Company of Pittsburgh, Pa.
70 PINE STREET
NEW YORK, NEW YORK 10270
TEXAS NOTICE
IMPORTANT NOTICE
To obtain information or make a complaint:
You may call the company's toll-free telephone number for information or to
make a complaint at:
1-800-553-6938
You may contact the Texas Department of Insurance to obtain information on
companies, coverages, rights or complaints at:
1-800-252-3439
You may write the Texas Department of Insurance
P.O. Box 149104
Austin, TX 78714-9104
Fax# (512) 475-1771
PREMIUM OR CLAIM DISPUTES: Should you have a dispute concerning your premium or
about a claim you should contact the agent first. If the dispute is not
resolved, you may contact the Texas Department of Insurance.
ATTACH THIS NOTICE TO YOUR POLICY: This notice is for information only and does
not become a part or condition of the attached document.
AVISO IMPORTANTE
Para obtener informacion o para someter una queja:
Usted puede llamar al numero de telefono gratis de la compania para informacion
o para someter una queja al:
1-800-553-6938
Puede comunicarse con el Departamento de Seguros de Texas para obtener
informacion acerca de companias, coberturas, derechos o quejas al:
1-800-252-3439
Puede escribir al Departamento de Seguros de Texas
P.O. Box 149104
Austin, TX 78714-9104
Fax# (512) 475-1771
DISPUTAS SOBRE PRIMAS O RECLAMOS: Si tiene una disputa concerniente a su prima
o a un reclamo, debe comunicarse con el agente primero. Si no se resuelve la
disputa, puede entonces comunicarse con el departamento (TDI).
UNA ESTE AVISO A SU POLIZA: Este aviso es solo para proposito de informacion y
no se convierte en parte o condicion del documento adjunto.
<PAGE> 11
ENDORSEMENT #1
This endorsement, effective 12:01 AM, April 15, 1997 forms a part of
policy number 485-25-20
issued to ZEROS USA INCORPORATED
by , National Union Fire Insurance Company of Pittsburgh, Pa.
NUCLEAR ENERGY LIABILITY EXCLUSION ENDORSEMENT
(BROAD FORM)
In consideration of the premium charged, it is hereby understood and agreed
that the Insurer shall not be liable to make any payment for Loss in connection
with any claim or claims made against the Directors or Officers:
A. alleging, arising out of, based upon, attributable to, or in any way
involving, directly or indirectly the hazardous properties of nuclear
material, including but not limited to:
(1) nuclear material located at any nuclear facility owned by, or
operated by or on behalf of, the Company, or discharged or dispersed
therefrom; or
(2) nuclear material contained in spent fuel or waste which was or is at
any time possessed, handled, used, processed, stored, transported or
disposed of by or on behalf of the Company; or
(3) the furnishing by an insured or the Company of services, materials,
parts or equipment in connection with the planning, construction,
maintenance, operation or use of any nuclear facility; or
(4) claims for damages to the company or its shareholders which alleges,
arises from, is based upon, is attributed to or in any way involves,
directly or indirectly, the hazardous properties of nuclear material.
B. (1) which is insured under a nuclear energy liability policy issued
by the Nuclear Energy Liability Insurance Association, Mutual Atomic
Energy Liability underwriters or Nuclear Insurance Association of
Canada or would be insured under any such policy but for its
termination or exhaustion of its Limit of Liability; or
(2) with respect to which (a) any person or organization is required to
maintain financial protection pursuant to the Atomic Energy Act of
1954, or any law amendatory thereof, or (b) the Company or any
insured is, or had this policy not been issued would be, entitled to
indemnity from the United States of America, or any agency thereof,
under any agreement entered into by the United States of America, or
any agency thereof, with any person or organization.
As used in this endorsement:
"hazardous properties" include radioactive, toxic or explosive properties;
"nuclear material" means source material, special nuclear material or byproduct
material;
-1-
<PAGE> 12
NUCLEAR ENERGY LIABILITY EXCLUSION ENDORSEMENT #1
(BROAD FORM)
"source material" "special nuclear material" and "byproduct material" have the
meanings given them in the Atomic Energy Act of 1954 or in any law amendatory
thereof;
"spent fuel" means any fuel element or fuel component, solid or liquid, which
has been used or exposed to radiation in a nuclear reactor;
"waste" means any waste material (1) containing byproduct material and (2)
resulting from the operation by any person or organization of any nuclear
facility included within the definition of nuclear facility under paragraph (a)
or (b) thereof;
"nuclear facility" means
(a) any nuclear reactor,
(b) any equipment or device designed or used for (1) separating the isotopes
of uranium or plutonium, (2) processing or utilizing spent fuel, or (3)
handling, processing or packaging waste,
(c) any equipment or device used for the processing, fabricating or alloying
of special nuclear material if at any time the total amount of such
material in the custody of the insured at the premises where such
equipment or device is located consists of or contains more than 25 grams
of plutonium or uranium 233 or any combination thereof, or more than 250
grams of uranium 235.
(d) any structure, basin, excavation premises or place prepared or used for
the storage or disposal of waste, and includes the site on which any of
the foregoing is located, all operations conducted on such site and
all-premises used for such operations;
"nuclear reactor" means any apparatus designed or used to sustain nuclear
fission in a self-supporting chain reaction or to contain a critical mass of
fissionable material.
---------------------------------------
AUTHORIZED REPRESENTATIVE
-2-
<PAGE> 13
ENDORSEMENT #2
This endorsement, effective 12:01 AM, April 15, 1997 forms a part of
policy number 485-25-20
issued to ZEROS USA INCORPORATED
by , National Union Fire Insurance Company of Pittsburgh, Pa.
CAPTIVE INSURANCE COMPANY
In consideration of the premium charged, it is hereby understood and agreed
that the Insurer shall not be liable to make any payments for Loss in
connection with any claim or claims made against the Directors or Officers
alleging, arising out of, based upon or attributable to the ownership,
management, maintenance and/or control by the Company of any captive insurance
company or entity including but not limited to claims alleging the insolvency
or bankruptcy of the Named Corporation as a result of such ownership,
operation, management and control.
---------------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE> 14
ENDORSEMENT #3
This endorsement, effective 12:01 AM, April 15, 1997 forms a part of
policy number 485-25-20
issued to ZEROS USA INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
COMMISSIONS EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed
that the Insurer shall not be liable to make any payment for Loss in connection
with any claim made against the Directors and Officers, alleging, arising out
of, based upon or attributable to:
(i) Payments, commissions, gratuities, benefits or any other favors to or for
the benefit of any full or part-time domestic or foreign governmental or
armed services officials, agents, representatives, employees or any
members of their family or any entity with which they are affiliated; or
(ii) Payments, commissions, gratuities, benefits or any other favors to or for
the benefit of any full or part-time officials, directors, agents,
partners, representatives, principal shareholders, or owners or
employees, or affiliates (as that term is defined in The Securities
Exchange Act of 1934, including any of their officers, directors, agents,
owners, partners; representatives, principal shareholders or employees)
of any customers of the company or any members of their family or any
entity with which they are affiliated; or
(iii) Political contributions, whether domestic or foreign.
---------------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE> 15
ENDORSEMENT #4
This endorsement, effective 12:01 AM, April 15, 1997 forms a part of
policy number 485-25-20
issued to ZEROS USA INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
GENERAL E&O EXCLUSION
In consideration of the premium charged, it is hereby understood and agreed
that the Insurer shall not be liable to make any payment for Loss in connection
with any claim or claims made against the Directors or Officers alleging,
arising out of, based upon or attributable to the Company's or an Insured's
performance of or failure to perform professional services for others for a
fee, or any act, error, or omission relating thereto.
All other terms and conditions remain unchanged.
---------------------------------------
AUTHORIZED REPRESENTATIVE
<PAGE> 16
ENDORSEMENT #5
This endorsement, effective 12:01 AM, April 15, 1997 forms a part of
policy number 485-25-20
issued to ZEROS USA INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
TEXAS AMENDATORY
BROAD FORM NUCLEAR ENERGY LIABILITY EXCLUSION
DEFINITION OF WASTE
In consideration of the premium charged, it is hereby understood and agreed
that the definition of "Waste" contained in the Nuclear Energy Liability
Exclusion (Broad Form) endorsement attached to the policy is deleted in its
entirety and replaced by the following:
"Waste" means any Waste material:
(a) containing by-product material other than the tailings or wastes
produced by the extraction or concentration of uranium or thorium from
any ore processed primarily for its source material content, and
(b) resulting from the operation by any person or organization of any
nuclear facility included within the definition of nuclear facility
under paragraph (a) or (b) thereof.
ALL OTHER TERMS, CONDITIONS, AND EXCLUSIONS REMAIN UNCHANGED
-------------------------
AUTHORIZED REPRESENTATIVE
<PAGE> 17
ENDORSEMENT #6
This endorsement, effective 12:01 AM, forms a part of
policy number 485-25-20 issued to ZEROS USA INCORPORATED
by National Union Fire Insurance Company of Pittsburgh, Pa.
TEXAS LIABILITY INSURANCE AMENDATORY ENDORSEMENT
CANCELLATION AND NONRENEWAL
Wherever used in this endorsement: 1) "Insurer" means the insurance company
which issued this policy; and 2) "Insured" means the Name Corporation, Named
Organization, Named Sponsor, or Named Insured stated in the declarations page;
3) "Liability insurance" means the following types of insurance: general
liability, professional liability other than medical professional liability,
commercial multi-peril coverage, and any other types of lines of liability
insurance designated by the State Board of Insurance.
It is hereby agreed that the cancellation provision of this policy is deleted
in its entirety and replaced by the following:
CANCELLATION AND NONRENEWAL
A. Cancellation
1. This policy may be canceled by the Insured by surrender
thereof to the Insurer or any of its authorized agents or by
mailing to the Insurer written notice stating when thereafter
the cancellation shall be effective.
2. Except as provided by subsection A.3. below, the Insurer may
not cancel this policy after the 60th day following the date
on which the policy was issued, or if it is a renewal or
continuation of a policy issued by the Insurer.
1) a policy of liability insurance that is a renewal or
continuation policy; or
2) a policy of liability insurance that is in its
initial policy period after the 60th day following
the date on which the policy was issued.
3. THE Insurer may cancel this policy at any time during the
term of the policy for the following reasons:
a) fraud in obtaining coverage;
b) failure to pay premiums when due;
c) an increase in hazard within the control of the
Insured or Other Insured(s) which would produce an
increase in rate;
d) loss of the Insurer's reinsurance covering all or
part of the risk covered by the policy; or
- 1 -
<PAGE> 18
ENDORSEMENT #6 (continued)
e) the Insurer being placed in supervision,
conservatorship, or receivership, if the cancellation
or nonrenewal is approved or directed by the
supervisor, conservator, or receiver.
4. The Insurer shall deliver or mail to the Insured first named
in the Declarations written notice of cancellation at the
address shown on the policy not less than the 10th day before
the date on which cancellation takes effect. Such written
notice shall state the reason(s) for cancellation.
5. The Insurer may not cancel this policy based solely on the
fact that the Insured is an elected official.
B. Nonrenewal
1. The Insurer may refuse to renew this policy by delivering or
mailing to the Insured first named in the Declarations written
notice of nonrenewal at the address shown on the policy. Such
written notice shall state the reason(s) for nonrenewal. The
notice must be delivered or mailed not later than the 60th day
before the date on which the policy expires. If the notice is
delivered or mailed later than the 60th day before the date on
which the policy expires, the coverage shall remain in effect
until the 61st day after the date on which the notice is
delivered or mailed. Earned premium for any period of coverage
that extends beyond the expiration date of the policy shall be
computed pro rata based on the previous year's rates.
2. The transfer of a policyholder between admitted companies
within the same insurance group is not considered a refusal to
renew.
3. The Insurer may not refuse to renew this policy based solely
on the fact that the Insured is an elected official.
All other terms and conditions remain unchanged.
-------------------------
AUTHORIZED REPRESENTATIVE
- 2 -
<PAGE> 19
ENDORSEMENT #7
This endorsement effective, 12:01 A.M., April 15, 1997, forms a part of
policy number 485-25-20
issued to ZEROS USA INCORPORATED
by National Union Fire Insurance Company OF Pittsburgh, PA
DIRECTORS AND OFFICERS LIABILITY AND
PRIVATE COMPANY REIMBURSEMENT INSURANCE
In consideration of the premium charged, it is hereby understood and agreed
that the following provisions shall be added to this policy and incorporated
therein:
I.
(1) The third paragraph of the Declarations page is deleted in its
entirety and replaced by the following:
NOTICE: THE INSURER DOES NOT ASSUME ANY DUTY TO DEFEND. HOWEVER, WITH RESPECT
TO EMPLOYMENT PRACTICES CLAIMS, THE INSUREDS MAY UNDER CERTAIN CONDITIONS
TENDER THE DEFENSE OF A CLAIM. IN ALL EVENTS, THE INSURER MUST ADVANCE DEFENSE
COSTS PAYMENTS PURSUANT TO THE TERMS HEREIN PRIOR TO THE FINAL DISPOSITION OF A
CLAIM.
(2) Item 1. of the Declarations page is deleted in its entirety and
replaced by the following:
ITEM 1. NAMED CORPORATION: ZEROS USA INCORPORATED
MAILING ADDRESS: BOX Z
HIGHLANDS, TX 77562
STATE OF INCORPORATION OF THE NAMED CORPORATION: Texas
NAMED PARENT: N/A
(3) Item 4. of the Declarations page is deleted in its entirety and
replaced by the following:
ITEM 4. LIMIT OF LIABILITY: $500,000. aggregate for
Coverages A, B
and C combined
(including Defense Costs)
(4) Item 5. of the Declarations page is deleted in its entirety and
replaced by the following:
ITEM 5. RETENTION:
EMPLOYMENT PRACTICES CLAIMS:
Judgments, Settlements and Defense Costs None
(Non-Indemnifiable Loss)
<PAGE> 20
Judgments, Settlements and Defense Costs
(Coverage C (iii) and Indemnifiable Loss)
$ 50,000;
--------
for Loss arising from Claims
alleging the same Wrongful
Act or related Wrongful Acts
(waivable under Clause 6 in
certain circumstances)
OTHER CLAIMS:
Judgments, Settlements and Defense Costs
(Non-Indemnifiable Loss) None
Judgments, Settlements and Defense Costs
(Indemnifiable Loss)
$20,000.
-------
for Loss arising from Claims
alleging the same Wrongful
Act or related Wrongful Acts
(5) The following Items 7 and 8 are hereby added to the Declarations page:
ITEM 7. CONTINUITY DATES:
A. All Coverages
(For Claims other than
Coverage C (iii) and Outside Entity Coverage): 04/15/97
B. Coverage C(iii): 04/15/97
C. Outside Entity Coverage: Per Outside Entity: 04/15/97
ITEM 8. NAME AND ADDRESS OF INSURER ("Insurer):
(This policy is issued only by the insurance company indicated below.)
National Union Fire Insurance Company
of Pittsburgh, PA
II.
Clause 1. Insuring Agreements is deleted in its entirety and replaced by the
following:
1. INSURING AGREEMENTS
COVERAGE A: DIRECTORS AND OFFICERS INSURANCE
This policy shall pay the Loss of each and every Director or Officer
of the Company arising from a Claim first made against the Directors
or Officers during the Policy Period or the Discovery Period (if
applicable) and reported to the Insurer pursuant to the terms of this
<PAGE> 21
policy for any actual or alleged Wrongful Act in their respective capacities as
Directors or Officers of the Company except when and to the extent that the
Company has indemnified the Directors or Officers. The Insurer shall, in
accordance with and subject to Clause 9, advance Defense Costs of such Claim
prior to its final disposition. This Coverage A does not apply to an Employment
Practices Claim.
COVERAGE B: PRIVATE COMPANY REIMBURSEMENT INSURANCE
This policy shall pay the Loss of the Company arising from a Claim first made
against the Directors or Officers of the Company during the Policy Period or
the Discovery Period (if applicable) and reported to the Insurer pursuant to
the terms of this policy for any actual or alleged Wrongful Act in their
respective capacities as Directors or Officers of the Company, but only when
and to the extent that the Company has indemnified the Directors or Officers
for such Loss pursuant to law, common or statutory, or contract, or the Charter
or By-laws of the Company duly effective under such law which determines and
defines such rights of indemnity. The Insurer shall, in accordance with and
subject to Clause 9, advance Defense Costs of such Claim prior to its final
disposition. This Coverage B does not apply to an Employment Practices Claim.
COVERAGE C: EMPLOYMENT PRACTICES LIABILITY INSURANCE
This policy shall pay the Loss of:
(i) each and every Director, Officer or employee of the Company
arising from an Employment Practices Claim first made against
such Insured during the Policy Period or the Discovery Period
(if applicable) and reported to the Insurer pursuant to the
terms of this policy for any actual or alleged Wrongful Act in
their respective capacities as Directors, Officers or
employees, except when and to the extent that the Company has
indemnified such Insured; or
(ii) the Company arising from an Employment Practices Claim first
made against a Director, Officer or employee of the Company
during the Policy Period or the Discovery Period (if
applicable) and reported to the Insurer pursuant to the terms
of this policy for any actual or alleged Wrongful Act in their
respective capacities as Directors, Officers or employees, but
only when and to the extent that the Company has indemnified
such Insured pursuant to law, common or statutory, or
contract, or the Charter or Bylaws of the Company duly
effective under such law which determines and defines such
rights of indemnity; and
(iii) the Company arising from an Employment Practices Claim first
made against the Company, during the Policy Period or the
Discovery Period (if applicable) and reported to the Insurer
pursuant to the terms of this policy for any actual or alleged
Wrongful Act, so long as such Claim is also made and
continuously maintained against at least one Director, Officer
or employee of the Company.
In accordance with and subject to Clause 9 and subject otherwise to the terms
and conditions of the policy, the Insured may at its option tender the defense
of an Employment Practices Claim for which coverage is provided by this policy
to the Insurer. Regardless of whether the defense is so tendered, the Insurer
shall advance Defense Costs of such Claim prior to its final disposition.
Selection of counsel to defend a Class Employment Practices Claim shall be made
in accordance with Clause 18 of the policy.
<PAGE> 22
III.
Clause 2. Definitions is amended as follows:
(1) Paragraphs (a), (c), (d) (f) and (g) are deleted in their entirety and
replaced by the following:
(a) The "Company" means: (1) the Named Corporation designated in
Item 1 of the Declarations; (2) any Subsidiary thereof; and
(3) the Named Parent.
(c) "Director(s) or Officer(s)" or "Insured(s)" means:
(1) any past, present or future duly elected or appointed
Directors or Officers of the Company. Coverage will
automatically apply to all new Directors and Officers
after the inception date of this policy; or
(2) in the event the Company operates outside the United
States, then the terms "Director(s) or Officer(s)" or
"Insured(s)" shall also mean those titles, positions
or capacities in such foreign Company which is
equivalent to the position of Director or Officer in
a corporation incorporated within the United States.
Coverage will automatically apply to all new
Directors and Officers after the inception date of
this policy; or
(3) with respect to Employment Practices Claims only, the
terms "Director(s) or Officer(s)" or "Insured(s)"
shall include: (i) any past, present or future
employee of the Company, whether such employee is in
a supervisory, coworker or subordinate position or
otherwise and (ii) the Company to the extent
described in Insuring Clause C (iii). Coverage shall
apply to all new employees after the inception date
of the policy.
(d) "Loss" means damages, judgments, settlements and Defense
Costs; however, Loss shall not include civil or criminal fines
or penalties imposed by law, punitive or exemplary damages,
the multiplied portion of multiplied damages, taxes, any
amount for which the Insureds are not financially liable or
which are without legal recourse to the Insureds, or matters
which may be deemed uninsurable under the law pursuant to
which this policy shall be construed.
With respect to an Employment Practices Claim, "Loss" shall
not include:
(1) any obligation pursuant to any workers'
compensation, disability benefits,
unemployment compensation, unemployment
insurance, retirement benefits, social
security benefits or similar law; or
(2) (i) front pay, future damages or other future
economic relief or (ii) any employment-
related benefits (other than back pay) to
which the claimant would have been entitled
as an employee had the Insured provided the
claimant with a continuation, reinstatement
or commencement of employment; or
(3) any liability or costs incurred by any
Insured to modify any building or property in
order to make said building or property more
accessible or accommodating to any disabled
person.
(f) "Subsidiary" means:
<PAGE> 23
(1) any corporation of which the Named Corporation owns
on or before the inception of the Policy Period more
than 50% of the issued and outstanding voting stock
either directly, or indirectly through one or more of
its Subsidiaries;
(2) automatically any corporation whose assets total less
than 10% of the total consolidated assets of the
Company (defined here to refer only to Clause 2,
Definition (a)(1) and (2), and not to include the
Named Parent) as of the inception date of this
policy, which corporation becomes a Subsidiary during
the Policy Period. The Named Corporation shall
provide the Insurer with full particulars of the new
Subsidiary before the end of the Policy Period;
(3) a corporation which becomes a Subsidiary during the
Policy Period (other than a corporation described in
paragraph (2) above) but only upon the condition that
within 90 days of its becoming a Subsidiary, the
Named Corporation shall have provided the Insurer
with full particulars of the new Subsidiary and
agreed to any additional premium and/or amendment of
the provisions of this policy required by the Insurer
relating to such new Subsidiary. Further, coverage as
shall be afforded to the new Subsidiary is
conditioned upon the Named Corporation paying when
due any additional premium required by the Insurer
relating to such new Subsidiary.
A corporation becomes a Subsidiary when the Named Corporation
owns more than 50% of the issued and outstanding voting stock,
either directly, or indirectly through one or more of its
Subsidiaries. A corporation ceases to be a Subsidiary when the
Named Corporation ceases to own more than 50% of the issued
and outstanding voting stock, either directly, or indirectly
through one or more of its Subsidiaries.
In all events, coverage as is afforded under this Policy with
respect to a Claim made against a Director or Officer of any
Subsidiary, or an Employment Practices Claim against any
Subsidiary shall only apply for Wrongful Acts committed or
allegedly committed after the effective time that such
Subsidiary became a Subsidiary and prior to the time that such
Subsidiary ceased to be a Subsidiary,
(g) "Wrongful Act" means:
(1) with respect to individual Directors or Officers, any
breach of duty, neglect, error, misstatement,
misleading statement, omission or act by the
Directors or Officers in their respective capacities
as such, or any matter claimed against them solely by
reason of their status as Directors or Officers, or
any matter claimed against the Directors or Officers
of the Company arising out of their serving as a
director, officer, trustee or governor of an Outside
Entity in such capacity, but only if such service is
at the specific written request or direction of the
Company.
(2) with respect to the Company under Insuring Clause
C(iii), any breach of duty, neglect, error,
misstatement, misleading statement, omission or act
by the Company, but solely with respect to an
Employment Practices Claim.
(2) The following Definitions are hereby added to the policy:
(h) "Claim" means:
(1) a written demand for monetary or non-monetary relief:
or
<PAGE> 24
(2) a civil, criminal, or administrative proceeding for
monetary or nonmonetary relief which is commenced by:
(i) service of a complaint or similar pleading; or
(ii) return of an indictment (in the case of a
criminal proceeding); or (iii) receipt or filing of a
notice of charges.
The term "Claim" shall include an Employment Practices Claim.
(i) "Continuity Date" means the date set forth in:
(1) Item 7A of the Declarations with respect to all
coverages other than Coverage C(iii) and Outside
Entity coverage; or
(2) Item 7B of the Declarations with respect to Coverage
C(iii) only; or
(3) Item 7C of the Declarations with respect to Claims
against a Director or Officer of the Company arising
out of such Director or Officer serving as a
director, officer, trustee or governor of an Outside
Entity.
(j) "Employment Practices Claim" means a Claim made against an
Insured relating to a past, present or prospective employee of
the Company arising out of: (1) any actual or alleged wrongful
dismissal, discharge or termination (either actual or
constructive) of employment; (2) employment related
misrepresentation; (3) wrongful failure to employ or promote;
(4) wrongful deprivation of career opportunity; (5) wrongful
discipline; (6) failure to grant tenure or negligent employee
evaluation; (7) failure to provide adequate employee policies
and procedure; (8) sexual or workplace harassment of any kind,
(including the alleged creation of a harassing workplace
environment); or (9) unlawful discrimination, (including
sexual or workplace harassment or creation of a harassing
workplace environment) whether direct, indirect, intentional
or unintentional.
(k) "Named Parent" means the Named Parent designated in Item 1 of
the Declarations.
Coverage as is afforded under this policy with respect to a
Claim made against the Named Parent or a Director or Officer
of the Named Parent shall only apply if: (1) such Claim
relates to a Wrongful Act committed by a Director or Officer
of the Company (other than the Named Parent); and (2) a
Director or Officer of the Company (other than the Named
Parent) is and remains a defendant in the action along with
such Director or Officer of the Named Parent.
A corporation ceases to be a Named Parent when it ceases to
own more than 50% of the issued and outstanding voting stock
of the Named Corporation, either directly, or indirectly
through one or more of its subsidiaries.
In all events coverage as is afforded under this policy with
respect to a Claim made against the Directors or Officers of
the Named Parent, or an Employment Practices Claim made
against the Named Parent shall not apply to any Wrongful Act
committed or allegedly committed after the time that such
Named Parent ceases to be a Named Parent.
(l) "No Liability" means with respect to an Employment Practices
Claim made against the Insured(s): (1) a final judgment of no
liability obtained prior to trial, in favor of all Insureds,
by reason of a motion to dismiss or a motion for summary
judgment, after
<PAGE> 25
the exhaustion of all appeals; or (2) a final judgment of no
liability obtained after trial, in favor of all Insureds,
after the exhaustion of all appeals. In no event shall the
term "No Liability" apply to an Employment Practices Claim
made against an Insured for which a settlement has occurred.
(m) "Outside Entity" means:
(1) A not-for-profit organization under section 501(C)(3)
of the internal Revenue Code of 1986 (as amended); or
(2) any other corporation, partnership, joint venture or
other organization listed BY endorsement to this
policy.
IV.
Clause 3. Extensions is deleted in its entirety and replaced by the following:
3. EXTENSIONS
Subject otherwise to the terms hereof, this policy shall cover Loss
arising from any Claims made against the estates, heirs, or legal
representatives of deceased Directors or Officers, and the legal
representatives of Directors or Officers in the event of incompetency,
insolvency or bankruptcy, who were Directors or Officers at the time
the Wrongful Acts upon which such Claims are based were committed.
Subject otherwise to the terms hereof, this policy shall cover Loss
arising from all Claims made against the lawful spouse (whether such
status is derived by reason of statutory law, common law or otherwise
of any applicable jurisdiction in the world) of an individual Director
or Officer for all Claims arising solely out of his or her status as
the spouse of an individual Director or Officer, including a Claim
that seeks damages recoverable from marital community property,
property jointly held by the individual Director or Officer and the
spouse, or property transferred from the individual Director or
Officer to the spouse; provided, however, that this extension shall
not afford coverage for any Claim for any actual or alleged Wrongful
Act of the spouse, but shall apply only to Claims arising out of any
actual or alleged Wrongful Acts of an individual Director or Officer,
subject to the policy's terms, conditions and exclusions.
V.
Clause 4. Exclusions is deleted in its entirety and replaced by the following:
4. EXCLUSIONS
The insurer shall not be liable to make any payment for Loss in
connection with a Claim made against an Insured:
(a) arising out of, based upon or attributable to the gaining in
fact OF any profit or advantage to which an Insured was not
legally entitled;
(b) arising out of, based upon or attributable to the committing
in fact OF any criminal or deliberate fraudulent act;
<PAGE> 26
[The Wrongful Act of a Director or Officer shall not be imputed to any other
Director or Officer for the purpose of determining the applicability of the
foregoing exclusions 4(a) and 4(b)]
(c) for emotional distress, or for injury from libel or slander,
or defamation or disparagement, or for injury from a violation
of a person's right of privacy; provided, however, this
exclusion shall not apply to an Employment Practices Claim;
(d) alleging, arising out of, based upon or attributable to the
facts alleged, or to the same or related Wrongful Acts alleged
or contained in any claim which has been reported, or in any
circumstances of which notice has been given, under any policy
of which this policy is a renewal or replacement or which it
may succeed in time;
(e) alleging, arising out of, based upon or attributable to any
pending or prior litigation as of the Continuity Date, or
alleging or derived from the same or essentially the same
facts as alleged in such pending or prior litigation;
(f) with respect to Coverage C (iii) only, for any Wrongful Act
occurring prior to the Continuity Date, if the Insured knew or
could have foreseen that such Wrongful Act could lead to an
Employment Practices Claim under this policy;
(g) with respect to serving as a director, officer, trustee or
governor of an Outside Entity, for any Wrongful Act occurring
prior to the Continuity Date if the Insured knew or could have
reasonably foreseen that such Wrongful Act could lead to a
Claim under this policy;
(h) alleging, arising out of, based upon or attributable to any
actual or alleged act or omission of the Directors or Officers
of the Company serving in their capacities as directors,
officers, trustees or governors of any other entity, other
than the Company or an Outside Entity, or by reason of their
status as directors, officers, trustees or governors of such
other entity;
(i) which is brought by any Insured or by the Company provided,
however, this exclusion shall not apply to:
(1) any Claim brought by an Insured where such Claim is
in the form of a cross-claim or third-party claim for
contribution or indemnity which is part of and
results directly from a Claim which is not otherwise
excluded by the terms of this policy; or
(2) an Employment Practices Claim brought by an employee
other than an employee who is or was a Director of
the Named Corporation or the Named Parent.
Provided further, however, in the event that an insured brings
a cross-claim or third-party claim, as described in
sub-paragraph (1), against another Insured, then solely with
respect to the Insured who brings the cross-claim or
third-party claim the Insurer shall not be liable for any Loss
in connection with the Claim made against such Insured out of
which such cross-claim or third-party claim results;
(j) for any Wrongful Act arising out of the Insured serving as a
director, officer, trustee or governor of an Outside Entity if
such Claim is brought by the Outside Entity or by any
director, officer, trustee or governor thereof;
<PAGE> 27
(k) for bodily injury, sickness, disease, or death of any person,
or damage to or destruction of any tangible property,
including the loss of use thereof;
(l) alleging, arising out of, based upon, attributable to, or in
any way involving, directly or indirectly:
(1) the actual, alleged or threatened discharge,
dispersal, release or escape of pollutants; or
(2) any direction or request to test for, monitor, clean
up, remove, contain, treat, detoxify or neutralize
pollutants,
including but not limited to a Claim alleging damage to the
Company or its securities holders.
Pollutants include (but is not limited to) any solid, liquid,
gaseous or thermal irritant or contaminant, including smoke,
vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste
includes (but is not limited to) materials to be recycled,
reconditioned or reclaimed;
(m) for violation(s) of any of the responsibilities, obligations
or duties imposed by the Employee Retirement Income Security
Act of 1974, the Fair Labor Standards Act (except the Equal
Pay Act), the National Labor Relations Act, the Worker
Adjustment and Retraining Notification Act, the Consolidated
Omnibus Budget Reconciliation Act, the Occupational Safety and
Health Act, any rules or regulations of the foregoing
promulgated thereunder, and amendments thereto or any similar
provisions of any federal, state or local statutory law or
common law;
(n) alleging, arising out of, based upon or attributable to:
(1) the purchase or sale, or offer or solicitation of an
offer to purchase or sell, any securities of the
Company, Outside Entity or an Affiliate ("Offering of
Securities"); or
(2) any Claim brought by a securities holder of the
Company or an Affiliate whether directly, or
derivatively on behalf of the Company, Outside Entity
or an Affiliate, or by class action;
provided, however, this exclusion shall not apply to any
Offering of Securities by the Company in the event that within
30 days prior to the effective time of such Offering of
Securities: (1) the Company gives written notice of such
Offering of Securities to the Insurer, together with all
particulars and underwriting information required thereto; and
(2) the Company accepts such terms, conditions and additional
premium required by the Insurer for such coverage. Such
coverage is also subject to the Company paying when due any
such additional premium. In the event the Company gives
written notice and all particulars pursuant to (1) above then
the Insurer shall offer a quote relating to such Offering of
Securities within 30 days of receipt of such written notice
and particulars, subject to any terms, conditions and
additional premium as the Insurer may in its discretion
require.
The term "Affiliate" means (i) any person or entity that
directly, or indirectly through one or more intermediaries,
controls or is controlled by, or in common control with, the
Company, or (ii) any person or entity that directly, or
indirectly through one or more intermediaries is a successor
in interest to the Company.
<PAGE> 28
(o) alleging, arising out of, based upon or attributable to any
actual or alleged liability of an Insured under any express
employment contract or agreement; provided, however, that this
exclusion shall not apply if the Insured would have had such
liability even in the absence of such contract or agreement.
VI.
Clause 5. Limit of Liability (For All Loss - Including Defenses Costs) is
deleted in its entirety and replaced by the following:
5. LIMIT OF LIABILITY (FOR ALL LOSS - INCLUDING DEFENSE COSTS)
The Limit of Liability stated in Item 4 of the Declarations is the
limit of the Insurer's liability for all Loss, under Coverage A,
Coverage B and Coverage C combined, arising out of all Claims first
made against the Insureds during the Policy Period or the Discovery
Period (if applicable); however, the Limit of Liability for the
Discovery Period shall be part of, and not in addition to, the Limit
of Liability for the Policy Period. Further, any Claim which is made
subsequent to the Policy Period or Discovery Period (if applicable)
which pursuant to Clause 8(b) or 8(c) is considered made during the
Policy Period or Discovery Period shall also be subject to the one
aggregate Limit of Liability stated in Item 4 of the Declarations.
DEFENSE COSTS ARE NOT PAYABLE BY THE INSURER IN ADDITION TO THE LIMIT
OF LIABILITY. DEFENSE COSTS ARE PART OF LOSS AND AS SUCH ARE SUBJECT
TO THE LIMIT OF LIABILITY FOR LOSS.
VII.
Clause 6. Retention Clause is deleted in its entirety and replaced by the
following:
6. RETENTION CLAUSE
The Insurer shall only be liable for the amount of Loss arising from a
Claim which is in excess of the Retention amount stated in Item 5 of
the Declarations, such Retention amount to be borne by the Company
and/or the Insureds and shall remain uninsured, with regard to all
Loss under (1) Coverage A, B or C (i), or C(ii) for which the Company
has indemnified or is permitted or required to indemnify the
Director(s) or Officer(s) ("Indemnifiable Loss") or (2) Coverage C
(iii). A single Retention amount shall apply to Loss arising from all
Claims alleging the same Wrongful Act or related Wrongful Acts.
Notwithstanding the foregoing, solely with respect to an Employment
Practices Claim under this policy, no Retention shall apply for an
Employment Practices Claim in the event of a determination of No
Liability of all Insureds, and the insurer shall thereupon reimburse
the Defense Costs paid, as the case may be, by the Company or an
Insured.
VIII.
Clause 7. Coinsurance Clause is deleted in its entirety.
IX.
Clause 8. Notice / Claim Reporting Provisions is deleted in its entirety and
replaced by the following:
<PAGE> 29
8. NOTICE/CLAIM REPORTING PROVISIONS
NOTICE HEREUNDER SHALL BE GIVEN IN WRITING TO THE INSURER NAMED IN
ITEM 8 OF THE DECLARATIONS AT THE ADDRESS INDICATED IN ITEM 8 OF THE
DECLARATIONS. IF MAILED, THE DATE OF MAILING SHALL CONSTITUTE THE
DATE THAT SUCH NOTICE WAS GIVEN AND PROOF OF MAILING SHALL BE
SUFFICIENT PROOF OF NOTICE.
(a) The Company or the Insureds shall, as a condition precedent to
the obligations of the Insurer under this policy, give written
notice to the Insurer of any Claim made against an Insured as
soon as practicable and either:
(1) anytime during the Policy Period or during the
Discovery Period (if applicable); or
(2) within 30 days after the end of the Policy Period or
the Discovery Period (if applicable), as long as such
Claim is reported no later than 30 days after the
date such Claim was first made against an Insured.
(b) If written notice of a Claim has been given to the Insurer
pursuant to Clause 8(a) above, then any Claim which is
subsequently made against the Insureds and reported to the
Insurer alleging, arising out of, based upon or attributable
to the facts alleged in the Claim for which such notice has
been given, or alleging any Wrongful Act which is the same as
or related to any Wrongful Act alleged in the Claim of which
such notice has been given, shall be considered made at the
time such notice was given.
(c) If during the Policy Period or during the Discovery Period (if
applicable) the Company or the Insureds shall become aware of
any circumstances which may reasonably be expected to give
rise to a Claim being made against the Insureds and shall give
written notice to the Insurer of the circumstances and the
reasons for anticipating such a Claim, with full particulars
as to dates, persons and entities involved, then any Claim
which is subsequently made against the Insureds and reported
to the Insurer alleging, arising out of, based upon or
attributable to such circumstances or alleging any Wrongful
Act which is the same as or related to any Wrongful Act
alleged or contained in such circumstances, shall be
considered made at the time such notice of such circumstances
was given.
X.
Clause 9. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF
DEFENSE COSTS) is deleted in its entirety and replaced by the following:
9. DEFENSE COSTS, SETTLEMENTS, JUDGMENTS (INCLUDING THE ADVANCEMENT OF
DEFENSE COSTS)
The Insurer does not assume any duty to defend. The Insureds shall
defend and contest any Claim made against them.
With respect to an Employment Practices Claim, the Insureds shall have
the right to tender the defense of the Claim to the Insurer, which
right shall be exercised in writing by the Named Corporation on behalf
of all Insureds to the Insurer pursuant to Clause 8 of this policy.
This right shall terminate if not exercised within 30 days of the date
the Employment Practices Claim is first made against an Insured.
Further, from the date the Employment Practices Claim is first made
against the Insureds to the date when the Insurer accepts the tender
of the defense of such Claim, the Insureds shall take no action, or
fail to take any
<PAGE> 30
required action, that prejudices the rights of the Insureds or the
Insurer with respect to such Claim. Provided that the Insureds have
complied with the foregoing, the Insurer shall be obligated to assume
the defense of the Employment Practices Claim alleging a Wrongful Act,
even if such Employment Practices Claim is groundless, false or
fraudulent. The assumption of the defense of the Employment Practices
Claim shall be effective upon written confirmation thereof sent by the
Insurer to the Named Corporation. Once the defense has been so
tendered, the Insured shall have the right to effectively associate
with the Insurer in the defense of such Employment Practices Claim,
including, but not limited to, negotiating a settlement, subject to
the provisions of this Clause 9. However, the Insurer shall not be
obligated to defend such Employment Practices Claim after the Limit of
Liability has been exhausted, or after an Insured's rejection of a
settlement offer as described in this Clause 9.
Under Coverage A and Coverage B and Coverage C, when the Insurer has
not assumed the defense of an Employment Practices Claim pursuant to
Clause 9, the Insurer shall advance, at the written request of the
Insured, Defense Costs prior to the final disposition of a Claim. Such
advance payments by the Insurer shall be repaid to the Insurer by the
Insureds or the Company, severally according to their respective
interests, in the event and to the extent that the Insureds or the
Company shall not be entitled under the terms and conditions of this
policy to payment of such Loss.
THE INSUREDS SHALL NOT ADMIT OR ASSUME ANY LIABILITY, ENTER INTO ANY
SETTLEMENT AGREEMENT, STIPULATE TO ANY JUDGMENT, OR INCUR ANY DEFENSE
COSTS WITHOUT THE PRIOR WRITTEN CONSENT OF THE INSURER. ONLY THOSE
SETTLEMENTS, STIPULATED JUDGMENTS AND DEFENSE COSTS WHICH HAVE BEEN
CONSENTED TO BY THE INSURER SHALL BE RECOVERABLE AS LOSS UNDER THE
TERMS OF THIS POLICY. THE INSURER'S CONSENT SHALL NOT BE UNREASONABLY
WITHHELD, PROVIDED THAT THE INSURER, WHEN IT HAS NOT ASSUMED THE
DEFENSE OF AN EMPLOYMENT PRACTICES CLAIM PURSUANT TO THIS CLAUSE 9,
SHALL BE ENTITLED TO EFFECTIVELY ASSOCIATE IN THE DEFENSE AND THE
NEGOTIATION OF ANY SETTLEMENT OF ANY CLAIM.
The insurer shall have the right to effectively associate with the
Company in the defense of any Claim that appears reasonably likely to
involve the Insurer, including but not limited to negotiating a
settlement. The Company and the Insureds shall give the Insurer full
cooperation and such information as it may reasonably require.
With respect to an Employment Practices Claim, the Insurer may make
any settlement of any Claim it deems expedient with respect to any
Insured subject to such Insured's written consent. If any Insured
withholds consent to such settlement, the Insurer's liability for all
Loss on account of such Claim shall not exceed the amount for which
the Insurer could have settled such Claim plus Defense Costs incurred
as of the date such settlement was proposed in writing by the Insurer.
Further, in the event that the Insurer is defending the Employment
Practices Claim pursuant to this Clause 9, then the Insurer shall be
relieved of its duty to defend and shall thereafter tender the Claim
back to the Insureds, who shall thereafter at their own expense and on
their own behalf be responsible for the defense and any negotiation of
such Claim independently of the Insurer.
The Company is not covered in any respect under Coverage A or C(i);
the Company is covered, subject to the policy's terms, conditions and
exclusions, only with respect to its indemnification of the Directors
or Officers of the Company under Coverage B and C(ii); the Company is
covered under Coverage C(iii). Accordingly, the Insurer has no
obligation under this policy for Defense Costs incurred by, judgments
against or settlements by the Company arising out of a Claim made
against the Company other than a covered Employment Practices Claim,
or any obligation to pay Loss arising out of any legal liability
<PAGE> 31
that the Company has to the claimant except as respects a covered
Employment Practices Claim against the Company and its Directors or
Officers.
With respect to (i) Defense Costs jointly incurred by, (ii) any joint
settlement made by, and/or (iii) any adjudicated judgment of joint and
several liability against the Company and any Director or Officer, in
connection with any Claim other than an Employment Practices Claim,
the Company and the Director(s) or Officer(s) and the Insurer agree to
use their best efforts to determine a fair and proper allocation of
the amounts as between the Company and the Director(s) or Officer(s)
and the Insurer, taking into account the relative legal and financial
exposures of and the relative benefits obtained by the Directors and
Officers, the Company. In the event that a determination as to the
amount of Defense Costs to be advanced under the policy cannot be
agreed to, then the Insurer shall advance such Defense Costs which the
Insurer states to be fair and proper until a different amount shall be
agreed upon or determined pursuant to the provisions of this policy
and applicable law.
XI.
Clause 10. Discovery Clause is deleted in its entirety and replaced by the
following:
10. DISCOVERY CLAUSE
Except as indicated below, if the Insurer or the Named Corporation
shall cancel or refuse to renew this policy, the Named Corporation
shall have the right, upon payment of an additional premium of 75% of
the "full annual premium", to a period of one year following the
effective date of such cancellation or nonrenewal (herein referred to
as the "Discovery Period") in which to give to the Insurer written
notice of Claims first made against the Insureds during said one year
period for any Wrongful Act occurring prior to the end of the Policy
Period and otherwise covered by this policy. As used herein, "full
annual premium" means the premium level in effect immediately prior to
the end of the Policy Period. The rights contained in this paragraph
shall terminate, however, unless written notice of such election
together with the additional premium due is received by the Insurer
within 30 days of the effective date of cancellation or nonrenewal.
In the event of a Transaction, as defined in Clause 12, the Named
Corporation shall have the right, within 30 days before the end of the
Policy Period, to request an offer from the Insurer of a Discovery
Period (with respect to Wrongful Acts occurring prior to the effective
time of the Transaction) for a period of no less than three years or
for such longer or shorter period as the Named Corporation may request.
The Insurer shall offer such Discovery Period pursuant to such terms,
conditions and premium as the Insurer may reasonably decide. In the
event of a Transaction, the right to a Discovery Period shall not
otherwise exist except as indicated in this paragraph.
The additional premium for the Discovery Period shall be fully earned
at the inception of the Discovery Period. The Discovery Period is not
cancelable. This clause and the rights contained herein shall not apply
to any cancellation resulting from non-payment of premium.
XII.
Clause 11. Cancellation Clause is deleted in its entirety and replaced by the
following:
11. CANCELLATION CLAUSE
This policy may be canceled by the Named Corporation at any time only
by mailing written prior notice to the Insurer or by surrender of this
policy to the Insurer or its authorized agent.
<PAGE> 32
This policy may be canceled by or on the behalf of the Insurer only in
the event of nonpayment of premium by the Named Corporation. In the
event of non-payment of premium by the Named Corporation, the Insurer
may cancel this policy by delivering to the Named Corporation or by
mailing to the Named Corporation, by registered, certified, or other
first class mail, at the Named Corporation's address as shown in Item
1 of the Declarations, written notice stating when, not less than 30
days thereafter, the cancellation shall be effective. The mailing of
such notice as aforesaid shall be sufficient proof of notice. The
Policy Period terminates at the date and hour specified in such
notice, or at the date and time of surrender.
If the period of limitation relating to the giving of notice is
prohibited or made void by any law controlling the construction
thereof, such period shall be deemed to be amended so as to be equal
to the minimum period of limitation permitted by such law.
XIII.
Clause 12. Change in Control of Named Corporation is deleted in its entirety
and replaced by the following:
12. CHANGE IN CONTROL OF NAMED CORPORATION
If during the Policy Period:
a. the Named Corporation shall consolidate with or merge
into, or sell all or substantially all of its assets
to any other person or entity or group of persons
and/or entities acting in concert; or
b. any person or entity or group of persons and/or
entities acting in concert shall acquire an amount of
the outstanding securities representing more than 50%
of the voting power for the election of Directors of
the Named Corporation, or acquires the voting rights
of such an amount of such securities;
(either of the above events herein referred to as the "Transaction")
then this policy shall continue in full force and effect as to
Wrongful Acts occurring prior to the effective time of the
Transaction, but there shall be no coverage afforded by any provision
of this policy for any actual or alleged Wrongful Act occurring after
the effective time of the Transaction. This policy may not be canceled
after the effective time of the Transaction and the entire premium for
this policy shall be deemed earned as of such time. The Named
Corporation shall also have the right to an offer by the Insurer of a
Discovery Period described in Clause 10 of the policy.
The Named Corporation shall give the Insurer written notice of the
Transaction as soon as practicable, but not later than 30 days after
the effective date of the Transaction.
XIV.
Clause 13. Subrogation is deleted in its entirety and replaced by the
following:
13. SUBROGATION
In the event of any payment under this policy, the Insurer shall be
subrogated to the extent of such payment to all the Company's and the
Insureds' rights of recovery thereof, and the
<PAGE> 33
Company and the Insureds shall execute all papers required and shall
do everything that may be necessary to secure such rights including
the execution of such documents necessary to enable the Insurer to
effectively bring suit in the name of the Company and/or the Insureds.
In no event, however, shall the Insurer exercise its rights of
subrogation against an Insured under this policy unless such Insured
has been convicted of a criminal act, or been judicially determined to
have committed a deliberate fraudulent act, or obtained any profit or
advantage to which such Insured was not legally entitled.
XV.
Clause 14. Other Insurance and Indemnification is deleted in its entirety and
replaced by the following:
14. OTHER INSURANCE AND INDEMNIFICATION
Such insurance as is provided by this policy shall apply only as
excess over any other valid and collectible insurance.
In the event of a Claim against a Director or Officer of the Company
arising out of his or her serving as a director, officer, trustee or
governor of an Outside Entity, coverage as is afforded by this policy
shall be specifically excess of indemnification provided by such
Outside Entity and any insurance provided to such Outside Entity with
respect to its directors or officers.
Further, in the event such other insurance provided to the Company or
the Outside Entity is provided by the Insurer or any member company of
American International Group, Inc. (AIG) (or would be provided but for
the application of the retention amount, exhaustion of the limit of
liability or failure to submit a notice of a Claim) then the maximum
aggregate Limit of Liability for all Losses combined covered by virtue
of this policy as respects any such Claim shall be reduced by the
limit of liability (as set forth on the Declarations Page) of the
other AIG insurance provided to the Company or such Outside Entity.
XVI.
Clause 15. Notice And Authority is deleted in its entirety and replaced by the
following:
15. NOTICE AND AUTHORITY
It is agreed that the Named Corporation shall act on behalf of the
Subsidiaries, the Named Parent and all Insureds with respect to the
giving of notice of Claim or giving and receiving notice of
cancellation, the payment of premiums and the receiving of any return
premiums that may become due under this policy, the receipt and
acceptance of any endorsements issued to form a part of this policy
and the exercising or declining to tender the defense of an Employment
Practices Claim to the Insurer and the exercising or declining of any
right to a Discovery Period.
XVII.
Clause 17. Action Against Insurer is deleted in its entirety and replaced by
the following:
17. ACTION AGAINST INSURER
Except as provided in Clause 19 of the policy, no action shall lie
against the Insurer unless, as a condition precedent thereto, there
shall have been full compliance with all of the terms
<PAGE> 34
of this policy, nor until the amount of the Insureds' obligation to
pay shall have been finally determined either by judgment against the
Insureds after actual trial or by written agreement of the Insureds,
the claimant and the Insurer.
Any person or organization or the legal representative thereof who has
secured such judgment or written agreement shall thereafter be
entitled to recover under this policy to the extent of the insurance
afforded by this policy. No person or organization shall have any
right under this policy to join the Insurer as a party to any action
against the Insureds or the Company to determine the Insureds'
liability, nor shall the Insurer be impleaded by the Insureds or the
Company or their legal representatives. Bankruptcy or insolvency of
the Company or the Insureds or of their estates shall not relieve the
Insurer of any of its obligations hereunder.
XIX.
The following Clauses are hereby added to this policy:
18. PRE-AUTHORIZED CLASS ACTION EMPLOYMENT PRACTICES DEFENSE ATTORNEYS
Only with respect to an Employment Practices Claim in the form of a
class action (hereinafter a "Class Employment Practices Claim"):
Affixed as Appendix A hereto and made a part of this policy is a list
of Panel Counsel law firms ("Panel Counsel Firms") from which a
selection of legal counsel shall be made to conduct the defense of any
Class Employment Practices Claim against an Insured pursuant to the
terms set forth below.
In the event the Insurer has assumed the defense pursuant to Clause 9
of this policy, then the insurer shall select a Panel Counsel Firm to
defend the Insureds. Upon the written request of the Named
Corporation, the Insurer may consent to a law firm selected by the
Named Corporation, whether or not a Panel Counsel Firm, to defend the
Insureds, which consent shall not be unreasonably withheld. If at any
time thereafter a dispute arises between the Insurer and the Insureds
involving the defense of the Claim, the Insurer and the Insured shall
select a mutually agreeable replacement defense counsel from the Panel
Counsel list.
In the event the Insureds are defending the Class Employment Practices
Claim, then the Insureds shall select a Panel Counsel Firm to defend
the Insureds.
The selection of the Panel Counsel Firm, whether done by the Insurer
or the Insureds pursuant to the above rules, shall be from the
jurisdiction in which the Class Employment Practices Claim is brought.
In the event a Class Employment Practices Claim is brought in a
jurisdiction not included on the list, the selection shall be made
from a listed jurisdiction which is the nearest geographic
jurisdiction to either where the Class Employment Practices Claim is
maintained or where the corporate headquarters of the Named
Corporation is located. In such instance the Insureds also may, with
the consent of the Insurer, which consent shall not be unreasonably
withheld, select a non-Panel Counsel Firm in the jurisdiction in which
the Class Employment Practices Claim is brought to function as "local
counsel" on the Class Employment Practices Claim to assist the Panel
Counsel Firm which will function as "lead counsel" in conducting the
defense of the Class Employment Practices Claim.
<PAGE> 35
With the express prior written consent of the Insurer, an Insured may
select a Panel Counsel Firm different from that selected by other
Insured defendants if such selection is required due to an actual
conflict of interest or is otherwise reasonably justifiable.
The list of Panel Counsel Firms may be amended. from time to time BY
the Insurer. However, no change shall be made to the specific list
attached to this policy during the Policy Period without the consent
of the Named Corporation.
19. ARBITRATION
It is hereby understood and agreed that all disputes or differences
which may arise under or in connection with this policy, whether
arising before or after termination of this policy, including any
determination of the amount of Loss, shall be submitted to the
American Arbitration Association under and in accordance with its then
prevailing commercial arbitration rules. The arbitrator's shall be
chosen in the manner and within the time frames provided by such
rules. If permitted under such rules, the arbitrators shall be three
disinterested individuals having knowledge of the legal, corporate
management, or insurance issues relevant to the matters in dispute.
Any party may commence such arbitration proceeding in either New York,
New York; Atlanta, Georgia; Chicago, Illinois; or Denver, Colorado.
The arbitrators shall give due consideration to the general principles
of Delaware law in the construction and interpretation of the
provisions of this policy; provided, however, that the terms,
conditions, provisions and exclusions of this policy are to be
construed in an evenhanded fashion as between the parties, including
without limitation, where the language of this policy is alleged to be
ambiguous or otherwise unclear, the issue shall be resolved in the
manner most consistent with the relevant terms, conditions, provisions
or exclusions of the policy (without regard to the authorship of the
language, the doctrine of reasonable expectation of the parties and
without any presumption or arbitrary interpretation or construction in
favor of either party or parties, and in accordance with the intent of
the parties).
The written decision of the arbitrators shall be provided to both
parties and shall be binding on them. The arbitrators' award shall not
include attorney fees or other costs.
Each party shall bear equally the expenses of the arbitration.
20. HEADINGS
The descriptions in the headings of this policy are solely for convenience, and
form no part of the terms and conditions of coverage.
XX.
IMPORTANT: READ CAREFULLY
It is further understood and agreed that this policy will automatically convert
to the new policy form entitled DIRECTORS AND OFFICERS LIABILITY AND PRIVATE
COMPANY REIMBURSEMENT INSURANCE POLICY form number 63274 and 63273 (12/95)
(hereinafter "New Form") without any further consent from the Insured being
required. This conversion shall be effective immediately as of the date and
time the New Form is approved by the appropriate insurance department in the
state of domicile of the Named Corporation as listed in Item.1 of the
Declarations page under "MAILING ADDRESS." The Insurer is hereby authorized to
replace this policy form and re-issue this coverage on the New Form after this
date. The physical re-
<PAGE> 36
issuance of the policy form shall not be a condition precedent to effectiveness
of this paragraph, but such re-issuance shall be done as soon as practicable.
The undersigned authorized representative and the Insured(s) hereby
acknowledges the terms and conditions set forth in this endorsement including
but not limited to clause XX. above.
-------------------------
AUTHORIZED REPRESENTATIVE
The fact that this endorsement is acknowledged by the signature of the
authorized representative of the Insureds above shall not limit the
effectiveness of any other endorsement attached to this policy which does have
such an acknowledgment,
ALL OTHER TERMS, CONDITIONS AND EXCLUSIONS REMAIN UNCHANGED.
<PAGE> 37
============================================================================
American International Companies
Directors and Officers Insurance and Corporate Reimbursement Application
- -----------------------------------------------------------------------------
Name of Insurance Company to which Application is made.
(herein called the Insurer)
NOTICE: THE POLICY PROVIDES THAT THE LIMIT OF LIABILITY AVAILABLE TO PAY
JUDGMENTS OR SETTLEMENTS SHALL BE REDUCED BY AMOUNTS INCURRED FOR LEGAL
DEFENSE. FURTHER NOTE THAT AMOUNTS INCURRED FOR LEGAL DEFENSE SHALL BE APPLIED
AGAINST THE RETENTION AMOUNT. IF A POLICY IS ISSUED, THE APPLICATION WILL BE
ATTACHED TO AND BECOME A PART OF THE POLICY. THEREFORE IT IS NECESSARY THAT
ALL QUESTIONS BE ANSWERED ACCURATELY AND COMPLETELY.
IF A POLICY IS ISSUED, IT WILL BE ON A CLAIMS-MADE BASIS.
- -------------------------------------------------------------------------------
1. APPLICANT'S
(a) Corporation name ZEROS USA, inc.
(b) State or incorporation Texas
(c) Date of incorporation November 12, 1996
(d) Address 507 North Belt East, Suite 550
Houston, TX 77060
(e) Nature of business Sells license for Energy Recycling Technology
(f) Primary SIC code(s)
(g) Corporation has continually been operating since November 12, 1996
(h) Total number of locations (please check) one X two three
more than three ---- ---- ----
----
(i) Does the Applicant operate any retail outlets Yes No X
---- ----
If yes total number of retail outlets
-------. ---- ----
2. (a) Amount of insurance requested: $1,000,000
(b) Self-insured retention desired (each loss) $ 100,000
-----------
3. STOCK OWNERSHIP
(a) Total number of voting shares outstanding 10,500,000
----------
(b) Total number of voting shareholders 119
----
(c) Total number of voting shares owned by its Directors (direct and
beneficial) 9,000,000
---------
(d) Total number of voting shares owned by its Officers (direct and
beneficial) who are not Directors none
-----
- -------------------------
<PAGE> 38
AMERICAN INTERNATIONAL COMPANIES
- --------------------------------------------------------------------------------
(e) Does any shareholder own five percent or more of the voting
shares directly or beneficially? If so, designate name and
percentage of holdings. (If no such shareholders, check here
"none" ________.) Yes. Steve Clark 41.20%
(f) Are there any other securities convertible to voting stock? If
so, describe fully. (If none, check here "none" ________.)
10,000,000 Preferred Stock/None Issued
4. (a) Complete list of all Directors of the Corporation named in 1(a)
above by name and affiliation with other corporations. (If
included as an attachment herein, check here ___X____.)
(b) Complete list of all Officers of the Corporation named in 1(a)
above by name and affiliation with other corporations. (If
included as an attachment herein, check here ___X____.)
5. List of all direct and indirect Subsidiary corporations: NONE
<TABLE>
<CAPTION>
BUSINESS OR TYPE PERCENTAGE OF DATE ACQUIRED DOMESTIC OR FOREIGN AND
NAME OF OPERATION OWNERSHIP OR CREATED COUNTRY OF INCORPORATION
- ---------- ----------------- -------------- -------------- ------------------------
<S> <C> <C> <C> <C>
</TABLE>
Coverage to include all Subsidiaries? Yes ___ No ___ If yes, include complete
list of Directors and Officers of each Subsidiary. If no, include complete list
of Directors and Officers of each Subsidiary for which coverage is requested.
If included as an attachment herein, check here ________. N/A
6. Are any plans for merger, acquisition or consolidation of or by the
Applicant or any of its Subsidiaries being considered? Yes ___ No_X_
(a) If so, have they been approved by the board of directors?
Yes ___ No ___ Date ___________________
(b) If so, have they been submitted to the shareholders for
approval? Yes ___ No ___ Date for approval ___________________
7. Does the Applicant or any of its Subsidiaries anticipate any
registration of securities under the Securities Act of 1933 or any other
offering of securities within the next year? Yes _X_ No ___ (If yes,
give details and submit offering materials if available.) Company
preparing SEC Form 10
8. There has not been nor is there now pending any claims(s) against any
person proposed for insurance in his or her capacity of either Director
or Officer of the named Applicant or any of its Subsidiaries except as
follows. (Attach complete details. If no such claims, check here "none"
___X___.)
9. No Director or Officer has knowledge or information of any act, error or
omission which might give rise to a claim under the proposed policy
except as follows. (Attach complete details. If they have no such
knowledge or information, check here "none" ___X___.)
2
<PAGE> 39
AMERICAN INTERNATIONAL COMPANIES
- --------------------------------------------------------------------------------
10. Has the Applicant, any of its Subsidiaries or any Director and/or Officer:
(a) Been involved in any antitrust, copyright or patent litigation?
Yes No X
----- -----
(b) Been charged in any civil or criminal action or administrative
proceeding with a violation of any federal or state antitrust or
fair trade law? Yes No X
----- -----
(c) Been charged in any civil or criminal action or administrative
proceeding with a violation of any federal or state securities law
or regulation? Yes No X
----- -----
(d) Been involved in any representative actions, class actions, or
derivative suits? Yes No X
----- -----
(If any of the above are answered yes, attach full details.)
It is agreed that with respect to Questions 9 and 10 above, that if such
knowledge, information or involvement exists, any claim or action arising
therefrom is excluded from the proposed coverage.
11. Previous Directors and Officers Insurance N/A
(a) Name of insurance company
(b) Limit of liability
(c) Self-insured retention
(d) Policy expiration date
(e) Premium (indicate one year or other)
(f) Loss experience (Attach full details. If no losses, check here: ____)
12. Has any insurance carrier refused, cancelled or nonrenewed coverage?
Yes No X
----- -----
(If yes, attach full details including when and reason.)
13. Name of Risk Manager (or equivalent position) and number of years in current
position
Cruz C. Alderete Since 11/12/96
14. Attach copies of the following for the Applicant and, to the extent
available, each of its Subsidiaries.
(a) Latest annual report N/A
(b) Latest 10K report filed with the SEC (if the Company is publicly
traded) N/A
(c) Latest interim financial statement available Being prepared by
auditors
(d) All proxy statements and Notices of Annual Meeting of Stockholders
within the last twelve months N/A
(e) All registration statements filed with the SEC within the last twelve
months (if the Company is Publicly traded) N/A
(f) Copy (certified by Corporate Secretary) of the indemnification
provisions of the charter and the by laws. Also attach a copy of any
corporate indemnification agreement
3
<PAGE> 40
AMERICAN INTERNATIONAL COMPANIES
================================================================================
It is agreed that the Applicant will file with the Insurer, as soon as it
becomes available, a copy of each registration statement and annual or interim
report which the Applicant or any Subsidiary may from time to time file with
the Securities and Exchange Commission.
- --------------------------------------------------------------------------------
THE UNDERSIGNED AUTHORIZED OFFICER OF THE APPLICANT DECLARES THAT THE
STATEMENTS SET FORTH HEREIN ARE TRUE. THE UNDERSIGNED AUTHORIZED OFFICER AGREES
THAT IF THE INFORMATION SUPPLIED ON THIS APPLICATION CHANGES BETWEEN THE DATE
OF THIS APPLICATION AND THE EFFECTIVE DATE OF THE INSURANCE, HE/SHE
(UNDERSIGNED) WILL, IN ORDER FOR THE INFORMATION TO BE ACCURATE ON THE
EFFECTIVE DATE OF THE INSURANCE, IMMEDIATELY NOTIFY THE INSURER OF SUCH
CHANGES, AND THE INSURER MAY WITHDRAW OR MODIFY ANY OUTSTANDING QUOTATIONS
AND/OR AUTHORIZATIONS OR AGREEMENTS TO BIND THE INSURANCE.
SIGNING OF THIS APPLICATION DOES NOT BIND THE APPLICANT OR THE INSURER TO
COMPLETE THE INSURANCE, BUT IT IS AGREED THAT THIS APPLICATION SHALL BE THE
BASIS OF THE CONTRACT SHOULD A POLICY BE ISSUED, AND IT WILL BE ATTACHED TO AND
BECOME PART OF THE POLICY.
ALL WRITTEN STATEMENTS AND MATERIALS FURNISHED TO THE INSURER IN CONJUNCTION
WITH THIS APPLICATION ARE HEREBY INCORPORATED BY REFERENCE INTO THIS
APPLICATION AND MADE A PART HEREOF.
NOTICE TO NEW YORK AND OHIO APPLICANTS: ANY PERSON WHO KNOWINGLY AND WITH
INTENT TO DEFRAUD ANY INSURANCE COMPANY OR OTHER PERSON FILES AN APPLICATION
FOR INSURANCE OR STATEMENT OF CLAIM CONTAINING ANY MATERIALLY FALSE
INFORMATION, OR CONCEALS FOR THE PURPOSE OF MISLEADING, INFORMATION CONCERNING
ANY FACT MATERIAL THERETO, COMMITS A FRAUDULENT INSURANCE ACT, WHICH IS A
CRIME.
Signed /s/ S. CLARK
-----------------------------------
(Applicant)
Date May 19, 1997
-------------------------------------
Title President Corporation [SEAL]
------------------------------------ ------------------------
(must be signed by Chairman of the
Board or President)
Attest
-----------------------------------
Broker
-----------------------------------
Address
----------------------------------
----------------------------------
Please read the following statement carefully and sign on the next page where
indicated. If a policy is issued, this signed statement will be attached to the
policy.
4
<PAGE> 41
AMERICAN INTERNATIONAL COMPANIES
================================================================================
The undersigned authorized officer of the Applicant hereby acknowledges that
he/she is aware that the limit of liability contained in this policy shall be
reduced, and may be completely exhausted, by the costs of legal defense and
in such event, the Insurer shall not be liable for the costs of legal defense or
for the amount of any judgment or settlement to the extent that such exceeds
the limit of liability of this policy.
The undersigned authorized officer of the Applicant hereby further acknowledges
that he/she is aware that legal defense costs that are incurred shall be
applied against the retention amount.
Signed /s/ S. CLARK
---------------------------------------
Date May 19, 1997
-----------------------------------------
Title President
----------------------------------------
(must be signed by Chairman of the Board
or President)
5
<PAGE> 42
DIRECTORS OF THE COMPANY
<TABLE>
Beneficial
Director Shares Stock Total %
- -------- Owned Warrants Shares Ownership
---------- -------- ------ ---------
<C> <C> <C> <C> <C>
Steve Clark 4,328,000 -0- 4,328,000 41.20
OCS, Inc./President
Jesse Blanco 200,000 200,000 400,000 3.80
Private Practice
Chet Gutowsky 100,000 212,000 312,000 3.00
No other affiliation
R. J. Simmons, Jr. 100,000 220,000 320,000 3.04
No other affiliation
Celso Suarez 100,000 220,000 320,000 3.04
Private Practice
OFFICERS OF THE COMPANY
Beneficial
Director Shares Stock Total %
- -------- Owned Warrants Warrants Ownership
---------- -------- -------- ---------
Steve Clark 4,328,000 -0- 4,328,000 41.20
OCS, Inc./President
Jesse Blanco 200,000 200,000 400,000 3.80
Private Practice
Chet Gutowsky 100,000 212,000 312,000 3.00
No other affiliation
</TABLE>
