<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Period ended
-----------------
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from 3/31/99 to 12/31/99
--------- ----------
Commission file number: 000-25367
International Fuel Technology, Inc.
-----------------------------------
(Exact name of registrant as specified in its charter)
Nevada 88-0357508
------ ----------
(State or other jurisdiction (IRS Employer
of incorporation or Identification No.)
organization)
7777 Bonhomme, Suite 1920, St. Louis, Missouri 63105
----------------------------------------------------
(Address of principal executive offices)
(Zip Code)
(314) 727-3333
--------------
(Registrant's telephone number, including area code)
Blencathia Acquisition Corporation, 1504 R Street, N.W., Washington, D.C.,
--------------------------------------------------------------------------
20009.
------
(Former name and former address of Registrant)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.01 Par Value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of
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registrant's knowledge, in definitive proxy or informational statements
incorporated by reference in Part III of this form 10-K or any amendment to this
form 10-K. [X]
The aggregate market value of the voting and non-voting common stock
held by non-affiliates of the Registrant, based upon the average bid and asked
price of the common stock on March 24, 2000, as reported on the OTC Bulletin
Board, was $48,190,315.
Number of shares of common stock outstanding as of March 24, 2000:
17,987,698
Documents Incorporated by Reference: N/A
2
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INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
FOR THE FISCAL PERIOD ENDED
DECEMBER 31, 1999
Index to Transition Report
on Form 10-K
Part I Page
Item 1- Business 4-10
Item 2- Properties 10
Item 3- Legal Proceedings 10
Item 4- Submission of Matters to a Vote of Security Holders 10
Part II
Item 5- Market for Registrant's Common Equity and Related Stockholder
Matters 11
Item 6- Selected Financial Data 12
Item 7- Management's Discussion and Analysis of Financial Condition
and Results of Operation 13-21
Item 7a- Quantitative and Qualitative Disclosures About Market Risk 21
Item 8- Financial Statements and Supplementary Data 21
Item 9- Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 21-22
Part III
Item 10- Directors and Executive Officers of the Registrant 23-25
Item 11- Executive Compensation 25-26
Item 12- Security Ownership of Certain Beneficial Owners and
Management 27-28
Item 13- Certain Relationships and Related Transactions 28-29
Part IV
Item 14- Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 29-30
3
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PART I
Item 1. Business
(a) General Business Development
--------------------------------
International Fuel Technology, Inc. ("IFT") was incorporated under
the laws of the State of Nevada on April 9, 1996, to develop and
commercialize a proprietary scientific process, "Performance Enhanced
Emissions Reduced" ("PEER"). PEER is designed to reformulate various
refined fuels, including #2 diesel fuel, home heating oil, #6
(Bunker) fuel, jet engine fuel and gasoline to improve combustion
efficiency and reduce the amounts of harmful exhaust emissions from
internal combustion engines. The resulting reprocessed fuels are
known as PEERFUEL/TM/ ("PEERFUEL"). IFT is a development stage
company, has had no revenues to date and has raised capital for
initial development through the issuance of its securities and
promissory notes.
IFT has an authorized capitalization of 150,000,000 shares of common
stock, $.01 par value per share and no authorized preferred stock. On
July 22, 1999, IFT effected a one-for-ten reverse split of its
outstanding common stock. All references to share information have
been restated to reflect the split.
Effective March 31,1998, IFT merged with United States Fuel
Technology, Inc. United States Fuel Technology, Inc. was formed
primarily to market PEERFUEL in North America. On May 29, 1998, IFT
entered into an agreement and plan of merger with Scientific Fuel
Technology, LLC, a company related through common ownership.
IFT's common stock is traded on the NASD OTC Bulletin Board under the
symbol IFUE.
Pursuant to an Agreement and Plan of Merger effective as of October
27, 1999 between Blencathia Acquisition Corporation ("Blencathia")
and IFT, all the outstanding shares of common stock of Blencathia
were to be exchanged for 300,000 shares of common stock of IFT in a
transaction in which IFT was the surviving company. Blencathia (a
development stage company) was incorporated in Delaware on December
3, 1998 to serve as a vehicle to effect a merger, exchange of capital
stock, asset acquisition or other business combination with a
domestic or foreign private business. As of the date of the merger
Blencathia had not yet commenced any formal business operations, and
the $264 of operations costs through September 30, 1999 related to
Blencathia's formation. In a related transaction following the
Blencathia merger, IFT paid consideration consisting of $100,000 cash
to TPG Capital Corporation ("TPG"), a former shareholder of
Blencathia, pursuant to an agreement entered into in October 1999
under which IFT engaged TPG to provide services in connection with
effecting a business combination between IFT and a publicly reporting
company. Under the terms of the TPG agreement, IFT also agreed to
place the IFT shares granted to Blencathia shareholders under the
Blencathia merger agreement into escrow and to
4
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register and sell such shares on behalf of Blencathia shareholders
for aggregate consideration of $500,000. Any remaining unsold shares
will be returned to IFT after the former shareholders have received
proceeds of $500,000. In the event the value of the shares generates
less than $500,000 upon liquidation by Blencathia, IFT will need to
satisfy the remaining liability.
The officers, directors, and by-laws of IFT continued without change
as the officers, directors, and by-laws of the successor issuer
following the merger with Blencathia. All financial statement
information presented for IFT reflects the operations of IFT and does
not include any operations of Blencathia.
IFT is engaged in one reportable industry segment. Financial
information regarding this segment is contained in IFT's financial
statements included in this report.
(b) Description of Business
---------------------------
To date, IFT has focused on the development of PEERDIESEL/TM/
("PEERDIESEL"), its reformulated diesel fuel #2. Approximately 70% of
the distillate fuel consumed in the United States, Canada and Mexico
is diesel fuel #2. PEERDIESEL has undergone over two years of
extensive testing at the California Environmental Engineering
facility ("CEE"), an independent mobile emissions laboratory in
Southern California recognized by the U.S. Environmental Protection
Agency ("EPA") and certified by the California Air Resources Board
("CARB"), in order to obtain diploma certification. The testing by
CEE is on three types of diesel engines representative of the
majority of heavy duty diesels in use today. The initial certified
test reports from CEE indicate that use of the PEERDIESEL process
might significantly reduce airborne diesel exhaust particles. The use
of PEERDIESEL does not require any engine retrofit and demonstrates
no degradation in acceleration or loss of torque. PEERDIESEL can be
produced, transported, stored and pumped without any special
procedures beyond those already used in handling diesel fuel.
Reformulated PEERDIESEL requires neither additives nor engine
conversion and would be delivered to the consumer through the
traditional distribution system so reformulation charges for
PEERDIESEL will not add greatly to the pump price of the fuel. IFT
anticipates that the additional cost of the pump price will not
exceed $.10 per gallon.
On June 17, 1999, the CARB issued Executive Order #D-485-1 to IFT
permitting the use of the PEERDIESEL process in vehicles in
California. This is a significant step in obtaining diploma
certification in California for commercialization of PEERDIESEL.
PEERDIESEL has entered the final stage of testing under a protocol
established by CARB. This final stage involves specific transient
testing to complete the full battery of tests on #2 diesel fuel
necessary to confirm the pollution reduction results previously
shown. Upon completion of final testing, IFT will begin marketing and
distribution of PEERDIESEL.
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The State of California has some of the world's most stringent air
pollution regulations and CARB certification of PEERDIESEL will allow
IFT to automatically market PEERDIESEL in a majority of other states
without further testing. Recently, the State of California declared
diesel exhaust a carcinogen and the federal Clean Air Act Amendment of
1990 requires that diesel engines reduce their emissions of
particulates and other harmful air pollutants significantly by 2006.
IFT anticipates that federal and state pressure to decrease diesel
fuel particulates will result in a large demand for PEERDIESEL once
certification is achieved. In addition, the Clean Air Act provides
that any pollution source which reduces pollution emissions below
permitted levels is eligible to earn emission reduction credits, which
can be bought, sold, traded or banked.
MARKETING
As a development stage company with no immediate revenue generation
capabilities, our marketing strategy and resulting efforts have been
relatively limited. We have worked over the past year to identify
those companies that would benefit specifically from access to
PEERFUEL technology and the resulting products. The companies we have
targeted for marketing efforts once we are in a position to
commercialize our technology can be grouped into three categories:
production/distribution, sales, and other strategic businesses. In a
number of cases firms can be considered to be in both of the first two
segments, while other strategic companies are generally not involved
directly in the petroleum industry (such as motor vehicle
manufacturers).
It is our intention to remain conservative in our marketing efforts
until such time as either/both emission reduction gains are accepted
on a regulatory basis (CARB certification) and we have proven greater
fuel economy from PEERFUEL products. CARB certification is important
because it immediately opens up the California market for diesel #2 to
our technology. Given current refining methods used to meet CARB fuel
equivalency standards for diesel fuel #2, our technology is
appreciably less expensive, enabling us to market directly to
refiners. California is important as a market for two reasons: the
size of its market, and the positive perception that will accrue for
our technology from certification as a CARB equivalent fuel. Should
the results from fleet testing show conclusive evidence of fuel
economy benefits from PEERDIESEL, we will immediately alter our
marketing efforts to concentrate more heavily on the sales segment,
which we believe will have an immediate interest in knowing more about
our technology.
IFT's current strategy anticipates that after CARB diploma
certification is received, initial revenues will likely come from the
sale of equipment needed to install the PEER process and start the
processing of PEERDIESEL. Licensing and affiliated revenues would
follow thereafter. IFT's key business strategy is as follows:
o Complete South Coast Air Quality Management District
certification of PEERDIESEL and commercialization of
PEERDIESEL with CARB.
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o Work with representatives from State of California to
introduce legislation to mandate use of PEERDIESEL.
o Implement PEERDIESEL in Honduras as the pilot program for
Emission Reduction Credits international trading.
o Enter a joint venture to license refineries for use of
PEERDIESEL reformulation process worldwide.
o Expand PEERDIESEL technology to other states that have
adopted California air quality regulations.
o Expand research and development of other diesel distillate
categories (jet fuel, home heating oil, bunkers for
maritime).
o Initiate gasoline testing research and development for
possible inclusion in the PEERFUEL family of products.
Currently, IFT is introducing PEERDIESEL into the market through its
Web site information, press releases, and publication of testing
results. IFT maintains an Internet Website at http://www.peerfuel.com.
IFT intends to market PEERDIESEL by licensing arrangements with
refineries and/or other appropriate marketing strategies.
COMPETITION
The growth in concern over the falling quality of the environment has
stimulated significant efforts in a range of areas that can be
considered competitive to PEERFUEL technology. Most experts agree that
it is not an issue of if, but when a viable alternative or set of
alternatives will be available to replace or greatly reduce the use of
fossil fuels. The work now being performed is centered around either
reducing the harmful emissions of fossil fuels, or replacing fossil
fuels altogether.
The majority of the technologies seeking to reduce or even eliminate
harmful emissions fall into three categories: cleaner fuels, engine
emission reduction devices, and fossil fuel alternatives. Clean fuel
technology is centered around either additional refining which pulls
out harmful emission substances (such as sulfur), or use additives
(such as Methyl Tertiary Butyl Ether or MTBE) which bind to the fuel
causing reduction in certain harmful emissions. Engine emission
reduction devices include such items as the catalytic converter, which
trap or filter harmful emissions before they are released into the
environment. Fossil fuel alternatives include both alternative-fuel
vehicles (electric cars) and alternative-fuels (compressed natural
gas).
The difficulty with most technologies now being pursued that work to
reduce the harmful emissions from combusting fossil fuel, whether
through cleaner fuel or engine devices, or a combination of the two,
is that the improvements are only incremental and are very costly.
While it is possible to make cleaner fuels that meet emission
legislation targets for certain pollutants, to meet the
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more meaningful reduction standards it may push the cost of diesel
fuel to two or even three times its current price. In addition, it has
been proven that attempts to reduce a particular level of a pollutant
such as sulfur, may have the unintended impact of increasing other
pollutants. We are not aware of any research to date that generates a
broad spectrum of emission reduction. Federal and state legislation
covering emission reduction requirements also poses a problem for
competitors because it can shift with respect to certain pollutants,
leaving new technologies incompatible with new regulations and making
them commercial nonviable.
Alternative fuels and alternative vehicles are often acknowledged to
hold the highest potential on a long term basis to solve pollution
abatement needs, but face significant hurdles in crafting a solution
in the near or medium term. Issues such as vehicle cost, engine re-
fit, engine performance, potential environmental damage, scalability
and others have effectively resulted in limiting the economic
viability of these alternative technologies. Added to the problems
just stated is the social cost of allowing for the potential
elimination of a material part of the petroleum industry and the
resulting effect on the world's economic system.
While the level of competition in the market is wide, it is not
believed to be especially deep in that no one emission reduction
technology now dominates the market, and therefore, no one company or
group of companies has a meaningful market share. We believe this is
an opportune time for the introduction of PEERFUEL technology because
it offers a low cost, high value product that can be seamlessly melded
into the existing global economic framework.
IFT anticipates three possible sources of competition for PEERFUEL:
o Companies with greater resources and more financial strength
that offer similar technology to PEERDIESEL;
o Vehicles utilizing alternative fuels; and
o Alternative fuels for use on current vehicles with engine
retrofitting.
TRADEMARKS AND PATENTS
IFT has two patents pending before the United States Patent and
Trademark Office and has been issued six trademarks and service marks
including PEERFUEL and PEERDIESEL. In addition to the foregoing
proprietary technology restrictions, all testing by CEE or others is
subject to strict privacy and confidentiality controls. No outside
entity will be invited to evaluate the science underlying the PEER
process until such time as the testing is completed.
RESEARCH AND DEVELOPMENT
IFT's research and development costs are related to the development
and
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testing of the PEERDIESEL product. The costs incurred in research and
development for the nine months ended December 31, 1999 was $330,353.
Costs incurred in research and development for the years ended March
31, 1999 and 1998, were $842,905 and $330,089, respectively.
We have been performing research and development activities on
PEERFUEL since 1996, with the majority of our testing activities
occurring in 1998-1999. Initial testing activities were conducted on a
limited basis in July 1996 and again in January 1997, with smaller run
times on few engine types. Initial results from these tests were
encouraging not only for reductions in key emission substances, but
also showed the potential for increased fuel economy.
IFT officially engaged California Environmental Engineering (CEE)
located in Santa Ana, California, to conduct a complete test program
starting in 1998 using a variety of engine types. CEE is a state/CARB
certified laboratory and is also recognized by the EPA. CEE has the
ability to test both diesel fuel and gasoline products. The list of
entities for which CEE has conducted testing includes CARB, EPA, Ford,
General Motors, Volvo as well as other multi-national corporations.
The formal research and development work consisted of running a series
of tests under EPA and Society of Automotive Engineers (SAE)
recommended procedures to determine the gaseous emissions levels of
four separate diesel engines. The test procedures consist of a
prescribed sequence of engine operating conditions on an engine
dynamometer with measurements of hydrocarbons (HC), nitrogen oxides
(NOX), carbon monoxide (CO), carbon dioxide (CO2), and particulate
matter (PM). The testing was done during 13 steady state modes
consisting of five modes at rated engine speed, five modes at an
intermediate speed, and three modes at idle. Four separate engines
were used in the testing: Cummins L-10, Caterpillar 3208, and two
separate Detroit Diesel engines. The test fuel used for the baseline
program was standard D-2 diesel fuel, and for the PEERFUEL testing
re-processed D-2 fuel was used which ranged in age from less than one
month old to nearly 12 months old.
IFT is not presently engaged in any research and development
activities. We do expect to continue testing some time in the near
future in an effort to further clarify the exact scientific elements
involved in the processing of fuel through the PEERFUEL system. In
addition, further testing may be necessary to continue to tightly
define the emission reduction benefits to be realized from PEERFUEL
products. We have held several discussions with CARB officials who
have evidenced the need to conduct transient cycle testing, a
specialized form of engine testing. This testing will be part of our
ongoing efforts to achieve special certification from CARB that would
enable IFT to make specific claims with regard to emission reduction
performance.
In addition to CARB certification-related research and development
efforts, we expect to put together a series of fleet testing programs
to identify specific fuel economy benefits from PEERFUEL. IFT is in
discussions with a variety of companies representing different
industries and geographical conditions,
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which would participate in a three-six month fleet program. The fleet
testing efforts are planned for the second half of 2000.
EMPLOYEES
IFT has five full time employees. The management of IFT believes the
relationship with its employees is satisfactory.
Item 2. Description of Property
IFT maintains its administrative offices at 7777 Bonhomme, Suite 1920,
St. Louis, Missouri, 63105, under an annual lease agreement for office
space and administrative services of $5,000 per month for
approximately 1,500 square feet from a company related through common
ownership. The agreement expires in July 2000.
IFT maintained its operations offices at 6170 W. Desert Inn Rd., Las
Vegas, Nevada, 89146, under a month to month lease of $5,000 per month
for office space and equipment from a company related through common
ownership. During May 2000 IFT relocated its operations office to 7230
Raven Avenue, Las Vegas, NV 89113.
The management of IFT believes that the current facilities are
adequate to meet current operating requirements.
Item 3. Legal Proceedings
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
(a) Market Information
----------------------
The Common Stock of IFT is traded in the over-the-counter market and
the range of closing high and low bid prices shown below is as
reported by the OTC Bulletin Board. The quotations shown reflect
inter-dealer prices, without retail mark-up, mark-down or commission
and may not necessarily represent actual transactions.
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended December 31, 1999
-------------------------------------------
High Low
First Quarter (4/1/99-6/30/99) $ 2.969 $ 2.656
Second Quarter (7/1/99-9/30/99) $ 4.281 $ 4.031
Third Quarter (10/1/99-12/31/99) $ 6.187 $ 2.562
Per Share Common Stock Bid Prices by Quarter
For the Fiscal Year Ended March 31, 1999
----------------------------------------
High Low
First Quarter (4/1/98-6/30/98)(Note 1) N/A N/A
Second Quarter (7/1/98-9/30/98)(Note 1) N/A N/A
Third Quarter (10/1/98-12/31/98) $7.50 $6.25
Fourth Quarter (1/1/99-3/31/99) $3.44 $2.97
Reflects a one-for-ten reverse split of outstanding common stock
effected by IFT on July 22, 1999. All closing high and low bid prices
have been restated to reflect this reverse split.
Note 1 - Shares of IFT common stock began trading during October 1998
(b) Holders of Common Stock
---------------------------
As of March 24, 2000, IFT estimates there were 5,200 beneficial
shareholders of IFT's common stock. The closing bid stock price on
March 24, 2000 was $2.98.
(c) Dividends
-------------
IFT has not declared or paid a cash dividend to stockholders. The
Board of Directors presently intends to retain any future earnings to
finance IFT operations and does not expect to authorize cash dividends
in the foreseeable future.
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Item 6. Selected Financial Statement Data
Effective October 27, 1999, IFT changed the date of its fiscal year
end from March 31 to December 31. The nine-month period ended December
31, 1999, is referred to as the transition period. All year and
quarter references relate to IFT's prior fiscal years and quarters,
unless otherwise stated
The following tables set forth certain information concerning the
Income Statement and Balance Sheet of IFT and should be read in
conjunction with the Financial Statements and the notes thereto
appearing elsewhere in this report.
(a) Selected Income Statement Data (In Thousands of Dollars, Except
Per Share Data)
-------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months Ended December 31,
1999 1998
---- ----
<S> <C> <C>
Revenues $0 $0
Operating Expenses 5,227 7,335
Net loss 5,632 7,404
Basic and Dilutive Net Loss per Common Share $.36 $.57
Weighted Average Shares 15,800,725 12,993,978
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended March 31,
------------------------------------
1999 1998 1997
------------------------------------
<S> <C> <C> <C>
Revenues $0 $0 $0
Operating Expenses 7,751 1,083 344
Net loss 7,839 1,091 344
Basic and Dilutive Net Loss per Common Share $.59 $.20 $1.68
Weighted Average Shares 13,390,417 5,351,089 204,452
</TABLE>
IFT is a development stage company and has incurred $14,907,032 in
expenses from inception in April 1996.
(b) Selected Balance Sheet Data (In Thousands of Dollars)
---------------------------------------------------------
December 31, 1999
-----------------
Total Assets $68
Long-Term Debt $ 0
March 31,
------------------
1999 1998 1997
---- ---- ----
Total Assets $ 6 $ 7 $ 5
Long-Term Debt $ 0 $ 0 $ 0
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Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward Looking Statements and Associated Risks
This Transition Report on Form 10-K contains forward-looking
statements made pursuant to the safe harbor provisions of the
Securities Litigation Reform Act of 1995. These forward looking
statements are based largely on IFT's expectations and are subject to
a number of risks and uncertainties, many of which are beyond IFT's
control, including, but not limited to, economic, competitive and
other factors affecting IFT's operations, markets, products and
services, expansion strategies and other factors discussed elsewhere
in this report and the documents filed by IFT with the Securities and
Exchange Commission. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information
contained in this report will in fact prove accurate. IFT does not
undertake any obligation to revise these forward-looking statements to
reflect future events or circumstances.
Overview
IFT was incorporated under the laws of the State of Nevada in April
1996, to develop and commercialize a proprietary scientific process,
"Performance Enhanced Emissions Reduced" ("PEER"), that reformulates
various refined fuels, including #2 diesel fuel, home heating oil, #6
(Bunker) fuel, jet engine fuel and gasoline to improve combustion
efficiency and reduce the amounts of harmful exhaust emissions from
internal combustion engines. The resulting reprocessed fuels are known
as PEERFUEL. IFT is a development stage company, has had no revenues
to date and has raised capital for initial development through the
issuance of its securities and promissory notes.
Comparison of Nine Months Ended 12/31/99 and Fiscal 3/31/99
Total operating expenses from development stage operations were
$5,226,799 for the nine months ended December 31, 1999, as compared to
the development stage operating expenses of $7,751,844 for the twelve
month period ended March 31, 1999. This represents a 32.6% decrease
from the prior period. The total development stage operating expenses
for the nine month period ended December 31, 1998, were $7,335,493.
Decreased development stage operating expenses in the current period
compared to the fiscal year ended March 31, 1999 are a result of
decreased consulting fees, increased professional fees, and other
expenses related to product development. IFT is presenting this
comparison as the nine months ended December 31, 1999, compared to the
nine months ended December 31, 1998. The primary expense incurred, of
the $416,351 total expenses, during the three month period ended March
31, 1999, was $328,558 of product development costs.
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Consulting expenses during the nine months ended December 31, 1999,
were $295,000 representing a decrease of $6,045,500 from the
corresponding period for 1998. This represents a decrease of 95.3%
from the prior period. The decrease is primarily due to the issuance
of 1,200,000 shares of IFT common stock to the former Board Chairman
during December 1998 as reimbursement for personally owned IFT common
shares he issued to others for consulting services rendered. These
shares were valued at the estimated fair value per share of $5.00.
Research and Development costs during the nine months ended December
31, 1999 was $330,353, representing a decrease of $183,994 from the
corresponding period for 1998. This represents a decrease of 35.8%
from the prior period. The decrease is primarily due to the reduction
in the purchase of testing supplies, rental equipment and decreased
testing and laboratory fees.
Rent expense during the nine months ended December 31, 1999 was
$32,685 representing a decrease of $84,948 from the corresponding
period of 1998. This represents a 72.2% decrease from the prior
period. IFT rents its Las Vegas office space and equipment on a month
to month basis from a company related through common ownership. From
September 1, 1998 through March 31, 1999 the rent for the Las Vegas
office facility was $18,000 per month. After March 31, 1999 the office
rent decreased to $5,000 per month to reflect market and operations
conditions. The revised rental amount was retroactive to March 1,
1999. A credit was issued in the amount of $13,000 during the nine
month period ended December 31, 1999. Prior to September 1, 1998 the
office rent was $4,000 per month. IFT rents its St. Louis office space
and equipment on a six month lease from a company related through
common ownership. Payments totaled $32,500 during the nine month
period ended December 31, 1999.
Payroll expenses during the nine months ended December 31, 1999 were
$318,036 representing an increase of $201,363 from the corresponding
period of 1998. This represents a 172.6% increase from the prior
period. The increase was primarily due to the hiring of additional
employees to administer the day-to-day operations. Additionally, on
July 13, 1999 IFT entered into employment agreements with its Chief
Executive Officer and Chief Operating Officer which expire January 31,
2000 with options to extend until July 31, 2000. Under the terms of
the agreement(s), these officers will each receive base pay of $1,000
per month plus a combined total of 90,000 shares of IFT's common stock
payable at the end of the initial term of the agreement. The
stock-based compensation earned through December 31, 1999 is $166,587
and has been reflected in these financial statements as payroll
expense and as additional paid in capital, calculated based on the
trading price of IFT's stock at July 13, 1999 which was $2.1875 per
share. Currently, IFT has five employees.
Professional services during the nine months ended December 31, 1999,
were $3,662,718 representing an increase of $3,581,282 over the
corresponding period of 1998. This represents a 4397.6% increase from
the prior period. On July 1,1999, IFT entered into an agreement with
Onkar Corporation, Ltd. to issue 1,500,000 shares of common stock in
exchange for
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various services including introduction to brokers, dealers and
potential investors and for facilitating the writing of a minimum of
three research reports on IFT. IFT received $750,000 for these shares.
The $3,468,750 difference between the value of the shares using the
market price at the date of the agreement and the $750,000 of proceeds
received from the agreement have been reflected in the statement of
operations for the nine month period ended December 31, 1999 as
professional services expense. The increase in professional services
is also due to hiring services for payroll, web-site initialization,
costs related to investigation of patent filing, financial information
report filing and new administrative expenses. Additionally, there
were increases in legal and audit expenses during the nine month
period ended December 31, 1999.
Acquisition expense during the nine months ended December 31, 1999,
were $500,000 representing an increase of $500,000 over the
corresponding period of 1998. Effective October 27, 1999, IFT merged
with and into Blencathia Acquisition Corporation. Blencathia had
300,000 shares outstanding at the time of merger, which it redeemed
and canceled. In exchange for 300,000 shares of Blencathia's common
stock, IFT will issue Blencathia 300,000 of its restricted common
shares. These restricted common shares are expected to be sold in an
amount sufficient to provide the former shareholders of Blencathia
with proceeds of $500,000.
Other expenses for the nine months ended December 31, 1999, were
$59,234 representing an increase of $12,166 from the corresponding
period of 1998. This represents a 25.8% increase from the prior
period. The increase for the nine months ended December 31, 1999 is
due primarily to the cost to purchase postage for shareholder news
mailings, the rights offering information mailing to shareholders, the
mailing of the rights offering stock certificates, printing costs for
the new rights offering stock certificates, transfer agent fees to
process the rights offering stock certificates and the purchase of a
Director's and Officers Liability Insurance Policy.
Interest expense during the nine months ended December 31, 1999 was
$405,341 representing an increase of $336,769 for the corresponding
period of 1998. This represents a 491.1% increase from the prior
period. Interest expense increased primarily due to IFT's agreement
entered into with certain promissory note holders on November 1, 1999
to issue 423,537 shares of its common stock by December 31, 1999 in
exchange for the balance of the promissory notes due in the amount of
$704,255 and interest on the notes due in the amount of $142,820 at
$2.00 per share. The note and interest exchange value was calculated
based on the trading price of IFT's stock at November 1, 1999. The
$355,771 difference between the $2.00 (per the agreement) value of the
shares and the $2.84 trading price of the shares has been reflected in
these financial statements as interest expense.
The net loss for the nine months ended December 31, 1999, was
$5,632,140 as compared to the net loss of $7,404,065 for the nine
month period ended
15
<PAGE>
December 31, 1998. This represents a 23.9% decrease from the prior
period. The net loss per share for the nine months ended December 31,
1999 was $.36 as compared to the net loss per common share of $.57 for
the nine month period ended December 31, 1998.
Comparison of Fiscal 3/31/99 And Fiscal 3/31/98
Total operating expenses were $7,751,844 for the twelve months ended
March 31, 1999, as compared to the operating expenses of $1,083,148
for the twelve months ended March 31, 1998 representing an increase of
$6,668,696. This represents a 615.7% increase from the prior period.
Increased operating expenses are a result of consulting fees, costs
incurred in product development, rent expense, payroll expense and
interest expense.
Consulting expenses during the twelve months ended March 31, 1999 were
$6,342,000 representing an increase of $5,798,588 from $543,412 during
the twelve months ended March 31, 1998. This represents a 1067.1%
increase from the prior period. The increase is primarily due to the
issuance of 1,200,000 shares of the IFT's stock to the former Board
Chairman during December 1998 as reimbursement for consulting services
he personally paid for on behalf of IFT. These shares were valued at
the estimated fair value per share of $5.00.
Research and development costs during the twelve months ended March
31, 1999 were $842,905 representing an increase of $512,816 from
$330,089 during the twelve months ended March 31, 1998. This
represents a 155.4% increase from the prior period. The increase is
primarily due to the enhanced laboratory testing schedule and the
purchase of additional shop and testing supplies.
Rent expense during the 12 months ended March 31, 1999 was $146,000
representing an increase of $96,724 from $49,276 during the twelve
months ended March 31, 1998. This represents a 196.3% increase from
the prior period. IFT rents its office space and equipment on a
month-to-month basis from a company related through common ownership.
IFT moved to new offices in Las Vegas on September 1, 1998. The rental
expense for the new facility was $18,000 per month, an increase of
$14,000 per month from $4,000 per month for the corresponding period
for 1998.
Payroll expenses and related benefits during the twelve months ended
March 31, 1999 were $180,327 representing an increase of $127,321 from
$53,006 during the twelve months ended March 31, 1998. This represents
a 240.2% increase from the prior period. The increase is due primarily
to the hiring of additional employees to administer the day-to-day
operations of IFT.
Professional services during the twelve months ended March 31, 1999
were $84,634 representing an increase of $63,540 from $21,094 during
the twelve months ended March 31, 1998. This represents a 301.2%
increase from the prior period. The increase is due primarily to
additional legal, accounting and financial information reporting
services.
16
<PAGE>
Travel expenses for the twelve months ended March 31, 1999 were
$41,164 representing a decrease of $2,552 from $43,716 during the
twelve months ended March 31, 1998. This represents a 5.8% decrease
from the prior period. The decrease is due primarily to a reduction of
trips taken to the testing laboratory in California.
Other expenses for the twelve months ended March 31, 1999 were $35,782
representing an increase of $32,100 from $3,682 during the twelve
months ended March 31, 1998. This represents a 871.8% increase from
the prior period. The increase is due primarily to postage for
shareholder mailings, meals and entertainment, laundry and cleaning of
uniforms.
Interest expense during the twelve months ended March 31, 1999 was
$87,909 representing an increase of $80,391 from $7,518 during the
twelve months ended March 31, 1998. This represents a 1069.3% increase
from the prior period. The increase is due primarily to interest
accrued on unsecured, short-term loans used for working capital for
IFT, which bear interest at 12% per annum.
The net loss for the year ended March 31, 1999, was $7,839,753 as
compared to the net loss of $1,090,666 for the year ended March 31,
1998. This represents a 618.8% increase from the prior period. The net
loss per share for the year ended March 31, 1999 was $.59 as compared
to the net loss per common share of $.20 for the year ended March 31,
1998.
New Accounting Pronouncements
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for
years beginning after June 15, 2000 and requires comparative
information for all fiscal quarters of fiscal years beginning after
June 15, 2000. IFT does not expect the adoption of this statement to
have significant impact on its results of operations, financial
position or cash flows.
Year 2000 Matters
The "Year 2000" problem refers to the potential for computational
errors or system malfunctions by computer hardware or software that
fail to properly recognize dates beginning with January 1, 2000, or
which fail to recognize 2000 as a leap year. In anticipation of this
problem, we implemented a Year 2000 readiness program intended to
identify, evaluate and address our Year 2000 exposure.
At the time that this report was prepared, we had not experienced any
material Year 2000 problems with our internal systems and were not
aware of any such problems experienced by our vendors and other
service providers. As a result, no material adverse impact of the Year
2000 problem on our business and operations was expected at the time
of this report, based upon
17
<PAGE>
the information available to us. Although we believe that it is
unlikely at the time of this report, there can be no assurance that
any Year 2000 problems will not result in material cost to us or have
a material, adverse impact on our business, financial condition or
results of operations.
Liquidity and Capital Resources
A critical component of IFT's operating plan impacting the continued
existence of IFT is the ability to obtain additional capital through
additional debt and/or equity financing. We do not anticipate IFT will
generate a positive internal cash flow until such time as IFT can
generate revenues from license fees from its PEERFUEL process and/or
direct sales of its PEERFUEL products, either or both of which may
take the next few years to realize. In the event we cannot obtain the
necessary capital to pursue our strategic plan, IFT may have to cease
or significantly curtail its operations. This would materially impact
our ability to continue as a going concern. The independent auditor's
reports included with the financial statements later in this Form 10-K
indicate there is a substantial doubt that IFT can continue as a going
concern.
We have met our capital needs since inception primarily through the
issuance of common stock as compensation for services rendered, which
have totaled $9,950,476 since inception in April 1996, and for the
nine-month period ended December 31, 1999, totaled $3,642,335. In
addition to these amounts, we have raised $2,583,678 in cash from the
issuance of common stock since the IFT's inception, with $1,146,450 of
this total raised during the nine-month period ended December 31,
1999. Most of these funds have been raised through private placement
transactions. Finally, since IFT's inception, financing totaling
$1,031,425 was raised privately through notes payable to various
sources, of which $291,171 was repaid, $677,754 was converted to
common stock, and $62,500 is recorded as a liability on the December
31, 1999, balance sheet. For the nine months ended December 31, 1999
proceeds from notes payable totaled $325,700, with $258,000 repaid and
$677,754 converted to common equity. The notes payable were converted
at an average price of $2.00 per share, and included both the
outstanding principal and interest owed as of November 1, 1999.
The cash used in operating activities for the nine months ended
December 31, 1999 was $1,162,743 as compared to $1,396,056 and
$773,808 used in operating activities for the years ended March 31,
1999 and 1998, respectively. The cash provided by financing activities
was $1,214,150 for the nine months ended December 31, 1999 as compared
to $1,395,724 and $767,243 provided by financing activities for the
years ended March 31, 1999 and 1998, respectively. Net cash increased
by $26,358 for the nine months ended December 31, 1999 as compared to
net cash decreasing by $4,612 and $6,207 for the years ended March
31, 1999 and 1998, respectively.
While management can not make any assurance as to the accuracy of our
projections of future capital needs, it is anticipated that a total of
approximately $3 million over the next two-year period will be
necessary in order to enable us to meet our capital needs. We believe
the $3 million will
18
<PAGE>
be used as follows: $1.2 million for specific testing as part of
required regulatory procedures as set by the Air Resources Board of
California ("CARB"), $300,000 for commercial fleet testing programs,
$300,000 for initial sales and marketing efforts, and $1.2 million for
salary and related administrative expenses (rent, telephone, etc.). In
February 2000, IFT entered into a convertible debenture purchase
agreement to raise $3,000,000 through the sale of convertible
debentures. In connection with the convertible debenture purchase
agreement IFT issued a warrant to purchase 390,000 shares of common
stock. IFT is additionally required to issue 195,000 shares of common
stock to place in escrow pending the sale of the convertible
debentures. Such financing is contingent upon IFT's ability to
register the shares of common stock underlying the warrants and
debentures with the Securities and Exchange Commission (the "SEC").
There can be no assurance that the registration will be granted
effectiveness by the SEC, in which case IFT would be required to seek
alternate sources of financing.
Plan of Operation
Since its inception IFT has sought to complete research and testing
sufficient to prove that the proprietary PEERFUEL process results in a
substantial reduction of certain harmful pollutants generated in the
combustion of diesel fuel #2. Approximately $9 million has been spent
since IFT's inception for research and development and consulting
services related to the effort to prove these claims, with almost $2
million spent directly on testing at California Environmental
Engineering ("CEE"), a California certified testing laboratory. We
believe the results of the CEE testing substantiate the value of
PEERFUEL in reducing harmful pollutants, and are now ready to submit
the test results to CARB to achieve the necessary regulatory approvals
we feel are essential to commercialization of the PEERFUEL process.
Our understanding of the regulatory process is that there are two
separate divisions within CARB from whom we will need to receive
regulatory approval. One of these divisions has a prescribed and
well-understood protocol for approval. As part of this protocol, IFT
will submit itself to the pre-set regulatory process at a
to-be-determined laboratory approved by CARB for such work. We have
held several discussions with Southwest Research Institute ("SRI"), a
testing laboratory located in San Antonio, Texas, to have them perform
this work. SRI has estimated the time frame to complete such testing
at 2-4 weeks, with an associated cost of approximately $300,000. We
believe the successful completion of this process will enable IFT to
market its PEERFUEL technology to certain companies in the petroleum
industry (primarily refineries) as a lower-cost alternative to
creating CARB-reference diesel fuel #2 in the State of California.
This specific component of our strategy will not result in
Certification as defined by CARB, and therefore, will not allow IFT to
make any specific claims in the marketplace concerning the ability of
the PEERFUEL process to significantly reduce harmful levels of certain
pollutants. To achieve CARB Certification it is necessary to submit a
second application to a separate division of CARB. Discussions are
ongoing with this division of CARB to better understand what criteria
will be essential to achieving Certification, and based upon this
19
<PAGE>
criteria, what additional testing of PEERFUEL treated diesel fuel #2
will/may be necessary. We have received confirmation through a letter
from CARB that they will require testing results from one specific
testing protocol (transient cycle testing). This testing is readily
available in the marketplace through a number of qualified
laboratories. We will begin soliciting bids from several of these labs
with the intention of completing this testing in 3-6 months. Prior to
this testing, however, we will formally submit for Certification with
CARB. Again, as there is no formal, established protocol for
Certification, it is not possible at this time to determine the cost
or time frame to receive Certification, nor is it possible to predict
whether the pollution reduction results achieved by PEERFUEL will
warrant a grant of Certification from CARB. The ultimate objective
with regard to Certification is to create significant economic value
for IFT by providing companies who have commercial fleet vehicles the
ability to realize a tax credit when they use PEERFUEL products.
The third and final research and testing stage for the PEERFUEL
process is to conduct live testing with commercial and public fleet
vehicles. Heretofore in its research and testing efforts IFT has
concentrated on the pollution reduction results achieved by PEERFUEL
products. Based upon a single fleet test conducted in St. Louis with a
long-haul trucking company in 1998, we believe further research into
the fuel economy potentially contained in PEERFUEL products is
warranted. While this test was not conclusive (and neither was it
conducted in a formal, scientific manner) the results did show
significant improvement in fuel economy under certain normal driving
conditions with a limited range of engine and vehicle types.
Therefore, IFT expects to commit approximately $300,000 over the
coming year for commercial fleet tests to determine if there are any
fuel economy benefits in PEERFUEL products.
To conduct the potential testing necessary for both the regulatory and
commercial fleet efforts we expect we will need to produce one or more
PEERFUEL systems. The quantity and size of the system(s) to be
produced will be determined by a number of factors, including number
of locations requiring PEERFUEL processed diesel fuel #2 at any one
time, geographic location and volume of fuel required. The approximate
cost of a medium-sized system is $250,000. Other costs associated with
the processing of diesel fuel #2 into PEERFUEL will be required,
including salary and shipping expenses. While these costs cannot be
estimated at this time, we believe IFT will obtain adequate financing
to fund such costs.
Management believes that IFT's anticipated strategic efforts do not
require any additional personnel. As such, the administrative budget
of $1.2 million for the next two years is believed to be adequate. We
anticipate approximately $300,000 will be required for initial sales
and marketing efforts during the coming year, provided results from
our regulatory and commercial efforts described above are positive. It
is our intention to begin immediately to generate revenues from
license fees, direct sales, joint venture or any other business
relationship deemed in the best interests of the shareholders at such
time as the regulatory and commercial viability of the PEERFUEL
process is proven.
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<PAGE>
Subsequent Events
During January 2000, IFT issued 100,000 shares of common stock in a
private placement for $200,000.
Effective January 14, 2000, IFT adopted a Consultant and Employee
Stock Compensation Plan. This plan provides that the Board of
Directors may award shares of IFT's stock to officers, directors,
consultants and employees as compensation for services. The maximum
number of shares of common stock which may be awarded under this plan
is 500,000 shares. During March 2000 IFT issued a total of 65,000
shares of common stock to five directors as reimbursement for
directors' expenses.
During January 2000, IFT entered into an employment agreement with
Jonathan R. Burst to serve as Chief Executive Officer of IFT until
December 31, 2000 at a base annual salary of $180,000. In addition,
Mr. Burst is to receive 6,000 shares of common stock each month. On
February 23, 2000 the Board of Directors granted Jonathan Burst
100,000 shares of IFT's common stock for his appointment as Chief
Executive Officer. During January 2000, IFT entered into an employment
agreement with William J. Lindenmayer to serve as Chief Operating
Officer of IFT until December 31, 2000 at a base annual salary of
$125,000. In addition, Mr. Lindenmayer is to receive 3,000 shares of
common stock each month. On February 23, 2000 the Board of Directors
awarded an initial grant of 100,000 shares of IFT's common to William
Lindenmayer for his appointment as President and Chief Operating
Officer.
During February 2000 a warrant for 390,000 shares of common stock was
exercised by GEM Global Yield Fund Limited at a cost of $.01 per
share. During February 2000 IFT issued 195,000 shares of common stock
and placed them in escrow in accordance with the convertible debenture
purchase agreement entered into in February 2000.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
N/A
Item 8. Financial Statements and Supplementary Data
Financial statements as of and for the nine month period ended
December 31, 1999, and as of and for the years ended March 31, 1999
and 1998, are presented in a separate section of this report following
Part IV.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
As of March 7, 2000, the Board of Directors have unanimously agreed to
engage BDO Seidman, LLP to be IFT's new principal accountant. At no
time during the past two fiscal years or any subsequent period prior
to engagement as principal auditor did the Registrant consult with BDO
Seidman, LLP regarding either the application of accounting principles
to a specified transaction or type of audit opinion which might be
rendered on the Registrant's financial statements or any other matter.
The former accountant, McGladrey & Pullen, LLP declined to stand for
re-election for the December 31, 1999 engagement. The independent
auditors' reports for March 31, 1999 and 1998, were modified as to
uncertainties about the entity's ability to continue as a going
concern. IFT and its former accountants had no disagreements during
the fiscal years ended March 31, 1999 and 1998, and through the date
they declined to stand for re-election.
21
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The executive officers and directors of IFT are as follows:
Name Age Title
---- --- -----
Jonathan R. Burst 41 Chief Executive Officer, Director
William J. Lindenmayer 40 President, Chief Operating Officer,
Director
Patty Foltz 45 Secretary/Treasurer
Fred K. Jensen 64 Director, Chairman
David B. Norris 51 Director
Glen T. Slay 39 Director from April 1999 to
February 2000
Jeffrey C. Slay 28 Director from April 1999 to
February 2000
Dan Willis 58 Director from April 1999 to
February 2000
Harry Demetriou 56 Director
All directors of IFT hold office until the next annual meeting of
shareholders or until their successors are elected and qualified. At
present, IFT's Bylaws provide for not less than one nor more than nine
directors. Currently, there are five directors of IFT. The Bylaws
permit the Board of Directors to fill any vacancy and such director
may serve until the next annual meeting of shareholders or until his
successor is elected and qualified. Officers serve at the discretion
of the Board of Directors.
Background of Directors and Executive Officers:
JONATHAN R. BURST has served as Chief Executive Officer of IFT since
July 1999. From July 1999 to February 2000 he also served as President
of IFT. In February 2000 he was named a director of IFT. In 1998, Mr.
Burst founded Burcor International, St. Louis, Missouri, an insurance
brokerage firm, and has served as its President since its inception.
From 1992 to 1998, Mr. Burst served as Executive Vice President and
Managing Director of mergers and acquisitions at Aon Risk Services, a
St. Louis, Missouri, mergers and acquisition risk management
consulting company. Mr. Burst received his Bachelor of Arts degree in
Economics from the University of Missouri in 1981.
WILLIAM J. LINDENMAYER has served as President of IFT since February
2000. He has also served as the Chief Operating Officer of IFT since
July 1999. In February 2000 he was named a director of IFT. From 1999
to the present, Mr. Lindenmayer has served as Managing Director of
Burcor Capital, LLC, a venture capital merger and acquisitions
subsidiary of Burcor International, St. Louis, Missouri. From 1997 to
1999, Mr. Lindenmayer served as president of DLW Partners, LLC, St.
Louis, Missouri, a video tape distribution company. From 1995 to 1997,
Mr. Lindenmayer served as President of WLI William Lindenmayer Group,
Inc., St. Louis, Missouri, a financial consulting company. Mr.
Lindenmayer received his Bachelor of
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<PAGE>
Science degree from Cornell University in 1982 and his Masters of
Business Administration from University of Virginia in 1988.
PATTY FOLTZ has served as Secretary/Treasurer of IFT since August
1998. From 1995 to 1998, Ms. Foltz served as Corporate Secretary,
Treasurer and Chief Financial Officer of Jake's Crane Rigging &
Transport International, Inc., Las Vegas, Nevada, a large equipment
rental company. From 1994 to 1995, Ms. Foltz served as Accounting
Manager at Jake's Crane Rigging & Transport International, Inc. From
1989 to 1997, Ms. Foltz served as Corporate Secretary, Treasurer and
Chief Financial Officer of Jake's Wire Rope, a crane rigging supply
sales division of Jake's Crane Rigging & Transport International.
FRED K. JENSEN has served as a director of IFT since April 1999 and
became chairman of the Board of Directors in February 2000. Since
1975, Mr. Jensen has served as President of Jensen Oven Co., Inc.,
Farmington Hills, Michigan, a manufacturer of industrial heating
equipment. Since 1978, Mr. Jensen has also served as a consultant to
casualty insurance companies regarding cause and origin investigations
of fires and explosions in industrial process heating equipment and
related equipment. Mr. Jensen received his Bachelor of Science degree
in Mechanical Engineering in 1957 from Michigan State University.
DAVID B. NORRIS has served as a director of IFT since April 1999.
Since 1983, Mr. Norris has been the owner and President of Addicks
Services, Inc., Richmond, Texas, a construction company.
GLEN T. SLAY served as a director of IFT from April 1999 to February
2000. Since 1983, Mr. Slay has served as Vice President at Slay
Industries, a company specializing in transportation and distribution
of goods and commodities via rail, truck and barge with facilities to
store, package and reship goods. Mr. Slay received his Bachelor of
Economics degree in 1982 from the University of Missouri. Mr. Slay
resigned from the IFT Board of Directors in February 2000.
JEFFREY C. SLAY served as a director of IFT from April 1999 to
February 2000. Since 1995, Mr. Slay has served as Vice President of
Slay Transportation, St. Louis, Missouri, a bulk chemical carrier
(tank truck). Mr. Slay received his Bachelor of Science degree from
University of Missouri in 1994. Mr. Slay resigned from the IFT Board
of Directors in February 2000.
DAN WILLIS served as a director of IFT from April 1999 to February
2000. Since 1995, Mr. Willis has served as Regional Director for West
Texas of National Wide Insurance, Waco, Texas. From 1988 to 1995, Mr.
Willis served as Farm Director, KCEN-TV, Waco, Texas and produced
several television spots for the station. Mr. Willis is a licensed
auctioneer and a Texas Rodeo Hall of Fame inductee. In 1994, Mr.
Willis was selected as Farm-Caster of the Year for Texas. Mr. Willis
is a member of the Professional Rodeo Cowboys Association. Mr. Willis
resigned from the IFT Board of Directors in February 2000.
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<PAGE>
HARRY DEMETRIOU has served as a director since February 2000. Mr.
Demetriou has been a ship owner for over 25 years. The ships are bulk
carriers of and transport goods in bulk on a worldwide basis.
Item 11. Executive Compensation
The following table sets forth information concerning all cash and
non-cash compensation paid or to be paid by IFT as well as certain
other compensation awarded, earned by and paid, during the fiscal
years indicated, to the Chief Executive Officer and for each of IFT's
other executive officers whose annual salary and bonus exceeds
$100,000 for such period in all capacities in which they served.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards
Other All
Name and Annual Restricted Other
Principal Period Compen- Stock Compen-
Position Ended Salary Bonus sation Awards sation
- -------- ------ ------ ----- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Jonathan R. Burst,
Chief Executive
Officer 12/31/99 $5,493 0 0 $111,056 0
Norman C. Barrett,
NOPEC Consultant
For IFT and former
Board Chairman 12/31/99 0 0 0 0 0
3/31/99 0 0 $100,000(1) 0 0
3/31/98 0 0 0 0 0
</TABLE>
(1) Consultant Fees
Perquisites and other personal benefits are omitted because they do
not exceed either $50,000 or 10% of the total of annual salary and
bonus for the named executive officer.
Employment Agreements
On July 13, 1999 IFT entered into an employment agreement with
Jonathan R. Burst serving as President and Chief Executive Officer.
Mr. Burst receives a base pay of $1,000 per month plus 10,000 shares
of IFT's common stock during the initial term for an aggregate of
60,000 shares. The employment agreement provided that the initial term
of office will expire on January 31, 2000 with extensions until July
31, 2000, unless either party elects not to
24
<PAGE>
continue the agreement. The value of the 50,000 shares earned through
December 31, 1999, $111,056, has been recorded as payroll expense. The
agreement was extended during January 2000 with Mr. Burst serving as
Chief Executive Officer with an annual base salary of $180,000, 6,000
shares per month and a bonus award as deemed appropriate by the Board
of Directors of IFT. The new agreement extends through December 31,
2000 and will automatically renew unless either party elects not to
continue the agreement. On February 23, 2000 the Board of Directors
granted Jonathan Burst 100,000 shares of the IFT's common stock for
his appointment as Chief Executive Officer.
On July 13, 1999 IFT entered into an employment agreement with William
J. Lindenmayer, serving as Chief Operating Officer. Mr. Lindenmayer
receives a base pay of $1,000 per month plus 5,000 shares of IFT's
common stock during the initial term for an aggregate of 30,000
shares. The employment agreement provides that the initial term of
office will expire on January 31, 2000 with extensions until July 31,
2000 unless either party elects not to continue with the agreement as
so stated. The agreement was extended in January 2000. Pursuant to the
new agreement, Mr. Lindenmayer is entitled to an annual base salary of
$125,000, 3,000 shares per month and a bonus award as deemed
appropriate by the Board of Directors of IFT. The new agreement
extends through December 31, 2000 and will automatically renew unless
either party elect not to continue with the agreement as so stated in
the agreement. On February 8, 2000, the Board of Directors appointed
Mr. Lindenmayer as President and increased his annual base salary to
$180,000. On February 23, 2000 the Board of Directors awarded an
initial grant of 100,000 shares of the IFT's common stock to Mr.
Lindenmayer for his appointment as President and Chief Operations
Officer.
Incentives
On February 23, 2000, the Board of Directors adopted a Stock Incentive
Plan that will consist of stock awards paid in the amount of 100,000
shares of IFT's common stock to IFT's senior management when the
finalization of a subordinated debt contract is complete, funding is
secured to cover the budget for the next 24 months, creation and
enactment of the IFT's Business Plan is in progress and the initiation
of the final protocol testing for the reference standard fuel has
commenced.
Compensation of Directors
On February 23, 2000, the Board of Directors adopted the Director's
Stock Compensation Plan, which provides for an annual award of 10,000
shares of IFT's common stock to the Board members as reimbursement for
their attendance at the Board meetings. Each Board member will be
awarded additional 1,000 shares of IFT's common stock for any
three-telephone conference call Board meetings attended.
26
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 24, 2000,
regarding the beneficial ownership determined in accordance with the
rules of the SEC, which generally attributes beneficial ownership of
securities to persons who possess sole or shared voting power and/or
investment power with respect to those securities, of IFT's common
stock of: (I) each person known by IFT to own beneficially more than
five percent of IFT's common stock; (ii) each director and nominee for
director of the IFT; (iii) each executive officer named in the Summary
Compensation Table (see "Executive Compensation"); and (iv) all
directors and executive officers of IFT as a group. Except as
otherwise specified, the named beneficial owner has the sole voting
and investment power over the shares listed.
<TABLE>
<CAPTION>
Name of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership Common Stock(1)
---------------- -------------------- ---------------
<S> <C> <C> <C>
Jonathan R. Burst(2) 966,250 5.4%
William J. Lindenmayer(3) 190,000 1.0%
Patty Foltz 69,648 0.4%
Fred K. Jensen(4) 162,833 0.9%
David B. Norris 246,562 1.4%
Harry F. Demetriou(5) 205,000 1.1%
All directors and executive
officers as a group 1,840,293 10.2%
</TABLE>
(1) Based upon 17,987,698 outstanding shares of common stock
(2) Includes 150,0000 shares owned by Burcor Capital, L.L.C. of which
Mr. Burst is an executive officer and deemed to be the benefical owner
of such shares.
(3) Includes 50,000 shares owned by Burcor Capital, L.L.C. of which
Mr. Lindenmayer is an executive officer and deemed to be the
beneficial owner of such shares.
(4) Includes 3,260 shares owned by Jensen Fabricating Co., Inc. of
which Mr. Jensen is an executive officer and deemed to be the
beneficial owner of such shares; includes 104,500 shares held jointly
with Mr. Jensen's spouse; includes 24,054 shares held by Mr. Jensen's
spouse.
(5) Includes 205,000 shares owned by Observor Acceptances, Ltd. of
which Mr. Demetriou is the sole owner and deemed to be the beneficial
owner of such shares.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires IFT's executive officers and directors, and
persons who beneficially own more than ten percent of IFT's common
stock, to file initial reports of ownership and reports of changes in
ownership with the SEC. Executive officers, directors and greater than
ten percent beneficial owners are required by SEC regulations to
furnish IFT with copies of all Section 16(a) forms they file. Based
upon a review of the copies of such forms furnished to IFT and written
representations from IFT's executive officers and directors, IFT
believes
26
<PAGE>
that during fiscal 1999 no Forms 3 and 4 were filed on a timely basis
for IFT's executive officers and directors. IFT believes all such
delinquent reports have since been filed.
Item 13. Certain Relationships and Related Transactions
IFT issued 1,200,000 restricted shares (reimbursement shares) to a
consultant on December 21, 1998. This consultant had been a founder of
IFT and had several individuals provide services in connection with
the technology of IFT, provide business contacts to assist IFT in its
business plan and to assist in the raising of capital. These shares
served as a reimbursement to this consultant for 1,699,800 of his
personal shares distributed to others in exchange for their services
to IFT. The value of their services was based on $.10 per share as
determined by the Board of Directors. The market value of the
reimbursement shares was determined by the Board of Directors based
upon the private placement of common stock sold in November 1998 at
$5.00 per share. The $6,000,000 value has been included in consulting
services for the year ended March 31, 1999.
IFT rents office space and equipment from Nevada Offshore Petroleum
Export Corp., a company related through common ownership, under a
month to month agreement requiring monthly payments. Prior to
September 1, 1998 the office rent was $4,000 per month. From September
1, 1998 through March 31, 1999 the rent for the Las Vegas office
facility was $18,000 per month. After March 31, 1999 the office rent
decreased to $5,000 per month. The revised rental amount was
retroactive to March 1, 1999. A credit was issued in the amount of
$13,000 during the nine-month period ended December 31, 1999.
IFT obtains general and administrative services and rents office space
and equipment from Burcor Capital, L.L.C., a company related through
common ownership (Mr. Jonathan Burst, executive officer and director
of IFT, is the founder and president of Burcor Capital, L.L.C.) ,
under a six-month agreement requiring monthly payments of $5,000.
Payments totaled $32,500 during the nine month period ended December
31, 1999.
On April 26, 1999, at the Annual Shareholders Meeting, the
Shareholders of IFT approved the engagement of Burcor Capital, L.L.C.
as IFT's investment bankers to develop investment and marketing
relationships in connection with a merger or consolidation of IFT with
any other business entity, the sale of all or part of IFT securities
for cash or in exchange for other tangible or intangible consideration
("Potential Transactions") and the planning and actions taken for the
purpose of effecting one or more Potential Transactions. As of
December 31, 1999 no amounts have been paid related to this agreement.
On October 7, 1999, IFT entered into an Advisory Agreement with Mr.
Harry Demetriou on a non-exclusive basis to render financial advisory
services to IFT in connection with the possible sale of IFT. As of
December 31, 1999 no payments had been made related to this agreement.
On November 1, 1999, IFT entered into an agreement with certain
related party promissory note holders to issue 423,537 shares of its
common stock
28
<PAGE>
by December 31, 1999 in exchange for the balance of the promissory
notes due in the amount of $677,254, a related party account payable
of $26,500 and interest on the notes due in the amount of $142,820 at
$2.00 per share. The stock-based note and interest exchange value was
calculated based on the trading price of IFT's stock at November 1,
1999. The $355,771 difference between the $2.00 (per the agreement)
value of the shares and the trading price of the shares has been
reflected in these financial statements as interest expense.
At December 31, 1999, IFT owed one of its stockholders approximately
$89,000 for legal services performed. Subsequent to December 31, 1999,
the stockholder agreed to accept 27,559 shares of IFT's common stock
in lieu of cash for the amounts due to him.
During October 1999 IFT entered into an agreement with TPG Capital
Corporation, a company related through common ownership, for
consulting services. A payment of $100,000 was made during the nine
month period ended December 31, 1999.
PART IV
Item 14. Exhibits, Financial Statements and Schedules, and Reports on Form
8-K
(a) Document List
1. Financial Statements
- See index to financial statements and supporting schedules on
page 31 of this annual report on Form 10-K
2. Financial Statement Schedules
- All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not required
under the related instructions or are inapplicable and therefore
have been omitted.
3. Exhibits Required by Securities and Exchange Commission Regulation
S-K The following exhibits are filed as part of the report or are
incorporated by reference
EXHIBITS
2.1 Agreement and Plan of Merger between Blencathia Acquisition
Corporation and International Fuel Technology, Inc.
3.1 Certificate of Incorporation of International Fuel
Technology, Inc. and all amendments.
28
<PAGE>
3.2 By-laws of International Fuel Technology, Inc.
10.1 TPG Consulting Agreement
10.2 Convertible Debenture Purchase Agreement
10.3 Jonathan R. Burst Employment Agreement
10.4 William J. Lindenmayer Employment Agreement
*16.1 Letter, dated January 21, 2000, from McGladrey & Pullen, LLP
to the Registrant regarding resignation of certifying
accountant
*16.2 Letter, dated February 10, 2000, from McGladrey & Pullen,
LLP regarding client-auditor relationship
23.1 Consents of BDO Seidman, LLP
23.2 Consents of McGladrey & Pullen, LLP
27 Financial Data Schedule
*Incorporated by reference to Exhibits to Form 8-K filed on February
10, 2000
(b) Reports on Form 8-K
- Form 8-K filed November 3, 1999, including information about
changes in control of registrant, acquisition or disposition
of assets, other events (successor issuer election),
resignation of directors and executive officers, and change
in fiscal year. The Form 8-K did not include financial
statements.
- Form 8-K filed November 10, 1999, including press release as
an exhibit.
(c) Exhibits
See (a) above
29
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
Report of Independent Certified Public Accountants 32
Independent Auditor's Report 33
Financial Statements
Balance sheets 34
Statements of operations 35
Statements of stockholders' deficit 36
Statements of cash flows 37-38
Notes to Financial Statements 39-51
30
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS'
To the Board of Directors and Stockholders
International Fuel Technology, Inc.
St. Louis, Missouri
We have audited the accompanying balance sheet of International Fuel
Technology, Inc. (a Nevada corporation in the development stage) as of
December 31, 1999, and the related statements of operations,
stockholders' deficit and cash flows for the nine month period then
ended and the related statements of operations and cash flows for the
period from inception (April 9, 1996) to December 31, 1999. 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 did not audit the
financial statements of International Fuel Technology, Inc. for the
period from inception (April 9, 1996) to March 31, 1999. Such
statements are included in the cumulative inception to December 31,
1999 totals of the statements of operations and cash flows and reflect
a net loss of 61% of the related cumulative total. Those statements
were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts for the period from
inception (April 9, 1996) to March 31, 1999 included in the cumulative
totals, is based solely upon the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audit and the report of other auditors,
the financial statements referred to above present fairly, in all
material respects, the financial position of International Fuel
Technology, Inc. as of December 31, 1999 and the results of its
operations and its cash flows for the nine month period then ended and
for the period from inception (April 9, 1996) to December 31, 1999 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that
International Fuel Technology, Inc. will continue as a going concern.
As discussed in Note 2 to the financial statements, International Fuel
Technology, Inc. has suffered recurring losses from operations, has
negative working capital, cash used in operating activities and has a
stockholders' deficit that raise substantial doubt about International
Fuel Technology, Inc.'s ability to continue as a going concern.
Management's plans in regard to these matters are also described in
Note 2. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
BDO SEIDMAN, LLP
St. Louis, Missouri
April 7, 2000
31
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
International Fuel Technology, Inc.
Las Vegas, Nevada
We have audited the accompanying balance sheet of International Fuel
Technology, Inc., a development stage company, as of March 31, 1999,
and the statements of operations, stockholders' deficit and cash flows
for the years ended March 31, 1999 and 1998. These financial
statements are the responsibility of IFT's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of
International Fuel Technology, Inc. as of March 31, 1999, and the
results of its operations and its cash flows for the years ended March
31, 1999 and 1998, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that
IFT will continue as a going concern. As more fully described in Note
2 to the financial statements, IFT has not yet commenced the
operations for which it was organized and its total liabilities
exceeds its total assets. Furthermore, IFT may need to raise
substantial capital in order to implement its business plan. This
raises substantial doubt about IFT's ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
McGLADREY & PULLEN, LLP
Las Vegas, Nevada
September 27, 1999
32
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1999 1999
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 26,846 $ 488
Employee receivable 468 -
Note receivable, stockholder (Note 6) 15,000 -
Prepaid insurance 12,719 -
-------------------------------
Total current assets 55,033 488
Machinery and equipment 15,505 5,924
Accumulated depreciation (2,374) (760)
-------------------------------
$ 68,164 $ 5,652
===============================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Accounts payable (Note 5) $ 797,786 $ 313,979
Accrued expenses 3,406 54,367
Accrued interest expense - 93,270
Due to related party - 26,500
Notes payable to stockholders (Note 4) 62,500 672,554
-------------------------------
Total current liabilities 863,692 1,160,670
-------------------------------
Commitments and Contingencies (Note 2)
Stockholders' Deficit (Note 5)
Common stock, $.01 par value; authorized, 150,000,000,
16,818,339 and 14,097,559 shares issued and
outstanding at
December 31, 1999 and March 31, 1999, respectively 168,184 1,409,756
Discount on common stock (816,923) (816,923)
Additional paid-in capital 14,760,243 7,527,041
Deficit accumulated during the development stage (14,907,032) (9,274,892)
-------------------------------
(795,528) (1,155,018)
-------------------------------
$ 68,164 $ 5,652
===============================
</TABLE>
See Notes to Financial Statements.
34
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
From Inception
Nine Months Twelve Months (April 9, 1996)
Ended Ended Through
December 31, March 31, December 31,
1999 1999 1998 1999
-------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ - $ - $ - $ -
Cost of Revenues - - - -
-------------- -------------- ------------- ---------------
Gross Profit - - - -
-------------- -------------- ------------- ---------------
Operating Expenses:
Acquisition expense (Note 5) 500,000 - - 500,000
Advertising and marketing 12,913 11,106 - 24,019
Consulting 295,000 6,342,000 543,412 7,358,264
Research and development costs 330,353 842,905 330,089 1,543,077
Office 1,002 26,377 25,973 55,154
Other 59,234 35,782 3,682 107,499
Payroll (Note 5) 318,036 180,327 53,006 567,558
Professional services (Note 5) 3,662,718 84,634 21,094 3,792,534
Rent 32,685 146,000 49,276 275,961
Stock transfer fees 5,249 18,378 - 23,627
Telephone 2,957 23,171 12,900 43,696
Travel 6,652 41,164 43,716 114,875
-------------- -------------- ------------- ---------------
Total operating expenses 5,226,799 7,751,844 1,083,148 14,406,264
-------------- -------------- ------------- ---------------
Net loss from operations 5,226,799 7,751,844 1,083,148 14,406,264
Interest expense (Note 5) 405,341 87,909 7,518 500,768
-------------- -------------- ------------- ---------------
Net loss before income taxes 5,632,140 7,839,753 1,090,666 $ 14,907,032
==========
Provision for income taxes - - -
-------------- -------------- -------------
Net loss $ 5,632,140 $ 7,839,753 $ 1,090,666
============== ============== =============
Basic and dilutive net loss
per common share $ .36 $ .59 $ .20
Weighted average common shares outstanding 15,800,725 13,390,417 5,351,089
</TABLE>
See Notes to Financial Statements.
35
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Accumulated
Deficit
Additional During
Common Stock Discount on Paid-In Development
Amount Common Stock Capital Stage Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuances of common stock for cash $ 4,161 $ - $ 145,215 $ - $ 149,376
Issuances of common stock for technology (Note 5) 14,670 (14,670) - - -
Issuances of common stock (Note 5) 850 - (850) - -
Issuances of common stock for services (Note 5) 8,462 - - - 8,462
Issuance of common stock for compensation 1,500 - - - 1,500
Net loss - - - (344,473) (344,473)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 29,643 (14,670) 144,365 (344,473) (185,135)
Issuances of common stock for cash 15,835 - 272,017 - 287,852
Issuances of common stock for technology (Note 5) 532,095 (532,095) - - -
Issuances of common stock (Note 5) 14,228 - (14,228) - -
Issuances of common stock for services (Note 5) 121,189 - - - 121,189
Expense recorded for services rendered by
stockholders (Note 5) - - 169,980 - 169,980
Issuance of common stock for compensation (Note
5) 7,010 - - - 7,010
Issuances of common stock in connection with the
acquisition of United States Fuel Technology,
Inc. (Note 3) 279,598 - 94,907 - 374,505
Cancellation of shares (9,440) 9,440 - - -
Net loss - - - (1,090,666) (1,090,666)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1998 990,158 (537,325) 667,041 (1,435,139) (315,265)
Issuances of common stock for cash 20,000 - 980,000 - 1,000,000
Issuances of common stock for services (Note 5) 120,000 - 5,880,000 - 6,000,000
Issuances of common stock in connection with the
acquisition of Scientific Fuel Technology, LLC
(Note 3) 279,598 (279,598) - - -
Net loss - - - (7,839,753) (7,839,753)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1999 1,409,756 (816,923) 7,527,041 (9,274,892) (1,155,018)
One for ten reverse stock split (Note 5) (1,268,780) - 1,268,780 - -
Issuances of common stock for services and cash
(Note 5) 15,000 - 4,203,750 - 4,218,750
Issuances of common stock for cash 7,947 - 388,503 - 396,450
Issuances of common stock for compensation 25 - 6,975 - 7,000
Conversion of debt (Note 4) 4,236 - 1,198,609 - 1,202,845
Accrued stock based compensation (Note 5) - - 166,585 - 166,585
Net loss - - - (5,632,140) (5,632,140)
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 $ 168,184 $ (816,923) $ 14,760,243 $(14,907,032) $ (795,528)
===================================================================================================================================
</TABLE>
See Notes to Financial Statements
36
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
From
Nine Months Twelve Months Twelve Months Inception
Ended Ended Ended (April 9, 1996)
December 31, March 31, March 31, to December 31,
1999 1999 1998 1999
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net loss $(5,632,140) $(7,839,753) $(1,090,666) $(14,907,032)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 1,614 760 - 2,374
Stock issued and additional paid in capital
recognized for services and compensation 3,642,335 6,000,000 298,179 9,950,476
Interest expense recognized on conversion of
debt 355,771 - - 355,771
Change in assets and liabilities:
(Increase) decrease in prepaid insurance (12,719) 590 (590) (12,719)
Increase (decrease) in accounts payable 483,807 313,979 - 797,786
Increase (decrease) in accrued expenses (1,411) 128,368 19,269 146,226
-----------------------------------------------------------
Net cash used in operating activities (1,162,743) (1,396,056) (773,808) (3,667,118)
-----------------------------------------------------------
Cash Flows from Investing Activities
Acquisition of machinery and equipment (9,581) (4,280) - (13,861)
Increase in employee and stockholder
receivables (15,468) - - (15,468)
Cash acquired in connection with the
purchase of United States Fuel
Technology, Inc. - - 358 358
-----------------------------------------------------------
Net cash (used in) provided by
investing activities (25,049) (4,280) 358 (28,971)
-----------------------------------------------------------
Cash Flows from Financing Activities
Increase (decrease) in amount due to
related party - (142,000) 168,500 26,500
Increase in due to United States Fuel
Technology, Inc. - - 224,391 372,503
Proceeds from common stock issued 1,146,450 1,000,000 287,852 2,583,678
Proceeds from notes payable 325,700 828,895 86,500 1,289,425
Payment on notes payable (258,000) (291,171) - (549,171)
-----------------------------------------------------------
Net cash provided by financing activities 1,214,150 1,395,724 767,243 3,722,935
-----------------------------------------------------------
Net increase (decrease) in cash 26,358 (4,612) (6,207) 26,846
Cash, beginning 488 5,100 11,307 -
-----------------------------------------------------------
Cash, ending $ 26,846 $ 488 $ 5,100 $ 26,846
===========================================================
Supplemental Cash Flow Information
Interest paid $ - $ 2,100 $ - $ 2,100
===========================================================
Taxes paid $ - $ - $ - $ -
</TABLE>
See Notes to Financial Statements.
37
<PAGE>
Non Cash Disclosure of Cash Flow Information
- --------------------------------------------
For the period ended December 31, 1999, IFT converted amounts due to a related
party, notes payable and accrued interest to common stock. IFT issued 423,537
common shares in exchange for these liabilities. The amounts were as follows:
Due to Related Party $ 26,500
Accrued Interest Payable 498,591
Notes Payable 677,754
Common Stock (4,235)
Additional Paid in Capital (1,198,610)
-----------
$ -
===========
See Notes to Financial Statements.
37
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 1. Nature of Business and Significant Accounting Policies
Nature of business
------------------
International Fuel Technology, Inc., ("IFT") is a developmental stage
company which was incorporated under the laws of the State of Nevada
on April 9, 1996 and was formerly known as MagnoDynamic Corporation.
IFT was formed primarily for the production of a family of proprietary
fuels known as PEERFUEL(R). IFT developed a process, which it believes
will make diesel fuel burn more efficiently and with less emissions.
Currently, IFT is testing the treated diesel fuel in the State of
California and hopes the test results will persuade the State of
California to use IFT's product in the State's diesel engines.
Summaries of IFT's significant accounting policies follow:
Use of estimates in the preparation of financial statements
-----------------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statement and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Cash
----
IFT maintains cash in a bank account, which, at times, exceeds
federally insured limits. IFT has experienced no losses relating to
these excess amounts of cash in a bank.
Machinery and equipment
-----------------------
Machinery and equipment are stated at cost. Depreciation is computed
on the straight-line method over the estimated useful lives of five
years.
Research and Development
------------------------
Research and development costs are expensed in the period incurred.
Deferred taxes
--------------
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences, operating
losses and tax credit carryforwards and deferred tax liabilities are
recognized for taxable temporary differences. Temporary differences
are the differences between
38
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
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 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.
Basic and dilutive net loss per common share
--------------------------------------------
IFT adopted Statement of Financial Accounting Standards No. 128 (SFAS
128), Earnings per Share. SFAS 128 establishes standards for computing
and presenting earnings per share and replaces primary earnings per
share with a presentation of basic and dilutive earnings per share.
Basic earnings per share are based upon the weighted average number of
common shares outstanding for the period. Dilutive earnings per share
are based upon the weighted average number of common and potentially
dilutive common shares outstanding for the period. Pursuant to SFAS
128, no adjustment is made for diluted earnings per share purposes
since IFT is reporting a net loss and common stock equivalents would
have an anti-dilutive effect.
Fair value of financial instruments
-----------------------------------
Statement of Financial Accounting Standards FASB No. 107 (SFAS 107),
Disclosures about Fair Value of Financial Instruments, requires the
disclosure of fair value for all financial instruments as defined in
SFAS 107 for which it is practicable to estimate fair value.
The carrying amounts of accounts payable approximate fair value
because of their short maturity.
The fair value of notes payable approximate their carrying basis based
on the short-term nature of these obligations and current interest
rates approximating stated interest rates.
New Accounting Pronouncements
-----------------------------
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivatives
and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities. SFAS No. 133 is effective for
years beginning after June 15, 2000 and requires comparative
information for all fiscal quarters of fiscal years beginning after
June 15, 2000. IFT does not expect the adoption of this
39
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
statement to have significant impact on its results of operations,
financial position or cash flows.
Reclassifications
-----------------
Certain amounts from the prior years' financial statements have been
reclassified to conform to the current period presentation.
Note 2. Ability to Continue as a Going Concern
IFT's financial statements are presented on the going concern basis,
which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. IFT has incurred
significant losses since inception and has limited funds with which to
operate. Management anticipates receiving diploma certification in
2000 from the California Air Resources Board that its PEERDIESEL(R)
product reduces polluting emissions from internal combustion engines.
Shortly thereafter, IFT expects to begin licensing its product which
management believes will generate sufficient revenue to continue the
IFT's operations. However, there is no assurance that IFT will receive
diploma certification or be able to generate sufficient revenue
through the licensing of its product to provide sufficient working
capital. Management believes approximately $3 million of additional
capital will be required over the next two years. Management does not
have an estimate of the amount of revenue necessary to attain positive
cash flow. In February 2000, IFT entered into a convertible debenture
purchase agreement to raise $3,000,000 through the sale of convertible
debentures. In connection with the convertible debenture purchase
agreement IFT issued a warrant to purchase 390,000 shares of common
stock. (See Footnote 9) IFT is additionally required to issue 195,000
shares of common stock to place in escrow pending the sale of the
convertible debentures. (See Footnote 9) Such financing is contingent
upon IFT's ability to register the shares of common stock underlying
the warrants and debentures with the Securities and Exchange
Commission (the "SEC"). There can be no assurance that the
registration will be granted effectiveness by the SEC, in which case
IFT would be required to seek alternate sources of financing. IFT's
continued existence is dependent upon its ability to resolve its
liquidity shortfall principally by obtaining this additional debt
financing or raising equity capital. IFT must continue to operate on
limited cash flow generated internally. The financial statements do
not include any adjustments to reflect the possible future effects on
the recoverability and classification of assets or the amounts and
classification of liabilities that may result from the possible
inability of IFT to continue as a going concern.
40
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 3. Acquisitions of Subsidiaries
On April 3, 1998, the stockholders approved a merger with United
States Fuel Technology, Inc. ("USFT"), effective March 31, 1998. USFT
was formed primarily to market PEERFUELS(R) in North America. As a
result of the merger, each non-dissenting holder of outstanding shares
of USFT Common Stock received one share of IFT Common Stock. IFT
issued 2,795,979 shares. This merger has been accounted for as a
purchase based upon the net asset value of USFT as of March 31, 1998.
The assets and liabilities of USFT at March 31, 1998 consisted of:
Cash $ 358
Due from IFT 372,503
Computer equipment 1,644
---------------
374,505
Liabilities -
---------------
$ 374,505
===============
Immediately after the merger with USFT, total shares outstanding were
9,995,979. However, 94,400 of these shares were USFT shares issued
to IFT in exchange for certain marketing rights valued at zero by IFT.
These 94,400 shares were redeemed and canceled by IFT in connection
with the acquisition of USFT.
The following unaudited pro forma summary presents the consolidated
results of operations as if the acquisition of USFT had occurred on
April 1, 1996. These pro forma results have been prepared for
comparative purposes only and do not purport to be indicative of what
would have occurred had the acquisition been made on April 1, 1996,
nor are they indicative of future results. As a result, the unaudited
pro forma net loss and pro forma per share amounts do not purport to
represent what IFT's results of operations would have been if the
acquisition of USFT had occurred on April 1, 1996, and is not intended
to project IFT's results of operations for any future period.
Year Ended March 31,
1998
--------------------
Total Revenues as reported $ -
Total Revenues - Pro forma $ -
Net loss as reported $ (1,090,666)
Net loss - Pro forma $ (1,154,424)
Loss Per Share:
Basic as reported $ .20
Diluted as reported $ .20
Basic - Pro forma $ .14
Diluted - Pro forma $ .14
41
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
On May 29, 1998 IFT entered into an agreement and plan of merger with
Scientific Fuel Technology, LLC ("SFT"), a company related through
common ownership. The assets and liabilities of SFT consisted solely
of an agreement whereby SFT would receive certain payments in exchange
for providing various sales and marketing services to IFT. This
marketing agreement was valued at zero due to the uncertainty of the
future revenues. SFT had no revenues, expenses, assets or liabilities
as of the date of the purchase. As a result of the merger, 2,795,979
shares of IFT were exchanged for the member interests in SFT.
Note 4. Notes Payable to Stockholders
All notes payable at March 31, 1999 bear interest at 12%, are
unsecured and are due at various date through March 2000. IFT offered
the note holders the option of extending the due dates of these notes
for another two years at 12% interest or converting the notes to
common stock at a conversion price of not less than $2.00 per share.
(Note 5) IFT also had an amount due to a related party in the amount
of $26,500 with no terms of repayment or interest due at March 31,
1999.
On November 1, 1999, $26,500 due to related party, notes payable of
$677, 754 and related accrued interest of $142,820 were converted to
common stock at $2.00 per share. At that date, the closing price of
IFT's stock was $2.84. Additional interest expense of $355,771 was
recorded at the time of conversion reflecting the $.84 difference
between the closing market price and the conversion price multiplied
by the 423,537 shares issued as a result of the conversion.
Note 5. Stockholders' Deficit
On July 7, 1999 the stockholders approved a 1 for 10 reverse stock
split which was effected on July 22, 1999. The effect of the split is
presented within stockholders' deficit at March 31, 1999 by
transferring the par value for the reduction in shares issued from
common stock to additional paid in capital. All references in the
financial statements referring to shares, share prices, per share
amounts and stock plans have been adjusted retroactively for the
split.
42
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
IFT issued shares to certain founding stockholders during fiscal years
1998 and 1997 in exchange for the technology related to its diesel
fuel treatment business. This technology constituted research and
development expenditures to these stockholders and consistent with
Generally Accepted Accounting Principles, was not recorded as an asset
but rather was recorded as an expense by these shareholders. Because
the subsequent transfer of this technology to IFT was a transaction
between entities under common control, it was accounted for using the
carrying value of the technology which was zero. A discount on common
stock was recorded equal to the par value of the stock issued in
exchange for the technology. The shares were issued as follows:
Date Shares
---- --------------
April 1996 71,000
June/July 1996 75,700
--------------
146,700
==============
April 1997 1,558,084
July 1997 783,944
August 1997 51,800
September 1997 2,927,124
--------------
5,320,952
==============
IFT also issued shares to certain stockholders in exchange for
services and certain corporate officers were issued stock as
additional compensation. Management believes that valuing the stock at
its par value approximates the value of the services rendered by these
officers and stockholders. The shares were issued as follows:
Date Shares
---- --------------
April 1996 13,000
June 1996 11,220
July 1996 19,250
August-October 1996 4,630
November 1996 12,275
February 1997 16,098
March 1997 8,150
--------------
84,623
==============
July 1996 5,000
February 1997 10,000
--------------
15,000
==============
43
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
April 1997 6,900
May 1997 10,900
July-August 1997 251,315
September 1997 942,768
--------------
1,211,883
==============
April 1997 10,000
July 1997 10,100
September 1997 50,000
--------------
70,100
==============
Certain stockholders who purchased stock for cash were subsequently
issued additional shares of stock for no consideration. Since IFT has
no retained earnings, a charge to additional paid-in-capital was
recorded to reflect the par value of the stock issued. The shares were
issued as follows:
Date Shares
---- --------------
July 1996 4,000
November 1996 300
March 1997 4,200
--------------
8,500
==============
July 1997 6,350
August 1997 40,000
September 1997 95,930
--------------
142,280
==============
IFT issued 1,200,000 restricted shares (reimbursement shares) to a
consultant on December 21, 1998. This consultant had been a founder of
IFT and had several individuals provide services in connection with
the technology of IFT, provide business contacts to assist IFT in its
business plan and to assist in the raising of capital. These shares
served as a reimbursement to this consultant for 1,699,800 of his
personal shares distributed to others in exchange for their services
to IFT. The value of their services was based on $.10 per share as
determined by the Board of Directors. The market value of the
reimbursement shares was determined by the Board of Directors based
upon the private placement of common stock sold in November 1998 at
$5.00 per share.
On July 1,1999, IFT entered into an advisory agreement with ONKAR
Corporation, Ltd. ("ONKAR") for various services including
introductions to brokers, dealers and potential investors and ONKAR
agrees to facilitate the writing of a minimum of three research
reports on IFT. As consideration for the services, ONKAR received the
right to purchase 1.5 million shares of restricted common stock at
$.50 per share. These rights were issued and
45
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
exercised with IFT receiving cash proceeds of $750,000. IFT determined
the value of the services to be provided based upon the market value
of the common stock on July 1, 1999. The total value of this agreement
was determined to be $4,218,750. The amount in excess of the cash
proceeds received of $750,000 has been charged to operations as
professional services.
IFT issued 2,500 shares on June 2, 1999 to a director. The shares were
issued in exchange for serving as a director. The value of these
services was determined based upon the market value at the date of
issuance. IFT has recorded a charge to operations in the amount of
$7,000.
On April 26, 1999 IFT offered all stockholders of record on March 31,
1999 the right to purchase 900 common shares at $.50 per share. IFT
issued 794,740 shares and received proceeds of $396,450 as a result of
this offering which expired May 28, 1999.
On July 13, 1999 IFT entered into employment agreements with its Chief
Executive Officer and Chief Operating Officer which expire January 31,
2000 with options to extend until July 31, 2000. Under the terms of
these agreements, these officers will each receive base pay of $1,000
per month plus up to a total of 60,000 and 30,000 shares of IFT's
stock, respectively, payable at the end of the initial term of the
agreements. The shares are earned ratably on a monthly basis. The
stock based compensation earned through December 31, 1999, reflected
in these financial statements as payroll expense and as additional
paid in capital, has been calculated based on the trading price of
IFT's stock at July 13, 1999.
Effective October 27, 1999, IFT merged with and into Blencathia
Acquisition Corporation ("Blencathia"). Blencathia had 300,000 shares
outstanding at the time of the merger, which it redeemed and canceled.
In exchange for 300,000 shares of Blencathia's common stock, IFT will
issue 300,000 shares of its restricted common stock. These shares are
expected to be sold in an amount sufficient to provide the former
shareholders of Blencathia with proceeds of $500,000. The 300,000
shares are considered issuable for purposes of determining weighted
average shares outstanding and are included in weighted average shares
outstanding for the nine month period ended December 31, 1999. Based
on the December 31, 1999 market price of IFT's common, $4.375, 114,286
shares would need to be issued. The financial statements reflect
$500,000 of acquisition expense related to this merger that is
included in accounts payable at December 31, 1999.
Blencathia, which was incorporated on December 3, 1997, had not
commenced any significant operations, and was considered a public
"shell".
46
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Note 6. Related Party Transactions
The shareholders of Blencathia provided to IFT a "shell"
entity that enabled IFT to become a public reporting entity.
Blencathia ceased to exist after the merger.
IFT rents its administrative offices and administrative services from
Burcor Capital, LLC, a company related through common ownership, under
a lease agreement requiring monthly rentals of $5,000 per month
through July 13, 2000. Total payments incurred in connection with this
agreement were $32,500 for the nine months ended December 31, 1999,
and $0 for the years ended March 31, 1999 and 1998, respectively.
Payments related to this agreement are included in professional
services expense.
IFT rents additional office space located at 6170 W. Desert Inn Road,
Las Vegas, Nevada and equipment from Nevada Offshore Petroleum Export
Corp. ("NOPEC"), a company related through common ownership, under a
month-to-month agreement. Total rent incurred in connection with this
lease was $32,000 for the nine months ended December 31, 1999 and
$146,000 and $48,000 for the years ended March 31, 1999 and 1998,
respectively.
IFT has consulting arrangements with certain stockholders and related
parties. Consulting expense includes $6,000,000 and $278,712 for the
years ended March 31, 1999 and 1998, respectively, paid through the
issuance of common stock at its then fair value as determined by IFT
and the Chairman of IFT's Board of Directors. IFT also incurred
$180,000 in consulting fees for the nine month period ended December
31, 1999.
Total interest on stockholder loans incurred in connection with
stockholders loans (Note 4) for the nine months ended December 31,
1999 was $405,341. Total interest on stockholder loans for the years
ended March 31, 1999 and 1998 was $87,909 and $7,461 respectively.
At December 31, 1999, IFT owed one of its stockholders approximately
$89,000 for legal services performed. Subsequent to December 31, 1999,
the stockholder agreed to accept 27,559 shares of IFT's stock in lieu
of cash for the amounts due to him. The value of the shares issued
were based upon the market value average for January 3 through January
10, 2000.
At December 31, 1999, IFT was owed $15,000 by one of its stockholders
for a short term advance with interest at 6%. The amount was due
December 31, 1999. The amount has not been paid pending resolution of
amounts included in accounts payable to this stockholder. The total
amount due to this stockholder included in accounts payable at
December 31, 1999 was $100,000.
46
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
During October 1999, IFT entered into an agreement with TPG Capital
Corporation, a company related through common ownership, for
consulting services. A payment of $100,000 was made during the nine
month period ended December 31, 1999.
Note 7. Income Taxes
For income tax purposes approximately $7,350,000 of IFT's expenses are
considered start-up costs to be amortized over five years beginning
with the commencement of operations. IFT has not started amortization
of these startup costs as of December 31, 1999. IFT has an approximate
net operating loss carryforward of $7,556,000 as of December 31, 1999.
This approximate net operating loss will expire as follows: $33,000 in
year 2011, $600,000 in year 2012, $5,000,000 in year 2018 and
$1,923,000 in year 2019. Due to the inherent uncertainty in forecasts
of future events and operating results, IFT has provided for a
valuation allowance in an amount equal to the net deferred tax asset
arising from this net operating loss carryforward. No income tax
benefit has been recorded in the statement of operations due to the
valuation allowance on the deferred tax assets.
December 31, 1999 March 31, 1999
----------------- ---------------
Deferred Tax Assets
Start up costs $2,499,000 $ 819,000
Net operating loss 2,549,000 2,336,000
---------- ----------
Total gross deferred tax asset 5,048,000 3,155,000
Less Valuation Allowance 5,048,000 3,155,000
---------- ----------
Net Deferred Tax Asset $ - $ -
========== ==========
Income tax expense for the period ended December 31, 1999 and the
years ended March 31, 1999 and 1998 differed from the amount computed
by applying the statutory U.S. federal corporate income tax rate of
34% to income before income tax benefit as a result of the following:
<TABLE>
<CAPTION>
December 31, March 31, March 31,
1999 1999 1998
--------------------------------------------
<S> <C> <C> <C>
Expected income tax
(benefit) expense $(1,915,000) $(2,665,000) $(371,000)
</TABLE>
48
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Increase (decrease) in
Income tax resulting from:
Valuation allowance
Increase 1,915,000 2,665,000 371,000
----------- ----------- ---------
Income tax expense
(benefit) $ - $ - $ -
=========== =========== ==========
</TABLE>
Note 8 Lease Commitment
As of December 31, 1999, IFT leased office space, certain equipment
and administrative services under two operating leases from companies
related through common ownership. Future minimum leases payments are
$35,000 for the year 2000.
Note 9 Subsequent Events
Effective January 14, 2000 IFT adopted a Consultant and Employee Stock
Compensation Plan. This plan provides that the Board of Directors may
award shares of IFT's stock to officers, directors, consultants and
employees as compensation for services. The maximum number of shares
of common stock, which may be awarded under this plan, is 500,000
shares.
During January 2000 IFT issued 100,000 shares of common stock in a
private placement for $200,000 to a company whose sole owner is a
director of IFT.
During February 2000 IFT issued 100,000 shares of common stock as full
payment for an account payable of $281,250.
During January 2000, IFT entered into an employment agreement with
Jonathan R. Burst to serve as Chief Executive Officer of IFT until
December 31, 2000 at a base annual salary of $180,000. In addition,
Mr. Burst is to receive 6,000 shares of common stock each month.
During January 2000, IFT entered into an employment agreement with
William J. Lindenmayer to serve as Chief Operating Officer of IFT
until December 31, 2000 at a base annual salary of $125,000. In
addition, Mr. Lindenmayer is to receive 3,000 shares of common stock
each month.
On February 23, 2000 the Board of Directors granted Jonathan Burst
100,000 shares of IFT's common stock for his appointment as Chief
Executive Officer.
49
<PAGE>
INTERNATIONAL FUEL TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
On February 23, 2000 the Board of Directors awarded an initial grant
of 100,000 shares of IFT's common stock to William Lindenmayer for his
appointment as President and Chief Operating Officer.
During February 2000 a warrant for 390,000 shares of common stock was
exercised by GEM Global Yield Fund Limited at a cost of $.01 per
share.
During February 2000 IFT issued 195,000 shares of common stock and
placed them in escrow in accordance with the convertible debenture
purchase agreement entered into in February 2000.
During March 2000 IFT issued a total of 65,000 shares of common stock
to five directors as reimbursement for directors' expenses.
Note 10. Fiscal Year End Change
Effective October 27, 1999, IFT changed the date of its fiscal year
end from March 31 to December 31. The nine-month period ended December
31, 1999, is referred to as the transition period. All year and
quarter references relate to IFT's prior fiscal years and quarters,
unless otherwise stated. Unaudited financial information for the
comparable nine-month period ended December 31, 1998, is presented in
the table below and includes any adjustments (consisting of normal,
recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation.
For the Nine Months Ended
December 31,
1999 1998 (unaudited)
------------- -------------
Revenues $ - $ -
Cost of Revenues - -
------------- -------------
Gross Profit - -
------------- -------------
Acquisition Expense 500,000 -
Advertising and Marketing 12,913 4,772
Consulting 295,000 6,340,500
Research & Development Costs 330,353 514,347
Office 1,002 30,669
Other 59,234 47,068
Payroll 318,036 116,673
Professional Services 3,662,718 81,436
Rent 32,685 117,633
Stock Transfer Fees 5,249 17,293
Telephone 2,957 27,400
Travel 6,652 37,702
------------- -------------
Total Operating Expenses 5,226,799 7,335,493
------------- -------------
50
<PAGE>
Net Loss from Operations 5,226,799 7,335,493
Interest Expense 405,341 68,572
------------- -------------
Net Loss Before Income Tax 5,632,140 7,404,065
Provision for Income Tax - -
------------- -------------
Net Loss $ 5,632,140 $ 7,404,065
============= =============
Basic and Dilutive Net Loss
Per Common Share $ .36 $ .57
============= =============
Weighted Average Common
Shares Outstanding 15,800,725 12,993,978
============= =============
51
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
INTERNATIONAL FUEL TECHNOLOGY, INC.
(Registrant)
By: /s/ William J. Lindenmayer Date: May 3, 2000
------------------------------
William J. Lindenmayer
President
By: /s/ Patty Foltz Date: May 3, 2000
------------------------------
Patty Foltz
Secretary/Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below on behalf of the registrant and in
the capacities and on the dates indicated.
By: /s/ Fred K. Jensen Date: May 3, 2000
------------------------------
Fred K. Jensen
Chairman of the Board
By: /s/ William J. Lindenmayer Date: May 3, 2000
------------------------------
William J. Lindenmayer
Director
By: /s/ Jonathan R. Burst Date: May 3, 2000
------------------------------
Jonathan R. Burst
Director
By: /s/ David B. Norris Date: May 3, 2000
------------------------------
David B. Norris
Director
By: /s/ Harry Demetriou Date: May 3, 2000
------------------------------
Harry Demetriou
Director
52
<PAGE>
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER between BLENCATHIA ACQUISITION CORPORATION, a
Delaware corporation ("Blencathia"), and INTERNATIONAL FUEL TECHNOLOGY, INC., a
Nevada corporation ("International Fuel"), Blencathia and International Fuel
being sometimes referred to herein as the "Constituent Corporations."
WHEREAS, the board of directors of each Constituent Corporation deems it
advisable that the Constituent Corporations merge into a single corporation in a
transaction intended to qualify as a reorganization within the meaning of
(S)368(a)(1)(A) of the Internal Revenue Code of 1986, as amended ("the Merger");
NOW, THEREFORE, in consideration of the premises and the respective mutual
covenants, representations and warranties herein contained, the parties agree as
follows:
1. Surviving Corporation. Blencathia shall be merged with and into
International Fuel which shall be the surviving corporation in accordance with
the applicable laws of International Fuel's state of incorporation.
2. Merger Date. The Merger shall become effective (the "Merger Date") upon
the completion of:
2.1. Adoption of this agreement by Blencathia pursuant to the General
Corporation Law of Delaware and by International Fuel pursuant to the Nevada
Revised Statutes and the Nevada General Corporation Law.
2.2. Execution and filing by International Fuel of the Articles of
Merger with the Secretary of State of the State of Nevada in accordance with the
Nevada Revised Statutes and the Nevada General Corporation Law; and
2.3. Execution and filing by Blencathia of the Certificate of Merger
with the Secretary of State of the State of Delaware in accordance with the
General Corporation Law of Delaware.
3. Time of Filings. The Articles of Merger shall be filed with the
Department of State of the State of Nevada and the Certificate of Merger shall
be filed with the Secretary of State of Delaware upon the approval, as required,
of this agreement by the Constituent Corporations and the fulfillment or waiver
of the terms and conditions herein.
4. Governing Law. The surviving corporation shall be governed by the laws
of the state of incorporation of International Fuel.
5. Articles of Incorporation. The Articles of Incorporation of
International Fuel shall be the Articles of Incorporation of the surviving
corporation from and after the Merger Date, subject to the right of
International Fuel to amend its Certificate of Incorporation in accordance with
the laws of the State of its incorporation.
6. Bylaws. The Bylaws of the surviving corporation shall be the Bylaws of
International
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 2
- --------------------------------------------------------------------------------
Fuel as in effect on the date of this agreement.
7. Board of Directors and Officers. The officers and directors of
International Fuel, or such other persons as shall be selected by International
Fuel, shall be the officers and directors of the surviving corporation following
the Merger Date.
8. Name of Surviving Corporation. The name of the surviving corporation
will continue as "International Fuel Technology, Inc." unless changed by
International Fuel.
9. Conversion. The mode of carrying the Merger into effect and the manner
and basis of converting the shares of Blencathia into shares of International
Fuel are as follows:
9.1. The aggregate number of shares of Blencathia Common Stock issued
and outstanding on the Merger Date shall, by virtue of the Merger and without
any action on the part of the holders thereof, be converted into an aggregate of
300,000 shares of International Fuel Common Stock adjusted by any increase for
fractional shares and reduced by any Dissenting Shares (defined below),
9.2. Upon completion of the Merger, there shall be 16,693,901 shares
of International Fuel Common Stock issued and outstanding, subject to such
adjustments, held as follows: 300,000 common shares held by the former
shareholders of Blencathia and 16,393,901 common shares held by the shareholders
of International Fuel.
9.3. All outstanding Common or Preferred Stock of Blencathia and all
warrants, options or other rights to its Common or Preferred Stock shall be
retired and canceled as of the Merger Date.
9.4. Each share of Blencathia Common Stock that is issued and
outstanding owned by Blencathia as treasury stock shall, by virtue of the Merger
and without any action on the part of Blencathia, be retired and canceled as of
the Merger Date.
9.5. Each certificate evidencing ownership of shares of International
Fuel Common Stock issued and outstanding on the Merger Date or held by
International Fuel in its treasury shall continue to evidence ownership of the
same number of shares of International Fuel Common Stock.
9.6. International Fuel Common Stock shall be issued to the holders of
Blencathia Common Stock in exchange for their shares on a pro rata basis in
accordance with each holder's relative ownership of the Blencathia Common Stock
that is being exchanged.
9.7. The shares of International Fuel Common Stock to be issued in
exchange for Blencathia Common Stock hereunder shall be proportionately reduced
by any shares owned by Blencathia shareholders who shall have timely objected to
the Merger (the "Dissenting Shares") in accordance with the provisions of the
General Corporation Law of Delaware, as provided therein.
10. Exchange of Certificates. As promptly as practicable after the Merger
Date, each holder of an outstanding certificate or certificates theretofore
representing shares of Blencathia
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 3
- --------------------------------------------------------------------------------
Common Stock (other than certificates representing Dissenting Shares) shall
surrender such certificate(s) for cancellation to the party designated herein to
handle such exchange (the "Exchange Agent"), and shall receive in exchange a
certificate or certificates representing the number of full shares of
International Fuel Common Stock into which the shares of Blencathia Common Stock
represented by the certificate or certificates so surrendered shall have been
converted. Any exchange of fractional shares will be rounded up to the next
highest number of full shares. International Fuel may, in its discretion,
require a bond in customary form before issuing any share certificate where a
corresponding share certificate has not been delivered by a shareholder of
Blencathia because of loss or other reason.
11. Unexchanged Certificates. Until surrendered, each outstanding
certificate that prior to the Merger Date represented Blencathia Common Stock
(other than certificates representing Dissenting Shares) shall be deemed for all
purposes, other than the payment of dividends or other distributions, to
evidence ownership of the number of shares of International Fuel Common Stock
into which it was converted. No dividend or other distribution payable to
holders of International Fuel Common Stock as of any date subsequent to the
Merger Date shall be paid to the holders of outstanding certificates of
Blencathia Common Stock; provided, however, that upon surrender and exchange of
such outstanding certificates (other than certificates representing Dissenting
Shares), there shall be paid to the record holders of the certificates issued in
exchange therefor the amount, without interest thereon, of dividends and other
distributions that would have been payable subsequent to the Merger Date with
respect to the shares of International Fuel Common Stock represented thereby.
12. Effect of the Merger. On the Merger Date, the separate existence of
Blencathia shall cease (except insofar as continued by statute), and it shall be
merged with and into International Fuel. All the property, real, personal, and
mixed, of each of the Constituent Corporations, and all debts due to either of
them, shall be transferred to and vested in International Fuel, without further
act or deed. International Fuel shall thenceforth be responsible and liable for
all the liabilities and obligations, including liabilities to holders of
Dissenting Shares, of each of the Constituent Corporations, and any claim or
judgment against either of the Constituent Corporations may be enforced against
International Fuel.
13. Representations and Warranties of Blencathia. Blencathia represents and
warrants that:
13.1. Corporate Organization and Good Standing. Blencathia is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Delaware, and is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its property or business
requires such qualification.
13.2. Reporting Company Status. Blencathia has filed with the
Securities and Exchange Commission a registration statement on Form 10-SB which
became effective pursuant to the Securities Exchange Act of 1934 and is a
reporting company pursuant to (S) 12(g) thereunder.
13.3. Reporting Company Filings. Blencathia has timely filed and is
current on all reports required to be filed by it pursuant to (S) 13 of the
Securities Exchange Act of 1934.
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 4
- --------------------------------------------------------------------------------
13.4. Capitalization. Blencathia's authorized capital stock consists
of 120,000,000 shares of Common Stock, $.0001 par value, of which 5,000,000
shares are issued and outstanding, and 20,000,000 shares of non-designated
preferred stock of which no shares are designated or issued.
13.5. Issued Stock. All the outstanding shares of its Common Stock are
duly authorized and validly issued, fully paid and non-assessable.
13.6. Stock Rights. Except as set out by attached schedule, there are
no stock grants, options, rights, warrants or other rights to purchase or obtain
Blencathia Common or Preferred Stock issued or committed to be issued.
13.7. Corporate Authority. Blencathia has all requisite corporate
power and authority to own, operate and lease its properties, to carry on its
business as it is now being conducted and to execute, deliver, perform and
conclude the transactions contemplated by this agreement and all other
agreements and instruments related to this agreement.
13.8. Authorization. Execution of this agreement has been duly
authorized and approved by Blencathia's board of directors.
13.9. Subsidiaries. Except as set out by attached schedule, Blencathia
has no subsidiaries.
13.10. Financial Statements. Blencathia's financial statements dated
June 30, 1999, copies of which will have been delivered by Blencathia to
International Fuel prior to the Merger Date (the "Blencathia Financial
Statements"), fairly present the financial condition of Blencathia as of the
date therein and the results of its operations for the periods then ended in
conformity with generally accepted accounting principles consistently applied.
13.11. Absence of Undisclosed Liabilities. Except to the extent
reflected or reserved against in the Blencathia Financial Statements, Blencathia
did not have at that date any liabilities or obligations (secured, unsecured,
contingent, or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles.
13.12. No Material Changes. Except as set out by attached schedule,
there has been no material adverse change in the business, properties, or
financial condition of Blencathia since the date of the Blencathia Financial
Statements.
13.13. Litigation. Except as set out by attached schedule, there is
not, to the knowledge of Blencathia, any pending, threatened, or existing
litigation, bankruptcy, criminal, civil, or regulatory proceeding or
investigation, threatened or contemplated against Blencathia or against any of
its officers.
13.14. Contracts. Except as set out by attached schedule, Blencathia
is not a party to any material contract not in the ordinary course of business
that is to be performed in whole or in part at or after the date of this
agreement.
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 5
- --------------------------------------------------------------------------------
13.15. Title. Except as set out by attached schedule, Blencathia has
good and marketable title to all the real property and good and valid title to
all other property included in the Blencathia Financial Statements. Except as
set out in the balance sheet thereof, the properties of Blencathia are not
subject to any mortgage, encumbrance, or lien of any kind except minor
encumbrances that do not materially interfere with the use of the property in
the conduct of the business of Blencathia.
13.16. Tax Returns. Except as set out by attached schedule, all
required tax returns for federal, state, county, municipal, local, foreign and
other taxes and assessments have been properly prepared and filed by Blencathia
for all years for which such returns are due unless an extension for filing any
such return has been filed. Any and all federal, state, county, municipal,
local, foreign and other taxes and assessments, including any and all interest,
penalties and additions imposed with respect to such amounts have been paid or,
if any is outstanding as at the date hereof, provision has been made prorated to
the Merger Date hereof to be an adjustment to the credit of International Fuel
payable to International Fuel on the Merger. The provisions for federal and
state taxes reflected in the Blencathia Financial Statements are adequate to
cover any such taxes that may be assessed against Blencathia in respect of its
business and its operations during the periods covered by the Blencathia
Financial Statements and all prior periods.
13.17. No Violation. Consummation of the Merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease, or agreement, or any order, judgment, decree, law,
or regulation to which any property of Blencathia is subject or by which
Blencathia is bound.
14. Representations and Warranties of International Fuel. International
Fuel represents and warrants that:
14.1. Corporate Organization and Good Standing. International Fuel is
a corporation duly organized, validly existing, and in good standing under the
laws of the State of Nevada and is qualified to do business as a foreign
corporation in each jurisdiction, if any, in which its properly or business
requires such qualification.
14.2. Capitalization. International Fuel's authorized capital stock
consists of 150,000,000 shares of Common Stock, $0.01 par value, of which
16,393,901 shares are issued and outstanding. There are no preferred shares
authorized.
14.3. Issued Stock. All the outstanding shares of its Common Stock are
duly authorized and validly issued, fully paid and non-assessable.
14.4. Stock Rights. Except as set out by attached schedule, there are
no stock grants, options, rights, warrants or other rights to purchase or obtain
international Fuel Common or Preferred Stock issued or committed to be issued.
14.5. Corporate Authority. International Fuel has all requisite
corporate power and authority to own, operate and lease its properties, to carry
on its business as it is now being conducted and to execute, deliver, perform
and conclude the transactions contemplated by this
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 6
- --------------------------------------------------------------------------------
Agreement and all other agreements and instruments related to this agreement.
14.6. Authorization. Execution of this agreement has been duly
authorized and approved by International Fuel's board of directors.
14.7. Subsidiaries. Except as set out by attached schedule,
International Fuel has no subsidiaries.
14.8. Financial Statements. International Fuel's financial statements
dated as of ________copies of which will have been delivered by International
Fuel to Blencathia prior to the Merger Date (the "International Fuel Financial
Statements"), fairly present the financial condition of International Fuel as of
the date therein and the results of its operations for the periods then ended in
conformity with generally accepted accounting principles consistently applied.
14.9. Absence of Undisclosed Liabilities. Except to the extent
reflected or reserved against in the International Fuel Financial Statements,
International Fuel did not have at that date any liabilities or obligations
(secured, unsecured, contingent, or otherwise) of a nature customarily reflected
in a corporate balance sheet prepared in accordance with generally accepted
accounting principles.
14.10. No Material Changes. Except as set out by attached schedule,
there has been no material adverse change in the business, properties, or
financial condition of International Fuel since the date of the International
Fuel Financial Statements.
14.11. Litigation. Except as set out by attached schedule, there is
not, to the knowledge of International Fuel, any pending, threatened, or
existing litigation, bankruptcy, criminal, civil, or regulatory proceeding or
investigation, threatened or contemplated against International Fuel or against
any of its officers.
14.12. Contracts. Except as set out by attached schedule,
International Fuel is not a party to any material contract not in the ordinary
course of business that is to be performed in whole or in part at or after the
date of this agreement.
14.13. Title. Except as set out by attached schedule, International
Fuel has good and marketable title to all the real property and good and valid
title to all other property included in the International Fuel Financial
Statements. Except as set out in the balance sheet thereof, the properties of
International Fuel are not subject to any mortgage, encumbrance, or lien of any
kind except minor encumbrances that do not materially interfere with the use of
the property in the conduct of the business of International Fuel.
14.14. Tax Returns. Except as set out by attached schedule, all
required tax returns for federal, state, county, municipal, local, foreign and
other taxes and assessments have been properly prepared and filed by
International Fuel for all years for which such returns are due unless an
extension for filing any such return has been filed. Any and all federal, state,
county, municipal, local, foreign, and other taxes and assessments, including
any and all interest, penalties and additions imposed with respect to such
amounts have been paid or, if any is outstanding as at the date hereof,
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 7
- --------------------------------------------------------------------------------
provisions for federal and state taxes reflected in the International Fuel
Financial Statements are adequate to cover any such taxes that may be assessed
against International Fuel in respect of its business and its operations during
the periods covered by the International Fuel Financial Statements and all prior
periods.
14.15. No Violation. Consummation of the Merger will not constitute
or result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease, or agreement, or any order, judgment, decree, law,
or regulation to which any property of International Fuel is subject or by which
International Fuel is bound.
15. Conduct of Blencathia Pending the Merger Date. Blencathia covenants
that between the date of this Agreement and the Merger Date:
15.1. No change will be made in Blencathia's articles of
incorporation or bylaws.
15.2. Blencathia will not make any change in its authorized or issued
capital stock, declare or pay any dividend or other distribution or issue,
encumber, purchase, or otherwise acquire any of its capital stock other than as
provided herein.
15.3. Blencathia will use its best efforts to maintain and preserve
its business organization, employee relationships, and goodwill intact, and will
not enter into any material commitment except in the ordinary course of
business.
16. Conduct of International Fuel Pending the Merger Date. International
Fuel covenants that between the date of this agreement and the Merger Date:
16.1. No change will be made in International Fuel's certificate or
articles of incorporation or bylaws.
16.2. International Fuel will not make any change in its authorized
or issued capital stock, declare or pay any dividend or other distribution or
issue, encumber, purchase, or otherwise acquire any of its capital stock
otherwise than as provided herein.
16.3. International Fuel will use its best efforts to maintain and
preserve its business organization, employee relationships, and goodwill intact,
and will not enter into any material commitment except in the ordinary course of
business.
17. Conditions Precedent to Obligation of Blencathia. Blencathia's
obligation to consummate the Merger shall be subject to fulfillment on or before
the Merger Date of each of the following conditions, unless waived in writing by
Blencathia:
17.1. International Fuel's Representations and Warranties. The
representations and warranties of International Fuel set forth herein shall be
true and correct at the Merger Date as though made at and as of that date,
except as affected by transactions contemplated hereby.
17.2. International Fuel's Covenants. International Fuel shall have
performed all
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 8
- --------------------------------------------------------------------------------
covenants required by this agreement to be performed by it on or before the
Merger Date.
17.3. Approval. This agreement shall have been approved by
International Fuel in such manner as is required by law including all
appropriate action by directors and, if required, by shareholders.
17.4. Supporting Documents of International Fuel. International Fuel
shall have delivered to Blencathia supporting documents in form and substance
satisfactory to Blencathia to the effect that:
(i) International Fuel is a corporation duly organized, validly
existing, and in good standing.
(ii) International Fuel's authorized and issued capital stock is as
set forth herein.
(iii) The execution and adoption of this agreement have been duly
authorized by International Fuel in such manner as is required by law including
all appropriate action by directors and, if required, by shareholders.
18. Conditions Precedent to Obligation of International Fuel.
International Fuel's obligation to consummate the Merger shall be subject to
fulfillment on or before the Merger Date of each of the following conditions,
unless waived in writing by International Fuel:
18.1. Blencathia's Representations and Warranties. The
representations and warranties of Blencathia set forth herein shall be true and
correct at the Merger Date as though made at and as of that date, except as
affected by transactions contemplated hereby.
18.2. Blencathia's Covenants. Blencathia shall have performed all
covenants required by this agreement to be performed by it on or before the
Merger Date.
18.3. Approval. This agreement shall have been approved by Blencathia
in such manner as is required by law including all appropriate action by
directors and, if required, by shareholders.
18.4. Supporting Documents of Blencathia. Blencathia shall have
delivered to International Fuel supporting documents in form and substance
satisfactory to International Fuel to the effect that:
(i) Blencathia is a corporation duly organized, validly existing, and
in good standing.
(ii) Blencathia's authorized and issued capital stock is as set forth
herein.
(iii) The execution and adoption of this agreement have been duly
authorized by Blencathia in such manner as is required by law including all
appropriate action by directors and, if required, by shareholders.
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 9
- --------------------------------------------------------------------------------
19. Access. From the date hereof to the Merger Date, International Fuel and
Blencathia shall provide each other with such information and permit each
other's officers and representatives such access to its properties and books and
records as the other may from time to time reasonably request. If the Merger is
not consummated, all documents received in connection with this agreement shall
be returned to the party furnishing such documents, and all information so
received shall be treated as confidential.
20. Closing.
20.1. The transfers and deliveries to be made pursuant to this
agreement (the "Closing") shall be made by and take place at the offices of the
Exchange Agent or other location designated by the Constituent Corporations
without requiring the meeting of the parties hereof. All proceedings to be taken
and all documents to be executed at the Closing shall be deemed to have been
taken, delivered and executed simultaneously, and no proceeding shall be deemed
taken nor documents deemed executed or delivered until all have been taken,
delivered and executed.
20.2. Any copy, facsimile telecommunication or other reliable
reproduction of the writing or transmission required by this agreement or any
signature required thereon may be used in lieu of an original writing or
transmission or signature for any and all purposes for which the original could
be used, provided that such copy, facsimile telecommunication or other
reproduction shall be a complete reproduction of the entire original writing or
transmission or original signature.
20.3. At the Closing, Blencathia shall deliver to the Exchange Agent
in satisfactory form, if not already delivered to International Fuel:
(i) A list of the holders of record of the shares of Blencathia Common
Stock being exchanged, with an itemization of the number of shares held by each,
the address of each holder, and the aggregate number of shares of International
Fuel Common Stock to be issued to each holder;
(ii) Evidence of the execution and adoption of this agreement in such
manner as is required by law including all appropriate action by directors and,
if required, by shareholders;
(iii) Certificate of the Secretary of State of Delaware as of a recent
date as to the good standing of Blencathia;
(iv) Certified copies of the resolutions of the board of directors of
Blencathia authorizing the execution of this agreement and the consummation of
the Merger;
(v) The Blencathia Financial Statements;
(vi) Secretary's certificate of incumbency of the officers and
directors of Blencathia;
(vii) Any document as may be specified herein or required to satisfy
the conditions, representations and warranties enumerated elsewhere herein; and
(viii) the share certificates for the outstanding Common Stock of
Blencathia to be
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 10
- --------------------------------------------------------------------------------
exchanged hereunder or, where any such certificate is not delivered, an
affidavit of lost certificate or other reason for non-delivery.
20.4. At the Closing, International Fuel shall deliver to the Exchange
Agent in satisfactory form, if not already delivered to Blencathia:
(i) A list of its shareholders of record;
(ii) Evidence of the execution and adoption of this agreement in such
manner as is required by law including all appropriate action by directors and,
if required, by shareholders;
(iii) Certificate of the Secretary of State of its state of
incorporation as of a recent date as to the good standing of International Fuel;
(iv) Certified copies of the resolutions of the board of directors of
International Fuel authorizing the execution of this agreement and the
consummation of the Merger;
(v) The International Fuel Financial Statements;
(vi) Secretary's certificate of incumbency of the officers and
directors of International Fuel;
(vii) Any document as may be specified herein or required to satisfy
the conditions, representations and warranties enumerated elsewhere herein; and
(viii) the share certificates of International Fuel to be delivered
to the shareholders of Blencathia hereunder, in proper names and amounts, and
bearing legends, if any, required and appropriate under applicable securities
laws.
21. Survival of Representations and Warranties. The representations and
warranties of the Constituent Corporations set out herein shall survive the
Merger Date.
22. Arbitration.
22.1. Scope. The parties hereby agree that any and all claims (except
only for requests for injunctive or other equitable relief) whether existing
now, in the past or in the future as to which the parties or any affiliates may
be adverse parties, and whether arising out of this agreement or from any other
cause, will be resolved by arbitration before the American Arbitration
Association within the State of Nevada.
22.2. Consent to Jurisdiction, Situs and Judgement. The parties
hereby irrevocably consent to the jurisdiction of the American Arbitration
Association and the situs of the arbitration (and any requests for injunctive or
other equitable relief) within the State of Nevada. Any award in arbitration may
be entered in any domestic or foreign court having jurisdiction over the
enforcement of such awards.
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 11
- --------------------------------------------------------------------------------
22.3. Applicable Law. The law applicable to the arbitration and this
agreement shall be that of the State of Nevada, determined without regard to its
provisions which would otherwise apply to a question of conflict of laws.
22.4. Disclosure and Discovery. The arbitrator may, in its discretion,
allow the parties to make reasonable disclosure and discovery in regard to any
matters which are the subject of the arbitration and to compel compliance with
such disclosure and discovery order. The arbitrator may order the parties to
comply with all or any of the disclosure and discovery provisions of the Federal
Rules of Civil Procedure, as they then exist, as may be modified by the
arbitrator consistent with the desire to simplify the conduct and minimize the
expense of the arbitration.
22.5. Rules of Law. Regardless of any practices of arbitration to the
contrary, the arbitrator will apply the rules of contract and other law of the
jurisdiction whose law applies to the arbitration so that the decision of the
arbitrator will be, as much as possible, the same as if the dispute had been
determined by a court of competent jurisdiction.
22.6. Finality and Fees. Any award or decision by the American
Arbitration Association shall be final, binding and non-appealable except as to
errors of law or the failure of the arbitrator to adhere to the arbitration
provisions contained in this agreement. Each party to the arbitration shall pay
its own costs and counsel fees except as specifically provided otherwise in this
agreement.
22.7. Measure of Damages. In any adverse action, the parties shall
restrict themselves to claims for compensatory damages and\or securities issued
or to be issued and no claims shall be made by any party or affiliate for lost
profits, punitive or multiple damages.
22.8. Covenant Not to Sue. The parties covenant that under no
conditions will any party or any affiliate file any action against the other
(except only requests for injunctive or other equitable relief) in any forum
other than before the American Arbitration Association, and the parties agree
that any such action, if filed, shall be dismissed upon application and shall be
referred for arbitration hereunder with costs and attorney's fees to the
prevailing party.
22.9. Intention. It is the intention of the parties and their
affiliates that all disputes of any nature between them, whenever arising,
whether in regard to this agreement or any other matter, from whatever cause,
based on whatever law, rule or regulation, whether statutory or common law, and
however characterized, be decided by arbitration as provided herein and that no
party or affiliate be required to litigate in any other forum any disputes or
other matters except for requests for injunctive or equitable relief. This
agreement shall be interpreted in conformance with this stated intent of the
parties and their affiliates.
22.10. Survival. The provisions for arbitration contained herein shall
survive the termination of this agreement for any reason.
<PAGE>
AGREEMENT AND PLAN OF MEMBER PAGE NUMBER 12
- --------------------------------------------------------------------------------
23. General Provisions.
23.1. Further Assurances. From time to time, each party will execute
such additional instruments and take such actions as may be reasonably required
to carry out the intent and purposes of this agreement.
23.2. Waiver. Any failure on the part of either party hereto to comply
with any of its obligations, agreements, or conditions hereunder may be waived
in writing by the party to whom such compliance is owed.
23.3. Brokers. Each party agrees to indemnify and hold harmless the
other party against any fee, loss, or expense arising out of claims by brokers
or finders employed or alleged to have been employed by the indemnifying party.
23.4. Notices. All notices and other communications hereunder shall be
in writing and shall be deemed to have been given if delivered in person or sent
by prepaid first-class certified mail, return receipt requested, or recognized
commercial courier service, as follows:
If to Blencathia, to:
Blencathia Corporation
1504 R Street, N.W.
Washington, D,C. 20009
If to International Fuel, to:
International Fuel Technology, Inc.
7777 Bonhomme Avenue
Suite 1920
Clayton, Missouri 63105
24. Governing Law. This agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Nevada.
25. Assignment. This agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their successors and assigns; provided,
however, that any assignment by either party of its rights under this agreement
without the written consent of the other party shall be void.
26. Counterparts. This agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signatures sent by
facsimile transmission shall be deemed to be evidence of the original execution
thereof.
27. Exchange Agent and Closing Date. The Exchange Agent shall be Cassidy &
Associates, Washington, D.C. The Closing shall take place upon the fulfillment
by each party of
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 13
- -------------------------------------------------------------------------------
all the conditions of Closing required herein, but not later than 5 days
following execution of this agreement unless extended by mutual consent of the
parties.
28. Review of Agreement. Each party acknowledges that it has had time to
review this agreement and, as desired, consult with counsel. In the
interpretation of this agreement, no adverse presumption shall be made against
any party on the basis that it has prepared, or participated in the preparation
of, this agreement.
29. Schedules. All schedules attached hereto, if any, shall be
acknowledged by each party by signature or initials thereon.
30. Effective Date. This effective date of this agreement shall be the
date the Articles of Merger are filed with the Secretary of State of the State
of Nevada.
<PAGE>
AGREEMENT AND PLAN OF MERGER PAGE NUMBER 14
- -------------------------------------------------------------------------------
Signature Page to Agreement and Plan of Merger
between Blencathia Corporation and
International Fuel Technologies, Inc.
IN WITNESS WHEREOF, the parties have executed this agreement.
BLENCATHIA ACQUISITION CORPORATION
By /s/ James M. Cassidy
-------------------------------------
INTERNATIONAL FUEL TECHNOLOGIES, INC.
By /s/ Jonathon R. Burst
-------------------------------------
President
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
(State of Nevada)
ARTICLE I
The name of this corporation shall be and is MagnoDynamic Corporation.
ARTICLE II
The address of John W. Tinker, Registered Agent, is 2101 Castleberry Lane, Las
Vegas, Nevada 89115.
ARTICLE III
The purposes and objects of this corporation shall be to engage in any lawful
activity for which corporations may be formed under the above referred to laws.
ARTICLE IV
The aggregate number of shares which the corporation shall have authority to
issue is 20,000,000 shares of common stock at $0.01 cent per share.
ARTICLE V
The governing board of this corporation shall be directors. The original number
of directors of this corporation shall be one (1) with the provision to increase
the number of directors to six (6). The first Director of this corporation is:
John W. Tinker
2101 Castleberry Lane
Las Vegas, Nevada 89115
ARTICLE VI
The capital stock of this corporation has a par value of $0.01 cent per share
and is fully paid and non-assessable.
ARTICLE VII
The name of the incorporator of this corporation is:
John W. Tinker
2101 Castleberry Lane
Las Vegas, Nevada 89115
ARTICLE VIII
This corporation shall have perpetual existence.
<PAGE>
STATE OF NEVADA
COUNTY OF CLARK
BE IT KNOWN that on this the 5th day of April, 1996
BEFORE ME, a Notary Public, in and for the County of Clark, State of
Nevada, personally appeared the subscriber hereto, of the full age of majority,
who declared to me, Notary, in the presence of the undersigned competent
witnesses, that availing himself of the provisions of the Nevada Business
Corporation Law, he does hereby form a corporation under and in accordance with
the forgoing Articles of Incorporation.
THUS DONE AND SIGNED, in triplicate original, after due reading of the
whole.
INCORPORATOR
/s/ John W. Tinker
_____________________
John W. Tinker
WITNESSES:
_____________
_____________
__________________
NOTARY PUBLIC
<PAGE>
[SEAL]
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock) Filed by:
MAGNODYNAMIC CORPORATION
Name of Corporation
We the undersigned James C. Holcombe and
---------------------------
President or Vice President
John W. Tinker of MAGNODYNAMIC CORPORATION
-------------------------------- ------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 12th day of August, 1996, adopted a resolution to amend the original
articles as follows:
Article IV is hereby amended to read as follows:
The aggregate number of shares which the corporation shall have authority
to issue is 100,000,000 shares of Common Stock at $0.01 cent per share.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 2,605,000; that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ James C. Holcombe
-----------------------------------
President or Vice President
/s/ John W. Tinker
-----------------------------------
Secretary or Assistant Secretary
State of Nevada )
County of Clark ) ss.
)
On August 18, 1996, personally appeared before me, a Notary Public,
James C. Holcombe & John W. Tinker who acknowledged that they executed the above
instrument.
/s/ Lucy C. Hartzell
-----------------------------------
Signature of Notary
[SEAL]
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Filed by:
(After Issuance of Stock)
MAGNODYNAMIC CORPORATION
------------------------
Name of Corporation
We the undersigned James C. Holcombe and
-----------------------------------
President or Vice President
John W. Tinker of MAGNODYNAMIC CORPORATION
-------------------------------- --------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 7th day of November, 1996, adopted a resolution to amend
the original articles as follows:
Article I is hereby amended to read as follows:
The name of this corporation shall be and is International Fuel Technology,
Inc.
The number of shares of the corporation outstanding and entitled to vote
on an amendment to the Articles of Incorporation is 2,795,000: that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
James C. Holcombe
---------------------------
President or Vice President
John W. Tinker
--------------------------------
Secretary or Assistant Secretary
State of Nevada )
)ss.
County of Clark )
On November 12, 1996, personally appeared before me, a Notary Public,
James C. Holcombe and John W. Tinker, who acknowledged that they executed the
above instrument.
[SEAL] Lucy C. Hartzell
Notary Public - Nevada
My appt. exp. Mar. 1, 2000
No. 9616091
(NOTARY STAMP OR SEAL)
/s/ Lucy C. Hartzell
---------------------
Signature of Notary
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
Filed by:
(After Issuance of Stock)
INTERNATIONAL FUEL TECHNOLOGY, INC
Name of Corporation
We the undersigned Charles N. Rallo and
------------------------------
President or Vice President
Debra M. Nicholson of International Fuel Technology, Inc.
-------------------------------- --------------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 3rd day of April, 1998, adopted a resolution to amend the original
articles as follows:
Article IV is hereby amended to read as follows:
To raise the authorized number of shares of the corporation from
100,000,000 shares to 150,000,000 shares,
Article V is hereby amended to read as follows:
To increase the number of directors of the Corporation from 6 members to 9
members.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation is 72,000,000: that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
Charles N. Rallo
----------------------------------
President or Vice President
Debra M. Nicholson
----------------------------------
Secretary or Assistant Secretary
State of Nevada
-------------------- }
County of Clark } ss.
------------------- }
On April 3, 1998, personally appeared before me, a Notary Public.
Charles N. Rallo & Debra M. Nicholson who acknowledged that they executed the
above instrument.
Barbara J. Daniels
----------------------------------
Signature of Notary
[Notary Public - SEAL]
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
1. That I am the duly elected and acting secretary of MagnoDynamic
Corporation, a Nevada corporation; and
2. That the foregoing Amended and Restated Bylaws, comprising eighteen (18)
pages, constitute the Bylaws of said corporation as duly adopted and
approved by the board of directors of said corporation by a Unanimous
Written Consent dated as of April 15, 1996 and duly adopted and approved by
the shareholders or their proxies of said corporation at a special meeting
held on 22nd day of April, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name and affixed the seal of
said corporation on this the 22nd day of April, 1996.
/s/ John W. Tinker
--------------------------
John W. Tinker, Secretary
[SEAL]
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
INTERNATIONAL FUEL TECHNOLOGY, INC.
a Nevada corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICES. The principal office shall be in the City of
Clayton, County of St. Louis, State of Missouri, or such other place as the
board of directors shall from time to time determine.
Section 2. OTHER OFFICES. The board of directors may at any time establish
branch or subordinate offices at any place or places where the corporation is
qualified to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of stockholders shall be held at
any place within the State of Missouri or such other jurisdiction as designated
by the board of directors. (At such meetings, directors shall be elected and any
other proper business may be transacted by a plurality vote of stockholders.)
Section 2. ANNUAL MEETINGS. The annual meetings of stockholders shall be
held at a date and time designated by the board of directors. (At such meetings,
directors shall be elected and any other proper business may be transacted by a
plurality vote of stockholders.)
Section 3. SPECIAL MEETINGS. A special meeting of the stockholders, for any
purpose or purposes whatsoever, unless proscribed by statute or by the articles
of incorporation, may be called at any time by the president and shall be
called by the president or secretary at the request in writing of a majority of
the board of directors, or at the request in writing of stockholders holding
shares in the aggregate entitled to cast not less than a majority of the votes.
The request shall be in writing, specifying the time of such meeting, the
place where it is to be held and the general nature of the business proposed to
be transacted, and shall be delivered personally or sent by registered mail or
by telegraphic or other facsimile transmission to the president, any vice
president or the secretary of the corporation. The officer receiving such
request forthwith shall cause notice to be given to the stockholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than twenty (20) nor more than sixty
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(60) days after the receipt of the request. If the notice is not given within
twenty (20) days after receipt of the request, the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 3 shall be construed as limiting, fixing or affecting the time when a
meeting of stockholders called by action of the board of directors may be held.
Section 4. NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting being noticed. The notice shall specify the place, date and
hour of the meeting and (i) in the case of a special meeting the general nature
of the business to be transacted, or (ii) in the case of the annual meeting
those matters which the board of directors, at the time of giving the notice,
intends to present for action by the stockholders. The notice of any meeting at
which directors are to be elected shall include the name of any nominee or
nominees which, at the time of the notice, management intends to present for
election.
If action is proposed to be taken at any meeting for approval of (i)
contracts or transactions in which a director has a direct or indirect financial
interest, (ii) an amendment to the articles of incorporation, (iii) a
reorganization of the corporation, (iv) dissolution of the corporation, or (v) a
distribution to preferred stockholders, the notice shall also state the general
nature of such proposal.
Section 5. MANNER OF GIVING NOTICE & AFFIDAVIT OF NOTICE. Notice of any
meeting of stockholders shall be given either personally or by first-class mail
or telegraphic or other written communication, charges prepaid, addressed to the
stockholder at the address of such stockholder appearing on the books of the
corporation or given by the stockholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent by mail or telegram to the
corporation's principal executive office, or if published at least once in a
newspaper of general circulation in the county where this office is located.
Personal delivery of any such notice to any officer of a corporation or
association or to any member of a partnership shall constitute delivery of such
notice to such corporation, association or partnership. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or sent by telegram or other means of written communication. In the event
of the transfer of stock after delivery or mailing of the notice of and prior to
the holding of the meeting, it shall not be necessary to deliver or mail notice
of the meeting to the transferee. If any notice addressed to a stockholder at
the address of such stockholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the notice
to the stockholder at such address, all future notices or reports shall be
deemed to have been duly given without further mailing if the same shall be
available to the stockholder upon written demand of the stockholder at the
principal executive office of the corporation for a period of one year from the
date of the giving of such notice.
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An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting shall be executed by the secretary, assistant secretary or
any transfer agent of the corporation giving such notice, and shall be filed and
maintained in the minute book of the corporation. Business transacted at any
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 6. QUORUM. When a majority of shares are present including
shareholders in person or persons holding their proxies they shall constitute a
quorum for the transaction of business, except as otherwise provided by statute
or the articles of incorporation. The stockholders present or persons holding
their proxies at a duly called or held meeting, at which a quorum is present,
may continue to do business until adjournment, notwithstanding the withdrawal of
enough stockholders in person or persons holding their proxies to leave less
than a quorum, and any action taken is binding (see Section regarding
adjournment) if and only if later approved by at least a majority of the shares
required to constitute a quorum.
Section 7. ADJOURNED MEETING AND NOTICE THEREOF. Any stockholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of the majority of the shares represented at such
meeting, either in presence in person or by proxy, but in the absence of a
quorum, no other business may be transacted at such meeting.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place thereof are announced at a meeting at which the adjournment is
taken. At any meeting so duly announced and noticed the corporation may transact
any business which might have been transacted at the original meeting.
Section 8. VOTING. Unless a record date set for voting purposes be fixed as
provided in Section 1 of Article VI of these bylaws, only persons in whose
name(s) shares entitled to vote standing on the stock records of the corporation
at the close of business on the business day next preceding the day on which
proper notice is given (or, if notice is waived, at the close of business on the
business day next preceding the day on which the meeting is held), or by proxy
shall be entitled to vote at such meeting. Any stockholder in person, or by
proxy entitled to vote on any matter other than elections of directors or
officers, may vote part of the shares in favor of the proposal and refrain from
voting the remaining shares or vote them against the proposal, but, if the
stockholder in person or by proxy fails to specify the number of shares such
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares such stockholder is
entitled to vote. Such vote may be by voice vote or by secret ballot; provided,
however, that all elections for directors must be by ballot upon demand by a
stockholder in person or by proxy at any election and before the voting begins.
When a quorum of the shareholders, or persons holding their proxies are
present or represented at any meeting, the vote of the shareholders of the stock
having voting power present in person, or persons holding their proxies shall
decide any question brought before such meeting, unless the question is one upon
which by
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express provision of the statutes or of the articles of incorporation a
different vote is required in which case such express provision shall govern and
control the decision of such question. Every stockholder of record of the
corporation shall be entitled at each meeting of stockholders, persons holding
their proxies to one vote for each share of stock standing so represented on the
books of the corporation.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT STOCKHOLDERS. The
transactions at any meeting of stockholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person, by persons holding their proxies and if, either before or after the
meeting, persons entitled to vote, not present in person or persons holding
their proxies, signs a written waiver of notice or a consent to a holding of the
meeting, or an approval of the minutes thereof whereby persons representing a
majority of shareholders have signed or attended. The waiver of notice or
consent need not specify either the business to be transacted or the purpose
of any regular or special meeting of shareholders, except that if action is
taken or proposed to be taken for approval of any of those matters specified in
the second paragraph of Section 4 of this Article II, the waiver of notice or
consent shall state the exact nature of such proposal. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting within 30 days.
Attendance of a person at a meeting shall also constitute a waiver of
notice of such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened, and except that attendance at a meeting is not a waiver of
any right to object to the consideration of matters not included in the notice
if such objection is expressly made at the meeting.
Section 10. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action which may be taken at any annual or special meeting of stockholders or
persons holding their proxies may be taken without a meeting and without prior
notice, if a consent in writing, setting forth the action so taken, is signed by
the holders of outstanding shares or persons holding their proxies, having not
less than the minimum number of votes that would be necessary to authorize or
take such action at a meeting at which all shares entitled to vote thereon were
present and voted. All such consents shall be filed within 30 days with the
secretary of the corporation and shall be maintained in the corporate records.
Any stockholder, or persons holding their proxies giving a written consent, may
revoke the consent by a writing received by the secretary of the corporation
prior to the time that written consents of the number of shares required to
authorize the proposed action have been filed with the secretary.
Section 11. PROXIES. Every person entitled to vote for directors or on any
other matter shall have the right to do so either in person or by one or more
agents authorized by a written proxy signed by the person and filed with the
secretary of the corporation. A proxy shall be deemed signed if the
stockholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission or otherwise) by the stockholder or the
stockholder's attorney in fact. A validly executed proxy which
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does not state that it is irrevocable shall continue in full force and effect
unless revoked by the person executing it, prior to the vote pursuant thereto,
by a writing delivered to the corporation stating that the proxy is revoked or
by a subsequent proxy executed by, or attendance at the meeting and voting in
person by the person executing the proxy; provided, however, that no such proxy
shall be valid after the expiration of six (6) months from the date of such
proxy, unless coupled with an interest, or unless the person executing it
specifies therein the length of time for which it is to continue in force, which
in no case shall exceed seven (7) years from the date of its execution. Subject
to the above and the provisions of Section 78.355 of the Nevada General
Corporation Law, any proxy duly executed is not revoked and continues in full
force and effect until an instrument revoking it or a duly executed proxy
bearing a later date is filed with the secretary of the corporation.
Section 12. INSPECTORS OF ELECTION. Before any meeting of stockholders, the
board of directors may appoint any persons other than nominees for office to act
as inspectors of election at the meeting or its adjournment. If no inspectors of
election are appointed, the chairman of the meeting may, and on the request of
any stockholder, or a person holding their proxy shall appoint inspectors of
election at the meeting. The number of inspectors shall be either one (i) or
three (3). If inspectors are appointed at a meeting on the request of one or
more stockholders in person or by proxy, a majority of shares at the meeting
shall determine whether one (i) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
the vacancy may be filled by appointment by the board of directors before the
meeting. The duties of these inspectors shall be as follows:
(a) Determine the number of shares outstanding and the voting power of
each, the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity, and effect of proxies and persons holding original stock
certificates;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) Count and tabulate all votes or consents
(e) Determine the election result; and
(f) Do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders or persons holding their proxies.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the Nevada General
Corporation Law and any limitations in the articles of incorporation and these
bylaws
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relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Without prejudice to such general powers, but subject to the same
limitations, it is hereby expressly declared that the directors shall have the
power and authority to:
(a) Select and remove immediately all officers, agents, and employees of
the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the articles of incorporation or these bylaws, fix
their compensation, and require from them security for faithful service.
(b) Change the principal executive office or the principal business office
from one location to another; cause the corporation to be qualified to do
business in any other state, territory, dependency, or foreign country and
conduct business within or without the State; designate any place within the
State of Nevada or the Country of Aruba for the holding of any stockholders'
meeting, or meetings, including annual meetings; adopt, make and use a corporate
seal, and prescribe the forms of certificates of stock, and alter the form of
such seal and of such certificates from time to time as in their judgment they
may deem best, provided that such forms shall at all times comply with the
provisions of law.
(c) Authorize the issuance of shares of stock of the corporation from time
to time, upon such terms as may be lawful, in consideration of money paid, labor
done or services actually rendered, debts or securities canceled, tangible or
intangible property actually received.
(d) Borrow money and incur indebtedness for the purpose of the
corporation, and cause to be executed and delivered therefore, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges,
hypothecation, or other evidences of debt and securities therefore.
Section 2. NUMBER OF DIRECTQRS. The authorized number of directors shall be
no fewer than one (1) nor more than six (6). The exact number of authorized
directors shall be set by resolution of the board of directors, within the
limits specified above. The maximum or minimum number of directors cannot be
changed, nor can a fixed number be substituted for the maximum and minimum
numbers, except by a duly adopted amendment to this bylaw duly approved under
Section 1 Article VIII.
Section 3. QUALIFICATION, ELECTION AND TERM OF OFFICE OF DIRECTORS.
Directors shall be elected at each annual meeting of the stockholders to hold
office until the next annual meeting, the directors may be elected at any
special meeting of stockholders held for that purpose, or at the next annual
meeting of stockholders held thereafter. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified or until
his earlier resignation or removal or his office has been declared vacant in the
manner provided in these bylaws, Directors need not be stockholders.
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Section 4. RESIGNATION AND REMOVAL OF DIRECTORS. Any director may resign
effective upon giving written notice to the president, the secretary or the
board of directors of the corporation, unless the notice specifies a later time
for the effectiveness of such resignation, in which case such resignation shall
be effective at the time specified. Unless such resignation specifies otherwise,
its acceptance by the corporation shall not be necessary to make it effective.
The board of directors may declare vacant the office of a director who has been
declared of unsound mind by an order of a court or convicted of a felony. Any or
all of the directors may be removed without cause if such removal is approved by
the affirmative vote of 66% of the outstanding shares entitled to vote. No
reduction of the authorized number of directors shall have the effect of
removing any director before his term of office expires.
Section 5. VACANCIES. Vacancies in the board of directors, may be filled by
a majority of the remaining directors, though less than a quorum, or by a sole
remaining director. Each director so elected shall hold office until the next
meeting of the stockholders and until a successor has been elected and
qualified.
A vacancy in the board of directors exists as to any authorized position of
director which is not then filled by a duly elected director, whether caused by
death, resignation, removal, increase in the authorized number of directors or
otherwise.
The stockholders or persons holding their proxies may elect a director or
directors at any time to fill any vacancy or vacancies not filled by the
directors, but any such election by written consent shall require the consent of
66% of the outstanding shares entitled to vote. If the resignation of a director
is effective at a future time, the board of directors may elect a successor to
take office when the resignation becomes effective.
If after the filling of any vacancy by the directors, the directors then in
office who have been elected by the stockholders or persons holding their
proxies shall constitute less than a majority of the directors then in office,
any holder or holders of an aggregate of five percent or more of the total
number of shares or their proxies at the time outstanding having the right to
vote for such directors may call a special meeting of the stockholders to elect
the entire board. The term of office of any director not elected by the
stockholders or their proxies shall terminate upon the election of a successor.
Section 6. PLACE OF MEETINGS. Regular meetings of the board of directors
shall be held at any place within the State of Nevada or the Country of Aruba
that has been designated from time to time by resolution of the board. In the
absence of such designation, regular meetings shall be held at the principal
executive office of the corporation. Special meetings of the board shall be held
at any place within or without the State of Nevada that has been designated in
the notice of the meeting or, if not stated in the notice or there is not
notice, at the principal executive office of the corporation. Any meeting,
regular or special, may be held by conference telephone or similar communication
equipment, so long as all directors participating in such meeting
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can hear one another, and all such directors shall be deemed to be present in
person at such meeting.
Section 7. ANNUAL MEETINGS. Immediately following each annual meeting of
stockholders, the board of directors shall hold a regular meeting for the
purpose of transaction of other business. Notice of this meeting shall not be
required.
Section 8. OTHER REGULAR MEETINGS. Other regular meetings of the board of
directors shall be held without call at such time as shall from time to time be
fixed by the board of directors. Such regular meetings may be held without
notice, provided the notice of any change in the time of any such meetings shall
be given to all of the directors. Notice of a change in the determination of the
time shall be given to each director in the same manner as notice for special
meetings of the board of directors.
Section 9. SPECIAL MEETINGS. Special meetings of the board of directors for
any purpose or purposes may be called at any time by the president or any vice
president or the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at his or her address as
it is shown upon the records of the corporation. In case such notice is mailed,
it shall be deposited in the United States mail at least ten (10) days prior to
the time of the holding of the meeting. In case such notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours prior to
the time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated to either the director or to a person at the
office of the director who the person giving the notice has reason to believe
will promptly communicate it to the director. The notice need not specify the
purpose of the meeting nor the place if the meeting is to be held at the
principal executive office of the corporation.
Section 10. QUORUM. A majority of the elected or appointed directors shall
constitute a quorum for the transaction of business, except to adjourn as
hereinafter provided. Every act or decision done or made by a majority of the
directors present at a meeting duly held at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 78.140 of the Nevada General Corporation Law (approval of contracts or
transactions in which a director has a direct or indirect material financial
interest), Section 78.125 (appointment of committees), and Section 78.751
(indemnification of directors). A meeting at which a quorum is initially present
may continue to transact business notwithstanding the withdrawal of directors,
if any action taken is later approved by at least a majority of the required
quorum for such meeting.
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Section 11. WAIVER OF NOTICE. The transactions of any meeting of the board
of directors, however called and noticed or wherever held, shall be as valid as
had a meeting duly held after regular call and notice if a quorum be present and
if, either before or after the meeting, each of the directors not present signs
a written waiver of notice, a consent to holding the meeting or an approval of
the minutes thereof within 30 days. The waiver of notice of consent need not
specify the purpose of the meeting. All such waivers, consents and approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting. Notice of a meeting shall also be deemed given to any director who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director.
Section 12. ADJOURNMENT. A majority of the directors present, whether or
not constituting a quorum, may adjourn any meeting to another time and place.
Section 13. NOTICE OF ADJOURNMENT. Notice of the time and place of holding
an adjourned meeting need not be given, unless the meeting is adjourned for more
than twenty-four (24) hours, in which case notice of such time and place shall
be given prior to the time of the adjourned meeting, in the manner specified in
Section 8 of this Article III, to the directors who were not present at the time
of the adjournment.
Section 14. ACTION WITHOUT MEETING. Any action required or permitted to be
taken by the board of directors may be taken without a meeting, if all members
of the board shall individually or collectively consent in writing to such
action within 30 days. Such action by written consent shall have the same force
and effect as a unanimous vote of the board of directors. Such written consent
or consents shall be filed with the minutes of the proceedings of the board.
Section 15. FEES AND COMPENSATION OF DIRECTORS. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement of expenses, as may be fixed or determined by resolution of the
board of directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for such services.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a president,
a secretary and a treasurer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
3 of this Article IV. Any two or more offices may be held by the same person.
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Section 2. ELECTION OF OFFICERS. The officers of the corporation, except
such officers as may be appointed in accordance with the provisions of Section 3
or Section 5 of this Article IV, shall be chosen by the board of directors, and
each shall serve at the pleasure of the board, subject to the rights, if any, of
an officer under any contract of employment. The board of directors at its first
meeting after each annual meeting of stockholders may choose a president, a vice
president, a secretary and a treasurer, none of whom need be a member of the
board. The salaries of all officers and agents of the corporation shall be fixed
by the board of directors.
Section 3. SUBORDINATE OFFICERS, ETC. The board of directors may appoint,
and may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in the bylaws or as
the board of directors may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. The officers of the
corporation shall hold office until their successors are chosen and qualify.
Subject to the rights, if any, of an officer under any contract of employment,
any officer may be removed, either with or without cause, by the board of
directors, at any regular or special meeting thereof, or, except in case of an
officer chosen by the board of directors, by any officer upon whom such power or
removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any such resignation shall take effect at the date of the receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective. Any such resignation is without prejudice to the rights, if
any, of the corporation under any contract to which the officer is a party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these bylaws for regular appointments to such office.
Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at all meetings of the board
of directors and exercise and perform such other powers and duties as may be
from time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may be
given by the board of directors to the chairman of the board, if there be such
an officer, 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 the officers of
the corporation. The president shall preside at all meetings of the stockholders
and, in the absence of the chairman of the board, if
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there be none, at all meetings of the board of directors. The president shall
have the general powers and duties of management usually vested in the office of
president of a corporation, and shall have such other powers and duties as may
be prescribed by the board of directors or the bylaws. The president shall
execute bonds, mortgages and other contracts requiring a seal, under the seal
of the corporation, except where required or permitted by law to be otherwise
signed and executed and except where the signing and execution thereof shall be
expressly delegated by the board of directors to some other officer or agent of
the corporation.
Section 8. VICE PRESIDENTS. In the absence or disability of the president,
the vice presidents, if any, in order of their rank as fixed by the board of
directors or, if not ranked, a vice president designated by the board of
directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, the president or the chairman of the board, if
there be such an officer.
Section 9. SECRETARY. The secretary shall attend all meetings of the board
of directors and all meetings of the stockholders and shall record, keep or
cause to be kept, at the principal executive office or such other place as the
board of directors may order, a book of minutes of all meetings of directors and
stockholders, with the time and place of holding, whether regular or special,
and, if special, how authorized, the notice thereof given, the names of those
present at directors' meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the board of directors, a share register, or a
duplicate share register, showing the names of all stockholders and their
addresses, the number and classes of shares held by each, the number and date of
certificates issued for the same, and the number and date of cancellation of
every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings of
stockholders and of the board of directors required by the bylaws or by law to
be given, and he shall keep the seal of the corporation in safe custody, as may
be prescribed by the board of directors or by the bylaws.
Section 10. TREASURER. The treasurer, shall keep and maintain, or cause to
be kept and maintained, adequate and correct books and records of accounts of
the properties and business transactions of the corporation, including accounts
of its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable times
be open to inspection by any director. The treasurer shall deposit all moneys
and other valuables in the name and to the credit of the corporation with such
depositories as may be designated by the board of directors. The treasurer shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the president and directors, whenever they request
it, an account of all of the treasurer transactions as treasurer and of the
financial condition of the corporation, and shall have other powers and perform
such other duties as may be prescribed by the board of directors or the bylaws.
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If required by the board of directors, the treasurer shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the board of directors for the faithful performance of the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the corporation.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
Section 1. ACTIONS OTHER THAN BY THE CORPORATION. The corporation may
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, except an action by or in the
right of the corporation, by reason of the fact that he/she is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with the
action, suit or proceeding if he/she acted in good faith and in a manner which
he/she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, has no
reasonable cause to believe his/her conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person did not act in good faith and in a manner which
he/she reasonably believed to be in or not opposed to the best interests of the
corporation, and that, with respect to any criminal action or proceeding, he/she
had reasonable cause to believe that his conduct was unlawful.
Section 2. ACTIONS BY THE CORPORATION. The corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the fact that he/she
is or was a director, officer, employee, or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys'
fees, actually and reasonably incurred by him/her in connection with the defense
or settlement of the action or suit if he/she acted in good faith and in a
manner which he/she reasonably believed to be in or not opposed to the best
interests of the corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a court of
competent
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jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper.
Section 3. SUCCESSFUL DEFENSE. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Sections 1
and 2, or in defense of any claim, issue or matter therein, he/she must be
indemnified by the corporation against expenses, including attorneys' fees,
actually and reasonably incurred by him/her in connection with the defense.
Section 4. REQUIRED APPROVAL. Any indemnification under Sections 1 and 2,
unless ordered by a court or advanced pursuant to Section 5, must be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances. The determination must be made:
(a) By the stockholders or persons holding their proxies; or
(b) By the board of directors by majority vote of a quorum consisting
of directors who were not parties to the act, suit or proceeding;
or
(c) If a quorum consisting of directors who were not parties to the
act, suit or proceeding cannot be obtained, by independent legal
counsel in a written opinion.
Section 5. ADVANCE OF EXPENSES. The articles of incorporation, the bylaws
or an agreement made by the corporation may provide that the expenses of
officers and directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the corporation as they are incurred and in advance
of the final disposition of the action, suit or proceeding upon receipt of an
undertaking by or on behalf of the director or officer to repay the amount if it
is ultimately determined by a court of competent jurisdiction that he is not
entitled to be indemnified by the corporation. The provisions of this section do
not affect any rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any contract or otherwise
by law.
Section 6. OTHER RIGHTS. The indemnification and advancement of expenses
authorized in or ordered by a court pursuant to this Article V:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled under the: articles
of incorporation or any bylaw, agreement, vote of stockholders or persons
holding their proxies or disinterested directors; or otherwise, for either an
action in his official capacity or an action in another capacity while holding
his office, except that indemnification, unless ordered by a court pursuant to
Section 2 or for the advancement of expenses made pursuant to
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Section 5, may not be made to or on behalf of any director or officer if a
final adjudication establishes that his acts or omissions involved intentional
misconduct, fraud or a knowing violation of the law and was material to the
cause of action.
(b) Continues for a person who has ceased to be a director, officer,
employee or agent and inures to the benefit of the heirs, executors and
administrators of such a person.
Section 7. INSURANCE. The corporation may purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise for any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the corporation would have the power to indemnify him against
such liability under the provisions of this Article V.
Section 8. RELIANCE ON PROVISIONS. Each person who shall act as an
authorized representative of the corporation shall be deemed to be doing so in
reliance upon the rights of indemnification provided by this Article.
Section 9. SEVERABILITY. If any of the provisions of this Article are held
to be invalid or unenforceable, this Article shall be construed as if it did not
contain such invalid or unenforceable provision and the remaining provisions of
this Article shall remain in full force and effect.
Section 10. RETROACTIVE EFFECT. To the extent permitted by applicable law,
the rights and powers granted pursuant to this Article V shall apply to acts and
actions occurring or in progress prior to its adoption by the board of
directors.
ARTICLE VI
RECORDS AND BOOKS
Section 1. MAINTENANCE OF SHARE REGISTER. The corporation shall keep at its
principal executive office, or at the office of its transfer agent or registrar,
if either be appointed and as determined by resolution of the board of
directors, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of shares held by each stockholder.
Section 2. MAINTENANCE OF BYLAWS. The corporation shall keep at its
principal executive office, or if its principal executive office is not in this
State at its principal business office in this State, the original or a copy of
the bylaws as amended to date, which shall be open to inspection by the
stockholders or persons holding their
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proxies at all reasonable times during office hours. If the principal executive
office of the corporation is outside this state and the corporation has no
principal business office in this state, the secretary shall, upon the written
request of any stockholder or persons holding their proxies, furnish to such
stockholder or persons holding their proxies a copy of the bylaws as amended to
date.
Section 3. MAINTENANCE OF OTHER CORPORATE RECORDS. The accounting books
and records and minutes of proceedings of the stockholders and the board of
directors shall be kept at such place or places designated by the board of
directors, or, in the absence of such designation, at the principal executive
office of the corporation. The minutes shall be kept in written form and the
accounting books and records shall be kept either in written form or in any
other form capable of being converted into written form.
Every director shall have the absolute right at any reasonable time to
inspect and copy all books, records and documents of every kind and to inspect
the physical properties of this corporation and any subsidiary of this
corporation. Such inspection by a director may be made in person or by agent or
attorney and the right of inspection includes the right to copy and make
extracts. The foregoing rights of inspection shall extend to the records of each
subsidiary of the corporation.
Section 4. ANNUAL REPORT TO STOCKHOLDERS. Nothing herein shall be
interpreted as prohibiting the board of directors from issuing annual or other
periodic reports to the stockholders of the corporation as they deem
appropriate.
Section 5. FINANCIAL STATEMENTS. A copy of any annual financial statement
and any income statement of the corporation for each quarterly period of each
fiscal year, and any accompanying balance sheet of the corporation as of the end
of each such period, that has been prepared by the corporation shall be kept on
file in the principal executive office of the corporation for twelve (12)
months.
Section 6. ANNUAL LIST OF DIRECTORS, OFFICERS AND RESIDENT AGENT. The
corporation shall, during the month of April of each year, file with the
Secretary of State of the State of Nevada, on the prescribed form, a list of its
officers and directors and a designation of its resident agent in Nevada.
ARTICLE VII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE. For purposes of determining the stockholders
entitled to notice of any meeting or entitled to receive payment of any dividend
or other distribution or allotment of any rights or entitled to exercise any
rights in respect of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty (60) days nor less
than ten (10) days prior to the date of
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any such meeting nor more than sixty (60) days prior to any other action, and in
such case only stockholders of record on the date so fixed are entitled to
notice and to receive the dividend, distribution or allotment of rights or to
exercise the rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date fixed as aforesaid,
except as otherwise provided in the Nevada General Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining stockholders entitled to notice of a
meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders or persons holding their
proxies entitled to give consent to corporate action in writing without a
meeting, when no prior action by the board has been taken, shall be the day on
which the first written consent is given.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the board adopts the
resolution relating thereto, or the sixtieth (60th) day prior to the date of
such other action, whichever is later.
Section 2. CLOSING OF TRANSFER BOOKS. The directors may prescribe a period
not exceeding sixty (60) days prior to any meeting of the stockholders during
which no transfer of stock on the books of the corporation may be made, or may
fix a date not more than sixty (60) days prior to the holding of any such
meeting as the day as of which stockholders entitled to notice of such meeting
shall be determined; and only stockholders of record on such day shall be
entitled to notice of such meeting.
Section 3. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to hold liable for calls and assessments a
person registered on its books as the owner of shares, and shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Nevada or by these
bylaws.
Section 4. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS. All checks, drafts or
other orders for payment of money, notes or other evidences of indebtedness,
issued in the name of or payable to the corporation, shall be signed or endorsed
by such person or persons and in such manner as, from time to time, shall be
determined by resolution of the board of directors.
Section 5. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. The board of
directors, except as in the bylaws otherwise provided, may
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authorize any officer or officers, agent or agents, to enter into any contract
or execute any instrument in the name of and on behalf of the corporation, and
such authority may be general or confined to specific instances; and, unless so
authorized or ratified by the board of directors or within the agency power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render.
Section 6. STOCK CERTIFICATES. A certificate or certificates for shares of
the capital stock of the corporation shall be issued to each stockholder when
any such shares are fully paid, and the board of directors may authorize the
issuance of certificates or shares as partly paid provided that such
certificates shall state the amount of the consideration to be paid therefor and
the amount paid thereon. All certificates shall be signed in the name of the
corporation by the president or vice president and by the treasurer or an
assistant treasurer or the secretary or any assistant secretary, certifying the
number of shares and the class or series of shares owned by the stockholder.
When the corporation is authorized to issue shares of more than one class or
more than one series of any class, there shall be set forth upon the face or
back of the certificate, or the certificate shall have a statement that the
corporation will furnish to any stockholder, upon request and without charge, a
full or summary statement of the designations, preferences land relatives,
participating, optional or other special rights of the various classes of stock
or series thereof and the qualifications, limitations or restrictions of such
rights, and, if the corporation shall be authorized to issue only special stock,
such certificate must set forth in full or summarize the rights of the holders
of such stock. Any or all of the signatures on the certificate may be facsimile.
In case any officer, transfer agent or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
No new certificate for shares shall be issued in place of any certificate
therefore issued unless the latter is surrendered and canceled at the same time;
provided, however, that a new certificate may be issued without the surrender
and cancellation of the old certificate if the certificate theretofore issued is
alleged to have been lost, stolen or destroyed. In case of any such allegedly
lost, stolen or destroyed certificate, the corporation may require the owner
thereof or the legal representative of such owner to give the corporation a bond
(or other adequate security) sufficient to indemnify it against any claim that
may be made against it (including any expense or liability) on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 7. DIVIDENDS. Dividends upon the capital stock of the corporation,
subject to the provisions of the articles of incorporation, if any, may be
declared by the board of directors at any regular or special meeting pursuant to
law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the articles of incorporation.
Before payment of any dividend, there may be set aside out of any funds of
the corporation available for dividends such sum or sums as the directors from
time to time,
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in their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the directors shall
think conducive to the interest of the corporation, and the directors may modify
or abolish any such reserves in the manner in which it was created.
Section 8. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the board of directors.
Section 9. SEAL. The corporate seal shall have inscribed thereon the name
of the corporation, the year of its incorporation and the words "Corporate Seal,
Nevada."
Section 10. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman of
the board, if there be such an officer, the president, or any vice president, or
any other person authorized by resolution of the board of directors by any of
the foregoing designated officers, is authorized to vote on behalf of the
corporation any and all shares of any other corporation or corporations, foreign
or domestic, standing in the name of the corporation. The authority herein
granted to said officers to vote or represent on behalf of the corporation any
and all shares held by the corporation in any other corporation or corporations
may be exercised by any such officer in person or by any person authorized to do
so by proxy duly executed by said officer.
Section 11. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
Nevada General Corporation Law shall govern the construction of the bylaws.
Without limiting the generality of the foregoing, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
ARTICLE VIII
AMENDMENTS
Section 1. AMENDMENT BY STOCKHOLDERS. New bylaws may be adopted or these
bylaws may be amended or repealed by the affirmative vote of 66% of the
outstanding shares entitled to vote, or by the written assent of stockholders
entitled to vote such shares or persons holding their proxies, except as
otherwise provided by law or by the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
stockholders as provided in Section 1 of this Article, bylaws may be adopted,
amended or repealed by unanimous written consent of the board of directors.
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EXHIBIT 10.1
AGREEMENT setting forth the terms and conditions upon which TPG CAPITAL
CORPORATION ("TPG") is engaged by INTERNATIONAL FUEL TECHNOLOGIES, INC. together
with any successors (collectively "International Fuel") to effect transactions
("the Transactions") intended to combine International Fuel with a United States
reporting company and for related matters.
10 Services Provided.
Following its engagement, TPG and its affiliates will:
1.1. Advise International Fuel on the structure of the Transactions and
actions to be taken by International Fuel in preparation for the completion of
the Transactions;
1.2. Combine International Fuel with an existing United States corporation
("the Business Combination") which is a reporting company under (S) 12(g) of the
Securities Exchange Act of 1934, as amended.
1.3. Prepare, assist in preparing or review the agreement for the Business
Combination ("Business Combination Agreement");
1.4. Prepare and file with the Securities and Exchange Commission a
Form 8-K describing the Business Combination with the Company ("the Company"
hereinafter shall mean International Fuel following the Business Combination,
unless the context requires otherwise);
1.5. Take any other actions reasonably required of it to complete the
Transactions as contemplated by this Agreement.
20 Business Combination.
TPG will provide, at its expense, a United States corporation with audited
financial statements showing no material assets or liabilities which is a
reporting company under (S) 12(g) of the Securities Exchange Act of 1934 ("the
1934 Act"), and is current in its reporting requirements under Section 13 of the
1934 Act.
30 Payments.
3.1. In full satisfaction for the services of TPG Capital and its
affiliates in regard to the Transactions, International Fuel will make the
payments to TPG Capital described herein. All payments hereunder will be deemed
accrued when paid and are non-refundable.
3.2. On execution this agreement, International Fuel will deposit $100,000
with the Exchange Agent named in the Business Combination Agreement. The
Exchange Agent shall pay $50,000 to TPG Capital upon the Closing of the Business
Combination and $50,000 on the filing of a Form 8-K reporting the Business
Combination.
<PAGE>
3.3. International Fuel will deposit with an escrow agent satisfactory to
the parties shares of its common stock issued under Rule 504 of Regulation
D in the name of the shareholder of the United States corporation, without
restrictive legend, to be exchanged for the shares of the United States
corporation as part of the Business Combination in the manner described herein.
3.4. Thirty days following the Closing of the Business Combination the
selected escrow agent will distribute to the former shareholder of the United
States corporation a number of escrowed shares then equal to $100,000 in value
based upon the prior 5-day average closing bid price on the NASD OTC Bulletin
Board of common stock of International Fuel. Each thirty days thereafter the
escrow agent shall make an identical distribution of the Rule 504 shares until
the total value of such distributions shall equal $500,000.
3.5. In the event that there are any escrowed Rule 504 shares remaining
following such distributions, such shares shall be returned to the Company or
shall be otherwise distributed according to its instructions. If the number of
escrowed Rule 504 shares is not sufficient to satisfy the value of the total
distributions to be made hereunder, the Company shall issue additional shares
under Rule 506 of Regulation D to satisfy any such shortfall. For the purpose of
such issuance the value of the Rule 506 shares will be determined in the same
manner as the value of the Rule 504 shares.
40 Expenses.
4.1. TPG will bear its expenses incurred in regard to the Transactions,
including, without limitation, travel, telephone, duplication costs, and
postage.
4.2. International Fuel will pay its own and third-party expenses (other
than those of TPG) including, without limitation, Federal, state and Nasdaq
filing fees, underwriting and market making costs, corporate financial
relations, accounting fees, duplicating costs and other expenses of the Company.
TPG will not incur any expenses on behalf of the Company unless permitted by it
to do so in writing.
50 Agreement to Complete Transactions.
5.1. International Fuel agrees that it will timely take all steps
necessary to complete the Transactions to include, without limitation, causing
audited financial statements to be prepared in proper form for International
Fuel; obtaining consents of the Board of Directors and the shareholders of
International Fuel, as required; causing all necessary documents to be properly
and timely prepared, executed, approved or ratified, and filed, as appropriate;
making timely and fully all required payments related to the registration and
listing of the Company's securities for public trading, including filing fees;
and timely taking all other actions reasonably required of it to complete the
Transactions.
5.2. In the event that at any time International Fuel determines not to
continue with the Transactions TPG hereby grants to International Fuel the right
to buyout the interest of TPG in this agreement on the terms contained herein,
in which case TPG agrees not to seek specific enforcement
<PAGE>
Agreement for Business Combination Page Number 3
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of this agreement. In the event that International Fuel elects not to continue
with the Transactions (or if International Fuel does not timely take all such
steps and do all such things as may be reasonably required of it to complete the
Transactions) TPG will be entitled to (i) retain the securities in International
Fuel acquired or to be acquired by TPG or its affiliates under this agreement as
though the Business Combination had occurred and (ii) receive in full all
payments to be due to it or its affiliates through and upon completion of the
Transactions as though those events had occurred provided, however, that
International Fuel will not be obligated to make any payment under this
paragraph if the failure to complete the Transactions is due to any actions or
failure to act by TPG or its affiliates. Upon payment of the buyout fee provided
for herein, all obligations of the parties under this agreement will cease
except for obligations which expressly or by their nature survive termination.
5.3. TPG represents and warrants that it will timely take all steps
reasonable and necessary to complete the Transactions and to cause the
securities of the Company to trade in the United States secondary market. Toward
such end, and without limitation on the duties of TPG provided herein, TPG
agrees at any time that it appears to TPG that it will better contribute to the
completion of the Transactions and the commencement of trading of the Company's
securities TPG will, without any further charge, provide for the preparation,
filing and effectiveness of a registration statement on Form SB-2 (or other
appropriate form) covering such of its securities as are designated by the
Company as well as the securities owned by TPG.
60 Performance of Services by Others.
From time to time, the achievement of certain results desired by the
Company, including the promotion of interest in its public securities, may be
enhanced by the services of other parties. These parties may include
consultants, advertising agencies, financial analysts and similar persons who
may, directly or indirectly, assist in creating interest in the Company's
securities. All compensation, costs and expenses of such parties, if engaged by
the Company, will be borne by it.
70 Actions and Understandings following the Business Combination.
7.1. International Fuel understands the obligations and responsibilities
that will arise in regard to its becoming a reporting company and the trading of
its securities in the public market. International Fuel understands that in
order to achieve the greatest market interest in its securities it, its officers
and its directors, all or some, will be required to continuously interact with
the financial community. This interaction will include, without limitation,
timely filing of reports under the Securities Exchange Act of 1934, including
audited financial statements; annual reports to shareholders and shareholder
meetings; issuing periodic press releases; and meetings and discussions with
existing and prospective brokers, market makers, investment bankers and
institutions.
7.2. International Fuel understands that the completion of the
Transactions will not, in itself, result in capital investment in the Company.
The public status of the Company and its introduction to market makers and
others in the financial community may result in investment interest. However,
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Agreement for Business Combination Page Number 4
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investment interest will depend upon the success of the Company, market
conditions and other factors over which neither TPG nor its affiliates have any
control.
7.3. International Fuel understands that the ultimate judgement of the
financial community of the investment merits of the Company will depend upon the
Company's ability to successfully carry out its business plans and operations,
to operate at a proft and similar business considerations. International Fuel
represents in good faith that it currently has no reason to believe that it will
not be able to complete the Transactions and to achieve its business
objectives.
7.4. During the Transactions and so long as TPG or an affiliate is a
shareholder of the Company, it will provide TPG continuing and reasonable access
as requested to all information concerning the Company's operations, past,
current and intended, including, without limitation, full access to the
financial records of the Company.
80 Compliance with Securities Law.
Now and following the Business Combination, as applicable, International
Fuel represents and warrants that:
8.1. International Fuel and its affiliates will at all times observe and
comply with Federal and State securities laws, rules and regulations incident to
the issuance and trading of the securities of the Company and will take all
steps reasonably required within its control to prohibit any persons, whether or
not affiliated with International Fuel, from engaging in any transactions in
contravention of such laws, rules and regulations.
8.2. International Fuel and its affiliates will furnish all information and
documents concerning it and its affiliates required for the preparation and
filing of a Form 8-K by the Company and will assure that such information is
complete and accurate and does not contain any material misstatement or omit any
material information. Toward that end, International Fuel and its affiliates
will timely provide all requested information and documents, including officers'
and directors' questionnaires.
8.3. International Fuel and its affiliates will not at any time knowingly
engage in any activity which would constitute a prohibited market manipulation
of the securities of the Company and will take all steps reasonably required
within its control to prohibit any officer, director, other affiliate, agent or
employee from engaging in such conduct.
8.4. The Company will not at any time issue securities registered on
Form S-8 or issued pursuant to Regulation S of the General Rules and Regulations
of the Securities and Exchange Commission without (i) prior written notification
to TPG and (ii) a written opinion of qualified counsel that neither the issuance
nor intended use of such securities will violate any law, rule, or regulation
under the Securities Act of 1933 or the Securities Exchange Act of 1934.
8.5. The Company will not issue any securities to any person for the
promotion or maintenance of a trading market in the Company's securities without
first receiving an opinion of qualified counsel that such issuance will be in
accord with securities laws, rules and regulations and
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Agreement for Business Combination Page Number 5
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will not, directly or indirectly, receive from such persons any capital by loan,
investment or otherwise resulting from the sale or pledge of such securities.
8.6. For not less than 36 months following execution of this agreement,
the Company will timely make all required Federal, state and other filings
necessary to allow the public trading of the Company's securities and, if the
Company's securities are then quoted on the Nasdaq Stock Market or listed on any
regional or national exchange, will take all actions necessary to maintain such
status for the Company's securities.
8.7. For so long as TPG or its designee is an owner of any of the
securities to be received by it under this agreement, TPG shall have the right
to enforce the provisions of this paragraph.
90 Notices.
Any notices required or permitted under this agreement shall be deemed to
have been given when delivered in writing by hand, certified mail (return
receipt requested) or commercial courier, such as FedEx, to the following
addresses or to such other addresses as may have been given to each party in the
manner provided for in this paragraph.
In the case of International Fuel to
International Fuel Technologies, Inc.
7777 Bonhomme Avenue
Suite 1920
Clayton, Missouri 63105
In the case of TPG to
TPG Capital Corporation
1504 R Street N.W.
Washington, D.C. 20009
100 Arbitration.
10.1. Scope. The parties hereby agree that any and all claims (except only
for requests for injunctive or other equitable relief) whether existing now, in
the past or in the future as to which the parties or any affiliates may be
adverse parties, and whether arising out of this agreement or from any other
cause, will be resolved by arbitration before the American Arbitration
Association within the District of Columbia.
10.2. Consent to Jurisdiction, Situs and Judgement. The parties hereby
irrevocably consent to the jurisdiction of the American Arbitration Association
and the situs of the arbitration (and of any action for injunctive or other
equitable relief) within the District of Columbia. Any
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Agreement for Business Combination Page Number 6
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award in arbitration may be entered in any domestic or foreign court having
jurisdiction over the enforcement of such awards.
10.3. Applicable Law. The law applicable to the arbitration and this
agreement shall be that of the District of Columbia, determined without regard
to its provisions which would otherwise apply to a question of conflict of laws.
10.4. Disclosure and Discovery. The arbitrator may, in its discretion,
allow the parties to make reasonable disclosure and discovery in regard to any
matters which are the subject of the arbitration and to compel compliance with
such disclosure and discovery order. The arbitrator may order the parties to
comply with all or any of the disclosure and discovery provisions of the Federal
Rules of Civil Procedure, as they then exist, as may be modified by the
arbitrator consistent with the desire to simplify the conduct and minimize the
expense of the arbitration.
10.5. Rules of Law. Regardless of any practices of arbitration to the
contrary, the arbitrator will apply the rules of contract and other law of the
jurisdiction whose law applies to the arbitration so that the decision of the
arbitrator will be, as much as possible, the same as if the dispute had been
determined by a court of competent jurisdiction.
10.6. Finality and Fees. Any award or decision by the American Arbitration
Association shall be final, binding and non-appealable except as to errors of
law or the failure of the arbitrator to adhere to the arbitration provisions
contained in this agreement. Each party to the arbitration shall pay its own
costs and counsel fees except as specifically provided otherwise in this
agreement.
10.7. Measure of Damages. In any adverse action, the parties shall
restrict themselves to claims for compensatory damages and\or securities issued
or to be issued and no claims shall be made by any party or affiliate for lost
profits, punitive or multiple damages.
10.8. Covenant not to Sue. The parties covenant that under no conditions
will any party or any affiliate file any action against the other (except only
requests for injunctive or other equitable relief) in any forum other than
before the American Arbitration Association, and the parties agree that any such
action, if filed, shall be dismissed upon application and shall be referred for
arbitration hereunder with costs and attorney's fees to the prevailing party.
10.9. Intention. It is the intention of the parties and their affiliates
that all disputes of any nature between them, whenever arising, whether in
regard to this agreement or any other matter, from whatever cause, based on
whatever law, rule or regulation, whether statutory or common law, and however
characterized, be decided by arbitration as provided herein and that no party or
affiliate be required to litigate in any other forum any disputes or other
matters except for requests for injunctive or equitable relief, This agreement
shall be interpreted in conformance with this stated intent of the parties and
their affiliates.
10.10. Survival. The provisions for arbitration contained herein shall
survive the termination of this agreement for any reason.
110 Assignment.
6
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Agreement for Business Combination Page Number 7
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In order to better carry out the Transactions, TPG may assign all or parts
of this agreement provided that the assignee agrees to all the terms and
conditions of this agreement pertaining to such assignment. An assignment will
not relieve TPG of any of its obligations under this agreement.
120 Confidentiality.
As a result of entering into this agreement International Fuel will have
access to information which TPG regards as confidential and proprietary
regarding TPG's methods of carrying out the Transactions (collectively the
"Business of TPG"). International Fuel agrees that it will not, except as
reasonably required pursuant to this Agreement, use itself, or divulge, furnish,
or make accessible to any person any knowledge, knowhow, techniques, or
information with respect to TPG or the Business of TPG without the prior written
agreement of TPG.
130 Termination.
TPG may terminate this agreement, without further obligation or liability,
at anytime (i) that TPG has a reasonable basis to believe that any aspect of the
transactions covered by this agreement would constitute a fraud or deception on
the market or (ii) that the Company fails to meet its obligations under this
agreement in a manner which would constitute a material breach. In any such
case, TPG will be entitled to retain all payments to it made or accrued prior to
such termination.
140 Miscellaneous.
14.1. Covenant of Further Assurances. The parties agree to take any
further actions and to execute any further documents which may from time to time
be necessary or appropriate to carry out the purposes of this agreement.
14.2. Scope of Agreement. This agreement constitutes the entire
understanding of the parties. No undertakings, warranties or representations
have been made other than as contained herein, and no party shall assert
otherwise. This agreement may not be changed or amended orally.
14.3. Currency. All references to currency in this agreement are to United
States Dollars.
14.4. Review of Agreement. Each party acknowledges that it has had time to
review this agreement and, as desired, consult with counsel. In the
interpretation of this agreement, no adverse presumption shall be made against
any party on the basis that it has prepared, or participated in the preparation
of, this agreement.
150 EFFECTIVE DATE.
The effective: date of this agreement is October 28, 1999.
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Agreement for Business Combination Page Number 8
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IN WITNESS WHEREOF, the parties have approved and executed this agreement.
TPG CAPITAL CORPORATION
/s/ James M. Cassidy
- --------------------------------
President
CLIENT CORPORATION
/s/ Jonathon R. Burst
- --------------------------------
President
8
<PAGE>
Agreement for Business Combination Page Number 9
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Warranties by Officers, Directors and Other Affiliates
Each of the undersigned officers, directors and other affiliates of
International Fuel agree that they have read this agreement and that they (i)
will not violate any of the provision of this agreement relating to compliance
with securities laws, rules and regulations (ii) will not violate any provision
of this agreement relating to confidentiality of the business of TPG and (iii)
consent to be governed by the provisions of this agreement relating to
arbitration in the case of any claims arising from their warranties herein.
9
<PAGE>
EXHIBIT 10.2
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
----------------------------------------
THIS AGREEMENT, dated as of February 25, 2000 (this "Agreement"), is by and
among INTERNATIONAL FUEL TECHNOLOGY, INC., a Nevada corporation with its
principal place of business at 7777 Bonhomme, Suite 1920, St. Louis, MO 63105
(the "Company"), and the purchasers listed on Schedule 1 hereof (each
individually, the "Purchaser" and collectively, the "Purchasers").
WHEREAS, the Company desires to issue and sell to the Purchasers and the
Purchasers desire to acquire the Company's 2% Convertible Debentures, due June
2005 (the "Debentures").
IN CONSIDERATION of the mutual covenants, promises and agreements set forth
herein, and for good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1. Certain Definitions. As used in this Agreement, and unless the
context requires a different meaning, the following terms have the meanings
indicated:
"Affiliate" means, with respect to any Person, any Person that,
directly or indirectly, controls, is controlled by or is under common control
with such Person. For the purposes of this definition, "control" (including,
with correlative meanings, the terms "controlled by" and "under common control
with") shall mean the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of such Person, whether
through the ownership of voting securities by contract or otherwise.
"Business Day" means any day except Saturday, Sunday and any day which
is a legal holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government actions to close,
between the hours of 9:30 a.m. and 6:00 p.m. New York Time.
"Closing" shall have the meaning set forth in Section 2.2(b).
"Closing Date" shall mean the date of Closing, as set forth in Section
2.2(b).
"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations thereunder as in effect on the date hereof.
"Commission" means the Securities and Exchange Commission.
<PAGE>
"Common Stock" means shares now or hereafter authorized of the class
of Common Stock, $.01 par value, of the Company and stock of any other class
into which such shares may hereafter have been reclassified or changed.
"Debentures" means the 2% Convertible Debentures of the Company, due
June 2005, which are annexed hereto as Exhibit A and made a part hereof.
"Disclosure Documents" means the disclosure package, including but not
limited to the Company's _____________________________________________________
______________________________________________________________________________
_____________________________________________________________________________,
delivered to the Purchasers in connection with the offering by the Company of
the Debentures and the Schedules to this Agreement furnished by or on behalf of
the Company pursuant to Section 3.1.
"Escrow Agent" means Kaplan, Gottbetter & Levenson, LLP, 630 Third
Avenue, 5th Floor, New York, NY 10017; Tel: 212-983-6900; Fax, 212-983-9210.
"Event of Default" shall have the meaning set forth in the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Exercise Price" shall mean the price to be paid to the Company for
each share of Common Stock to be purchased upon exercise of the Warrant in
accordance with the terms of the Warrant, which Exercise Price shall be $.01 per
share of Common Stock.
"GEM" means GEM Advisors, Inc., with its registered address at 712 5th
Avenue, 7th Floor, New York, NY 10019; Phone: 212-582-3400; Fax: 212-265-4035.
"GEM Global" means GEM Global Yield Fund Limited, with it address at
Loughran & Co., 38 Hertford Street, London W1Y 7TG, England.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
encumbrance, charge or security interest of any kind in or on such asset or the
revenues or income thereon or therefrom.
"Material" shall mean having a financial consequence in excess of
$100,000.
"Material Adverse Effect" shall have the meaning set forth in Section
3.1(a).
"NASD" means the National Association of Securities Dealers, Inc.
"Per Debenture Consideration" shall have the meaning set forth in
Section 2.1(a).
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<PAGE>
"Per Share Market Value" means on any particular date (a) the closing
bid price per share of the Common Stock on such date on the OTC Bulletin
Board(R) ("OTCBB") or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the last bid price on
such exchange on the date nearest preceding such date, or (b) if the Common
Stock is not listed on OTCBB or any stock exchange, the closing bid price for a
share of Common Stock in the over-the-counter market, as reported by the NASD at
the close of business on such date, or (c) if the Common Stock is not quoted by
the NASD, the closing bid price for a share of Common Stock in the over-the-
counter market as reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of reporting prices),
or (d) if the Common Stock is no longer publicly traded the fair market value of
a share of Common Stock as determined by an Appraiser (as defined in Section
4(c)(iv) of the Debenture selected in good faith by the holders of a majority of
principal amount of outstanding Debentures; provided, however, that the Company,
after receipt of the determination by such Appraiser, shall have the right to
select an additional Appraiser, in which case, the fair market value shall be
equal to the average of the determinations by each such Appraiser.
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Purchase Price" shall have the meaning set forth in Section 2.1(a).
"Required Approvals" shall have the meaning set forth in Section
3.1(f).
"Restricted Warrant Shares" means the shares of Common Stock for which
the Warrants can be exercised in accordance with the terms hereof and the
Warrant, which are restricted on transfer and resale under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiaries" shall have the meaning set forth in Section 3.1(a).
"Underlying Shares" means the shares of Common Stock into which the
Debentures are convertible in accordance with the terms hereof and the
Debenture.
"Warrant" means the Common Stock purchase warrant issued to the
Purchasers and/or their assigns, which are annexed hereto as Exhibit B and made
a part hereof.
"Warrant Shares" means the shares of Common Stock for which the
Warrants can be exercised in accordance with the terms hereof and the Warrant.
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<PAGE>
ARTICLE II
PURCHASE OF DEBENTURES AND WARRANTS
-----------------------------------
Section 2.1. Execution of Documents; Delivery of Warrants
(a) Upon the execution by all parties (the "Execution Date") of this
Agreement, the Registration Rights Agreement annexed hereto as Exhibit C, the
Escrow Agreement annexed hereto as Exhibit E and the Warrants annexed hereto as
Exhibit B, all other documents, instruments and writings required to have been
delivered by the Company pursuant to this Agreement (collectively referred to as
the "Transaction Documents"), the Company shall deliver to the Escrow Agent the
following:
(i) Originally executed Warrants registered in the names of GEM
Global or its assigns in the amounts listed opposite each of
the Purchasers' names on Schedule 1, which shall have the
respective rights, preferences and privileges set forth in the
Warrant;
(ii) Three Hundred Ninety Thousand (390,000) Restricted Warrant
Shares registered in the name of GEM Global or its assigns; and
(iii) One Hundred Ninety-Five Thousand (195,000) restricted shares of
Common Stock (the "Extra Shares"). The Extra Shares shall be
held in escrow pursuant to the provisions of Section 4.26 of
this Agreement, (the documents listed in subparagraphs
(i)-(iii) above are collectively referred to as the "Initial
Securities").
(b) Upon the Escrow Agent's receipt of all duly executed Transaction
Documents and the Initial Securities, Escrow Agent shall notify each of the
Purchasers of such receipt and each of the Purchasers shall deliver thereupon to
the Escrow Agent the following:
(i) the Exercise Price for the Warrant in United States dollars;
(ii) an executed notice of exercise of the Warrant in the form
annexed hereto as Exhibit I; and
(iii) all documents, instruments and writings required to have been
delivered prior to the execution of this Agreement by each of
the Purchasers pursuant to this Agreement (the documents and
funds listed in subparagraphs (i) - (iii) above are
collectively referred to as the "Initial Consideration").
(c) Within two (2) Business Days of the Escrow Agent's receipt of the
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Initial Securities and the Initial Consideration, the Escrow Agent shall deliver
the Initial Securities and the Initial Consideration as follows:
(i) A copy of a fully executed set of the Transaction Documents, the
Exercise Price by wire transfer to an account designated in
writing by the Company and the executed notice of exercise to the
Company; and
(ii) A copy of a fully executed set of the Transaction Documents and
the Restricted Warrant Shares to each of the Purchasers.
(d) As soon as practicable after the Execution Date, the Company
shall file a duly completed registration statement on the appropriate form with
the Commission to register the Underlying Shares and Restricted Warrant Shares
under the Securities Act. In the event such registration statement is not been
granted effectiveness AND the Company has not notified Escrow Agent of said
effectiveness within one hundred and twenty (120) days following the Execution
Date, the Purchasers may terminate this Agreement, the Escrow Agreement, the
Registration Rights Agreement (or any of them) on one (1) day notice, in which
case Purchasers shall retain, the Warrants if unexercised or the Restricted
Warrant Shares if the Warrant has been exercised and exercise any and all rights
and privileges thereunder without condition or obligation to the Company.
(e) The Company is issuing the Warrants to the Purchasers in
consideration of the Purchasers entering into this Agreement.
Section 2.2. Purchase of Debentures, Closing
(a) Subject to the terms and conditions set forth in this Agreement, the
Company hereby agrees to issue and sell to the Purchasers, and the Purchasers
hereby agree to purchase from the Company on the Closing Date the amount of
Debentures listed opposite each of the Purchasers' names on Schedule 1, which
shall have the respective rights, preferences and privileges set forth in the
Debenture annexed as Exhibit A, at a price per Debenture of One Thousand Dollars
(US$1,000) (the "Per Debenture Consideration"). The Per Debenture Consideration
multiplied by the number of Debentures to be purchased by the Purchasers
hereunder is hereinafter referred to as the "Purchase Price". The total
principal amount of Debentures to be purchased by the Purchasers and the total
Purchase Price shall be Three Million Dollars ($3,000,000).
(b) The closing of the purchase and sale of the Debentures (the
"Closing") shall take place at the offices of the Escrow Agent no later than
five (5) Business Days after the registration statement, which is the subject of
the Registration Rights Agreement, annexed as Exhibit C, is granted
effectiveness by the SEC, time being of the essence unless the Purchasers agree
in writing to extend such date. The effective date of the
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<PAGE>
Registration Statement (the "Effective Date") shall occur no later than 120 days
after the Execution Date, unless all of the Purchasers agree in advance in
writing to extend such 120 period and set forth the new effective date deadline.
The date of the Closing is hereinafter referred to as the "Closing Date".
(c) At the Closing, the Company shall deliver to the Escrow Agent
the following:
(i) originally and duly executed Debentures registered in the
names of the Purchasers in the amounts set forth in
Schedule 1;
(ii) Three million nine hundred thousand (3,900,000) shares of
duly issued Common Stock of the Company in share
denominations of ten thousand (10,000) shares registered
in the name of each of the Purchasers in the amounts set
forth in Schedule 1 for use in the conversion of the
Debentures (the "Debenture Escrow Shares");
(iii) Three hundred ninety thousand (390,000) shares of duly
issued Common Stock of the Company in share denominations
of ten thousand (10,000) shares registered in the name of
each of the Purchasers in the amounts set forth in
Schedule 1 for use in the exercise of the Warrants (the
"Warrant Escrow Shares");
(iv) all other documents, instruments and writings required to
have been delivered or necessary at or prior to Closing by
the Company pursuant to this Agreement.
(d) Upon receipt by the Escrow Agent of those items set forth above,
the Purchasers shall deliver the following to the Escrow Agent:
(i) the Purchase Price as determined pursuant to this Section
2 in United States dollars in immediately available funds
by wire transfer to an account designated in writing by
the Company prior to the Closing and;
(ii) all documents, instruments, Restricted Warrant Shares and
writings required to have been delivered or necessary at
or prior to Closing by the Purchasers pursuant to this
Agreement.
(e) Upon receipt of all of the items set forth in subparagraphs (c)
and (d) of this Section, the Escrow Agent shall deliver the Purchase Price less
the fees set forth
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<PAGE>
in Section 4.28, the Restricted Warrant Shares and the Extra Shares (assuming
there has been no default by the Company as to the Extra Shares) to the Company
in accordance with its written instructions, and shall deliver the items set
forth in subparagraph (c), with the exception of the Debenture Escrow Shares and
Warrant Escrow Shares which shall be held in accordance with the terms of this
Agreement, the Debenture and the Escrow Agreement, to Purchasers. If the
Purchasers have previously exercised any or part of the Warrants, the Escrow
Agent shall hold the Warrant Shares in escrow in accordance with Section 4.16
and release the appropriate number of Warrant Escrow Shares to the Purchasers in
accordance with Section 4.16. The Escrow Agent shall distribute the fees set
forth in Section 4.28 to the respective parties.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Purchasers as follows, all of which survive
Closing:
(a) Organization and Qualification. The Company is a corporation,
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with the requisite corporate power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. The Company has no subsidiaries other than as set forth
in Schedule 3.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries
is a corporation, duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the full corporate power
and authority to own and use its properties and assets and to carry on its
business as currently conducted. Each of the Company and the Subsidiaries is
duly qualified to do business and is in good standing as a foreign corporation
in each jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, except where the failure to be
so qualified or in good standing, as the case may be, could not reasonably be
expected to have, individually or in the aggregate, a material adverse effect on
(a) the results of operations, assets, prospects, or financial condition of the
Company and the Subsidiaries, or (b) the Purchasers' rights under this
Agreement, the Escrow Agreement, the Debenture and the Warrants (a "Material
Adverse Effect").
(b) Authorization; Enforement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated hereby and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby and thereby have been
duly authorized by all necessary action on the part of the Company. This
Agreement has been duly executed and delivered by the Company and constitutes
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, fraudulent transfer,
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<PAGE>
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
(c) Capitalization. The authorized, issued and outstanding capital
stock of the Company and each of the Subsidiaries is set forth in Schedule
3.1(c). No shares of Common Stock are entitled to preemptive or similar rights.
Except as specifically set forth in Schedule 3.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures hereunder, securities, rights or obligations convertible
into or exchangeable for, or giving any person any right to subscribe for or
acquire any shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may become bound to
issue additional shares of Common Stock, or securities or rights convertible or
exchangeable into shares of Common Stock. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective certificates of
incorporation, bylaws or other charter documents or resolutions.
(d) Issuance of Debentures and Warrants. The Debentures and Warrants
have been duly and validly authorized for issuance, offer and sale pursuant to
this Agreement and, when issued and delivered as provided hereunder against
payment in accordance with the terms hereof, shall be valid and binding
obligations of the Company enforceable in accordance with their terms. The
Company has and at all times while the Debentures and Warrants are outstanding
has and will continue to maintain an adequate reserve of shares of Common Stock
to enable it to perform its obligations under this Agreement, the Debentures
and Warrants. When issued in accordance with the terms hereof and the Debentures
and the Warrants, the Underlying Shares will be duly authorized, validly
issued, fully paid and nonassessable.
(e) No Conflicts. Except as set forth in Schedule 3.1(e) the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
do not and will not (i) conflict with or violate any provision of its or its
Subsidiaries certificates/articles of incorporation, resolutions or bylaws or
(ii) be subject to obtaining the consents referred to in Section 3.1(f),
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party, or (iii) result in a
violation of any law, rule, regulation, order, judgment, injunction, decree or
other restriction of any court or governmental authority to which the Company is
subject (including Federal and State securities laws and regulations), or by
which any property or asset of the Company is bound or affected, except in the
case of each of clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company is not being
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<PAGE>
conducted in violation of any law, ordinance or regulation of any governmental
authority.
(f) Consents and Approvals. Except as specifically set forth in
Schedule 3.1(f), neither the Company nor any Subsidiary is required to obtain
any consent, permit, waiver, authorization or order of, or make any filing or
registration with, any court or other federal, State, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of this Agreement, other than the
applicable filings under State and federal securities laws (collectively, the
"Required Approvals").
(g) Litigation; Proceedings. Except as specifically set forth in
Schedule 3.1(g), there is no action, suit, notice of violation, proceeding,
inquiry or investigation pending or threatened against or affecting the Company
or any of its Subsidiaries or any of their respective properties before or by
any court, governmental or administrative agency or regulatory authority
(Federal, State, county, local or foreign) which (i) relates to or challenges
the legality, validity or timely enforceability of this Agreement or the
Debentures and Warrants (ii) could, individually or in the aggregate, have a
Material Adverse Effect or (iii) could, individually or in the aggregate,
materially impair the ability of the Company to perform fully on a timely basis
its obligations under this Agreement.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) is in default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound, except such conflicts or defaults
as do not have a Material Adverse Effect, (ii) is in violation of any order of
any court, arbitrator or governmental body, except for such violations as do not
have a Material Adverse Effect. or (iii) is in violation of any statute, rule or
regulation of any governmental authority which could (individually or in the
aggregate) (x) adversely affect the legality, validity or enforceability of this
Agreement, (y) have a Material Adverse Effect or (z) adversely impair the
Company's ability or obligation to perform fully on a timely basis its
obligations under this Agreement.
(i) Certain Fees. No fees or commission will be payable by the Company
to any investment banker, broker, placement agent or bank with respect to the
consummation of the transactions contemplated hereby except that at Closing
eight percent (8%) of the Purchase Price shall be paid to GEM as a commission.
(j) Disclosure Documents. The Disclosure Documents are complete and
accurate and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
(k) Reporting Company. The Company is subject to the reporting
requirements of Section 13 or Section 15(d) of the Exchange Act and is current
in its reporting requirements.
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<PAGE>
Each of the Purchasers acknowledge and agree that the Company makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Article III herein.
Section 3.2. Representations and Warranties of the Purchasers. The
Purchasers hereby represent and warrant to the Company as follows:
(a) Organization and Qualification. Each of the Purchasers is a
corporation duly incorporated and validly existing and in good standing under
the laws of the jurisdiction of its incorporation, with the corporate requisite
power and authority to own and use its properties and assets and to carry on
its business as currently conducted.
(b) Authorization; Enforcement. Each of the Purchasers have the
requisite corporate power and authority to enter into and to consummate the
transactions contemplated hereby and otherwise to carry out its obligations
hereunder and thereunder. The execution and delivery of this Agreement and the
purchase of the Debentures and the Warrants by the Purchasers hereunder has been
duly authorized by all necessary action on the part of each of the Purchasers.
This Agreement has been duly executed and delivered by each of the Purchasers or
on its behalf and constitutes the valid and legally binding obligation of the
Purchasers, enforceable against each of the Purchasers in accordance with its
terms; except as such enforceability may be limited by applicable bankruptcy,
insolvency, liquidation, fraudulent transfer, reorganization, moratorium and
remedies or by other equitable principles of general application or similar laws
relating to or affecting generally the enforcement of creditors' rights.
(c) Investment Intent. The Purchaser is acquiring the Debentures,
Warrants, Underlying Shares and the Warrant Shares for its own account for
investment purposes only and not with a view to or for distributing or reselling
such Debentures, Warrants, Underlying Shares or Warrant Shares or any part
thereof or interest therein, without prejudice, however, to the Purchasers'
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Debentures, Warrants, Underlying
Shares or Warrant Shares in compliance with applicable federal and State
securities laws.
(d) Purchasers' Status. At the time each of the Purchasers was offered
the Debentures and/or the Warrants, it was, and at the date hereof, it is, and
at the Closing Date, it will be, an "accredited investor" as defined in Rule 501
(a) under the Securities Act.
(e) Experience of Purchasers. Each of the Purchasers, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Debentures, and has so
evaluated the merits and risks of such investment.
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(f) Ability of Purchaser to Bear Risk of Investment. Each of the
Purchasers is able to bear the economic risk of an investment in the Debentures
and, at the present time, is able to afford a complete loss of such investment.
(g) Prohibited Transactions. The Debentures to be purchased by each of the
Purchasers are not being acquired, directly or indirectly, with the assets of
any "employee benefit plan", within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended.
(h) Access to Information. Each of the Purchasers acknowledges receipt of
the Disclosure Documents and further acknowledges that it has been afforded (i)
the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Debentures and the Warrants and the merits
and risks of investing in the Debentures and the Warrants; (ii) access to
information about the Company and the Company's financial condition, results of
operations, business, properties, management and prospects sufficient to enable
it to evaluate its investment in the Debentures and the Warrants; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire which is necessary to make an informed investment decision with
respect to the Debentures and the Warrants.
(i) Reliance. Each of the Purchasers understands and acknowledges that (i)
the Debentures and the Warrants are being offered and sold, and the Underlying
Shares and Warrant Shares are being offered, to it without registration under
the Securities Act in a transaction that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and that the Company will rely upon the accuracy and
truthfulness of, the foregoing representations and each of the Purchasers hereby
consents to such reliance.
(j) Start-Up Business. Each of the Purchasers acknowledges that the
Company is a start-up business with no history of earnings or profits, or
assurance of earnings or profits in the future, and that the investment in the
Company through the purchase of Debentures and Warrants is highly speculative
and risky.
(k) Corporate Domicile. Each of the Purchasers is a foreign corporation
and has its residence or corporate domicile outside the United States.
(l) Current Funds. Purchasers have, and will have at Closing, readily
available the current funds required to purchase the Debentures.
The Company acknowledges and agrees that each of the Purchasers makes no
representation or warranty with respect to the transactions contemplated hereby
other than those specifically set forth in Article III herein.
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ARTICLE IV
OTHER AGREEMENTS OF THE PARTIES
-------------------------------
Section 4.1. Manner of Offering. The Debentures and Warrants are being
issued pursuant to Rule 506 of Regulation D of the Securities Act. The
Debentures, Warrants, Underlying Shares and the Warrant Shares will bear
restrictions on transfer, and will carry a restrictive legend with respect to
the exemption from registration under the Securities Act. The transfer and
resale of the Debentures, the Warrants and the Underlying Shares may be made
only pursuant to registration under the Securities Act or an exemption from such
registration.
Section 4.2. Furnishing of Information. As long as each of the Purchasers
owns Debentures, the Warrants, Underlying Shares or the Warrant Shares, the
Company will furnish to it, promptly after they have been prepared all annual,
quarterly reports and other reports and filings required by Section 13(a) or
15(d) of the Exchange Act.
Section 4.3. Notice of Certain Events. The Company shall on a continuing
basis (i) advise each of the Purchasers promptly after obtaining knowledge
thereof, and, if requested by any of the Purchasers, confirm such advice in
writing, of (A) the issuance by any State securities commission of any stop
order suspending the qualification or exemption from qualification of the
Debentures, the Warrants or the Common Stock for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purpose by any State
securities commission or other regulatory authority, or (B) any event that makes
any statement of a material fact made in the Disclosure Documents untrue or that
requires the making of any additions to or changes in the Disclosure Documents
in order to make the statements therein in the light of the circumstances under
which they are made, not misleading, (ii) use its best efforts to prevent the
issuance of any stop order or order suspending the qualification or exemption
from qualification of the Debentures, the Warrants or the Common Stock under any
State securities or Blue Sky laws, and (iii) if at any time any State securities
commission or other regulatory authority shall issue an order suspending the
qualification or exemption from qualification of the Debentures, the Warrants or
the Common Stock under any such laws, use its best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
Section 4.4. Copies and Use of Disclosure Documents. The Company shall
furnish each of the Purchasers, without charge, as many copies of the Disclosure
Documents, and any amendments or supplements thereto, as each of the Purchasers
may reasonably request. The Company consents to the use of the Disclosure
Documents, and any amendments and supplements thereto, by each of the Purchasers
in connection with resales of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares other than pursuant to an effective registration statement.
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Section 4.5. Modification to Disclosure Documents. If any event shall occur
as a result of which, in the reasonable judgment of the Company or any of the
Purchasers, it becomes necessary or advisable to amend or supplement the
Disclosure Documents in order to make the statements therein, in the light of
the circumstances at the time the Disclosure Documents were delivered to any of
the Purchasers, not misleading, or if it is necessary to amend or supplement the
Disclosure Documents to comply with applicable law, the Company shall promptly
prepare an appropriate amendment or supplement to the Disclosure Documents (in
form and substance reasonably satisfactory to both the Purchasers and Company)
so that (i) as so amended or supplemented the Disclosure Documents will not
include an untrue statement of material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time it is delivered to any of the Purchasers, not
misleading and (ii) the Disclosure Documents will comply with applicable law.
Section 4.6. Blue Sky Laws. The Company shall cooperate with the Purchasers
in connection with the exemption from registration of the Debentures, the
Warrants, Underlying Shares, and the Warrant Shares for sale to the Purchaser
under the securities or Blue Sky laws of all applicable jurisdictions; provided,
however, that neither the Company nor its Subsidiaries shall be required in
connection therewith to qualify as a foreign corporation where they are not now
so qualified. The Company agrees that it will execute all necessary documents
and pay all necessary State filing or notice fees to enable the Company to sell
the Debentures and/or Warrants to the Purchasers.
Section 4.7. Integration. The Company shall not and shall use its best
efforts to ensure that no Affiliate shall sell, offer for sale or solicit offers
to buy or otherwise negotiate in respect of any security (as defined in Section
2 of the Securities Act) that would be integrated with the offer or sale of the
Debentures, the Warrants, Underlying Shares, or the Warrant Shares in a manner
that would require the registration under the Securities Act of the sale of the
Debentures and the Warrants to the Purchasers.
Section 4.8. Furnishing of Rule 144A Materials. The Company shall, for so
long as any of the Debentures, the Warrants, Underlying Shares or Warrant Shares
remain outstanding and during any period in which it is not subject to Section
13 or 15(d) of the Exchange Act, make available to any registered holder of
Debentures, the Warrants, Underlying Shares or Warrant Shares in connection with
any sale thereof and any prospective purchaser of such Debentures, Warrants,
Underlying Shares or Warrant Shares from such Person, the following information
in accordance with Rule 144A(d)(4) under the Securities Act: a brief statement
of the nature of the business of the Company and the products and services it
offers and the Company's most recent audited balance sheet and profit and loss
and retained earnings statements, and similar audited financial statements for
such part of the two preceding fiscal years as the Company has been in
operation.
Section 4.9. Solicitation Materials. The Company shall not (i) distribute
any offering materials in connection with the offering and sale of the
Debentures, the Warrants,
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Underlying Shares or Warrant Shares other than the Disclosure Documents and any
amendments and supplements thereto prepared in compliance herewith or (ii)
solicit any offer to buy or sell the Debentures, the Warrants, Underlying Shares
or Warrant Shares by means of any form of general solicitation or advertising,
Section 4.10. Subsequent Financial Statements. The Company shall furnish to
the Purchasers, promptly after they are filed with the Commission, a copy of all
financial statements for any period subsequent to the period covered by the
financial statements included in the Disclosure Documents until the earlier of
the full conversion of the Debentures or the Maturity Date of the Debentures.
Section 4.11. Prohibition on Certain Actions. From the date hereof through
the Closing Date, the Company shall not and shall cause the Subsidiaries not to,
without the prior written consent of the Purchasers, (i) amend its Articles of
Incorporation, bylaws or other charter documents so as to adversely affect any
rights of the Purchasers; (ii) split, combine or reclassify its outstanding
capital stock; (iii) declare, authorize, set aside or pay any dividend or other
distribution with respect to the Common Stock; (iv) redeem, repurchase or offer
to repurchase or otherwise acquire shares of its Common Stock; or (v) enter into
any agreement with respect to any of the foregoing.
Section 4.12. Listing of Common Stock. The Company shall use its best
efforts to maintain the quote for its Common Stock on the OTC Bulletin Board/R/
(or listing on a national securities exchange or market on which the Common
Stock is listed) during the period that the Debentures may be converted
hereunder by the Purchasers or the Warrants may be exercised, and shall provide
to the Purchasers evidence of such listing.
Section 4.13. Escrow. The Company and the Purchasers agree to enter into
the escrow agreement attached hereto and made part hereof as Exhibit E (the
"Escrow Agreement").
Section 4.14. Conversion and Exercise Procedures and Maintenance of
Escrowed Shares for Conversions and Exercises. Exhibit D attached hereto and
made a part hereof sets forth the procedures with respect to the conversion of
the Debentures and the exercise of the Warrants, including the forms of Notice
of Conversion and Notice of Exercise to be provided upon conversion or exercise,
instructions as to the procedures for conversion or exercise, the form of legal
opinion, if necessary, that shall be rendered to the Company and such other
information and instructions as may be reasonably necessary to enable any of the
Purchasers to exercise its right of conversion smoothly and expeditiously. The
Company agrees that, at any time the conversion price of the Debentures is such
that the number of Debenture Escrow Shares is less than 200% of the number of
shares of Common Stock that would be needed to satisfy full conversion of all of
the Debentures given the then current conversion price (the "Full Conversion
Shares"), upon five (5) days written notice of such circumstance to the Company
by the Purchasers and/or Escrow Agent, it will issue additional share
certificates in the names of each of the Purchasers in denominations of 10,000
shares, and deliver same to the Escrow Agent,
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such that the new number of Debenture Escrow Shares is equal to 200% of the Full
Conversion Shares.
Section 4.15. Attorney-in-Fact. To effectuate the terms and provisions of
this Agreement, the Escrow Agreement, the Debenture and the Warrants, the
Company hereby agrees to give a power of attorney as is evidenced by Exhibit F
attached hereto. All acts done under such power of attorney are hereby ratified
and approved and neither the Attorney-in-Fact nor any designee or agent thereof
shall be liable for any acts of commission or omission, for any error of
judgment or for any mistake of fact or law, as long as the Attorney-in-Fact is
operating within the scope of the power of attorney and this Agreement and its
exhibits. The power of attorney being coupled with an interest shall be
irrevocable while any amount of the Debenture remains unpaid, any amount of the
Warrants remain unexercised or any portion of this Agreement or the Escrow
Agreement remains unsatisfied. In addition, the Company shall give the Attorney-
in-Fact a corporate resolution executed by the Board of Directors of the Company
which authorizes future issuances of the Underlying Shares for the Debentures,
and which resolution states that it is irrevocable while any amount of the
Debenture remains unpaid, any amount of the Warrants remain unexercised or any
portion of this Agreement or the Escrow Agreement remains unsatisfied.
4.16. Sale of Warrant Shares. Each of the Purchasers agrees that upon the
exercise of the Warrants it will not sell any of the Warrant Shares for a period
of six (6) months from the Closing Date and thereafter only in accordance with
the applicable federal and State securities laws. In the event there is no
Closing, the Warrant Shares may only be sold in accordance with the applicable
federal and State securities laws.
4.17. Transfer Restrictions. (a) If any of the Purchasers should decide to
dispose of any portion of the Warrants to be purchased by it hereunder (and upon
exercise thereof, of any Warrant Shares), such Purchaser understands and agrees
that it may do so only (i) pursuant to an effective registration statement under
the Securities Act, (ii) to the Company or (iii) pursuant to an available
exemption or exclusion from the registration requirements of the Securities Act.
In connection with any transfer of any Warrants or Warrant Shares other than
pursuant (i) to an effective registration statement, (ii) to the Company, (iii)
to an affiliate of any of the Purchasers which is an "accredited investor"
within the meaning of Rule 501(a) under the Securities Act, provided that any
such transferee shall agree to be bound by the terms of this Agreement, and (iv)
in reliance on Rule 144 under the Securities Act, the Company may require that
the transferor provide to the Company an opinion in form and substance
reasonably satisfactory to the Company of counsel experienced in the area of
United States securities laws selected by the transferor to the effect that such
transfer does not require registration of such Warrants or Warrant Shares, as
the case may be, under the Securities Act.
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(b) The Purchasers agree to the imprinting, so long as appropriate,
of the following legend on certificates representing the Warrants and Warrant
Shares, to be modified as applicable:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER RULE 506 OF REGULATION D PROMULGATED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS
THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.
The legend set forth above shall be removed in connection with any resale
of Warrants Shares pursuant to an effective registration statement under the
Securities Act or sooner if, in the opinion of counsel to the Company
experienced in the area of United States securities laws, such legend is no
longer required under applicable requirements of the Securities Act (including
judicial interpretation and pronouncements issued by the staff of the
Commission). The certificates representing the Warrants shall also bear any
other legends required by applicable federal or State securities laws, which
legends shall be removed when, in the opinion of counsel to the Company
experienced in the applicable securities laws, such legends are no longer
required under the applicable requirements of such securities laws. In
connection therewith, the Company may request, and the Purchasers or other
transferor shall provide, such information as the Company or its counsel may
reasonably request to evaluate the propriety of removing any legends (which
shall not include any opinions of counsel). The Company agrees that it will
provide each of the Purchasers, upon request, with a substitute certificate or
certificates, free from such legend at such time as such legend is no longer
applicable. Each of the Purchasers agrees that, in connection with any transfer
of Underlying Shares or Warrant Shares by it pursuant to an effective
registration statement under the Securities Act, the Purchasers will comply with
all applicable prospectus delivery requirements of the Securities Act. The
Company makes no representation, warranty or agreement as to the availability of
any exemption from registration under the Securities Act with respect to any
resale of Convertible Debentures, Underlying Shares. Warrants, or Warrant
Shares.
(c) Each of the Purchasers agrees that the Company shall be entitled
to make a notation on its records and give instructions to any transfer agent of
the Company in order to implement the restrictions on transfer set forth in this
Section 4.17; provided, however, that for so long as a Registration Statement is
effective, the Company may not issue any stop transfer instruction or make any
notation on its records with respect thereto to any transfer agent of the
Company in connection with the issuance of shares and shall
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issue shares of Common Stock upon a conversion of Convertible Debentures or
exercise of Warrants in accordance with this Section 4.17.
4.18 Qualification of Common Stock and Related Matters. (a) The Company
shall (i) advise each of the Purchasers promptly after obtaining knowledge
thereof, and, if requested by any of the Purchasers, confirm such advice in
writing, of the issuance by any State securities commission of any stop order
suspending the qualification or exemption from qualification of the Debentures,
the Warrants, the Underlying Shares or the Warrant Shares for offering or sale
in any jurisdiction, or the initiation of any proceeding for such purpose by any
State securities commission or other regulatory authority, or (ii) use its best
efforts to prevent the issuance of any stop order or order suspending the
qualification or exemption from qualification of the Debentures, the Warrants,
the Underlying Shares or Warrant Shares under any State securities or Blue Sky
laws, and (iii) if at any time any State securities commission or other
regulatory authority S hall issue an order suspending the qualification or
exemption from qualification of the Debentures, the Warrants, the Underlying
Shares, or Warrant Shares under any such laws, use its best efforts to obtain
the withdrawal or lifting of such order at the earliest possible time.
(b) The Company shall furnish each of the Purchasers, without charge,
as many copies of the prospectus underlying the registration statement
contemplated by the Registration Rights Agreement, and any amendments or
supplements thereto, as such Purchaser may reasonably request. The Company
consents to the use of such prospectus, and any amendments and supplements
thereto, by any of the Purchasers in connection with resales of the Debentures,
the Warrants, the Underlying Shares or Warrant Shares.
(c) In accordance with the Registration Rights Agreement annexed
hereto as Exhibit C, the Company shall qualify the Underlying Shares and the
Warrant Shares under the securities or Blue Sky laws of such jurisdictions as
any of the Purchasers may reasonably request and shall continue such
qualification at all times through the second anniversary of the last Closing
Date; provided, however, that neither the Company nor its Subsidiaries shall be
required in connection therewith to qualify as a foreign corporation where they
are not now so qualified or to take any action that would subject the Company to
general service of process in any such jurisdiction where it is not then so
subject or subject the Company to any material tax in any such jurisdiction
where it is not then so subject.
(d) The Company shall not and shall use its best efforts to ensure
that no Affiliate of the Company shall sell, offer for sale or solicit offers to
buy or otherwise negotiate in respect of any security (as defined in Section 2
of the Securities Act) that would be integrated with the offer or sale of the
Convertible Debentures, the Warrants, the Underlying Shares or the Warrant
Shares in a manner that would require the registration under the Securities Act
of the sale of the Debentures, the Warrants, the Underlying Shares or the
Warrant Shares to any of the Purchasers.
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4.19. Purchasers' Ownership of Common Stock. In addition to and not in
lieu of the limitations on conversion set forth in the Debentures, the
conversion and exercise rights of each of the Purchasers set forth in the
Debentures and the Warrants, as applicable, shall be limited, solely to the
extent required, from time to time, such that, unless each of the Purchasers
give written notice 75 days in advance to the Company of their intention to
exceed the Limitations of Conversions as defined herein, with respect to all or
a specified amount of the Debentures and the corresponding number of the
Underlying Shares, in no instance shall the maximum number of shares of Common
Stock which the Purchasers (singularly, together with any Persons who in the
determination of such Purchasers, together with such Purchasers, constitute a
group as defined in Rule 13d-5 of the Exchange Act) may receive in respect of
any conversion of the Debentures, or exercise of the Warrants, exceed, at any
one time, an amount equal to the remainder of (i) 4,99% of the then issued and
outstanding shares of Common Stock of the Company following such conversion or
exercise minus (ii) the number of shares of Common Stock of the Company then
owned by any of the Purchasers (including any shares of Common Stock deemed
beneficially owned due to ownership of the Debentures and Warrants) (the
foregoing being herein referred to as the "Limitation on Conversion"); provided,
however, that the Limitation on Conversion shall not apply to any forced or
automatic conversion by the Company pursuant to Section 4(i) and Section 5 of
the Debentures and, provided, further, that if 10 Business Days have elapsed
since any of the Purchasers shall have declared an Event of Default (as that
term is defined in the Convertible Debenture) and the Company shall not have
cured such Event of Default, the provisions of this Section 4.19 shall be null
and void from and after such date. The Company shall, promptly upon its' receipt
of a notice of conversion tendered by any of the Purchasers (or its sole
designee) under the Debentures, as applicable, and upon its receipt of a notice
of exercise under the terms of the Warrants, notify such Purchaser by telephone
and by facsimile of the number of shares of Common Stock outstanding on such
date and the number of Underlying Shares which would be issuable to such
Purchaser (or its sole designee, as the case may be) if the conversion requested
in such notice of conversion or exercise requested in such notice of exercise
were effected in full, whereupon, notwithstanding anything to the contrary set
forth in the Debentures or the Warrants, such Purchaser may within one Trading
Day of its receipt of the Company notice required by this Section 4.19 by
facsimile revoke such conversion or exercise to the extent (in whole or in part)
that it determines that such conversion or exercise would result in such
Purchaser owning shares of Common Stock in excess of the Limitation on
Conversion.
4.20. Purchasers' Rights if Trading in Common Stock is Suspended. In the
event that at any time within the period commencing when the Registration
Statement is declared effective under the Securities Act by the Commission and
ending two years after the Closing Date, trading in the shares of the Common
Stock is suspended on such other stock exchange upon which the Common Stock
shall then be listed for trading (other than as a result of the suspension of
trading in securities on such market generally or temporary suspensions pending
the release of material information), or the Common Stock is deleted from the
OTC Bulletin Board, then, at any of the Purchasers' option exercisable by
written notice to the Company, the Company shall redeem, as applicable, all of
the Debentures,
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Warrants, Underlying Shares and Warrant Shares owned by such Purchaser at an
aggregate purchase price equal to the sum of (i) (A) the product of (1) the
average Per Share Market Value for the five (5) Trading Days immediately
preceding (a) the day of such notice or (b) the date of payment in full of the
repurchase price calculated under this Section 4.20, whichever is greater,
multiplied by (2) the Conversion Ratio on the date of the repurchase notice,
(ii) the purchase price of the Warrant, (iii) the number of Underlying Shares
and Warrant Shares then held by any of the Purchasers multiplied by the average
Per Share Market Value for the five (5) Trading Days immediately preceding (A)
the date of the notice or (B) the date of payment in full by the Company of the
repurchase price calculated under this Section 4.20, whichever is greater, and
(iv) interest on such amounts set forth in (i) - (iii) above accruing from the
7th day after such notice until the repurchase price under this Section 4.20 is
paid in full at the rate of 15% per annum.
4.21. No Violation of Applicable Law. Notwithstanding any provision of
this Agreement to the contrary, if the redemption of Underlying Shares and
Warrant Shares otherwise required under this Agreement or the Registration
Rights Agreement would be prohibited by the relevant provisions of the Nevada
General Corporation Law, such redemption shall be effected as soon as it is
permitted under such law; provided, however, that interest payable by the
Company with respect to any such redemption shall continue to accrue in
accordance with Section 4.20.
4.22. Redemption Restrictions. Notwithstanding any provision of this
Agreement to the contrary, if any redemption of Debentures, the Warrants,
Underlying Shares or the Warrant Shares otherwise required under this Agreement
or the Registration Rights Agreement would be prohibited in the absence of
consent from any lender of the Company or any of the Subsidiaries, or by the
holders of any class of securities of the Company, the Company shall use its
best efforts to obtain such consent as promptly as practicable after the
redemption is required. Interest payable by the Company with respect to any such
redemption shall continue to accrue in accordance with Section 4.20 until such
consent is obtained. Nothing contained in this Section 4.22 shall be construed
as a waiver by any of the Purchasers of any rights it may have by virtue of any
breach of any representation or warranty of the Company herein as to the absence
of any requirement to obtain any such consent.
4.23. Piggyback Registration Rights. During the period commencing the date
hereof and ending on the earlier to occur of (i) the one year anniversary of the
Closing and (ii) the date the Registration Statement required to be filed by the
Company in accordance with the Registration Rights Agreement is declared
effective under the Securities Act by the Commission, the Company may not file
any registration statement that provides for the registration of shares of
Common Stock to be sold by other shareholders of the Company unless the Company
provides each of the Purchasers with not less than seven (7) Trading Days'
notice of its intention to file such registration statement and provides each of
the Purchasers the option to include any or all of the Underlying Shares and
Warrant Shares then owned by it therein as to which there is not at that time an
effective Registration Statement. Such registration rights shall not apply to
registration statements relating solely
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to (i) employee benefit plans notwithstanding the inclusion of a resale
prospectus for securities received under such employee benefit plan, or (ii)
business combinations.
4,24. Merger or Consolidation. Until the earlier of the full conversion
of the Debentures or the Maturity Date of the Debentures (as that term is
defined in the Convertible Debenture), the Company and each Subsidiary will not,
in a single transaction or a series of related transactions, (i) consolidate
with or merge with or into any other Person, or (ii) permit any other Person to
consolidate with or merge into it, unless (w) either (A) the Company shall be
the survivor of such merger or consolidation or (B) the surviving Person shall
expressly assume by supplemental agreement all of the obligations of the Company
under the Debentures and the Warrants and this Agreement; (x) immediately before
and immediately after giving effect to such transaction (including any
indebtedness incurred or anticipated to be incurred in connection with the
transaction), no Default or Event of Default shall have occurred and be
continuing; (y) if the Company is not the surviving entity, such surviving
entity's common shares shall be listed on either The New York Stock Exchange,
American Stock Exchange, or Nasdaq National Market or Nasdaq SmallCap Market and
(z) the Company has delivered to the Purchasers an officers' certificate and
opinion of counsel, each stating that such consolidation, merger or transfer
complies with this Agreement, that the surviving Person agrees to be bound
thereby and that all conditions precedent in this Agreement relating to such
transactions have been satisfied.
Section 4.25. Registration of Underlying Shares and Warrant Shares.
Pursuant to the terms of the Registration Rights Agreement between the Company
and the Purchasers, the Company shall cause the Underlying Shares and Warrant
Shares to be registered under the Securities Act. and so long as any Debentures
remain outstanding or any Warrants remain unexercised, the Company agrees to
keep such registration current with the Commission and with such states of the
United States as the Holders (as that term is defined in the Debenture) of the
Debenture or Warrants shall reasonably request in writing. All costs and
expenses of registration shall be borne by the Company.
Section 4.26. Liquidated Damages. The Company understands and agrees that
an Event of Default as contained in this Agreement, the Transaction Documents
and/or the Debenture will result in substantial economic loss to the
Purchasers which will be extremely difficult to calculate with precision.
Therefore, after the Closing, if for any reason the Company fails to cure any
Event of Default within the time given to cure such Event of Default, if any, as
compensation and liquidated damages for such default, and not as a penalty, the
Company agrees to pay liquidated damages to the Purchasers in an amount equal to
the two times (2x) the Purchase Price, The Company shall upon demand pay the
Purchasers, such liquidated damages by wire transfer in immediately available
funds to an account designated by the Purchasers. Nothing herein shall limit the
right of any of the Purchasers to pursue actual damages (less the amount of any
liquidated damages received pursuant to the foregoing) for the Company's failure
to cure an Event of Default, consistent with the terms of this Agreement.
However, if the Event of Default occurs prior to the Closing and the Company
does not cure such Event of Default within the time given
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to cure such Event of Default, if any, as compensation and damages for such
default, and not as a penalty, the Escrow Agent shall deliver the Extra Shares
to the Purchasers pro rata as between them. NOTWITHSTANDING ANYTHING TO THE
CONTRARY CONTAINED IN THIS AGREEMENT, THE COMPANY'S OBLIGATIONS UNDER THIS
SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
4.27 Redemption of Debentures The Company may redeem the unconverted
principal amount of the Debentures in accordance with the following:
(a) If the closing bid price of the Company's Common Stock falls
below $1.00, the Company may, upon no less that seven (7) Business
Days written notice to each of the Purchasers. with a copy to the
Escrow Agent, redeem the Debentures at one hundred twenty percent
(120%) of the par value per debenture (the "Redemption Price").
(b) Within five (5) Business Days of sending the notice of
redemption, the Company shall deposit by wire transfer to the IOLA
account of the Escrow Agent the Redemption Price, Upon receipt of the
Redemption Price, the Escrow Agent shall release the Redemption Price
to the Purchasers and return the remaining Debentures and Underlying
Shares to the Company.
(c) In the event that the Company fails to deposit the Redemption
Price in the Escrow Agent's IOLA within the time allocated in section
4.27, then the redemption shall be declared null and void.
Section 4.28. Fees. The Company will pay the following fees and expenses in
connection with this transaction: (a) $8,000 to Kaplan Gottbetter & Levenson,
LLP ("KGL") for document production fees, (b) $5,000 to KGL for escrow fees, (c)
S 1,000 to KGL for its expenses, and (d) eight percent (8%) of the Purchase
Price to GEM as a commission. All fees and expenses will be paid at Closing and
the Escrow Agent shall deduct such fees and expenses directly from escrow. In
the event that the transactions contemplated under this Agreement and the
Transaction Documents do not close, the Company will pay to KGL the document
production fee of $8,000 within five (5) Business Days after the termination of
this Agreement.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Section 5.1. Conditions Precedent to Obligations of the Purchasers. The
obligations of the Purchasers to close on the purchase of the Debentures are
subject to the satisfaction or written waiver by the Purchasers, at or prior to
the Closing, of each of the following conditions:
-21-
<PAGE>
(a) Legal Opinion. The Purchasers shall have received the legal
opinion in the form annexed hereto as Exhibit G, addressed to it/them and dated
the Closing Date from the Counsel for the Company. Such legal opinion shall
address the Company's authority to enter into this Agreement, the availability
of Rule 506 for the offer and sale of the Debentures, the Warrants, Underlying
Shares and Warrant Shares and that the Underlying Shares issued upon conversion
of the Debentures and the Warrant Shares issued upon the exercise of the
Warrants are validly issued, fully paid for and nonassessable;
(b) Accuracy of the Company's Representations and Warranties. The
representations and warranties of the Company contained herein shall be true and
correct in all material respects as of the date when made and as of the Closing
Date as though made at that time (except that representations and warranties
that are made as of a specific date need be true in all material respects only
as of such date);
(c) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing;
(d) No Material Adverse Effect. Since the date of the financial
statements included in the Company's Disclosure Documents, no event which had a
Material Adverse Effect shall have occurred which is not disclosed in the
Disclosure Documents;
(e) No Prohibitions. The purchase of and payment for the Debentures
and the Warrants (and upon conversion or exercise thereof, the Underlying Shares
and the Warrant Shares) hereunder (i) shall not be prohibited or enjoined
(temporarily or permanently) by any applicable law or governmental regulation
and (ii) shall not subject the Purchasers to any penalty, or in its reasonable
judgment, other onerous condition under or pursuant to any applicable law or
governmental regulation that would materially reduce the benefits to the
Purchaser of the purchase of the Debentures, the Warrants, Underlying Shares or
the Warrant Shares (provided, however, that such regulation, law or onerous
condition was not in effect in such form at the date of this Agreement);
(f) Company Certificates. The Purchasers shall have received a
certificate, dated the Closing Date, signed by the Secretary or an Assistant
Secretary of the Company and certifying (1) that attached thereto is a true,
correct and complete copy of (A) the Company's Articles of Incorporation, as
amended to the date thereof, (B) the Company's By-Laws, as amended to the date
thereof, (C) resolutions duly adopted by the Board of Directors of the Company
authorizing the execution and delivery of this Agreement, the issuance and sale
of the Debentures, Warrants and the Underlying Shares and the appointment of the
Attorney-in-Fact pursuant to Section 4.15 attached hereto as Exhibit F, and (D)
a certificate of good standing from the Secretary of State of Nevada and (ii)
the incumbency of officers executing this Agreement;
-22-
<PAGE>
(g) No Suspensions of Trading in Common Stock. Trading in the Common
Stock shall not have been suspended, delisted or otherwise ceased by the
Commission or the NASD or other exchange or market on which the Common Stock is
listed or quoted (except for any suspension of trading of limited duration
solely to permit dissemination of material information regarding the Company);
(h) Required Approvals. All Required Approvals shall have been
obtained;
(i) Delivery of Debentures. The Company shall have delivered to the
Escrow Agent the certificate(s) representing the Debentures and the Underlying
Shares, registered in the name of each of the Purchasers, each in form
satisfactory to the Purchaser; and
(j) Power of Attorney. The Escrow Agent shall have received a power
of attorney executed on behalf of the Company pursuant to Section 4.15, attached
hereto as Exhibit F, in addition to all items required under Article II.
Section 5.2. Conditions Precedent to Obligations of the Company. The
obligation of the Company to issue and sell the Debentures hereunder is subject
to the satisfaction or written waiver by the Company, at or to the Closing. of
each of the following conditions:
(a) Accuracy of the Purchasers' Representations and Warranties. The
representations and warranties of the Purchasers shall be true and correct in
all material respects as of the date when made and as of the Closing Date as
though made at that time (except that representations and warranties that are
made as of a specific date need be true in all material respects only as of such
date);
(b) Performance by the Purchasers. The Purchasers shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by it at or prior to the Closing; and
(c) No Prohibitions. The sale of the Debentures and Warrants (and
upon conversion or exercise thereof, the Underlying Shares or Warrant Shares)
hereunder (i) shall not be prohibited or enjoined (temporarily or permanently)
by any applicable law or governmental regulation and (ii) shall not subject the
Company to any penalty, or in its reasonable judgment, any other onerous
condition under or pursuant to any applicable law or governmental regulation
that would materially reduce the benefits to the Company of the sale of
Debentures Warrants, Underlying Shares or Warrant Shares to the Purchasers
(provided, however, that such regulation, law or onerous condition was not in
effect in such form at the date of this Agreement).
-23-
<PAGE>
ARTICLE V)
TERMINATION
-----------
Section 6.1. Termination by the Company or the Purchasers. This Agreement
may be terminated prior to Closing by the Company or Purchasers, by giving
written notice of such termination to the other party as follows:
(a) by Purchasers if the Closing shall not have occurred by June 5,
2000.
(b) there shall be in effect any statute, rule, law or regulation
that prohibits the consummation of the Closing or if the consummation of the
Closing would violate any non-appealable final judgment, order, decree, ruling
or injunction of any court of or governmental authority having competent
jurisdiction; or
(c) there shall have been an amendment to Regulation D or an
interpretive release promulgated or issued thereunder, which, in the reasonable
judgment of the terminating party, would materially adversely affect the
transactions contemplated hereby.
Section 6.2. Termination by the Company. This Agreement may be terminated
prior to Closing by the Company, by giving written notice of such termination to
the Purchasers, if any of the Purchasers have materially breached any
representation, warranty, covenant or agreement contained in this Agreement and
such breach is not cured within ten (10) business days following receipt by such
Purchaser of notice of such breach and the other Purchasers decline to be
substituted for the breaching Purchaser's investment.
Section 6.3. Termination by the Purchasers. This Agreement may be
terminated prior to Closing by the Purchasers, by giving written notice of such
termination to the Company, if:
(a) the Company has breached any representation, warranty, covenant
or agreement contained in this Agreement and such breach is not cured within ten
days following receipt by the Company of notice of such breach;
(b) there has occurred an event since the date of the financial
statements included in the Company's disclosure documents which could reasonably
be expected to have a Material Adverse Effect and which is not disclosed in the
Disclosure Documents; or
(c) trading in the Common Stock has been suspended, delisted, or
otherwise ceased by the Commission or the NASD or other exchange or market on
which the Common Stock is listed or quoted (except for any suspension of trading
of limited duration solely to permit dissemination of material information
regarding the Company).
-24-
<PAGE>
ARTICLE VII
LEGAL FEES AND DEFAULT INTEREST RATE
------------------------------------
In the event any Party commences legal action to enforce its rights under
this Agreement, the Debentures, the Warrants or the Escrow Agreement, the non-
prevailing party shall pay all reasonable costs and expenses (including but not
limited to reasonable attorney's fees, accountant's fees, appraiser's fees and
investigative fees) incurred in enforcing such rights. In the event of an
uncured Default by any party hereunder, interest shall accrue on all unpaid
amounts due the aggrieved party at the rate of 15% per annum, compounded
annually.
ARTICLE VIII
MISCELLANEOUS
-------------
Section 8.1. Fees and Expenses. Except as set forth above, each party
shall pay the fees and expenses of its advisers, counsel, accountants and other
experts, if any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of this Agreement.
The Company shall pay the fees of the Escrow Agent and all stamp and other taxes
and duties levied in connection with the issuance of the Debentures and Warrants
(and upon conversion or exercise thereof, the Underlying Shares and Warrant
Shares) pursuant hereto. Each of the Purchasers shall be responsible for its own
tax liability that may arise as a result of the investment hereunder or the
transactions contemplated by this Agreement. Whether or not the transactions
contemplated by this Agreement are consummated or this Agreement is terminated,
the Company shall pay (i) all costs, expenses, fees and all taxes incident to
and in connection with: (A) the preparation, printing and distribution of the
Disclosure Documents and all amendments and supplements thereto (including,
without limitation, financial statements and exhibits), and all preliminary and
final Blue Sky memoranda and all other agreements, memoranda, correspondence and
other documents prepared and delivered in connection herewith, (B) the issuance
and delivery of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and the Warrant Shares, (C) the exemption from
registration of the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares for offer and sale to the
Purchasers under the securities or Blue Sky laws of the applicable jurisdiction,
(D) furnishing such copies of the Disclosure Documents and all amendments and
supplements thereto, as may reasonably be requested for use in connection with
resales of the Debentures and Warrants and, upon conversion or exercise thereof,
the Underlying Shares and the Warrant Shares, and (E) the preparation of
certificates for the Debentures and Warrants and, upon conversion or exercise
thereof, the Underlying Shares and Warrant Shares (including, without
limitation, printing and engraving thereof), (ii) all fees and expenses of the
counsel and accountants of the Company and (iii) all expenses and listing fees
on securities exchanges, if any.
-25-
<PAGE>
Section 8.2. Entire Agreement; Amendments. This Agreement, together with
the Exhibits, Annexes and Schedules hereto, contain the entire understanding of
the parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, oral or written, with respect to such matters.
This Agreement shall be deemed to have been drafted and negotiated by
both parties hereto and no presumptions as to interpretation, construction or
enforceability shall be made by or against either party in such regard.
Section 8.3. Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be deemed to have
been made upon facsimile transmission (with transmission confirmation report) at
the number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day
following such delivery (if delivered other than on a Business Day during normal
business hours where such notice is to be received) whichever shall first occur.
The addresses for such communications shall be:
If to the Company: Jonathan Burst, CEO
International Fuel Technology, Inc.
7777 Bonhomme, Suite 1920
St. Louis, MO 63105
Phone: (314)
Fax: (314) 863-6900
With copies to: David Braswell, Esq.
Armstrong Teasdale, LLP
One Metropolitan Center
St. Louis, MO 63102
Phone: (314) 621-5070
Fax: (314) 621-5065
If to the Purchasers:
See Schedule 1 - Schedule of Purchasers (attached hereto)
With copies to: Adam S. Gottbetter
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017
Tel: (212) 983-6900
Fax: (212) 983-9210
-26-
<PAGE>
If to the Escrow Agent: Adam S. Gottbetter
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
Now York, NY 10017
Tel: (212) 983-6900
Fax: (212) 983-9210
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
Section 8.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers, or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
Section 8.5. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
Section 8.6. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. The assignment by a party of this Agreement or any rights hereunder
shall not affect the obligations of such party under this Agreement.
Section 8,7. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 8.8. Governing Law: Service of Process. This Agreement shall be
governed by and construed and enforced in accordance with the internal laws of
the State of New York without regard to the principles of conflicts of law
thereof. Any action to enforce the terms of this Agreement or any of its
exhibits shall be exclusively brought in the State and/or federal courts in the
State and County of New York. Service of process in any action by Purchasers to
enforce the terms of this Agreement may be made by serving a copy of the summons
and complaint, in addition to any other relevant documents, by commercial
overnight courier to the Company at its principal address set forth in this
Agreement.
Section 8.9. Survival. The representations and warranties of the Company
and the Purchasers contained in Article III and the agreements and covenants of
the parties
-27-
<PAGE>
contained in Article IV and this Article VIII shall survive the Closing (or any
earlier termination of this Agreement).
Section 8.10. Counterpart Signatures. This Agreement may be executed in two
or more counterparts, all of which when taken together shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party, it being understood that
both parties need not sign the same counterpart, In the event that any signature
is delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
Section 8.11. Publicity. The Company and the Purchasers shall consult with
each other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby and neither party shall
issue any such press release or otherwise make any such public statement without
the prior written consent of the other, which consent shall not be unreasonably
withheld or delayed, unless counsel for the disclosing party deems such public
statement to be required by applicable federal and/or State securities laws.
Section 8.12. Severability. In case any one or more of the provisions of
this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affected or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
Section 8.13. Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including the recovery of damages, all
parties shall be entitled to specific performance of the obligations under this
Agreement and its exhibits, as well as equitable relief, including but not
limited to preliminary, temporary and permanent injunctive relief, Each of the
Company and the Purchasers agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate. As to any equitable remedies pursued by Purchasers,
Purchasers shall not be obligated, and the Company hereby waives any
requirements, to post any bond or undertaking in connection with any application
for temporary, preliminary or permanent injunctive relief, Notwithstanding
anything herein to the contrary, in the event the liquidated damages provisions
of Section 4.26 is fully enforced and collected, specific performance shall not
be available to the Purchasers.
[ SIGNATURE PAGE FOLLOWS ]
-28-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first indicated above,
Company:
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: /s/ William J. Lindenmeyer
-------------------------------------
Name: William J. Lindenmeyer
Title: President
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By:
-------------------------------------
Name:
Title:
TURBO INTERNATIONAL LTD.
By:
-------------------------------------
Name:
Title:
-29-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first indicated above.
Company:
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: __________________________________
Name:
Title:
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By: /s/ Pierce Loughran
-----------------------------------
Name: Pierce Loughran
Title: Director
TURBO INTERNATIONAL LTD.
By: __________________________________
Name:
Title:
-30-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first indicated above.
Company:
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: __________________________________
Name:
Title:
Purchasers:
GEM GLOBAL YIELD FUND LIMITED
By: __________________________________
Name:
Title:
TURBO INTERNATIONAL LTD.
By: /s/ Marlin Charsten
----------------------------------
Name: Marlin Charsten
Title: President
-31-
<PAGE>
SCHEDULE 1
----------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------
Name and Address of Full Amount Number of Number of Number of
Purchaser of Warrant Debenture Warrant
Debenture Shares Escrow Escrow
to be Exercisable Shares at Shares at
Purchased Closing Execution
Date
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GEM Global Yield Fund $2,800,000 390,000 3,640,000 390,000
Limited
c/o Loughran & Co.
38 Hertford Street
London W 1 Y 7TG
England
Tel: 44.171.355.2051
Fax: 44.171.355.4975
Turbo International Ltd. $ 200,000 0 260,000 0
Shirley House
50 Shirley Street
P.O. Box N-7755
Nassau, Bahamas
Tel: (242) 326-5528
Fax: (242) 328-2935
- -----------------------------------------------------------------------------------------
</TABLE>
-32-
<PAGE>
Exhibit 10.3
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into by
and between INTERNATIONAL FUEL TECHNOLOGY, INC., a Nevada corporation (the
"Company"), and JONATHAN R. BURST (the "Employee"), and is dated as of the first
day of January, 2000.
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to employ
the Employee in the position set forth below, and the Employee desires to serve
in that capacity.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and promises herein contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Employee hereby agree as follows:
1. Employment Period. The Company shall employ the Employee, and the
Employee shall serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on January 1, 2000 and ending on December
31, 2000 (the "Initial Term" and, together with any subsequent term of
Employment, the "Employment Period"); provided that the term of employment
hereunder will automatically be renewed on January 1, 2001 for successive one
year terms (each such term a "Renewal Term") unless either party shall, at least
30 days before such date, provide notice to the other party that the Employment
Period will not be extended.
2. Position and Duties.
-------------------
(a) The Employee shall serve as Chief Executive Officer of the
Company, reporting to the board of directors, with such duties and
responsibilities as are customarily assigned to such position, and such other
duties and responsibilities not inconsistent therewith as may be assigned to him
from time to time by the board.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee shall
devote his full-time efforts to the business and affairs of the Company and use
his best efforts to carry out such responsibilities faithfully and efficiently.
It shall not be considered a violation of the foregoing for the Employee to (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures or fulfill speaking engagements, (iii) manage personal investments or
(iv) continue his affiliation with BURCOR International and its affiliates, so
long as such activities do not interfere with the performance of the his
responsibilities as an employee of the Company in accordance with this Agreement
or violate the provisions of Section 7 of this Agreement.
<PAGE>
3. Compensation.
------------
(a) Base Salary. During the Initial Term, the Employee shall receive
an annual base salary (the "Annual Base Salary") at the minimum rate of
$180,000.00. In the event of any Renewal Term as provided for in Section 1
above, the Annual Base Salary shall be renegotiated by the parties hereto, but
in no event shall the Annual Base Salary during any such Renewal Term be less
than $180,000.00. The Annual Base Salary shall be payable in accordance with the
Company's payroll practices as in effect from time to time. The Board of
Directors of the Company may increase the Annual Base Salary above the foregoing
amounts at its discretion.
(b) Bonus. In addition to the Annual Base Salary, the Employee shall
be awarded bonuses (the "Bonus") at such times and in such amounts as are deemed
appropriate by the Board of Directors of the Company.
(c) Stock. Employee shall receive shares of the Company's common
stock for each month of the Employment Period (the "Stock Compensation") as
outlined in attached Exhibit A, Employee Stock Award - Jonathan R. Burst. Such
shares shall be issued to Employee on the last day of each month during the
Employment Period, unless the Employee is terminated by the Company for Cause
(as hereinafter defined) or the Employee terminates his employment without Good
Reason (as hereinafter defined), in which case Employee shall be entitled to
only that portion of Stock Compensation which has accrued hereunder as of the
Date of Termination.
(d) Insurance. The Company will provide Employee, subject to
applicable waiting periods, with term life insurance in the amount of One
Million Dollars ($1,000,000.00); Employee will cooperate with the Company in
obtaining such policies.
(e) Other Benefits. During the Employment Period: (i) the Employee
shall be entitled to participate in all benefit programs of the Company,
including, but not limited to, health insurance coverage or reimbursement of the
Employee's cost to maintain same; and (ii) the Employee and/or the Employee's
family, as the case may be, shall be eligible for participation in, and shall
receive all benefits under, all welfare benefit plans, practices, policies and
programs provided by the Company, including, but not limited to any
comprehensive dental plan, retirement plans and profit sharing programs the
Company may provide to any other employees from time to time.
(f) Expenses. During the Employment Period, the Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in carrying out the Employee's duties under this Agreement,
provided that the Employee complies with the policies, practices and procedures
of the Company for submission of expense reports, receipt and similar
documentation of such expenses.
(g) Fringe Benefits. During the Employment Period, the Employee shall
be entitled to paid vacation and other fringe benefits, in each case on such
terms and conditions as are determined by the Board of Directors of the Company.
2
<PAGE>
4. Termination of Employment.
-------------------------
(a) Death or Disability. The Employee's employment shall terminate
automatically upon the Employee's death during the Employment Period. The
Company shall be entitled to terminate the Employee's employment because of the
Employee's Disability during the Employment Period. "Disability" means that (i)
the Employee has been unable, for a period of six months, or for a total of 90
days in any given period, to perform the Employee's duties under this Agreement,
as a result of physical or mental illness or injury, and (ii) a physician
selected by the Company or its insurers, and acceptable to the Employee or the
Employee's guardian or legal representative, has determined that the Employee's
incapacity is total and permanent. A termination of the Employee's employment by
the Company for Disability shall be communicated to the Employee by written
notice, and shall be effective on the 30th day after receipt of such notice by
the Employee (the "Disability Effective Date"), unless the Employee is able to,
and does, return to full-time performance of the Employee's duties before the
Disability Effective Date.
(b) By the Company.
--------------
(i) The Company may terminate the Employee's employment during
the Employment Period for Cause or without Cause. "Cause" means:
A. any fraud, embezzlement or other dishonesty of the
Employee that materially and adversely affects the Company's
business or reputation; or
B. the Employee's conviction for a felony or entering into
a plea of nolo contendere with respect to a felony.
(ii) A termination of employment by the Company for Cause shall
be effectuated by giving the Employee written notice ("Notice of Termination for
Cause") of the termination, setting forth the conduct of the Employee that
constitutes Cause. Termination of employment by the Company for Cause shall be
effective on the date when the Notice of Termination for Cause is given, unless
the notice sets forth a later date (which date shall in no event be later than
30 days after the notice is given).
(iii) A termination of the Employee's employment by the Company
without Cause shall be effected by giving the Employee written notice of the
termination at least thirty (30) days prior to the termination date.
(c) By the Employee.
---------------
(i) The Employee may terminate employment in the event of a Good
Reason. "Good Reason" means:
3
<PAGE>
A. the assignment to the Employee of any duties
inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement, other than actions that are not taken in bad
faith and are remedied by the Company within fifteen (15) days
after receipt of notice thereof from the Employee;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than failures that are not
taken in bad faith and are remedied by the Company within fifteen
(15) days after receipt of notice thereof from the Employee; or
C. the occurrence of a Non-Negotiated Change in Control of
the Company (as defined below).
4
<PAGE>
(ii) A termination of employment by the Employee for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the Company that constitutes Good Reason. A termination of employment by the
Employee for Good Reason shall be effective on the fifth business day following
the date when the Notice of Termination for Good Reason is given, unless the
notice sets forth a later date (which date shall in no event be later than 30
days after the notice is given).
(iii) A termination of the Employee's employment by the Employee
without Good Reason shall be effected by giving the Company written notice of
the termination at least thirty (30) days prior to the termination date.
(d) No Waiver. The failure to set forth any fact or circumstance in a
Notice of Termination for Cause or a Notice of Termination for Good Reason shall
not constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement.
(e) Date of Termination. The "Date of Termination" means the date of
the Employee's death, the Disability Effective Date, the date on which the
termination of the Employee's employment by the Company for Cause or by the
Employee for Good Reason is effective, or the date on which the Company gives
the Employee notice of a termination of employment without Cause or the Employee
gives the Company notice of a termination of employment without Good Reason, as
the case may be.
5. Obligations of the Company upon Termination.
-------------------------------------------
(a) Other Than for Cause, Death or Disability; Good Reason. If,
during the Employment Period, the Company terminates the Employee's employment,
other than for Cause, Death or Disability, or the Employee terminates his
employment for Good Reason, the Company shall (i) pay the Employee's accrued but
unpaid portion of the Annual Base Salary (the "Accrued Obligations") to the
Employee in a lump sum in cash within 30 days after the Date of Termination,
(ii) continue to pay the Annual Base Salary for the remainder of the term
hereof, (iii) issue the accrued Stock Compensation (the "Accrued Stock
Compensation"), and (iv) issue the Stock Compensation for the remainder of the
term hereof. In addition, the Employee shall be entitled to a Bonus in an amount
equal to the Bonus the Employee would have received for the Employment Period
had this Agreement not been terminated. The payments provided pursuant to this
paragraph (a) of Section 5 are intended as liquidated damages for a termination
of the Employee's employment by the Company other than for Cause or Disability
or for the actions of the Company leading to a termination of the Employee's
employment by the Employee for Good Reason, and shall be the sole and exclusive
remedy therefor.
5
<PAGE>
(b) Death or Disability. If the Employee's employment is terminated
by reason of the Employee's death or Disability during the Employment Period,
(i) the Company shall pay the Accrued Obligations to the Employee or the
Employee's estate or legal representative, as applicable, in a lump sum in cash
within 30 days after the Date of Termination and (ii) the Company shall issue
the Accrued Stock Compensation to the Employee or the Employee's estate or legal
representative. In addition, if the Employee's employment is terminated by
reason of Disability, the Company will continue to pay to Employee until the
earlier of: (i) expiration of the Employment Period, or (ii) the date of
Employee's death, the Annual Base Salary, less any amounts received by Employee
under any disability insurance coverage maintained for Employee by the Company.
(c) Cause; Other than for Good Reason. If the Employee's employment
is terminated by the Company for Cause during the Employment Period, or if the
Employee terminates his employment during the Employment Period other than for
Good Reason, the Company shall pay Employee the Accrued Obligations and the
Company shall issued the Accrued Stock Compensation.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
for which the Employee may qualify, nor, subject to paragraph (f) of Section 11,
shall anything in this Agreement limit or otherwise affect such rights as the
Employee may have under any contract or agreement with the Company or any of its
affiliated companies. Vested benefits and other amounts that the Employee is
otherwise entitled to receive under any plan, policy, practice or program of, or
any contract or agreement with, the Company or any of its affiliated companies
on or after the Date of Termination shall be payable in accordance with such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
7. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Employee obtains during the Employee's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Employee's violation of this
paragraph (a) of Section 7) ("Confidential Information"). The Employee shall not
communicate, divulge or disseminate Confidential Information at any time during
the Employee's employment with the Company, except with the prior written
consent of the Company or as otherwise required by law or legal process.
8. No Mitigation. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced, regardless of whether the Employee obtains other
employment.
6
<PAGE>
9. Successors.
----------
(a) This Agreement is personal to the Employee and, without the prior
written consent of the Company, shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives .
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
10. Miscellaneous.
-------------
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Missouri, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
------------------
Jonathan R. Burst
3 Warridge Dr.
St. Louis, Missouri 63124
If to the Company:
-----------------
International Fuel Technology, Inc.
7777 Bonhomme, Suite 1920
St. Louis, Missouri 63105
Attention: Mr. Fred Jensen
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 10. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
7
<PAGE>
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The failure of the Employee or the Company to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) The Employee and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof.
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and which together shall constitute one
instrument.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
/s/ Jonathan R. Burst
------------------------------------------
JONATHAN R. BURST
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: /s/ Fred Jensen
---------------------------------------
Name: Fred Jensen
-------------------------------------
Title: Board Chairman
------------------------------------
8
<PAGE>
EXHIBIT A
Employee Stock Award - Jonathan R. Burst
Each month on a calendar basis starting on January 1, 2000, the
Company shall award common stock to the Employee based upon the formula set
forth in the table below. This formula shall be applied in arrears, using the
Monthly Average Price defined as the highest average for the price of the common
shares as traded on the OTC Exchange for any consecutive ten-day trading period
(business days only) during the applicable calendar month. In addition to the
award levels outlined below, the Employee shall receive a minimum of 6,000
shares per month regardless of the Monthly Average Price achieved in any given
month.
Monthly Average Price Additional Stock Award Level
--------------------- ----------------------------
Under $4.00 per Share None
$4.01 - $5.49 per Share 3,000 Shares
$5.50 - $7.49 per Share 6,000 Shares
$7.50 - $9.99 per Share 10,500 Shares
$10.00 - $19.99 per Share 15,000 Shares
$20.00 and Higher per Share 22,500 Shares
9
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into by
and between INTERNATIONAL FUEL TECHNOLOGY, INC., a Nevada corporation (the
"Company"), and WILLIAM J. LINDENMAYER (the "Employee"), and is dated as of the
first day of January, 2000.
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its shareholders to employ
the Employee in the position set forth below, and the Employee desires to serve
in that capacity.
NOW, THEREFORE, in consideration of the foregoing premises, the mutual
covenants and promises herein contained, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
Company and Employee hereby agree as follows:
1. Employment Period. The Company shall employ the Employee, and the
Employee shall serve the Company, on the terms and conditions set forth in this
Agreement, for the period commencing on January 1, 2000 and ending on December
31, 2000 (the "Initial Term" and, together with any subsequent term of
Employment, the "Employment Period"); provided that the term of employment
hereunder will automatically be renewed on January 1, 2001 for successive one
year terms (each such term a "Renewal Term") unless either party shall, at least
30 days before such date, provide notice to the other party that the Employment
Period will not be extended.
2. Position and Duties.
(a) The Employee shall serve as Chief Operating Officer of the
Company, reporting to the President and Chief Executive Officer, with such
duties and responsibilities as are customarily assigned to such position, and
such other duties and responsibilities not inconsistent therewith as may be
assigned to him from time to time by the President and Chief Executive Officer
of the Company.
(b) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Employee is entitled, the Employee shall
devote his full-time efforts to the business and affairs of the Company and use
his best efforts to carry out such responsibilities faithfully and efficiently.
It shall not be considered a violation of the foregoing for the Employee to (i)
serve on corporate, civic or charitable boards or committees, (ii) deliver
lectures or fulfill speaking engagements, (iii) manage personal investments or
(iv) continue his affiliation with BURCOR International and its affiliates or
DLW Partners, LLC, so long as such activities do not interfere with the
performance of the his responsibilities as an employee of the Company in
accordance with this Agreement or violate the provisions of Section 7 of this
Agreement.
<PAGE>
3. Compensation.
(a) Base Salary. During the Initial Term, the Employee shall receive
an annual base salary (the "Annual Base Salary") at the minimum rate of
$125,000.00. In the event of any Renewal Term as provided for in Section 1
above, the Annual Base Salary shall be renegotiated by the parties hereto, but
in no event shall the Annual Base Salary during any such Renewal Term be less
than $125,000.00. The Annual Base Salary shall be payable in accordance with the
Company's payroll practices as in effect from time to time. The Board of
Directors of the Company may increase the Annual Base Salary above the foregoing
amounts at its discretion.
(b) Bonus. In addition to the Annual Base Salary, the Employee shall
be awarded bonuses (the "Bonus") at such times and in such amounts as are deemed
appropriate by the Board of Directors of the Company.
(c) Stock. Employee shall receive shares of the Company's common
stock for each month of the Employment Period (the "Stock Compensation") as
outlined in attached Exhibit A, Employee Stock Award - William J. Lindenmayer.
Such shares shall be issued to Employee on the last day of each month during the
Employment Period, unless the Employee is terminated by the Company for Cause
(as hereinafter defined) or the Employee terminates his employment without Good
Reason (as hereinafter defined), in which case Employee shall be entitled to
only that portion of Stock Compensation which has accrued hereunder as of the
Date of Termination.
(d) Insurance. The Company will provide Employee, subject to
applicable waiting periods, with term life insurance in the amount of One
Million Dollars ($1,000,000.00); Employee will cooperate with the Company in
obtaining such policies.
(e) Other Benefits. During the Employment Period: (i) the Employee
shall be entitled to participate in all benefit programs of the Company,
including, but not limited to, health insurance coverage or reimbursement of the
Employee's cost to maintain same; and (ii) the Employee and/or the Employee's
family, as the case may be, shall be eligible for participation in, and shall
receive all benefits under, all welfare benefit plans, practices, policies and
programs provided by the Company, including, but not limited to any
comprehensive dental plan, retirement plans and profit sharing programs the
Company may provide to any other employees from time to time.
(f) Expenses. During the Employment Period, the Employee shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Employee in carrying out the Employee's duties under this Agreement,
provided that the Employee complies with the policies, practices and procedures
of the Company for submission of expense reports, receipt and similar
documentation of such expenses.
(g) Fringe Benefits. During the Employment Period, the Employee shall
be entitled to paid vacation and other fringe benefits, in each case on such
terms and conditions as are determined by the Board of Directors of the Company.
2
<PAGE>
4. Termination of Employment.
(a) Death or Disability. The Employee's employment shall terminate
automatically upon the Employee's death during the Employment Period. The
Company shall be entitled to terminate the Employee's employment because of the
Employee's Disability during the Employment Period. "Disability" means that (i)
the Employee has been unable, for a period of six months, or for a total of 90
days in any given period, to perform the Employee's duties under this Agreement,
as a result of physical or mental illness or injury, and (ii) a physician
selected by the Company or its insurers, and acceptable to the Employee or the
Employee's guardian or legal representative, has determined that the Employee's
incapacity is total and permanent. A termination of the Employee's employment by
the Company for Disability shall be communicated to the Employee by written
notice, and shall be effective on the 30th day after receipt of such notice by
the Employee (the "Disability Effective Date"), unless the Employee is able to,
and does, return to full-time performance of the Employee's duties before the
Disability Effective Date.
(b) By the Company.
(i) The Company may terminate the Employee's employment during
the Employment Period for Cause or without Cause. "Cause" means:
A. any fraud, embezzlement or other dishonesty of the
Employee that materially and adversely affects the Company's
business or reputation; or
B. the Employee's conviction for a felony or entering into
a plea of nolo contendere with respect to a felony.
(ii) A termination of employment by the Company for Cause shall
be effectuated by giving the Employee written notice ("Notice of Termination for
Cause") of the termination, setting forth the conduct of the Employee that
constitutes Cause. Termination of employment by the Company for Cause shall be
effective on the date when the Notice of Termination for Cause is given, unless
the notice sets forth a later date (which date shall in no event be later than
30 days after the notice is given).
(iii) A termination of the Employee's employment by the Company
without Cause shall be effected by giving the Employee written notice of the
termination at least thirty (30) days prior to the termination date.
(c) By the Employee.
(i) The Employee may terminate employment in the event of a Good
Reason. "Good Reason" means:
3
<PAGE>
A. the assignment to the Employee of any duties
inconsistent in any respect with paragraph (a) of Section 2 of
this Agreement, other than actions that are not taken in bad
faith and are remedied by the Company within fifteen (15) days
after receipt of notice thereof from the Employee;
B. any failure by the Company to comply with any provision
of Section 3 of this Agreement, other than failures that are not
taken in bad faith and are remedied by the Company within fifteen
(15) days after receipt of notice thereof from the Employee; or
C. the occurrence of a Non-Negotiated Change in Control of
the Company (as defined below).
For purposes of this Agreement, "Non-Negotiated Change in Control" means any one
or more of the following occurrences:
(x) Any individual, corporation (other than the Company,
any trustees or other beneficiary holding securities under any
employee benefit plan of the Company, or any Company owned,
directly or indirectly, by the Stockholders of the Company in
substantially the same proportions as their ownership of stock of
the Company), partnership, trust, association, pool, syndicate,
or any other entity or any group of persons acting in concert
becomes the beneficial owner (within the meaning of Rule 13d-3
under the Securities Exchange Act of 1934) of securities of the
Company possessing more than one-half (1/2) of the voting power
for the election of directors of the Company;
(y) There shall be consummated any consolidation, merger,
or other business combination involving the Company or the
securities of the Company in which holders of voting securities
of the Company immediately prior to such consummation own, as a
group, immediately after such consummation, voting securities of
the Company (or, if the Company does not survive such
transaction, voting securities of the entity surviving such
transaction) having less than one-half (1/2) of the total voting
power in an election of directors of the Company (or such other
surviving corporation); or
(z) There shall be consummated any sale, lease, exchange,
or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the
Company (on a consolidated basis) to a party which is not
controlled by or under common control with the Company.
(ii) A termination of employment by the Employee for Good Reason
shall be effectuated by giving the Company written notice ("Notice of
Termination for Good Reason") of the termination, setting forth the conduct of
the Company that constitutes Good Reason. A
4
<PAGE>
termination of employment by the Employee for Good Reason shall be effective on
the fifth business day following the date when the Notice of Termination for
Good Reason is given, unless the notice sets forth a later date (which date
shall in no event be later than 30 days after the notice is given).
(iii) A termination of the Employee's employment by the Employee
without Good Reason shall be effected by giving the Company written notice of
the termination at least thirty (30) days prior to the termination date.
(d) No Waiver. The failure to set forth any fact or circumstance in a
Notice of Termination for Cause or a Notice of Termination for Good Reason shall
not constitute a waiver of the right to assert, and shall not preclude the party
giving notice from asserting, such fact or circumstance in an attempt to enforce
any right under or provision of this Agreement.
(e) Date of Termination. The "Date of Termination" means the date of
the Employee's death, the Disability Effective Date, the date on which the
termination of the Employee's employment by the Company for Cause or by the
Employee for Good Reason is effective, or the date on which the Company gives
the Employee notice of a termination of employment without Cause or the Employee
gives the Company notice of a termination of employment without Good Reason, as
the case may be.
5. Obligations of the Company upon Termination.
(a) Other Than for Cause, Death or Disability; Good Reason. If,
during the Employment Period, the Company terminates the Employee's employment,
other than for Cause, Death or Disability, or the Employee terminates his
employment for Good Reason, the Company shall (i) pay the Employee's accrued but
unpaid portion of the Annual Base Salary (the "Accrued Obligations") to the
Employee in a lump sum in cash within 30 days after the Date of Termination,
(ii) continue to pay the Annual Base Salary for the remainder of the term
hereof, (iii) issue the accrued Stock Compensation (the "Accrued Stock
Compensation"), and (iv) issue the Stock Compensation for the remainder of the
term hereof. In addition, the Employee shall be entitled to a Bonus in an amount
equal to the Bonus the Employee would have received for the Employment Period
had this Agreement not been terminated. The payments provided pursuant to this
paragraph (a) of Section 5 are intended as liquidated damages for a termination
of the Employee's employment by the Company other than for Cause or Disability
or for the actions of the Company leading to a termination of the Employee's
employment by the Employee for Good Reason, and shall be the sole and exclusive
remedy therefor.
(b) Death or Disability. If the Employee's employment is terminated
by reason of the Employee's death or Disability during the Employment Period,
(i) the Company shall pay the Accrued Obligations to the Employee or the
Employee's estate or legal representative, as applicable, in a lump sum in cash
within 30 days after the Date of Termination and (ii) the Company shall issue
the Accrued Stock Compensation to the Employee or the Employee's estate or legal
representative. In addition, if the Employee's employment is terminated by
reason of Disability, the Company will continue to pay to Employee until the
earlier of: (i) expiration of the Employment Period, or (ii) the
5
<PAGE>
date of Employee's death, the Annual Base Salary, less any amounts received by
Employee under any disability insurance coverage maintained for Employee by the
Company.
(c) Cause; Other than for Good Reason. If the Employee's employment
is terminated by the Company for Cause during the Employment Period, or if the
Employee terminates his employment during the Employment Period other than for
Good Reason, the Company shall pay Employee the Accrued Obligations and the
Company shall issued the Accrued Stock Compensation.
6. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Employee's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
for which the Employee may qualify, nor, subject to paragraph (f) of Section 11,
shall anything in this Agreement limit or otherwise affect such rights as the
Employee may have under any contract or agreement with the Company or any of its
affiliated companies. Vested benefits and other amounts that the Employee is
otherwise entitled to receive under any plan, policy, practice or program of, or
any contract or agreement with, the Company or any of its affiliated companies
on or after the Date of Termination shall be payable in accordance with such
plan, policy, practice, program, contract or agreement, as the case may be,
except as explicitly modified by this Agreement.
7. Confidential Information. The Employee shall hold in a fiduciary
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies and
their respective businesses that the Employee obtains during the Employee's
employment by the Company or any of its affiliated companies and that is not
public knowledge (other than as a result of the Employee's violation of this
paragraph (a) of Section 7) ("Confidential Information"). The Employee shall not
communicate, divulge or disseminate Confidential Information at any time during
the Employee's employment with the Company, except with the prior written
consent of the Company or as otherwise required by law or legal process.
8. No Mitigation. In no event shall the Employee be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Employee under any of the provisions of this Agreement and such
amounts shall not be reduced, regardless of whether the Employee obtains other
employment.
9. Successors.
(a) This Agreement is personal to the Employee and, without the prior
written consent of the Company, shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
6
<PAGE>
10. Miscellaneous.
(a) This Agreement shall be governed by, and construed in accordance
with, the laws of the State of Missouri, without reference to principles of
conflict of laws. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect. This Agreement may not be amended or
modified except by a written agreement executed by the parties hereto or their
respective successors and legal representatives.
(b) All notices and other communications under this Agreement shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
------------------
William J. Lindenmayer
9402 White Avenue
St. Louis, Missouri 63144
If to the Company:
-----------------
International Fuel Technology, Inc.
7777 Bonhomme, Suite 1920
St. Louis, Missouri 63105
Attention: Mr. Fred Jensen
or to such other address as either party furnishes to the other in writing in
accordance with this paragraph (b) of Section 10. Notices and communications
shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement. If any provision of this Agreement shall be held invalid or
unenforceable in part, the remaining portion of such provision, together with
all other provisions of this Agreement, shall remain valid and enforceable and
continue in full force and effect to the fullest extent consistent with law.
(d) Notwithstanding any other provision of this Agreement, the
Company may withhold from amounts payable under this Agreement all federal,
state, local and foreign taxes that are required to be withheld by applicable
laws or regulations.
(e) The failure of the Employee or the Company to insist upon strict
compliance with any provision of, or to assert any right under, this Agreement
shall not be deemed to be a waiver of such provision or right or of any other
provision of or right under this Agreement.
(f) The Employee and the Company acknowledge that this Agreement
supersedes any other agreement between them concerning the subject matter
hereof.
7
<PAGE>
(g) This Agreement may be executed in one or more counterparts, each
of which shall be deemed an original, and which together shall constitute one
instrument.
IN WITNESS WHEREOF, the Employee has hereunto set the Employee's hand and,
pursuant to the authorization of its Board of Directors, the Company has caused
this Agreement to be executed in its name on its behalf, all as of the day and
year first above written.
/s/ William J. Lindenmayer
-----------------------------------
WILLIAM J. LINDENMAYER
INTERNATIONAL FUEL TECHNOLOGY, INC.
By: /s/ Fred Jensen
--------------------------------
Name: Fred Jensen
------------------------------
Title: Board Chairman
-----------------------------
8
<PAGE>
EXHIBIT A
Employee Stock Award - William J. Lindenmayer
Each month on a calendar basis starting on January 1, 2000, the
Company shall award common stock to the Employee based upon the formula set
forth in the table below. This formula shall be applied in arrears, using the
Monthly Average Price defined as the highest average for the price of the common
shares as traded on the OTC Exchange for any consecutive ten-day trading period
(business days only) during the applicable calendar month. In addition to the
award levels outlined below, the Employee shall receive a minimum of 3,000
shares per month regardless of the Monthly Average Price achieved in any given
month.
Monthly Average Price Additional Stock Award Level
--------------------- ----------------------------
Under $4.00 per Share None
$4.01 - $5.49 per Share 2,000 Shares
$5.50 - $7.49 per Share 4,000 Shares
$7.50 - $9.99 per Share 7,000 Shares
$10.00 - $19.99 per Share 10,000 Shares
$20.00 and Higher per Share 15,000 Shares
9
<PAGE>
EXHIBIT 23.1.2
Consent of Independent Certified Public Accountants
International Fuel Technology, Inc.
St. Louis, Missouri
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (File Number (333-96261) of our report dated April 7,
2000 relating to the consolidated financial statements of International Fuel
Technology, Inc. appearing in the Company's Annual Report on Form 10-K for the
year ended December 31, 1999.
/s/ BDO Seidman, LLP
St. Louis, Missouri
May 8, 2000
<PAGE>
EXHIBIT 23.1.1
Report of Independent Certified Public Accountants
Board of Directors
International Fuel Technology, Inc.
St. Louis, Missouri
The audit referred to in our report dated April 7, 2000, relating to the
financial statements of International Fuel Technology, Inc., which is referred
to in Item 8 of this Form 10-K, include the audit of the accompanying financial
statement schedule. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion on this
financial statement schedule based upon our audit. In our opinion, such
financial statement schedule presents fairly, in all material respects, the
information set forth therein.
/s/ BDO SEIDMAN, LLP
St. Louis, Missouri
April 7, 2000
<PAGE>
Exhibit 23.2.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement on
Form S-8 (File No. 000-25367) of our report dated September 27, 1999 on our
audits of the financial statements of International Fuel Technology, Inc. as of
March 31,1999 and 1998 and for each of the two years in the period ended March
31, 1999, and for the period from April 9, 1996, the date of inception, to March
31, 1999, which report is included in the Company's Form 8-K filed January 12,
2000.
/s/ McGladrey & Pullen, LLP
Las Vegas, Nevada
May 4, 2000
<PAGE>
Exhibit 23.2.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation of our report, dated September 27, 1999,
included in this Form 10-K in the previously filed Registration Statement of
International Fuel Technology, Inc. on Form S-8 (No. 333-96261).
/s/ McGladrey & Pullen, LLP
Las Vegas, Nevada
May 9, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
INTERNATIONAL FUEL TECHNOLOGY INC. December 31, 1999 Form 10-K and is qualified
in its entirety by reference to such financial statements.</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 26,846
<SECURITIES> 0
<RECEIVABLES> 15,468
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 12,719
<PP&E> 15,505
<DEPRECIATION> 2,374
<TOTAL-ASSETS> 68,164
<CURRENT-LIABILITIES> 863,692
<BONDS> 0
0
0
<COMMON> 168,184
<OTHER-SE> (963,712)
<TOTAL-LIABILITY-AND-EQUITY> 68,164
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 5,226,799
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
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</TABLE>
