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As filed with the Securities and Exchange Commission on September 30, 1999
Commission File No. 333-_____
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United States Securities And Exchange Commission
Washington, D.C. 20549
______________________
FORM SB-2
Registration Statement Under The Securities Act Of 1933
______________________
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(Name of Small Business Issuer in its Charter)
Delaware 3598 98-0211550
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number.) Identification No.)
incorporation or
organization)
John P. Thuot
7087 MacPherson Avenue
Burnaby, British Columbia, Canada, V5J 4N4
(604) 435-9339
(Address and Telephone Number of Principal
Executive Offices and Principal Place of Business)
(Name, Address and Telephone Number of Agent for Service of Process)
Approximate date of proposed sale to public: As soon as possible after this
registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act, check
the following box: [_]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of this prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
Calculation of Registration Fee
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Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Amount to be Offering Price Aggregate Registration
Securities to be Registered Registered Per Share Offering Price Fee
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Common stock, $0.0001 par value 7,705,732 $0.0001(1) $7,705.73 $2.75
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(1) Estimated solely for purposes of computing registration fee pursuant to Rule
457. Arbitrary price set at par value as no trading market is contemplated
or value established.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the registration statement shall become effective on
such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
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PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED SEPTEMBER 30, 1999
Prospectus
[LOGO OF CLEAN ENERGY APPEARS HERE]
Combustion Systems Inc.
7,705,732 Shares of Common Stock
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This prospectus relates to the offer and distribution of up to 7,705,732 shares
of our common stock in a series of transactions by certain of our executive
officers, directors and stockholders. These series of transactions include:
. The distribution of 1,087,910 shares by one of our corporate-
stockholders to certain of its claimants to satisfy potential
obligations;
. The distribution of up to 5,437,803 shares by one of our corporate-
stockholders and its parent and subsidiary corporations to their
respective stockholders as part of a dividend in specie; and
. The distribution of 1,180,019 shares by certain of our stockholders as
gifts to members of their family and to close friends.
There is no public market for the common stock to be offered and distributed
under this prospectus, and we cannot give you any assurance that any public
market for these shares will develop at any time in the future. Neither Clean
Energy nor any of our distributing stockholders will receive any payment of cash
or other property as part of the distributions under this prospectus. We will
pay all expenses incurred in facilitating the distribution under this
prospectus, estimated at $72,500, from our general funds.
________________
An investment in the common stock which is being distributed under this
prospectus involves a high degree of risk. See "Risk Factors" beginning on page
5 of this prospectus.
________________
Neither the United States Securities and Exchange Commission nor any state
or provincial securities administrator, including the British Columbia
Securities Commission, has approved or disapproved of the common stock which is
being distributed under this prospectus, or determined that this prospectus is
complete or accurate. It's illegal for anyone to tell you otherwise.
________________
The information in this prospectus is not complete and may be changed. We are
not allowed to distribute the common stock offered by this prospectus until the
registration statement containing this prospectus that we have filed with the
Securities and Exchange Commission is declared effective by the Securities and
Exchange Commission. This prospectus is not an offer to distribute our common
stock--and doesn't solicit offers to receive distributions--in any state or
province where this offer or distribution is not otherwise permitted.
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_________, 1999
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Table Of Contents
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Prospectus Summary............................................................................. 1
Risk Factors................................................................................... 5
Risks Relating to Clean Energy and its Business............................................. 5
Risks Relating to this Distribution......................................................... 10
Forward-Looking Information.................................................................... 14
Capitalization................................................................................. 15
Use of Proceeds................................................................................ 15
Determination of Offering Price and Dilution................................................... 15
Dividend Policy................................................................................ 16
Business....................................................................................... 16
Overview.................................................................................... 16
Corporate Structure......................................................................... 19
License Agreements.......................................................................... 20
Principles of Pulse Blade Combustion........................................................ 22
Advantages of PBC Technology Over Conventional Steady-state and
Other Pulse Combustion Systems............................................................ 22
Heat Exchange Industry Background........................................................... 24
Pulse Technology Background; Other Pulse Combustion Products................................ 25
Prototype Development....................................................................... 26
Third Party Testing......................................................................... 26
Marketing Strategy.......................................................................... 27
Initial Targeted Applications Of Technology; Pending Proposals.............................. 28
Future Targeted Applications Of Technology.................................................. 30
Markets 31
Manufacturing and Suppliers................................................................. 31
Research and Development.................................................................... 31
Competition................................................................................. 31
Patents And Proprietary Rights.............................................................. 32
Employees................................................................................... 32
Facilities 33
Government Regulation....................................................................... 33
Legal Proceedings........................................................................... 33
Management's Discussion And Analysis Of Financial Condition And Results Of Operations.......... 33
General 33
Overview.................................................................................... 33
Results Of Operations....................................................................... 34
Liquidity And Capital Resources............................................................. 34
Plan Of Operation And Prospective Capital Requirements...................................... 34
Other Matters............................................................................... 35
Management..................................................................................... 36
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Identity 36
Business Experience......................................................................... 36
Board of Directors.......................................................................... 37
Employment Agreements and Executive Compensation............................................ 38
Indemnification of Directors, Executive Officers and Agents................................. 39
Change of Control Arrangements.............................................................. 40
Principal Stockholders......................................................................... 40
Certain Relationships And Related Transactions................................................. 42
Transactions With Management and Others..................................................... 42
Indebtedness of Management and Others to Clean Energy....................................... 43
Description Of Our Securities.................................................................. 43
General 43
Common Stock................................................................................ 43
Series "A" Preferred Stock.................................................................. 44
Series "B" Preferred Stock.................................................................. 47
Non-Designated Preferred Stock.............................................................. 49
Provisions In Our Certificate Of Incorporation and Bylaws Governing Rights of Stockholders.. 49
Founding Stockholders Agreement............................................................. 51
OTC Bulletin Board Lock-Up Restrictions..................................................... 53
1999 Clean Energy Stock Plan................................................................ 53
Delaware Business Combination Act........................................................... 55
Plan of Distribution........................................................................... 56
Distributing Stockholders...................................................................... 58
Market For Our Securities...................................................................... 58
General 58
Intent to Establish a Limited Public Market for Common Stock on the
NASD OTC Electronic Bulletin Board........................................................ 59
Compliance With Penny Stock Rules........................................................... 59
Restrictions On Transfer of Securities in the United States Without Compliance
With State "Blue Sky" Securities Laws..................................................... 60
Restrictions On Transfer of Securities in Canada Without Compliance With
Provincial Securities Laws................................................................ 60
OTC Bulletin Board Lock-Up Restrictions..................................................... 61
Restrictions On Sale Imposed Under Rule 144................................................. 61
Transfer Agent and Registrar................................................................... 62
Legal Matters.................................................................................. 62
Experts........................................................................................ 62
Where You Can Find More Information............................................................ 63
Index to Financial Statements.................................................................. 64
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Glossary
BTU--British thermal unit, the amount of heat required to raise the temperature
of 1 lb. of water 1 degree Fahrenheit. (An average North American home furnace
is rated at about 120,000 BTU per hour).
CO--Carbon monoxide, an atmospheric pollutant.
CO2--Carbon dioxide, a harmless gas.
Hz--The basic unit of frequency given in cycles per second. 1 Hz equals 1 cycle
per second.
Diesel technology--The diesel burner head design invented by John D. Chato and
developed by the BO Tech Burner Systems Ltd., a British Columbia corporation.
NOx--Oxides of nitrogen, an atmospheric pollutant.
N2--Nitrogen, a harmless gas.
PBC--Pulse blade combustion.
PBC burner unit--A burner unit which operates on PBC technology.
Pulse combustion--As distinguished from steady-state (conventional) combustion,
pulse combustion in which fuel and air are ignited in a chamber by an ignition
source (spark etc.). The hot gases expand and travel out of the exhaust creating
a negative pressure in the device. This negative pressure causes the next charge
of fuel and air to be sucked into the chamber and ignition occurs again. This
repetitive, on/off cycling causes a turbulent combustion environment and very
clean and efficient combustion.
PBC technology--The pulse combustion designs invented by John D. Chato and
developed by the BO Tech Burner Systems Ltd., a British Columbia corporation.
Pulse frequency--The frequency with which a pulse combustor completes its on/off
cycle, measured in Hz (Hertz).
SO2--Sulfer dioxide, an atmospheric pollutant.
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Prospectus Summary
This summary highlights important information about our business and the
distribution of our common stock under this prospectus. Because it is a
summary, it is not complete and may not contain all of the information that is
important to you. You should read the entire prospectus carefully, including
the risk factors and the financial statements and the notes to those statements.
All references to dollars in this prospectus refer to United States dollars
unless specified otherwise.
Our Company
Clean Energy Combustion Systems, Inc. is a development stage company
incorporated in Delaware and organized on March 1, 1999. We have one wholly-
owned research and development subsidiary, Clean Energy Technologies (Canada)
Inc., which was incorporated in British Columbia and organized by our founders
on February 16, 1999, and acquired by our company on March 1, 1999.
Our principal executive offices are located at 7087 MacPherson Avenue, Burnaby,
British Columbia, Canada, V5J 4N4, and our telephone number is (604) 435-9339.
Our Business
Our company was formed for the express purpose of acquiring exclusive world-wide
(excluding Finland and Sweden) license rights to design, engineer, manufacture,
market, distribute, license and otherwise commercially exploit our patented and
innovative pulse blade combustion (or "PBC") and diesel technologies. Each
technology can be used to develop highly energy-efficient burner units that emit
low levels of pollutants and are inexpensive to manufacture. These technologies
were originally invented by one of our founders, Mr. John D. Chato, and are now
in a position to be introduced to the market having completed their primary
development stage.
Our objective is to enter into licensing, royalty, joint venture, or
manufacturing agreements with established national and international heat
transfer industry manufacturers which will allow us to introduce a variety of
different burner units based upon our technology into various selected market
segments.
The ability to burn fuel with maximum efficiency and minimum emissions has
become a critical consideration worldwide, and particularly in the developed
countries of the world, due to the energy and environmental concerns. We believe
that conventional steady-state combustion techniques are approaching, or are at,
their theoretical physical limits for both pollution and efficiency. We believe
that our PBC technology, in particular, has the potential to bring dramatic
improvements in both efficiency and pollution control to the heat transfer
industry, particularly in view of the existing limitations of conventional
combustion techniques. We believe that our burner technologies, and
particularly our PBC technology, will be well positioned for rapid commercial
acceptance in the heat exchange industry in view of their noted competitive
advantages over combustion techniques and evolving worldwide environmental and
energy cost concerns.
A burner unit is generally a boiler, furnace or other combustion chamber or
engine or system which generates heat through the burning of natural gas,
propane, gasoline, diesel fuel, oil, or coal for industrial, commercial and
residential purposes, including power generation and co-generation, water
heating, space heating and air conditioning. Burner units or systems are used
in virtually every industry and every country of the world in numerous
commercial, industrial, residential and specialty applications, including the
following:
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. Commercial Applications--space and water heating for apartment
buildings, office buildings, hotels, hospitals, warehouses and small
plants, vehicles, RVs, boats, and co-generation.
. Industrial Applications--medium to large plants, such as pulp and paper
mills, manufacturing operations, product drying facilities, large
hotels, hospitals, office complexes, co-generation, water purification
and desalination.
. Residential Applications--domestic water heating, hydronic space and
water heating, and demand water heating.
. Specialty Applications--"one-of-a-kind" applications which often require
custom engineering or fabrication, such as retrofitting of power
generation plants, new power plants, and large co-generation
installations.
Our primary burner technology, which we refer to as our pulse blade combustion
or "PBC" technology, operates on the principles of pulse combustion, as opposed
to conventional steady-state burner technologies. This technology utilizes a
valve-less (no moving parts) blade-shaped combustion chamber and tailpipe
assembly to facilitate highly efficient and clean burning combustion,
principally through the turbulent combustion environment attributable to the
repetitive, on/off cycling inherent in the pulse combustion process. Burner
units using our PBC technology are compact, have no moving parts, and are
relatively inexpensive to manufacture due to the simplicity of our design.
Energy output for any given burner configuration may be increased, while still
maintaining low emissions and high efficiency, through either enlarging or
extending the size of the combustion and exhaust chambers (while maintaining the
necessary geometries between the combustion chamber and tailpipe assembly), or
by simply adding additional units or modules on a linear (i.e., side by side)
basis. Potential applications of our PBC technology include the following:
. Residential, commercial and industrial air and water heating and air
conditioning;
. Recreational and marine vehicle water and space heating;
. Production of steam for small commercial and industrial processes and
for electrical power generation;
. Drying of food products (both human and animal), lumber, bio-waste and
sludge;
. Re-burning of industrial flue gases to remove pollutants; and
. "Zero" excess oxygen applications.
Our diesel technology, which is our secondary burner technology, is a new design
which allows certain steady-state burner applications, previously limited to
natural gas or propane, to burn diesel fuel. This design results in ultra-clean
diesel emissions that are lower than most natural gas burners. Mr. Chato has
designed, built and tested a very successful proof of concept model in the
development of our diesel technology.
Primary development of both our PBC technology and our diesel technology has
been completed at a cost of approximately Cdn. $4 million over the past ten
years through BO Tech Burner Systems Ltd., a British Columbia corporation which
is one of our founders and is affiliated with Mr. Chato. Each technology is now
in a position to be commercially exploited, and we are currently working on a
number of prototypes under several proposal requests which could lead to
contracts allowing us to introduce burner systems based upon these technologies,
including the following:
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. an instantaneous, commercial water heater for State Industries, Inc.,
North America's largest water heater manufacturer;
. several different natural gas-fueled PBC burner units for Goal Line
Environmental Technologies LLC;
. the adaptation of our new diesel technology to two different gas-fired
burner units manufactured by Acotech Corporation;
. the utilization of our PBC technology as a generating system or power
source for an external combustion (heat) engine produced by STM
Corporation; and
. industrial drying applications.
Proposed Distributions of Our Common Stock by Distributing Stockholders
This prospectus relates to the offer and distribution of up to 7,705,732 shares
of our common stock by certain of our executive officers and directors and
certain of our founding stockholders who are considered to be our "affiliates"
under the United States federal securities laws. The distributing stockholders
will effectuate the offer and distribution through the following series of
transactions:
. First, BO Tech Burner Systems Ltd., a British Columbia corporation which
is one of our founding stockholders, will distribute 5,437,803 shares of
our common stock as a dividend in specie to its stockholders and those
of its parent and subsidiary, as follows:
. BO Tech Burner Systems will first contribute 753,724 shares to its
majority-owned subsidiary, BO Gas Limited, also a British Columbia
corporation. BO Gas Limited, in turn, will distribute these shares to
up to 134 of its stockholders of record as a dividend in specie; and
. BO Tech Burner Systems will then distribute 4,684,079 shares to its
54 stockholders of record as a dividend in specie. BO Tech Burner
Systems' controlling parent company, BO Development Enterprises Ltd.,
a British Columbia corporation, will receive 2,599,084 shares as part
of this dividend distribution, and will, in turn, distribute these
shares to its 28 stockholders of record as a dividend in specie.
. Second, BO Tech Burner Systems will next distribute 1,087,910 shares,
representing the balance of its holdings, to five claimants to satisfy
potential claims these persons may have against BO Tech Burner Systems
and its affiliated companies. Included in this total will be 892,019
shares that BO Tech Burner Systems will distribute to a licensee,
Technoquest, Inc., a Nevada corporation, to satisfy potential claims
relating to a terminated license agreement. Technoquest, in turn, will
distribute these 892,019 shares to its 47 stockholders of record as a
dividend in specie.
. Finally, certain of our stockholders desire to gift a total of 1,180,019
of their shares of our common stock to their family members and close
friends. Specifically, Messrs. John D. Chato, John P. Thuot, James V.
DeFina and Barry Sheahan desire to gift 60,000, 82,513, 50,000 and
33,100 shares, respectively, and Mr. R. Dirk Stinson desires to gift
954,406 shares currently held by his wholly-owned corporation,
Ravenscraig Properties Limited, which is one of our affiliated
stockholders.
Neither Clean Energy nor any of our distributing stockholders will receive any
payment of cash or other tangible property for the common stock distributed
under this prospectus. We will pay all expenses
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incurred in facilitating the distribution under this prospectus, including
registration fees, and printing, legal and accounting fees, estimated at
$72,500, from our general funds.
The foregoing distributions by our distributing stockholders other than BO Gas
Limited will be effectuated immediately after the registration statement
containing this prospectus clears the Securities and Exchange Commission staff
comment process and is declared effective. The distribution by BO Gas Limited
to its stockholders will be delayed beyond that effective date pending the
expiration of a cash rescission offer extended by BO Gas Limited to certain of
its stockholders under the securities laws of the province of British Columbia.
There is no public market for our common stock, and we cannot give you any
assurance that any active or liquid public market for our common stock will
develop or be sustained at any time in the future.
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Risk Factors
You should consider our common stock to be an investment that involves a high
degree of risk. In order to attain an appreciation for these risks, you should
read this prospectus in its entirety and consider all of the information and
advisements contained in this prospectus, including the following risk factors.
Any of the risk factors described below or elsewhere in this prospectus could
materially adversely affect our business, operating results and financial
condition, and could result in a complete loss of any value in our common stock.
Although we have attempted to provide a comprehensive list of risks, there may
be other risks and uncertainties that may also materially adversely affect our
business and financial condition that we have not yet identified or that we
currently think are immaterial.
You should rely only on the information contained in this prospectus to evaluate
our business and prospects and the value of our common stock. We have not
authorized anyone to provide you with information different from that contained
in this prospectus.
Risks Relating to Clean Energy and its Business
We Are A Newly Formed Company With A Limited Operating History
We were only recently organized, on March 1, 1999, and have a limited operating
history. Our activities through the date of this prospectus have encompassed
developing our business plan; obtaining license rights to our burner
technologies; establishing administrative offices and laboratory facilities;
engaging administrative and research and development personnel; and commencing
work on various burner prototypes under certain proposals intended to lead to
commercial contracts.
We are subject to all the risks and issues inherent in the establishment and
expansion of a new business enterprise including, among others, problems of
entering new markets, marketing new technologies, hiring and training personnel,
acquiring reliable facilities and equipment, and implementing operational
controls. In general, startup businesses are subject to risks and or levels of
risk that are often greater than those encountered by companies with established
operations and relationships. Startups often require significant capital from
sources other than operations. The management and employees of startup business
shoulder the burdens of the business operations and a workload associated with
company growth and capitalization that is disproportionately greater than that
for an established business. Any of the foregoing risks could have a material,
adverse effect on our business, financial condition and our operating results.
In addition to risks inherent in start-up businesses, we will also be subject to
the risks and issues typically associated with operating a business, including
many which will be beyond our control and which we cannot predict at this time.
These risks and issues may include, among others, changes in burner
technologies, price and product competition, developments and changes in the
burner market, demand for our products, changes in pricing policies by our
company or our competitors (including the grant of price protection terms and
discounts), changes in the mix of products we sell and the resulting change in
total gross margin, changes in the mix of channels through which we offer our
products to the market, product enhancements and new product announcements by
our company and our competitors, market acceptance of new products by our
company or our competitors, raw material costs, write-offs of obsolete
inventory, the size and timing of distributor and end user orders and purchasing
cycles, customer order deferrals in anticipation of enhancements to our or our
competitors' products, manufacturing delays, disruptions in sources of supply,
product life cycles, product quality problems, personnel changes, changes in our
strategy, changes in the level of our operating expenses, the timing of research
and development expenditures, the level of our international revenues,
fluctuations in foreign currency
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exchange rates, general economic conditions, both in the United States and
abroad, and economic conditions specific to the industries in which we compete.
Our limited operating history makes it difficult, if not impossible, to predict
future operating results. To address these risks we must, among other things,
continue to respond to competitive developments; attract, retain and motivate
qualified personnel; implement and successfully execute our sales strategy; and
continue our product development activities. We cannot give you any assurance
that we will successfully address these risks.
We Are A Developmental Stage Company With No Revenues; We Expect To Incur
Continuing Operating Losses For The Foreseeable Future
We are a developmental stage company since we have not commenced commercial
sales of our burner technologies and have no revenues to date, and we do not
anticipate that we will generate revenues for at least four to six months at the
earliest (assuming that one or more of our pending projects lead to a commercial
contract). We have, as a result of our lack of revenues, incurred operating
losses since our inception in March 1999, and we anticipate that we will
continue to incur substantial operating losses for the foreseeable future
(despite any revenues we may receive in the short-term from any of our pending
projects) due to the significant costs associated with the development and
marketing of our burner technologies. Although we are working on prototypes
under several pending proposals, we have not entered into any revenue-generating
contracts to date, and our ability to do so will be dependent in primary part
upon our ability to satisfactorily complete the prototypes, to raise sufficient
capital to fund these efforts, and to otherwise successfully implement our
various market strategies under our business plan. Even if we enter into
revenue-generating contracts, we cannot give you any assurance that we will
attain or sustain operating profitability as a result of these contracts.
We Must Obtain Additional Capital To Continue As A Going Concern
We anticipate that our current working capital will enable us to cover our
operating costs only through October, 1999, at our current levels of operation.
We also anticipate that we will need to raise at least $2 million in additional
working capital to fully implement our longer-term business plan and marketing
strategies. We have no current arrangements for obtaining this additional
capital, and will seek to raise it in one or more increments through contract
advances, public or private sales of debt or equity securities, debt financing
or short-term loans, or a combination of the foregoing. Given our limited
operating history and lack of revenues and profits, we cannot give you any
assurance that we will be able to secure the additional capital we require at
all, or on terms which will not be objectionable to our company or our
stockholders, including substantial dilution or the sale or licensing of our
technologies. Our inability to obtain adequate additional capital on acceptable
terms or at all would have a material adverse effect on our company and our
business, and could force us to materially scale back or even suspend our
operations, or even seek a merger with, or sell our business to, a third party.
In view of these considerations, note one to our financial statements states
that if we do not raise sufficient capital there is a substantial doubt as to
our ability to continue as a going concern. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
The Market May Not Accept Products Based Upon Our Burner Technologies
Products using our burner technologies must compete with established
conventional steady-state burner technologies which have already achieved market
acceptance. The design for our burner technologies is new and unique, and no
products based upon our technologies and configurations have been commercially
produced or sold to date. Additionally, although there is a market for PBC
burner products using differently configured pulse burner technology designs,
these products are not widely accepted by
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the market, and therefore not particularly useful as a precedent for the
introduction of our PBC burner technology. As is typical in the case of any new
technology, demand and market acceptance for products based upon new
technologies are subject to a high level of uncertainty and risk, including the
risk that the marketplace may not accept, or be receptive to, the potential
benefits of these new products. The extent and pace of market acceptance of new
burner products based upon our burner technologies will ultimately be a function
of many variables, including the following:
. the efficacy, performance and attributes of these new products;
. the ability to obtain necessary regulatory approvals to commercially
market these new products;
. the effectiveness of marketing and sales efforts, including educating
potential customers as to the distinctive characteristics and benefits
of these new products; and
. the ability to meet manufacturing and delivery schedules; and product
pricing.
The extent and pace of market acceptance of products based upon our burner
technologies will also depend upon general economic conditions affecting
customers' purchasing patterns. Because the market for our burner technologies
is new and evolving, it is difficult, if not impossible, to predict the future
growth rate, and the size of the potential market. We cannot give you any
assurance that a market for our burner technologies will develop or, if
developed, will be sustainable. The failure of our burner products to achieve
or sustain market acceptance would have a material adverse affect on our
business, results of operations and financial condition.
We Have Limited Sales, Marketing And Distribution Capabilities And May Be Forced
To Rely Extensively On Strategic Partners Or Third Parties To Market And
Distribute Our Products
We currently have no internal sales, marketing and distribution capabilities,
and may be forced to rely extensively on strategic partners or third party
marketing and distribution companies. Accordingly, our ability to effectively
market and distribute our burner products may be dependent in large part on the
strength and financial condition of others, the expertise and relationships of
our strategic partners or distributors and marketers with customers, and the
interest of these parties in selling and marketing our products. Our
prospective strategic partners and marketing and distribution parties may also
market and distribute the products of other companies. Our failure to generate
substantial sales through any strategic partners or distribution arrangements we
procure or to otherwise develop our own internal sales, marketing and
distribution capabilities will have a material adverse effect on our business,
financial condition and results of operations. If our relationships with any
strategic partners or third party marketing and distribution partners were to
terminate, we would need to either develop alternative relationships or develop
our own internal sales and marketing forces to continue to sell our products.
Even if we are able to develop our internal sales, marketing and distribution
capabilities, these efforts would require significant cash and other resources
that would be diverted from other uses (if available at all) and could cause
delays or interruptions in our product supply to customers, which could result
in the loss of significant sales or customers.
We Have No Internal Manufacturing Capability And May Be Forced To Depend Heavily
Upon Strategic Partners Or Third Party Suppliers
We currently have no internal manufacturing capability, and may be forced to
rely extensively on strategic partners or third party contract manufacturers or
suppliers. Should we be forced to manufacturer our burner products, we cannot
give you any assurance that we will be able to develop or internal manufacturing
capability or procure third party suppliers. Moreover, we cannot give you any
contract manufacturers or suppliers we procure will be able to supply our
product in a timely or cost effective manner or in accordance with applicable
regulatory requirements or our specifications. A delay or
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interruption in the supply of components or finished products would
significantly impair our ability to compete and would have a material adverse
effect on our business, financial condition and results of operations.
We Have Limited Research And Development Resources And Our Success Depends In
Part On Our Research And Development Efforts
Due to the early developmental stage of our business, we have expended only
limited amounts on research and development of our burner products to date,
including development of project prototypes, and currently have very limited
resources to devote to future research and development. Unless we are able to
obtain and devote resources to our research and development efforts, including
project prototypes, we may only be able to develop limited product offerings in
the future and our ability to procure contracts or otherwise achieve market
acceptance for our burner products will be limited. As a result, we may fail to
achieve significant growth in revenues or profitability in the future.
We Operate In A Highly Competitive Industry
Products based upon our burner technologies will face intense domestic and
foreign competition in all markets in which they are introduced from
conventional products and technologies already being sold in these markets.
Additionally, many of our prospective competitors have significantly greater
financial, technical and marketing resources and trade name recognition than
ours, which may enable them to successfully develop and market products based on
technologies or approaches similar to ours, or develop products based on other
technologies or approaches which are, or may be, competitive with our burner
technologies. Our competitor's development of new or improved products,
processes or technologies may make our burner technologies less competitive or
obsolete. We will be required to devote significant financial and other
resources to continue to develop our burner technologies in view of potential
competition. We cannot give you any assurance that we will be able to initially
penetrate or compete successfully within the heat exchange industry. (See
"Business--Competition").
We Could Lose Our Technology Licenses If We Fail To List Our Common Stock On A
National Exchange
We granted certain termination rights to 818879 Alberta, Ltd. and Mr. John D.
Chato, the licensors of our PBC and diesel technologies, as an inducement for
their licensing these technologies to our company. Specifically:
. 818879 Alberta retains the right to terminate the PBC Technology License
if our common stock does not actively trade on a "National Exchange"
(defined as The New York Stock Exchange, The American Stock Exchange or
The Nasdaq Stock Market) on or after March 4, 2002. (Although we reserve
the right to over-ride 818879 Alberta's exercise of its termination
right by purchasing the PBC technology outright for a formula-based cash
payment).
. Mr. Chato retains the right to terminate the Diesel Technology License
if the 818879 Alberta terminates the PBC Technology License for the
reasons stated above.
In addition, if we acquire title to our PBC technology from 818879 Alberta by
reason of our success in developing an active trading market on a National
Market, 818879 Alberta will retain the right to repurchase the PBC technology
from us should we declare bankruptcy or become insolvent.
The loss of either of our technology licenses would have a material adverse
effect on our business, results of operations and financial condition. (See
"Business--License Agreements").
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<PAGE>
Our Success Is Dependent Upon Key Managerial Personnel
Our success depends to a significant extent on the continued efforts of our
research and development and senior management team, which currently is composed
of a small number of individuals, including Mr. John D. Chato, our head of
research and development and the inventor of our licensed technologies, Mr. John
P. Thuot, our President, Mr. Barry A. Sheahan, our Chief Financial Officer, and
Mr. James V. DeFina, our Projects Director. Although Messrs. Chato, Thuot,
Sheahan and DeFina have signed employment agreements, we cannot give you any
assurance that one or more of these employees will not leave our company. We
also do not carry key person life insurance on any of our key management
personnel. The loss of the services of any of our key personnel could have a
material adverse effect on our business, results of operations and financial
condition.
Our ability to implement our growth strategies will also be dependent upon our
continuing ability to attract and retain highly qualified engineering,
managerial, sales and marketing and administrative personnel. Competition for
the type of personnel we require is intense and we cannot give you any assurance
that we will be able to retain our key managerial and technical employees, or
that we will be able to attract and retain additional highly qualified
managerial and technical personnel in the future. Our inability to attract and
retain the necessary personnel could impede our growth. (See "Risk Factors--
Risks Relating To Clean Energy And Its Business--Our Success Is Dependent Upon
Our Ability To Manage our Growth").
Our Success Is Dependent Upon Our Ability To Manage Our Growth
Our success will depend upon the rapid expansion of our business. Expansion
will place a significant strain on our financial, management and other
resources, and will require us, among other things, to change, expand and
improve our operating, managerial and financial systems and controls; improve
the coordination between our various corporate functions; and to hire additional
engineering, sales and marketing, customer service and managerial personnel. We
cannot give you any assurance that our efforts to hiring or retain these
personnel will be successful, or that we will be able to manage the expansion of
our business effectively. Our inability to effectively manage our growth, or
the failure of our new personnel to achieve anticipated performance levels,
would have a material adverse effect on our business, results of operations and
financial condition.
Our Ability To Compete Is Dependent Upon Our Patents and Proprietary Rights
Our ability to compete effectively will be materially dependent upon the
proprietary nature of our designs, processes, technologies and materials.
Although we protect our proprietary property, technologies and processes through
a combination of patent law, trade secrets and non-disclosure agreements, we
cannot give you any assurance that these measures will prove to be effective.
For example, in the case of patents, we cannot give you any assurance that our
or our licensor's existing patents will not be invalidated, that any patents
that we or our licensors' currently or prospectively apply for will be granted,
or that any of these patents will ultimately provide significant commercial
benefits. Moreover, it is possible that competing companies may circumvent any
patents that we or our licensors may hold by developing products which closely
emulate but do not infringe our or our these patents, and thereby market
products that compete with our products without obtaining a license from us. In
addition to patented or potentially patentable designs, technologies, processes
and materials, we also rely on proprietary designs, technologies, processes and
know-how not eligible for patent protection. We cannot give you any assurance
that our competitors will not independently develop the same or superior
designs, technologies, processes and know-how as we possess.
We believe that the international market for our products and technologies is as
important as the domestic market, and we will therefore seek patent protection
for our products and technologies or those of our
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<PAGE>
licensors in selected foreign countries. Because of the differences in foreign
patent and other laws concerning proprietary rights, our products and
technologies may not receive the same degree of protection in certain foreign
countries as they would in the United States.
We cannot give you any assurance that we will be able to successfully defend our
patents and proprietary rights. The invalidation or circumvention of key
patents or proprietary rights which we own or license could have a material
adverse effect on our business prospects. We cannot give you any assurance that
we will not be required to defend against litigation involving the patents or
proprietary rights of others, or that we will be able to obtain licenses for
these rights. Legal and accounting costs relating to prosecuting or defending
patent infringement litigation may be substantial. (See "Business--Patents and
Propriety Rights").
We Will Be Subject To The Risks Associated with International Transactions
We intend to sell our products and technologies internationally as well as to
the United States and within Canada which will subject us to several potential
risks, including risks associated with fluctuating exchange rates, the
regulation of fund transfers by the governments of the United States and Canada
as well as foreign governments export and import duties and tariffs by the
governments of the United States and Canada as well as foreign governments, and
political instability. We cannot give you any assurance that any of these risks
will not have a material adverse effect upon our business. We do not engage in
activities to mitigate the effects of foreign currency fluctuations, and we
intend to be paid in U.S. dollars with respect to any international transactions
we may enter into. If earnings from international operations increase, our
exposure to fluctuations in foreign currencies may increase, and we may utilize
forward exchange rate contracts or engage in other efforts to mitigate foreign
currency risks. We can give no you assurance as to the effectiveness of these
efforts in limiting any adverse effects of foreign currency fluctuations on our
international operations and our overall results of operations.
Risks Relating to this Distribution
There Is No Public Trading Market For Our Common Stock
There is no public market for our securities, including the common stock to be
distributed under this prospectus, and we cannot give you any assurance that any
active or liquid public market for our common stock will develop or be sustained
at any time in the future. Our common stock does not now, and may never qualify
for, quotation or listing on any over-the-counter market or on any exchange.
(See "Market For Our Securities").
Our Common Stock Is Illiquid Due To The Absence Of A Public Market For These
Securities
In the absence of a public market for our common stock on an over-the-counter
market or an exchange, you will not be able to sell any shares you receive under
this prospectus through normal brokerage channels, and your ability to sell
these shares will be limited to privately negotiated transactions. You will
likely face difficulties in finding a purchaser for your shares, particularly in
view of our limited operating history, our absence of revenues, profits and
dividends, our need for additional capital, your position as a minority
stockholder, and the other risk factors discussed in this prospectus relating to
an investment in our common stock. Lenders will also not readily accept your
shares as collateral for these same reasons. Also, our company and our
officers, directors, stockholders and agents are under no obligation to purchase
these shares from you. As a result of these factors, you may not be able to
sell or liquidate these shares should you need to do so due to a financial
emergency or other exigent circumstances, including your death. Moreover, if
you do find a purchaser for your shares, the price you receive may be less than
the price you believe to be warranted. Consequently, you should consider the
common stock to be distributed under this prospectus only as a long-term
investment
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<PAGE>
Our Common Stock Has A Deficit Net Tangible Book Value And Has No Established
Value
There is no public market for the trading of our common stock or other indicia
of value upon which the value of the shares to be distributed under this
prospectus may be establish or supported. We have not obtained any independent
valuation of the shares to be distributed under this prospectus from any
investment banker, appraiser or other expert in the valuation of securities and
businesses, and we have no plans and are under no obligation to do so. After
taking into consideration the liquidation preference payable to our series "A"
and series "B" preferred stockholders, our net tangible book value per share of
common stock would be a deficit of $0.028 per share based upon our
capitalization as of May 31, 1999. You should not ascribe any value to our
common stock in view of the lack of a public market for these securities and
their noted deficit net tangible book value, as well as our limited operating
history, our absence of revenues, profits and dividends, our need for additional
capital, your position as a minority stockholder, and the other risk factors
discussed in this prospectus relating to an investment in our common stock.
Moreover, you will suffer significant dilution relative to any value you may
ascribe to the shares you receive under this prospectus.
We Cannot Assure You That Our Common Stock Will Ever Be Quoted On The OTC
Bulletin Board
Although we have promised certain of our stockholders that we would use our best
efforts to procure a market makers to file a Form 15c2-11 application with the
NASD in order to quote our common stock on the OTC Bulletin Board, we have not
made any inquiries of, or commenced any other efforts to procure, any sponsoring
market maker to date, and we cannot give you any assurance that we will be able
to procure a sponsoring market maker or that an active or liquid public market
for our common stock will develop or be sustained if the NASD eventually accepts
our common stock for quotation.
Even If A Public Market For Our Common Stock Is Developed, Your Ability To Sell
Shares On That Public Market Will Be Circumscribed By A Number Of Regulatory And
Contractual Restrictions
Even if a public market for our common stock is eventually developed through its
quotation on the OTC Bulletin Board or later quotation or listing on a National
Market, your ability to sell our common stock on that public market will be
circumscribed by the following regulatory and contractual considerations:
. The disclosure and investor suitability rules promulgated under the
Penny Stock Reform Act of 1990 and limitations mandated by Rule 15c-2-6
promulgated by the Securities and Exchange Commission.
. The necessity of complying with any state "Blue Sky" or Canadian
provincial securities laws which may be applicable.
. Certain contractual volume restrictions on sale imposed on certain
holders of blocks of more than 3,000 shares of our common stock,
including the common stock to be distributed under this prospectus, upon
whom we have imposed lock-up restrictions as a condition to our
cooperation in establishing a public market for our common stock on the
OTC Electronic Bulletin Board.
. The amount of shares which may be freely traded under Rule 144.
Should a public market for our common stock develop, no prediction can be made
as to the effect, if any, that the sale of shares or the availability of shares
for sale will have on the market price prevailing from time to time. Moreover,
sales of substantial amounts of our common stock on the public market, or the
perception that substantial sales could occur, could adversely affect the
prevailing market prices for our common stock and also, to the extent the
prevailing market price for our common stock is reduced,
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<PAGE>
adversely impact our ability to raise additional capital in the equity markets.
(See "Market For Our Securities").
Even If A Public Market For Our Common Stock Is Developed, Our Stock Price May
Be Volatile Due To Factors Beyond Our Control
The securities markets have from time to time experienced significant price and
volume fluctuations that can be unrelated to the operating performance or
financial condition of any particular company. This is especially true with
respect to emerging companies such as ours. Announcements of technology
innovations or new products by other companies, release of reports by securities
analysts, regulatory developments, economic or other external factors, as well
as quarterly fluctuation in our or in our competitors' operating results, could
have a significant impact on our stock price were a public market develop for
our common stock.
You Should Not Expect To Receive Dividends In The Foreseeable Future
We have never paid any cash dividends on shares of our capital stock, and we do
not anticipate that we will pay any dividends in the foreseeable future. Our
current business plan is to retain any future earnings to finance the expansion
and development of our business. Any future determination to pay cash dividends
will be at the discretion of our Board of Directors, and will be dependent upon
our financial condition, results of operations, capital requirements and other
factors as our Board may deem relevant at that time.
You Should Not Expect To Receive A Liquidation Distribution
If we were to liquidate or dissolve our company, you would share ratably with
our other common stockholders in our assets only after we satisfy the following
obligations:
. any amounts we would owe to our creditors;
. any amounts we would owe to our series "B" preferred stockholders as a
liquidation preference ($500,000); and
. any amounts we would owe to our series "A" preferred stockholders as a
liquidation preference ($1,000).
If our liquidation or dissolution were attributable to our inability to
profitably operate our business, then it is likely that we would have material
liabilities at the time of liquidation or dissolution. Accordingly, we cannot
give you any assurance that sufficient assets will remain available after the
payment of our creditors and preferred stockholders to enable you to receive any
liquidation distribution with respect to the shares distributed to you under
this prospectus. (See "Description Of Our Securities").
Our Current Stockholders Will Continue To Control Our Company
Our present common stockholders will, as a group, retain the power to elect a
majority of our Board of Directors. Our Board, in turn, has the power to appoint
our officers and to determine, in accordance with their fiduciary duties and the
business judgment rule, our direction, objectives and policies, including:
. our business expansion or acquisition policies;
. whether we should raise additional capital through financing or equity
sources, and in what amounts;
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<PAGE>
. whether we should retain cash reserves for future product development,
or distribute them as a dividend, and in what amounts;
. whether we should sell all or a substantial portion of our assets, or
should merge or consolidate with another corporation; and
. transactions which may cause or prevent a change in control or the
winding-up and dissolution of our company.
An investment in our common stock will entail you entrusting these and similar
decisions to our present management subject, of course, to their fiduciary
duties and the business judgment rule. (See "Management" and "Principal
Stockholders").
We Can Issue Additional Capital Stock At Any Time
We may issue the following securities without further stockholder approval:
. Up to 5,356,250 additional shares of our common stock (after taking into
consideration the 9,643,250 shares currently issued and outstanding,
including the shares to be distributed under this prospectus). You
should note that 5,356,250 shares available for issuance includes
665,000 shares reserved for issuance to our employees, directors and
consultants pursuant to future grants under our 1999 Clean Energy
Combustion Systems Inc. Stock Plan (after taking into consideration
previous grants of options to certain of our key employees to purchase
up to 335,000 shares of our common stock).
. Up to 749,000 additional shares of our preferred stock (after taking
into consideration the 1,000 shares of series "A" preferred stock and
250,000 shares of series "B" preferred stock we have already issued).
You should note that 549,000 shares of our unissued preferred stock
constitutes serial or "blank check" preferred stock that will contain
rights, preferences and privileges to be prospectively fixed by our
Board of Directors at the time of issuance--without stockholder consent
or approval--based upon any factors our Board may deem relevant at that
time.
Your proportionate ownership and voting rights as a common stockholder could be
adversely effected by the issuance of additional shares of our "blank check"
preferred stock (depending on their rights, preferences and privileges) or
common stock, including a substantial dilution in your net tangible book value
per share. Any "blank check" preferred stock we issue may also be utilized
under certain circumstances as a method for raising additional capital or
discouraging, delaying or preventing a change in control of our company. We
cannot give you any assurance that we will not issue shares of either our common
stock or "blank check" preferred stock under circumstances we may deem
appropriate at the time. (See "Description Of Our Securities").
Our Charter Documents Contain Anti-Takeover Provisions
Certain provisions of our charter documents and Delaware corporate law may
discourage certain types of transactions involving an actual or potential change
in control of our company, and may limit the ability of our stockholders to
approve transactions that they may deem to be in their best interests. For
example, our Certificate of Incorporation and Bylaws:
. reserve the right to fill any vacancies in any Non-Series A Director
positions exclusively to our Board of Directors;
. stipulate that Non-Series A Directors can only be removed for cause;
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. require any action to be taken by our common and series "B" preferred
stockholders to be effected at a duly called annual or special meeting
of these stockholders, and prohibit these stockholders from effecting
any action by written consent unless approved by a two-thirds
affirmative vote of these stockholders;
. reserve the right to call special meetings of our common and series "B"
preferred stockholders exclusively to our Board of Directors and certain
designated officers; and
. require any amendments to the aforesaid provisions to be approved by a
two-thirds affirmative vote of stockholders.
Our Board of Directors also has the authority to fix the rights and preferences
of and issue shares of our "blank check" preferred stock without the approval of
our common stockholder and, in certain cases, our series "B" preferred
stockholders. We are also subject to Section 203 of the Delaware General
Corporation Law which generally prohibits a Delaware corporation from engaging
in any of a broad range of business combinations with any "interested
stockholder" for a period of three years following the date that stockholder
became an interested stockholder. (See "Description Of Our Securities").
Forward-Looking Information
This prospectus contains "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and is subject to the safe harbors created by those sections.
These forward-looking statements generally reflect our current expectations or
beliefs, based on currently available information, regarding our future results
of operations, performance and achievements, or industry results. You are urged
to carefully review and consider the various disclosures made by our company in
this prospectus that attempt to advise you of the risks and factors that may
affect our business and an investment in our securities.
In this prospectus, forward-looking statements are generally identified by the
words "anticipate," "expect," "predict," "project," "estimate," "plan,"
"intend," "believe," "may," "will" and other similar expressions and variations,
although these words are not the exclusive means of identifying those
statements. Generally speaking, any statements in this prospectus which refer
to characterizations of future events or circumstances constitute forward-
looking statements.
Any forward-looking statements contained in this prospectus are inherently
subject to known and unknown uncertainties, risks and other factors, which may
cause our actual results, performance or achievements to differ materially from
those expressed in, or implied by, those forward-looking statements. These
uncertainties, risks and other factors may include, but are not necessarily
limited to, those uncertainties and factors identified in this Risk Factors
section of the prospectus. You are cautioned not to put undue reliance on any
forward-looking statement.
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Capitalization
The following table shows our capitalization as of May 31, 1999. The
distributions of our common stock contemplated by this prospectus will not
result in any changes to our capitalization other than that attributable to our
payment of the expenses associated with this transaction.
<TABLE>
<CAPTION>
May 31, 1999
--------------------
Debt:
<S> <C>
Current.................................................................................................. $ 102,686
Advances from affiliates................................................................................. 108,888
-------------------
Total debt............................................................................................ $ 211,574
===================
Stockholders' equity:
Series "A" preferred stock, par value $0.0001(1):
Shares authorized, issued and outstanding -- 1,000.................................................... $ 1
Series "B" preferred stock, par value $0.0001(1):
Shares authorized -- 475,000; Shares issued and outstanding --250,000................................. 250
Common stock, par value $0.0001(1):
Shares authorized -- 15,000,000; Shares issued and outstanding -- 9,643,750........................... 964
Additional paid in capital.............................................................................. 500,285
Accumulated deficit..................................................................................... (268,262)
-------------------
Total stockholders' equity............................................................................ $ 233,238
===================
Total Capitalization..................................................................................... $ 444,812
===================
</TABLE>
- --------------------------------
(1) Does not give effect to the possible exercise of presently outstanding
options and warrants, or any options or warrants we may issue under our
existing stock option plans or other compensatory arrangements; or the
possible conversion of our outstanding shares of series "A" or series "B"
preferred stock. (See "Description Of Our Securities").
Use of Proceeds
Neither Clean Energy nor any of our distributing stockholders will receive any
payment of cash or other tangible property as part of any of the distributions
contemplated by this prospectus.
Determination of Offering Price and Dilution
There is no public market for the trading of our common stock or other indicia
of value upon which the value of the shares to be distributed under this
prospectus may be established or supported. We have not obtained any
independent valuation of the shares to be distributed under this prospectus from
any investment banker, appraiser or other expert in the valuation of securities
and businesses, and we have no plans and are under no obligation to do so. After
taking into consideration the liquidation preference payable to our series "A"
and series "B" preferred stockholders, our net tangible book value per share of
common stock would be a deficit of $0.028 per share based upon our
capitalization as of May 31, 1999. You should not ascribe any value to our
common stock in view of the lack of a public market for these securities and
their noted deficit net tangible book value, as well as our limited operating
history, our absence of revenues, profits and dividends, our need for additional
capital, your position as a minority stockholder, and the other risk factors
discussed in this prospectus relating to an investment in our common stock.
Moreover, you will suffer significant dilution relative to any value you may
ascribe to the shares you receive under this prospectus.
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Dividend Policy
We have never paid any cash dividends on shares of our capital stock, and we do
not anticipate that we will pay any dividends in the foreseeable future. Our
current business plan is to retain any future earnings to finance the expansion
development of our business. Any future determination to pay cash dividends will
be at the discretion of our Board of Directors, and will be dependent upon our
financial condition, results of operations, capital requirements and other
factors as our Board may deem relevant at that time.
Business
Overview
We are a development stage company with principal executive offices located in
Vancouver, British Columbia, Canada. Our company was formed for the express
purpose of acquiring exclusive world-wide license rights to design, engineer,
manufacture, market, distribute, license and otherwise commercially exploit our
patented and innovative pulse blade combustion (or "PBC") and diesel
technologies. Each technology can be used to develop highly energy-efficient
burner units that emit low levels of pollutants and are inexpensive to
manufacture. These technologies were originally invented by one of our founders,
Mr. John D. Chato, and are now in a position to be introduced to the market
having completed their primary development stage.
Our objective is to enter into licensing, royalty, joint venture, or
manufacturing agreements with established national and international heat
transfer industry manufacturers which will result in the introduction of a
variety of different burner units based upon our technology into various
selected market segments.
The ability to burn fuel with maximum efficiency and minimum emissions has
become a critical consideration worldwide, and particularly in the developed
countries of the world, due to energy and environmental concerns. We believe
that conventional steady-state combustion techniques are approaching, or are at,
their theoretical physical limits for both pollution and efficiency. We believe
that our PBC technology, in particular, has the potential to bring dramatic
improvements in both efficiency and pollution control to the heat transfer
industry, particularly in view of the existing limitations of conventional
steady-state combustion techniques. We believe that our burner technologies, and
particularly our PBC technology, will be well positioned for rapid commercial
acceptance in the heat exchange industry in view of their noted competitive
advantages over conventional steady-state combustion techniques and evolving
worldwide environmental and energy cost concerns.
A burner unit is generally a boiler, furnace or other combustion chamber or
engine or system which generates heat through the burning of natural gas,
propane, gasoline, diesel fuel, oil, or coal for industrial, commercial and
residential purposes, including power generation and co-generation, water
heating, space heating and air conditioning. Burner units or systems are used in
virtually every industry and every country of the world in numerous commercial,
industrial, residential and specialty applications, including the following:
. Commercial Applications--space and water heating for apartment
buildings, office buildings, hotels, hospitals, warehouses and small
plants, vehicles, RVs, boats, and co-generation.
. Industrial Applications--medium to large plants, such as pulp and
paper mills, manufacturing operations, product drying facilities,
large hotels, hospitals, office complexes, co-generation, water
purification and desalination.
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. Residential Applications--domestic water heating, hydronic space and
water heating, and demand water heating.
. Specialty Applications--"one-of-a-kind" applications which often
require custom engineering or fabrication, such as retrofitting of
power generation plants, new power plants, and large co-generation
installations.
Our primary burner technology, which we refer to as our pulse blade combustion
or "PBC" technology, operates on the principles of pulse combustion, as opposed
to conventional steady-state burner technologies. This technology utilizes a
valve-less (no moving parts) blade-shaped combustion chamber and tailpipe
assembly to facilitate highly efficient and clean burning combustion,
principally through the turbulent combustion environment attributable to the
repetitive, on/off cycling inherent in the pulse combustion process. Burner
units using our PBC technology are compact, have no moving parts, and are
relatively inexpensive to manufacture due to the simplicity of our design.
Energy output for any given burner configuration may be increased, while still
maintaining low emissions and high efficiency, through either enlarging or
extending the size of the combustion and exhaust chambers (while maintaining the
necessary geometries between the combustion chamber and tailpipe assembly), or
by simply adding additional units or modules on a linear (i.e., side by side)
basis. Potential applications of our PBC technology include the following:
. Residential, commercial and industrial air and water heating and air
conditioning;
. Recreational and marine vehicle water and space heating;
. Production of steam for small commercial and industrial processes and
for electrical power generation;
. Drying of food products (both human and animal), lumber, bio-waste and
sludge;
. Re-burning of industrial flue gases to remove pollutants; and
. "Zero" excess oxygen applications.
The stability of the pulse environment allows stable combustion at near
conditions of extremely low excess oxygen for use in industrial operations that
require an inert process gas, such as horizontal down-hole drilling and
catalytic oxidation systems.
Our diesel technology, which is our secondary burner technology, is a new design
which allows certain steady-state burner applications, previously limited to
natural gas or propane, to burn diesel fuel. This design results in ultra-clean
diesel emissions that are lower than most natural gas burners. Mr. Chato has
designed, built and tested a very successful proof of concept model in the
development of our diesel technology.
Primary development for both our PBC technology and our diesel technology has
been completed over the past ten years at a cost of approximately Cdn. $4
million through BO Tech Burner Systems Ltd., a British Columbia corporation
affiliated with Mr. Chato, and are now in a position to be commercially
exploited. We are currently working on a number of prototypes under several
proposal requests which could lead to contracts resulting in the initial
introduction of burner systems based upon these technologies, including the
following:
. An instantaneous, commercial water heater for State Industries, Inc.,
North America's largest water heater manufacturer: We have worked
closely over the past five years with State Industries to develop a
400,000 to 500,000 BTU/hr instantaneous water heater. State Industries
currently sells 30,000 to 40,000 of these units annually for small
business applications, such as
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fast-food restaurants, at a price of approximately $4,600 per unit.
State Industries' research and development facility in Tennessee has
invested approximately $500,000 to date in building and testing a
full-size engineered prototype unit, which is intended to be used to
create a production model. Final work on this model is being done at
our laboratory facilities in Burnaby, British Columbia, which we
expect to finish by late fall, 1999.
. Several different natural gas-fueled PBC burner units for Goal Line
Environmental Technologies, LLC: These units, which range from 30,000
BTU/hr to 69 million BTU/hr, will be used by Goal Line as a component
of its industrial catalytic absorption pollution control systems. A
competitive drawback for Goal Line's catalytic absorption pollution
control system in power utility applications has been Goal Line's
inability to introduce a sufficiently oxygen-free reducing gas into
the catalytic chamber for the catalyst regeneration process. This is
currently done by redirecting steam from the power generation process,
thereby reducing the energy efficiency of the overall system. We
demonstrated to Goal Line in tests we conducted in January, 1999, that
our PBC burner units can deliver a stable, oxygen free reducing gas to
the catalytic chamber as a result of the combustion stability inherent
in our PBC technology, thereby creating the potential to replace steam
as the catalyst regeneration gas and recapture the lost energy
efficiency. Goal Line, which is a joint venture comprised of Sunlaw
Energy Corporation and Advanced Catalyst Systems, Inc., is one of the
most innovative environmental companies in the world, having received
the "Lowest Achievable Emission Rate" (LAER) designation from the U.S.
Environmental Protection Agency, and the "Best Available Control
Technology" (BACT) standard for new gas turbines from the South Coast
Air Quality Management District of Los Angeles.
. The adaptation of our new diesel technology to two different gas-fired
burner units manufactured by Acotech Corporation: If we successfully
convert these units from natural gas to diesel fuel, we would then
negotiate an arrangement with Acotech allowing it to use our diesel
technology in their burner units. Acotech has indicated that it
currently has orders for these types of diesel units, and would likely
go into immediate production. Acotech Corporation is a 50/50 joint
venture of The Bekaert Group, the largest independent steel wire
manufacturer in Europe, and the Royal Dutch Shell Group.
. The utilization of our PBC technology as a generating system or power
source for an external combustion (heat) engine produced by STM
Corporation: We have signed confidentiality agreements and are
pursuing a relationship with STM Corporation (formerly Stirling
Thermal Motors), a U.S. company that produces an engine which converts
heat from an external source into shaft power for use as an external
combustion engine (heat engine) for industrial and automotive
applications. The output of the industrial version of STM's current
model is 30 kW (40 hp) and the automotive version is expected to
provide 90 kW of power output. According to STM informational
materials, "the high torque rise makes this engine suitable for direct
propulsion as well as for hybrid electric vehicle (HEV) power plants."
. When operating with a catalyst, in addition to the near zero emissions
advantage of our PBC technology, the extremely low oxygen content in
the exhaust flue results in a higher operating temperature, and,
therefore, the potential for an increase in overall efficiency.
Equipped with this burner system, the STM engine would have the
potential for operating as an efficient electrical generating system
or as a power source for small cars. For example, batteries for
electric cars could be reduced in size or eliminated and fuel cells
with their special fuel requirements could be replaced by a near zero
pollution, heat engine driven system. We believe that this could be
achieved in a cost effective manner. If we are successful in coming to
an agreement with STM
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Corporation, we will proceed with the development of our PBC
technology as a heat source for the STM engine application.
. Industrial drying applications: These applications are of particular
suitability to the design of our PBC technology. The acoustic wave
associated with pulse combustion applied to drying applications
provides up to a 22% mechanical advantage over conventional drying
technologies because of the acoustic signal's physical manipulation of
the drying environment. This 22% advantage, when added to the 95% burn
efficiency of our PBC technology, offers high overall system
efficiency. We believe that this could translate into substantial fuel
savings in large industrial drying applications.
We cannot give you any assurance that we will enter into any licensing, royalty,
joint-venture or other agreements with State Industries, Goal Line
Environmental, Acotech Corporation or STM Corporation. For further information
relating to the above proposals, see "Business--Initial Targeted Applications Of
Technology; Pending Proposals."
Corporate Structure
Our company was formed and organized on March 1, 1999 under the name Clean
Energy Technologies, Inc. by two groups of founders, whom we refer to as the "BO
Group" and the "Alberta Group." We changed our corporate name to Clean Energy
Combustion Systems, Inc. on May 20, 1999.
The BO Group is comprised of BO Tech Burner Systems, a British Columbia
corporation (which, together with its affiliated companies, has expended over
Cdn. $4 million in primary development for our PBC technology over the past ten
years) and Messrs. John D. Chato, John P. Thuot, Barry A. Sheahan, James V.
DeFina and Robert Alexander. Mr. Chato is the inventor of both our PBC and
diesel technologies, as well as the owner and licensor of our diesel technology.
Mr. Chato is also a director and controlling stockholder of BO Tech Burner
Systems. Messrs. Thuot, Sheahan and Alexander are also officers, directors and
direct or indirect stockholders of BO Tech Burner Systems, and Mr. DeFina is a
key employee and a stockholder of BO Tech Burner Systems. Messrs. Chato, Thuot,
Sheahan and DeFina became our directors, officers and key employees as part of
our founding, while Mr. Alexander serves as one of our advisors. In connection
with our formation, we issued 6,525,713 shares of our common stock to BO Tech
Burner Systems, and a total of 1,074,287 shares of our common stock to Messrs.
Chato, Thuot, Sheahan, DeFina and Alexander.
The Alberta Group is comprised of 818879 Alberta, Ltd., an Alberta corporation
which currently owns and licenses our PBC technology to us, and Ravenscraig
Properties Limited, an affiliate of 818879 Alberta. Neither of these companies
are related to any of the members of the BO Group. 818879 Alberta obtained its
rights to our PBC technology through its arms-length acquisition of a debenture
secured by our PBC technology in January 1999 from TOBA Developments Ltd. for
the sum of Cdn. $525,000 (approximately Cdn. $615,000 was owed on this debenture
at the time of its purchase). As TOBA's successor to the debenture, 818879
Alberta acquired outright title to our PBC technology through the consummation
of foreclosure proceedings initiated by TOBA, which have been submitted for
court approval. Both 818879 Alberta and Ravenscraig Properties are owned and
controlled by Mr. R. Dirk Stinson. In connection with our formation, we issued
2,043,750 shares of our common stock to Ravenscraig Properties, and 1,000 shares
of our series "A" preferred stock to 818879 Alberta.
On February 16, 1999, our founders caused our wholly-owned research and
development Canadian subsidiary, Clean Energy Technologies (Canada) Inc., a
British Columbia corporation which we refer to as "Clean Energy Canada," to be
incorporated and organized, and we acquired all of the common stock of Clean
Energy Canada on March 1, 1999.
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License Agreements
PBC Technology License
On March 5, 1999, we entered into a PBC Technology License with 818879 Alberta
pursuant to which it granted us an exclusive fully-paid worldwide (excluding
Finland and Sweden) license to design, engineer, manufacture, market,
distribute, lease and sell burner products using the PBC technology, and to
sublicense and otherwise commercially exploit the PBC technology. The term of
the PBC Technology License expires upon the earlier of March 5, 2019 or the
lapse of the newest underlying patents for the PBC technology, including any
patented improvements. (The oldest PBC technology patent expires in July 2006,
and the newest current PBC technology patent expires in July 2012). (See
"Business--Patents and Proprietary Rights").
We are generally prohibited under the PBC Technology License from sublicensing
our rights to the PBC technology, or otherwise assigning our rights as licensee
under the PBC Technology License, to any third party without 818879 Alberta's
prior consent. 818879 Alberta, in turn, is also generally prohibited from
selling its rights to the PBC technology, or otherwise assigning its rights as
licensor under the PBC Technology License, to any third party without our prior
consent.
We are obligated under the PBC Technology License to pay or to reimburse 818879
Alberta for all costs its incurs to file and prosecute new or additional patents
for the PBC technology in any country. We are also obligated to pay or to
reimburse 818879 Alberta for prosecuting and defending patent infringement
claims relating to the PBC technology, and to pay any damages arising from these
claims.
We have the right under the PBC Technology License to acquire full ownership of
the PBC technology from 818879 Alberta on or after March 4, 2002, based upon the
occurrence of certain conditions revolving around our success or failure in
procuring a listing of our common stock on The New York Stock Exchange or The
American Stock Exchange or the quotation of our common stock on The Nasdaq Stock
Market. (We collectively refer to these markets as a "National Market"). We
refer to this purchase right as the "PBC Technology Option" Specifically:
. We have the right, beginning March 4, 2002, to elect to acquire full
ownership of the PBC technology from 818879 Alberta for the payment of
Cdn. $1, so long as our common stock has been accepted for listing or
quotation on a National Market by the date we notify 818879 Alberta
that we are exercising this option and we tender payment. (We have
made no application to date to obtain any listing or quotation, and we
can give no you assurance that we will make any application).
. 818879 Alberta, in turn, has the right to terminate the PBC Technology
License anytime after March 4, 2002, if our common stock is not
actively trading on a National Market by the date it exercises its
termination right. In order to exercise this right, 818879 Alberta
must give us 90-days notice accompanied by the payment of Cdn. $1.
Should 818879 Alberta exercise this termination right, and should we
fail to procure the listing or quotation of our common stock on a
National Market by the end of our 90-day cure period, or to exercise
certain other protective rights to acquire the PBC technology
described below, we will lose all rights to market burner products
using the PBC technology.
. Should 818879 Alberta exercise its termination right, and should we
fail to procure the listing or quotation of our common stock on a
National Market by the lapse of our 90-day cure period, we can
nevertheless purchase full title to the PBC technology by paying
818879 Alberta the sum of Cdn. $525,000 within ten business days of
the end of our 90-day cure period (subject to downward adjustment),
plus interest on the amount which has accrued since January 1, 1999 at
the rate of 13% per annum. In order to be entitled to receive the full
Cdn. $525,000,
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818879 Alberta must remit to us concurrent with our payment all shares
of our series "A" preferred stock which are then outstanding as well
as 593,750 shares of our common stock. If 818879 Alberta is unable to
tender all 593,750 shares of our common stock, the Cdn. $525,000 cash
consideration we must pay to 818879 Alberta will be reduced on a pro
rata basis based upon the number of shares of our common stock which
818879 Alberta actually remits to us.
. If our common stock is not actively trading on a National Market by
March 4, 2002, and should 818879 Alberta not exercise its termination
right by that date, then we may pay 818879 Alberta the sum of Cdn. $1
and demand that 818879 Alberta exercise its termination right within
90 days of our demand (in which case we may, in turn, elect to acquire
full ownership of the PCB Technology on the terms described above). If
818879 Alberta fails to make its election by the end of our 90 day
demand period, full title to the PBC technology will automatically
revert to us.
. Should we acquire full title to our PBC technology by reason of any of
the above purchase rights, 818879 Alberta will nevertheless retain the
right to reacquire our PBC technology should we later become bankrupt
or insolvent, or be threatened with bankruptcy or insolvency, or make
an assignment in favor of our creditors.
See "Risk Factors--Risks Relating To Clean Energy And Its Business--We
Could Lose Our Technology Licenses If We Fail To List Our Common Stock on
National Exchange" and "Certain Relationships And Related Transactions--
Transactions With Management And Others--PBC Technology License Agreement."
Diesel Technology License
On March 5, 1999, we entered into a Diesel Technology License with Mr. Chato
pursuant to which he granted us an exclusive worldwide license to design,
engineer, manufacture, market, distribute, lease and sell burner products using
the diesel technology, and to sublicense and otherwise commercially exploit the
diesel technology. We are obligated under the Diesel Technology License to pay
Mr. Chato or his assignees a 10% royalty based upon our net profits (after
reasonable allowance for bad debts and the allocation of administrative and
other overhead items) from the sale of products incorporating the diesel
technology. The term of the Diesel Technology License expires upon the earlier
of March 5, 2019 or the lapse of the newest underlying patents for the diesel
technology, including any patented improvements. (An application for a patent
for the diesel technology was filed in August 1998 and, if issued, will expire
17 years after the issue date). (See "Business--Patents and Proprietary
Rights").
We are generally prohibited under the Diesel Technology License from
sublicensing our rights to the diesel technology, or otherwise assigning our
rights as licensee under the Diesel Technology License, to any third party
without Mr. Chato's prior consent. Mr. Chato, in turn, is also generally
prohibited from selling his rights to the diesel technology, or otherwise
assigning his rights as licensor under the Diesel Technology License, to any
third party without our prior consent.
We are obligated under the Diesel Technology License to pay or to reimburse Mr.
Chato for all costs he incurs to file and prosecute new or additional patents
for the diesel technology in any country. We are also obligated to pay or to
reimburse Mr. Chato for prosecuting and defending patent infringement claims
relating to the diesel technology, and to pay any damages arising from these
claims.
The Diesel Technology Agreement provides that we will automatically obtain full
ownership of the diesel technology, without the payment of any additional
consideration, as of the same date as we acquire title to the PBC technology. We
refer to this acquisition right as the "Diesel Technology Option." Should we
acquire full ownership of the diesel technology, we will nevertheless continue
to be obligated to pay the 10% royalty to Mr. Chato or his assigns.
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Should the PBC Technology License be terminated without our acquiring full
ownership of the PBC technology, then the Diesel Technology License will expire
concurrently, and we will lose all rights to market burner products using the
diesel technology. (See "Risk Factors--Risks Relating To Clean Energy And Its
Business--We Could Lose Our Technology Licenses If We Fail To List Our Common
Stock on National Exchange" and "Certain Relationships And Related
Transactions--Transactions With Management And Others--Diesel Technology License
Agreement").
Principles Of Pulse Blade Combustion
Our PBC technology operates on the principles of pulse combustion, as opposed to
conventional steady-state burner technologies. In a pulse combustion system, the
rapid burning of fuel from an intake channel leading to a specifically shaped
combustion chamber and tailpipe assembly causes a rise in pressure and
temperature and, as it exits down the tailpipe, acts like a piston, causing a
low pressure condition behind it. This low pressure condition causes a new
supply of air and fuel to be pulled into the combustion chamber. The new charge
is ignited from the tail of the existing flame, and the pulsating condition
continues as long as there is fuel and air available. This pulsating condition
repeats at a frequency of approximately 440 Hz (cycles per second), producing an
audible acoustic field. PBC burner units are configured in such a way that the
pressure waves from the combustion resonate with this acoustic field at an
optimum amplitude. This improves combustion efficiency, reduces NOx and CO
emissions, transfers heat more efficiently, and permits more complete burning of
the fuel.
The principle of operation is similar to that of a conventional automobile
engine, but the pressure waves, traveling at the speed of sound, take the place
of the pistons. Compared to conventional engines, the pressure fluctuations are
much smaller, the cyclical frequency much higher, and the hardware simpler and
lighter. In our PBC burner unit configuration, the combustion chamber, exhaust
chamber and primary heat exchanger comprise one unit. Therefore, the unit is
extremely compact.
We believe that the design of our PBC technology embodies a breakthrough in the
field of pulse combustion. All other pulse combustion research and development
has concentrated on modifying a basic tube shape to permit greater air and fuel
intake and thereby produce higher energy output. Unfortunately, expansion of the
tube beyond several inches in diameter results in the creation of a host of
other problems, including higher emissions and lower efficiencies. The design of
our PBC technology overcomes these tube limitations because the narrow intake,
combustion chamber, and exhaust geometries are maintained as the device is
scaled up. Moreover, our PBC burner units may be scaled up by adding additional
units on a linear basis, which results in greater energy output while still
maintaining lower emissions and high efficiency. For example, a PBC burner unit
of 13" x 12" x 2" produces approximately 100,000 BTU/hr and operates with an
efficiency of up to 95% without an external heat exchanger.
Advantages Of Pbc Technology Over Conventional Steady-state And Other Pulse
Combustion Systems
We believe burner units utilizing our PBC technology will have a number of
advantages over conventional steady-state combustors and existing pulse burning
systems, including the following advantages (which are discussed below in
greater detail):
. higher efficiency;
. superior emissions control;
. no moving parts;
. modular design;
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. high turn-down ratio;
. compact size; and
. ability to operate on a wide range of fuels
Higher Efficiency
Pulse combustion displays 3 to 5-times the heat transfer rates of conventional
steady-state combustion technologies. Because of the high frequency of operation
of our PBC technology, heat transfer rates are higher than even other pulse
systems. Heat transfer increases with frequency and our PBC burner units operate
at frequencies that are more than 7-times higher than other pulse systems. Our
PBC burner units have been tested independently at over 95% "overall"
efficiency.
This overall or "on/off" efficiency is important as many systems are much less
efficient during the start-up period, while their "steady-state" efficiency is
marginally acceptable. For example, the warm-up time for a 10 million BTU/hr
boiler is measured in hours and would, with our PBC technology, be reduced to
minutes.
Superior Emissions Control
We believe that our PBC technology is so efficient it could be utilized as a
pollution control device in burn situations that have an extreme excess of
hydrocarbons (HC) and carbon monoxide (CO). In these cases, it may be more
economical to re-burn the exhaust, thus utilizing the HC and CO laden exhausts
as fuel and recover waste energy. This process would replace the installation of
expensive scrubbers which reduce emissions but do not provide an energy source
and then become, themselves, a waste product.
No Moving Parts
Other conventional pulse systems employ flapper valves on the intake. Our PBC
technology is aerodynamically valved and therefore has no moving parts.
Modular Design
Our PBC technology had been designed as a modular unit, allowing output
increases to be achieved simply by adding more blades to the module.
Additionally, the blade can be elongated to increase the heating capacity.
Either way, the optimum configuration of the exhaust channel is maintained for
efficient heat transfer and there is no corresponding decrease in efficiency.
The modular design of our PBC technology also allows for easy assembly and
disassembly, enabling sectionalized repairs or replacements while the unit is
operating. In most configurations, a section of the unit could be repaired or
replaced while maintaining full energy output from the remaining modules. This
feature is particularly important in commercial applications such as hospitals
and schools, where the significant costs incurred in repairs and routine
maintenance of the heating system - and in some cases, the cost of backup units
are virtually eliminated.
Turndown Ratio
The turndown ratio is the ratio at which boilers operate relative to normal fuel
capacity. Conventional steady-state combustion units operate most efficiently at
maximum output. When the output of the unit is turned down, efficiency drops and
emissions increase. With our PBC technology, we can obtain a lower output by
shutting off an appropriate number of individual modular units. As a result,
there is no efficiency loss and no increase in emissions.
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Compact Size
The core of a 100,000 BTU/hr PBC burner unit in a light commercial steam
application is approximately the size of a briefcase. A unit of this size would
weigh about 50 pounds, inclusive of the jacketing, muffler and heat exchanger.
In comparison, existing pulse tube combustors of equivalent output weigh in
excess of 200 pounds. Size differentials are more pronounced with increases in
capacity.
Conventional steady-state boilers utilized by industry consist of a burner and
an external heat exchanger. Regardless of their application, they are many times
larger than one of our PBC burner units of similar output because the burner and
the primary heat exchanger of our PBC burner unit are part of a single unit
which can extract up to 80% of the heat. This dramatically decreases the size
requirement of secondary heat exchangers, and thus, the cost.
The time required to manufacture and install a conventional steady-state 100
million BTU/hr boiler can exceed three years from the time the order is placed
to the time installation is completed. The cost of a 100 million BTU/hr boiler
can exceed $10 million, and would be invested over the entire manufacturing and
installation period. We estimate that we can manufacture and install a 100
million BTU/hr PBC burner unit in less that 6 months, at a significant cost
saving to the purchaser.
Ability to Operate on a Wide Range of Fuels
Our PBC burner unit has the capability of operating on any carbon based fuel.
Although most of our testing to date has been done with natural gas, we have
also successfully burned gasoline, diesel and powdered coal. The coal work was
done under a Cooperative Research and Development Agreement with the United
States Department of Energy, the detailed results of which may be found in a
separate publication, "Testing History." The successful results of this testing
prompted the United States Department of Energy to offer to extend the agreement
into a second phase of development.
Heat Exchange Industry Background
Manufacturers of heat transfer systems such as hot water heaters, boilers,
heating and air conditioning systems, food processing, grain drying, effluent
post-burn systems, and co-generation of heat and electrical power have
traditionally depended on standard technology which we believe to be inefficient
relative to the potential of our PBC technology. Specifically, we believe that
conventional steady-state combustion techniques are approaching or are at their
theoretical physical limits, for both pollution and efficiency, and require
expensive peripheral post-burn systems to achieve acceptable regulatory levels.
We further believe that our PBC technology addresses both of these areas of
concern simultaneously with improvements in both categories with no cost
increase.
Natural gas is a relatively clean burning fuel. However, with the present level
of use and the escalating demand for energy, even natural gas, burned with
conventional steady-state systems, cannot meet the clean air criteria being
legislated by state, provincial and national governments. In addition, although
there is abundant supply of natural gas in North America, with recent trends in
increased consumption, we believe that every effort must be expended to increase
the efficient use of this natural resource. We further believe that demand will
continue to rise as clean air legislation and public environmental pressures
increase.
Our PBC technology raises the efficiency of natural gas combustion (and of other
fuels) into the 90%+ range, and at the same time reduces the noxious content of
exhaust gases. Aside from the efficient use of fuel and reduced emissions, our
PBC technology also benefits the user in simplicity of use. It is compact,
modular, requires little maintenance, and may be applied to any domestic,
commercial or industrial combustion operation. We believe that applications of
our PBC technology will optimize hot
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water heaters, boilers, instant hot water, heating and air conditioning systems,
low emission vehicle heating and air conditioning, food processing, grain
drying, and co-generation of heat and electrical power.
We further believe that the combined pressures of government emissions
legislation, profit enhancement through reduced fuel and equipment costs, and
the practical application of our PBC technology to fuels such as diesel and
coal, will lead to the use of our PBC technology as a replacement product for
existing conventional technology. Governments around the world continue to take
steps towards establishing new laws and standards in an attempt to reverse the
trend in air pollution, including curtailing industrial emissions of compounds
such as CO, SO2 and NOx (commonly known as "acid rain") which many scientists
and environmentalists claim is killing forests and fish in and around major
industrial centers. As a result of stricter legislation, many coal-burning
utilities and plants using oil-fired boilers are currently, and will continue to
be, faced with the necessity of installing expensive scrubbers, or closing down
altogether unless they are able to convert to cleaner burning systems.
Pulse Technology Background; Other Pulse Combustion Products
Pulse technology is not a new development. It has been in the public domain
since early in the century and was used in World War II to power the infamous
V-1 "buzz bombs." Until recently, its application to conventional steady-state
heating systems has been relatively limited. Pulse combustion technology was
first applied to the manufacture of boilers in the late 1950's by Lucas Rotax in
its "Pulsamatic" boiler. The introduction of the technology was short-lived due
to lack of strong marketing and the absence of incentive to buy high efficiency
boilers when gas prices were low. The technology was reactivated in 1979 when
Hydrotherm introduced its high-efficiency residential "Hydropulse" series of
residential water boilers. In 1976, Lennox Industries Inc. incorporated our
technology in several of its products through a collaborative working agreement
with the American Gas Association and the Gas Research Institute. In 1982,
several models of an ultra-high efficiency pulse-forced-air furnace were
introduced into the marketplace. To date, Lennox has completed its residential
gas-fired furnace line in up-flow and counter-flow/horizontal configurations
using this technology. Statements by the management of Lennox refer to this
product as one of the most successful in the history of the company.
Recently, a high-efficiency pulse (750,000 BTU/hr) commercial boiler was
introduced by Fulton Boiler Works, Inc. In addition, Fulton has developed a five
million BTU/hr boiler in association with the Gas Research Institute. The
dimensions of the Fulton Boiler are 5' x 13' x 9', which is approximately four
times larger than a PBC burner unit and five times heavier with comparable
output because of what management attributes to be our superior PBC technology
modular design.
While numerous other manufacturers have investigated pulse technology, few
products based on pulse technology are available in the marketplace. This lack
of growth could, in part, be due to the noise emission problems of conventional
pulse technology. The repetitive "on/off" operation of pulse combustion produces
an acoustic sound wave which can be difficult to dampen in non-PBC pulse
technologies. However, a reduction in the need for sound damping is one of the
many attributes of our PBC technology, because the higher frequency obtained by
the geometries of our PBC technology produces shorter sound wave lengths which
are easier to dampen.
Unlike a PBC burner unit, existing pulse burners are of a tubular design. In the
case of the Lennox unit, the tube is approximately eight feet long and is coiled
(vertically) for space efficiency. Lennox has experienced problems with chlorine
accumulation in the bottom of the coils, which has lead to corrosion of the
piping. Furthermore, the cost of installation is much higher than for a
conventional residential furnace.
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The on/off efficiency of the Lennox tube furnace is reported to be near 90%.
While this is significantly below that achieved by our PBC technology, the
Lennox furnace is considered within the industry to be the current
"state-of-the-art" technology.
Despite these difficulties, we believe that the advantages of pulse combustion
have recently been more widely recognized and, as a result, our technology is
receiving much greater attention as an area for future research. Two research
institutes that are dedicated strictly to pulse combustion investigation have
been established. At the Georgia Institute of Technology in Atlanta, Georgia, a
multi-million dollar pulse combustor research center has commenced operation,
sponsored principally by the Gas Research Institute and the United States
Department of Energy. The center will focus on understanding pulse combustion
technology and developing applications such as accelerating processes for drying
food products and chemicals. The Gas Research Institute has also dedicated
resources in its laboratory in Chicago, Illinois solely to undertake research
into pulse combustion technology and its various applications.
Prototype Development
Development of our PBC technology over the past ten years has been conducted in
both linear and cylindrical geometries.
Linear Blade Configuration
The principal advantage of our linear configuration is that it lends itself
readily to the joining together of modules side by side. This allows the
construction of units with specific output requirements. One or more of these
modules can be turned on or off, thereby allowing operation at higher or lower
output without any efficiency loss. We have built and tested several different
linear units to date. The first is an 8,000 to 10,000 BTU/hr unit with potential
applications in the electric car, cottage, RV and marine industries. There have
also been several 100,000 BTU/hr water heaters built. Additionally, a 100,000
BTU/hr low-pressure steam unit complete with instrumentation and housing has
been built. This model was built to be expanded to 300,000 BTU/hr with a 3 to 1
turn-down ratio. Finally, we built a 250,000 to 400,000 BTU/hr unit supported by
grants from the Science Council of British Columbia as a proof of concept model
with multiple burners operating side-by-side to demonstrate the up-scale
capability of our technology.
Cylindrical Blade Configuration
Our cylinder configuration was developed for use in applications where turn-down
capability is not a consideration. There are several benefits to the cylinder
shape for these applications, including lower manufacturing costs, innate
structural integrity, and elimination of gases collecting in corners. We have
built and tested two different cylinder units date. The first is a 30,000 to
94,000 BTU/hr water heater, sponsored, in part, by BC Gas Inc. This unit was
tested at the Center for Emissions Research and Analysis in Los Angeles in
April, 1994, with outstanding results showing NO readings of 9Ng/j. This unit
has been completed to the engineering prototype stage. The second is a 500,000
BTU/hr water heater sponsored in part by the Science Council of British
Columbia. This unit was built as a proof of concept model to demonstrate
scale-up capability in the cylindrical configuration. It is being used as a
testing device for one of the pilot plant projects currently being developed.
Third Party Testing
A prototype cylinder pulsed combustor has been tested in California by The
Center for Emissions Research, Analysis and Certification, Inc. under the
auspices of the South Coast Air Quality Management District. This is the group
responsible for setting, implementing and enforcing air quality standards in the
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Greater Los Angeles Basin. These tests identified NOx emissions averaging 9.1
Ng/Joule over a series of tests. To our knowledge these results are among the
lowest levels ever seen in a natural cycle combustion device.
In May 1994, tests were conducted at American Gas Association Laboratories Ltd.,
Cleveland, Ohio. They state that the emission levels from our PBC burner unit
are the "lowest we have seen". These tests identified NOx emissions averaging
5.1 Ng/Joule. In February 1997, tests run by the Canada Centre for Mineral and
Energy Technology showed results of zero ppm for SO2 and NOx burning both
natural gas and coal.
In addition, successful outside testing has also been conducted by the Canadian
Gas Research Institute, Toronto, Ontario, Canada, and the United States
Department of Energy, Pittsburgh, Pennsylvania.
Marketing Strategy
Both our PBC technology and our diesel technology have completed their
respective research and development stages, and the next step in exploiting our
technologies is to introduce these technologies to the various markets in order
to build market penetration and share and product knowledge and acceptance.
Although the principles of pulse combustion have been known for a long period of
time, and pulse combustion methods have been used on a limited basis for water
heaters, pulse combustion burner systems are not commonly used or understood,
and must be marketed as a completely new technology. Given the broad range of
potential applications and markets for our burner technologies, we anticipate
that we will introduce our technologies to the various potential markets through
a number of different strategies and approaches depending upon the market,
including:
. Royalty Agreements--We will seek royalty arrangements with equipment
manufacturers which will permit them to incorporate the use of specific
PBC burner unit designs in their products, in return for the payment of
royalties based upon units sold. These agreements will be targeted
toward volume producers that will use our PBC technology as an integral
component of their functional product, such as water heaters and low
emission vehicles. This is a domain where large capital expenditures
are not yet written down, and where the end products, such as electric
automobiles, are several years away from mass production. Royalty
agreements may be consummated by payment of an initial fee. All fees
will be established as part of the royalty negotiation activity, and
would be proportionate to market size.
. Licensing Agreements--We will seek licensing agreements with equipment
manufacturers that allow a broader scope in application of our burner
technologies than in royalty agreements. The end products of these
arrangements will likely be commercial systems, such as large boilers
and air conditioning equipment for apartment complexes, shopping
centers, and schools and hospitals. License agreements may be
consummated by payment of an initial fee, and an annual maintenance
payment. These fees will be established as part of the license
negotiation activity, and would be proportionate to market size.
. Engineered Projects--We will seek contracts for site specific,
one-of-a-kind projects of a large scale, such as thermal power-plants,
co-generation and various food processing applications. We believe
these will be particularly lucrative projects insofar as they will
utilize our technology at high-end outputs where the advantages of
modular scale up are most fully realized.
. Joint Ventures--We will seek joint ventures arrangements for various
industrial projects that lend themselves to PBC technology in which we
will act as prime contractor, subcontractor or joint venture partner.
Joint venture opportunities of greatest interest to us are in the area
of spin-off company formation for development and sale of products with
specific end use applications.
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. Product Manufacturing--We would consider product manufacturing
arrangement in situations where it may be advantageous for us to
manufacture, or have subcontractors manufacture, specific products or
components for end users.
As previously mentioned, burner units or systems are used in virtually every
industry and every country of the world in numerous commercial, industrial,
residential and specialty applications. The commercial segment is comprised of
space and water heating for apartment buildings, office buildings, hotels,
hospitals, warehouses and small plants, vehicles, RVs, boats, and co-generation.
Included in the industrial segment are medium to large plants, such as pulp and
paper mills, manufacturing operations, product drying facilities, large hotels,
hospitals, office complexes, co-generation, and desalination. Included in the
residential segment are domestic water heating, hydronic space and water
heating, and demand water heating. The specialty segment includes applications
best described as "one-of-a-kind" which often require custom engineering or
fabrication, such as retrofitting of power generation plants, new power plants,
and large co-generation installations.
Although the residential market is the most easily identified and quantified, it
could well be the last market segment that is penetrated with our PBC technology
due to high volumes and costs leading to resistance to the introduction of new
technology. For example, the North American market for domestic water heaters is
approximately five million units per year. Additionally, although there has been
considerable discussion regarding tightening of emission and efficiency
standards in California and elsewhere in North America, no significant changes
have as yet been introduced. However, once the permitted emission levels,
especially for NO and CO, are lowered, and efficiency standards increases, we
believe that our PBC technology will become the technology of choice.
Initial Targeted Applications Of Technology; Pending Proposals
PBC Technology
Primary research and development of our PBC technology has been completed, and
is now in a position to be commercially exploited. We are presently working on
the following projects in connection with its initial efforts to market PBC
burner units:
. Instantaneous Water Heater: We have worked closely over the past five
years with State Industries, Inc., North America's largest water heater
manufacturer, to develop a 400,000 to 500,000 BTU/hr instantaneous
water heater. State Industries currently sells 30,000 to 40,000 of
these units annually for small business purposes, such as fast-food
restaurants, at a price of approximately $4,600 per unit. State
Industries' research and development facility in Tennessee has invested
approximately $500,000 to date in designing and manufacturing a
full-size engineered prototype unit, which is intended to be used to
create a production model. State Industries has recently eliminated its
research and development department for cost savings purposes, and has
asked us to complete development of the prototype unit. We believe that
it will cost approximately $75,000, and take approximately three
months, to complete the prototype unit. When the prototype unit is
completed, we will enter into negotiations with State Industries
relative to granting it a license to manufacture and sell certain water
heaters using our PBC technology. State Industries sells approximately
4.25 million water heaters per year, and we anticipate that this will
be the first of many different water heater designs which will be
created for State Industries.
. Industrial Catalytic Absorption Pollution Control System: Goal Line
Environmental Technologies, LLC, a Tennessee-based designer and
manufacturer of industrial catalytic absorption pollution control
systems, has recently requested that we give quotes on building eight
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different natural gas-fueled air-cooled PBC burner unit prototypes,
ranging from 30,000 BTU/hr to 69 million BTU/hr, to be used as a
component for their proprietary industrial catalytic absorption
pollution control systems. Goal Line, which is a joint venture of
Sunlaw Energy Corporation and Advanced Catalyst Systems, Inc. (or
"ACS"), was initially formed to combine Sunlaw's experience in power
plant development and operation with ACS's extensive catalytic research
and development expertise.
Goal Line's first project was to develop a catalytic absorption
pollution control system which would eliminate CO and NOx emissions for
two 28 MW natural gas turbine powered industrial co-generation plants
operated by Sunlaw in the Los Angeles metropolitan area. This system,
which was successfully developed and installed by Goal Line at Sunlaw's
co-generation plants and now forms the basis of Goal Line's technology,
involves the following two steps:
. First, an oxidation/absorption process occurs whereby emissions
pass through an absorption chamber, and (1) CO is converted into
harmless CO2 and emitted from the smokestack; and (2) NOx is
captured in a potassium carbonate absorber coating; and
. Secondly, a nitrogen regeneration process whereby dilute hydrogen
reducing gas is passed across the surface of the catalyst,
thereby converting the previously captured NOx into harmless N2,
which is then emitted from the smokestack.
The Goal Line catalytic absorption pollution control system has been
found by the United States Environmental Protection Agency to result in
the "Lowest Achievable Emission Rate" for NOx emissions to date for gas
turbine power plants, and therefore, by law, to be the "Best Available
Control Technology" standard for new gas turbines. Regardless of these
findings, the primary competitive drawback of Goal Line's system is its
inability to introduce an oxygen-free dilute hydrogen reducing gas into
the catalytic chamber for the nitrogen regeneration process, which
reduces the overall energy efficiency of the catalytic absorption
pollution control system by approximately 10% due to the need to
redirect the system's energy savings for complete burning. Goal Line
looked without success for several years for a technology which would
facilitate this requirement since this loss of energy efficiency is a
significant cost item. We demonstrated to Goal Line in recent tests
conducted in January, 1999, that our PBC burner unit can deliver a 100%
oxygen-free hydrogen reducing gas to the catalytic chamber as a result
of its burning stability, thereby allowing Goal Line to recapture the
10% loss in energy efficiency.
As a result of the noted demonstration, we have been requested by Goal
Line to provide quotes for designing eight prototypes for use with its
catalytic absorption pollution control system. The first prototype will
be for the catalytic absorption pollution control system used with the
Sunlaw gas turbine co-generation plant in Los Angeles discussed above,
which will serve as a demonstration unit for the sale of the catalytic
absorption pollution control system to other industrial plants. The
other prototypes will be used with catalytic absorption pollution
control system used for other types of power system applications,
including diesel compressor sets and oil pipeline pumping stations. We
believe that it will cost approximately $60,000, and take approximately
two months, to design and build the first prototype unit for the Sunlaw
facility. Later prototypes units can be quickly built based upon the
first design since they will merely require reconfigurations and size
adjustments based upon the first prototype. We have budgeted $350,000
to build the first prototypes sized from 30,000 BTU/hr to 7.5 million
BTU/hr, and anticipates it will complete the last prototype in ten
months.
We cannot give you any assurance that we will enter into any licensing, royalty,
joint venture or other agreement with State Industries or Goal Line after we
complete the noted prototypes.
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Diesel Technology
Primary development for our diesel technology has been completed, and this
burner technology is now in a position to be commercially exploited.
Acotech Corporation of Marietta, Georgia, has requested that we design two
production mantle prototypes of our diesel technology for incorporation into two
pending production products. Acotech is a 50/50 joint venture of The Bekaert
Group, the largest independent steel wire manufacturer in Europe, and The Royal
Dutch Shell Group. We cannot give you any assurance that we will enter into any
licensing, royalty, joint venture or other agreement with Acotech.
Future Targeted Applications Of Technology
Commercial Dryer for Industrial Waste, Wood Products and Wood Waste, and the
Agri-food Drying Industry
This is an application identified by The Canadian Center For Mineral And Energy
Technology that is of particular suitability to the design of our PBC
technology. The acoustic wave associated with pulse combustion applied to drying
applications, provides a 22% mechanical advantage over conventional drying
technologies because of the acoustic signal's physical manipulation of the
drying environment. This 22% advantage, when added to the 90%+ thermal
efficiency of our PBC technology, can offer an overall system efficiency of over
100%. We believe that this will translate into substantial fuel savings in large
industrial drying applications. A proposal from the Canadian Center For Mineral
And Energy Technology to undertake this development has been received by our
company and is being considered by management.
40 to 80 Million BTU/hr Flow Through Water Heater
This unit is intended for large industrial applications such as pulp mills. A
design feasibility study to apply our PBC technology to the requirements of a
specific mill was requested by a large pulp and paper manufacturer.
The design work is currently being addressed.
Electric Car Heater and Recharging System
It is currently proposed that the batteries of the all-electric car mandated for
California be reserved for one purpose only, the movement of the car. This means
that all other energy requirements, such as heating, cooling, headlights, radio
and perhaps most importantly, a trickle charge back into the battery, be loaded
onto a different energy system. PBC burner unit emissions are sufficiently low
to qualify for the so-called "zero emissions" standards being applied to
electric vehicles in California. We believe that this advantage, as well as the
compact size of our PBC technology, perfectly suit it to be the heat source for
this application.
Transit Bus Heater
We plan to design a 50,000 BTU/hr natural-gas-fired heater for natural gas
transit buses. This is a rapidly expanding market area. Natural gas has been
acclaimed "the fuel of choice" for transit buses by most leading authorities in
the United States, including the American Gas Association.
10,000,000 BTU/hr. Burner Head for Large Scale Power Plant Retrofit such as
Burrard Thermal in Vancouver
The Burrard Thermal Plant (in greater Vancouver, British Columbia) is a major
local source of NOx emissions and the current remedy of installing
after-combustion-scrubbers is an expensive stop gap
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measure. We believe that once its scale-up progress continues to ten million
BTU, we would be in a position to assess whether our technology can be
engineered to retrofit one of the large units (approximately one billion BTU) at
Burrard Thermal. If so, we would have the unique opportunity of providing a
practical and inexpensive solution for high output, high pollution industrial
sites such as the Burrard Thermal Plant.
Markets
Burner units or systems are used in virtually every industry and every country
of the world in numerous commercial, industrial, residential and specialty
applications. The commercial segment is comprised of space and water heating for
apartment buildings, office buildings, hotels, hospitals, warehouses and small
plants, vehicles, RVs, boats, and co-generation. Included in the industrial
segment are medium to large plants, such as pulp and paper mills, manufacturing
operations, product drying facilities, large hotels, hospitals, office
complexes, co-generation, and desalination. Included in the residential segment
is domestic water heating, hydronic space and water heating, and demand water
heating. The specialty segment includes applications best described as
"one-of-a-kind" which often require custom engineering or fabrication, such as
retrofitting of power generation plants, new power plants, and large co-
generation installations.
Manufacturing and Suppliers
We principally fabricate our burner units at our facilities located in Burnaby,
British Columbia, although certain components are purchased to our
specifications from suppliers or subcontractors. Most of these components are
standard parts or fabrication projects available from multiple sources at
competitive prices. We believe that we would be able to secure alternate supply
sources or suppliers or subcontractors if any of these become unavailable.
Research and Development
Our principal activities since our formation in March 1999 have been research
and development activities in adapting our prototypes into production models.
Our research and development team is currently comprised of two employees,
Messrs. Chato and DeFina. We have incurred over $130,000 in research and
development expenses since our inception.
Competition
We will face intense domestic and foreign competition in all heat industry
markets in which it or its licenses or joint venture partners introduce products
based upon our burner technologies. Even if we successfully introduce products
based upon our burner technologies, many of our prospective competitors in these
markets will have significantly greater financial, technical and marketing
resources and trade name recognition, which may enable them to successfully
develop and market products based on technologies or approaches similar to our
products, or develop products based on other technologies or approaches, which
are, or may be, competitive with our products. Development by competitors of new
or improved products, processes or technologies may make our products less
competitive or obsolete. We will be required to devote significant financial and
other resources to continue to develop its burner technologies in view of
potential competition. Even if our technologies are initially accepted by the
market, competitive pressures could nevertheless lead to a later decline in
sales volumes of existing products, the inability to attain sufficient market
penetration for new products, or price reductions, any of which could have a
material adverse effect on our business, results of operations and financial
condition. We can give you no assurance that we will be able to compete
successfully in the heat exchange industry. (See "Business--Competition").
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Patents And Proprietary Rights
The basic PBC technology and certain design improvements to this technology is
protected by a number of United States patents in the name of Mr. Chato, as
inventor, the oldest of which expires in July, 2006, and the newest of which
expires in July 2012. Mr. Chato also filed separate patent applications in
August 1998 with the United States Patent and Trademark office for our diesel
technology and certain improvements to our PBC technology, and anticipates that
these patent applications will be amended for certain later improvements on or
before the one year amendment date which expires this August 1999. We anticipate
that we will make international patent applications in selected foreign
countries for our PBC technology and our diesel technology in the upcoming
months.
We acquired our rights to the PBC technology pursuant to a PBC Technology
License we entered into with 818879 Alberta on March 5, 1999. 818879 Alberta
acquired its rights to the PBC technology in December 1998 from a creditor of
the BO Group and its related companies for the sum of Cdn. $525,000 paid to that
creditor to satisfy a debenture under foreclosure. The transfer of rights
excluded certain rights to early PBC patents relating to Finland and Sweden
which the creditor had purchased separately from the BO Group. As part of 818879
Alberta's acquisition of its rights to the PBC technology, Mr. Chato agreed to
release all of his rights to the initial pulse blade combustion patents and any
improvements. Mr. Chato owns the diesel technology, which he licensed to us on
March 5, 1999. (See "Business--Corporate Structure" and "Business--License
Agreements").
We intend to diligently defend any infringement of our PBC technology and diesel
technology patents. We are not aware of any potential challenges to these
patents. We have not established a fund for defense of these patents, but may do
so if significant sales of its products are achieved. We intend to have all
employees and consultants execute trade secret and confidentiality agreements.
We cannot give you any assurance that the existing patents granted to us or our
licensors will not be invalidated, that patents currently or prospectively
applied for by us or our licensors will be granted, or that any of these patents
will provide significant commercial benefits. Moreover, it is possible that
competing companies may circumvent patents we or our licensors have received or
applied for by developing products which closely emulate but do not infringe our
or our licensor's patents, and thereby market products that compete with our
products without obtaining a license from us. An adverse decision from a Court
of competent jurisdiction affecting the validity or enforceability of our
patents or proprietary rights owned by or licensed to us could have, depending
generally on the economic importance of the country or countries to which these
patents or proprietary rights relate, an adverse effect on our company and our
business prospects. Legal costs relating to prosecuting or defending patent
infringement litigation may be substantial. Costs of litigation related to
successful prosecution of patent litigation are capitalized and amortized over
the estimated useful life of the relevant patent. We cannot give you any
assurance that we will be able to successfully defend our patents and
proprietary rights. (See "Risk Factors--Risks Relating To Clean Energy And Its
Business--Our Ability To Compete Is Dependent Upon Our Patents and Proprietary
Rights").
Employees
We currently has five full-time employees, with three in management and two in
research and development. We expects to add up to an additional two full-time
employees over the next 12 months.
None of our employees are represented by a union. We believe that our relations
with our employees are good.
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Facilities
Our executive offices and principal research and development facilities,
consisting of approximately 4,300 square feet, are located at 7087 MacPherson
Avenue, Burnaby, British Columbia, Canada, V5J 4N4. This space is currently
leased for a two-year term, with a two-year option to renew, through our
subsidiary Clean Energy Canada, at an approximate rental rate of Cdn. $3,400 per
month. Our future space requirements will be determined by the type of royalty,
license or joint venture arrangements we may enter into in the future.
Government Regulation
Emission standards in the United States are imposed by the United States
Environmental Protection Agency and by other regulatory agencies such as the
California Air Resources Board. Although one of the principal benefits of our
burner technologies are their ability to satisfy lower pollution standards, we
cannot give you any assurance that emission standards will not be increased by
any governmental agency to a level that our technologies will either not
satisfy, or which will require significant expenditures in research and
development costs in order to satisfy. Any expenditures and or delays in
additional technology development to meet higher emission standards would have a
material adverse effect on our business, results of operations and financial
condition.
The heat exchange industry is subject to numerous federal, state, provincial and
local government regulations. We are also subject to laws governing our
relationship with our employees, including minimum wage requirements, overtime,
working conditions and citizenship requirements.
Legal Proceedings
As of the date of this prospectus, there are no material pending legal or
governmental proceedings or, to our knowledge, contemplated or threatened legal
or governmental proceedings, to which the we are or may become a party, or with
respect to our properties. As of the date of this prospectus, there are, to our
knowledge, no material proceedings to which any of our directors, executive
officers or affiliates are a party adverse to us or which have a material
interest adverse to us.
Management's Discussion And Analysis Of
Financial Condition And Results Of Operations
General
The following discussion of our consolidated financial condition and results of
operations should be read in conjunction with our consolidated financial
statements and their explanatory notes, which can be found commencing on page
F-1 of this prospectus.
Overview
We are a development stage entity formed on March 1, 1999, for the specific
purpose of acquiring exclusive world-wide license rights entitling us to design,
engineer, manufacture, market, distribute, license and otherwise commercially
exploit two innovative patented "burner" technologies, our pulse blade
combustion or "PBC" Technology and our diesel technology. Both of these
technologies have completed the primary development stage and are in a position
to be commercially exploited. Our objective is to enter into licensing, royalty,
joint venture or manufacturing agreements with established national and
international heat transfer industry manufacturers which will result in the
introduction of a variety of different burner units based upon our technology
into various selected market segments. We have no
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revenues to date, nor have we entered into any revenue producing contracts to
date, although we are currently working on a number of prototypes under several
proposal requests which could lead to revenue producing contracts over the next
four to six months.
Results Of Operations
We had no revenues for the three-month periods from March 1, 1999 (inception)
through May 31, 1999.
We incurred total operating expenses of $268,262 for the three-month period from
March 1, 1999 (inception) through May 31, 1999 (these expenses included $108,888
in pre-incorporation operating expenses incurred from January 1, 1999 through
February 28, 1999 which we assumed upon our incorporation). Our operating
expenses for this interim period were principally attributable to research and
development for project proposals ($82,113), wages and benefits ($61,245) and
legal expenses ($46,467).
Liquidity And Capital Resources
Our cash flow requirements from our inception were funded principally from
$108,888 in short-term advances by our affiliate, BO Tech Burner Systems, and a
$500,000 private placement of our series "B" preferred stock which closed on
April 6, 1999, the proceeds of which were partially used to repay the short-term
advances.
Our cash position as of May 31, 1999, (before the repayment of short-term
advances on June 14, 1999), was $416,374. Our working capital as of May 31, 1999
was $210,237.
We had a net increase in our cash position of $416,374 for the three-month
period ended May 31, 1999, which was composed of net proceeds of $610,388 from
financing activities (principally $500,000 proceeds from the private placement
of series "B" preferred stock and $80,404 in advances from affiliates), net of
$169,134 in net cash used in operating activities and $24,880 in cash used in
investing activities.
Plan Of Operation And Prospective Capital Requirements
Our ability to continue as a going concern will be dependent upon our entering
into revenue producing contracts and raising additional working capital to fund
these contracts and fully implement our longer-term business plan and marketing
strategies, which we estimate would require at least $2 million in the longer
term. Based upon current operations, we estimate we will incur operating costs
of approximately $1 million over the twelve-month period ended September 30,
2000 (these estimates will be subject to significant change based upon any
contracts we may enter into).
We have no current arrangements for obtaining additional working capital, and
will seek to raise it in one or more increments through contract advances,
public or private sales of debt or equity securities, debt financing or
short-term loans, or a combination of the foregoing. In view of our limited
operating history and lack of revenues and profits, we cannot give you any
assurance that we will be able to secure the additional capital we require at
all, or on terms which will not be objectionable to our company or our
stockholders, including substantial dilution or the sale or licensing of our
technologies. Our failure or inability under these circumstances to obtain
additional capital on acceptable terms or at all would have a material adverse
effect on our company and its business, which would result in our being forced
to materially scale back or even suspend our operations, or even force us to
seek a merger with or to sell our business to a third party. In view of these
considerations, note one to our financial statements state that if we do not
raise sufficient capital there is a substantial doubt as to our ability to
continue as a going concern.
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Other Matters
Foreign Exchange
Our business to date is principally conducted in the United States and Canada,
in transactions denominated in United States and Canadian dollars. We maintain
our cash and investments predominately in United States denominated funds, and
only convert these funds into Canadian dollars when necessary to pay our
Canadian expenses. While we do not believe that the fluctuation in the value of
the United States dollar in relation to the Canadian dollar has adversely
affected our operating results, we cannot give you any assurance that adverse
currency exchange rate fluctuations will not occur in the future. Any adverse
currency rate fluctuation could have a material adverse effect on our business,
results of operations and financial condition.
Effect Of Inflation
In our view, at no time during our corporate existence has inflation or changing
prices had a material impact on our business or financial statements.
Year 2000 Compliance
Because many computer and computer applications define date by the last two
digits of the year, "00" may not be properly identified as the year 2000. This
error could result in miscalculations or systems failure in computer systems,
network elements, software applications and other business systems that have
time sensitive programs.
We have reviewed our computer systems and software products for Year 2000
problems, and believe they are Year 2000 compliant. We only use recent versions
of certified Year 2000 compliant off-the-shelf commercial software applications
manufactured by well-known software manufucturers. We are not reliant upon third
parties, and have sufficient back-up documentation to recover any loss due to
the failure of a third party's computers as the result of Year 2000 problems. In
the event Year 2000 considerations do arise, we do not believe such
considerations will materially impact our internal operations or future
financial or operating results or future financial condition. We cannot give you
any assurance, however, that we will be unaffected by the Year 2000 issues
affecting our prospective customers or suppliers, although we do not believe the
Year 2000 readiness of our prospective customers or suppliers will have a
material impact on our business or financial statements.
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MANAGEMENT
Identity
The following table sets forth the names, municipalities of residence and ages
of our current executive officers and directors, their respective offices and
positions, and their respective dates of election or appointment:
<TABLE>
<CAPTION>
Date First Elected as
Position with Clean Director or Appointed as
Energy Officer of Clean Energy
Name Age and its Subsidiaries and its Subsidiaries
- ------------------------------- ------ -------------------------------- --------------------------------
<S> <C> <C> <C>
John D. Chato.................. 59 Director (Chairman of the March 1, 1999
Burnaby, British Columbia Board) and Head of Research
and Development
John P. Thuot.................. 50 President and Director March 1, 1999
Burnaby, British Columbia
Barry A. Sheahan............... 48 Chief Financial Officer, March 1, 1999
Burnaby, British Columbia Secretary and Director
James V. DeFina................ 58 Projects Director March 1, 1999
Burnaby, British Columbia
</TABLE>
There are no family relationships between any two or more of our directors or
executive officers. There are no arrangements or understandings between any two
or more of our directors or executive officers.
Business Experience
John D. Chato--Chairman of the Board and Head of Research and Development
Mr. Chato is the inventor and developer of the pulse blade combustion system. He
has over 40 years experience in engine rebuilding, engine design and general
combustion research. Mr. Chato has developed theories in the areas of ram
scavenge principle and carburation, and holds many patents including a design
for electrical generation which combines pulse combustion and the principles of
magneto hydrodynamics, or MHD. Mr. Chato is well recognized in North America and
many other countries as a leading expert in pulse combustion technology.
John P. Thuot--President and Director
Mr. Thuot, has been involved with the BO Group of Companies for over ten years.
Mr. Thuot has served as Secretary and Treasurer for BO Development Enterprises
Ltd., since 1988. In 1994, he assumed the position of Vice President and Chief
Operating Officer of BO Tech Burner Systems Ltd., where he is currently
responsible for overall operations and strategic planning of the company, with
particular emphasis on finance, shareholder and public relations, and
commercialization activities. In 1995, he also assumed the role of Vice
President and Chief Operating Officer of BO Gas Limited. Before his involvement
with the BO Group, Mr. Thuot was Fire Material Coordinator for the Cassiar
Forest District, Government of British Columbia, from 1986 to 1988. From 1978 to
1986 he was part owner and Operations manager of J&J Placer Mining, a placer
gold operation in the Cassiar-Dease Lake area of northern British Columbia. Mr.
Thuot served as electrical foreman for Commercial-Federal Electric from 1976 to
1978. Prior to that, Mr. Thuot was part owner and Electrical Supervisor for L&H
Construction in
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Grand Forks, British Columbia from 1974 to 1976, an account executive for GWG
Limited of Edmonton, the largest clothing manufacturing company in Canada, from
1970 to 1974, and an operator of the world's largest rotary kiln of its day for
Northwood Pulp in Prince George, British Columbia, from 1968 to 1970. Mr. Thuot
is a graduate of Regiopolis College, Kingston, Ontario.
Barry A. Sheahan--Chief Financial Officer, Secretary and Director
Mr. Sheahan is a chartered accountant who earned his C.A. designation in 1982
after ten years in the financial services industry. He was immediately accepted
into partnership with a regional firm and, in 1984 started his own practice in
Vancouver, British Columbia. Over the next ten years he continued to provide
accounting and tax advisory services, developing a clientele of over 1,000, at
which time he sold his practice in order to enable him to focus on a few key
corporate clients, primarily technology companies. Since 1994 Mr. Sheahan has
acted as a financial consultant to several companies, including the BO Group of
Companies.
James V. DeFina--Projects Director
Mr. DeFina served as research assistant to John Chato during the early
development stages of the pulse blade combustion project, from 1985 to 1988.
Since that time to the present, he has served as manager of research activities
for BO Gas Limited and BO Tech Burner Systems Ltd. with responsibilities in
research and testing, design and fabrication, preparation of patents and the
submission and administration of research grants. Mr. DeFina received his
undergraduate education at Salem State College in Massachusetts, and his M.A.
degree at the University of British Columbia in 1983.
Board Of Directors
Number of Directors; Non-Series A Directors and Series A Directors; Appointment;
Removal
Our Certificate of Incorporation and Bylaws provide that our Board of Directors
may by resolution fix our authorized number of directors at any number between
two and twelve, inclusive, although our Board may not effect any reduction in
the size of our Board that shortens the term of any incumbent director. Our
Board currently consists of three members, all of whom are designated under our
Certificate of Incorporation as "Non-Series A Directors" appointed exclusively
by our common and series "B" preferred stockholders, voting as one class. Our
series "A" preferred stockholders, on the other hand, are given the right under
our Certificate of Incorporation and Bylaws to appoint a number of "Series A
Directors" which would, when aggregated with the number of our Non-Series A
Directors, equal one-fourth of the aggregate number of directors (or the minimum
----------
whole number in excess of one-fourth should the aggregate number of directors
not be a multiple of four). Although our series "A" preferred stockholders have
been given this right, they have not elected to exercise that right of
appointment to date. Certain provisions in our Certificate of Incorporation and
Bylaws govern and, to a certain degree circumscribe, the rights of our
stockholders to appoint or remove directors, and to call special meetings or
take actions by written consent. (See "Description Of Our Securities--Provisions
In Our Certificate Of Incorporation and Bylaws Governing Rights of
Stockholders").
Term of Office of Directors; Compensation
Our directors are elected at each annual meeting of our stockholders, and the
term of their office runs until the next annual meeting of our stockholders and
until their successors have been elected. We do not currently compensate our
directors for serving on our Board. Other than our intent to reimburse our
directors for any reasonable out-of-pocket expenses they may incur in connection
with attendance at Board of Director and committee meetings, we do not currently
have any arrangements whereby we remunerate our directors for their services in
their capacities solely as directors, other than options to
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purchase shares of our common stock which we have granted to our executive
officer-directors. We nevertheless reserve the right to reasonably compensate
the members of our Board for their services should we deem it to be reasonable
and necessary to do so.
Committees
Our Board of Directors has not established any committees, including Audit or
Compensation committees, to date, and has no current intent to do so until are
successful in procuring the listing or quotation of our common stock on a
National Market.
Employment Agreements and Executive Compensation
On March 5, 1999, we entered into employment agreements with Mr. Chato as our
Head of Research and Development, Mr. Thuot as our President, Mr. Sheahan as our
Chief Financial Officer, and Mr. DeFina as our Projects Director. The essential
terms of the employment agreements (which are virtually identical) are as
follows:
. Each agreement provides for a one-year initial term, subject to
earlier termination in certain events. After the initial term, each
agreement will renew automatically for successive one year terms,
unless either party elects by a written, 60-day notice not to renew or
the agreement is terminated earlier in accordance with its terms.
. Each officer is required to devote his full and undivided attention to
our affairs.
. Mr. Chato's salary under his employment agreement is Cdn. $120,000 per
year, while Messrs. Thuot's, Sheahan's and DeFina's salaries under
their respective employment agreements are Cdn. $110,000. Each of
these officers is also entitled to an annual performance bonus as
determined by our Board of Directors.
. Each agreement provides for early termination in the case of the
following events:
. the death or disability of the officer;
. the termination of the officer by us for "Cause" (as defined
in the agreement); or
. the termination by the officer for "Good Reason" (as defined
in the agreement).
In general, where a termination is for death, disability, "Cause" or
by the officer without "Good Reason," compensation allowances and
benefits under the agreement will accrue only through the effective
date of the termination. However, and again in general, where a
termination is without "Cause," or by the officer for "Good Reason,"
the agreement provides that we will pay compensation and certain
allowances and benefits to the officer through the end of the then
applicable term.
On March 5, 1999, we agreed to grant incentive options under our 1999 Clean
Energy Combustion Systems, Inc. Stock Plan to Messrs. Chato, Thuot, Sheahan and
DeFina entitling them to purchase 100,000, 80,000, 80,000 and 60,000
unregistered shares of our common stock, respectively, as an inducement for
their continued performance as employees. The exercise price for these options
is $2 per share, which was based upon a proposed offering price of our series
"B" preferred stock which would carry a $2 per share liquidation preference.
(Although we have no valuation for our common stock, its value at the time of
the issuance of these options is significantly less than $2 per share.) Each
officer's options vest in equal installments upon the conclusion of his first
through fifth annual anniversary of
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continuous employment, and lapse, if unexercised, five years following the date
of vesting. (See "Description Of Our Securities--1999 Clean Energy Combustion
Systems, Inc, Stock Plan").
Indemnification of Directors, Executive Officers and Agents
Our Certificate of Incorporation provides that 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 (whether or not by or in the right of our company) by reason of
the fact that:
. he or she is or was a director, officer, incorporator, employee, or
agent of our company, or
. is or was serving at the request of our company as a director,
officer, incorporator, employee, partner, trustee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise
(including an employee benefit plan),
is entitled to indemnification to the full extent allowed by law against any
expenses (including counsel fees and disbursements), judgments, fines (including
excise taxes assessed with respect to an employee benefit plan), and settlement
amounts he or she may pay in connection with any action, suit, or proceeding.
This right of indemnification inures whether or not the claim asserted is based
on matters which antedate the adoption of this indemnification provision in our
Certificate of Incorporation, and continues with respect to any person who
ceases to be a director, officer, incorporator, employee, partner, trustee, or
agent, and inures to the benefit of his or her heirs and personal
representatives. Our Certificate of Incorporation provides that this right of
indemnification will not be deemed to be exclusive of any other rights which may
be provided now or in the future under any provision currently in effect or
hereafter adopted of our Bylaws, by any agreement, by vote of stockholders, by
resolution of disinterested directors, by provision of law, or otherwise.
Our Certificate of Incorporation provides that none of our directors shall be
personally liable to us for monetary damages for any breach of their fiduciary
duties in their capacity as a director, with the following exceptions (to the
extent allowed under applicable law):
. for any breach of his or her duty of loyalty to our company or our
stockholders;
. for acts or omissions not in good faith or which involve his or her
intentional misconduct or knowing violation of law;
. under Section 174 of the Delaware General Corporation Law Delaware for
unlawful payments of dividends or unlawful stock purchases;
. for any transaction under which he or she derived an improper personal
benefit; or
. the payment of profits arising from his or her purchase and sale, or
sale and purchase, of our securities in violation of Section 16(b) of
the Exchange Act.
Our Certificate of Incorporation provides that the term "damages" will include,
to the extent permitted by law, any judgment, fine, amount paid in settlement,
penalty, punitive damages, excise or other tax assessed with respect to an
employee benefit plan, or expense of any nature (including, without limitation,
counsel fees and disbursements). None of the foregoing alters a director's
liability under the federal securities laws of the United States, or affects the
availability of equitable remedies under applicable laws, such as an injunction
or rescission, for breach of fiduciary duty.
Our Certificate of Incorporation authorizes us to purchase and maintain
insurance on behalf of any person who is or was a director or officer, employee
or agent of our company, or is serving at our request as a
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director, officer, employee or agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise against any liability
asserted against him or her and incurred by him or her in any of those
capacities, or arising out of his or her status in any of those capacities,
whether or not we would otherwise have the power under applicable law to
indemnify him or her against these liabilities. Our Certificate of Incorporation
also authorizes us to create a trust fund, grant a security interest or use any
other means (such as letters of credit, surety bonds or other similar
arrangements), or to enter into contracts providing indemnification to the full
extent authorized or permitted by law, to ensure that amounts as may become
necessary to effect indemnification are paid.
We believe that the above provisions are necessary to attract and retain
qualified persons as directors and executive officers. We have promised certain
of our executive officers and directors that we will enter into written
indemnification agreements with them, and also procure officers and directors
insurance coverage when we are in a financial position to do so. No pending
material litigation or proceeding involving our directors, executive officers,
employees or other agents as to which indemnification is being sought exists,
and we are not aware of any pending or threatened material litigation that may
result in claims for indemnification by any of our directors or executive
officers.
We have been advised that any indemnification for liabilities arising under the
Securities Act that may be permitted to our directors, officers and controlling
persons under our Certificate of Incorporation, Bylaws or other agreements
containing indemnity provisions are, in the opinion of the Securities and
Exchange Commission, against public policy as expressed in the Securities Act
and are, therefore, unenforceable.
Change of Control Arrangements
We have no knowledge of any arrangements which may result in a future change of
control of our company. Certain of our founding stockholders have agreed,
moreover, that they will not vote their shares in favor of certain changes of
control unless a majority of each class of shares held by all of the founding
stockholders affirmatively vote in favor of these transactions. (See
"Description Of Our Securities--Founding Stockholders Agreement").
Principal Stockholders
The following table sets forth certain information, computed as of September 21,
1999, about the amount and nature of our securities beneficially owned by:
. our executive officers (the term "executive officer" is defined as our
President, Secretary, Chief Financial Officer {Treasurer}, any vice-
president in charge of a principal business function {such as sales,
administration or finance}, or any other person who performs similar
policy making functions for our company);
. our directors;
. each person who is a beneficial owner of more than 5% of any class of
our outstanding securities with voting rights; and
. the group comprised of our current directors and executive officers.
This information was given to us by our stockholders and the numbers used are
based on the definitions by the Securities and Exchange Commission found in
Rules 13d-3 and 13d-5 under the Exchange Act. Accordingly, the number of shares
listed in the table represent "beneficial ownership" only for purposes of the
reports required by the Securities and Exchange Commission. We believe that each
individual or
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entity named has sole investment and voting power with respect to the securities
indicated as beneficially owned by them, subject to community property laws,
where applicable, except where otherwise noted.
<TABLE>
<CAPTION>
Series "A" Series "B"
Common Stock(2) Preferred Preferred Stock(2)
------------------------- ---------------------
Stock(2)
-----------------
Amount % Amount % Amount %
---------------- ------- ---------- ----- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
John D. Chato (3)(4)(5)................ 6,840,739 (6) 70.9% 0 -- 0 --
John P. Thuot (3)(4)................... 157,513 (7) 1.6% 0 -- 0 --
Barry A. Sheahan (3)(4)................ 188,276 (8) 2.0% 0 -- 0 --
BO Tech Burner Systems Ltd. (5)........ 6,525,713 67.7% 0 -- 0 --
Ravenscraig Properties Limited (5)..... 2,043,750 21.2% 0 -- 125,000 50.0%
818879 Alberta Ltd. (5)................ 0 -- 1,000 100% 0 --
Executive officers
and directors as a group............... 9,121,015 (9) 70.3% 0 -- 0 --
- --------------------------
</TABLE>
* Less than one-tenth of one percent.
(1) Messrs. Chato's, Thuot's and Sheahan's and BO Tech Burner Systems'
business address is 7087 MacPherson Avenue, Burnaby, British Columbia,
Canada, V5J 4N4;.Ravenscraig Properties' business address is Box 71,
Alofi, Niue, and 818879 Alberta Ltd.'s business address is 4500 Bankers
Hall West, 855-2/nd/ Street S.W., Calgary, Alberta, Canada T2P 4K6.
(2) Under Rule 13d-3(d) of the Exchange Act, we include in each person's share
count any shares under any options, warrants, rights or conversion
privileges which are or may become exercisable by that person within 60
days of the date of the registration statement containing this prospectus.
In computing each person's respective percentage ownership, the shares
attributable to his or her exercisable securities under the 60-day
inclusion rule are treated as being outstanding (i.e., are added to the
total outstanding shares of that class for computational purposes), while
exercisable securities attributable to the other executive officers,
directors or 5% stockholders under the 60-day inclusion rule are
disregarded. In computing the percentage ownership our company's officers
and directors as a group, all shares attributable to exercisable
securities held by the members of that group under the 60-day inclusion
rule are treated as being outstanding (i.e., are added to the total
outstanding shares of that class for computational purposes). The base
number of outstanding shares of common stock, series "A" preferred stock
and series "B" preferred stock as of the applicable date are 9,643,750,
1,000 and 250,000 shares, respectively.
(3) Executive officer. (See "Management").
(4) Director. (See "Management").
(5) 5% stockholder.
(6) Includes, by reason of Mr. Chato's controlling interest in BO Tech Burner
Systems, all 6,525,713 shares of common stock held by BO Tech Burner
Systems. Does not include 100,000 shares of common stock issuable upon
exercise of unvested options granted to Mr. Chato under the 1999 Clean
Energy Combustion Systems, Inc. Stock Plan to purchase 100,000 shares of
common stock at $2.00 per share. (See "Description Of Our Securities--1999
Clean Energy Stock Plan").
(7) Does not include 80,000 shares of common stock issuable upon exercise of
unvested options granted to Mr. Thuot under the 1999 Clean Energy
Combustion Systems, Inc. Stock Plan to purchase 80,000 shares of common
stock at $2.00 per share. (See "Description Of Our Securities--1999 Clean
Energy Stock Plan").
(8) Does not include 80,000 shares of common stock issuable upon exercise of
unvested options granted to Mr. Sheahan under the 1999 Clean Energy
Combustion Systems, Inc. Stock Plan to purchase 80,000 shares of common
stock at $2.00 per share. (See "Description Of Our Securities--1999 Clean
Energy Stock Plan").
(9) Does not include shares of common stock held by Messrs. Chato, Thuot and
Sheahan by virtue of their status as stockholders of BO Tech Burner
Systems.
To our knowledge there are no existing arrangements the operation of which may,
at a later date, result in a change in control of our company.
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Certain Relationships And Related Transactions
Transactions With Management and Others
We have entered into the following transactions through the date of this
prospectus with our executive officers, directors and securities holders
identified in that section of this prospectus captioned "Security Ownership of
Certain Beneficial Owners and Management."
PBC Technology License
On March 5, 1999, we entered into a PBC Technology License with 818879 Alberta
pursuant to which it granted us an exclusive fully-paid worldwide license to
design, engineer, manufacture, market, distribute, lease and sell burner
products using the PBC technology, and to sublicense and otherwise commercially
exploit the PBC technology. 818879 Alberta is one of our founders and is the
sole holder of our series "A" preferred stock, and its affiliate, Ravenscraig
Properties Limited, holds a minority interest in our common stock. (See
"Business--Corporate Structure"). 818879 Alberta acquired the rights to the PBC
technology in December 1998 from TOBA Developments Ltd., a creditor of the BO
Group and its affiliates, for the sum of Cdn. $525,000 paid to TOBA to satisfy a
debenture under foreclosure. For a detailed description of the terms of the PBC
Technology License, see "Business--License Agreements--PBC Technology License."
The terms of 818879 Alberta's acquisition of the PBC technology from TOBA and
its later licensing of the PBC technology to our company pursuant to the PBC
Technology License were each negotiated on an arms-length basis between the
parties. We did not obtain any independent valuation relative to the terms of
the PBC Technology License or the value of the PBC technology from any appraiser
or other expert in the valuation of technologies and businesses.
Diesel Technology License
On March 5, 1999, we entered into a Diesel Technology License with John D. Chato
pursuant to which he granted us an exclusive worldwide license to design,
engineer, manufacture, market, distribute, lease and sell burner products using
the diesel technology, and to sublicense and otherwise commercially exploit the
diesel technology. Mr. Chato is one of our founders and the holder, together
with other members of the Bo Group, of a controlling interest in our common
stock. (See "Business--Corporate Structure"). For a detailed description of the
terms of the Diesel Technology License, see "Business--License Agreements--PBC
Technology License."
The terms of the Diesel Technology License were negotiated on an arms-length
basis between the parties. We did not obtain any independent valuation relative
to the terms of the Diesel Technology or the value of the diesel technology from
any appraiser or other expert in the valuation of technologies and businesses.
Founding Stockholders Agreement
On March 1, 1999, we entered into a Founding Stockholders Agreement with our
founding common stockholders relating to certain matters deemed necessary to
ensure the continuity of our management and ownership. For a detailed
description of the terms of the Founding Stockholders Agreement, see
"Description Of Our Securities--Founding Stockholders Agreement."
Advances On Behalf of Clean Energy
We have paid 818879 Alberta the sum of Cdn. $224,156 (principal and interest) in
reimbursement of Cdn. $219,000 advanced by 818879 Alberta to BO Tech Burner
Systems from January through May 1999 for
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the purpose of funding certain pre-incorporation expenses incurred by BO Tech
Burner Systems on our behalf in connection with our pending projects. Our
founders agreed when forming our company that we would repay 818879 Alberta for
these advancements from the proceeds of our first offering of securities,
including interest accrued at the rate of 8 3/4% from date of advancement, and
we assumed that obligation upon our formation.
Indebtedness of Management and Others to Clean Energy
None of our executive officers, directors and securities holders identified in
that section of this prospectus captioned "Principal Stockholders" are indebted
to our company.
Description Of Our Securities
General
Our Certificate of Incorporation authorizes us to issue the following classes of
capital stock:
. 15,000,000 shares of common stock; and
. 1,000,000 shares of preferred stock in one or more series, with each
series having such powers, preferences and rights as our Board of
Directors may confer. Two series of preferred stock have been
designated to date, as follows:
. 1,000 shares of series "A" preferred stock; and
. 450,000 shares of series "B" preferred stock.
We have issued the following number of shares of our authorized capital stock as
of September 21, 1999, all of which are currently outstanding and fully paid and
nonassessable:
. 9,643,750 shares of common stock;
. 1,000 shares of series "A" preferred stock; and
. 250,000 shares of series "B" preferred stock.
See "Risk Factors--Risks Relating To This Distribution--We Can Issue Additional
Capital Stock At Any Time."
Common Stock
Each common stockholder is entitled to one vote for each share he or she may own
of record on any matter voted upon by our common stockholders.
Should we liquidate, dissolve or wind-up our company, our common stockholders
will share equally and ratably in any assets which remain after we:
. pay all of our debts and liabilities, and
. pay any liquidation preference due to any outstanding class of
preferred stock.
Our common stockholders are entitled to receive and share dividends on a pro
rata basis should our Board of Directors declare a dividend on our common stock.
Any dividend our Board may declare in favor of our common stockholders will be
subject to the following restrictions:
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. any dividend and liquidation rights or preferences reserved to any
outstanding class of preferred stock;
. any dividend restrictions that may be contained in future credit
facilities; and
. any restrictions imposed under Delaware corporate law (Delaware
corporate law provides that no dividend or other distribution
{including redemptions or repurchases of shares of capital stock} may
be made by a corporation if, after giving effect to the distribution,
the corporation would not be able to pay its debts as they become due
in the usual course of our business, or its total assets would be less
than the sum of its total liabilities plus the amount that would be
needed, if it were to be dissolved at the time of the distribution, to
satisfy the preferential rights of its preferred stockholders.)
We do not currently intend to pay dividends on shares of our common stock. (See
"Dividend Policy").
Our common stock has no preemptive or cumulative voting rights under our
Certificate of Incorporation, and is not subject to any redemption, sinking fund
or conversion provisions, with the exception of 818879 Alberta, Ltd.'s
obligation to surrender common stock upon the termination of the PBC Technology
License. Specifically, we must pay up to Cdn. $525,000 to 818879 Alberta, Ltd.,
plus interest accrued thereon at the rate of 13% per annum from January 1, 1999,
in order to preserve our right to acquire full ownership of the PBC technology
should 818879 Alberta exercise its right to terminate the PBC Technology License
after March 4, 2002 if our common stock is not then actively trading on a
National Market. 818879 Alberta, Ltd. must, in turn, surrender to our company
any shares of series "A" preferred stock which then remain outstanding, plus up
to 593,750 shares of common stock. (See "Business--License Agreements").
Series "A" Preferred Stock
Our series "A" preferred stockholders are generally not entitled to vote, except
that they may elect to our Board of Directors a number of directors equal to
one-fourth of our total directors (or the minimum whole number in excess of one-
fourth of our total directors if the total number of our directors is not a
multiple of four).
Our Certificate of Incorporation also prohibits us from taking the following
actions without the affirmative vote or consent of a majority of our series "A"
preferred stock holders:
. change, amend, or repeal any of the provisions of our Certificate of
Incorporation which would adversely affect the rights, preferences,
privileges, and restrictions of our series "A" preferred stock or
authorize our Board of Directors to do so;
. effect an exchange, reclassification, or cancellation of all or part
of our series "A" preferred stock or effect an exchange, or create a
right of exchange, of all or part of the shares of any other class into
series "A" preferred stock;
. increase or decrease: (1) the presently authorized number of shares of
our preferred stock, including our series "A" preferred stock; or (2)
the presently authorized number of shares of our common stock (except
and then only to the extent necessary to effectuate a forward
stock-split with respect to our common stock);
. fix or alter the designation, powers, preferences and rights of the
shares of any series of our preferred stock (other than our series "A"
preferred stock), and establish the number of shares contained in any
series;
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. issue any shares of our preferred stock (other than our series "A"
preferred stock), or any security convertible into shares of our
preferred stock;
. create any new class of shares (or any security convertible into that
new class) ranking on a parity with or having rights, preferences or
privileges, as to assets, senior to our series "A" preferred stock;
. declare or pay any dividend with respect to any shares of our common
stock, series "B" preferred stock or any other equity securities of our
company (other than our series "A" preferred stock), or permit or
authorize any of our subsidiaries to declare or pay any dividend with
respect to any of their equity securities (which we collectively refer
to as "Series A Junior Securities"), whether payable out of our legally
available cash or property (unless and then only to the extent the
dividend relates to the issuance of shares of our common stock in
connection with a forward stock-split with respect to outstanding
shares of our common stock);
. redeem, purchase or otherwise acquire directly or indirectly, or
permit or authorize any of our subsidiaries to redeem, purchase or
otherwise acquire directly or indirectly, any shares of our common
stock, series "B" preferred stock or other of our Series A Junior
Securities or any securities convertible into our Series A Junior
Securities, or set aside any monies for the purchase or redemption
(through a sinking fund or otherwise) of any of those securities;
. sell or convey our principal assets or businesses, or the principal
assets or businesses or equity securities (or securities convertible
into equity securities) of any of our subsidiaries, except
inter-company transactions amongst our company and our wholly owned
subsidiaries;
. merge or consolidate our company (other than a short-form merger of a
wholly-owned subsidiary into our company which does not require the
vote of our stockholders) with or into another legal entity or
entities;
. dissolve, liquidate or wind-up our company; or
. make an assignment for the benefit of our creditors, or file a
petition under any federal, state or provincial bankruptcy law or
statute, which petition is not vacated within ninety days.
Each holder of our series "A" preferred stock is entitled to one vote for each
share he or she may own of record on any matter voted upon by those
stockholders.
818879 Alberta, Ltd. has agreed, under the terms of the Founding Stockholders
Agreement, that it will not withhold its consent to the payment of certain
dividends pursuant to its right under our Certificate of Incorporation under
certain circumstances. (See "Description Of Our Securities--Founding
Stockholders Agreement").
Our series "A" preferred stock is not entitled to participate in dividends
declared by our Board.
Our Certificate of Incorporation provides that our series "A" preferred
stockholders will be entitled to receive $1 per share, or $1,000 in the
aggregate based upon the 1,000 shares of series "A" preferred stock currently
outstanding, should our company liquidate, dissolve or wind-up. The series "A"
preferred stock liquidation preference is payable from any assets which remain
available for distribution after provision for payment of our debts and the
liquidation preference held by our series "A" preferred stock, but before any
provision is made for our common stock. (See "Risk Factors--Risks Relating To
This Distribution--You Should Not Expect To Receive A Liquidation
Distribution"). Our series "A" preferred stockholders will have no right to
participate in any assets that may remain for distribution after satisfaction of
their series "A" liquidation preference.
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Our Certificate of Incorporation provides further that each share of our
preferred stock is convertible at the option of its holder into one share of our
common stock (subject to adjustment for stock dividends, combinations or
splits). In addition, if our common stock is accepted for listing or quotation
on a National Market and actively trades on that market for a two year
continuous period, all outstanding shares of series "A" preferred stock will
automatically convert into common stock in the same conversion ratio as if
voluntarily converted.
Our series "A" preferred stock has no preemptive or cumulative voting rights
under our Certificate of Incorporation, and is not subject to any redemption,
sinking fund or conversion provisions, with the exception of the following:
. Our Certificate of Incorporation provides that each share of series "A"
preferred stock will be converted into one share of common stock
(subject to adjustment for stock dividends, combinations or splits):
. at the option of its holder; or
. if our common stock is accepted for listing or quotation on a
National Market and actively trades on that market for a two
year continuous period.
. Our Founding Stockholder's Agreement provides that each share of series
"A" preferred stock will be converted into one share of common stock
(subject to adjustment for stock dividends, combinations or splits),
should:
. the aggregate holdings of Ravenscraig Properties Limited and
its affiliates in our common stock at any time become less
than 5% of the total number of shares of our common stock
outstanding (unless the decrease is attributable to a stock
redemption); or
. 818879 Alberta sell or assign any of our series "A" preferred
stock to any third party other than any affiliate of 818879
Alberta and Ravenscraig without our prior written consent.
(See "Description Of Our Securities--Founding Stockholders
Agreement").
Our Founding Stockholder's Agreement also requires 818879 Alberta, Ltd.'s to
surrender all outstanding shares of series "A" preferred stock upon the
termination of the PBC Technology License. Specifically, we must pay up to Cdn.
$525,000 to 818879 Alberta, Ltd., plus interest accrued thereon at the rate of
13% per annum from January 1, 1999, in order to preserve our right to acquire
full ownership of the PBC technology should 818879 Alberta exercise its right to
terminate the PBC Technology License after March 4, 2002 if our common stock is
not then actively trading on a National Market. 818879 Alberta, Ltd. must, in
turn, surrender to our company any shares of series "A" preferred stock which
then remain outstanding, plus up to 593,750 shares of common stock. (See
"Business--License Agreements").
Our series "A" preferred stockholders will be entitled to receive, in cash or
securities, the amount they would have received upon our voluntary or
involuntary liquidation, dissolution or winding-up upon the occurrence of any of
the following:
. any recapitalization or reclassification of our capital stock;
. our merger or consolidation with or into another corporation or
corporation;
. our corporate reorganization (including an exchange reorganization or a
sale-of-assets reorganization); or
. any transaction in which all or substantially all of our assets are
sold;
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with the exception, in any of the above cases, of
. any transaction whose principal purpose is to change the state in
which our company is incorporated, or to form a holding company,
or to effect a similar reorganization as to form of entity
without change of beneficial ownership, including a merger into a
wholly-owned subsidiary, or
. the merger of our company with or into a corporation that is
controlled by our company immediately after the transaction.
Series "B" Preferred Stock
Each holder of our series "B" preferred stock is entitled to vote on all matters
voted upon by our common stockholders, and will be deemed for voting purposes to
hold that number of whole shares of common stock into which his or her series
"B" preferred stock could be converted. Our Certificate of Incorporation also
prohibits us from taking the following actions without the affirmative vote or
consent of a majority of our series "B" preferred stock holders:
. change, amend, or repeal any of the provisions of our Certificate of
Incorporation which would adversely affect the rights, preferences,
privileges, and restrictions of our series "B" preferred stock or
authorize our Board of Directors to do so;
. effect an exchange, reclassification, or cancellation of all or part of
our series "A" preferred stock or effect an exchange, or create a right
of exchange, of all or part of the shares of any other class into
series "A" preferred stock;
. increase or decrease: (1) the presently authorized number of shares of
our series "B" preferred stock; or (2) the presently authorized number
of shares of our common stock (except and then only to the extent
necessary to effectuate a forward stock-split with respect to our
common stock);
. fix or alter the designation, powers, preferences and rights of the
shares of any series of our preferred stock (other than our series "B"
preferred stock), and establish the number of shares contained in any
series;
. issue any shares of our preferred stock (other than our series "B"
preferred stock), or any security convertible into shares of our
preferred stock;
. create any new class of shares (or any security convertible into the
new class) ranking on a parity with or having rights, preferences or
privileges, as to assets, senior to our series "B" preferred stock;
. create any new class of shares (or any security convertible into the
new class) ranking on a parity with or having rights, preferences, or
privileges, as to assets, junior to our series "B" preferred stock but
senior to our common stock;
. declare pay or make any distribution (other than a dividend payable in
cash or property pursuant to which our series "B" preferred stock is
otherwise entitled to participate) with respect to any shares of our
capital stock or any other equity securities of our company ranking
junior to our series "B" preferred stock upon liquidation or
distribution (except in shares of, or warrants or rights to subscribe
for or purchase shares of our company which are junior to our series
"B" preferred stock as to assets), or permit or authorize any of our
subsidiaries to declare, pay or make any distribution with respect to
any of their equity securities (we refer to these securities as
"Series B
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Junior Securities"), if after giving effect to that distribution
there is accrued but unpaid dividends or accrued but unpaid Series B
liquidation preference;
. declare or pay any dividend payable in cash or property (after taking
into consideration provision for the Series "B" liquidation preference)
unless:
. the dividend relates to the issuance of shares of our common
stock as a dividend on outstanding shares of our common stock, or
. our Board of Directors declare that our series "B" preferred
stockholders may participate in the dividend on the same basis as
if all of their series "B" preferred stock had been converted
into common stock; and
. redeem, purchase or otherwise acquire directly or indirectly, or permit
or authorize any of our subsidiaries to redeem, purchase or otherwise
acquire directly or indirectly, any of our Series B Junior Securities
or any securities convertible into our Series B Junior Securities, or
set aside any monies for the purchase or redemption (through a sinking
fund or otherwise) of any of those securities if, after giving effect
to that redemption or purchase, any accrued but unpaid dividends are
payable to our series "B" preferred stockholders or there is an accrued
but unpaid series "B" liquidation preference.
Our series "B" preferred stock may only participate in dividends if permitted to
do so by our Board of Directors. If our series "B" preferred stock is granted
participation rights, they will share in the dividend on a pro rata basis as if
their shares of series "B" preferred stock were converted into common stock. We
do not currently intend to declare any dividends on shares of our common stock.
(See "Dividend Policy").
Should we liquidate, dissolve or wind-up of our company, our Certificate of
Incorporation requires us to pay to our series "B" preferred stockholders an
amount equal to the "stated value" of their series "B" preferred shares (defined
as the issuance cost for these securities) The stated value of the 250,000
shares of series "B" preferred stock currently outstanding is $2 per share, or
$500,000 in the aggregate. The series "B" preferred stock liquidation preference
is payable from any assets which remain available for distribution after we make
provision for payment of our debts, but before we make any provision for any
liquidation payments on our series "A" preferred or common stock. (See "Risk
Factors--Risks Relating To This Distribution--You Should Not Expect To Receive A
Liquidation Distribution"). Our series "B" preferred stockholders will have no
right to participate in any assets that may remain for distribution after
satisfaction of the series "B" liquidation preference.
Our Certificate of Incorporation provides that each share of series "B"
preferred stock will be converted into one share of common stock (subject to
adjustment for: (1) the issuance of our common stock under certain circumstances
for cash consideration of less than the Stated Value of the series "B" preferred
stock; determined on a cumulative basis after taking into consideration all
previous issuances of common stock; or (2) stock dividends, reclassifications,
splits and other similar events stock dividends, combinations or splits):
. at the option of its holder; or
. if our common stock is accepted for listing or quotation on a National
Market.
Our series "B" preferred stock has no preemptive or cumulative voting rights
under our Certificate of Incorporation, and is not subject to any redemption,
sinking fund or conversion provisions other than the previously noted conversion
feature.
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<PAGE>
Our series "B" preferred stockholders will be entitled to receive, in cash or
securities, the amount they would have received upon the voluntary or
involuntary liquidation, dissolution or winding-up of our company upon the
occurrence of any of the following:
. any recapitalization or reclassification of our capital stock;
. our merger or consolidation with or into another corporation or
corporation;
. our corporate reorganization (including an exchange reorganization or
a sale-of-assets reorganization); or
. any transaction in which all or substantially all of our assets are
sold;
with the exception, in any of the above cases, of
. any transaction whose principal purpose is to change the state in
which our company is incorporated, or to form a holding company,
or to effect a similar reorganization as to form of entity
without change of beneficial ownership, including a merger into a
wholly-owned subsidiary, or
. the merger of our company with or into a corporation that is
controlled by our company immediately after the transaction.
Non-Designated Preferred Stock
Our Board of Directors is authorized under our Certificate of Incorporation to
designate additional series of our preferred stock from the balance of
authorized shares not previously designated as part of our series "A" preferred
stock and series "B" preferred stock, and to fix the number of shares within
each series so designated and determine the designation, powers, preferences and
rights of that series (subject to the consent rights reserved to our series "A"
preferred and series "B" preferred stockholders).
Provisions In Our Certificate Of Incorporation and Bylaws Governing Rights of
Stockholders
Certain provisions in our Certificate of Incorporation and Bylaws described
below govern and, to a certain degree circumscribe, the rights of our
stockholders to appoint or remove directors, and to call special meetings or
take actions by written consent:
Number of Directors; Non-Series A Directors and Series A Directors; Appointment;
Removal
Our Certificate of Incorporation and Bylaws provide that the authorized number
of our directors will be not less than two nor more than twelve as fixed from
time-to-time by resolution of our Board of Directors, and that our Board will be
comprised of following two separate classes of directors:
. "Non-Series A Directors" appointed exclusively by our common and series
"B" preferred stockholders voting as one class (with our series "B"
preferred stockholders voting on the same basis as if their shares had
been converted into common stock); and
. "Series A Directors" appointed exclusively by our series "B" preferred
stockholders. These stockholders have the right to appoint a number of
Series A Directors which, when aggregated with the total number of our
Non-Series A Directors, would equal one-fourth of the total number of
directors (or the minimum whole number in excess of one-fourth should
----------
the total number of directors not be a multiple of four).
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<PAGE>
Our Board of Directors is presently fixed at three members, all of whom are
designated as "Non-Series A Directors." Although 818879 Alberta, Ltd.--the sole
holder of our series "A" preferred stock--has the right to appoint a Series A
Director to our Board, it has not exercised that right of appointment to date
and has no current intent to do so.
Our Certificate of Incorporation and Bylaws provide that each director will each
hold office until the annual meeting for the year in which his or her term
expires and until his or her successor is duly elected, unless the term has
previously expired due to his or her death, resignation, retirement,
disqualification or removal from office. Any vacancy in any Non-Series A
Director position, however resulting, or any newly created Non-Series A Director
position, may only be filled by a majority of our directors then in office, even
if less than a quorum, or by a sole remaining director and not by our
stockholders. Any vacancy in any Series A Director position, however resulting,
or any newly created Series A Director position, may only be filled by a
majority of our outstanding series "A" preferred stock. Any director elected to
fill a vacancy will hold office for a term which coincides with the terms of the
class to which he or she was elected.
Our Non-Series A Directors may be removed from office at any time, for cause
only, by the affirmative vote of a majority of our outstanding common and series
"B" preferred stock, voting as one class (with our series "B" preferred
stockholders voting on the same basis as if their shares of series "B" preferred
stock had been converted into common stock). Our Series A Directors may be
removed from office at any time, with or without cause, by a majority of our
outstanding series "A" preferred stock.
Special Meetings of Stockholders; Written Consents
Our Certificate of Incorporation and Bylaws provide that special meetings of our
common and series "B" preferred stockholders may be called only by our Board of
Directors, the Chairman of our Board, our Chief Executive Officer or our
President. Moreover, any action required or permitted to be taken at any annual
or special meeting of our common and series "B" preferred stockholders:
. can only be taken upon the vote of the those stockholders at an annual
or special meeting duly noticed and called, as provided in our
Certificate of Incorporation and Bylaws; and
. may not be taken by written consent of our stockholders unless approved
by the affirmative vote of at least two-thirds of the combined voting
power of the outstanding shares of our stock of all classes and series
entitled to vote on the matter.
The only exceptions to the foregoing restrictions involve matters which
specifically require the affirmative consent of our series "A" or series "B"
preferred stockholders as a class under our Certificate of Incorporation, which
approval may be given by written consent of a majority of shares held by those
stockholders.
Our Certificate of Incorporation and Bylaws provide that our series "A"
preferred stockholders may call special meeting at any time for any purpose or
purposes, and can take any action by written consent.
Amendment or Revocation
Our Certificate of Incorporation and Bylaws provide that the foregoing
provisions can only be amended or repealed, or inconsistent provisions adopted,
by
. the affirmative vote of at least two-thirds of the combined voting
power of the outstanding shares of our stock of all classes and series
entitled to vote generally in the election of our directors, voting
together as a single class (e.g., our common and series "B" preferred
stockholders voting as a class), and
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<PAGE>
. any class or series of our stock required by law or by our Certificate
of Incorporation or Bylaws (e.g., our series "A" and series "B"
preferred stockholders, voting separately, to the extent they are
affected by the action).
Founding Stockholders Agreement
On March 1, 1999, we entered into a Founding Stockholders Agreement with our
eight founders and initial common stockholders (Messrs. John D. Chato, John P.
Thuot, James V. DeFina, Barry A. Sheahan and Robert Alexander, and BO Tech
Burner Systems and Ravenscraig Properties Limited), and our initial series "A"
preferred stockholder (818879 Alberta, Ltd.) relating to certain matters deemed
necessary to ensure the continuity of our management and ownership. The Founding
Stockholders Agreement provides, among other things, for the following rights
and obligations amongst our company and these founding stockholders:
. 818879 Alberta, Ltd. agrees that its will note sell or assign our
series "A" preferred stock to any third party (other than any affiliate
of 818879 Alberta and Ravenscraig Properties) without our prior written
consent.
. 818879 Alberta granted us the right to convert any outstanding series
"A" preferred stock into common stock should:
. 818879 Alberta consummate any unpermitted sale or transfer of the
series "A" preferred stock; or
. the aggregate holdings of Ravenscraig Properties Limited and its
affiliates in our common stock become less than 5% of the total
number of shares of our common stock outstanding (excluding
decreases attributable to stock redemptions).
. 818879 Alberta, Ltd. agreed that any person its seeks to appoint as a
Series A Director to our Board of Directors must be reasonably
acceptable to our Board. We agreed that 818879 Alberta Ltd. would have
the right to have an observer attend all meetings of our Board so long
818879 Alberta Ltd. or its affiliates hold our series "A" preferred
stock.
. 818879 Alberta, Ltd. agrees that it will not withhold its consent to
the payment of certain dividends pursuant to its right as the holder of
our series "A" preferred stock under our Certificate of Incorporation
should we procure the quotation of our common stock on the Nasdaq
National Market.
. We agreed to grant pre-emptive rights to our seven initial common
stockholders entitling each of them to participate on a pro rata basis
with respect to certain offerings of our equity securities on or before
March 31, 2002. Specifically, should we issue any securities (other
than debt securities with no equity feature) in a private offering for
cash on or before March 31, 2002, we must offer each founding common
stockholder then holding our common stock a 30-day right entitling him
or her to purchase those securities at the same price and terms to be
offered (although this obligation is subject to certain conditions and
exceptions). If any founding common stockholder elects to purchase more
securities than offered, he or she will be entitled to purchase his or
her pro rata portion of the offered securities. This preemptive right
does not apply to the following (among other events):
. securities we may issue or create as a result of any stock
dividend, subdivision, reclassification, recapitalization or
similar event;
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<PAGE>
. securities we may issue under a firm commitment underwritten
public offering;
. securities we may issue to fulfill or comply with any of our
obligations to issue securities under any present or future stock
option plan, stock purchase, bonus, savings investment, or other
stock incentive programs for the benefit of our directors,
officers, employees or consultants;
. securities we may issue in isolated transactions in payment for
goods and services;
. securities we may issue by reason of the exercise of outstanding
options, warrants or other rights to acquire securities; or
. securities we may issue in consideration of our acquisition
(whether by merger or otherwise) of the stock or assets of
another entity.
These rights are personal, non-transferable rights limited to our
founding common stockholders (subject to certain rights of transfer to
family members or affiliates or with our consent in our sole
discretion), and may only be exercised by any individual founding
common stockholder or permitted assignee if he or she then holds at
least 5,000 shares of common stock.
. Should our stockholders approve the sale, transfer, exchange or other
disposition of 50% or more of our capital stock in a single or series
of related transactions (which we refer to as an "Approved Stock Sale
Transaction"), Ravenscraig and its permitted successors retain the
right to sell, transfer, exchange or otherwise dispose of any common
stock then held by them as part of the Approved Stock Sale Transaction
on a pro rata basis with all other selling stockholders (even if they
did not grant their approval for the Approved Stock Sale Transaction or
otherwise consent to the sale, transfer, exchange or other disposition
of their common stock in accordance with the terms of the Approved
Stock Sale Transaction).
. We agree to use our best efforts to initially procure the quotation of
our common stock on the NASD OTC Bulletin Board, and to later procure
the quotation of our common stock on either tier of The Nasdaq Stock
Market (e.g., either The Nasdaq SmallCap Market or the Nasdaq National
Market).
. Our founding common stockholders (other than Ravenscraig Properties)
agreed to subject his or her shares of common stock to certain OTC
Bulletin Board Lock-Up restrictions. These restrictions are described
below in the section of this prospectus captioned "OTC Bulletin Board
Lock-Up."
. Our founding common stockholders each agreed they would not to vote in
favor of or otherwise approve any transaction or series of transactions
which would effectuate a "Change In Control" unless that transaction
was otherwise approved by a majority of our common stock then held by
the founding common stockholders and a majority of our outstanding
series "A" preferred stock. The term "Change In Control" is defined as
any time an "Acquiring Person" attains, by reason of and immediately
after a transaction or series of related transactions (with certain
exceptions), "Beneficial Ownership" of 50% or more of the "Total
Combined Voting Power" of our then outstanding "Voting Securities" (as
those terms are defined in the Founding Stockholders Agreement).
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<PAGE>
OTC Bulletin Board Lock-up Restrictions
A portion of our currently outstanding common stock held by our founding common
stockholders, and all 500,000 shares of our common stock which may be derived by
conversion of shares of our currently outstanding series "B" preferred stock,
are subject to certain OTC Bulletin Board Lock-Up restrictions contained in our
Founding Stockholders Agreement. These restrictions were formulated to assist in
the creation of an orderly market for the sale of our common stock on the OTC
Bulletin Board by preventing too many shares from being offered for sale within
the first nine months of quotation on the OTC Bulletin Board.
Specifically, if our common stock is quoted on the OTC Bulletin Board before
December 31, 2000, these shares, whether held by our founding common
stockholders or their successors, cannot be sold on that market without our
prior consent until a certain specified date. Any waiver we may grant pursuant
to our discretionary authority must be exercised on a pro rata basis with
respect to all common stockholders who are subject to the OTC Bulletin Board
Lock-Up restrictions and whom desire to sell those shares on that market. Any
distributees of less than 3,000 shares of our common stock under this prospectus
will be entitled to sell those shares on the OTC Bulletin Board at any time free
of the OTC Bulletin Board Lock-Up restrictions. (See "Description Of Our
Securities--Founding Stockholders Agreement").
The following table lists the total shares of our common stock which will be
subject to the OTC Bulletin Board Lock-Up restrictions after the consummation of
the distributions contemplated by this prospectus, and their respective release
dates:
<TABLE>
<CAPTION>
Total Shares of Common Stock OTC Bulletin Board Lock-Up Release Dates
- ------------------------------------- ----------------------------------------
Held by Founding Conversion of series Months After Fixed Date
Common "B" preferred stock Quotation on OTC (if earlier)
-------------------- ---------------
Stockholders Bulletin Board
- --------------------- --------------------
<S> <C> <C> <C>
2,108,835 125,000 Three Months June 30, 2000
2,108,835 125,000 Six Months September 30, 2000
2,108,835 125,000 Nine Months December 31, 2000
--------- -------
6,326,505 375,000
========= =======
</TABLE>
1999 Clean Energy Stock Plan
Description of Plan
On March 5, 1999, our Board and stockholders approved our 1999 Clean Energy
Combustion Systems, Inc. Stock Plan, which we refer to as the "1999 Stock Plan."
The purpose of the 1999 Stock Plan is to provide our company with a vehicle to
attract, compensate and motivate selected directors, officers, employees and
consultants and advisors, and to appropriately compensate them for their
efforts, by creating a broad-based stock plan which will enable us, in our sole
discretion and from time to time, to offer to or provide incentives or
inducements to those persons in the form of stock awards, stock options or stock
appreciation rights (which we collectively refer to as "Awards") in an aggregate
amount which cannot exceed 1,000,000 shares of our common stock, thereby
affording those persons with an opportunity to share in potential capital
appreciation in our common stock. Consultants and advisors will only be eligible
to receive a grant under the 1999 Stock Plan if they are:
. natural persons; and
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<PAGE>
. provide bona fide consulting services to our company or its
subsidiaries under a contract (but excluding any services they may
render in connection with the offer and sale of our securities in a
capital-raising transaction, or which may directly or indirectly
promote or maintain a market for our securities).
The 1999 Stock Plan is administered by a Plan Administrator, which is may be our
Board of Directors or, at our Board's discretion, the Compensation Committee of
our Board or any other committee selected by our Board, or our President or his
designee. The Plan Administrator has the empower, subject to the terms and
conditions of the 1999 Stock Plan, to determine the following matters:
. which persons are eligible to receive Awards under the 1999 Stock
Plan;
. which eligible persons may be recipients of Awards;
. the type of Award (i.e., stock grant, option or stock appreciation
right);
. the time or times at which the Awards may be granted;
. the number of shares of our common stock subject to each Award;
. the time and manner in which any Award which is an option will be
exercisable (including the exercise price and option period);
. whether any Award will subject to vesting conditions; and
. any other terms and conditions of an Award.
The Plan Administrator has the power to interpret and administer the 1999 Stock
Plan in its sole discretion, and all of its decisions are final.
Stock grants under the 1999 Stock Plan will be awarded under the following
different circumstances:
. As a "bonus" or "reward" for services previously rendered and
otherwise compensated (this type of Award is comparable to a gift
since our company has no legal obligation to make the grant, and would
ordinarily do so only in our discretion to recognize extraordinary
services).
. As "compensation" for the previous or future performance of services
or attainment of goals (this type of Award would commonly occur in a
situation in which the recipient enters into an agreement with our
company to be paid shares of common stock (in lieu of cash) for the
provision of past or future services).
. In "consideration" for the payment of a purchase price for our common
stock (this alternative would ordinarily apply where the recipient
desires to purchase our common stock, and our company is willing to
sell our common stock to the recipient).
Where payment is required to purchase our common stock under a stock grant, the
purchase price will be that price (including at a premium or discount to the
current fair market value of our common stock) as determined in the Plan
Administrator's sole discretion.
Options granted under the 1999 Stock Plan may:
. be either non-qualified or incentive stock options ("incentive" stock
options generally have more favorable United States income tax
considerations than "non-qualified" stock options);
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<PAGE>
. cannot have an exercise price of less than 85% of the fair market
value of our common stock as of the date of grant (and not less than
100% of fair market value in the case of incentive stock options); and
. may not have a term which exceeds ten years from date of grant.
Certain additional restrictions apply in the case of grants of incentive stock
options to persons who are 10% stockholders of our company.
Stock appreciation rights may be granted under the 1999 Stock Plan in
conjunction with, or may be unrelated to, options granted under the 1999 Stock
Plan. A stock appreciation right entitles the recipient to receive a payment, in
cash or shares of our common stock or a combination thereof, in an amount equal
to the excess of the fair market value of our common stock at the time of
exercise over the fair market value as of the date of grant. Stock appreciation
rights may be exercised during a period of time fixed by the Plan Administrator
not to exceed ten years after the date of grant. If a stock appreciation right
is issued in tandem with an option granted under the 1999 Stock Plan, the stock
appreciation right will be canceled upon exercise of the option. A stock
appreciation right may be issued subject to vesting conditions on a similar
basis as an option.
Awards granted under the 1999 Stock Plan are generally not transferable, and
will be subject to any vesting we may impose, all as governed by certain
applicable securities laws. A recipient of a grant must generally pay
consideration for the exercise of the option or purchase of our common stock in
cash; provided, however, we may permit the recipient to pay in shares of our
common stock or other property, including a promissory note.
The 1999 Stock Plan may be wholly or partially amended or otherwise modified,
suspended or terminated at any time and from time to time by our Board of
Directors. Neither our Board of Directors nor the Plan Administrator may
materially impair any outstanding Awards without the express consent of the
recipient. The Plan Administrator may also modify the terms of outstanding
options or the vesting conditions placed upon any stock grants set forth in the
underlying Award Agreement. However, no modification can impair a recipient's
rights under the Award Agreement without his or her express consent.
Grants To Date Under The 1999 Stock Plan
As of the date of this prospectus, we have granted incentive stock options under
the 1999 Stock Plan to certain of our officers and key employees entitling them
to purchase an aggregate of 320,000 shares of our common stock at a price of
$2.00 per share. The noted options vest in equal installments upon the
conclusion of the first through fifth annual anniversaries of continuous
employment, and lapse five years from date of vesting. (See
"Management--Employment Agreements And Executive Compensation").
Delaware Business Combination Act
As a Delaware corporation, we are subject to Section 203 of the Delaware General
Corporation Law (the "Business Combination Act") which generally restricts an
"interested stockholder" (defined as a beneficial owner of 15% or more of stock)
from entering into a business combination with the target company for a period
of three years unless:
. the board of directors of the target company approves the combination
before the acquisition of the 15% interest;
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<PAGE>
. the interested stockholder acquires at least 85% of the stock of the
target company as part of the transaction in which the 15% will be
acquired (excluding stock owned by officers who are also directors and
certain voting stock held by employee benefit plans); or
. the board of directors approves a combination by a majority vote and
two-thirds of other stockholders approve at a duly called stockholders
meeting.
A business combination is defined as:
. a merger or consolidation requiring stockholder approval,
. the sale, lease, pledge, or other disposition of assets, including by
dissolution, having at least 50% of the entire value of assets of the
company, or
. the proposed tender or exchange offer of 50% or more of the voting
stock of the target company.
Plan Of Distribution
This prospectus relates to the offer and distribution of up to 7,705,732 shares
of our common stock by certain of our executive officers and directors and
certain of our founding stockholders who are considered to be our "affiliates"
under the United States federal securities laws. The distributing stockholders
will effectuate the offer and distribution through the following series of
transactions:
. First, BO Tech Burner Systems Ltd., a British Columbia corporation
which is one of our founding stockholders, will distribute 5,437,803
shares of our common stock as a dividend in specie to its stockholders
and those of its parent and subsidiary, as follows:
. BO Tech Burner Systems will first contribute 753,724 shares
to its majority-owned subsidiary, BO Gas Limited, also a
British Columbia corporation. BO Gas Limited, in turn, will
distribute these shares to up to 134 of its stockholders of
record as a dividend in specie; and
. BO Tech Burner Systems will then distribute 4,684,079 shares
to its 54 stockholders of record as a dividend in specie. BO
Tech Burner Systems' controlling parent company, BO
Development Enterprises Ltd., a British Columbia corporation,
will receive 2,599,084 shares as part of this dividend
distribution, and will, in turn, distribute these shares to
its 28 stockholders of record as a dividend in specie.
. Second, BO Tech Burner Systems will next distribute 1,087,910 shares,
representing the balance of its holdings, to five claimants to satisfy
potential claims these persons may have against BO Tech Burner Systems
and its affiliated companies. Included in this total will be 892,019
shares that BO Tech Burner Systems will distribute to a licensee,
Technoquest, Inc., a Nevada corporation, to satisfy potential claims
relating to a terminated license agreement. Technoquest, in turn, will
distribute these 892,019 shares to its 47 stockholders of record as a
dividend in specie.
. Finally, certain of our stockholders desire to gift a total of
1,180,019 of their shares of our common stock to their family members
and close friends. Specifically, Messrs. John D. Chato, John P. Thuot,
James V. DeFina and Barry Sheahan desire to gift 60,000, 82,513,
50,000 and 33,100 shares, respectively, and Mr. R. Dirk Stinson
desires to gift 954,406 shares currently held by his wholly-owned
corporation, Ravenscraig Properties Limited, which is one of our
affiliated stockholders.
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<PAGE>
A summary of the names of our distributing stockholders and their current
respective holdings in our company and the number of shares of our common stock
they will distribute under this prospectus are set forth in that section of this
prospectus captioned "Distributing Stockholders."
Neither Clean Energy nor any of our distributing stockholders will receive any
payment of cash or other tangible property for the common stock distributed
under this prospectus. We will pay all expenses incurred in facilitating the
distribution under this prospectus, including registration fees, and printing,
legal and accounting fees, estimated at $72,500, from our general funds.
The foregoing distributions by our distributing stockholders other than BO Gas
Limited will be effectuated immediately after the date the registration
statement containing this prospectus clears the Securities and Exchange
Commission staff comment process and is declared effective. The distribution by
BO Gas Limited to its stockholders will be delayed beyond that effective date
pending the expiration of a cash rescission offer extended by BO Gas Limited to
certain of its stockholders under the securities laws of the province of British
Columbia.
No underwriters, dealers or finders are involved or expected to be involved in
the distributions of our common stock under this prospectus, and no payments of
commissions, finders fees or any other compensation will be made to any parties
other than fees payable to our attorneys and accountants for professional
services rendered. Neither Clean Energy nor any of our distributing stockholders
will receive any payment of cash or other tangible property as part of any of
the contemplated distributions.
Assuming no transfers of our securities pending the distributions contemplated
by this prospectus, we will have, immediately following the consummation of the
distributions contemplated by this prospectus, up to 276 holders of record for
our common stock, one holder of record for our series "A" convertible preferred
stock, and 6 holders of record for our series "B" convertible preferred stock.
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Distributing Stockholders
The following table sets forth the names of our distributing stockholders, their
aggregate beneficial holdings of our common stock as of September 21, 1999
before the distributions contemplated by this prospectus, the aggregate number
of shares of our common stock to be directly or indirectly distributed with
respect to each distributing stockholder under this prospectus, and their
aggregate beneficial holdings of our common stock after the consummation of the
distributions contemplated by this prospectus:
<TABLE>
<CAPTION>
Common Stock
----------------------------------------------------------------------------
Aggregate Shares Aggregate Shares
Beneficially Owned Aggregate Shares Beneficially Owned
Before Distributions Indirectly or Directly After Distributions
Contemplated By This Distributed Under Contemplated By
Distributing Stockholder Prospectus this Prospectus This Prospectus
- ---------------------------------------- ------------------------- ------------------------ ---------------------
<S> <C> <C> <C>
John D. Chato............................. 1,709,882 (1) 60,000 1,649,882
John P. Thuot............................. 887,871 (1) 82,513 805,358
Barry A. Sheahan.......................... 277,049 (1) 33,100 243,949
James V. DeFina........................... 784,384 (1) 50,000 734,384
BO Tech Burner Systems Ltd................ 6,525,713 (1) 6,525,713 0
Ravenscraig Properties Limited............ 1,968,750 954,406 1,014,344
Technoquest, Inc.......................... 0 (2) 892,019 0
BO Gas Limited............................ 0 (3) 753,724 0
BO Development Enterprises Ltd............ 0 (4) 2,599,084 0
</TABLE>
- ---------------------------------
(1) Proportionate share of securities held by BO Tech Burner Systems.
(2) Receivable from BO Tech Burner Systems in satisfaction of potential claims,
and to be distributed by Technoquest to its stockholders as a dividend in
specie.
(3) Receivable from BO Tech Burner Systems as a contribution, and to be
distributed by BO Gas Limited to its stockholders as a dividend in specie.
(4) Receivable from BO Tech Burner Systems as a dividend in specie, and to be
distributed by BO Development Enterprises to its stockholders as a dividend
in specie.
Each distributing stockholder is an executive officer, director or affiliate of
our company or an associate of an affiliate of our company. See "Management" and
"Plan Of Distribution."
Market For Our Securities
General
As of September 21, 1999, we had seven holders of record for our common stock,
one holder of record for our series "A" convertible preferred stock, and six
holders of record for our series "B" convertible preferred stock. Assuming no
transfers of our securities pending the distributions contemplated by this
prospectus, we anticipate we will have, up to 276 holders of record for our
common stock immediately following the consummation of these distributions.
There is no public market for our securities, including the common stock being
distributed under this prospectus, and we cannot give you any assurance that any
active or liquid public market for our common stock or other securities will
develop or be sustained at any time in the future. Should a public market for
our securities develop, no prediction can be made as to the effect, if any, that
the sale of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Moreover, sales of
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<PAGE>
substantial amounts of our securities on the public market, or the perception
that substantial sales could occur, could adversely affect prevailing market
prices for our securities and also, to the extent the prevailing market price
for our securities is decreased, adversely impact our ability to raise
additional capital in the equity markets.
Intent to Establish a Limited Public Market for Common Stock on Tte NASD OTC
Electronic Bulletin Board
Since we will have a relatively large number of record holders for our common
stock immediately following the consummation of the foregoing distributions by
our distributing stockholders, we have promised certain of our stockholders that
we would use our best efforts to procure a market maker to file a Form 15c2-11
application with the NASD in order to quote our common stock on the OTC Bulletin
Board. This will enable our common stockholders to publicly offer and sell their
shares freely and without limitation under the federal and certain state
securities laws, subject, however, to the following restrictions as discussed in
greater detail in this section:
. The disclosure and investor suitability rules promulgated under the
Penny Stock Reform Act of 1990 and limitations mandated by Rule
15c-2-6 promulgated under the Exchange Act.
. The necessity of complying with any state "Blue Sky" or Canadian
provincial securities laws which may be applicable.
. Certain contractual volume restrictions on sale imposed on certain
holders of blocks of more than 3,000 shares of our common stock,
including the common stock to be distributed under this prospectus,
upon whom we have imposed lock-up restrictions as a condition to our
cooperation in establishing a public market for our common stock on
the OTC Electronic Bulletin Board.
. The amount of shares which may be freely traded under Rule 144
promulgated under the Securities Act.
We have not made any inquiries of, or commenced any other efforts to procure,
any sponsoring market maker, and we cannot give you any assurance that we will
be able to procure a sponsoring market maker or that a public market for our
common stock will develop in the foreseeable future.
Compliance With Penny Stock Rules
Even if we procure the listing of our common stock on the OTC Electronic
Bulletin Board, our common stock will likely be subject to a number of "penny
stock" regulations which may affect the price of those shares and your ability
to sell those shares in the secondary market. These rules generally impose
additional sales practice requirements on broker-dealers that sell low-priced
securities to persons other than established customers and institutional
accredited investors. For transactions covered by these rules, a broker-dealer
must make a special suitability determination for the purchaser and have
received the purchaser's written consent to the transaction. In addition,
because the penny stock rules probably will most likely apply to our common
stock if a public market develops on the OTC Electronic Bulletin Board,
investors who receive a distribution of our common stock under this prospectus
probably will find it more difficult to sell those shares. The Securities and
Exchange Commission's regulations define a penny stock to be any equity security
that has a market price or exercise price of less than $5.00 per share, subject
to some exceptions. The penny stock rules require a broker-dealer to deliver a
standardized risk disclosure document prepared by the Securities and Exchange
Commission, to provide the customer with additional information including
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in the transaction, monthly account statements
showing the market value of each penny stock held in the customer's account, and
to make a special written determination
-59-
<PAGE>
that the penny stock is a suitable investment for the purchaser and receive the
purchaser's written agreement to the transaction. These requirements probably
will reduce the level of trading activity in the secondary market for our common
stock and may severely and adversely affect the ability of broker-dealers to
sell our securities.
Restrictions On Transfer of Securities in the United States Without Compliance
With State "Blue Sky" Securities Laws
Even though the common stock to be distributed under this prospectus will be
registered under the federal securities laws of the United States pursuant to
the filing of the registration statement containing this prospectus, all of our
securities, including the common stock to be distributed under this prospectus,
will nevertheless remain subject to restrictions on sale, transfer, assignment,
hypothecation or other disposition imposed under the "Blue Sky" or securities
laws of the various states and territories of the United States. Specifically,
the public or private sale, transfer, assignment, hypothecation or other
disposition of our securities can only be effected by or to a resident of any
state or territory of the United States through the registration or
qualification of the transaction under the securities laws of such state or
territory, or reliance upon an available exemption from those requirements. We
have not filed, nor we do not intend to file, any registration statement with
any state or territorial securities administrator seeking registration or
qualification of any of our securities, including the common stock to be
distributed under this prospectus, under the securities laws of that state or
territory, and we undertake no obligation to do so, although we also reserve the
right to do so where necessary to make a distribution.
You will be solely responsible for meeting the requirements of any resale
exemption which may be available, or for registering or qualifying our common
stock, including shares you receive under this prospectus, in any state or
territory should a resale exemption not otherwise be available, including the
payment of any filing fees. It is very likely that you will not be able to
obtain the registration or qualification in a number of states or territories,
including as California, which impose "merit" criteria and requirements on the
issuer as a condition of registration or qualification.
Although we will not register or qualify our securities under the securities
laws of any state or territory of the United States, we have nevertheless
promised certain of our stockholders that we would use our best efforts to apply
for a Standard Manual Listing with either Standard and Poor's or Moodys.
Procuring a Standard Manual Listing would allow our securities holders to
qualify for an exemption for trading under the securities laws of over 35
States, including Arizona, Colorado, Massaschusetts, New Hampshire, Nevada,
Texas and Washington. (The other states, including California, do not have a
Standard Manual Exemption, or have a Standard Manual Exemption which imposes
additional criteria which we do not satisfy). We cannot give you any assurance
that we will be able to procure a Standard Manual Listing which will enable our
common stock to be traded in any of the states offering a Standard Manual
Exemption.
All recipients of shares of our common stock distributed under this prospectus
who are resident of the United States should consult with their own legal
advisers to determine the availability of resale exemptions or the registration
or qualification of our securities under the various state or territorial
securities laws which may be applicable in their individual circumstances
Restrictions On Transfer of Securities In Canada Without Compliance With
Provincial Securities Laws
All of our securities are subject to restrictions on sale, transfer, assignment,
hypothecation or other disposition imposed under the securities laws of the
various provinces of Canada. Specifically, with the exception of the limited
exemptive relief noted below requested by three of our corporate-stockholders,
all
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<PAGE>
of our securities, including the common stock you receive under this prospectus,
will be subject to an indefinite hold period in those provinces, and their
public or private sale, transfer, assignment, hypothecation or other disposition
can only be effected by a resident of those provinces if there is available
another exemption from the prospectus requirements of the applicable provincial
securities acts or a discretionary order of the applicable provincial securities
commissions is obtained. We have not applied for, nor do we intend to make an
application for, an exemptive order for the sale or other disposition of any of
our securities within any province of Canada, and we undertake no obligation to
do so. Our securities holders who are resident of Canada will be solely
responsible for obtaining any necessary exemptive order allowing them to sell or
otherwise dispose of our securities, including common stock you receive under
this prospectus, within any province of Canada, including the payment of any
filing fees. It is very unlikely that a further exemption will be available or
that a discretionary order will be granted by any Canadian provincial securities
regulator.
You should note that we are not a reporting issuer under the laws of British
Columbia or any other province or jurisdiction of Canada, and have no intention
in the foreseeable future of becoming a reporting issuer.
One of our stockholders, BO Tech Burner Systems, and two of its affiliates, BO
Gas Limited and BO Development Enterprises, will file a request for a
discretionary order from the provinces of British Columbia, Ontario, Alberta and
Manitoba allowing those persons who are resident of Canada who receive a
distribution of our common stock from these companies under this prospectus to
resell those securities on the NASD OTC Bulletin Board or other public markets
within the United States.
All recipients of shares of our common stock distributed under this prospectus
who are resident of Canada should consult with their own legal advisers to
determine the extent of any applicable hold period and the possibilities of
utilizing any further statutory exemptions or the obtaining of a discretionary
order with respect to any provinces which may be applicable in their individual
circumstances.
OTC Bulletin Board Lock-up Restrictions
Approximately 6,326,490 shares of our common stock to be distributed under this
prospectus, as well as 375,000 shares of our common stock which may be derived
by conversion of shares of our currently outstanding series "B" preferred stock,
will be subject to certain OTC Bulletin Board Lock-Up restrictions which were
formulated to assist in the creation of an orderly market for the sale of our
common stock on the OTC Bulletin Board. (See "Description Of Our Securities--OTC
Bulletin Board Lock-Up Restrictions).
Restrictions On Sale Imposed Under Rule 144
The following table identifies the number of shares of our common stock and
series "A" and "B" preferred stock which will be held by persons who are our
"affiliates" as that term is defined under Rule 144 promulgated under the
Securities Act, as well as those who are not so classified, immediately after
the distributions contemplated by this prospectus, and assuming that no
transfers of our securities are made pending these distributions:
<TABLE>
<CAPTION>
Common Series "A" Series "B"
--------- ----------- ---------
<S> <C> <C> <C>
Affiliates................................. 4,447,917 1,000 125,000
Non-Affiliates............................. 5,195,833 0 125,000
--------- --------- -------
Total................................ 9,643,750 1,000 250,000
========= ======= =======
</TABLE>
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<PAGE>
None of our outstanding shares of common or preferred stock constitute
"restricted securities" under Rule 144. Our common stock will therefore be
freely tradable in any public market which may be established without further
registration under the Securities Act subject to the following rules:
. Common shares held by any stockholder who is an affiliate will be
deemed "control" securities within the meaning of Rule 144, and will
only be freely tradable in the public market established within
certain volume, manner of sale, notice and availability of current
public information requirements mandated by Rule 144, unless those
securities are otherwise registered under the Securities Act or sold
in accordance with another eligible exemption from registration. In
general, under Rule 144 as currently in effect, a person who is deemed
to be our affiliate is entitled to sell within any three-month period
a number of common shares that does not exceed the greater of the
following:
. 1% of the then outstanding shares of common stock, and
. the average weekly reported trading volume of our common stock on
the public market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission, provided certain manner of
sale and notice requirements and requirements as to the
availability of current public information concerning our company
are satisfied.
. Common shares held by any stockholder who is not an affiliate may be
freely traded will be deemed "control" securities within the in the
public market established without restriction under Rule 144 or
further registration under the Securities Act so long as that person
does not become an affiliate.
As defined in Rule 144, an affiliate of an issuer is a person that directly or
indirectly through the use of one or more intermediaries, controls, or is
controlled by, or is under common control with, an issuer. Under Rule 144(k), a
person who has not been our affiliate for a period of three months preceding a
sale of securities would be entitled to sell the shares without regard to volume
limitations, manner of sale provisions, notification requirements or
requirements as to the availability of current public information concerning our
company.
We also have outstanding options and warrants entitling the holders to purchase
an aggregate of 356,000 shares of our common stock. Shares of common stock
issued upon exercise of these options or warrants may be subject to Rule 144.
Transfer Agent and Registrar
Our transfer agent and the registrar of our securities is Jersey Transfer and
Trust Co., located at 201 Bloomfield Avenue, Verona, New Jersey 07044.
Legal Matters
The validity of the common stock to be distributed by the distributing
stockholders under this prospectus has been passed upon for our company by
___________, Esq., of __________.
Experts
Our financial statements commencing on page F-1 of this prospectus, as well as
the financial schedules included in the registration statement containing this
prospectus, have been included in reliance on the
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<PAGE>
report of Deloitte & Touche LLP, our independent auditors, appearing on page F-1
of this prospectus, and on the authority of that firm as experts in accouting
and auditing.
Where You Can Find More Information
This prospectus is part of a registration statement on Form SB-2 we have filed
with the Securities and Exchange Commission. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules filed therewith because certain parts are omitted from this
prospectus in accordance with the rules and regulations of the Securities and
Exchange Commission. You should refer to the registration statement and those
exhibits and schedules for further information regarding our company and the
shares of common stock to be distributed under this prospectus. Please also note
that any statements or descriptions contained in this prospectus relating to the
contents of any contract or other document are not necessarily complete, and
those statements or descriptions are qualified in all respects to the underlying
contract or document in each instance where it is filed as an exhibit to the
registration statement.
You should rely only on the information or representations provided in this
prospectus. We have authorized no one to provide you with different information.
You may request a copy of any document we file with the Securities and Exchange
Commission, at no cost, by writing us or telephoning us at the following address
and telephone number:
Clean Energy Combustion Systems, Inc.
7087 MacPherson Avenue
Burnaby, British Columbia V5J 4N4
(604) 435-9339
You may also read any document we file with the Securities and Exchange
Commission at its public reference rooms in Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information about the public reference rooms. Our
filings with the Securities and Exchange Commission also are available to the
public from the Securities and Exchange Commission's Web site at
http://www.sec.gov.
We are not currently subject to the information and periodic reporting
requirements of the Exchange Act, and accordingly are not obligated to file
reports, proxy statements, information statements and other information with the
Securities and Exchange Commission in accordance with the Exchange Act. Once the
registration statement containing this prospectus clears Securities and Exchange
Commission staff comment and is declared effective, we will become subject to
those information and periodic reporting requirements, and will commence filing
periodic reports, proxy statements, information statements and other information
required under the Exchange Act with the Securities and Exchange Commission.
These filed reports and statements may be inspected or copied at the Securities
and Exchange Commission's public reference rooms and through the Securities and
Exchange Commission's Web site (http.//www.sec.gov). While we intend to mail our
annual proxy materials and annual reports on Form 10-K to our stockholders prior
to our annual meeting of stockholders, we have no intent at this time of mailing
any other periodic reports and other information to our stockholders other than
in response to specific requests for these materials.
-63-
<PAGE>
Index to Financial Statements
<TABLE>
<S> <C>
Report of Independent Auditors (Deloitte & Touche)..................................... F-2
Consolidated Balance Sheets at May 31, 1999............................................ F-3
Consolidated Statements of Loss for the 92-day period ended May 31, 1999............... F-4
Consolidated Statements of Stockholders' Equity (deficit) from inception of operations
through May 31, 1999................................................................... F-5
Consolidated Statements of Cash Flows for the 92-day period ended May 31, 1999......... F-6
Notes to Consolidated Financial Statements............................................. F-7
</TABLE>
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<PAGE>
Auditors' Report and Consolidated Financial Statements of
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(A Development Stage Enterprise)
May 31, 1999
<PAGE>
Auditors' Report
To the Board of Directors and Stockholders of
Clean Energy Combustion Systems, Inc.
We have audited the consolidated balance sheet of Clean Energy Combustion
Systems, Inc. as at May 31, 1999 and the consolidated statements of operations,
stockholders' equity and cash flows for the period from commencement of
operations on January 1, 1999 to May 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 conducted our audit in accordance with auditing standards generally accepted
in Canada. Those standards require that we plan and perform an audit to obtain
reasonable assurance 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.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at May 31, 1999 and
the results of its operations and cash flows for the period from commencement of
operations on January 1, 1999 to May 31, 1999 in accordance with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
June 11, 1999
Comments by Auditors for U.S. Readers on
Canada U.S. Reporting Conflicts
To the Board of Directors and Stockholders of
Clean Energy Combustion Systems Inc.
In the United States, reporting standards for auditors require an explanatory
paragraph (following the opinion paragraph) when the auditor concludes that
there is substantial doubt about the entities' ability to continue as a going
concern such as described in Note 1 of the financial statements. Our report
dated June 11, 1999 is expressed in accordance with Canadian reporting
standards, which do not permit a reference to such uncertainty in the auditors'
report when the uncertainty inadequately disclosed in the financial statements.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia
June 11, 1999
<PAGE>
<TABLE>
<CAPTION>
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(A development stage enterprise)
Consolidated Balance Sheet
May 31, 1999
(Expressed in U.S. Dollars)
- ---------------------------------------------------------------------------------------------
<S> <C>
ASSETS
CURRENT
Cash and cash equivalents $ 416,374
Accounts receivable 5,437
- ---------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 421,811
PROPERTY AND EQUIPMENT (Note 3) 23,001
- ---------------------------------------------------------------------------------------------
TOTAL ASSETS $ 444,812
- ---------------------------------------------------------------------------------------------
LIABILITIES
CURRENT
Accounts payable $ 28,822
Accrued liabilities 7,460
Current payroll taxes 66,404
Advances from affiliated Companies (Note 4) 108,888
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES 211,574
- ---------------------------------------------------------------------------------------------
Commitments and contingencies (Note 9)
Going concern (Note 1)
STOCKHOLDERS' EQUITY
Stockholders Equity
Authorized
Preferred stock; $.0001 par value; 1,000,000 shares
Common stock; $.0001 par value; 15,000,000 shares
Issued
Series A preferred stock; $.0001 par value; 1,000 shares
issued and outstanding 1
Series B preferred stock; $.0001 par value; 250,000 shares issued
and outstanding 250
Common stock; $.0001 par value; 9,643,750 shares issued and
outstanding 964
Additional paid-in capital 500,285
Accumulated deficit - operating expenses for the period
from incorporation (268,262)
- ---------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 233,238
- ---------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 444,812
- ---------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(A development stage enterprise)
Consolidated Statement of Operations
From commencement of operations on January 1, 1999 to May 31, 1999
(Expressed in U.S. Dollars)
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
OPERATING EXPENSES
Accounting.......................................... $ 9,354
Administrative wages and benefits................... 68,783
Amortization........................................ 2,846
Communications...................................... 2,555
Foreign exchange loss............................... 8,017
Interest............................................ 2,522
Legal............................................... 46,467
Marketing........................................... 27,230
Occupancy........................................... 12,460
Office and miscellaneous............................ 3,149
Research and development............................ 81,146
Transfer agent fees................................. 3,733
- ----------------------------------------------------------------------
TOTAL OPERATING EXPENSES AND NET LOSS FOR THE PERIOD $268,262
- ----------------------------------------------------------------------
BASIC AND DILUTED LOSS PER SHARE $ (0.11)
- ----------------------------------------------------------------------
WEIGHTED AVERAGE SHARES OUTSTANDING 2,430,753
- ----------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(A development stage enterprise)
Consolidated Statement of Stockholders' Equity
From commencement of operations on January 1, 1999 to May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------------------------------------------------------
Series A Series B
Preferred Stock Preferred Stock Common Stock Additional Total
----------------- ------------------ ----------------- Paid-in Stockholders'
Shares Amount Shares Amount Shares Amount Capital Deficit Equity
-------- ------- -------- -------- ------- ------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Issued on incorporation 1,000 $ 1 - $ - 9,643,750 $ 964 $ 535 $ - $ 1,500
Private placement - - 250,000 250 - - 499,750 - 500,000
Net loss - - - - - - (268,262) (268,262)
- --------------------------------------------------------------------------------------------------------------------------------
Balance, May 31, 1999 1,000 $ 1 250,000 $250 9,643,750 $ 964 $500,285 $(268,262) $ 233,238
================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
(A development stage enterprise)
Consolidated Statement of Cash Flows
From commencement of operations on January 1, 1999 to May 31, 1999
(Expressed in U.S. Dollars)
- -----------------------------------------------------------------------------------------------
<S> <C>
OPERATING ACTIVITIES
Total operating expenses for the period $ (268,262)
Adjustments to reconcile total operating expenses to net cash
utilized in operating activities
Amortization 2,846
Change in operating assets and liabilities:
Accounts receivable (5,437)
Accounts payable 28,822
Accrued liabilities 7,460
Payroll taxes 66,404
- -----------------------------------------------------------------------------------------------
Net cash used in operating activities (168,167)
- -----------------------------------------------------------------------------------------------
INVESTING ACTIVITY
Purchase of property and equipment (25,847)
- -----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Proceeds from long-term obligations 28,484
Proceeds from advances from affiliated companies 80,404
Proceeds from issue of common stock 1,000
Proceeds from issue of Series A convertible preferred stock 500
Proceeds from issue of Series B preferred stock 500,000
- -----------------------------------------------------------------------------------------------
Net cash provided by financing activities 610,388
- -----------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 416,374
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD -
- -----------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 416,374
- -----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. NATURE OF BUSINESS AND GOING CONCERN
Clean Energy Combustion Systems Inc. ("Company") was incorporated in
Delaware, organized and commenced operations on March 1, 1999. These
financial statement also reflect certain pre-organization transactions and
commitments incurred between January 1, 1999 and the date of incorporation
on March 1, 1999, which have been accepted by the Board of Directors as
obligations of the Company. The Company is a development stage company with
principal executive offices located in Vancouver, British Columbia, Canada.
The Company was formed for the specific purpose of acquiring exclusive world-
wide license rights entitling it to design, engineer, manufacture, market,
distribute, license and otherwise commercially exploit two innovative,
patented "burner" technologies, the Pulse Blade Combustion or "PBC"
Technology and the Diesel Technology. The Company has incurred losses from
inception totalling $268,262 and does not currently have the financial
resources to complete its business plan. The Company's ability to continue
as a going concern is dependent upon its ability to attain future profitable
operations and to obtain the necessary financing to meet its obligations and
repay its liabilities arising from normal business operations when they come
due. External financing, predominately by the issuance of common stock to
the public will be sought to finance development of the Company's products;
however, there can be no assurance that sufficient funds will be raised. The
Company's objective is to enter into licensing, royalty, joint venture, or
manufacturing agreements with established national and international heat
transfer industry manufacturers.
2. SIGNIFICANT ACCOUNTING POLICIES
These financial statements have been prepared in accordance with accounting
principles generally accepted in the United States and reflect the following
significant accounting policies.
(a) Basis of presentation
These consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Clean Energy Technologies
(Canada) Inc. All intercompany balances and transactions have been
eliminated on consolidation.
(b) Cash and cash equivalents
Cash and cash equivalents consist of cash on hand, funds on deposit and
short-term investments with an original maturity of 90 days or less.
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(c) Property and equipment
Property and equipment are stated at cost. Amortization is recorded on a
straight line basis over the estimated service lives of the respective
assets as follows:
Furniture and fixtures 20%
Communications equipment 30%
Computer equipment 30%
Computer software 50%
Lab equipment 20%
Management periodically reviews the carrying value of property and
equipment by reviewing the estimated cash flows attributable to assets,
replacement cost and the enduring benefit to the Company to determine
whether any permanent impairment in value is indicated. Where a
permanent impairment is identified a charge is recognized and reflected
in the results from operations.
(d) Foreign currency translation
The Company is a Delaware corporation and considers the United States
dollar to be the appropriate functional currency for the Company's
operations and these financial statements, notwithstanding that the
Company does business in Canada in transactions denominated in Canadian
dollars. It is anticipated that the majority of the Company's business
will be conducted in United States dollars and the anticipated customer
base is within the United States. For purposes of preparing these
financial statements, foreign currency monetary assets and liabilities
are translated into United States dollars at the exchange rates in
effect at the balance sheet date. Other balance sheet items and revenues
and expenses are translated at the rates prevailing on the respective
transaction dates. Translation gains and losses are included in income.
(e) Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates .
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(f) Earnings (loss) per common share
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted average number of shares outstanding
for the period. In addition, diluted earnings per share which includes
the potential dilution that could occur if common stock equivalents or
other potentially dilutive securities were exercised or converted into
common stock. Common stock equivalent shares are excluded from the
computation if their effect is anti-dilutive. Common equivalent shares
consist of the common shares issuable upon the conversion of the
convertible loan notes and special warrants (using the if-converted
method) and incremental shares issuable upon the exercise of stock
options and share purchase warrants (using the treasury stock method).
(g) Stock-based compensation
The Company accounts for stock-based compensation using the intrinsic
value based method whereby compensation cost is recorded for the excess,
if any, of the quoted market price of the common share over the exercise
price at the date granted for all common stock options. No compensation
cost has been recorded for any period under this method.
The following pro forma financial information presents the net loss for
the period and loss per common share had the Company adopted Statement
of Financial Accounting Standard No. 123 (SFAS 123) Accounting for
Stock-based Compensation.
<TABLE>
<CAPTION>
1999
-------------------------
<S> <C> <C>
NET INCOME (LOSS) FOR THE PERIOD $(334,976)
------------------------------------------------------------------------------------------------------
DILUTED INCOME (LOSS) PER COMMON SHARE $ (0.14)
------------------------------------------------------------------------------------------------------
</TABLE>
Using the fair value method for stock-based compensation, additional
compensation costs of approximately $66,714 would have been recorded for
the period ended May 31, 1999. This amount is determined using an option
pricing model assuming no dividends are to be paid, an average vesting
period of five years, a weighted average annualized volatility of the
Company's share price of zero and a weighted average annualized risk
free interest rate at 5.25%.
(h) Comprehensive income
The Financial Accounting Standards Board issued Statement No. 130 (SFAS
130), Reporting Comprehensive Income, which is required to be adopted
for fiscal years beginning on or after December 15, 1997. SFAS 130
establishes standards for the reporting and display of comprehensive
income and its components in a full set of general purpose financial
statements. There is no impact of SFAS 130 on the Company's financial
statements.
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
(i) Recent pronouncements
In June 1998, the Financial Accounting Standards Board issued Statement
No. 133 (SFAS 133), Accounting for Derivative Instruments and Hedging
Activities ("SFAS 133"), which standardizes the accounting for
derivative instruments. SFAS 133 is effective for all quarters of all
financial years beginning after June 15, 1999. The Company is currently
assessing the impact of SFAS 133 on the Company's financial statements
and has not yet determined what if any changes will be necessary.
Financial Accounting Standards Board have subsequently delayed
implementation of the standard for the financial years beginning after
June 15, 2000.
3. PROPERTY AND EQUIPMENT
<TABLE>
<S> <C> <C>
Furniture and fixtures $ 1,723
Communications equipment 5,743
Computer equipment 11,005
Computer software 349
Lab equipment 7,027
---------------------------------------------------------------------------------------------------------
25,847
Less accumulated amortization 2,846
---------------------------------------------------------------------------------------------------------
Net property and equipment $23,001
---------------------------------------------------------------------------------------------------------
</TABLE>
4. ADVANCES FROM AFFILIATED COMPANIES
During the year, the Company received advances of $108,888 from two companies
each of which is controlled by shareholders in common. The advances bear
interest at the rate of 8.75% per annum, and have no specific terms of
repayment.
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
5. SHARE CAPITAL AND STOCK OPTIONS
(a) Series A Preferred Stock
Series A preferred stock are non-voting and are convertible into one
share of common stock at the option of the holder at any time. The
Company requires the affirmative consent of a majority of the Series A
Preferred stockholders prior to liquidation, selling principle assets,
merging or consolidating the Company, declaring dividends, or making
changes in the authorized capital stock of the Company or issuing
additional preferred shares. If the common stock is accepted for listing
on The New York Stock Exchange, or The American Exchange or is accepted
for quotation on the National Association of Securities Dealers Market,
the Series A preferred stock will automatically convert into common
stock on a one for one basis once the common stock has been actively
traded on such exchange or market for a two year continuous period. In
the event of a liquidation, dissolution, or winding up of the Company,
Series A preferred stockholders will be entitled to an amount equal to
$1 per share, but after payment has been made to Series B preferred
stockholders.
The Company designated and issued 1,000 Series A preferred stock on
incorporation.
(b) Series B Preferred Stock
Series B preferred stock are voting and are entitled to participate in
dividends with shares of common stock. The Company requires the
affirmative consent of a majority of the Series B Preferred stockholders
prior to changes in the authorized capital stock of the Company or
issuing any additional preferred shares, declaring dividends and the
redemption or purchase of any Series B Preferred Stock. Series B
preferred stock is convertible into common stock at the option of the
holder, at any time, into one share of common stock. If the common stock
is accepted for listing on The New York Stock Exchange or The American
Stock Exchange, or is accepted for quotation on the National Association
of Securities Dealers Market, the Series B Preferred Stock will
automatically convert into common stock on a one for one basis. In the
event of a voluntary or involuntary liquidation, dissolution, or winding
up of the Company, the holders of Series B preferred stock will be
entitled to receive an amount equal to the $2.00 stated value, issuance
cost, before any payment will be made or any assets distributed to the
holders of Series A Preferred Stock, Common Stock, or any other junior
equity security.
During the period ended May 31, 1999, the Company designated 475,000
preferred shares as Series B preferred stock and issued, pursuant to a
private placement, 250,000 Series B preferred stock for gross proceeds
of $500,000. Each share of Series B preferred stock is convertible into
one share of common stock.
(c) Common Stock
The Company issued 9,643,750 shares of common stock on incorporation.
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
5. SHARE CAPITAL AND STOCK OPTIONS (Continued)
(d) Stock Options
The Company has granted to executive officers and key employees non-
qualified stock options to purchase an aggregate of 320,000 common
shares at an exercise price of $2.00. These options vest equally
annually over a five year period and each annual vesting portion expires
five years subsequent to the vesting date. No stock options have been
exercised as at May 31, 1999.
(e) Share purchase warrants
The Company has issued 36,000 share purchase warrants as additional
consideration pursuant to a public relations services agreement pursuant
to which the the holder is given the right to purchase 36,000 common
shares of $2.00 per share. The right to exercise these warrants vests in
equal monthly installments over a 24 month period, and each installment
lapses five years after date of vesting.
6. INCOME TAXES
As at May 31, 1999, the Company had net operating loss carryforwards
available to reduce taxable income in future years of approximately $250,000.
At the statutory rate of 30% the net operating loss represents a potential
non-current income tax asset of $75,000. The Company has no other
significant temporary or permanent timing differences. The tax asset
relating to operating losses incurred through May 31, 1999, has been fully
offset by a valuation allowance.
7. RELATED PARTY TRANSACTIONS
Related party transactions and balances not disclosed elsewhere in these
financial statements are as follows:
(a) The Company has acquired exclusive world-wide license rights entitling
it to design, engineer, manufacture, market, distribute, license and
otherwise commercially exploit two patented "burner" technologies, the
Pulse Blade Combustion or "PBC" Technology and the Diesel Technology.
The former license was granted by a founding shareholder who indirectly
holds greater than 10% of the outstanding and issued share capital, and
the latter was granted by a founding shareholder who indirectly holds
greater than 10% of the outstanding and issued share capital and who is
the inventor of both technologies and a Director of the Company.
(b) During the period from commencement of operations on January 1, 1999 to
May 31, 1999, the Company paid $94,653 (CDN$141,667) in salaries to
three Executive Officers who are also Directors of the Company.
<PAGE>
CLEAN ENERGY COMBUSTION SYSTEMS,INC.
(A development state enterprise)
Notes to the Consolidated Financial Statements
May 31, 1999
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
8. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash and cash equivalents,
accounts receivable, accounts payable, accrued liabilities, and advances from
affiliated companies. The fair value of these financial instruments
approximates carrying values due to the short-term to maturity of the
financial instruments and similarity to current market rates.
It is management's opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments.
9. COMMITMENTS
(a) The Company has entered into a lease for premises currently occupied by
the business. The lease requires monthly payments of $2,342 (CDN$3,396)
for three years commencing January 1, 1999. The Company has an option to
renew the lease for a further three years.
(b) The licensors of the PBC Technology have the right to terminate the
license if the Company has not obtained a listing on The New York Stock
Exchange, The American Stock Exchange or the NASDAQ Market by March 4,
2002. The licensor of the PBC Technology also has the right to reacquire
the Technology if the Company is declared insolvent or bankrupt. Should
the licensor exercise its termination right, the Company can purchase
full title to the PBC technology by paying Canadian $525,000 within ten
business days of the 90 day termination period, plus interest on such
amount at the rate of 13% per annum, accruing as of January 1, 1999. On
the purchase, the Company is also entitled to receive 593,750 common
shares of the Company's stock as well as all outstanding shares of
Series A Preferred Stock. If the licensor is unable to deliver the full
number of shares, the cash payment will be reduced pro-rata. Should the
PBC technology license be terminated without the Company acquiring full
ownership of the technology, then the Diesel Technology License shall
concurrently expire.
(c) The Company has entered into employment agreements with four senior
employees providing for total annual payment of $308,000 (Canadian
$450,000). Each agreement provides for a one year initial term, renewed
automatically for successive one year terms.
(d) The Company has entered into public relations services agreements
whereby the Company is obligated to pay a monthly fee of Cdn $6,000 for
a period of 36 months. The agreement is terminable by either party after
one year.
10. SUBSEQUENT EVENTS
Subsequent to May 31, 1999, the Company repaid the advances from affiliated
companies.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24 INDEMNIFICATION OF DIRECTORS AND OFFICERS
We have been advised that any indemnification for liabilities arising under the
Securities Act of 1933 that may be permitted to our directors, officers and
controlling persons under our Certificate of Incorporation, Bylaws or other
agreements containing indemnity provisions are, in the opinion of the Securities
and Exchange Commission, against public policy as expressed in the Securities
Act and are, therefore, unenforceable.
ITEM 25 OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated costs and expenses which we expect
to incur with respect to the offering and distribution of our common stock under
this registration statement. We have agreed to pay all of these expenses.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............................... $ 3
Financial Printer Fees to EDGARize and Print Registration Statement............... 15,000
Transfer Agent Fees, including Printing and Engraving Stock Certificates.......... 10,000
Legal Fees and Expenses........................................................... 37,500
Accounting Fees and Expenses...................................................... 7,500
Miscellaneous..................................................................... 2,500
-------
Total........................................................................... $72,503
=======
</TABLE>
ITEM 26 RECENT SALES OF UNREGISTERED SECURITIES
We have sold or issued the following securities not registered under the
Securities Act since our inception:
1. In connection with our organization on March 1, 1999, we issued:
A. 9,643,750 shares of our common stock to seven of our eight founding
stockholders (Messrs. John D. Chato, John P. Thuot, Barry A. Sheahan,
James V. DeFina, Robert Alexander and BO Tech Burner Systems and
Ravenscraig Properties Limited) for a total cash price of $1,000, and
B. 1,000 shares of our series "A" preferred stock to our eighth founding
stockholder (818879 Alberta, Ltd.) for a total cash price of $500.
This transaction was exempt from the registration requirements of the
Securities Act under Section 4(2) of the Securities Act and Rule 504 because
it was a sale that did not involve a public offering, but rather involved the
formation of the corporation by these founding stockholders. There was no
solicitation or advertising involved in this issuance.
2. On March 5, 1999, we granted options to certain of our employees (Messrs.
John D. Chato, John P. Thuot, Barry A. Sheahan and James V. DeFina) to
acquire a total of 320,000 shares of our common stock at an exercise price of
$2.00 per share under our 1999 Clean Energy Combustion Systems, Inc. Stock
Plan. The noted stock plan and a form of option certificate evidencing the
grants to these
II-1
<PAGE>
employees are filed with this registration statements as Exhibits 4.5 and
4.6, respectively. These transactions were exempt from the registration
requirements of the Securities Act under Section 4(2) and Rule 701 because it
was a compensatory issuance of options to employees.
3. On April 1, 1999, we entered into a Investor Relations and Stock Marketing
Advisory Services Agreement with ABCE Enterprises, Inc. for the provision of
prospective public relations services. This agreement, which has a 36-month
term but is terminable by either party after one year, provides for the
payment of Cdn. $6,000 per month in consulting fees, and the grant of
warrants entitling the consultant to purchase 36,000 unregistered shares of
common stock at an exercise price of $2.00 per share, with the right to
exercise the warrants vesting monthly in equal installments over 24 months of
continued performance under this agreement. This transaction was exempt from
the registration requirements of the Securities Act under Section 4(2) and
Rule 504.
4. On April 6, 1999, we sold 250,000 shares of our series "B" preferred stock at
a price of $2 per share to six accredited investors with a pre-existing
relationship to our company in a private placement for a total cash price of
$500,000. These transactions were exempt from the registration requirements
of the Securities Act under Section 4(2) and Rule 504. There was no
solicitation or advertising involved in this issuance.
ITEM 27 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
3.1 Certificate of Incorporation
3.2 Certificate of Amendment to Certificate of Incorporation
3.3 Bylaws (as restated to reflect corporate name change)
4.1 Specimen common stock certificate
4.2 Specimen series "A" preferred stock certificate
4.3 Specimen series "B" preferred stock certificate
4.4 Founding Stockholders Agreement dated March 5, 1999
4.5 1999 Clean Energy Technologies, Inc. Stock Plan adopted on March 5, 1999
(as restated to reflect corporate name change)
4.6 Form of Option Certificate under 1999 Clean Energy Technologies, Inc. Stock
Plan relating to grants of options on March 5, 1999 to John D. Chato, John
P. Thuot, Barry A. Sheahan and James V. DeFina
4.7 Series B Preferred Stock Purchase Agreement dated April 6, 1999
4.8 Investor Relations and Stock Marketing Advisory Services Agreement dated
April 1, 1999, with ABCE Enterprises, Inc.
5. Opinion of legal counsel regarding legality of securities being registered*
10.1 PBC Technology License dated March 5, 1999, with 818879 Alberta, Ltd.
10.2 Diesel Technology License dated March 5, 1999, with John D. Chato
10.3 Founding Stockholders Agreement dated March 5, 1999 (see exhibit 4.4)
II-2
<PAGE>
10.4 Employment Agreement dated March 5, 1999, with John D. Chato
10.5 Employment Agreement dated March 5, 1999, with John P. Thuot
10.6 Employment Agreement dated March 5, 1999, with Barry A. Sheahan
10.7 Employment Agreement dated March 5, 1999, with James V. DeFina
23.1 Consent of Independent Auditors
23.2 Consent of counsel (included in exhibit 5) *
24 Power of attorney (included as part of signatures of this registration
statement)
27 Financial data schedule
* To be filed at a later date with amendment to this registration
statement.
ITEM 28 UNDERTAKINGS
We hereby undertake to:
1. File, during any period in which we offer or sell securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which, individually or
together, represent a fundamental change in the information in the
registration statement; and notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospects filed with the Securities and Exchange Commission under
Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee"
table on the face page of the effective registration statement.; or
(iii) Include any additional or changed material information on the plan
of distribution.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
3. File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
4. Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons under
the foregoing provisions or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. If a claim for indemnification against such liabilities
(other than our payment of expenses incurred or paid by any of our
directors, officers or controlling persons in the successful defense of any
action, suit, or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, we
will, unless in the opinion of our counsel the matter has been settled by a
II-3
<PAGE>
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final
adjudication of such issue.
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, we hereby
certify that we have reasonable grounds to believe that we meet all of the
requirements for filing this registration statement on Form SB-2 and authorized
this registration statement to be signed on our behalf by the undersigned,
thereunto duly authorized, in the City of Burnaby, province of British Columbia,
Canada, on September 21, 1999.
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
By: /s/ John P. Thuot
--------------------------------
John P. Thuot, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints John P. Thuot and Barry A. Sheahan, and each of
them, as the undersigned's true and lawful attorneys-in-fact and agents, each
with full power of substitution and resubstitution for such person and in such
person's name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments, exhibits thereto, and other
documents in connection therewith to this registration statement and any later
registration statement filed by the registrant under Rule 462(b) of the
Securities Act, which relates to this registration statement) and to file the
same with exhibits thereto and other documents in connection therewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done, as fully to all intents
and purposes as such person might or could do in person, hereby ratifying and
confirming all that each of said attorneys-in-fact and agents, or any of them,
or their substitute or substitutes may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Name Title Date
---------------------- ---------------------- -------------------------
<S> <C> <C>
/s/ John D. Chato
-------------------
John D. Chato Chairman of the Board September 21, 1999
/s/ John P. Thuot
-------------------
John P. Thuot President and director September 21, 1999
/s/ Barry A. Sheahan
-------------------
Barry A. Sheahan Chief Financial Officer and director September 21, 1999
</TABLE>
II-4
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
CLEAN ENERGY TECHNOLOGIES, INC.
(a Delaware corporation)
The undersigned, a natural person, for the purpose of organizing a corporation
for conducting the business and promoting the purposes hereinafter stated, under
the provisions and subject to the requirements of the laws of the State of
Delaware (particularly Chapter 1, Title 8 of the Delaware Code and the acts
amendatory thereof and supplemental thereto, and known, identified and referred
to as the "General Corporation Law of the State of Delaware"), hereby certifies
that:
ARTICLE FIRST
The name of the corporation (the "Company") is Clean Energy Technologies, Inc.
ARTICLE SECOND
The address, including street, number, city and county, of the registered office
of the Company in the State of Delaware is 15 East North Street, City of Dover,
County of Kent, State of Delaware, 19901. The name of the registered agent of
the Company in the State of Delaware at such address is Incorporating Services,
Ltd.
ARTICLE THIRD
The purpose of the Company is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
ARTICLE FOURTH
The Company is authorized to issue two classes of shares, designated,
respectively, "Preferred Stock" and "Common Stock." Each class of stock shall
have a par value of one tenth of one mil ($0.0001) per share. The number of
shares of Preferred Stock authorized to be issued is one million (1,000,000),
and the number of shares of Common Stock authorized to be issued is fifteen
million (15,000,000). The rights, preferences, and privileges granted to, and
restrictions and conditions imposed upon, the first series of Preferred Stock,
designated "Series A Convertible Preferred Stock" of which the Company is
authorized to issue one thousand (1,000) shares, and the rights, preferences,
and privileges granted to, and restrictions and conditions imposed upon, the
second series of Preferred Stock, designated "Series B Convertible Preferred
Stock" of which the Company is authorized to issue four hundred fifty thousand
(450,000) shares, are each specified below in Article Fifth. Any shares of
-------------
Preferred Stock, other than the Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock, may be issued at any time and from time-to-time
in one or more series. Subject to section 5.01C(4) of Article Fifth, the Board
---------------- -------------
of Directors is hereby authorized to fix or alter at any time and from time-to-
time the designation, powers, preferences and rights of the shares of each such
series including, without limitation, the voting powers and the qualifications,
limitations or restrictions of any wholly unissued series of Preferred Stock,
and to establish at any time and from time-to-time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
Page 1 of 17
<PAGE>
ARTICLE FIFTH
The rights, preferences and privileges granted to, and the restrictions and
conditions imposed upon, the Series A Convertible Preferred Stock and the
holders thereof are as follows:
5.01 Voting Rights.
-------------
A. General Voting Rights of Series A Convertible Preferred Stock.
-------------------------------------------------------------
Except for the voting rights exclusively granted to the holders of the Series A
Convertible Preferred Stock as provided below in section 5.01C through section
------------- -------
5.01G or as otherwise provided by law, the holders of Series A Convertible
- -----
Preferred Stock shall not be entitled to vote, it being understood that the
holders of Common Stock and Series B Convertible Preferred Stock shall have and
possess exclusive voting rights and powers.
B. General Voting Rights of Series B Convertible Preferred Stock.
-------------------------------------------------------------
Except for the voting rights exclusively granted to the holders of the Series B
Convertible Preferred Stock as provided below in section 5.01D or as otherwise
-------------
provided by law, the holders of the Series B Convertible Preferred Stock then
outstanding shall be entitled to vote on all matters submitted to a vote of the
holders of the Common Stock, with each holder of Series B Convertible Preferred
Stock being entitled to a number of votes equal to the number of whole shares of
Common Stock into which such holder's shares of Series B Convertible Preferred
Stock could be converted pursuant to section 5.03B(2) on the record date for the
----------------
determination of stockholders entitled to vote on such matter or, if no record
date is established, on the date such vote is taken or any written consent of
stockholders is first executed. Except as otherwise required by law, the
holders of the Series B Convertible Preferred Stock and the Common Stock shall
vote together as a single class on all matters (together with holders of any
other class of Preferred Stock who are also entitled to vote on all matters
submitted to a vote of the holders of the Common Stock).
C. Voting Rights Reserved for Series A Convertible Preferred Stock
---------------------------------------------------------------
as a Class. So long as any shares of Series A Convertible Preferred Stock are
- ----------
outstanding, the Company shall not, without first obtaining the consent, either
expressed in writing or by affirmative vote at a meeting called for that
purpose, of at least a majority, i.e., more than fifty percent (50%), of the
total number of shares of Series A Convertible Preferred Stock then outstanding,
as a class, in addition to the vote or written consent of the outstanding shares
of Common Stock or any other class of Preferred Stock as may be required under
this Certificate of Incorporation or under the General Corporation Law of the
State of Delaware:
(1) Change, amend, or repeal any of the provisions of these
Certificate of Incorporation applicable to Series A Convertible Preferred
Stock which would adversely affect the rights, preferences, privileges, and
restrictions of Series A Convertible Preferred Stock or authorize the Board
of Directors to do so;
(2) Effect an exchange, reclassification, or cancellation of all
or part of Series A Convertible Preferred Stock or effect an exchange, or
create a right of exchange, of all or part of the shares of any other class
into Series A Convertible Preferred Stock;
(3) Increase or decrease: (i) the presently authorized number of
shares of Preferred Stock, including the Series A Convertible Preferred
Stock; or (ii) the presently authorized number of shares of Common Stock
(except and then only to the extent necessary to effectuate a forward
stock-split with respect to the Common Stock);
(4) Fix or alter the designation, powers, preferences and rights
of the shares of any series of Preferred Stock (other than the Series A
Convertible Preferred Stock), and establish the number of shares
constituting any such series or any of them;
Page 2 of 17
<PAGE>
(5) Increase the presently authorized number of shares of
Common Stock (other than such amount as is necessary to effectuate a
forward stock-split with respect to the Common Stock);
(6) Issue any shares of Preferred Stock (other than the Series
A Convertible Preferred Stock), or any security convertible into such
shares of Preferred Stock;
(7) Create any new class of shares (or any security convertible
into such shares) ranking on a parity with or having rights, preferences or
privileges, as to assets, senior to the Series A Convertible Preferred
Stock;
(8) Declare or pay any dividend with respect to any shares of
Common Stock, Series B Convertible Preferred Stock and/or any other equity
securities of the Company (other than the Series A Convertible Preferred
Stock), or permit or authorize any of the Company's subsidiaries to declare
or pay any dividend with respect to any of their equity securities (such
securities of the Company and its subsidiaries being collectively referred
to for purposes of this section 5.01C as "Series A Junior Securities"),
-------------
whether payable in cash or property out of legally available cash or
property therefor (unless and then only to the extent such dividend relates
to the issuance of shares of Common Stock in connection with a forward
stock-split with respect to outstanding shares of Common Stock);
(9) Redeem, purchase or otherwise acquire directly or
indirectly, or permit or authorize any of the Company's subsidiaries to
redeem, purchase or otherwise acquire directly or indirectly, any shares of
Common Stock, Series B Convertible Preferred Stock or other Series A Junior
Securities or any securities convertible into Series A Junior Securities,
or set aside any monies for the purchase or redemption (through a sinking
fund or otherwise) of any such securities;
(10) Sell or convey the principal asset(s) or business(es) of
the Company, or the principal asset(s) or business(es) or equity securities
(or securities convertible into equity securities) of any of the Company's
subsidiaries, except inter-company transactions amongst the Company and its
wholly owned subsidiaries;
(11) Merge or consolidate the Company (other than a short-form
merger of a wholly-owned subsidiary into the Company which does not require
the vote of the stockholders of the Company) with or into another legal
entity or entities;
(12) Dissolve, liquidate or wind-up the Company; or
(13) Make an assignment for the benefit of creditors, or file a
petition under any federal, state or provincial bankruptcy law or statute,
which petition is not vacated within ninety (90) days.
D. Voting Rights Reserved for Series B Convertible Preferred Stock
---------------------------------------------------------------
as a Class. So long as any shares of Series B Convertible Preferred Stock are
- ----------
outstanding, the Company shall not, without first obtaining the consent, either
expressed in writing or by affirmative vote at a meeting called for that
purpose, of at least a majority, i.e., more than fifty percent (50%), of the
total number of shares of Series B Convertible Preferred Stock then outstanding,
as a class, in addition to the vote or written consent of the outstanding shares
of Common Stock or any other class of Preferred Stock as may be required under
this Certificate of Incorporation or the General Corporation Law of the State of
Delaware:
(1) Change, amend, or repeal any of the provisions of these
Certificate of Incorporation applicable to Series B Convertible Preferred
Stock which would adversely affect the rights, preferences, privileges, and
restrictions of Series B Convertible Preferred Stock or authorize the Board
of Directors to do so;
Page 3 of 17
<PAGE>
(2) Effect an exchange, reclassification, or cancellation of
all or part of Series B Convertible Preferred Stock or effect an exchange,
or create a right of exchange, of all or part of the shares of any other
class into Series B Convertible Preferred Stock;
(3) Increase or decrease the presently authorized number of
shares of Series B Convertible Preferred Stock;
(4) Fix or alter the designation, powers, preferences and
rights of the shares of any series of Preferred Stock (other than the
Series B Convertible Preferred Stock), and establish the number of shares
constituting any such series or any of them;
(5) Increase the presently authorized number of shares of
Common Stock (other than such amount as is necessary to effectuate a
forward stock-split with respect to the Common Stock);
(6) Issue any shares of Preferred Stock (other than the Series
B Convertible Preferred Stock), or any security convertible into such
shares of Preferred Stock;
(7) Create any new class of shares (or any security convertible
into such shares) ranking on a parity with or having rights, preferences or
privileges, as to assets, senior to the Series B Convertible Preferred
Stock;
(8) Create any new class of shares (or any security convertible
into such shares) ranking on a parity with or having rights, preferences,
or privileges, as to assets, junior to the Series B Convertible Preferred
Stock but senior to the Common Stock;
(9) Declare pay or make a distribution (other than a dividend
payable in cash or property pursuant to section 5.02B) with respect to any
-------------
shares of the capital stock and/or any other equity securities of the
Company ranking junior to the Series B Convertible Preferred Stock upon
liquidation or distribution (except in shares of, or warrants or rights to
subscribe for or purchase shares of the Company which are junior to the
Series B Convertible Preferred Stock as to assets), or permit or authorize
any of the Company's subsidiaries to declare, pay or make such a
distribution with respect to any of their equity securities (such
securities of the Company and its subsidiaries being collectively referred
to for purposes of this section 5.01D as "Series B Junior Securities"), if
-------------
after giving effect to that distribution there is accrued but unpaid
dividends pursuant to section 5.02B below or accrued but unpaid Series B
-------------
Liquidation Preference pursuant to section 5.04A(1) below;
----------------
(10) Declare or pay any dividend payable in cash or property out
of legally available cash or property therefor (which shall be determined
after taking into consideration provision for the Series B Liquidation
Preference) pursuant to section 5.02B, unless (i) such dividend relates to
--------------
the issuance of shares of Common Stock as a dividend on outstanding shares
of Common Stock, or (ii) the holders of the Series B Convertible Preferred
Stock then outstanding are entitled to participate in such dividend
pursuant to section 5.02B; or
--------------
(11) Redeem, purchase or otherwise acquire directly or
indirectly, or permit or authorize any of the Company's subsidiaries to
redeem, purchase or otherwise acquire directly or indirectly, any Series B
Junior Securities or any securities convertible into Series B Junior
Securities, or set aside any monies for the purchase or redemption (through
a sinking fund or otherwise) of any such securities; if after giving effect
to that redemption or purchase, there is accrued but unpaid dividends
pursuant to section 5.02B below or accrued but unpaid Series B Liquidation
--------------
Preference pursuant to section 5.04A(1).
----------------
Page 4 of 17
<PAGE>
E. Right of Series A Convertible Preferred Stock to Nominate and
-------------------------------------------------------------
Elect Series A Directors. The holders of the Series A Convertible Preferred
- ------------------------
Stock shall have the sole and exclusive right to nominate and elect to the Board
of Directors of the Company, by affirmative vote of holders of a majority of the
then outstanding shares of the Series A Convertible Preferred Stock, such number
of directors (the "Series A Directors") which will, when aggregated with the
number of directors elected by the holders of the Company's securities other
than the Series A Convertible Preferred Stock (the "Non-Series A Directors"),
equal one-fourth (1/4/th/) of such aggregated number of directors (or such
----------
minimum whole number in excess of one-fourth (1/4/th/) in the event such number
of aggregated directors is not a multiple of four). The Series A Directors
elected to the Board of Directors pursuant to this section 5.01E shall be in
-------------
addition to the Non-Series A Directors.
F. Reservation of Right to Series A Convertible Preferred Stock to
---------------------------------------------------------------
Remove Series A Directors. Notwithstanding anything in this Certificate of
- -------------------------
Incorporation or the Bylaws of the Company to the contrary, the holders of the
Series A Convertible Preferred Stock shall have the sole and exclusive right, by
affirmative vote of holders of a majority of the then outstanding shares of the
Series A Convertible Preferred Stock, to remove any Series A Director at any
time with or without cause.
G. Reservation of Right of Series A Convertible Preferred Stock to
---------------------------------------------------------------
Fill Vacancies for Series A Directors. Notwithstanding anything in this
- -------------------------------------
Certificate of Incorporation or the Bylaws of the Company to the contrary, the
holders of the Series A Convertible Preferred Stock shall the sole and exclusive
right, by affirmative vote of holders of a majority of the then outstanding
shares of the Series A Convertible Preferred Stock, to fill any vacancy for any
Series A Director.
H. Special Meetings of Series A Convertible Preferred Stock
--------------------------------------------------------
Stockholders. Notwithstanding anything in this Certificate of Incorporation or
- ------------
the Bylaws of the Company to the contrary, any Series A Director and any holder
of the Series A Convertible Preferred Stock shall have the right, at any time
upon the provision of ten (10) days written notice (unless such notice is waived
by the holders of a majority of the then outstanding shares of the Series A
Convertible Preferred Stock), to call a special meeting of the holders of the
Series A Convertible Preferred Stock, to be held at such place and at such date
and time as indicated in such written notice, to take any action described in
section 5.01E, section 5.01F, and/or section 5.01G; provided, however, holders
- ------------- ------------- -------------
of a majority of the then outstanding shares of the Series A Convertible
Preferred Stock may change such place and at such date and time to the extent
they determine it to be more convenient. No election of Series A Directors need
be by written ballot.
I. Actions of Series A Convertible Preferred Stockholders Taken
------------------------------------------------------------
Without A Meeting. Notwithstanding anything in this Certificate of
- -----------------
Incorporation or the Bylaws of the Company to the contrary, (i) any action
required or permitted to be taken at any special meeting of the holders of the
Series A Convertible Preferred Stock may be taken without a meeting; and (ii)
any action required or permitted to be taken at any special meeting of the
holders of the Series B Convertible Preferred Stock to address any matter for
which their affirmative consent is expressly required pursuant to section 5.01D
-------------
may be taken without a meeting, provided; however, that in either case above the
holders of a majority of the then outstanding shares of such Preferred Stock
consent thereto in writing, and such writing or writings are filed with the
minutes of proceedings of the stockholders of the Company.
5.02 Dividends.
---------
A. Series A Convertible Preferred Stock. The holders of the Series
------------------------------------
A Convertible Preferred Stock shall have no right to participate in, and no
dividends shall be paid with respect to, the Series A Convertible Preferred
Stock.
B. Series B Convertible Preferred Stock. Whenever the Company
------------------------------------
shall declare any dividends in cash and/or property out of legally available
cash or property therefor (which shall be determined
Page 5 of 17
<PAGE>
after taking into consideration provision for the Series B Liquidation
Preference) on any shares of its Common Stock or any other Series B Junior
Securities, the Board of Directors may, in its sole discretion and without any
obligation to do so, entitle the holders of the Series B Convertible Preferred
Stock then outstanding to participate in such dividend, with each holder of
Series B Convertible Preferred Stock to receive an amount of cash or property
paid with respect to such declared dividend as such holder of Series B
Convertible Preferred Stock would have received if such holder had converted all
of his, her or its shares of Series B Convertible Preferred Stock into Common
Stock in accordance with section 5.03B(2) (or, if applicable, other Series B
---------------
Junior Securities), immediately prior to the date and time of declaration.
Except as provided in the preceding sentence, the holders of the Series B
Convertible Preferred Stock shall have no right to participate in, and no
dividends shall be paid with respect to, the Series B Convertible Preferred
Stock. No interest shall accrue on any unpaid dividend to which the holders of
Series B Convertible Preferred Stock may be entitled pursuant to this section
-------
5.02B.
- -----
5.03 Conversion.
----------
A. Voluntary Conversion by Holders of Preferred Stock. Each share
--------------------------------------------------
of the Series A Convertible Preferred Stock and Series B Convertible Preferred
Stock shall be convertible, at the option of the respective holder of such
share, at any time, into the following number of fully paid and nonassessable
shares of Common Stock:
(1) In the case of the conversion of the Series A Convertible
Preferred Stock, each share of Series A Convertible Preferred Stock shall
be converted into one (1) share of Common Stock (subject to adjustment for
stock dividends, combinations or splits with respect to such shares); and
(2) In the case of the conversion of the Series B Convertible
Preferred Stock, each share of Series B Convertible Preferred Stock shall
be converted into such number of shares of Common Stock (subject to
adjustment for stock dividends, combinations or splits with respect to such
shares) as would be determined by multiplying the number "1" (representing
such share) by a fraction, the numerator of which shall be the "Series B
Stated Value" of such share (as such term is defined below in section
-------
5.03D), and the denominator of which shall be the "Series B Conversion
Price" for such share (as such term is defined below in section 5.03D) in
-------------
effect at the date of surrender of such share for conversion (as such date
is hereinbelow more particularly described).
Any conversion of Series A Convertible Preferred Stock under this
section 5.02A must be for all shares of Series A Convertible Preferred Stock
- -------------
then outstanding. Any conversion of Series B Convertible Preferred Stock under
this section 5.02A shall be of a minimum amount of at least one hundred (100)
-------------
shares of Preferred Stock, unless the holder of Series B Convertible Preferred
Stock holds less than one hundred (100) shares, in which case such conversion
must be for all shares of Series B Convertible Preferred Stock then held by such
holder.
B. Mandatory Conversion. In the event the Common Stock shall have
--------------------
been accepted for listing on The New York Stock Exchange(R) or The American
Stock Exchange(R) or accepted for quotation on either tier of The Nasdaq Stock
Market/SM/) (each an "Exchange" for purposes of this section 5.03B), then each
-------------
share of the Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock shall be convertible into fully paid and nonassessable shares of
Common Stock as follows:
(1) In the case of the Series A Convertible Preferred Stock,
each share of Series A Convertible Preferred Stock then outstanding shall
be automatically converted into one (1) share of Common Stock at such time
as the Common Stock shall have been actively traded on such Exchange for a
continuous two (2) year period (subject to adjustment for stock dividends,
combinations or splits with respect to such shares); and
Page 6 of 17
<PAGE>
(2) In the case of the Series B Convertible Preferred Stock, the
Company shall have the option, commencing upon such listing or quotation on
such Exchange, to convert all (but not less than all) of the shares of the
Series B Convertible Preferred Stock then outstanding into Common Stock.
In such case each share of Series A Convertible Preferred Stock then
outstanding shall be converted into such number of shares of Common Stock
(subject to adjustment for stock dividends, combinations or splits with
respect to such shares) as would be determined by multiplying the number
"1" (representing such share) by a fraction, the numerator of which shall
be the "Series B Stated Value" of such share (as such term is defined below
in section 5.03D), and the denominator of which shall be the "Series B
-------------
Conversion Price" of such share (as such term is defined below in section
-------
5.03D) in effect at the date of surrender of such share (as such date is
-----
hereinbelow more particularly described).
C. Mechanics of Conversion.
-----------------------
(1) In order for any holder of Series A Convertible Preferred
Stock or Series B Convertible Preferred Stock to exercise his, her or its
respective option to convert their respective shares of Preferred Stock
into Common Stock pursuant to section 5.03A, such holder must surrender the
-------------
certificate or certificates for those shares, duly endorsed in blank or
accompanied by proper instruments of transfer, at the office of the Company
or of any transfer agent for such shares of Preferred Stock. The holder
must also give written notice (the "Holder Conversion Notice") to the
Company at such office that the holder elects to convert a specified number
or all of the shares represented by the surrendered certificate(s); but in
any event not less than the minimum number of shares which must be
converted pursuant to section 5.03A. The Holder Conversion Notice shall
-------------
also specify the name or names in which the holder wishes the certificate
or certificates for Common Stock to be issued. If a name specified is not
that of the holder, the Holder Conversion Notice shall also state the
address of the new holder and any other information required by law. The
Company shall, as soon as practicable thereafter, issue and deliver to the
holder of the shares of Series A Convertible Preferred Stock or Series B
Convertible Preferred stock being converted, or that holder's nominee or
nominees: (i) certificates for the number of full shares of Common Stock
to which the holder shall be entitled to receive, together (in the case of
Series B Convertible Preferred Stock being converted) with scrip
certificate or cash in lieu of any fraction of a share as provided below in
section 5.03G; and (ii) if the holder is converting less than all shares of
-------------
Preferred Stock represented by the certificate or certificates tendered by
the holder, a certificate for such number of shares of Preferred Stock as
have not been converted.. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of surrender of
the shares of Preferred Stock to be converted, and person or persons
entitled to receive shares of Common Stock issuable upon conversion shall
be treated for all purposes as the record holder or holders of such shares
of Common Stock on that date.
(2) To facilitate the exercise of the Company's right to convert
shares of Series A Convertible Preferred Stock or Series B Convertible
Preferred Stock into Common Stock pursuant to section 5.03B, the Company
-------------
shall provide notification (the "Company Conversion Notice") to each record
holder for such shares at such holder's address of record, which notice
shall inform such holder of the number of shares of Common Stock such
holder is entitled to receive upon conversion, and shall provide
instructions for the return of the certificate representing the Preferred
Stock being converted. The Company shall, as soon as practicable after its
receipt from each holder of the certificate representing the Preferred
Stock being converted, issue and deliver to such holder, or such holder's
nominee or nominees, certificates for the number of full shares of Common
Stock to which such holder shall be entitled to receive, together (in the
case of the conversion of Series B Convertible Preferred Stock) with a
scrip certificate or cash in lieu of any fraction of a share as provided
below in section 5.03G. Such conversion shall be deemed to have been made
-------------
immediately prior to the close of business on the date of surrender of the
shares of Preferred Stock to be converted, and the person or persons
entitled to receive shares of Common Stock issuable upon conversion shall
be
Page 7 of 17
<PAGE>
treated for all purposes as the record holder or holders of such shares of
Common Stock on that date.
D. Series B Stated Value and Series B Conversion Price. The "Series
---------------------------------------------------
B Stated Value" per each share of Series B Convertible Preferred Stock shall be
equal to the consideration initially paid to the Company to purchase such share
from the Company. The "Series B Conversion Price" shall equal the Series B
Stated Value, as such amount may be adjusted from time-to-time in certain
instances as provided below in section 5.03E.
-------------
E. Adjustments to Series B Conversion Price. If the Company shall
----------------------------------------
after the first date of issuance of the Series B Convertible Preferred Stock
(the "Series B Issue Date") issue any shares of Common Stock, and if the Series
B Conversion Price in effect immediately prior to the close of business on such
date of issuance subsequent to the Series B Issue Date (the "Series B Adjustment
Date") exceeds the amount determined as of the close of business on the Series B
Adjustment Date (the "Series B Adjustment Amount") by dividing (x) a sum equal
to the aggregate of the amount of all consideration received by the Company upon
all issues of shares of Common Stock on or after the Series B Issue Date by (y)
the total number of all such shares of Common Stock issued on or after the
Series B Issue Date, then the Series B Conversion Price shall be reduced
effective at the close of business on the Series B Adjustment Date by an amount
equal to the sum by which the then effective Series B Conversion Price exceeds
the Series B Adjustment Amount, with any fractions of one cent (1c) being
rounded down. For purposes of this section 5.03E, the following provisions
-------------
shall be applicable:
(1) Any shares of Common Stock directly or indirectly pursuant
to: (i) options or warrants granted before the Series B Issue Date, (ii)
options or warrants or shares of Common Stock granted pursuant to rights to
receive such securities granted before the Series B Issue Date, or (iii)
options, warrants or grants awarded after the Series B Issue Date but
pursuant to a stock plan approved before the Series B Issue Date, shall be
disregarded.
(2) If the Company shall issue or sell for cash shares of Common
Stock, or any shares or obligations convertible into or exchangeable for
shares of Common Stock, the consideration received by the Company shall be
deemed to be the amount of cash received, before deducting therefrom any
commissions or expenses paid by the Company for any underwriting of, or
otherwise in connection with, the issue or sale.
(3) If the Company shall issue or sell shares of Common Stock to
an underwriter without payment of any commission, the consideration
received by the Company shall be deemed to be the full amount at which
those securities are initially offered by the underwriter to the public.
(4) If the Company shall issue (otherwise than upon conversion
or exchange of obligations or shares of stock of the Company) additional
shares of Common Stock for a consideration wholly or partly other than
cash, the amount of the consideration other than cash received by the
Company for those shares shall be deemed to be (i) the closing sales price
for the Common Stock as of the close of the last trading day for the Common
Stock in the event there is a public trading market for such shares, and
(ii) the current fair market value of such issued shares of Common Stock as
determined by the Board of Directors in its reasonable discretion in the
event a public trading market for such shares does not exist.
(5) If the Company shall issue or sell for cash shares of Common
Stock to its officers, employees, directors, consultants, or agents for a
consideration per share (whether cash, other than cash, or partly other
than cash) less than the Series B Conversion Price in effect immediately
prior to the issuance thereof, and such additional shares of Common Stock
are issued pursuant as compensation for services rendered or to be rendered
by such directors, officers, employees, consultants or agents other than
pursuant to a stock plan described in section 5.03E(1), the consideration
----------------
per share received by the
Page 8 of 17
<PAGE>
Company for each such share shall be deemed to be (i) the closing sales
price for the Common Stock as of the close of the last trading day for the
Common Stock in the event there is a public trading market for such shares,
and (ii) the current fair market value of such issued shares of Common
Stock as determined by the Board of Directors in its reasonable discretion
in the event a public trading market for such shares does not exist.
(6) If the Company shall issue in any manner any rights to
subscribe for or to purchase Common Stock or any options for the purchase
of Common Stock (other than the issuance referred to in section 5.03E(4)),
----------------
at a consideration per share (as computed below in section 5.03E(8)) less
-----------------
than the Series B Conversion Price in effect immediately prior to the date
of the offering of such rights or the granting of such options (as the case
may be), all shares of Common Stock that the holders of those rights or
options shall be entitled to subscribe for or purchase pursuant to those
rights or options shall be deemed to be issued or sold as of the date of
the offering of those rights or the granting of those options (as the case
may be), and the minimum aggregate consideration named in those rights or
options for the shares of Common Stock covered thereby, plus the
consideration, if any, received by the Company for those rights or options,
shall be deemed to be the consideration actually received by the Company
(as of the date, as the case may be, of the offering of those rights or the
granting of those options), for the issuance of those shares.
(7) If the Company shall issue in any manner any obligations or
any shares of the Company (other than shares of the Series B Convertible
Preferred Stock) that shall be convertible into or exchangeable for shares
of Common Stock, at a consideration per share (as computed below in section
-------
5.03E(8)) less the Series B Conversion Price in effect immediately prior to
--------
the date such obligations or shares are issued, all shares of Common Stock
issuable upon such conversion or exchange of those obligations or shares
shall be deemed to be issued as of the date those obligations or shares are
issued, and the amount of the consideration received by the Company for
those additional shares of Common Stock shall be deemed to be the total of
(x) the amount of consideration received by the Company upon the issuance
of those shares or obligations, as the case may be, plus (y) the minimum
aggregate consideration, if any, other than those obligations or shares,
received by the Company upon such conversion or exchange, except in
adjustment of interest and dividends.
(8) The amount of the consideration received by the Company upon
the issuance of any rights or options referred to in section 5.03E(6))
----------------
above, or upon the issuance of any obligations or shares that are
convertible or exchangeable as described in section 5.03E(7) above, and the
----------------
amount of the consideration, if any, other than such obligations or shares
so convertible or exchangeable, receivable by the Company upon the exercise
conversion or exchange thereof shall be determined in the same manner as
provided in section 5.03E(1) and section 5.03E(4) above with respect to the
---------------- ----------------
consideration received by the Company in case of the issuance of additional
shares of Common Stock; provided, however, that if the obligations or
shares of stock so convertible or exchangeable are issued in payment or
satisfaction of any dividend upon any stock of the Company other than
Common Stock, the amount of the consideration received by the Company upon
the original issuance of the obligations or the value of those obligations
or shares, as of the date of the adoption of the resolutions declaring the
dividend, shall be determined by the Board of Directors at or as of that
date. Upon the expiration of any rights or options referred to in section
-------
5.03E(6), or the termination of any right of conversion or exchange
--------
referred to in section 5.03E(7), the Series B Conversion Price then in
----------------
effect shall be readjusted to the Series B Conversion Price that would have
applied had the adjustments made upon the issuance of the option, right, or
convertible or exchangeable securities been made upon the basis of the
delivery of only the number of shares of Common Stock actually delivered
upon the exercise of those rights or options, or upon the conversion or
exchange of those securities.
Page 9 of 17
<PAGE>
(9) The number of shares of Common Stock at any time
outstanding shall be deemed to include any outstanding shares of Common
Stock then owned or held by or for the account of the Company.
(10) The number of shares of Common Stock at any time
outstanding shall be deemed to include the number of shares issuable in
respect of scrip certificates issued in lieu of fractions of shares of
Common Stock.
(11) Each share of Common Stock issued upon conversion of Series
B Convertible Preferred Stock shall be deemed to have been issued for a
consideration equal to the Series B Conversion Price in effect at the time
of issuance.
(12) Anything in this section 5.03E to the contrary
-------------
notwithstanding, if the Company shall issue additional shares of Common
Stock as a dividend, then: (i) the aggregate number of shares of Common
Stock issued in payment of the dividend for purposes of prospective
calculations under this section 5.03E shall be deemed to have been issued
-------------
and to be outstanding on the day next succeeding the record date for the
determination of stockholders entitled to the dividend and shall be deemed
to have been issued without consideration; and (ii) the Series B Conversion
Price shall be adjusted pursuant to the terms of section 5.03F in lieu of
-------------
this section 5.03E.
-------------
Whenever an event occurs resulting in the creating or change in
the Series B Adjustment Amount pursuant to this section 5.03E, the Company shall
-------------
promptly mail a notice to each holder of the Series B Convertible Preferred
Stock (the "Adjustment Notice") setting forth the new conversion ratio for such
holders' shares of Series B Convertible Preferred Stock, as well as a brief
statement of the facts causing such change.
F. Subdivision, Stock Dividend, Combination. Should the Company at
----------------------------------------
any time subdivide the outstanding shares of Common Stock, or issue shares of
Common Stock as a dividend on the outstanding shares of Common Stock, the Series
B Conversion Price in effect immediately prior to that subdivision or the
issuance of such dividend shall be proportionately decreased. On the other
hand, should the Company at any time combine the outstanding shares of Common
Stock, the Series B Conversion Price in effect immediately prior to that
combination shall be proportionately increased, effective at the close of
business on the date of the subdivision, division, or combination. For the
purposes of this section 5.03F, the date of issuance of any such dividend shall
-------------
be determined in accordance with section 5.03E(12).
-----------------
G. Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon the conversion of Series A Convertible Preferred Stock. If any
fractional shares of Common Stock would, except for the provisions of this
section 5.03G, be deliverable upon the conversion of any shares of Series B
- -------------
Convertible Preferred Stock, the Company shall, in lieu of delivering the
fractional share therefor, at its option either: (i) adjust the fractional
interest by payment to the holder of the converted Series B Convertible
Preferred Stock of an amount in cash equal (computed to the nearest cent) to the
current market value of the fractional interest as determined by the Board of
Directors in its reasonable discretion, unless the current market value of such
fractional interest does not exceed ten dollars ($10), in which case the
fractional interest may be adjusted by rounding off such shares of Common Stock
to be issued upon the conversion to the nearest whole share; or (ii) issue non-
dividend bearing and non-voting scrip certificates for fractions of a share
which would otherwise be issuable, in form and containing terms and conditions
as determined by the Board of Directors, and exchangeable, within the period
following the date of issue as the Board of Directors shall fix, together with
other unexpired scrip certificates of like tenor aggregating one or more full
shares, for share certificates representing a full share or shares.
H. Recapitalization or Reclassification; Merger or Consolidation;
--------------------------------------------------------------
Reorganization; Sale of Assets. If there shall occur any recapitalization or any
- ------------------------------
reclassification of the capital stock of the Company, or the
Page 10 of 17
<PAGE>
merger or consolidation of the Company with or into another entity or entities,
or the reorganization of the Company (including an exchange reorganization or a
sale-of-assets reorganization), or any transaction in which all or substantially
all of the assets of the Company are sold or transferred (with the exception, in
all of the above cases, of: (i) any transaction whose principal purpose is to
change the State in which the Company is incorporated, or to form a holding
company, or to effect a similar reorganization as to form of entity without
change of beneficial ownership, including a merger into a wholly-owned
subsidiary; or (ii) a merger with or into a corporation that is controlled by
the Company immediately after the transaction), the holders of the Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock shall each
be entitled to receive such amount of securities or other property they would
have otherwise received upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company pursuant to section 5.04 hereof. The
------------
terms of any such reclassification, merger or consolidation, reorganization, or
sale or transfer shall include such terms so as to continue to give to the
holders of the Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock the right to receive the securities or property set forth in
this section 5.03H upon any conversion following such reclassification, merger
-------------
or consolidation, reorganization, or sale or transfer. This provision shall
similarly apply to successive reclassifications, mergers or consolidations,
reorganizations, or sales or transfers.
I. Notice of Certain Events Pertinent to Exercise of Conversion
------------------------------------------------------------
Rights. In the event of the occurrence of any of the following action: (i) the
- ------
Company shall set a record date for the purpose of entitling the holders of its
Common Stock to receive a dividend, or any other distribution of property or
securities of the Company; (ii) the Company shall set a record date for the
purpose of entitling the holders of its Common Stock, as a class, to subscribe
for or purchase any shares of any class or securities convertible into or
exchangeable for shares of any class, or any option, right or warrant, to
subscribe therefor; (iii) the merger or consolidation of the Company (other than
a short-form merger which does not require the vote of the stockholders of the
Company) with or into another entity or entities; (iv) any reorganization of the
Company (including any exchange reorganization or sale-of-assets
reorganization), any recapitalization or reclassification of the capital stock
of the Company; or (v) the voluntary or involuntary dissolution, liquidation, or
winding up of the Company; then, and in any such case, the Company shall cause
to be mailed to the holders of record of the outstanding shares of Series A
Convertible Preferred Stock and Series B Convertible Preferred Stock, at least
thirty (30) days prior to the date hereinafter specified, a notice stating the
date (x) that has been set as the record date for the purpose of the dividend,
distribution, or rights subscription as hereinabove described in clause (i) and
----------
clause (ii) of this section 5.03I, or (y) on which the merger or consolidation,
- ----------- -------------
reorganization, liquidation, dissolution or winding up described in clause (iii)
------------
through clause (v) of this section 5.03I is to take place; provided, however, if
---------- -------------
the notice referred to herein will contain material non-public information if
distributed at the time period specified herein, then the notice shall be
distributed to such holders of Preferred Stock on the later to occur of (a)
thirty (30) calendar days prior to the applicable record or effective date
specified herein; or (b) the date that such information is made publicly
available; or (c) at such time as such information otherwise ceases to be
material non-public information; provided further that the notice requirement to
be distributed pursuant to this section 5.03I shall be distributed at least five
-------------
(5) calendar days prior to the applicable record or effective date.
J. Reservation of Common Stock. The Company shall at all times
---------------------------
reserve and keep available out of its authorized but unissued Common Stock,
solely for the purpose of effecting conversion of its Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock then outstanding
pursuant to the terms of this section 5.03, such number of full shares of Common
------------
Stock as shall be sufficient from time-to-time to effect the conversion of all
said shares of Preferred Stock In the event the number of authorized but
unissued shares of Common Stock shall not at any time be sufficient to effect
the conversion of all then outstanding shares of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock, the Company shall take such
corporate action as may be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose including, without limitation, extending its best efforts to obtain the
requisite stockholder approval of any necessary amendment to this Certificate of
Incorporation.
Page 11 of 17
<PAGE>
K. Costs; Taxes. The Company shall pay any and all issue and other
------------
taxes that may be payable in respect of any issued or delivered shares of Common
Stock upon conversion of Series A Convertible Preferred Stock pursuant hereto.
The Company shall not, however, be required to pay any tax payable in respect of
any transfer involved in the issue and delivery of Common Stock in a name other
than that in which Series A Convertible Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting that issue has paid to the Company the amount of any such tax,
or has established to the satisfaction of the Company that the tax has been
paid.
L. No Reissuance. Shares of Series A Convertible Preferred Stock
-------------
and/or Series B Convertible Preferred Stock which are reacquired by the Company
for any reason, including by reason of conversion or redemption, shall be
appropriately cancelled on the books of the Company and retired to treasury, and
may not be reissued. The Company may from time-to-time take such appropriate
corporate action as may be necessary to reduce accordingly the number of
authorized shares of such Preferred Stock.
5.04 Liquidation, Dissolution, or Winding Up.
---------------------------------------
A. General. In the event of the liquidation, dissolution, or
-------
winding up of the Company, whether voluntary or involuntary, the assets and
surplus funds of the Company legally available for distribution, if any, after
payment or provision for the debts and liabilities of the Company
("Distributable Assets"), shall be distributed to the stockholders as follows:
(1) Each holder of Series B Convertible Preferred Stock then
outstanding shall be entitled to receive, for each share Series B
Convertible Preferred Stock held by such person, an amount equal to the
Series B Liquidation Preference (as such term is defined below). All of
the preferential amounts to be paid to the holders of the Series B
Convertible Preferred Stock under this section 5.04A(1) shall be paid or
----------------
set apart for payment before the payment or setting apart for payment of
any amount for, or the distribution of any assets of the Company to, the
holders of Series A Convertible Preferred Stock, Common Stock, or any other
Series B Junior Securities in connection with any such liquidation,
dissolution or winding up. If Distributable Assets available for
distribution to the holders of Series B Convertible Preferred Stock shall
be insufficient to permit the payment of the full Series B Liquidation
Preference to each such holder, then such assets shall be distributed
ratably among such holders in proportion to the full preferential amount
each such holder would otherwise be entitled to receive.
(2) To the extent there remain Distributable Assets after the
distributions prescribed above in section 5.04A(1), each holder of Series A
----------------
Convertible Preferred Stock then outstanding shall be entitled to receive
out of such assets, for each share Series A Convertible Preferred Stock
held by such person, an amount equal to the Series A Liquidation Preference
(as such term is defined below). All of the preferential amounts to be
paid to the holders of the Series A Convertible Preferred Stock under this
section 5.04A(2) shall be paid or set apart for payment before the payment
----------------
or setting apart for payment of any amount for, or the distribution of any
assets of the Company to, the holders of Common Stock or any other Series B
Junior Securities in connection with any such liquidation, dissolution or
winding up. If Distributable Assets available for distribution to the
holders of Series A Convertible Preferred Stock shall be insufficient to
permit the payment of the full Series A Liquidation Preference to each such
holder, then such assets shall be distributed ratably among such holders in
proportion to the full preferential amount each such holder would otherwise
be entitled to receive.
(3) To the extent there remain Distributable Assets after the
distributions prescribed above in section 5.04A(1) and section 5.04A(2),
---------------- ----------------
the holders of Common Stock then outstanding shall be entitled to receive
their ratable share of such assets in proportion to the number of shares of
Common Stock held by each such holder.
Page 12 of 17
<PAGE>
B. Series A Liquidation Preference. The Series A Liquidation
-------------------------------
Preference per share of Series A Convertible Preferred Stock shall equal one
dollar ($1.00) (as such amount may be adjusted for any stock dividends,
combinations or splits with respect to such shares).
C. Series B Liquidation Preference. The Series B Liquidation
-------------------------------
Preference per share of Series B Convertible Preferred Stock shall equal the sum
of (i) the Series B Stated Value (as such term is defined above in section
-------
5.03D) and (ii) the amount of any accrued but unpaid dividends, whether declared
or not, but without interest (as either of such amounts may be adjusted for any
stock dividends, combinations or splits with respect to such shares).
D. Scope of Liquidation, Dissolution or Winding Up. Neither the
-----------------------------------------------
recapitalization or reclassification of the capital stock of the Company, or the
merger or consolidation of the Company with or into any other entity or
entities, or the reorganization of the Company (including an exchange
reorganization or a sale-of-assets reorganization), or the sale or conveyance of
all or substantially all of the assets of the Company, shall be deemed a
liquidation, dissolution, or winding up of the Company within the meaning of
this section 5.04.
------------
5.05 No Redemption. Neither the Company or the holders of the Series A
-------------
Convertible Preferred Stock or Series B Convertible Preferred Stock shall have
any rights of redemption under this Certificate of Incorporation with respect to
such shares of Preferred Stock.
5.06 No Assessments Permitted; Partial Payment Allowed. Series A
-------------------------------------------------
Convertible Preferred Stock and Series B Convertible Preferred Stock shall not
be assessable. Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock may, at the discretion of the Board of Directors, be issued
partially paid, so long as the par value of such Preferred Stock is paid.
5.07 Definition of "Dividend." The term "dividend," as used in this
-----------------------
section 5.03E, shall mean a dividend or other distribution upon shares of the
- -------------
Company; and, in the event of a declaration of a dividend by the Company without
the fixing of a record date for the determination of shareholders entitled
thereto, the date fixed by applicable law for the determination of the
shareholders entitled thereto shall be deemed to be the record date.
5.08 Definition of "Common Stock." Whenever reference is made in this
---------------------------
section 5.03E to the issue or sale of shares of Common Stock, the term "Common
- -------------
Stock" shall include any stock of any class of the Company with a fixed limit on
dividends and a fixed amount payable in the event of any voluntary or
involuntary liquidation, dissolution, or winding up of the Company.
ARTICLE SIXTH
For the management of the business and for the conduct of the affairs of the
Company, and in further definition, limitation and regulation of the powers of
the Company and of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided:
6.01 The management of the business and the conduct of the affairs of the
Company shall be vested in its Board of Directors.
6.02 Except and to the extent designated in this Certificate of
Incorporation with respect to the rights, if any, to vote and voting powers, if
any, of the holders of Preferred Stock then outstanding, all rights to vote and
all voting power shall be vested in the Common Stock and the holders thereof
shall be entitled at all elections of directors to one (1) vote per share.
6.03 Except and to the extent designated in this Certificate of
Incorporation with respect to special meetings of the holders of Preferred
Stock, special meetings of the stockholders of the Company for any
Page 13 of 17
<PAGE>
purpose or purposes may be called only by the Board of Directors, the Chairman
of the Board, the Chief Executive Officer or the President of the Company.
6.04 The authorized number of directors of the Company shall be not less
than two (2) nor more than twelve (12) as fixed from time-to-time by resolution
of the Board of Directors; provided, however that no decrease in the number of
directors shall shorten the term of any incumbent directors. A director shall
hold office until the annual meeting for the year in which his term expires and
until his successor shall be elected and shall qualify, subject, however, to
prior death, resignation, retirement, disqualification or removal from office.
Except and to the extent designated in this Certificate of Incorporation with
respect to the rights, if any, of the holders of Preferred Stock then
outstanding to fill vacancies in the Board of Directors, any vacancy on the
Board of Directors, however resulting, shall be filled only by a majority of the
directors then in office, even if less than a quorum, or by a sole remaining
director and not by the stockholders. Any director elected to fill a vacancy
shall hold office for a term that shall coincide with the terms of the class to
which such director shall have been elected. Except and to the extent
designated in this Certificate of Incorporation with respect to the rights, if
any, of the holders of Preferred Stock then outstanding to remove directors with
or without cause, any or all of the directors of the Company may be removed from
office at any time, for cause only, by the affirmative vote of the holders of a
majority of the outstanding shares of the Company then entitled to vote
generally in the election of the directors, considered for purposes of this
Article Sixth as one class. Notwithstanding the foregoing, whenever the holders
- -------------
of any one or more classes or series of Preferred Stock issued by the Company
shall have the right, voting separately by class or series, to elect directors
at an annual or special meeting of stockholders, the election, term of office,
filling of vacancies and other features of such directorships shall be governed
by the terms of this Certificate of Incorporation or Bylaws applicable thereto.
6.05 Elections of directors at an annual or special meeting of stockholders
need not be by written ballot unless the Bylaws of the Company shall otherwise
provide. Except and to the extent designated in this Certificate of
Incorporation with respect to the rights, if any, of the holders of Preferred
Stock then outstanding to take action at any annual or special meeting of such
stockholders, including by written consent, any action required or permitted to
be taken at any annual or special meeting of stockholders may: (i) be taken
only upon the vote of the stockholders at an annual or special meeting duly
noticed and called, as provided in the Bylaws of the Company; and (ii) may not
be taken by written consent of the stockholders pursuant to the General
Corporation Law of the State of Delaware unless approved the affirmative vote of
the holders of at least 66 2/3 percent of the combined voting power of the
outstanding shares of stock of all classes and series thereof entitled to vote
on such matter.
6.06 The officers of the Company shall be chosen in such a manner, shall
hold their offices for such terms and shall carry out such duties as are
determined solely by the Board of Directors, subject to the right of the Board
of Directors to remove any officer or officers at any time with or without
cause.
6.07 Whenever the Company shall be authorized to issue only one class of
stock, each outstanding share shall entitle the holder thereof to notice of, and
the right to vote at, any meeting of stockholders. Whenever the Company shall be
authorized to issue more than one class of stock, no outstanding share of any
class of stock which is denied voting power under the provisions of this
Certificate of Incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (2) of
subsection (b) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the number of authorized shares of said class.
ARTICLE SEVENTH
7.01 Except and to the extent designated with respect to the Preferred
Stock, the Company reserves the right to amend or repeal any provision contained
in this Certificate of Incorporation in the manner prescribed by the laws of the
State of Delaware and all rights conferred upon stockholders are granted subject
Page 14 of 17
<PAGE>
to this reservation; provided, however, that, notwithstanding any other
provision of this Certificate of Incorporation or any provision of law which
might otherwise permit a lesser vote, but in addition to any vote of the holders
of any class or series thereof of the stock of this Company required by law or
by this Certificate of Incorporation, the affirmative vote of the holders of at
least 66 2/3 percent of the combined voting power of the outstanding shares of
stock of all classes and series thereof of the Company entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend, repeal or adopt any provision inconsistent with (i)
section 6.03 of Article Sixth; (ii) section 6.04 of Article Sixth; (iii) the
- ------------ ------------- ------------ -------------
second sentence of section 6.05 of Article Sixth; or (iv) this Article Seventh.
------------ -------------
7.02 Except and to the extent designated with respect to the Preferred
Stock, after the original or other Bylaws of the Company have been adopted,
amended, repealed or rescinded, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Company has received any payment for any of its stock,
the power to adopt, amend, repeal or rescind the Bylaws of the Company may be
exercised by the Board of Directors of the Company; provided, however, that any
provision for the classification of directors of the Company for staggered terms
pursuant to the provisions of subsection (d) of Section 141 of the General
Corporation Law of the State of Delaware shall be set forth in an initial Bylaw
or in a Bylaw adopted by the stockholders entitled to vote of the Company unless
provisions for such classification shall be set forth in this Certificate of
Incorporation.
ARTICLE EIGHTH
8.01 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 (whether or not by or in the
right of the Company) by reason of the fact that he or she is or was a director,
officer, incorporator, employee, or agent of the Company, or is or was serving
at the request of the Company as a director, officer, incorporator, employee,
partner, trustee, or agent of another corporation, partnership, joint venture,
trust, or other enterprise (including an employee benefit plan), shall be
entitled to be indemnified by the Company to the full extent then permitted by
law against expenses (including counsel fees and disbursements), judgments,
fines (including excise taxes assessed on a person with respect to an employee
benefit plan), and amounts paid in settlement incurred by him in connection with
such action, suit, or proceeding. Such right of indemnification shall inure
whether or not the claim asserted is based on matters which antedate the
adoption of this Article Eighth. Such right of indemnification shall continue
--------------
as to a person who has ceased to be a director, officer, incorporator, employee,
partner, trustee, or agent and shall inure to the benefit of the heirs and
personal representatives of such a person. The indemnification provided by this
Article Eighth shall not be deemed exclusive of any other rights which may be
- --------------
provided now or in the future under any provision currently in effect or
hereafter adopted of the Bylaws, by any agreement, by vote of stockholders, by
resolution of disinterested directors, by provision of law, or otherwise.
8.02 No director of the Company shall be personally liable to the Company
or any of its stockholders for monetary damages for any breach of fiduciary duty
by such a director as a director. Notwithstanding the foregoing sentence, a
director shall be liable to the extent provided by applicable law for any of the
following: (i) any breach of the director's duty of loyalty to the Company or
its stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) pursuant to Section
174 of the General Corporation Law of the State of Delaware for unlawful
payments of dividends or unlawful stock purchases; (iv) any transaction from
which such director derived an improper personal benefit; and/or (v) the payment
of profits arising from the purchase and sale, or sale and purchase, of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended. For purposes of the prior sentence, the term "damages" shall, to
the extent permitted by law, include without limitation, any judgment, fine,
amount paid in settlement, penalty, punitive damages, excise or other tax
assessed with
Page 15 of 17
<PAGE>
respect to an employee benefit plan, or expense of any nature (including,
without limitation, counsel fees and disbursements).
8.03 Each person who serves as a director of the Company while this Article
-------
Eighth is in effect shall be deemed to be doing so in reliance on the provisions
- ------
of this Article Eighth, and neither the amendment or repeal of this Article
-------------- -------
Eighth, nor the adoption of any provision of this Certificate of Incorporation
- ------
inconsistent with this Article Eighth, shall apply to or have any effect on the
--------------
liability or alleged liability of any director or the Company for, arising out
of, based upon, or in connection with any acts or omissions of such director
occurring prior to such amendment, repeal, or adoption of an inconsistent
provision.
8.04 In furtherance and not in limitation of the powers conferred by
statute: (i) the Company may purchase and maintain insurance on behalf of any
person who is or was a director or officer, employee or agent of the Company, or
is serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the Company would have the power to indemnify
against such liability under the provisions of law; and (ii) the Company may
create a trust fund, grant a security interest and/or use other means
(including, without limitation, letters of credit, surety bonds and/or other
similar arrangements), as well as enter into contract providing indemnification
to the full extent authorized or permitted by law and including as part thereof
provisions with respect to any or all of the foregoing to ensure the payment of
such amounts as may become necessary to effect indemnification as provided
therein, or elsewhere.
8.05 The provisions of this Article Eighth are cumulative and shall be in
--------------
addition to and independent of any and all other limitations of the liabilities
of directors of the Company, as such, whether such limitations or eliminations
arise under or are created by any law, rule, regulations, bylaw, agreement, vote
of shareholders or disinterested directors, or otherwise.
ARTICLE NINTH
Whenever a compromise or arrangement is proposed between the Company and its
creditors or any class of them and/or between the Company and its stockholders
or any class of them, any court of equitable jurisdiction within the State of
Delaware may, on the application in a summary way of the Company or of any
creditor or stockholder thereof or on the application of any receiver or
receivers appointed for the Company under the provisions of Section 291 of the
General Corporation Law of the State of Delaware or on the application of
trustees in dissolution or of any receiver or receivers appointed for the
Company under the provisions of Section 279 of the General Corporation Law of
the State of Delaware order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of the Company, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of the Company,
as the case may be, agree to any compromise or arrangement and to any
reorganization of the Company as consequence of such compromise or arrangement,
the said compromise or arrangement and the said reorganization shall, if
sanctioned by the court to which the said application has been made, be binding
on all the creditors or class of creditors, and/or on all the stockholders or
class of stockholders, of the Company, as the case may be, and also on the
Company.
ARTICLE TENTH
The name and mailing address of the incorporator of the Company is John M.
Woodbury, Jr., 7087 MacPherson Avenue, Burnaby, British Columbia, Canada V5J
4N4.
Page 16 of 17
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the sole incorporator of the Company,
executed this Certificate of Incorporation this 26th day of February, 1999.
/s/ John M. Woodbury, Jr.
------------------------------------------
John M. Woodbury, Jr., Sole Incorporator
Page 17 of 17
<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
CLEAN ENERGY TECHNOLOGIES, INC.
(a Delaware corporation)
Clean Energy Technologies, Inc. (the "Company"), a corporation organized and
existing under the laws of the State of Delaware (particularly Chapter 1, Title
8 of the Delaware Code and the acts amendatory thereof and supplemental thereto,
and known, identified and referred to as the "General Corporation Law of the
State of Delaware"), does hereby certify that:
1. The name of the Company is Clean Energy Technologies, Inc.
2. The amendment to be made by this Certificate of Amendment is to change the
Company's name from Clean Energy Technologies, Inc. to Clean Energy
Combustion Systems, Inc. To effect such change, the provisions of Article
First of the Certificate of Incorporation are hereby revised to read as
follows:
"The name of the corporation (the "Company") is Clean Energy Combustion
Systems, Inc."
3. The above amendment to the Certificate of Incorporation of the Company was
authorized at a special meeting of the Board of Directors of the Company by
a majority of the directors, followed by written consent of a majority of
all outstanding stock entitled to vote thereon, in accordance with the
applicable provisions of Sections 141, 228 and 242 of the General
Corporation Law of the State of Delaware, with written notice of the
written consent promptly given to those stockholders who had not consented
in writing.
IN WITNESS WHEREOF, the Company has caused this Certificate of Amendment to be
signed by John P. Thuot, its President, and Barry A. Sheahan, its Secretary, who
affirm the truth of the statements herein set forth under penalty of perjury
this 19th day of May, 1999.
Clean Energy Technologies, Inc.
By: /s/ John P. Thuot
-------------------------------
John P. Thuot, President
ATTEST:
By: /s/ Barry A. Sheahan
---------------------------------
Barry A. Sheahan, Secretary
<PAGE>
EXHIBIT 3.3
BYLAWS
OF
CLEAN ENERGY TECHNOLOGIES, INC.
(A Delaware corporation)
ARTICLE ONE
OFFICES
-------
1.01 Registered Office. The registered office of Clean Energy
-----------------
Technologies, Inc. (the "Company") in the State of Delaware shall be in the City
of Dover, County of Kent.
1.02 Other Offices. The Company shall also have and maintain an office or
-------------
principal place of business at such place as may be fixed by the Board of
Directors, and may also have offices at such other places, both within and
without the State of Delaware as the Board of Directors may from time to time
determine or the business of the Company may require.
ARTICLE TWO
CORPORATE SEAL
--------------
2.01 Corporate Seal. The corporate seal shall consist of a die bearing
--------------
the name of the Company and the inscription, "Corporate Seal-Delaware." Said
seal may be used by causing it or a facsimile thereof to be impressed or affixed
or reproduced or otherwise.
ARTICLE THREE
STOCKHOLDERS' MEETINGS
----------------------
3.01 Place Of Meetings. Except as otherwise provided in the Certificate
-----------------
of Incorporation of the Company with respect to any meetings of holders of the
Series A Convertible Preferred Stock of the Company, meetings of the
stockholders of the Company shall be held at such place, either within or
without the State of Delaware, as may be designated from time to time by the
Board of Directors, or, if not so designated, then at the office of the Company
required to be maintained pursuant to section 1.02 hereof.
------------
3.02 Annual Meeting.
--------------
A. Date of Annual Meeting. .The annual meeting of the stockholders
----------------------
of the Company, for the purpose of election of directors and for such other
business as may lawfully come before it, shall be held on such date and at such
time as may be designated from time to time by the Board of Directors. [[The
date so designated shall be within seven (7) months after the end of the
Company's fiscal year, and within fifteen (15) months after the last annual
meeting of the stockholders has taken place.]]
B. Business To Be Conducted At Annual Meeting. At an annual
------------------------------------------
meeting of the stockholders, only such business shall be conducted as shall have
been properly brought before the meeting. To be properly brought before an
annual meeting, business must be:
(1) Specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors,
Page 1 of 20
<PAGE>
(2) Otherwise properly brought before the meeting by or at the
direction of the Board of Directors, or
(3) Otherwise properly brought before the meeting by a
stockholder. For business to be properly brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
writing to the Secretary of the Company. To be timely, a stockholder's
notice must be delivered to or mailed and received at the principal
executive offices of the Company not later than the close of business on
the sixtieth (60th) day nor earlier than the close of business on the
ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting
was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the
time of the previous year's proxy statement, notice by the stockholder to
be timely must be so received not earlier than the close of business on the
ninetieth (90th) day prior to such annual meeting and not later than the
close of business on the later of the sixtieth (60th) day prior to such
annual meeting or, in the event Public Announcement (as such term is
defined below section 3.02D)of the date of such annual meeting is first
-------------
made by the Company fewer than seventy (70) days prior to the date of such
annual meeting, the close of business on the tenth (10th) day following the
day on which Public Announcement of the date of such meeting is first made
by the Company. A stockholder's notice to the Secretary shall set forth as
to each matter the stockholder proposes to bring before the annual meeting:
(i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and address, as they appear on the Company's books,
of the stockholder proposing such business, (iii) the class and number of
shares of the Company which are beneficially owned by the stockholder, (iv)
any material interest of the stockholder in such business; and (v) if the
Company is a "Reporting Company" (i.e., is required to file reports
pursuant to Section 13, 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the
Exchange Act, in his capacity as a proponent to a stockholder proposal.
Notwithstanding the foregoing, in order to include information with respect
to a stockholder proposal in the proxy statement and form of proxy for a
stockholder's meeting, stockholders must, in the event the Company is then
a Reporting Company, provide notice as required by the regulations
promulgated under the Exchange Act. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this section
-------
3.02B. The chairman of the annual meeting shall, if the facts warrant,
-----
determine and declare at the meeting that business was not properly brought
before the meeting and in accordance with the provisions of this section
-------
3.02B, and, if he should so determine, he shall so declare at the meeting
-----
that any such business not properly brought before the meeting shall not be
transacted.
C. Nomination of Directors. Except to the extent otherwise provided
-----------------------
in the Certificate of Incorporation of the Company with respect to nominations
reserved for holders of the Series A Convertible Preferred Stock of the Company,
this section 3.02C shall govern nominations of persons for election to the Board
-------------
of Directors of the Company. Only persons who are confirmed in accordance with
the procedures set forth in this section 3.02C shall be eligible for election as
-------------
directors.
(1) Nominations of persons for election to the Board of Directors
of the Company may be made at a meeting of stockholders by or at the
direction of the Board of Directors or by any stockholder of the Company
entitled to vote in the election of directors at the meeting who complies
with the notice procedures set forth in this section 3.02C. Such
-------------
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Company in accordance with the provisions of section
-------
3.02B. Such stockholder's notice shall set forth:
-----
Page 2 of 20
<PAGE>
(a) As to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a director: (i)
the name, age, business address and residence address of such person,
(ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Company which are beneficially owned
by such person, (iv) a description of all arrangements or
understandings between the stockholder and each nominee and any other
person or persons (naming such person or persons) pursuant to which
the nominations are to be made by the stockholder, and (v) in the
event the Company is then a Reporting Company, any other information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Exchange
Act (including without limitation such person's written consent to
being named in the proxy statement, if any, as a nominee and to
serving as a director if elected); and
(b) As to such stockholder giving notice, the information
required to be provided pursuant to section 3.02B.
-------------
(2) At the request of the Board of Directors, any person
nominated by a stockholder for election as a director shall furnish to the
Secretary of the Company that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the Company unless
nominated in accordance with the procedures set forth in this section
-------
3.02C. The chairman of the meeting shall, if the facts warrant, determine
-----
and declare at the meeting that a nomination was not made in accordance
with the procedures prescribed by these Bylaws, and if he should so
determine, he shall so declare at the meeting, and the defective nomination
shall be disregarded.
D. Public Announcement. For purposes of this section 3.02, "Public
------------------- ------------
Announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the Company with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
3.03 Special Meetings.
----------------
A. Call; Place; Date. Except to the extent otherwise provided in
-----------------
the Certificate of Incorporation of the Company with respect to special meetings
of holders of the Preferred Stock of the Company, special meetings of the
stockholders of the Company may be called, for any purpose or purposes, by: (i)
the Chairman of the Board of Directors, (ii) the Chief Executive Officer, or
(iii) the Board of Directors pursuant to a resolution adopted by a majority of
the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board of Directors for adoption), and shall be held at such
place, on such date, and at such time as the Board of Directors, shall
determine.
B. Request; Business. Except to the extent otherwise provided in
-----------------
the Certificate of Incorporation of the Company with respect to special meetings
of holders of the Series A Convertible Preferred Stock of the Company, the form
of request, business to be conducted, and time and place of any special meeting
of stockholders of the Company shall be governed by the terms of this section
-------
3.03B. If a special meeting is called by any person or persons other than the
- -----
Board of Directors, the request shall be in writing, specifying 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 Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the Company. No business may be transacted at such
special meeting otherwise than specified in such notice. The Board of Directors
shall determine the time and place of such special meeting, which shall be held
not less than thirty-five (35) nor more than one hundred twenty (120) days after
the date of the receipt of the request. Upon determination of
Page 3 of 20
<PAGE>
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of section 3.04 of these Bylaws. If the notice is not given within
------------
sixty (60) days after the receipt of the request, the person or persons
requesting the meeting may set the time and place of the meeting and give the
notice. Nothing contained in this section 3.03B 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.
3.04 Notice Of Meetings. Except to the extent otherwise provided in the
------------------
Certificate of Incorporation of the Company with respect to special meetings of
holders of the Series A Convertible Preferred Stock of the Company, written
notice of each meeting of stockholders shall be given not less than ten (10) nor
more than sixty (60) days before the date of the meeting to each stockholder
entitled to vote at such meeting, such notice to specify the place, date and
hour and purpose or purposes of the meeting. Notice of the time, place and
purpose of any such meeting of stockholders may be waived in writing, signed by
the person entitled to notice thereof, either before or after such meeting, and
may be waived by any stockholder by his attendance thereat in person or by
proxy, except when the stockholder attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Any stockholder so
waiving notice of such meeting shall be bound by the proceedings of any such
meeting in all respects as if due notice thereof had been given.
3.05 Quorum. At all meetings of stockholders, except where otherwise
------
provided by statute or by the Certificate of Incorporation, or by these Bylaws,
the presence, in person or by proxy duly authorized, of the holders of not less
than one-third of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by law, the Certificate of Incorporation
or these Bylaws, all action taken by the holders of a majority of the votes
cast, excluding abstentions, at any meeting at which a quorum is present shall
be valid and binding upon the Company; provided, however, that directors shall
be elected by a plurality of the votes of the shares present in person or
represented by proxy at the meeting and entitled to vote on the election of such
directors. Where a separate vote by a class or classes or series is required,
except where otherwise provided by the statute or by the Certificate of
Incorporation or these Bylaws, a majority of the outstanding shares of such
class or classes or series, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter and, except where otherwise provided by the statute or by the Certificate
of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
3.06 Adjournment And Notice Of Adjourned Meetings. Any meeting of
--------------------------------------------
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting 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 the meeting at which the adjournment is taken.
At the adjourned meeting, the Company may transact any business which might have
been transacted at the original meeting. If the adjournment is for more than
thirty (30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
3.07 Voting Rights. For the purpose of determining those stockholders
-------------
entitled to vote at any meeting of the stockholders, except as otherwise
provided by law, only persons in whose names shares stand on the stock records
of the Company on the record date, as provided in section 3.09 of these Bylaws,
------------
shall be entitled to vote at any meeting of stockholders. Every person entitled
to vote shall have the right to do so
Page 4 of 20
<PAGE>
either in person or by an agent or agents authorized by a proxy granted in
accordance with Delaware law. An agent so appointed need not be a stockholder.
No proxy shall be voted after three (3) years from its date of creation unless
the proxy provides for a longer period.
3.08 Joint Owners Of Stock. If shares or other securities having voting
---------------------
power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (i) if only
one (1) votes, his act binds all; (ii) if more than one (1) votes, the act of
the majority so voting binds all; and (iii) if more than one (1) votes, but the
vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Delaware Court of
Chancery for relief as provided in the General Corporation Law of Delaware,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of clause (iii) shall be a majority or even-split in interest.
------------
3.09 List Of Stockholders. The Secretary shall prepare and make, at least
--------------------
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at said meeting, arranged in alphabetical order,
showing the address of each stockholder and the number of shares registered in
the name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten (10) days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not specified, at the place where
the meeting is to be held. The list shall be produced and kept at the time and
place of meeting during the whole time thereof and may be inspected by any
stockholder who is present.
3.10 Action Without Meeting. Except to the extent otherwise provided in
----------------------
the Certificate of Incorporation of the Company with respect to actions taken
without a meeting by holders of the Preferred Stock of the Company, no action
shall be taken by the stockholders except at an annual or special meeting of
stockholders called in accordance with these Bylaws, and no action shall be
taken by the stockholders by written consent unless approved the affirmative
vote of the holders of at least 66 2/3 percent of the combined voting power of
the outstanding shares of stock of all classes and series thereof entitled to
vote on such matter.
3.11 Organization.
------------
A. Chair; Secretary. At every meeting of stockholders, the
----------------
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President, or, if the President is absent, a chairman of the
meeting chosen by a majority in interest of the stockholders entitled to vote,
present in person or by proxy, shall act as chairman. The Secretary, or, in his
absence, an Assistant Secretary directed to do so by the President, shall act as
secretary of the meeting.
B. Procedures. The Board of Directors of the Company shall be
----------
entitled to make such rules or regulations for the conduct of meetings of
stockholders as it shall deem necessary, appropriate or convenient. Subject to
such rules and regulations of the Board of Directors, if any, the chairman of
the meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts as, in the judgment of such
chairman, are necessary, appropriate or convenient for the proper conduct of the
meeting, including, without limitation, any of the following:
(1) Establishing an agenda or order of business for the meeting;
Page 5 of 20
<PAGE>
(2) Appointing inspectors of election to (i) 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; (ii) receive votes, ballots,
or consents; (iii) count and tabulate all votes or consents; and (iv)
determine the result; and
(3) Establishing rules and procedures for maintaining order at
the meeting and the safety of those present including, without limitation;
(i) limitations on participation in such meeting to stockholders of record
of the Company and their duly authorized and constituted proxies and such
other persons as the chairman shall permit; (ii) restrictions on entry to
the meeting after the time fixed for the commencement thereof; (iii)
limitations on the time allotted to questions or comments by participants;
and (iv)regulation of the opening and closing of the polls for balloting on
matters which are to be voted on by ballot. Unless and to the extent
determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance
with rules of parliamentary procedure.
ARTICLE FOUR
DIRECTORS
---------
4.01 Number And Qualification. The authorized number of directors of the
------------------------
Company shall be not less than two (2) nor more than twelve (12) [[REVIEW]] as
fixed from time to time by resolution of the Board of Directors; provided,
however that no decrease in the number of directors shall shorten the term of
any incumbent directors. Directors need not be stockholders unless so required
by the Certificate of Incorporation. If for any cause, the directors shall not
have been elected at an annual meeting, they may be elected as soon thereafter
as convenient at a special meeting of the stockholders called for that purpose
in the manner provided in these Bylaws.
4.02 Powers. The powers of the Company shall be exercised, its business
------
conducted and its property controlled by the Board of Directors, except as may
be otherwise provided by statute or by the Certificate of Incorporation.
4.03 Election And Term Of Office Of Directors. Members of the Board of
----------------------------------------
Directors shall hold office for the terms specified in the Certificate of
Incorporation, as it may be amended from time to time, and until their
successors have been elected as provided in the Certificate of Incorporation.
4.04 Vacancies. Unless otherwise provided in the Certificate of
---------
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholder vote, be filled
only by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.
4.05 Resignation. Any director may resign at any time by delivering his
-----------
written resignation to the Secretary, such resignation to specify whether it
will be effective at a particular time, upon receipt by the Secretary or at the
pleasure of the Board of Directors. If no such specification is made, it shall
be deemed effective at the pleasure of the Board of Directors. Except to the
extent otherwise provided in the Certificate of Incorporation of the Company
with respect to the nomination and election of directors reserved for holders
Page 6 of 20
<PAGE>
of the Series A Convertible Preferred Stock of the Company, in the event one or
more directors shall resign from the Board of Directors, effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective, and
each director so chosen shall hold office for the unexpired portion of the term
of the director whose place shall be vacated and until his successor shall have
been duly elected and qualified.
4.06 Removal. Subject to any limitations imposed by law and the provisions
-------
of the Certificate of Incorporation relating to the removal of directors
reserved for holders of the Preferred Stock of the Company, the Board of
Directors or any individual director may be removed from office at any time with
cause by the affirmative vote of the holders of a majority of the then-
outstanding shares of voting stock of the Company entitled to vote at an
election of directors ("Voting Stock").
4.07 Meetings.
--------
A. Annual Meetings. The annual meeting of the Board of Directors
---------------
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
B. Regular Meetings. Except as hereinafter otherwise provided,
----------------
regular meetings of the Board of Directors shall be held in the office of the
Company required to be maintained pursuant to section 1.02 hereof. Unless
------------
otherwise restricted by the Certificate of Incorporation, regular meetings of
the Board of Directors may also be held at any place within or without the state
of Delaware which has been designated by resolution of the Board of Directors or
the written consent of all directors.
C. Special Meetings. Unless otherwise restricted by the
----------------
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors.
D. Telephone Meetings. Any member of the Board of Directors, or of
------------------
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
E. Notice Of Meetings. Notice of the time and place of all special
------------------
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least twenty-
four (24) hours before the date and time of the meeting, or sent in writing to
each director by first class mail, charges prepaid, at least three (3) days
before the date of the meeting. Notice of any meeting may be waived in writing
at any time before or after the meeting and will be waived by any director by
attendance thereat, except when the director attends the meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.
F. Waiver Of Notice. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at 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 shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
Page 7 of 20
<PAGE>
4.08 Quorum And Voting.
-----------------
A. Quorum. Unless the Certificate of Incorporation requires a
------
greater number and except with respect to indemnification questions arising
under section 11.01 hereof, for which a quorum shall be one-third of the exact
-------------
number of directors fixed from time to time in accordance with the Certificate
of Incorporation, a quorum of the Board of Directors shall consist of a majority
of the exact number of directors fixed from time to time by the Board of
Directors in accordance with the Certificate of Incorporation; provided,
however, at any meeting whether a quorum be present or otherwise, a majority of
the directors present may adjourn from time to time until the time fixed for the
next regular meeting of the Board of Directors, without notice other than by
announcement at the meeting.
B. Vote. At each meeting of the Board of Directors at which a
----
quorum is present, all questions and business shall be determined by the
affirmative vote of a majority of the directors present, unless a different vote
be required by law, the Certificate of Incorporation or these Bylaws.
4.09 Action Without Meeting. Unless otherwise restricted by the
----------------------
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
4.10 Fees And Compensation. Directors shall be entitled to such
---------------------
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the Company in any other capacity as an officer, agent,
employee, or otherwise and receiving compensation therefor.
4.11 Committees.
----------
A. Executive Committee. The Board of Directors may by resolution
-------------------
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the Company, including, without limitation, the power or authority to
declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the Company
to be affixed to all papers which may require it; but no such committee shall
have the power or authority in reference to amending the Certificate of
Incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the Board of Directors fix the designations and any of the preferences or
rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Company or the conversion into, or the exchange of
such shares for, shares of any other class or classes or any other series of the
same or any other class or classes of stock of the Company or fix the number of
shares of any series of stock or authorize the increase or decrease of the
shares of any series), adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Company's property and assets, recommending to the
stockholders a dissolution of the Company or a revocation of a dissolution, or
amending the Bylaws of the Company.
B. Other Committees. The Board of Directors may, by resolution
----------------
passed by a majority of the whole Board of Directors, from time to time appoint
such other committees as may be permitted by law. Such other committees
appointed by the Board of Directors shall consist of one (1) or more members of
the Board of Directors and shall have such powers and perform such duties as may
be prescribed by the resolution
Page 8 of 20
<PAGE>
or resolutions creating such committees, but in no event shall such committee
have the powers denied to the Executive Committee in these Bylaws.
C. Term. Each member of a committee of the Board of Directors
----
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to the provisions of
section 4.11A and section 4.11B of this Bylaw may at any time increase or
- ------------- -------------
decrease the number of members of a committee or terminate the existence of a
committee. The membership of a committee member shall terminate on the date of
his death or voluntary resignation from the committee or from the Board of
Directors. The Board of Directors may at any time for any reason remove any
individual committee member and the Board of Directors may fill any committee
vacancy created by death, resignation, removal or increase in the number of
members of the committee. The Board of Directors may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee, and, in addition, in the
absence or disqualification of any member of a committee, the member or members
thereof present at any meeting and not disqualified from voting, whether or not
he or they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act at the meeting in the place of any such absent or
disqualified member.
D. Meetings. Unless the Board of Directors shall otherwise provide,
--------
regular meetings of the Executive Committee or any other committee appointed
pursuant to this section 4.11 shall be held at such times and places as are
------------
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat, except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
E. Organization. At every meeting of the directors, the Chairman
------------
of the Board of Directors, or, if a Chairman has not been appointed or is
absent, the President, or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President, shall act as secretary of the meeting.
ARTICLE FIVE
NOTICES
-------
5.01 Notice To Stockholders. Whenever, under any provisions of these
----------------------
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the Company or its transfer agent.
5.02 Notice To Directors. Any notice required to be given to any director
-------------------
may be given by the method stated in section 5.01, or by facsimile, telex or
------------
telegram, except that such notice other than one which is delivered personally
shall be sent to such address as such director shall have filed in writing with
the Secretary, or, in the absence of such filing, to the last known post office
address of such director.
Page 9 of 20
<PAGE>
5.03 Affidavit Of Mailing. An affidavit of mailing, executed by a duly
--------------------
authorized and competent employee of the Company or its transfer agent appointed
with respect to the class of stock affected, specifying the name and address or
the names and addresses of the stockholder or stockholders, or director or
directors, to whom any such notice or notices was or were given, and the time
and method of giving the same, shall in the absence of fraud, be prima facie
evidence of the facts therein contained.
5.04 Time Notices Deemed Given. All notices given by mail, as above
-------------------------
provided, shall be deemed to have been given as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
5.05 Methods Of Notice. It shall not be necessary that the same method of
-----------------
giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
5.06 Failure To Receive Notice. The period or limitation of time within
-------------------------
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him ill the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
5.07 Notice To Person With Whom Communication Is Unlawful. Whenever
----------------------------------------------------
notice is required to be given, under any provision of law or of the Certificate
of Incorporation or Bylaws of the Company, to any person with whom communication
is unlawful, the giving of such notice to such person shall not be require and
there shall be no duty to apply to any governmental authority or agency for a
license or permit to give such notice to such person. Any action or meeting
which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the Company is such
as to require the filing of a certificate under any provision of the Delaware
General Corporation Law, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
5.08 Notice To Person With Undeliverable Address. Whenever notice is
-------------------------------------------
required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the Company, to any stockholder to whom (i) notice of
two consecutive annual meetings, and all notices of meetings or of the taking of
action by written consent without a meeting to such person during the period
between such two consecutive annual meetings, or (ii) all, and at least two,
payments (if sent by first class mail) of dividends or interest on securities
during a twelve-month period, have been mailed addressed to such person at his
address as shown on the records of the Company and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall be taken or held without notice to such person
shall have the same force and effect as if such notice had been duly given. If
any such person shall deliver to the Company a written notice setting forth his
then current address, the requirement that notice be given to such person shall
be reinstated. In the event that the action taken by the Company is such as to
require the filing of a certificate under any provision of the Delaware General
Corporation Law, the certificate need not state that notice was not given to
persons to whom notice was not required to be given pursuant to this section
-------
5.08.
- ----
ARTICLE SIX
OFFICERS
--------
6.01 Officers Designated. The officers of the Company shall include a
-------------------
Chairman of the Board of Directors, a President, a Secretary and a Chief
Financial Officer, provided, however, the Board of Directors may designate a
Chief Executive Officer and/or Chief Operating Officer in addition to, or in
lieu of, the
Page 10 of 20
<PAGE>
President. The Board of Directors may also designate one or more Vice
Presidents, a Treasurer and a Controller. All of the aforesaid officers shall be
elected at the annual organizational meeting of the Board of Direction. The
Board of Directors may also appoint one or more Assistant Secretaries, Assistant
Treasurers, Assistant Controllers and such other officers and agents with such
powers and duties as it shall deem necessary. The Board of Directors may assign
such additional titles to one or more of the officers as it shall deem
appropriate. Any one person may hold any number of offices of the Company at any
one time unless specifically prohibited therefrom by law. The salaries and other
compensation of the officers of the Company shall be fixed by or in the manner
designated by the Board of Directors.
6.02 Tenure And Duties Of Officers.
-----------------------------
A. General. All officers shall hold office at the pleasure of the
-------
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors. Notwithstanding the rights reserved to the Board of
Directors under this section 6.02A to remove any officer at any time, the
-------------
Company may, upon approval by the Board of Directors, enter into employment
agreements for specified terms with any officer, in which case such officer
shall be entitled to all contractural remedies against the Company (other than
the right to remain an officer notwithstanding the termination) should the
Company terminate such contract.
B. Duties Of Chairman Of The Board Of Directors. The Chairman of
--------------------------------------------
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, Chief Executive
Officer and/or Chief Operating Officer pursuant to section 6.02C or Vice
-------------
President pursuant to section 6.02D, the Chairman of the Board of Directors
-------------
shall also serve as the chief executive officer of the Company and shall have
the powers and duties prescribed in section 6.02C.
-------------
C. Duties Of President (Chief Executive Officer; Chief Operating
-------------------------------------------------------------
Officer). The President shall be the chief executive officer of the Company
- --------
and shall, subject to the control of the Board of Directors, have general
supervision, direction and control of the business and officers of the Company;
provided, however, the Board of Directors may designate a Chief Executive
Officer and/or Chief Operating Officer in addition to, or in lieu of, the
President, which case the duties of the President as chief executive officer of
the Company shall be allocated amongst such offices as follows (unless otherwise
designated by the Board of Directors):
(1) Should the Board of Directors designate a Chief Executive
Officer and a Chief Operating Officer in lieu of a President, the Chief
Operating Officer shall generally be delegated responsibility for daily
supervision and control over the operations of the Company, while the Chief
Executive Officer shall be perform the other duties of a chief executive
officer. In such event the Chief Operating shall be subordinate to and
subject to the control of the Chief Executive Officer unless otherwise
designated by the Board of Directors.
(2) Should the Board of Directors designate a Chief Executive
Officer and a Chief Operating Officer in addition to a President, the Chief
Operating Officer shall generally be delegated responsibility for daily
supervision and control over the operations of the Company, while the Chief
Executive Officer and the President shall be perform the other duties of a
chief executive officer. In such event the Chief Operating shall be
subordinate to and subject to the control of the Chief Executive Officer
and President unless otherwise designated by the Board of Directors, and
the President shall be. subordinate to and subject to the control of the
Chief Executive Officer unless otherwise designated by the Board of
Directors.
Page 11 of 20
<PAGE>
The President and/or Chief Executive Officer and/or Chief
Operating Officer shall each also perform other duties commonly incident to such
offices, and shall also perform such other duties and have such other powers as
the Board of Directors shall designate from time to time. The Chief Executive
Officer or, if none, the President, shall also preside at all meetings of the
stockholders and at all meetings of the Board of Directors, unless the Chairman
of the Board of Directors has been appointed and is present.
D. Duties Of Vice Presidents. In the absence or disability of the
-------------------------
President, Chief Executive Officer and Chief Operating Officers, the duties and
responsibilities of such officer or officers as the Company's chief executive
officer shall be carried out by the highest ranking available Vice President if
Vice Presidents are ranked, or if not, by a Vice President designated by the
Board of Directors. When so acting, a Vice President shall have all the powers
of and be subject to all the restrictions on the President. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President (or chairman of the Board if there is not a President) shall
designate from time to time. Vice Presidents of the Company shall have such
other powers and perform such other duties as prescribed from time to time by
the Board of Directors, these Bylaws, or the.
E. Duties Of Secretary. The Secretary shall attend all meetings of
-------------------
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the Company. The Secretary shall give
notice in conformity with these Bylaws of all meetings of the stockholders and
of all meetings of the Board of Directors and any committee thereof requiring
notice. The Secretary shall perform all other duties given him in these Bylaws
and other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors shall
designate from time to time. The President may direct any Assistant Secretary
to assume and perform the duties of the Secretary in the absence or disability
of the Secretary, and each Assistant Secretary shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time.
F. Duties Of Chief Financial Officer. The Chief Financial Officer
---------------------------------
shall keep or cause to be kept the books of account of the Company in a thorough
and proper manner and shall render statements of the financial affairs of the
Company in such form and as often as required by the Board of Directors or the
President. The Chief Financial Officer, subject to the order of the Board of
Directors, shall have the custody of all funds and securities of the Company.
The Chief Financial Officer shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers as
the Board of Directors or the President shall designate from time to time. The
President may direct the Treasurer or any Assistant Treasurer, or the Controller
or any Assistant Controller to assume and perform the duties of the Chief
Financial Officer in the absence or disability of the Chief Financial Officer,
and each Treasurer and Assistant Treasurer and each Controller and Assistant
Controller shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors or the President shall designate from time to time.
6.03 Delegation Of Authority. The Board of Directors may from time to
-----------------------
time delegate the powers or duties of any officer to any other officer or agent,
notwithstanding any provision hereof.
6.04 Resignations. Any officer may resign at any time by giving written
------------
notice to the Board of Directors or to the President or to the Secretary. Any
such resignation shall be effective when received by the person or persons to
whom such notice is given, unless a later time is specified therein, in which
event the resignation shall become effective at such later time. Unless
otherwise specified in such notice, the acceptance of any such resignation shall
not be necessary to make it effective. Any resignation shall be without
prejudice to the rights, if any, of the Company under any contract with the
resigning officer.
Page 12 of 20
<PAGE>
6.05 Removal. Any officer may be removed from office at any time, either
-------
with or without cause, by the affirmative vote of a majority of the directors in
office at the time, or by the unanimous written consent of the directors in
office at the time, or by any committee or superior officers upon whom such
power of removal may have been conferred by the Board of Directors.
ARTICLE SEVEN
STOCK AND OTHER SECURITIES OF COMPANY
-------------------------------------
7.01 Form And Execution Of Stock Certificates. Certificates for the
----------------------------------------
shares of stock of the Company shall be in such form as is consistent with the
Certificate of Incorporation and applicable law. Every holder of stock in the
Company shall be entitled to have a certificate signed by or in the name of the
Company by (i) the Chairman of the Board of Directors, or the President or Chief
Executive Officer or Chief Operating Officer or any Vice President; and (ii) by
the Chief Financial Officer or Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
Company. Any or all of the signatures on the certificate may be facsimiles. 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 with the same effect as if he were such officer, transfer agent, or
registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the Company will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the Company shall send to the registered owner
thereof a written notice containing the information required to be set forth or
stated on certificates pursuant to this section 7.01 or otherwise required by
------------
law or with respect to this section 7.01 a statement that the Company will
------------
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
7.02 Lost Stock Certificates. A new certificate or certificates shall be
-----------------------
issued in place of any certificate or certificates theretofore issued by the
Company alleged to have been lost, stolen, or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The Company may require, as a condition precedent
to the issuance of a new certificate or certificates, the owner of such lost,
stolen, or destroyed certificate or certificates, or his legal representative,
to advertise the same in such manner as it shall require or to give the Company
a surety bond in such form and amount as it may direct as indemnity against any
claim that may be made against the Company with respect to the certificate
alleged to have been lost, stolen, or destroyed.
7.03 Transfers.
---------
A. Transfers. Transfers of record of shares of stock of the
---------
Company shall be made only upon its books by the holders thereof, in person or
by attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
B. Restrictions On Transfers. The Company shall have power to
-------------------------
enter into and perform any agreement with any number of stockholders of any one
or more classes of stock of the Company to restrict the transfer of shares of
stock of the Company of any one or more classes owned by such stockholders in
any manner not prohibited by the General Corporation Law of Delaware.
Page 13 of 20
<PAGE>
7.04 Fixing Record Dates.
-------------------
A. Record Date; General Meetings. In order that the Company may
-----------------------------
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix, in
advance, a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than sixty (60) nor less than ten (10) days
before the date of such meeting. If no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
B. Record Date; Actions Concerning Securities. In order that the
------------------------------------------
Company may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment of any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted, and which record
date shall be not more than sixty (60) days prior to such action. If no record
date is filed, the record date for determining stockholders for any such purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
7.05 Registered Stockholders. The Company shall be entitled to recognize
-----------------------
the exclusive right of a person registered on its books as the owner of shares
to receive dividends, and to vote as such owner, 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 Delaware.
7.06 Execution Of Other Securities. All bonds, debentures and other
-----------------------------
corporate securities of the Company, other than stock certificates (covered in
section 7.01), may be signed by the Chairman of the Board of Directors, the
- ------------
President or any Vice President, or such other person as may be authorized by
the Board of Directors, and the corporate seal impressed thereon or a facsimile
of such seal imprinted thereon and attested by the signature of the Secretary or
an Assistant Secretary, or the Chief Financial Officer or Treasurer or an
Assistant Treasurer; provided, however, that where any such bond, debenture or
other corporate security shall be authenticated by the manual signature, or
where permissible facsimile signature, of a trustee under an indenture pursuant
to which such bond, debenture or other corporate security shall be issued, the
signatures of the persons signing and attesting the corporate seal on such bond,
debenture or other corporate security may be the imprinted facsimile of the
signatures of such persons. Interest coupons appertaining to any such bond,
debenture or other corporate security, authenticated by a trustee as aforesaid,
shall be signed by the Treasurer or an Assistant Treasurer of the Company or
such other person as may be authorized by the Board of Directors, or bear
imprinted thereon the facsimile signature of such person. In case any officer
who shall have signed or attested any bond, debenture or other corporate
security, or whose facsimile signature shall appear thereon or on any such
interest coupon, shall have ceased to be such officer before the bond, debenture
or other corporate security so signed or attested shall have been delivered,
such bond, debenture or other corporate security nevertheless may be adopted by
the Company and issued and delivered as though the person who signed the same or
whose facsimile signature shall have been used thereon had not ceased to be such
officer of the Company.
Page 14 of 20
<PAGE>
ARTICLE EIGHT
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF
SECURITIES OWNED BY THE Company
-------------------------------
8.01 Execution Of Corporate Instrument. Subject to Article Seven
--------------------------------- -------------
governing the execution of the Company's securities, the Board of Directors may,
in its discretion, determine the method and designate the signatory officer or
officers, or other person or persons, to execute on behalf of the Company any
corporate instrument or document, or to sign on behalf of the Company the
corporate name without limitation, or to enter into contracts on behalf of the
Company, except where otherwise provided by law or these Bylaws, and such
execution or signature shall be binding upon the Company. Unless otherwise
specifically determined by the Board of Directors or otherwise required by law,
promissory notes, deeds of trust, mortgages and other evidences of indebtedness
of the Company, and other corporate instruments or documents requiring the
corporate seal, and certificates of shares of stock owned by the Company, shall
be executed, signed or endorsed by the Chairman of the Board of Directors, or
the President or any Vice President, and by the Secretary or Treasurer or any
Assistant Secretary or Assistant Treasurer. All other instruments and documents
requiting the corporate signature, but not requiring the corporate seal, may be
executed as aforesaid or in such other manner as may be directed by the Board of
Directors. All checks and drafts drawn on banks or other depositaries on funds
to the credit of the Company or in special accounts of the Company shall be
signed by such person .or persons as the Board of Directors shall authorize so
to do. Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the Company by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
8.02 Voting Of Securities Owned By The Company. All stock and other
-----------------------------------------
securities of other corporations owned or held by the Company for itself, or for
other parties in any capacity, shall be voted, and all proxies with respect
thereto shall be executed, by the person authorized so to do by resolution of
the Board of Directors, or, in the absence of such authorization, by the
Chairman of the Board of Directors, the President, the Chief Executive Officer,
the Chief Operating Officer, the Chief Financial Officer or any Vice President.
ARTICLE NINE
DIVIDENDS
---------
9.01 Declaration Of Dividends. Dividends upon the capital stock of the
------------------------
Company, subject to the provisions of the Certificate of Incorporation, if any,
may be declared by the Board of Directors pursuant to law at any regular or
special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Certificate of
Incorporation.
9.02 Dividend Reserve. Before payment of any dividend, there may be set
----------------
aside out of any funds of the Company available for dividends such sum or sums
as the Board of Directors from time to time, 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 Company, or for
such other purpose as the Board of Directors shall think conducive to the
interests of the Company, and the Board of Directors may modify or abolish any
such reserve in the manner in which it was created.
ARTICLE TEN
FISCAL YEAR
-----------
10.01 Fiscal Year. The fiscal year of the Company shall be fixed by
-----------
resolution of the Board of Directors.
Page 15 of 20
<PAGE>
ARTICLE ELEVEN
INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER OFFICERS,
----------------------------------------------------------------
EMPLOYEES AND OTHER AGENTS
--------------------------
11.01 Indemnification of Directors and Officers. The Company shall
-----------------------------------------
indemnify its directors and officers to the fullest extent not prohibited by the
Delaware General Corporation Law; provided, however, that the Company may modify
the extent of such indemnification by individual contracts with its directors
and officers; and, provided, further, that the Company shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized by the Board of
Directors of the Company, (iii) such indemnification is provided by the Company,
in its sole discretion, pursuant to the powers vested in the Company under the
Delaware General Corporation Law or (iv) such indemnification is required to be
made under section 11.04.
-------------
11.02 Indemnification of Employees And Other Agents. The Company shall
---------------------------------------------
have power to indemnify its employees and other agents as set forth in the
Delaware General Corporation Law.
11.03 Expense. The Company shall advance to 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, by reason of the fact that he is or was a director or officer, of
the Company, or is or was serving at the request of the Company as a director or
executive officer of another corporation, partnership, joint venture, trust or
other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said mounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to section
-------
11.05 of this Bylaw, no advance shall be made by the Company to an officer of
- -----
the Company (except by reason of the fact that such officer is or was a director
of the Company in which event this section 11.03 shall not apply) in any action,
-------------
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the Board of Directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Company.
11.04 Enforcement. Without the necessity of entering into an express
-----------
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the Company and the
director or officer. Any right to indemnification or advances granted by this
Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the Company shall be entitled to
raise as a defense to any such action that the claimant has not met the standard
of conduct that make it permissible under the Delaware General Corporation Law
for the Company to indemnify the claimant for the amount claimed. In connection
with any claim by an officer of the Company (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such officer is or was a director of the Company) for advances,
the Company shall be entitled to raise a defense as to any such action clear and
convincing evidence that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed in the best
Page 16 of 20
<PAGE>
interests of the Company, or with respect to any criminal action or proceeding
that such person acted without reasonable cause to believe that his conduct was
lawful. Neither the failure of the Company (including its Board of Directors,
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
proper in the circumstances because he has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Company (including its Board of Directors, independent
legal counsel or its stockholders) that the claimant has not met such applicable
standard of conduct, shall be a defense to the action or create a presumption
that claimant has not met the applicable standard of conduct. In any suit
brought by a director or officer to enforce a right to indemnification or to an
advancement of expenses hereunder, the burden of proving that the director or
officer is not entitled to be indemnified, or to such advancement of expenses,
under this Article Eleven or otherwise shall be on the Company.
--------------
11.05 Non-Exclusivity Of Rights. The rights conferred on any person by
-------------------------
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The Company is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Delaware General Corporation Law.
11.06 Survival Of Rights. The rights conferred on any person by this
------------------
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
11.07 Insurance. To the fullest extent permitted by the Delaware General
---------
Corporation Law, the Company, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
11.08 Amendments. Any repeal or modification of this Bylaw shall only be
----------
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the Company.
11.09 Saving Clause. If this Bylaw or any portion hereof shall be
-------------
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
11.10 Certain Definitions. For the purposes of this Bylaw, the following
-------------------
definitions shall apply:
A. The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
B. The term "expenses" shall be broadly construed and shall
include, without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses of any
nature or kind incurred in connection with any proceeding.
C. The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any constituent of
a constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of
Page 17 of 20
<PAGE>
such constituent corporation, or is or was serving at the request of such
constituent corporation as a director, officer, employee or agent or another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Bylaw with respect to the
resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued.
D. References to a "director," "executive officer," "officer,"
"employee," or "agent" of the Company shall include, without limitation,
situations where such person is serving at the request of the Company as,
respectively, a director, executive officer, officer, employee, trustee or agent
of another corporation, partnership, joint venture, trust or other enterprise.
E. References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the Company" shall include any service as a director, officer,
employee or agent of the Company which imposes duties on, or involves services
by, such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Company" as
referred to in this Bylaw.
ARTICLE TWELVE
AMENDMENTS
----------
12.01 Amendment of Bylaws.
-------------------
A. Except as expressly provided elsewhere in these Bylaws, any
provision contained in these Bylaws may be altered or amended or repealed, and
new provisions to these Bylaws may be adopted, and new or restated Bylaws may be
adopted, by the affirmative vote of a majority of the voting power of all of the
then-outstanding shares of the Voting Stock; provided, however, that (i) any
provision adopted by a supermajority vote of the stockholders, or requiring a
supermajority vote of the stockholders for alteration, amendment or repeal, may
only be altered, amended or repealed (either independently or as part of new or
restated Bylaws) by such supermajority vote; and (ii) no provision shall be
altered or amended or repealed or adopted (either independently or as part of
new or restated Bylaws) which are inconsistent with any provision contained in
the Certificate of Incorporation. Any action taken in violation of clause (i)
----------
and/or clause (ii) above shall be null and void ab initio.
-----------
B. Except as expressly provided elsewhere in these Bylaws, any
provision contained in these Bylaws may be altered or amended or repealed, and
new provisions to these Bylaws may be adopted, and new or restated Bylaws may be
adopted, by the Board of Directors; provided, however, (1) that the Board may
not, unless and to the extent expressly reserved to the Board of Directors,
alter, amend, repeal or adopt any provision (either independently or as part of
new or restated Bylaws) adopted by a supermajority vote of the stockholders, or
requiring a supermajority vote of the stockholders for alteration, amendment or
repeal; and (2) no provision shall be altered or amended or repealed or adopted
(either independently or as part of new or restated Bylaws) which are
inconsistent with any provision contained in with the Certificate of
Incorporation. Any action taken in violation of clause (i) and/or clause (ii)
---------- -----------
above shall be null and void ab initio.
C. This section may only be altered, amended or repealed by a vote
of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of
all of the then-outstanding shares of the Voting Stock.
Page 18 of 20
<PAGE>
12.02 Effect of Certificate of Incorporation on Bylaws. Any provision in
------------------------------------------------
these Bylaws which is inconsistent with the terms of the Certificate of
Incorporation shall, to the extent inconsistent therewith, be superceded by the
terms of the Certificate of Incorporation.
ARTICLE THIRTEEN
LOANS TO OFFICERS
-----------------
13.01 Loans To Officers. The Company may lend money to, or guarantee any
-----------------
obligation of, or otherwise assist any officer or other employee of the Company
or of its subsidiaries, including any officer or employee who is a Director of
the Company or its subsidiaries, whenever, in the judgment of the Board of
Directors, such loan, guarantee or assistance may reasonably be expected to
benefit the Company. The loan, guarantee or other assistance may be with or
without interest and may be unsecured, or secured in such manner as the Board of
Directors shall approve, including, without limitation, a pledge of shares of
stock of the Company. Nothing in these Bylaws shall be deemed to deny, limit or
restrict the powers of guaranty or warranty of the Company at common law or
under any statute
Page 19 of 20
<PAGE>
EXHIBIT 4.1
NUMBER SHARES
------ ------
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 18449A 10 8
This Certifies that_______________________________________________is the
registered holder of_______________________________________________shares
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, PAR VALUE $0.001 OF
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
Transferable only on the books of the Corporation by the holder hereof in
Person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed
By its duly authorized officers and its Corporate Seal to be hereunto affixed
This ____________ day of ______________ A.D. _____
/s/ Barry A. Sheahan /s/ John P. Thuot
SECRETARY [CORPORATE SEAL] PRESIDENT
<PAGE>
EXHIBIT 4.2
SERIES "A" PREFERRED
NUMBER SHARES
- -------- --------
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that ____________________________________________________ is the
registered holder of ____________________________________________________ shares
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES "A" CONVERTIBLE PREFERRED
STOCK, PAR VALUE $0.001 OF
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
Transferable only on the books of the Corporation by the holder hereof in
Person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed
By its duly authorized officers and its Corporate Seal to be hereunto affixed
This ____________ day of ______________ A.D. _____
/s/ Barry A. Sheahan /s/ John P. Thuot
SECRETARY [CORPORATE SEAL] PRESIDENT
<PAGE>
EXHIBIT 4.3
SERIES "B" PREFERRED
NUMBER SHARES
- ------ ------
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 18449A 20 7
This Certifies that__________________________________________________is the
registered holder of__________________________________________________shares
FULLY PAID AND NON-ASSESSABLE SHARES OF THE SERIES "B" CONVERTIBLE PREFERRED
STOCK, PAR VALUE $0.001 OF
CLEAN ENERGY COMBUSTION SYSTEMS, INC.
Transferable only on the books of the Corporation by the holder hereof in
Person or by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to be
signed
By its duly authorized officers and its Corporate Seal to be hereunto affixed
This ____________ day of ______________ A.D. _____
/s/ Barry A. Sheahan /s/ John P. Thuot
SECRETARY [CORPORATE SEAL] PRESIDENT
<PAGE>
EXHIBIT 4.4
FOUNDING STOCKHOLDERS AGREEMENT
This Founding Stockholders Agreement (the "Agreement"), dated as of March 1,
1999, is entered into by and between Clean Energy Technologies, Inc., a Delaware
corporation (the "Company"), BO Tech Burner Systems Ltd., a British Columbia
corporation ("BO Tech"), John D. Chato, an individual ("Chato"), John P. Thuot,
an individual ("Thuot"), James V. DeFina, an individual ("DeFina"), Barry A.
Sheahan, an individual ("Sheahan"), Robert Alexander, an individual
("Alexander"), 818879 Alberta, Ltd., an Alberta corporation ("818879 Alberta"),
and Ravenscraig Properties Limited ("Ravenscraig"), with reference to the
following facts:
RECITALS:
--------
WHEREAS:
A. BO Tech, Chato, Thuot, DeFina, Sheahan, Alexander and Ravenscraig
(collectively, the "Common Stockholders") have collectively subscribed to
purchase nine million six hundred forty three thousand seven hundred fifty
(9,643,750) shares of the Company's Common Stock, par value one mil
($0.001) (the "Common Stock"), for aggregate purchase money consideration
of U.S. $1,000;
B. 818879 Alberta has subscribed to purchase one thousand (1,000) shares of
the Company's Series "A" Convertible Preferred Stock, par value one mil
($0.001) (the "Series "A" Preferred Stock"), for aggregate purchase money
consideration of U.S. $500;
C. The Company, the Common Stockholders and 818879 Alberta each desire to
ensure the continuity of the Company's management and ownership by limiting
the control and ownership of the Company to persons reasonably acceptable
to such parties, and
D. The Company, the Common Stockholders and 818879 Alberta each desire to set
forth certain rights and restrictions of mutual benefit to such parties.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties to this Agreement (collectively
"parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. RESTRICTIONS ON SALE OR TRANSFER OF SERIES A PREFERRED STOCK
818879 Alberta agrees that it shall not, without the prior written consent
of the Company, sell or assign the Series "A" Preferred Stock except to its
affiliates (as such term is defined below). In the event of any unpermitted sale
or transfer, the Company shall have the right to convert the Series "A"
Preferred Stock into Common Stock pursuant to the mechanics of Section 5.03B(1)
of Article Fifth of the Company's Certificate of Incorporation as filed on March
1, 1999. The term "affiliate" " for purposes of this section 1 shall mean any
---------
party controlling, controlled by, or under common control with 818879 Alberta,
or any party related to any such affiliate.
2. CONVERSION OF SERIES A PREFERRED STOCK
818879 Alberta agrees that the Company shall have the right to convert the
Series "A" Preferred Stock into Common Stock pursuant to the mechanics of
Section 5.03B(1) of Article Fifth of the
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<PAGE>
Company's Certificate of Incorporation as filed on March 1, 1999 in the event
the aggregate holdings of Ravenscraig or its affiliates (as such term is defined
below) in the Common Stock should, at any time, become less than five percent
(5%) of the total number of shares of Common Stock outstanding (unless such
decrease is attributable to a stock redemption). The term "affiliate" for
purposes of this section 2 shall mean any party controlling, controlled by, or
---------
under common control with Ravenscraig, or any party related to any such
affiliate.
3. NOMINATION OF SERIES A DIRECTOR BY 8188789 ALBERTA; APPOINTMENT OF BOARD
OBSERVER
In the event 818879 Alberta requests a position on the Board pursuant to
the terms of Section 5.01E of Article Fifth of the Company's Certificate of
Incorporation as filed on March 1, 1999, then 818879 Alberta shall nominate a
candidate for such position who is reasonably acceptable to the Company, and
shall vote its shares of Series "A" Preferred Stock in favor of the election of
such nominee. Notwithstanding the preceding sentence, 818879 Alberta shall have
the right at all times so long as it or its affiliates hold the Series "A"
Preferred Stock to have an observer attend all meetings of the Board.
4. CONSENT TO DIVIDEND BY 8188789 ALBERTA
818879 Alberta agrees that it shall not, in the event the Company's Common
Stock is quoted on the Nasdaq National Market, withhold its consent to a
dividend pursuant Section 5.01C(8) of Article Fifth of the Company's Certificate
of Incorporation as filed on March 1, 1999.
5. OFFERING PARTICIPATION RIGHTS
In the event the Company desires at any time on or before March 30, 2002,
to issue any securities (other than debt securities with no equity feature) in a
private offering, the Company shall offer to each Common Stockholder the right
for thirty (30) days to purchase, under certain conditions and with certain
exceptions, such securities at the price at which the securities are to be
issued. If a Common Stockholder elects to purchase more securities than offered,
such Common Stockholder will be entitled to purchase his, her or its pro rata
portion of the offered securities. This preemptive right shall not apply to,
among other events: (i) securities issued or created as a result of any stock
dividend, subdivision, reclassification, recapitalization or similar event; (ii)
securities issued pursuant to a firm commitment underwritten public offering;
(iii) securities issued to fulfill or comply with any obligation of the Company
to issue securities pursuant to any present or future stock option plan, stock
purchase, bonus, savings investment, or other stock incentive programs for the
benefit of the directors, officers, employees of or consultants to the Company;
(iv) securities issued in isolated transactions in payment for goods and
services; (v) securities issued by reason of the exercise of outstanding
options, warrants or other rights to acquire securities; or (vi) securities
issued in consideration of the acquisition (whether by merger or otherwise) by
the Company or any of its subsidiaries of the stock or assets of another entity.
These rights are personal, non-transferable rights limited to the Common
Stockholders, subject to certain rights of transfer to family members or
affiliates described below or with the consent of the Company in its sole
discretion, and may only be exercised by such Common Stockholder or permitted
assignee if he, she or it holds at least 5,000 shares of Common Stock.
6. TAG-ALONG RIGHT
In the event the stockholders of the Company, approve the sale, transfer,
exchange or other disposition of fifty percent (50%) or more of the capital
stock of the Company in a single or series of
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<PAGE>
related transactions (an "Approved Stock Sale Transaction"), Ravenscraig and its
permitted successors shall have the right (the "Tag-Along Right") to sell,
transfer, exchange or otherwise dispose of any shares of Common Stock then held
by such persons as part of such Approved Stock Sale Transaction on a pro rata
basis with all other selling stockholders, notwithstanding that such persons did
not approve of such Approved Stock Sale Transaction and/or did not otherwise
consent to the sale, transfer, exchange or other disposition of their shares of
Common Stock in accordance with the terms of such Approved Stock Sale
Transaction.
7. OTC BULLETIN BOARD(R) LOCK-UP RESTRICTIONS
In the event the Common Stock is quoted on the OTC Bulletin Board before
December 31, 2000, the Common Stockholders agree they will be subject to certain
contractual volume limitations on their sale on such market (the "OTC Bulletin
Board Lock-Up"), subject to the Company's consent, in its sole discretion, to
the waiver of such volume limitations; provided, however, any such waiver shall,
to the extent granted, be exercised on a pro rata basis with respect to all
holders of Common Stock (including shares received upon conversion of the Series
"A" Preferred Stock) who desire to sell shares on the OTC Bulletin Board. These
lock-up provisions are intended to assist in the creation of an orderly market
for the sale of the Common Stock on the OTC Bulletin Board. Specifically, shares
of Common Stock held by any current stockholder are allocated equally amongst
four stock certificates. Shares of Common Stock evidenced by the first stock
certificate will be issued free of the OTC Bulletin Board Lock-Up provision.
Shares evidenced by the second stock certificate can be sold on the OTC Bulletin
Board upon the earlier of three months following the initial quotation of the
Common Stock on the OTC Bulletin Board or June 30, 2000. Shares evidenced by the
third stock certificate can be sold on the OTC Bulletin Board upon the earlier
of six months following the initial quotation of the Common Stock on the OTC
Bulletin Board or September 30, 2000. Shares evidenced by the fourth stock
certificate can be sold on the OTC Bulletin Board upon the earlier of nine
months following the initial quotation of the Common Stock on the OTC Bulletin
Board or December 31, 2000. Notwithstanding the foregoing, any holder of less
than 3,000 shares of Common Stock may sell their shares on the OTC Bulletin
Board at any time free of the OTC Bulletin Board Lock-Up.
8. APPROVAL OF "CHANGE IN CONTROL" TRANSACTIONS
A. General. The Common Stockholders agree that none of them will vote to
-------
approve any transaction or series of transactions which would effectuate a
Change In Control (as such term is defined below) unless such transaction is
approved by a majority of shares of Common Stock held by the Common Stockholders
and a majority of shares of Series "A" Preferred Stock. The term "Change In
Control" shall mean any time an "Acquiring Person" attains, by reason of and
immediately after a transaction or series of related transactions (other than a
"Non-Control Transaction"), "Beneficial Ownership" of fifty percent (50%) or
more of the "Total Combined Voting Power" of the Company's then outstanding
"Voting Securities" (all as defined below). Notwithstanding the foregoing, a
Change In Control shall not be deemed to have occurred solely because any Person
acquires Beneficial Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of Voting Securities
by the Company (each, a "Redemption") which, by reducing the number of Voting
Securities outstanding, increased the percentage of outstanding Voting
Securities Beneficially Owned by such Person; provided, however, that: (i) a
Change In Control would occur as a result of a Redemption but for the operation
of this sentence, and (ii) after such Redemption, such Person becomes the
Beneficial Owner of any additional Voting Securities, which increase the
percentage of the then outstanding Voting Securities Beneficially Owned by such
Person over the percentage owned as a result of the Redemption, then a Control
Acquisition shall occur.
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<PAGE>
B. Definitions. The term "Acquiring Person" shall mean any "Person" (as
-----------
defined below) with the exception of: (i) any Employee Benefit Plan (or a trust
forming a part thereof) maintained by the Company, or by any corporation or
entity in which the Company holds fifty percent (50%) or more of the Voting
Securities (each, a "Controlled Subsidiary"); (ii) the Company or any Controlled
Subsidiary; or (iii) any Person which acquires the threshold percentage of
Voting Securities through a Non-Change In Control Transaction. The term "Non-
Change In Control Transaction" shall mean any transaction in which the
stockholders of the Company immediately before such transaction directly or
indirectly own, immediately following such transaction, at least a majority of
the Total Combined Voting Power (as defined below) of the outstanding Voting
Securities (as defined below) of the surviving corporation (or other entity)
resulting from such transaction, in substantially the same proportion as such
stockholders' ownership of the Company's Voting Securities immediately before
such transaction. The terms "Person," "Beneficial Ownership," "Total Combined
Voting Power" and "Voting Securities" shall have the meaning described to such
terms in Sections 13(d) and 14(d) of the Exchange Act and Rule 13d-3 promulgated
thereunder.
9. TERM
This Agreement shall remain in effect until March 30, 2002; provided,
however, section 1 through section 3 of this Agreement shall terminate earlier
--------- ---------
as of the date that the Series "A" Preferred Stock is converted into Common
Stock.
10. REPRESENTATIONS AND WARRANTIES
Each of the parties to this Agreement hereby represents and warrants to
each of the other parties to this Agreement, each of which is deemed to be a
separate representation and warranty, as follows:
A. Organization, Power and Authority. Such party: (i) if an entity, is
---------------------------------
duly organized, validly existing and in good standing under the laws of its
state, territory or province of incorporation or organization; and (ii) if an
entity or fiduciary, has all requisite corporate or other power and authority to
enter into this Agreement.
B. Authorization. The execution and delivery of this Agreement by such
-------------
party, and the performance by such party of the transactions herein
contemplated, have, if such party is an entity or a fiduciary, been duly
authorized by, and are prohibited under, its governing organization or
authorizing documents, and no further corporate or other action on the part of
such party is necessary to authorize this Agreement, or the performance of such
transactions.
C. Validity. This Agreement has been duly executed and delivered by such
--------
party and, assuming due authorization, execution and delivery by each of the
other parties hereto, is valid and binding upon such party in accordance with
its terms, except as limited by: (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to creditor
rights generally; and (ii) general principles of equity (regardless of whether
such enforcement is considered in a proceeding in equity or at law).
D. Non-Contravention. Neither the execution or delivery of this Agreement
-----------------
by such party, nor the performance by such party of the transactions
contemplated herein: (i) will, if such party is an entity, breach or conflict
with any of the provisions of such party's governing, organizational or
authorizing documents; or (ii) to the best of such party's knowledge and belief,
will such actions violate or constitute an event of default under any agreement
or other instrument to which such party is a party.
E. Fairness. The terms and conditions of the transactions contemplated by
--------
this Agreement
-4-
<PAGE>
are fair and reasonable to such party based upon all of the facts and
circumstances at the time this Agreement is entered into; and such party has
voluntarily entered into the transactions contemplated by this Agreement,
without duress or coercion.
11. INTERPRETATION AND CONSTRUCTION
A. Preparation of Agreement. The parties have participated jointly in the
------------------------
negotiation and drafting of this Agreement and each provision hereof. In the
event any ambiguity, conflict, omission or other question of intent or
interpretation arises, this Agreement shall be construed as if jointly drafted
by the parties, and no presumption or burden of proof shall be presumed, implied
or otherwise construed favoring or disfavoring any party by virtue of the
authorship of this Agreement or of any provision hereof.
B. Performance on Business Day. In the event the date on which a party is
---------------------------
required to take any action under the terms of this Agreement is not a business
day, the action shall, unless otherwise provided herein, be deemed to be
required to be taken on the next succeeding business day. For purposes of this
section, the term "business day" shall mean Monday through Friday (excluding any
legal holidays).
C. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made by any party in connection with any transaction contemplated by
this Agreement shall, irrespective of any investigation made by or on behalf of
any other party hereto, survive the execution and delivery of this Agreement and
the performance or consummation of any transaction described in this Agreement,
and shall continue in full force and effect forever thereafter (subject to any
applicable statutes of limitation).
D. Independent Significance. The parties intend that each representation,
------------------------
warranty and covenant shall have independent significance. If any party has
falsely made or breached any representation, warranty or covenant contained
herein in any respect, the fact that there exists another representation,
warranty or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not falsely made or breached
shall not detract from or mitigate the fact that the party has falsely made or
breached the first representation, warranty or covenant.
E. Entire Agreement; No Collateral Representations. Each party expressly
-----------------------------------------------
acknowledges and agrees that this Agreement, and the agreements and documents
referenced herein: (i) are the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter hereof; (ii)
supersede any prior or contemporaneous agreements, memorandums, proposals,
commitments, guaranties, assurances, communications, discussions, promises,
representations, understandings, conduct, acts, courses of dealing, warranties,
interpretations or terms of any kind, whether oral or written (collectively and
severally, the "prior agreements"), and that any such prior agreements are of no
force or effect except as expressly set forth herein; and (iii) may not be
varied, supplemented or contradicted by evidence of prior agreements, or by
evidence of subsequent oral agreements. No prior drafts of this Agreement, and
no words or phrases from any prior drafts, shall be admissible into evidence in
any action or suit involving this Agreement.
F. Amendment; Waiver; Forbearance. Except as expressly provided herein,
------------------------------
neither this Agreement nor any of the terms, provisions, obligations or rights
contained herein, may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except by a written
instrument or instruments signed by all of the parties to this Agreement. No
waiver of: (i) any breach of any term, provision or agreement; (ii) the
performance of any act or obligation
-5-
<PAGE>
under this Agreement; and/or (iii) any right granted under this Agreement, shall
be effective and binding unless such waiver shall be in a written instrument or
instruments signed by each party claimed to have given or consented to such
waiver. Except to the extent that the party or parties claimed to have given or
consented to a waiver may have otherwise agreed in writing, no such waiver shall
be deemed a waiver or relinquishment of any other term, provision, agreement,
act, obligation or right under this Agreement, or of any preceding or subsequent
breach thereof. No forbearance by a party in seeking a remedy for any
noncompliance or breach by another party hereto shall be deemed to be a waiver
by such forbearing party of its rights and remedies with respect to such
noncompliance or breach, unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
G. Remedies Cumulative. The remedies of each party under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which such party may
be lawfully entitled.
H. Severability If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall to any extent be
determined to be invalid, illegal or unenforceable under present or future laws,
then, and in such event: (i) the performance of the offending term or provision
(but only to the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this Agreement, and,
in lieu of such excused provision, there shall be added a provision as similar
in terms and amount to such excused provision as may be possible and still be
legal, valid and enforceable; and (ii) the remaining part of this Agreement
(including the application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby, and shall continue in full force
and effect to the fullest legal extent.
I. Time is of the Essence. Except and to the extent there is a specific
----------------------
cure provision in this Agreement, each party understands and agrees that: (i)
time of performance is strictly of the essence with respect to each and every
date, term, condition, obligation and provision hereof imposed upon such party;
and (ii) the failure to timely perform any of the terms, conditions, obligations
or provisions hereof by such party shall constitute a material breach and a
noncurable (but waivable) default under this Agreement by such party.
J. Parties in Interest. Nothing in this Agreement shall confer any rights
-------------------
or remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective successors and assigns, if any, or as may be
permitted hereunder; nor shall anything in this Agreement relieve or discharge
the obligation or liability of any third person to any party to this Agreement;
nor shall any provision give any third person any right of subrogation or action
against any party to this Agreement.
K. No Reliance Upon Prior Representations. Each party acknowledges that:
--------------------------------------
(1) no other party has made any oral representation or promise which would
induce such party, prior to executing this Agreement, to change such party's
position to his, her or its detriment, to partially perform, or to part with
value in reliance upon such representation or promise; and (2) such party has
not so changed its position, performed or parted with value prior to the time of
the execution of this Agreement, or such party has taken such action at its own
risk.
L. Rules of Construction. In interpreting the meaning of this Agreement:
---------------------
(i) the term "person" is defined in its broadest sense to include any individual
or natural person, entity (as such term is defined in this subsection L) and/or
------------
fiduciary (as such term is defined in this subsection L), and their respective
------------
successors and assigns; (ii) the term "entity" means any legal entity, including
any corporation, association, joint stock company, partnership (limited, general
or limited liability),
-6-
<PAGE>
joint-venture, and limited liability company, business trust, trust (whether
revocable or irrevocable), pension or profit sharing plan, individual retirement
account, or fiduciary or custodial arrangement; (iii) the term "fiduciary" means
any person acting in a fiduciary capacity, including in their capacity as a
trustee or a custodian; (iv) the term "affiliate" means any person controlling,
controlled by, or under common control with a party (for purposes of the
foregoing, the term "control" (including with the correlative meanings, the
terms "controlled by" and "under common control with") means the possession
directly or indirectly of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities or by contract or otherwise); (v) the term "subsidiary" means any
entity in which a party holds a controlling interest; (vi) the words "herein"
and "hereunder" and other words of similar report refer to this Agreement as a
whole, and not to any particular sections, subsections, paragraph, subparagraph
or other subdivision of this Agreement; (vii) the words "including," "includes,"
and "include" shall be deemed to be followed by the words "including without
limitation;" (viii) the word "or" shall not be deemed to be exclusive unless the
context indicates otherwise; and (ix) the word "all" shall be deemed to include
the word "any," and vice versa. All pronouns and any variation thereof used in
this Agreement shall be deemed to refer to the masculine, feminine, or neuter
(as the case may be), and to the singular or plural (as the case may be), as the
identity of the person or persons or the context may require for proper
interpretation of this Agreement. Any references in this Agreement to "dollars"
shall be deemed to refer to the currency of the United States of America, unless
such reference specifically references a dollar-denominated currency of a
country other than the United States of America. The headings used in this
Agreement are for convenience and reference purposes only, and shall not be used
in construing or interpreting the scope or intent of this Agreement or any
provision hereof. Each cross-references in this Agreement shall, unless
specifically directed to another agreement or document, be construed only to
refer to provisions within this Agreement, and shall not be construed to refer
to the overall transaction or to any other agreement or document. Each exhibit,
addendum, schedule and/or attachment referenced in this Agreement shall be
construed to be incorporated into this Agreement by such reference and made a
part hereof. References to any agreements (other than this Agreement) shall
include all amendments, modifications, supplements and/or renewals thereof.
Unless the context requires otherwise: (1) any reference herein to any federal,
state, local or foreign statutes or laws (collectively, the "Statutes") will be
deemed to include all rules and regulations promulgated thereunder: and (2) any
references herein to any Statute and/or any specific section or provision of any
such Statute are intended to refer to such section or provision thereof as
presently enacted and as subsequently amended, succeeded, recodified or
renumbered.
12. ENFORCEMENT
A. Applicable Law. This Agreement and the rights and remedies of each
--------------
party arising out of or relating to this Agreement (including equitable
remedies) shall be solely governed by, interpreted under, and construed and
enforced in accordance with the laws (without regard to the conflicts of law
principles) of the Province of British Columbia, as if this Agreement were made,
and as if its obligations were to be performed in their entirety, within the
Province of British Columbia.
B. Consent to Jurisdiction and Venue; Service of Process. Any "action or
-----------------------------------------------------
proceeding" (as such term is defined below) arising out of or relating to this
Agreement shall be filed in and litigated solely before the provincial courts of
the Province of British Columbia. By execution and delivery of this Agreement,
each party: (i) generally and unconditionally accepts the exclusive jurisdiction
of the aforesaid courts and venue therein, and waives to the fullest extent
provided by law any defense or objection to such jurisdiction and venue based
upon the doctrine of "forum non conveniens;" and (ii) consents to service of
process in any such action or proceeding by delivery of certified or registered
mailing of the summons and complaint in accordance with the notice provisions of
this Agreement. The term "action or proceeding" is defined as any and all
claims, suits, actions, hearings, arbitrations or
-7-
<PAGE>
other similar proceedings, including appeals and petitions therefrom, whether
formal or informal, governmental or non-governmental, or civil or criminal. The
foregoing consent to jurisdiction shall not constitute general consent to
service of process in the Province of British Columbia for any purpose except as
provided above, and shall not be deemed to confer rights on any person other
than the parties to this Agreement.
C. Waiver of Right to Jury Trial. Each party hereby waives such party's
-----------------------------
respective right to a jury trial of any claim or cause of action based upon or
arising out of this Agreement. Each party acknowledges that this waiver is a
material inducement to each other party hereto to enter into the transaction
contemplated hereby; that each other party has already relied upon this waiver
in entering into this Agreement; and that each other party will continue to rely
on this waiver in their future dealings. Each party warrants and represents that
such party has reviewed this waiver with such party's legal counsel, and that
such party has knowingly and voluntarily waived its jury trial rights following
consultation with such legal counsel.
D. Consent to Specific Performance and Injunctive Relief; Waiver of Bond
---------------------------------------------------------------------
or Security. Each party acknowledges that each of the other parties to this
- -----------
Agreement may, as a result of such party's breach of his, her or its covenants
and obligations under this Agreement, sustain substantial and irreparable injury
and damage which cannot be reasonably or adequately compensated by damages at
law. Consequently, such party agrees that the non-breaching parties shall be
entitled, in the event of such party's breach or threatened breach of his, her
or its covenants and obligations hereunder, to obtain equitable relief from a
court of competent jurisdiction including enforcement of each provision of this
Agreement by specific performance and/or temporary, preliminary and/or permanent
injunctions enforcing any of the rights of the non-breaching parties, requiring
performance by such breaching party, or enjoining any breach by such breaching
party, all without proof of any actual damages that have been or may be caused
to the non-breaching party(s) by such breach or threatened breach, and without
the posting of bond or other security in connection therewith. The defending
party waives the claim or defense therein that any non-breaching party bringing
the such action or proceeding has an adequate remedy at law, and such defending
party shall not allege or otherwise assert the legal position that any such
remedy at law exists. Each party agrees and acknowledges that: (i) the terms of
this subsection D are fair, reasonable and necessary to protect the legitimate
------------
interests of the other parties to this Agreement; (ii) this waiver is a material
inducement to each of the other parties to enter into the transactions
contemplated hereby; and (iii) each of the other parties relied upon this waiver
in entering into this Agreement; and will continue to rely on this waiver in
their future dealings with such party. Each party represents and warrants that
such party has reviewed this provision with such party's legal counsel, and that
such party has knowingly and voluntarily waived his, her or its rights following
consultation with legal counsel.
E. Recovery of Fees and Costs. If any party institutes, or should any
--------------------------
party otherwise become a party to, any action or proceeding based upon or
arising out of this Agreement, including the enforcement or interpretation of
this Agreement or any provision hereof, or for damages by reason of any alleged
breach of this Agreement or any provision hereof, or for a declaration of rights
in connection herewith, or for any other relief, including equitable relief, in
connection herewith, the "prevailing party" (as such term is defined below) in
any such action or proceeding, whether or not such action or proceeding proceeds
to final judgment or determination, shall be entitled to receive from the non-
prevailing party as a cost of suit, and not as damages, all fees, costs and
expenses of enforcing any right of the prevailing party (collectively, "fees and
costs"), including: (i) reasonable attorneys' fees and costs and expenses; (ii)
witness fees (including experts engaged by the parties, but excluding officers,
directors, employees, managers or general partners of the parties); (iii)
accountants' fees; (iv) fees of other professionals and (v) any and all other
similar fees incurred in the prosecution or defense of the action or proceeding;
including the following: (1) postjudgment motions; (2) contempt proceedings;
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<PAGE>
(3) garnishment, levy, and debtor and third party examinations; (4) discovery
and (5) bankruptcy litigation. All of the aforesaid fees and costs shall be
deemed to have accrued upon the commencement of such action, and shall be paid
whether or not such action is prosecuted to judgment. Any judgment or order
entered in such action shall contain a specific provision providing for the
recovery of the aforesaid fees, costs and expenses incurred in enforcing such
judgment and an award of prejudgment interest from the date of the breach at the
maximum rate of interest allowed by law. The term "prevailing party" is defined
as the party who is determined to prevail by the court after its consideration
of all damages and equities in the action or proceeding (the court shall retain
the discretion to determine that no party is the prevailing party, in which case
no party shall be entitled to recover its fees and costs under this
subsection E).
- ------------
13. MISCELLANEOUS
A. Costs and Expenses. Except as expressly set forth in this Agreement,
------------------
each party shall pay all legal and other fees, costs and expenses incurred or to
be incurred by such party in negotiating and preparing this Agreement; in
performing due diligence or retaining professional advisors; and in complying
with such party's covenants, agreements and conditions contained herein.
B. Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
C. Notices. Unless otherwise specifically provided in this Agreement, all
-------
notices, demands, requests, consents, approvals or other communications
(collectively and severally called "notices") required or permitted to be given
hereunder, or which are given with respect to this Agreement, shall be in
writing, and shall be given by: (i) personal delivery (which form of notice
shall be deemed to have been given upon delivery); (ii) by telegraph or by
private airborne/overnight delivery service (which forms of notice shall be
deemed to have been given upon confirmed delivery by the delivery agency), (iii)
by electronic or facsimile or telephonic transmission, provided the receiving
party has a compatible device or confirms receipt thereof (which forms of notice
shall be deemed delivered upon confirmed transmission or confirmation of
receipt); or (iv) by mailing in the United States mail by registered or
certified mail, return receipt requested, postage prepaid (which forms of notice
shall be deemed to have been given upon the fifth {5th} business day following
the date mailed). Notices shall be addressed to such address as the party shall
have specified in a writing delivered to the other parties in accordance with
this section. Any notice given to the estate of a party shall be sufficient if
addressed to the party as provided in this subsection C.
------------
D. Counterparts; Electronically Transmitted Documents This Agreement may
--------------------------------------------------
be executed in counterparts, each of which shall be deemed an original, and all
of which together shall constitute one and the same instrument, binding on all
parties hereto. Any signature page of this Agreement may be detached from any
counterpart of this Agreement and reattached to any other counterpart of this
Agreement identical in form hereto by having attached to it one or more
additional signature pages. If a copy or counterpart of this Agreement is
originally executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document shall for
all purposes be treated as if manually signed by the party whose facsimile
signature appears.
E. Execution by All Parties Required to be Binding. This Agreement shall
-----------------------------------------------
not be construed to be an offer and shall have no force and effect until this
Agreement is fully executed and
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<PAGE>
delivered by all parties hereto pursuant to the terms of section D. Until such
---------
time as all parties fully execute this Agreement, any party who has previously
executed and delivered this Agreement may revoke such execution and delivery.
WHEREFORE, the parties hereto have executed this Agreement in the City of
Burnaby, Province of British Columbia, as of the date first set forth above.
CLEAN ENERGY TECHNOLOGIES, INC.
By: /s/ John P. Thuot
-----------------------------
John P. Thuot, President
BO TECH BURNER SYSTEMS, LTD.
By: /s/ John P. Thuot
-----------------------------
John P. Thuot, President
/s/ John D. Chato
--------------------------------
John D. Chato
/s/ John P. Thuot
--------------------------------
John P. Thuot
/s/ James V. DeFina
--------------------------------
James V. DeFina
/s/ Barry A. Sheahan
--------------------------------
Barry A. Sheahan
/s/ Robert Alexander
--------------------------------
Robert Alexander
818879 ALBERTA, LTD.
By: /s/ R. Dirk Stinson
-----------------------------
R. Dirk Stinson, President
RAVENSCRAIG PROPERTIES LIMITED
By: /s/ Sammy Chow
-----------------------------
Sammy Chow, on behalf of its Secretary,
Corporate House
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<PAGE>
EXHIBIT 4.5
1999 Clean Energy Technologies, Inc. Stock Plan
The Board of Directors of Clean Energy Technologies, Inc. (the "Company"), a
corporation organized under the laws of the State of Delaware, hereby adopts
this 1999 Clean Energy Technologies, Inc. Stock Plan as of the 5th day of March,
1999.
Recitals
--------
WHEREAS: The growth, development and financial success of the Company (and any
parents and/or any subsidiaries of the Company) is and will remain dependent, in
significant part, upon the judgment, initiative, efforts and/or services their
respective employees, officers, directors, consultants and advisors;
WHEREAS: The Company desires, in order to attract, compensate and motivate
selected employees, officers, directors, consultants and/or advisors for the
Company (and any parent and/or any subsidiaries of the Company), and to
appropriately compensate them for their efforts, to create a stock plan which
will enable the Company, in its sole discretion and from time-to-time, to offer
to or provide such persons with incentives and/or inducements in the form of
capital stock of the Company, or rights in the form of options to acquire
capital stock of the Company, thereby affording such persons with an opportunity
to share in potential capital appreciation in the capital stock of the Company
and/or potential distributions made in connection therewith;
WHEREAS: The Company further desires that the stock plan be structured to permit
it, in its sole discretion, to offer and issue options to purchase capital stock
which are classified as incentive stock options within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended;
WHEREAS: The Company further desires that the stock plan be structured to permit
it, in its sole discretion, to offer and issue capital stock or options to
acquire capital stock in reliance upon certain exemptions from registration or
qualification afforded under certain federal, state, territorial and/or
provincial securities laws to be selected by the Company as are or may become
applicable including, by way of example and not limitation, Rule 701 promulgated
under the Securities Act of 1933, as amended (for compensatory benefit plans);
and
WHEREAS: At such time and so long as the Company's equity securities remain
registered under Sections 12(b) or 12(g) of the Securities and Exchange Act of
1934, the Company further desires that the stock plan be structured to comply
with the Securities and Exchange Act of 1934.
ARTICLE I
DEFINITIONS
-----------
Set forth below are definitions of capitalized terms which are generally used
throughout the Plan, or references to provisions containing such definitions
(Capitalized terms used only in a specific section of the Plan are defined in
such section):
1.01 "Applicable Laws" means the requirements relating to the administration of
stock plans under:
A. United States corporate laws;
B. applicable Securities Laws (including those of any foreign country or
jurisdiction where Awards are, or will be, granted under the Plan),
C. the Code; and
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<PAGE>
D. any stock exchange or quotation system on which the Common Stock is
listed or quoted.
1.02 "Approved Corporate Transaction" shall mean any time the Board and/or, to
the extent required by law, the stockholders of the Company, approve
either:
A. a merger or consolidation or stock exchange or divisive reorganization
(i.e., spin-off, split-off or split-up) and/or other reorganization
with respect to the Company and/or its stockholders, or
B. the sale, transfer, exchange or other disposition by the Company of
fifty percent (50%) or more of its assets in a single or series of
related transactions, is approved,
provided, however, the term Approved Corporate Transaction shall not
include any transaction wherein the stockholders of the Company
immediately before such transaction directly or indirectly own,
immediately following such transaction, a majority of the Total Combined
Voting Power (as such term is defined in section 1.07A below) of the
-------------
outstanding Voting Securities (as such term is defined in section 1.07A
-------------
below) of the surviving corporation (or other entity) resulting from such
transaction pursuant to subsection A, or the acquiring corporation (or
------------
other entity) pursuant to subsection B.
------------
1.03 "Award" shall collectively and severally refer to any Options or Grant
Shares granted or awarded under the Plan.
1.04 "Award Agreement" shall collectively and severally refer to:
A. in the case of the grant or award of an Option, a Stock Option
Certificate in such form as prescribed by the Plan Administrator from
time-to-time;
B. in the case of the grant or award of Grant Shares, a Stock Grant
Agreement in such form as prescribed by the Plan Administrator from
time-to-time; and
C. in the case of the grant or award of SARs, a SAR Agreement in such
form as prescribed by the Plan Administrator from time-to-time;
provided, however, the Company may, in its sole discretion,
(1) revise any such form of Award Agreement to reflect or incorporate
such changes as the Company or its legal counsel may determine is
appropriate and consistent with the terms of the Plan, and/or
(2) evidence or confirm the grant of an Award in a written employment
or consulting agreement in lieu of the form of any of the
foregoing Award Agreements.
1.05 "Blue Sky Laws" shall mean the securities laws of any state or territory
of the United States, including any regulations or rules promulgated
thereunder, which may apply to a transaction described in this Plan by
reason of, among other things, the Recipient's residing in such, state
and/or territory at the time of such transaction.
1.06 "Board" shall mean the Board of Directors of the Company, as such body may
be reconstituted from time to time.
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<PAGE>
1.07 "Change In Control" shall mean the occurrence of any "Control Acquisition"
or any "Significant Board Change" (as such terms are defined below).
A. "Control Acquisition" shall mean any time an "Acquiring Person"
attains, by reason of and immediately after a transaction or series of
related transactions (other than a "Non-Control Transaction"),
"Beneficial Ownership" of fifty percent (50%) or more of the "Total
Combined Voting Power" of the Company's then outstanding "Voting
Securities" (all as defined below); unless the Board determines that
it is not in the best interests of the Company for such transaction to
be construed as a Control Acquisition; provided, however that at the
time of such approval of the Board there are then in office not less
than two Continuing Directors (as such term is defined below) and such
action or transaction or series of related actions or transactions are
approved by a majority of the Continuing Directors then in office.
(1) "Acquiring Person" shall mean any "Person" (as defined below)
with the exception of:
(i) any Employee Benefit Plan (or a trust forming a part
thereof) maintained by the Company, or by any corporation
or entity in which the Company holds fifty percent (50%) or
more of the Voting Securities (each, a "Controlled
Subsidiary");
(ii) the Company or any Controlled Subsidiary; or
(iii) any Person which acquires the threshold percentage of
Voting Securities through a Non-Control Transaction.
(2) "Non-Control Transaction" shall mean any transaction in which the
stockholders of the Company immediately before such transaction
directly or indirectly own, immediately following such
transaction, at least a majority of the Total Combined Voting
Power (as defined below) of the outstanding Voting Securities (as
defined below) of the surviving corporation (or other entity)
resulting from such transaction, in substantially the same
proportion as such stockholders' ownership of the Company's
Voting Securities immediately before such transaction.
(3) "Person," "Beneficial Ownership," "Total Combined Voting Power"
and "Voting Securities" shall have the meaning described to such
terms in Sections 13(d) and 14(d) of the Exchange Act and Rule
13d-3 promulgated thereunder.
(4) "Continuing Director" shall mean:
(i) any member of the Board, while such Person is a member of
the Board, who is not an Acquiring Person or an "Affiliate"
or "Associate" (as defined below) of an Acquiring Person,
or a representative of an Acquiring Person or any such
Affiliate or Associate, and was a member of the Board prior
to the date of this Plan, or
(ii) any Person who subsequently becomes a member of the Board,
while such Person is a member of the Board, who is not an
Acquiring Person or an Affiliate or Associate of an
Acquiring Person or a representative of an
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<PAGE>
Acquiring Person or any such Affiliate or Associate, if
such Person's nomination for election or election to the
Board is recommended or approved by a majority of the
Continuing Directors.
(5) The terms "Affiliate" and "Associates" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act.
(6) Notwithstanding the foregoing, a Control Acquisition shall not be
deemed to have occurred solely because any Person acquires
Beneficial Ownership of more than the threshold percentage of the
outstanding Voting Securities as a result of an acquisition of
Voting Securities by the Company (each, a "Redemption") which, by
reducing the number of Voting Securities outstanding, increased
the percentage of outstanding Voting Securities Beneficially
Owned by such Person; provided, however, that if
(i) a Control Acquisition would occur as a result of a
Redemption but for the operation of this sentence, and
(ii) after such Redemption, such Person becomes the Beneficial
Owner of any additional Voting Securities, which increase
the percentage of the then outstanding Voting Securities
Beneficially Owned by such Person over the percentage owned
as a result of the Redemption, then a Control Acquisition
shall occur.
B. "Significant Board Change" shall mean any time, during any period of
three (3) consecutive years after the date of this Agreement, wherein
the individuals who constituted the Board at the beginning of such
period (the "Incumbent Board") cease to constitute a majority of the
Board, for any reason other than:
(1) the voluntary resignation of one or more Board members;
(2) the refusal by one or more Board members to stand for election to
the Board; and/or
(3) the removal of one or more Board members for good cause;
provided, however,
(i) that if the nomination or election of any new director of
the Company was approved by a vote of at least a majority of
the Incumbent Board, such new director shall be deemed a
member of the Incumbent Board; and
(ii) that no individual shall be considered a member of the
Incumbent Board if such individual initially assumed office
as a result of either an actual or threatened "Election
Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act), or as a result of a solicitation of proxies
or consents by or on behalf of an Acquiror, other than a
member of the Board (a "Proxy Contest"), or as a result of
any agreement intended to avoid or settle any Election
Contest or Proxy Contest.
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<PAGE>
1.08 "Code" shall mean the United States Internal Revenue Code of 1986, as
amended (references herein to sections of the Code are intended to refer
to sections of the Code as enacted at the time of the adoption of the Plan
by the Board and as subsequently amended, or to any substantially similar
successor provisions of the Code resulting from recodification,
renumbering or otherwise).
1.09 "Commission" shall mean the United States Securities and Exchange
Commission.
1.10 "Common Stock" shall mean the Company's common stock, par value $0.0001.
1.11 "Company" shall mean Clean Energy Technologies, Inc., a Delaware
corporation and its successors.
1.12 "Consent of Spouse" shall mean that Consent of Spouse in such form as
prescribed by the Plan Administrator from time-to-time.
1.13 "Consultant" shall mean any natural person who, in a capacity other than
as an Employee or Director, provides bona fide services pursuant to a
contract in a consulting or advisory capacity to the Company and/or to any
Parent and/or to any Subsidiary other than any services pursuant to a
contract within the parameters set forth in section 1.16 relating to
------------
Eligible Persons.
1.14 "Director" shall mean any Person who is voted or appointed as a member of
the Board of Directors of the Company and/or of any Parent and/or of any
Subsidiary, whether such Person is so engaged at the time the Plan is
adopted or becomes so engaged subsequent to the adoption of the Plan.
1.15 "Disability" (or the related term "Disabled") shall be defined, without
limitation, as any of the following with respect to a Recipient who is an
Employee or a Director:
A. the receipt of any disability insurance benefits by the Recipient;
B. a declaration by a court of competent jurisdiction that the Recipient
is legally incompetent; or
C. the Recipient's material inability due to medically documented mental
or physical illness or disabilities to fully perform the Recipient's
regular obligations as an Employee or as a Director (as the case may
be) under such office, with reasonable accommodation if then required
by applicable federal, state, territorial and/or provincial laws or
regulations, for a three (3) month continuous period, or for six (6)
cumulative months within any one (1) year continuous period, or the
reasonable determination by the Board that the Recipient will not be
able to fully perform the Recipient's regular obligations as an
Employee or as a Director (as the case may be), under such office,
with reasonable accommodation if then required by applicable federal,
state, territorial and/or provincial laws or regulations, for a three
(3) month continuous period.
If the Board determines that the Recipient is Disabled under subsection C
------------
above, and the Recipient disagrees with the conclusion of the Board, then
the Company shall engage a qualified independent physician reasonably
acceptable to the Recipient to examine the Recipient at the Company's sole
expense. The determination of such physician shall be provided in writing
to the parties and shall be final and binding upon the parties for all
purposes of this Agreement. The Recipient hereby consents to examination
in the manner set forth above, and waives any physician-patient privilege
arising from any such examination as it relates to the determination of
the purported disability. If the parties cannot agree upon such physician,
a physician shall be appointed by the American Arbitration
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<PAGE>
Association, located in the same city as in which the Company's principal
executive officers are located, or a close to such city as is possible,
according to the rules and practices of the American Arbitration
Association from time-to-time in force.
1.16 "Eligible Person" shall mean any Person who, at the applicable time of the
grant or award of an Award under the Plan, is an Employee, a Director,
and/or a Consultant who is a natural person. Notwithstanding the
foregoing,
A. no Award hereunder may be granted to any Person, even if otherwise an
Eligible Person, with respect to any circumstances which would not be
considered to be either a bonus or reward for services provided, or
compensation for goods or services rendered; and
B. no Award hereunder may be granted to any Consultant for any services
rendered wholly or partially in connection with the offer and sale of
securities in a capital-raising transaction or which services directly
or indirectly promote or maintain a market for the Company's
securities.
1.17 The interpretation of Consultant shall, in all cases, be made in reference
to Rule 701 promulgated under the Securities Act or, following such time
as the Company shall become a Reporting Company, as allowed under Form S-8
promulgated under the Securities Act.
1.18 "Employee" shall mean any employee of the Company and/or of any Parent
and/or of any Subsidiary, whether such Person is so employed at the time
the Plan is adopted or becomes so employed subsequent to the adoption of
the Plan.
1.19 "Executive Officer" shall mean the Company's president, principal
financial officer, principal accounting officer (or, if there is no such
accounting officer, the controller), any vice-president of the Company in
charge of a principal business unit, division or function (such as sales,
administration or finance), any other officer who performs a policy-making
function, or any other person who performs similar policy-making functions
for the Company. Officers of any Parent and/or of any Subsidiary of the
Company shall be deemed Executive Officers of the Company if they perform
such policy-making functions for the Company.
1.20 "Exchange Act" shall mean the Securities and Exchange Act of 1934, as
amended, including any regulations or rules promulgated by the Commission
thereunder (references herein to sections of the Exchange Act are intended
to refer to sections of the Exchange Act as enacted at the time of the
adoption of the Plan by the Board and as subsequently amended, or to any
substantially similar successor provisions of the Exchange Act resulting
from recodification, renumbering or otherwise).
1.21 "Fair Market Value" of a share of Common Stock as of a given valuation
date shall be determined as follows:
A. If the Common Stock is traded on a stock exchange, the Fair Market
Value will be equal to the closing price of Common Stock on the
principal exchange on which the Common Stock is then trading as
reported by such exchange (or as reported by any composite index which
includes such principal exchange) for the trading day previous to the
date of valuation, or if the Common Stock is not traded on such date,
on the next preceding trading day during which a trade occurred;
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<PAGE>
B. If the Common Stock is traded over-the-counter on the Nasdaq National
Market on the date in question, the Fair Market Value will be equal to
the last transaction-price of the Common Stock as reported by Nasdaq
for the trading day previous to the date of valuation, or if the
Common Stock is not traded on such date, on the next preceding trading
day during which a trade occurred;
C. If the Common Stock is traded over-the-counter on the Nasdaq SmallCap
Market, the Fair Market Value will equal the mean between the last
reported closing representative bid and asked price for the Common
Stock as reported by Nasdaq for the trading day previous to the date
of valuation, or if the Common Stock is not traded on such date, on
the next preceding trading day during which a trade occurred; or
D. If the Common Stock is not publicly traded on an exchange and is not
traded over-the-counter on Nasdaq, the Fair Market Value shall be
determined by the Board acting in good faith on such basis as it deems
appropriate, including quotations by market makers if the Common Stock
is traded over-the-counter on the NASD Electronic Bulletin Board or
Pink Sheets on the date in question should the Plan Administrator deem
such quotations to be appropriate given the volume and circumstances
of trades.
1.22 The Fair Market Value as determined above shall be subject to such discount
as the Plan Administrator may, in its sole discretion and without
obligation to do so, determine to be appropriate to reflect any such
impairments to the value of the associated Option Shares and/or Grant
Shares to which the valuation relates such as, by way of example and not
limitation,
A. the fact that such Option Shares and/or Grant Shares constitute
unregistered securities (whether or not considered "restricted stock"
within the meaning of Rule 144 of the Securities Act), and/or
B. such Option Shares and/or Grant Shares are subject to conditions, risk
of forfeiture, or repurchase rights or rights of first refusal which
impair their value including, without limitation, those forfeiture
conditions more particularly described in Article VII;
-----------
provided, however, in the event of the grant or award of an Incentive
Option, no discount shall be given with respect to any impairments in value
attributable to any restriction which, by its terms, will never lapse
within the meaning of Section 422(c)(7) of the Code.
1.23 "Forfeitable Grant Shares" shall mean Grant Shares that are subject to
restrictions set forth in Article VII.
-----------
1.24 "Grant Shares" shall mean Plan Shares granted or awarded in accordance with
Article VI.
----------
1.25 "Incentive Option" shall mean an Option which qualifies under Section 422
of the Code, and is specifically granted as an Incentive Option under the
Plan in accordance with the applicable provisions of Article V.
---------
1.26 "Independent SAR" shall have the meaning ascribed to such term in section
-------
9.01.
----
1.27 "Non-Qualified Option" shall mean any Option granted under the Plan other
than an Incentive Option; provided, however, the term Non-Qualified Option
shall include any Incentive Option which at any time fails, for any reason,
to qualify as an incentive stock option under Section 422 of the Code and
the rules and regulations thereunder.
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<PAGE>
1.28 "Option" shall mean an option to purchase Plan Shares granted or awarded
pursuant to Article V. Unless specific reference is made thereto, the term
---------
"Options" shall be construed as referring to both Non-Qualified Options
(including Replacement Options) and Incentive Options.
1.29 "Option Price" is defined in section 5.02 of the Plan.
------------
1.30 "Option Shares" shall mean any Plan Shares which an Option entitles the
holder thereof to purchase.
1.31 "Parent" shall mean any "parent" of the Company, as such term is defined
by, or interpreted under, Rule 701 promulgated under the Securities Act,
including any such parent which is a corporation, partnership, limited
partnership or limited liability company to the extent permitted under
Rule 701.
1.32 "Person" shall be defined, in its broadest sense, as any individual,
entity or fiduciary such as, by way of example and not limitation,
individual or natural persons, corporations, partnerships (limited or
general), joint-ventures, associations, limited liability
companies/partnerships or fiduciary arrangements (such as trusts and
custodial arrangements).
1.33 "Plan" shall mean this 1999 Clean Energy Technologies, Inc. Stock Plan.
1.34 "Plan Administrator" shall refer to the Person or Persons who are
administering the Plan as described in Article III, to wit, the Board, the
-----------
Plan Committee, or any Director-Officers designated by the Board or the
Plan Committee.
1.35 "Plan Committee" shall mean that Committee comprised of members of the
Board that may be appointed by the Board to administer and interpret the
Plan as more particularly described in Article III of the Plan.
-----------
1.36 "Plan Shares" s hall refer to shares of Common Stock issuable in
connection with Awards in accordance with section 4.01, including, Option
------------
Shares, Grant Shares and SAR Shares.
1.37 "Provincial Securities Laws" shall mean the securities laws of any
province of Canada, including any regulations or rules promulgated
thereunder, which may apply to a transaction described in this Plan by
reason of, among other things, the Company's principal executive offices
being located in such province or a Recipient residing in such province,
at the time of such transaction.
1.38 "Recipient" shall mean any Eligible Person who, at a particular time,
receives the grant of an Award.
1.39 "Recipient's Representative's Letter" shall mean that letter from an
independent investment advisor of a Recipient in such form as prescribed
by the Plan Administrator from time-to-time.
1.40 "Replacement Option" shall mean a Non-Qualified Option specifically
granted as a Replacement Option under the Plan in accordance with the
applicable provisions of section 5.08.
------------
1.41 "Reporting Company" shall mean a corporation which registers its equity
securities pursuant to Sections 12(b) or 12(g) of the Exchange Act;
provided, however, any foreign corporation which registers its equity
securities as a "foreign private issuer" shall not be deemed a Reporting
Company for purposes of this Plan unless and until such time as it is
required or elects to register its equity securities as a foreign issuer
other than a foreign private issuer.
1.42 "Stock Appreciation Rights" or "SARs" shall have the meaning ascribed to
such terms in section 9.01.
------------
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1.43 "Securities Act" shall mean the Securities Act of 1933, as amended,
including all regulations or rules promulgated by the Commission
thereunder (references herein to sections of the Securities Act are
intended to refer to sections of the Securities Act as enacted at the time
of the adoption of the Plan by the Board and as subsequently amended, or
to any substantially similar successor provisions of the Securities Act
resulting from recodification, renumbering or otherwise).
1.44 "Securities Laws" shall collectively refer to the Securities Act, the
Exchange Act, the Blue Sky Laws and the Provincial Securities Laws.
1.45 "Subsidiary" shall mean any "majority-owned subsidiary" of the Company, as
such term is defined by, or interpreted under, Rule 701 promulgated under
the Securities Act, including any such subsidiary which is a corporation,
partnership, limited partnership or limited liability company to the
extent permitted under Rule 701. The term Subsidiary shall specifically
exclude any majority-owned subsidiaries (other than the Company, if
applicable) of any Parent.
1.46 "Tandem SAR" shall have the meaning ascribed to such term in section 9.01.
------------
1.47 "Ten Percent Stockholder" shall mean a Person who owns, either directly or
indirectly, at the time such Person is granted an Award, stock of the
Company possessing more than ten percent (10%) of the total combined
voting power or value of all classes of stock of the Company or of any
Parent and/or any Subsidiary.
1.48 "Termination By Company For Cause" shall mean the following:
A. Employee-Recipient. In the case of a Recipient who is an Employee,
------------------ --------
the Plan Administrator determines that:
(1) Any representation or warranty of the Recipient in connection
with the grant of the Award (or the subsequent exercise of an
Option, if the Award is an Option) is not materially true,
accurate and complete;
(2) The Recipient has breached or wrongfully failed and/or refused to
fulfill and/or perform any of the Recipient's obligations,
promises or covenants under the underlying Award Agreement;
(3) The Recipient has breached or wrongfully failed and/or refused to
fulfill and/or perform any of the Recipient's representations,
warranties, obligations, promises or covenants in any agreement
(other than the Award Agreement) entered into between the Company
and the Recipient, without cure, if any, as provided in such
agreement;
(4) The Recipient has failed and/or refused to obey any lawful and
proper order or directive of the Board, and/or the Recipient has
intentionally interfered with the compliance by other employees
of the Company with any such orders or directives;
(5) The Recipient has breached the Recipient's fiduciary duties to
the Company;
(6) The Recipient has caused the Company to be convicted of a crime,
or intentionally caused the Company to incur criminal penalties
in material amounts;
(7) The Recipient has committed:
-9-
<PAGE>
(i) any act of fraud, misrepresentation, theft, embezzlement or
misappropriation, and/or any other dishonest act against the
Company and/or any of its affiliates, subsidiaries, joint
ventures; or
(ii) any other offense involving moral turpitude, which offense is
followed by conviction or by final action of any court of law;
or
(iii) a felony;
(8) The Recipient has used alcohol or drugs to an extent that such use:
(i) interfered with or was likely to interfere with the Recipient's
ability to perform the Recipient's duties to the Company;
and/or
(ii) such use endangers or was likely to endanger the life, health,
safety, or property of the Recipient, the Company, and/or any
other person;
(9) The Recipient has demonstrated or committed such acts racism, sexism
or other discrimination as would tend to bring the Company into public
scandal or ridicule, or would otherwise result in material and
substantial harm to the Company's business, reputation, operations,
affairs or financial position; and/or
(10) The Recipient engaged in other conduct constituting cause for
termination.
B. Director-Recipient. In the case of a Recipient who is a Director, the
------------------ --------
Plan Administrator determines that:
(1) The Board has removed the Recipient as a member of the Board for
"cause" as such term is defined or interpreted by the Articles or
Certificate of Incorporation and/or the Bylaws of the Company, and/or
the laws of the State of the Company's organization, or for breach of
the Recipient's statutory or common law duties as a Director;
(2) The Recipient has refused or is unable to be nominated for a position
on the Board, including where due to the Recipient's failure to
request cumulative voting for such election (if applicable) and the
Recipient's failure to vote all of the Recipient's shares of Common
Stock for the Recipient's election to the Board; and/or
(3) Any event described above in section 1.48A has occurred with respect
-------------
to the Recipient.
C. Consultant-Recipient. In the case of a Recipient who is a Consultant, the
-------------------- ----------
Plan Administrator determines that any event described above in section
-------
1.48A has occurred with respect to the Recipient. Any nominees or designees
-----
of the Recipient to the Board shall, if a member of the Plan Administrator,
abstain from voting with respect to any decision by the Plan Administrator
relating to any of the foregoing events as they pertain to any Award in
which the Recipient has a direct or indirect interest. In the event the
Recipient is both Disabled and the provisions of subsection 1.48A(6) are
-------------------
applicable with respect to the Recipient, the Company shall nevertheless
have the right to deem such event as a Termination By Company For Cause.
-10-
<PAGE>
1.49 "Termination By Recipient For Good Reason" shall mean the following:
A. Employee-Recipient. In the case of a Recipient who is an Employee:
------------------ --------
(1) The Company's representations or warranties in the Award
Agreement are not materially true, accurate and complete;
(2) The Company has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform any of
the Company's obligations, promises or covenants under the
underlying Award Agreement;
(3) The Company has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform any of
the Company's representations, warranties, obligations, promises
or covenants in any agreement (other than the Award Agreement)
entered into between the Company and the Recipient, without cure,
if any, as provided in such agreement; and/or
(4) The Company intentionally requires the Recipient to commit or
participate in any felony or other serious crime.
B. Director-Recipient. In the case of a Recipient who is a Director:
------------------ --------
(1) The Company removes or fails to reappoint or re-elect the
Recipient as a Director (unless such action is attributable to an
event considered to constitute Termination By Company For Cause);
and/or
(2) The occurrence of any of the events described above in subsection
----------
1.49A(1) through subsection 1.49A(4) with respect to the
-------- -------------------
Director.
C. Consultant-Recipient. In the case of a Recipient who is a Consultant,
-------------------- ----------
the occurrence of any of the events described above in subsection
----------
1.49A(1) through subsection 1.49A(4) with respect to the Consultant.
-------- -------------------
In the event any of the events described above in this section 1.48
------------
occurs with respect to the Company, and such event is reasonably
susceptible of being cured, then the Company shall be entitled to a
grace period of thirty (30) days following receipt of written notice
of such event (or such longer period of time as is reasonable should
such event be of a character which cannot be cured within a period of
thirty (30) days), to cure such event to the reasonable satisfaction
of the Recipient, provided that the Company promptly commences to cure
such event and uses reasonable diligence thereafter in curing such
event No act, nor failure to act, on the Company's part shall be
considered "intentional" unless the Company has acted, or failed to
act, with a lack of good faith and with a lack of reasonable belief.
1.50 "Termination Of Recipient" is defined, as the case may be, as follows:
A. Employee-Recipient. In the case of a Recipient who is an Employee, the
------------------ --------
time when the employee-employer relationship between the Recipient and
the Company (or any Parent or Subsidiary) is terminated for any reason
whatsoever, whether voluntary or involuntary (including death or
Disability), or with or without good cause, including, but not by way
of
-11-
<PAGE>
limitation, termination by resignation, discharge, retirement, or
leave of absence, but excluding terminations where:
(1) the Recipient remains employed by the Company (if such
termination relates to the Recipient's employment with any Parent
and/or any Subsidiary) and/or by any Parent and/or any Subsidiary
(if such termination relates to the Recipient's employment with
the Company);
(2) there is simultaneous employment of the Recipient by the Company
and/or any Parent and/or any Subsidiary; and/or
(3) there is a simultaneous establishment of a consulting
relationship between the Company and the Recipient."
B. Director-Recipient. In the case of a Recipient who is a Director, the
------------------ --------
time when the Recipient's status as a Director ceases for any reason
whatsoever, whether voluntary or involuntary (including death or
Disability), or with or without good cause, but excluding cases where
the Recipient remains a Director of the Company (if such termination
relates to the Recipient's status as a Director of any Parent and/or
any Subsidiary) and/or by any Parent and/or any Subsidiary (if such
termination relates to the Recipient's status as a Director of the
Company).
C. Consultant-Recipient. In the case of a Recipient who is a Consultant,
-------------------- ----------
the time when the Recipient's engagement as a Consultant to the
Company and/or any Parent and/or any Subsidiary ceases for any reason
whatsoever, whether voluntary or involuntary (including death or
Disability), or with or without good cause, but excluding cases where
there is a simultaneous commencement of employment of the Recipient by
the Company and/or any Parent and/or any Subsidiary.
1.51 "Transfer" shall mean any transfer or alienation of an Award which would
directly or indirectly change the legal or beneficial ownership thereof,
whether voluntary or by operation of law, and regardless of payment or
provision of consideration, including, by way of example and not
limitation:
A. the sale, assignment, bequest or gift of the Award;
B. any transaction that creates or grants an option, warrant, or right to
obtain an interest in the Award;
C. any transaction that creates a form of joint ownership in the Award
between the Recipient and one or more other Persons;
D. any Transfer of the Award to a creditor of the Recipient, including
the hypothecation, encumbrance or pledge of the Award or any interest
therein, or the attachment or imposition of a lien by a creditor of
the Recipient on the Award or any interest therein which is not
released within thirty (30) days after the imposition thereof;
E. any distribution by a Recipient which is an entity to its
stockholders, partners, co-venturers or members, as the case may be;
or
-12-
<PAGE>
F. any distribution by a Recipient which is a fiduciary such as a trustee
or custodian to its settlors or beneficiaries.
1.52 "Withholding Taxes" means any federal, state, territorial, provincial
and/or local employment taxes which the Company shall have the obligation
to withhold from a Recipient in connection with the grant of any Award
and/or exercise of any Option, as the case may be.
ARTICLE II
TERM OF PLAN
------------
2.01 Effective Date for Plan; Termination Date for Plan. The Plan shall be
--------------------------------------------------
effective as of such time and date as the Plan is adopted by the Board,
and the Plan shall terminate on the first business day prior to the ten
(10) year anniversary of the date the Plan became effective. No Awards
shall be granted or awarded under the Plan before the date the Plan
becomes effective or after the date the Plan terminates; provided,
however:
A. all Awards granted pursuant to the Plan prior to the effective date of
the Plan shall not be affected by the termination of the Plan; and
B. all other provisions of the Plan shall remain in effect until the
terms of all outstanding Awards have been satisfied or terminated in
accordance with the Plan and the terms of such Awards.
2.02 Failure of Stockholders to Approve Plan. In the event the Plan is not
---------------------------------------
approved by the holders of a majority of the shares of Common Stock of the
Company within twelve (12) months before or after the date the Plan
becomes effective pursuant to section 2.01, then any Incentive Options
------------
granted under the Plan shall be reclassified as Non-Qualified Options
retroactive to the date of grant.
ARTICLE III
PLAN ADMINISTRATION
-------------------
3.01 General. The Plan shall be administered exclusively by the Board and/or,
-------
to the extent authorized pursuant to this Article III, the Plan Committee
-----------
or Director-Officers (collectively, the "Plan Administrator").
3.02 Delegation to Plan Committee. Subject to the authority granted to the
----------------------------
Board under the Articles of Incorporation and the Bylaws of the Company,
the Board may, in its sole discretion and at any time, establish a
committee comprised of two (2) or more members of the Board (the "Plan
Committee") to administer the Plan either in its entirety or to administer
such functions concerning the Plan as delegated to such Committee by the
Board. Members of the Plan Committee may resign at any time by delivering
written notice to the Board. Vacancies in the Plan Committee shall be
filled by the Board. The Plan Committee shall act by a majority of its
members in office. The Plan Committee may act either by vote at a meeting
or by a memorandum or other written instrument signed by a majority of the
Plan Committee.
3.03 Compliance with Rule 16b-3 of the Exchange Act. Anything in this Article
---------------------------------------------- -------
III to the contrary notwithstanding, in the event and commencing at such
---
time as this Company becomes a Reporting Company, or is otherwise required
to register its equity securities under Sections 12(b) or 12(g) of the
Exchange Act, any matter concerning a grant or award of an Award under the
Plan to any Director,
-13-
<PAGE>
Executive Officer or Ten Percent Stockholder shall, to the extent
desirable to qualify such Awards as exempt under Rule 16b-3(b)(3)
promulgated under the Exchange Act, be made only by:
A. the Board;
B. the Plan Committee (provided it is comprised solely of "Non-Employee
Directors" within the meaning of Rule 16b-3(b)(3)); or
C. a special committee of the Board, or subcommittee of the Plan
Committee, comprised solely of two (2) or more members of the Board
who are non-Employee Directors.
3.04 Compliance with Section 162(m) of the Code. Anything in this Article III
------------------------------------------ -----------
to the contrary notwithstanding, in the event and commencing at such time
as any grant of an Award shall be subject to the deduction limitations
prescribed by Section 162(m) of the Code, and the Plan Administrator
determines it to be desirable to qualify Awards granted hereunder as
"performance-based compensation" within the meaning of Section 162(m), the
Plan Administrator shall (for purposes of making such grant) consist of a
special committee of the Board comprised solely of two or more "outside
directors" within the meaning of Section 162(m).
3.05 Delegation to Director-Officers. Subject to the authority granted to the
-------------------------------
Board under the Articles of Incorporation and the Bylaws of the Company,
the Board may, in its sole discretion and at any time, and subject to the
authority granted to it by the Board, the Plan Committee may, in its sole
discretion and at any time, delegate all or any portion of their authority
described below under section 3.06A through section 3.06C to one or more
------------- -------------
Directors who are also Director-Officers, provided that the Board or the
Plan Committee (as the case may be) ratifies such actions by such
designated Director-Officers. Notwithstanding the foregoing, in the event
the Company is then a Reporting Company, no authority shall be delegated
to the aforesaid Director-Officers with respect to any matter concerning a
grant or award of an Award under the Plan to any Director, Executive
Officer or Ten Percent Stockholder.
3.06 Authority to Make Awards and to Determine Terms and Conditions of Awards.
------------------------------------------------------------------------
Subject to any limitations prescribed by the Articles of Incorporation and
Bylaws of the Company, and further subject to the express terms,
conditions, limitations and other provisions of the Plan, the Plan
Administrator shall have the full and final authority, in its sole
discretion at any time and from time-to-time, to do any of the following:
A. designate and/or identify the Persons or classes of Persons who are
considered Eligible Persons;
B. grant Awards to such selected Eligible Persons or classes of Eligible
Persons in such form and amount as the Plan Administrator shall
determine;
C. determine the number of Plan Shares to be covered by each Award;
D. approve forms of Award Agreements for use under the Plan;
E. impose such terms, limitations, restrictions and conditions upon any
Award as the Plan Administrator shall deem appropriate and necessary
including, without limitation:
(1) the date of grant of the Award;
-14-
<PAGE>
(2) the time or times when Options or SARs may be exercised (which
may be based on performance criteria);
(3) any vesting and/or forfeiture conditions placed upon any Awards;
and
(4) and repurchase conditions placed upon grants or awards of Grant
Shares;
F. require as a condition of the grant of an Award that the Recipient
surrender for cancellation some or all of any unexercised Options
which have previously been granted to the Recipient under the Plan or
otherwise (an Award whose grant is conditioned upon such surrender may
have a price or value lower {or higher} than the surrendered Option;
may cover the same {or a lesser or greater} number of shares of Common
Stock as such surrendered Option; may contain such other terms as the
Plan Administrator deems appropriate and necessary; and shall be
exercisable in or granted in accordance with its terms, without regard
to the number of shares, price, exercise period or any other term or
condition of such surrendered Option);
G. approve the reduction in the exercise price of any Option or SAR to
the then current Fair Market Value if the Fair Market Value of the
Common Stock covered by such Option or SAR shall have declined since
the date such Option or SAR was granted;
H. determine the type and value of consideration which the Company will
accept from Recipients in payment for the exercise of Options and/or
the award of Grant Shares;
I. determine the type and value of consideration which the Company will
pay in connection with the exercise of SARs;
J. adopt, amend and rescind rules and regulations relating to the Plan,
including rules and regulations relating to sub-plans established for
the purpose of qualifying for preferred tax treatment under foreign
tax laws, and make all other determinations and take all other action
necessary or advisable for the implementation and administration of
the Plan;
K. modify or amend each Award (subject to Article XVIII), including the
discretionary authority to extend the post-termination exercisability
period of Options or SARs longer than is otherwise provided for in the
Plan; and
L. agree to withhold Plan Shares in satisfaction of any applicable
Withholding Taxes.
In determining the recipient, form and amount of Awards, the Plan
Administrator shall consider any factors it may deem relevant such as, by
way of example and not limitation or obligation, the Recipient's functions,
responsibilities, value of services to the Company, and past and potential
contributions to the Company's profitability and sound growth.
3.07 Authority to Interpret Plan; Binding Effect of All Determinations. The Plan
-----------------------------------------------------------------
Administrator shall, in its sole and absolute discretion, interpret and
determine the effect of all matters and questions relating to the Plan
including, without limitation, all questions relating to whether a
Termination Of Recipient has occurred such as, by way of example and not
limitation, those relating to the effect of a leave of absence, a change in
status from an employee to an independent contractor, and/or any other
change in the employer-employee relationship. All interpretations and
determinations of the Plan Administrator under the Plan (including, without
limitation, determinations pertaining to the eligibility
-15-
<PAGE>
of Persons to receive Awards, the form, amount and timing of Awards, the
methods of payment for Awards, the restrictions and conditions placed upon
Awards, and the other terms and provisions of Awards and the certificates
or agreements evidencing same) need not be uniform and may be made by the
Plan Administrator selectively among Persons who receive, or are eligible
to receive, Awards under the Plan, whether or not such Persons are
similarly situated. All actions taken and all interpretations and
determinations made under the Plan in good faith by the Plan Administrator
shall be final and binding upon the Recipient, the Company, and all other
interested Persons. No member of the Plan Administrator shall be
personally liable for any action taken or decision made in good faith
relating to the Plan, and all Persons constituting the Plan Administrator
shall be fully protected and indemnified to the fullest extent permitted
under applicable law by the Company in respect to any such action,
determination, or interpretation.
3.08 Compensation; Advisors. Members of the Plan Administrator shall receive
----------------------
such compensation for their services hereunder as may be determined by the
Board. All expenses and liabilities incurred by members of the Plan
Administrator in connection with the administration of the Plan shall be
borne by the Company. The Plan Administrator may, at the cost of the
Company, employ attorneys, consultants, advisors, accountants, appraisers,
brokers or other Persons to provide advice, opinions or valuations, and
the Plan Administrator shall be entitled to rely upon any such advice,
opinions or valuations.
ARTICLE IV
SHARES OF COMMON STOCK ISSUABLE UNDER PLAN
------------------------------------------
4.01 Maximum Number of Shares Authorized Under Plan. Plan Shares which may be
----------------------------------------------
issued or granted under the Plan shall be authorized and unissued or
treasury shares of Common Stock. The aggregate maximum number of Plan
Shares which may be issued, whether upon exercise of Options or as a grant
of Grant Shares, or in payment of SARs, shall not exceed one million
(1,000,000) shares of Common Stock; provided, however, that such number
shall be increased by the following (unless and to the extent such
---------
increase would cause an Incentive Option to fail to qualify as an
Incentive Option under Section 422 of the Code):
A. Any shares of Common Stock tendered by a Recipient as payment for
Option Shares (in connection with the exercise of the associated
Option) or Grant Shares;
B. Any shares of Common Stock underlying any options, warrants or other
rights to purchase or acquire Common Stock which options, warrants or
rights are surrendered by a Recipient as payment for Option Shares (in
connection with the exercise of the associated Option) or Grant
Shares;
C. Any shares of Common Stock subject to an Option which, for any reason,
is terminated unexercised or expires;
D. Any Forfeitable Grant Shares which, for any reason, are forfeited by
the holder thereof or repurchased by the Company; and
E. Any SAR Shares subject to an Independent SAR which, for any reason, is
terminated unexercised or expires.
-16-
<PAGE>
4.02 Calculation of Number of Shares Available for Awards. For purposes of
----------------------------------------------------
calculating the maximum number of Plan Shares which may be issued under
the Plan, the following rules shall apply:
A. When Options are exercised, and when cash is used as full payment for
Option Shares issuable upon exercise of such Options, all Option
---
Shares issued in connection with such exercise (including Option
Shares, if any, withheld in satisfaction of any applicable Withholding
Taxes) shall be counted;
B. When Options are exercised, and when shares of Common Stock are used
as full or partial payment for Option Shares issuable upon exercise of
such Options, the net Option Shares issued in connection with such
---
exercise (including Option Shares, if any, withheld in satisfaction of
any Applicable Withholding Tax Requirements) shall be counted;
C. When Grant Shares are granted, and when shares of Common Stock are
used as full or partial payment therefore, the net Grant Shares issued
(including Grant Shares, if any, withheld in satisfaction of any
applicable Withholding Taxes) shall be counted;
D. When SARs are exercised, only the Plan Shares issued in payment
thereof (including Plan Shares, if any, withheld in satisfaction of
any applicable Withholding Taxes) shall be counted; and
E. If the exercise price of an Option or SAR is reduced, the transaction
will be treated as a cancellation of the Option or SAR, and the grant
of a new Option or SAR.
4.03 Date of Awards. The date an Award is granted shall mean the date selected
--------------
by the Plan Administrator as of which the Plan Administrator allots a
specific number of Plan Shares to a Recipient with respect to such Award
pursuant to the Plan.
ARTICLE V
OPTIONS (TO PURCHASE OPTION SHARES)
-----------------------------------
5.01 Grant. The Plan Administrator may from time to time, and subject to
-----
the provisions of the Plan and such other terms and conditions as the Plan
Administrator may prescribe, grant to any Eligible Person one or more
options ("Options") to purchase the number of Plan Shares allotted by the
Plan Administrator ("Option Shares"). Options shall be designated as Non-
Qualified Options or Incentive Options; provided, however, no Incentive
Option shall be granted to any Person who is not an "employee" (within the
meaning of Sections 422(a)(2) and 3401(c) of the Code) of the Company
and/or of any Parent and/or of any Subsidiary. All Options shall be Non-
Qualified Options unless expressly stated by the Plan Administrator to be
an Incentive Option, even if the terms and conditions of the Option comply
with the terms and conditions of Section 422 of the Code. No Incentive
Option may be granted in tandem with any other Option. The grant of an
Option shall be evidenced by a written Stock Option Certificate, executed
by the Recipient and an authorized officer of the Company, stating:
A. whether the Option is an Incentive Option, if applicable;
B. the number of Option Shares subject to the Option;
C. the Option Price (as such term is defined below) for the Option; and
-17-
<PAGE>
D. all other material terms and conditions of such Option.
5.02 Option Price. The purchase price per Option Share deliverable upon the
------------
exercise of an Option (the "Option Price") shall be such price as may be
determined by the Plan Administrator; provided, however:
A. if the Option is an Incentive Option, the Option Price per Option Share
may not be less than the Fair Market Value of a share of Common Stock
as of the date of the grant, unless the Recipient of the Option is a
Ten Percent Stockholder at the time of grant, in which case the Option
Price per Option Share may not be less than one hundred ten percent
(110%) of the Fair Market Value of a share of Common Stock on the date
the Option is granted;
B. the Option Price per Option Share shall not be less than that allowed
under the Applicable Laws; and
C. under no circumstances shall the Option Price per Option Share be less
than the then current par value per share of Common Stock, if
applicable.
5.03 Option Term; Expiration. The term of each Option shall commence at the
-----------------------
grant date for such Option as determined by the Plan Administrator, and
shall expire (unless an earlier expiration date is expressly provided in
the underlying Stock Option Certificate or another section of the Plan
including, without limitation, section 5.05), on the first business day
------------
prior to the ten (10) year anniversary of the date of grant thereof;
provided, however, notwithstanding the foregoing, any Incentive Options
granted to a Ten Percent Stockholder shall terminate on the first business
day prior to the five (5) year anniversary of the date of grant thereof.
Except as limited by the requirements of Section 422(b)(3) of the Code in
the case of Incentive Options, the Plan Administrator may extend the term
of any outstanding Option should the Plan Administrator, in its sole and
absolute discretion, determine it advisable or necessary to do so
including, without limitation, in connection with any Termination Of
Recipient.
5.04 Exercise Date. Unless a later exercise date is expressly provided in
-------------
the underlying Stock Option Certificate or another section of the Plan,
each Option shall become exercisable on the later of:
-----
A. the date of its grant as determined by the Plan Administrator; or
B. the date of delivery to the Recipient, and execution by the Company and
the Recipient, of the underlying Stock Option Certificate evidencing
the grant of the Option.
No Option shall be exercisable after the expiration of its applicable term
as set forth in section 5.03. Subject to the foregoing, each Option shall
------------
be exercisable in whole or in part during its applicable term unless
expressly provided otherwise in the underlying Stock Option Certificate.
5.05 Vesting Conditions. Subject to the limitations in Article X relating
------------------ ---------
to Termination Of Recipient, the Plan Administrator may subject any Options
granted to such vesting conditions as the Plan Administrator, in its sole
discretion, determines are appropriate and necessary, such as, by way of
example and not obligation:
A. the attainment of goals by the Recipient;
-18-
<PAGE>
B. in the case of a Recipient who is an Employee, the continued provision
of employment services by such Recipient to the Company and/or to any
Parent or Subsidiary;
C. in the case of a Recipient who is a Director, the continued service by
such Recipient as a Director to the Company and/or to any Parent or
Subsidiary; or
D. in the case of a Recipient who is a Consultant, the continued provision
of consulting services by such Recipient to the Company and/or to any
Parent or Subsidiary.
If no vesting is expressly provided in the underlying Stock Option
Certificate, the Option Shares shall be deemed fully vested upon date of
grant. Where vesting conditions are based upon continued performance of
services to the Company, the special rules of Article X relating to
---------
Termination Of Recipient shall apply. No vesting conditions may be imposed
which are not permitted, or exceed those permitted, under the exemption
from registration or qualification to be relied upon under applicable
Securities Laws, as selected by the Company in its sole discretion. If no
vesting is expressly provided in the underlying Stock Option Certificate,
the Option Shares shall be deemed fully vested upon date of grant. The
Plan Administrator may waive the acceleration of any vesting and/or
expiration provision of any outstanding Option should the Plan
Administrator, in its sole and absolute discretion, determine it advisable
or necessary to do so including, without limitation, in connection with any
Termination Of Recipient.
5.06 Manner of Exercise. An exercisable Option, or any exercisable portion
------------------
thereof, may be exercised solely by delivery to the Secretary of the
Company at its principal executive offices prior to the time when such
Option (or such portion) becomes unexercisable under this Article V of each
---------
of the following:
A. a Notice of Exercise of Stock Option in the form attached to the
underlying Stock Option Certificate, duly signed by the Recipient or
other Person then entitled to exercise the Option or portion thereof,
stating the number of Option Shares to be purchased by exercise of the
associated Option;
B. subject to Article VIII relating to non-cash form of consideration,
------------
payment in full for the Option Shares to be purchased by exercise of
the underlying Option, together with payment in satisfaction of any
applicable Withholding Taxes (collectively, the "Gross Option Exercise
Price"), in immediately available funds, in U.S. dollars; provided,
however, the Plan Administrator may, in its sole discretion, permit a
delay in payment of the Gross Option Exercise Price for a period of up
to thirty (30) days;
C. a Consent of Spouse from the spouse of the Recipient, if any, duly
signed by such spouse;
D. in the event that the Option or portion thereof shall be exercised by
any Person other than the Recipient, appropriate proof of the right of
such person or persons to exercise the Option or portion thereof; and
E. such documents, representations and undertakings as provided in the
Stock Option Certificate and/or which the Plan Administrator, in its
absolute discretion, deems necessary or advisable pursuant to section
-------
13.01.
-----
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<PAGE>
5.07 Net Conversion of Option. Notwithstanding section 5.06B, if and to the
------------------------ -------------
extent expressly permitted in the underlying Stock Option Certificate, or
if and to the extent otherwise consented to by the Plan Administrator in
writing, the Recipient may convert an Option, in whole or in part, into
such net number of Option Shares as shall be determined by dividing:
A. the difference between (X) the aggregate Fair Market Value of the total
number Option Shares to be exercised as of the conversion date,
together with payment in satisfaction of any applicable Withholding
Taxes, and (Y) the aggregate Exercise Price of such total number of
Option Shares, by
B. the Fair Market Value of one Option Share as of the date of conversion.
The Recipient shall, in the event of such permitted conversion, deliver to
the Company all of the items described in section 5.06 with respect to the
------------
underlying Option (other than section 5.06B to the extent payment therefore
-------------
is not required by operation of this section 5.07).
------------
5.08 Grant of Replacement Options. In the event:
----------------------------
A. the Gross Option Exercise Price is paid in the form of shares of Common
Stock owned by the Recipient pursuant to section A of Article VIII; and
---------
B. the exercising Recipient is then an Eligible Person, then
the Plan Administrator in its sole discretion may, or the Plan
Administrator (if and to the extent expressly required by the underlying
Stock Option Certificate) shall, grant to the exercising Recipient options
(the "Replacement Options") entitling the exercising Recipient to purchase
such number of Plan Shares as shall equal the number of shares of Common
Stock delivered to the Company in payment of the Gross Option Exercise
Price with respect to the underlying Stock Option Certificate.
5.09 Terms of Replacement Options. Each Replacement Option shall:
----------------------------
A. be immediately exercisable upon its grant (without any vesting
conditions);
B. have an Option Price for each Option Share which equals the Fair Market
Value of the Common Stock so paid as determined for purposes of payment
pursuant to section A of Article VIII;
---------
C. have an Option Term co-terminus with that of the underlying Option; and
D. contain such other terms and conditions as contained in the underlying
Stock Option Certificate.
Shares of Common Stock received by the Recipient in connection with the
grant of the Replacement Option may not be used as consideration in
connection with the exercise of the Replacement Option, unless such shares
of Common Stock have been held by the Recipient for a period of at least
one (1) year, and such form of payment is otherwise permitted pursuant to
the terms of Article VIII. Each Replacement Option shall be a Non-
------------
Qualified Option, even if the underlying Option was an Incentive Option or
the terms and conditions of the Replacement Option would independently
comply with the terms and conditions of Section 422 of the Code. The grant
of a Replacement Option shall be
-20-
<PAGE>
evidenced by a written Stock Option Certificate, executed by the Recipient
and an authorized officer of the Company, stating:
(1) the number of Option Shares subject to the Option;
(2) the Option Price (determined in the manner prescribed above in
this section) for the Option; and
(3) all other material terms and conditions of such Option.
5.10 Conditions to Issuance of Option Shares. The Company shall not be
---------------------------------------
required to issue or deliver any certificate or certificates representing
the Option Shares purchased upon exercise of any Option or any portion
thereof prior to fulfillment of all of the following conditions:
A. the delivery of the documents described in section 5.06;
------------
B. the receipt by the Company of full payment for such Option Shares,
together with payment in satisfaction of any applicable Withholding
Taxes;
C. subject to Article XIII, the satisfaction of any requirements or
conditions of the Applicable Laws; and
D. the lapse of such reasonable period of time following the exercise of
the Option as the Plan Administrator may establish from time-to-time
for administrative convenience.
5.11 Notice of Disposition of Option Shares Acquired by Exercise of Incentive
------------------------------------------------------------------------
Options. The Plan Administrator may require any Recipient who is an
-------
Employee who acquires any Option Shares pursuant to the exercise of an
Incentive Option to give the Company prompt notice of any "disposition"
(within the meaning of Section 422(a)(1) of the Code) of such Option Shares
within
A. two (2) years from the date of grant of the underlying Incentive
Option, or
B. one (1) year after the issuance of such Option Shares to such Employee,
for purposes of satisfaction of any applicable Withholding Taxes.
5.12 The Plan Administrator may direct that the certificates evidencing such
Option Shares refer to such requirement to give prompt notice.
ARTICLE VI
GRANT SHARES
------------
6.01 Grant. The Plan Administrator may from time to time, subject to the
-----
provision of the Plan and such other terms and conditions as the Plan
Administrator may prescribe, grant to any Eligible Person one or more Plan
Shares allotted by the Plan Administrator ("Grant Shares"). The grant of
Grant Shares or the grant of the right to receive Grant Shares shall be
evidenced by a written Stock Grant Agreement, executed by the Recipient and
an authorized officer of the Company on or before the time of the grant of
such Grant Shares, setting forth:
A. the number of Grant Shares granted;
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<PAGE>
B. the consideration (if any) for such Grant Shares; and
C. all other material terms and conditions of such grant.
6.02 Consideration (Purchase Price). The Plan Administrator, in its sole
------------------------------
discretion, may grant or award Grant Shares in any of the following
instances:
A. As Bonus/Reward. As a "bonus" or "reward" for services previously
---------------
rendered and otherwise fully compensated, in which case the recipient
of the Grant Shares shall not be required to pay any consideration to
the Company for such Grant Shares, and the value of each Grant Shares
shall be the Fair Market Value of a share of Common Stock on the date
of grant.
B. As Compensation. As "compensation" for the previous performance or
---------------
future performance of services or attainment of goals, in which case
the recipient of the Grant Shares shall not be required to pay any
consideration to the Company for such Grant Shares (other than the
performance of the Recipient's services), and the value of each Grant
Share received (together with the value of such services or attainment
of goals attained by the Recipient), shall be the Fair Market Value of
a share of Common Stock on the date of grant.
C. As Purchase Price Consideration. In "consideration" for the payment of
-------------------------------
a purchase price to the Company for each of such Grant Shares (the
"Stock Grant Purchase Price") in an amount established by the Plan
Administrator, provided, however:
(1) The Stock Grant Purchase Price shall not be less than that allowed
under the exemption from registration under the applicable Blue
Sky Laws and Provincial Securities Laws (as selected by the
Company in its sole discretion) of the state, territory and/or
province in which the Recipient then resides;
(2) If the Common Stock is traded on a stock exchange or over-the-
counter on Nasdaq, the purchase price shall not be less than the
minimum price per share permitted by such stock exchange or
Nasdaq; and
(3) Under no circumstances shall the Stock Grant Purchase Price per
Grant Share be less than the then current par value per share of
Common Stock.
6.03 Term; Expiration. The term in which a Recipient may purchase any Grant
----------------
Shares awarded for which the Recipient is required to pay consideration
shall commence at the grant date of the underlying Stock Grant Agreement as
determined by the Plan Administrator, and shall expire on the date
specified in the underlying Stock Grant.
6.04 Deliveries; Manner of Payment. The Grant Shares may be purchased solely by
-----------------------------
delivery to the Secretary of the Company at the principal executive offices
at the Company prior to the time the Grant Shares become purchasable under
this Article VI of each of the following:
----------
A. the Stock Grant Agreement for the Grant Shares, duly signed by the
Recipient;
B. a Consent of Spouse from the spouse of the Recipient, if any, duly
signed by such spouse;
-22-
<PAGE>
C. subject to Article VIII relating to non-cash form of consideration,
------------
payment in full of the Stock Grant Purchase Price (where payment
thereof is required), together with payment in satisfaction of any
applicable Withholding Taxes (collectively, the "Gross Stock Grant
Purchase Price"), in immediately available funds, in U.S. dollars;
provided, however, the Plan Administrator may, in its sole discretion,
permit a delay in payment of the Gross Stock Grant Purchase Price for a
period of up to thirty (30) days; and
D. such documents, representations and undertakings as provided in the
Stock Grant Agreement and/or which the Plan Administrator, in its
absolute discretion, deems necessary or advisable pursuant to section
-------
13.01.
-----
6.05 Conditions to Issuance of Grant Shares. The Company shall not be required
--------------------------------------
to issue or deliver any certificate or certificates representing the Grant
Shares prior to fulfillment of all of the following conditions:
A. the delivery of the documents described in section 6.04;
------------
B. the receipt by the Company of full payment (if applicable) for such
Grant Shares, together with payment in satisfaction of any applicable
Withholding Taxes;
C. subject to 0, the satisfaction of any requirements or conditions of the
-
Applicable Laws; and
D. the lapse of such reasonable period of time following the award of the
Grant Shares as the Plan Administrator may establish from time-to-time
for administrative convenience.
ARTICLE VII
FORFEITURE CONDITIONS PLACED UPON GRANT SHARES
----------------------------------------------
7.01 Vesting Conditions; Forfeiture of Unvested Grant Shares. Subject to the
-------------------------------------------------------
limitations in Article X relating to Termination Of Recipient, the Plan
---------
Administrator may subject or condition Grant Shares granted or awarded
(hereinafter referred to as "Forfeitable Grant Shares") to such vesting
conditions based upon continued provision of services or attainment of
goals subsequent to such grant of Forfeitable Grant Shares as the Plan
Administrator, in its sole discretion, may deem appropriate and necessary,
such as, by way of example and not obligation:
A. the attainment of goals by the Recipient;
B. in the case of a Recipient who is an Employee, the continued provision
of employment services by such Recipient to the Company and/or to any
Parent or Subsidiary;
C. in the case of a Recipient who is a Director, the continued service by
such Recipient as a Director to the Company and/or to any Parent or
Subsidiary; or
D. in the case of a Recipient who is a Consultant, the continued provision
of consulting services by such Recipient to the Company and/or to any
Parent or Subsidiary, subject to the provisions set forth below.
Where vesting conditions are based upon continued performance of services
to the Company, the special rules of Article X relating to Termination Of
---------
Recipient shall apply. In the event the Recipient
-23-
<PAGE>
does not satisfy any vesting conditions, the Company may require the
Recipient, subject to the repurchase payment terms of section 7.02, to
------------
forfeit such unvested Forfeitable Grant Shares to the Company. All vesting
conditions imposed on the grant of Forfeitable Grant Shares, including
repurchase payment terms complying with section 7.02, shall be set forth in
------------
a written Stock Grant Agreement, executed by the Company and the Recipient
on or before the time of the grant of such Forfeitable Grant Shares,
stating the number of said Forfeitable Grant Shares subject to such
conditions, and further specifying the vesting conditions. If no vesting
conditions are expressly provided in the underlying Stock Grant Agreement,
the Grant Shares shall not be deemed to be Forfeitable Grant Shares, and
will not be subject to forfeiture. The Plan Administrator may waive the
acceleration of any vesting conditions placed upon any Forfeitable Grant
Shares should the Plan Administrator, in its sole and absolute discretion,
determine it advisable or necessary to do so including, without limitation,
in connection with any Termination Of Recipient.
7.02 Repurchase of Forfeitable Grant Shares Which Are Forfeited.
----------------------------------------------------------
A. Repurchase Rights and Price. In the event the Company does not waive
---------------------------
its right to require the Recipient to forfeit any or all of such
unvested Forfeitable Grant Shares, the Company shall be required to pay
the Recipient, for each unvested Forfeitable Grant Share which the
--------
Company requires the Recipient to forfeit, the amount per Forfeitable
Grant Share set forth in the Stock Grant Agreement, provided, however,
that the repurchase price per Forfeitable Grant Share in any event may
not be less that the higher of:
------
(1) The "original cost" (as such term is defined below) of such
Forfeitable Grant Shares to be forfeited or,
(2) If elected by the Plan Administrator in its sole discretion and
without any obligation to do so in the underlying Stock Grant
Agreement, the "book value" (as such term is defined below) of
such Forfeitable Grant Shares to be forfeited.
B. Definition Of Original Cost Per Share. The "original cost" per
-------------------------------------
Forfeitable Grant Share means the aggregate amount originally paid to
the Company by the Recipient (or his, her or its predecessor) to
purchase or acquire all of the Grant Shares to be forfeited, divided by
the total number of such shares. The amount of consideration paid by
any Recipient (or his, her or its predecessor) who originally received
the Grant Shares as compensation for services or a bonus, or otherwise
without payment of consideration in cash or property, shall be zero
C. Definition Of Book Value Per Share. The "book value" per Forfeitable
----------------------------------
Grant Share means the difference between the Company's total assets and
total liabilities as of the close of business on the last day of the
calendar month preceding the date of forfeiture, divided by the total
number of shares of Common Stock then outstanding. The book value per
Forfeitable Grant Share shall be determined by the independent
certified public accountant regularly engaged by the Company. The
determination shall be conclusive and binding and made in accordance
with generally accepted accounting principles applied on a basis
consistent with those previously applied by the Company.
D. Form of Payment. The repurchase payments to be made by the Company to a
---------------
Recipient for forfeited Forfeitable Grant Shares shall be in the form
of cash or cancellation of purchase money indebtedness with respect to
the initial purchase of said Forfeitable Grant Shares by the Recipient,
if any, and must be paid no later than ninety (90) days after the date
of termination.
-24-
<PAGE>
7.03 Restrictive Legend. Until such time as all conditions placed upon
------------------
Forfeitable Grant Shares lapse, the Plan Administrator may place a
restrictive legend on the share certificate representing such Forfeitable
Grant Shares which evidences said restrictions in such form, and subject to
such stop instructions, as the Plan Administrator shall deem appropriate
and necessary, including the following legend with respect to vesting
conditions based upon continued provision of services by the Recipient:
The securities represented by this certificate are subject
to forfeiture in the event certain vesting conditions based
upon the continued provision of services to the company by
the holder hereof are not satisfied. This risk of forfeiture
and underlying vesting conditions are set forth in full in
that certain Stock Grant Agreement between the holder of
this certificate and the company dated the _______day of
___________, _____________, and that certain 1999 Clean
Energy Technologies, Inc. Stock Plan dated March 5, 1999, a
copy of which may be inspected by authorized persons at the
principal office of the company and all the provisions of
which are incorporated by reference in this certificate.
The conditions shall similarly apply to any new, additional or different
securities the Recipient may become entitled to receive with respect to
such Forfeitable Grant Shares by virtue of a stock split or stock dividend
or any other change in the corporate or capital structure of the Company.
The Plan Administrator shall also have the right, should it elect to do so,
to require the Recipient to deposit the share certificate for the
Forfeitable Grant Shares with the Company or its agent, endorsed in blank
or accompanied by a duly executed irrevocable stock power or other
instrument of transfer, until such time as the conditions lapse. The
Company shall remove the legend with respect to any Forfeitable Grant
Shares which become vested, and remit to the Recipient a share certificate
evidencing such vested Grant Shares.
ARTICLE VIII
NON-CASH PURCHASE CONSIDERATION
-------------------------------
8.01 General. Notwithstanding section 5.06B or section 6.04, if and to the
------- ------------- ------------
extent expressly permitted in the underlying Stock Option Certificate or
Stock Grant Agreement (as the case may be), or if and to the extent
otherwise consented to by the Plan Administrator in writing, payment of the
Gross Option Exercise Price or the Gross Stock Grant Purchase Price (as the
case may be) may be made by one or more of the following non-cash forms of
payment in lieu of cash consideration:
A. Shares of Common Stock owned by the Recipient duly endorsed for
transfer to the Company, with a Fair Market Value on the date of
delivery equal
(1) in the case of the exercise of an Option, to the aggregate Gross
Option Exercise Price of the Option Shares with respect to which
the Option or portion thereof is thereby exercised, or
(2) in the case of the purchase of Grant Shares, to the Gross Stock
Grant Purchase Price;
B. The surrender or relinquishment of options, warrants or other rights to
acquire Common Stock held by the Recipient, with a Fair Market Value on
the date of delivery (or date of grant if permitted by the Plan
Administrator) equal
-25-
<PAGE>
(1) in the case of the exercise of an Option, to the aggregate Gross
Option Exercise Price of the Option Shares with respect to which
the Option or portion thereof is thereby exercised, or
(2) in the case of the purchase of Grant Shares, to the Gross Stock
Grant Purchase Price;
C. A reduction in the amount of any Company liability to the Recipient,
including any liability attributable to the Recipient's participation
in any Company-sponsored deferred compensation program or arrangement;
D. A full recourse promissory note bearing interest at a rate as shall
then preclude the imputation of interest under the Code, and payable
upon such terms as may be prescribed by the Plan Administrator. The
Plan Administrator shall prescribe the form of such note and the
security to be given for such note. Notwithstanding the foregoing, no
Option may be exercised by delivery of a promissory note or by a loan
from the Company if such loan or other extension of credit is
prohibited by law at the time of exercise of this Option or does not
comply with the provisions of Regulation G promulgated by the Federal
Reserve Board with respect to "margin stock" if the Company and the
Recipient are then subject to such Regulation;
E. Any combination of the foregoing methods of payment; and/or
F. Such other good and valuable consideration and method of payment for
the issuance of Plan Shares to the extent permitted by Applicable Laws.
ARTICLE IX
STOCK APPRECIATION RIGHTS
-------------------------
9.01 Grant. The Plan Administrator may from time to time, and subject to the
-----
provisions of the Plan and such other terms and conditions as the Plan
Administrator may prescribe, in its sole discretion, grant to any Eligible
Person the following Stock Appreciation Rights ("SARs"):
A. in connection with all or any part of an Option granted to such
Eligible Person, either concurrently with the grant of such underlying
Option or at any time thereafter during the term of such underlying
Option (a "Tandem SAR"); or
B. independently of the grant of any Option to such Eligible Person (an
"Independent SAR").
9.02 Terms of SARs. The grant of an SAR shall be evidenced by a written Stock
-------------
Appreciation Rights Agreement ("SAR Agreement"), executed by the Recipient
and an authorized officer of the Company, stating:
A. if the SAR is a Tandem SAR, the underlying Option to which the SAR
relates;
B. if the SAR is an Independent SAR, the number of Plan Shares covered by
the SAR (the "SAR Shares");
C. if the SAR is an Independent SAR, the term of the SAR; and
D. all other material terms and conditions of such SAR.
-26-
<PAGE>
9.03 Tandem SARs. The following provisions apply to each grant of a Tandem
-----------
SAR:
A. The Tandem SAR shall entitle the Recipient to exercise such Tandem
SAR by surrendering to the Company unexercised a portion of the
underlying Option. The Recipient shall receive in exchange from the
Company an amount, payable pursuant to section 9.05, equal to the
------------
excess of (X) the aggregate Fair Market Value on the date of exercise
of the Tandem SAR of the Option Shares covered by the surrendered
portion of the underlying Option, over (Y) the aggregate Option Price
of the Option Shares covered by the surrendered portion of the
underlying Option. Notwithstanding the foregoing, the Plan
Administrator may place limits on the amount that may be paid upon
exercise of a Tandem SAR; provided, however, that such limit shall
not restrict the exercisability of the underlying Option;
B. When a Tandem SAR is exercised, the underlying Option, to the extent
surrendered, shall no longer be exercisable;
C. A Tandem SAR shall be exercisable only when and to the extent that
the underlying Option is exercisable, and shall expire no later than
the date on which such underlying Option expires; and
D. A Tandem SAR may only be exercised at a time when the Fair Market
Value of the Option Shares covered by the underlying Option exceeds
the exercise price of the Option Shares covered by the underlying
Option.
9.04 Independent SARs. The following provisions apply to each grant of an
----------------
Independent SAR:
A. The Independent SAR shall entitle the Recipient, by exercising the
Independent SAR, to receive from the Company an amount equal to the
excess of (X) the Fair Market Value of the SAR Shares covered by
exercised portion of the Independent SAR, as of the date of such
exercise, over (Y) the Fair Market Value of the SAR Shares covered by
the exercised portion of the Independent SAR, as of the date on which
the Independent SAR was granted; provided, however, that the Plan
Administrator may place limits on the amount that may be paid upon
exercise of a Independent SAR; and
B. Independent SARs shall be exercisable, in whole or in part, at such
times as the Plan Administrator shall specify in the SAR Agreement.
9.05 Form of Payment. The Company's obligation arising upon the exercise of
---------------
A. Tandem SARs shall be paid in cash (either outright or pursuant to
such deferred payment arrangement as the Plan Administrator specifies
in the underlying SAR Agreement); and
B. Independent SARs shall be paid in cash (either outright or pursuant
to such deferred payment arrangement as the Plan Administrator
specifies in the underlying SAR Agreement) or SAR Shares, or in any
combination of cash and SAR Shares, as the Plan Administrator, in its
sole discretion, may determine;
provided, however, the Plan Administrator may, in the case of the
exercise of either Tandem SARs or Independent SARS, withhold such amount
of cash and, if applicable, SAR Shares, as the Plan Administrator deems
necessary to satisfy any applicable Withholding Taxes. SAR Shares issued
upon
-27-
<PAGE>
the exercise of an Independent SAR shall be valued at their Fair Market
Value as of the date of exercise.
9.06 SAR Term; Expiration. The term of each SAR shall commence at the grant
--------------------
date for such SAR as determined by the Plan Administrator, and shall
expire (unless, in the case of a Tandem SAR, an earlier expiration date
is expressly provided in the underlying SAR Agreement or another section
of the Plan including, without limitation, section 9.08), on the first
------------
business day prior to the ten (10) year anniversary of the date of grant
thereof. The Plan Administrator may extend the term of any outstanding
SAR should the Plan Administrator, in its sole and absolute discretion,
determine it advisable or necessary to do so including, without
limitation, in connection with any Termination Of Recipient.
9.07 Exercise Date. Unless a later exercise date is expressly provided in
-------------
the underlying SAR Agreement or another section of the Plan, each SAR
shall become exercisable on the later of:
-----
A. the date of its grant as determined by the Plan Administrator; or
B. the date of delivery to the Recipient, and execution by the Company
and the Recipient, of the underlying SAR Agreement evidencing the
grant of the SAR.
No SAR shall be exercisable after the expiration of its applicable term
as set forth in section 9.06. Subject to the foregoing, each SAR shall be
------------
exercisable in whole or in part during its applicable term unless
expressly provided otherwise in the underlying SAR Agreement.
9.08 Vesting Conditions. Subject to the limitations in Article X relating
------------------ ---------
to Termination Of Recipient, the Plan Administrator may subject any SARs
granted to such vesting conditions (in addition, in the case of any
Tandem SARs, to such vesting conditions as are specified in the
underlying Option) as the Plan Administrator, in its sole discretion,
determines are appropriate and necessary, such as, by way of example and
not obligation:
A. the attainment of goals by the Recipient;
B. in the case of a Recipient who is an Employee, the continued
provision of employment services by such Recipient to the Company
and/or to any Parent or Subsidiary;
C. in the case of a Recipient who is a Director, the continued service
by such Recipient as a Director to the Company and/or to any Parent
or Subsidiary; or
D. in the case of a Recipient who is a Consultant, the continued
provision of consulting services by such Recipient to the Company
and/or to any Parent or Subsidiary.
Where vesting conditions are based upon continued performance of services
to the Company, the special rules of Article X relating to Termination Of
---------
Recipient shall apply. If no vesting is expressly provided in the
underlying SAR Agreement, the SAR shall be deemed fully vested upon date of
grant (subject, in the case of any Tandem SAR, to such vesting conditions
as are specified under the underlying Option). The Plan Administrator may
waive the acceleration of any vesting and/or expiration provision of any
outstanding SAR should the Plan Administrator, in its sole and absolute
discretion, determine it advisable or necessary to do so including, without
limitation, in connection with any Termination Of Recipient.
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<PAGE>
9.09 Manner of Exercise. An exercisable SAR, or any exercisable portion
------------------
thereof, may be exercised solely by delivery to the Secretary of the
Company at its principal executive offices prior to the time when such
SAR (or such portion) becomes unexercisable under this Article IX of each
----------
of the following:
A. a Notice of Exercise of the SAR in the form attached to the
underlying SAR Agreement, duly signed by the Recipient or other
Person then entitled to exercise the SAR or portion thereof, stating
the number of Option Shares (in the case of a Tandem SAR) or SAR
Shares (in the case of an Independent SAR) to be exercised;
B. a Consent of Spouse from the spouse of the Recipient, if any, duly
signed by such spouse;
C. in the event that the SAR or portion thereof shall be exercised by
any Person other than the Recipient, appropriate proof of the right
of such person or persons to exercise the SAR or portion thereof; and
D. such documents, representations and undertakings as provided in the
SAR Agreement and/or which the Plan Administrator, in its absolute
discretion, deems necessary or advisable pursuant to section 13.01.
-------------
9.10 Conditions to Issuance of SAR Shares. The Company shall not be required
------------------------------------
to issue or deliver any certificate or certificates representing the SAR
Shares purchased upon exercise of any Independent SAR or any portion
thereof prior to fulfillment of all of the following conditions:
A. the delivery of the documents described in section 9.09;
------------
B. the receipt by the Company of full payment in satisfaction of any
applicable Withholding Taxes;
C. subject to 0, the satisfaction of any requirements or conditions of
-
the Applicable Laws; and
D. the lapse of such reasonable period of time following the exercise of
the Independent SAR as the Plan Administrator may establish from time
to-time for administrative convenience.
ARTICLE X
SPECIAL RULES FOR VESTING OR FORFEITURE
CONDITIONS BASED ON CONTINUED PERFORMANCE OF SERVICES
-----------------------------------------------------
10.01 Lapse of Unvested Options, Unvested SARs, and Forfeitable Grant Shares.
----------------------------------------------------------------------
Where vesting conditions are imposed upon Options or SARs, or forfeiture
conditions are imposed upon Forfeitable Grant Shares, and such conditions
are based upon continued performance of services to the Company, then, in
the event of Termination Of Recipient:
A. in the case of unvested Options, the prospective right to purchase
--------
unvested Option Shares shall immediately lapse upon such termination
--------
if not exercised prior thereto;
B. in the case of unvested SARs, the prospective right to exercise the
--------
unvested portion of such SARs shall immediately lapse upon such
--------
termination if not exercised prior thereto; and
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<PAGE>
C. in the case of unvested Forfeitable Grant Shares, all such unvested
--------
Forfeitable Grant Shares shall be immediately forfeited upon such
termination unless such forfeiture is expressly waived in writing by
the Company;
provided, however, in each of the foregoing cases, the Plan Administrator
may, but without any obligation to do so, provide in the underlying Award
Agreement that such unvested Options, SARs or Forfeitable Grant Shares
shall immediately vest upon the occurrence of one or more of the
----------------
following events as selected by the Plan Administration in its sole and
absolute discretion:
D. in the event of Termination of Recipient where such termination is
made by the Recipient and constitutes Termination By Recipient For
Good Reason;
E. in the event of Termination of Recipient where such termination is
made by the Company but does not constitute Termination By Company
For Cause; and/or
F. in the event of Termination of Recipient due to his or her death or
Disability.
10.02 Immediate Vesting of Unvested Options, Unvested SARs, and Forfeitable
---------------------------------------------------------------------
Grant Shares Upon Specified Events. The Plan Administrator may, but
----------------------------------
without any obligation to do so, provide in the underlying Award
Agreement that unvested Options, SARs or Forfeitable Grant Shares shall
immediately vest upon the occurrence of one or more of the following
----------------
events as selected by the Plan Administration in its sole and absolute
discretion:
A. in the event of a Change In Control; and/or
B. in the event of an Approved Corporate Transaction.
10.03 Acceleration of Expiration Date - Vested Options and SARs. Where
---------------------------------------------------------
vesting conditions are imposed upon Options or SARs, and such conditions
are based upon continued performance of services to the Company, then, in
the event of Termination Of Recipient, unless otherwise expressly waived
or extended by the underlying Award Agreement, the following rules shall
apply:
A. The expiration date for vested Options and vested SARs shall be
---------- ---- ------
accelerated to thirty (30) days after the effective date of
Termination Of Recipient; provided, however, the Plan Administrator
may, but without any obligation to do so, provide in the underlying
Award Agreement that the expiration date for vested Options or vested
------ ------
SARs shall not be accelerated in any event, or be accelerated to a
date later than said thirty (30) days after the effective date of
Termination Of Recipient, in any of the following events as selected
by the Plan Administration in its sole and absolute discretion:
(1) in the event of Termination of Recipient where such termination
is made by the Recipient and constitutes Termination By Recipient
For Good Reason;
(2) in the event of Termination of Recipient where such termination
is made by the Company but does not constitute Termination By
Company For Cause; and/or
(3) in the event of Termination of Recipient due to his or her death
or Disability.
B. The expiration date for unvested Options and unvested SARs (insofar
---------- ---- -------- --------
as they do not become immediately vested pursuant to section 10.02))
--------------
shall be upon Termination Of Recipient if
-30-
<PAGE>
earlier than the expiration date specified in section 5.03 in the
------------
case of an Option and section 9.06 in the case of an SAR.
------------
ARTICLE XI
ASSIGNABILITY OF CERTAIN AWARDS
-------------------------------
11.01 Exercise of Options and SARs. Options and SARs (whether vested or
-------------------
unvested) may be exercised only by the original Recipient thereof or, to
the extent a Transfer is permitted pursuant to section 11.02 and/or
-------------
section 11.03 below, by a permitted transferee of such Options or SARs.
-------------
11.02 Transfer of Options, SARs and Unvested Forfeitable Grant Shares. Except
---------------------------------------------------------------
as provided in section 11.03 below, neither Options and SARs (whether
-------------
vested or unvested), nor unvested Forfeitable Grant Shares, may be
--------
Transferred by a Recipient, including upon the Death of a Recipient
and/or pursuant to a Qualified Domestic Relations Order as defined by
Section 414(p) of the Code, unless
------
A. such Transfer is expressly permitted in the underlying Award
Agreement, or
B. the Plan Administrator, in its sole and absolute discretion,
otherwise consents to such Transfer in writing; provided, however,
anything in the preceding sentence to the contrary notwithstanding,
the following Options may not in any circumstances be Transferred:
(1) Incentive Options, except to the extent such Transfer (if
otherwise permitted under the terms of the Stock Option
Certificate or by the Plan Administrator) will not violate
Section 422(b)(5) of the Code (i.e., any Transfer {including
Transfers pursuant to Qualified Domestic Relations Orders} other
than Transfers to a deceased Recipient's successors pursuant to
will or the laws of descent or distribution by reason of the
death of the Recipient );
(2) Options registered under the Securities Act with the Commission
on Form S-8; and/or
(3) Options granted pursuant to any other exemption from registration
or qualification to be relied upon by the Company under
applicable Securities Laws which prohibits such assignment.
11.03 Death of Recipient. Upon the death of the Recipient (if the Recipient
------------------
is a natural Person, vested Options, vested SARs and unvested Forfeitable
------ ------ --------
Grant Shares may, if such Transfer is expressly permitted in the
underlying Award Agreement, or if the Plan Administrator, in its sole and
absolute discretion, otherwise consents to such Transfer in writing, be
Transferred to such Persons who are the deceased Recipient's successors
pursuant to will or the laws of descent or distribution by reason of the
death of the Recipient (the "Recipient's Successors") and, in the case of
vested Options, and vested SARs, may thereafter be exercised by the
------ ------
Recipient's Successors. Options, SARs and unvested Forfeitable Grant
--------
Shares so Transferred shall not be further Transferred by the Recipient's
Successors except to the extent the original Recipient of such Options,
SARs and unvested Forfeitable Grant Shares would have been permitted to
--------
Transfer such Options and SARs pursuant to section 11.02.
-------------
-31-
<PAGE>
11.04 Effect of Prohibited Transfer or Exercise. Any Transfer or exercise of
-----------------------------------------
any Option or SAR or unvested Forfeitable Grant Share so Transferred in
--------
violation of this Article XI shall be null and void ab initio and of no
----------
further force and effect.
11.05 Application to Vested Grant Shares. Under no circumstances shall the
----------------------------------
prohibition against Transfer contained in this Article XI be construed to
----------
apply to vested Grant Shares.
------
ARTICLE XII
NO STOCKHOLDER RIGHTS FOR HOLDERS OF OPTIONS OR SARs
----------------------------------------------------
12.01 General. The Recipient of any Option or SAR (whether vested or
-------
unvested) shall not be, nor shall such Recipient have any of the rights
or privileges of, a stockholder of the Company with respect to the Option
Shares underlying the Option or SAR Shares underlying the SAR including,
by way of example and not limitation, the right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders, or to
receive dividends, distributions, subscription rights or otherwise,
unless and until all conditions for exercise of the Option or SARs shall
be satisfied, and the Option or SAR duly exercised and underlying Option
Shares or SAR Shares duly issued and delivered, at which time the
Recipient shall become a stockholder of the Company with respect to such
issued Option Shares or SAR Shares and, in such capacity, shall
thereafter be fully entitled to receive dividends (if any are declared
and paid), to vote, and to exercise all other rights of a stockholder
with respect to such issued Option Shares or SAR Shares.
ARTICLE XIII
COMPLIANCE WITH APPLICABLE SECURITIES LAWS
------------------------------------------
13.01 Registration or Exemption from Registration. Unless expressly
-------------------------------------------
stipulated in the underlying Award Agreement, in no event shall the
Company be required at any time to register any securities issued under
or derivative from the Plan, including any Option, Option Shares, Grant
Shares or SAR Shares awarded or granted hereunder (collectively, the
"Plan Securities"), under the Securities Act (including, without
limitation, as part of any primary or secondary offering, or pursuant to
Form S-8) or to register or qualify the Plan Securities under any
applicable Securities Laws. In the event the Company does not register or
qualify the Plan Securities, the Plan Securities shall be issued in
reliance upon such exemptions from registration or qualification under
the applicable Securities Laws that the Company and its legal counsel, in
their sole discretion, shall determine to be appropriate and necessary
with respect to any particular offer or sale of securities under the Plan
including, without limitation:
A. In the case of applicable federal Securities Laws, any of the
following if available:
(1) Section 3(a)(11) of the Securities Act for intrastate offerings
and Rule 147 promulgated thereto;
(2) Section 3(b) of the Securities Act for limited offerings and Rule
701 promulgated thereto and/or Rules 504 and/or 505 of Regulation
D promulgated thereto, and/or
(3) Section 4(2) of the Securities Act for private offerings and Rule
506 of Regulation D promulgated thereto; and
-32-
<PAGE>
(4) In the case of applicable Blue Sky Laws and/or Provincial
Securities Laws (as may be applicable), the requirements of any
applicable exemptions from registration or qualification afforded
by such Blue Sky Laws and/or Provincial Securities Laws.
13.02 Failure or Inability to Obtain Regulatory Consents or Approvals. In
---------------------------------------------------------------
the event the Company is unable to obtain, without undue burden or
expense, such consents or approvals that may be required from any
applicable regulatory authority (or may be deemed reasonably necessary or
advisable by legal counsel for the Company) with respect to the
applicable exemptions from registration or qualification under the
applicable Securities Laws which the Company is reasonably relying upon,
the Company shall have no obligation under this Agreement to issue or
sell the Plan Securities until such time as such consents or approvals
may be reasonably obtained without undue burden or expense, and the
Company shall be relieved of all liability therefor; provided, however,
the Company shall, if requested by the Recipient, rescind the Recipient's
investment decisions and return all funds or payments made by the
Recipient to the Company should the Company fail to obtain such consents
or approvals within a reasonable time after the Recipient tenders such
funds or property to the Company.
13.03 Provision of Other Documents, Including Recipient's Representative's
--------------------------------------------------------------------
Letter. If requested by the Company, the Recipient shall provide such
------
further representations or documents as the Company or its legal counsel,
in their reasonable discretion, deem necessary or advisable in order to
effect compliance with the conditions of any and all of the aforesaid
exemptions from registration or qualification under the applicable
Securities Laws which the Company is relying upon, or with all applicable
rules and regulations of any applicable securities exchanges or Nasdaq.
If required by the Company, the Recipient shall provide a Recipient's
Representative's Letter from a purchaser representative with credentials
reasonably acceptable to the Company to the effect that such purchaser
representative has reviewed the Recipient's proposed investment in the
Plan Securities and has determined that an investment in the Plan
Securities:
A. is appropriate in light of the Recipient's financial circumstances,
B. that the purchaser representative and, if applicable, the Recipient,
have such knowledge and experience in financial and business matters
that such persons are capable of evaluating the merits and risks of
an investment in the Plan Securities, and
C. that the purchaser representative and, if applicable, the Recipient,
have such business or financial experience to be reasonably assumed
to have the capacity to protect the Recipient's interests in
connection with the purchase of the Plan Securities.
13.04 Legend on Plan Shares. In the event the Company delivers unregistered
---------------------
Plan Shares, the Company reserves the right to place the following legend
or such other legend as it deems necessary on the share certificate or
certificates to comply with the applicable Securities Laws being relied
upon by the Company.
The securities represented by this certificate have not been (1)
registered under the United States Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon an exemption from
registration afforded by such act including, without limitation, Rule
701 to Section 3(b) of the Securities Act, or (2) registered under the
securities laws of any state or territory of the United States or
Province of Canada which may be applicable, in reliance upon an
exemption from registration afforded by such state, territorial and/or
provincial securities laws. These securities have been acquired for
the
-33-
<PAGE>
holder's own account for investment purposes and not with a view
for resale or distribution. These securities may not be sold or
transferred unless (A) they have been registered under the Securities
Act as well as under the securities laws of any state or territory of
the United States as may then be applicable, or (B) the transfer agent
(or the Company if then acting as its transfer agent) is presented
with either a written opinion satisfactory to counsel for the company
or a no-action or interpretive letter from the United States
Securities And Exchange Commission and any applicable state,
territorial and/or provincial securities regulatory agency to the
effect that such registration is not required under the circumstances
of such sale or transfer.
ARTICLE XIV
REPORTS TO RECIPIENTS OF AWARDS
-------------------------------
14.01 Financial Statements. The Company shall provide each Recipient with
--------------------
the Company's financial statements, in the form generally distributed to
its stockholders, at least annually.
14.02 Incentive Stock Option Reports. The Company shall provide, with
------------------------------
respect to each holder of an Incentive Option who has exercised such
Incentive Option, on or before January 31st of the year following the
year of exercise of such Incentive Option, a statement containing the
following information:
A. the Company's name, address, and taxpayer identification number;
B. the name, address, and taxpayer identification number of the Person
to whom Option Shares were issued by the Company upon exercise of the
Incentive Option;
C. the date the Incentive Option was granted;
D. the date the Option Shares underlying the Incentive Option were
issued pursuant to the exercise of the Incentive Option;
E. the Fair Market Value of the Option Shares on date of exercise;
F. the number of Option Shares issued upon exercise of the Incentive
Option;
G. a statement that the Incentive Option was an incentive stock option;
and
H. the total cost of the Option Shares.
ARTICLE XV
ADJUSTMENTS
-----------
15.01 Common Stock Recapitalization or Reclassification; Combination or Reverse
-------------------------------------------------------------------------
Stock Split; Forward Stock Split.
--------------------------------
-34-
<PAGE>
A. If:
(1) outstanding shares of Common Stock are subdivided into a greater
number of shares by reason of recapitalization or
reclassification, or
(2) a dividend in Common Stock shall be paid or distributed in
respect of the Common Stock,
then the number of Plan Shares, if any, available for issuance under
the Plan, and the Option Price of any outstanding Options in effect
immediately prior to such subdivision or at the record date of such
dividend shall, simultaneously with the effectiveness of such
subdivision or immediately after the record date of such dividend, be
proportionately increased and reduced, respectively.
B. If outstanding shares of Common Stock are combined into a lesser
number of shares by reason of a combination or reverse stock split,
then the number of Plan Shares, if any, available for issuance under
the Plan, and the Option Price of any outstanding Option in effect
immediately prior to such combination shall, simultaneously with the
effectiveness of such combination, be proportionately reduced and
increased, respectively.
15.02 Consolidation or Merger; Exchange of Securities; Divisive Reorganization;
-------------------------------------------------------------------------
Other Reorganization or Reclassification. In case of:
----------------------------------------
A. the consolidation, merger, combination or exchange of shares of
capital stock with another entity,
B. the divisive reorganization of the Company (i.e., split-up, spin-off
or split-off), or
C. any capital reorganization or any reclassification of Common Stock
(other than a recapitalization or reclassification described above in
section 15.01), then
-------------
each Recipient shall thereafter be entitled upon exercise of the Option
to purchase the kind and number of shares of capital stock or other
securities or property of the Company (or its successor{s}) receivable
upon such event by a Recipient of the number of Option Shares which such
Option entitles the Recipient to purchase from the Company immediately
prior to such event. In every such case, the Company may appropriately
adjust the number of Option Shares which may be issued under the Plan,
the number of Option Shares subject to Options theretofore granted under
the Plan, the Option Price of Options theretofore granted under the Plan,
and any and all other matters deemed appropriate by the Plan
Administrator.
15.03 Adjustments Determined in Sole Discretion of Board. All adjustments
--------------------------------------------------
to be made pursuant to the foregoing subsections shall be made in such
manner as the Plan Administrator shall deem equitable and appropriate,
the determination of the Plan Administrator shall be final, binding and
conclusive.
15.04 No Other Rights to Recipient. Except as expressly provided in this
----------------------------
Article XV:
----------
A. the Recipient shall have no rights by reason of any subdivision or
consolidation of shares of capital stock of any class or the payment
of any stock dividend or any other increase or decrease in the number
of shares of stock of any class, and
-35-
<PAGE>
B. the dissolution, liquidation, merger, consolidation or divisive
reorganization or sale of assets or stock to another corporation
(including any Approved Corporate Transactions), or any issue by the
Company of shares of capital stock of any class, or warrants or
options or rights to purchase securities (including securities
convertible into shares of capital stock of any class), shall not
affect, and no adjustment by reason thereof shall be made with
respect to, the number of, or the Option Price for, the Option
Shares.
The grant of an Award pursuant to the Plan shall not in any way affect or
impede the right or power of the Company to make adjustments,
reclassifications, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
ARTICLE XVI
APPROVED CORPORATE TRANSACTIONS -- AFFECT ON OPTIONS
----------------------------------------------------
16.01 General. Notwithstanding Article XV above, in the event of the
------- ----------
occurrence of any Approved Corporate Transaction, or in the event of any
change in applicable laws, regulations or accounting principles, the Plan
Administrator in its discretion is hereby authorized to take any one or
more of the following actions whenever the Plan Administrator determines
that such action is appropriate in order to facilitate such Approved
Corporate Transactions or to give effect to changes in laws, regulations
or principles:
A. Purchase or Replacement of Option. In its sole and absolute
---------------------------------
discretion, and on such terms and conditions as it deems appropriate,
the Plan Administrator may provide, either by the terms of the
underlying Award Agreement or by action taken prior to the occurrence
of such transaction or event and either automatically or upon the
Recipient's request, for any one or combination of the following:
(1) the purchase of any such Option for an amount of cash equal to
the amount that could have been attained upon the exercise of
such Option, or realization of the Recipient's rights had such
Option been currently exercisable or payable or fully vested;
and/or
(2) the replacement of such Option with other rights or property
(which may or may not be securities) selected by the Plan
Administrator in its sole discretion.
B. Acceleration of Vesting and Exercise. In its sole and absolute
------------------------------------
discretion, and on such terms and conditions as it deems appropriate,
the Plan Administrator may provide, either by the terms of the
underlying Award Agreement or by action taken prior to the occurrence
of such transaction or event, that such Option may not be exercised
after the occurrence of such event; provided, however, the Recipient
must be given the opportunity, for a specified period of time prior
to the consummation of such transaction, to exercise the Option as to
all Option Shares (i.e., both fully vested and unvested) covered
thereby.
C. Assumption or Substitution. In its sole and absolute discretion, and
--------------------------
on such terms and conditions as it deems appropriate, the Plan
Administrator may provide, either by the terms of the underlying
Award Agreement or by action taken prior to the occurrence of such
transaction or event, that such Option be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options covering the
-36-
<PAGE>
capital stock of the successor or survivor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number
and kind of shares and prices.
ARTICLE XVII
CERTAIN TRANSACTIONS WITHOUT CHANGE IN
BENEFICIAL OWNERSHIP -- AFFECT ON OPTIONS
------------------------------------------
17.01 General. Notwithstanding Article XV above, in the event of a
------- ----------
transaction whose principal purpose is to change the State in which the
Company is incorporated, or to form a holding company, or to effect a
similar reorganization as to form of entity without change of beneficial
ownership, including, without limitation, through:
A. a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or other
reorganization with respect to the Company and/or its stockholders,
or
B. the sale, transfer, exchange or other disposition by the Company of
its assets in a single or series of related transactions, then the
Plan Administrator may provide, in its sole and absolute discretion,
and on such terms and conditions as it deems appropriate, either by
the terms of the underlying Award Agreement or by action taken prior
to the occurrence of such transaction or event, that such Option
shall be assumed by the successor or survivor corporation, or a
parent or subsidiary thereof, or shall be substituted for by similar
options covering the capital stock of the successor or survivor
corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices.
ARTICLE XVIII
DRAG-ALONG RIGHTS
-----------------
18.01 General. In the event the Board and, to the extent required by law,
-------
the stockholders of the Company, approve the sale, transfer, exchange or
other disposition of fifty percent (50%) or more of the capital stock of
the Company in a single or series of related transactions (an "Approved
Stock Sale Transaction"), the Company shall have the right (the "Drag-
Along Right") to require the Recipient and/or his, her or its permitted
successors, to sell, transfer, exchange or otherwise dispose of any Plan
Shares held by such Persons as part of such Approved Stock Sale
Transaction, notwithstanding that such Persons did not approve of such
Approved Stock Sale Transaction and/or did not otherwise consent to the
sale, transfer, exchange or other disposition of their Plan Shares in
accordance with the terms of such Approved Stock Sale Transaction;
provided, however, in the event less than all of the shares of Common
Stock are to be sold, transferred, exchanged or otherwise disposed as
part of the Approved Stock Sale Transaction, the Recipient and/or his,
her or its permitted successors will not be required to sell, transfer,
exchange or otherwise dispose of a number of Plan Shares which exceeds
the aggregate number of Plan Shares held by such Person multiplied by a
fraction, the numerator of which is the number of Plan Shares held by
such Persons and the denominator of which is the total number of share of
Common Stock then issued and outstanding.
18.02 Legend on Shares. To facilitate compliance with the terms of this
----------------
Article XVIII, the Company shall have the right to place the following
-------------
legend on the certificates representing the Plan Shares:
-37-
<PAGE>
"The securities represented by this certificate are subject to certain
drag-along rights set forth in full in that certain 1999 Clean Energy
Technologies, Inc. stock plan dated March 5, 1999, as it may be
amended or restated from time to time, a copy of which may be
inspected by authorized persons at the principal office of the
company, and all the provisions of which are incorporated by reference
in this certificate."
18.03 Escrow; Irrevocable Power Of Attorney. For purposes of facilitating
-------------------------------------
the obligation to transfer set forth in this Article XVIII, the Company,
-------------
in its sole discretion, may require each Recipient and/or his, her or its
permitted successors, at the Company's cost, to deliver the share
certificate(s) representing the Plan Shares held by such Recipient and/or
his, her or its permitted successors (the "Stock Certificate") with a
stock power executed by such Recipient and/or his, her or its permitted
successors in blank, to the Secretary of the Company or the Company's
designee, to hold the Stock Certificate and stock power in escrow and to
take all such actions and to effectuate all such transfers or releases as
are in accordance with the terms of this Article XVIII. The Stock
-------------
Certificate may be held in escrow so long as the Plan Shares represented
by the Stock Certificate are subject to the terms of this Article XVIII.
-------------
The Recipient and/or his, her or its permitted successors each hereby
irrevocably constitutes and appoints the Secretary of the Company, with
full power of substitution, as the true and lawful attorney to act as
escrow holder for such Persons under this Article XVIII, and any
-------------
amendments to it. The power of attorney hereby granted is irrevocable and
shall be deemed to be coupled with an interest, and it shall survive
death, disability, dissolution or termination of the Recipient and/or
his, her or its permitted successors. The escrow holder will not be
liable to any party for any act or omission unless the escrow holder is
grossly negligent in performing such act or omission. The escrow holder
may rely upon any letter, notice or other document executed by any
signature purported to be genuine.
ARTICLE XIX
MARKET STANDOFF
---------------
19.01 General. To the extent requested by Company and any underwriter of
-------
securities of the Company in connection with a firm commitment
underwriting, no holder of any Plan Shares will Transfer any such shares
not included in such underwriting, or not previously registered pursuant
to a registration statement filed under the Securities Act, during the
period requested by the Company and the underwriter following the
effective date of the registration statement filed with the Commission.
ARTICLE XX
AMENDMENT AND DISCONTINUATION OF PLAN; MODIFICATION OF AWARDS
-------------------------------------------------------------
20.01 Amendment, Modification or Termination of Plan. The Board may amend
----------------------------------------------
or modify the Plan or suspend or discontinue the Plan at any time or from
time-to-time; provided, however:
A. no such action may adversely alter or impair any Award previously
granted under the Plan without the consent of each Recipient affected
thereby, and
B. no action of the Board will cause Incentive Options granted under the
Plan not to comply with Section 422 of the Code unless the Board
specifically declares such action to be made for that purpose.
-38-
<PAGE>
20.02 Modification of Terms of Outstanding Options. Subject to the terms
--------------------------------------------
and conditions and within the limitations of the Plan, the Plan
Administrator may modify the terms and conditions of any outstanding
Options granted under the Plan, including extending the expiration date
of such Options or renewing such Options or repricing such options or
modifying any vesting conditions (but only, in the case of Incentive
Options, to the extent permitted under Section 422 of the Code), or
accept the surrender of outstanding Options (to the extent not
theretofore exercised) and authorize the granting of new Options in
substitution therefor (to the extent not theretofore exercised);
provided, however, no modification of any outstanding Option may, without
the consent of the Recipient affected thereby, adversely alter or impair
such Recipients rights under such Option.
20.03 Modification of Vesting Conditions Placed on Forfeitable Grant Shares.
---------------------------------------------------------------------
Subject to the terms and conditions and within the limitations of the
Plan, including vesting conditions, the Plan Administrator may modify the
terms and conditions placed upon the grant of any Forfeitable Grant
Shares; provided, however, no modification of any conditions placed upon
Forfeitable Grant Shares may, without the consent of the Recipient
thereof, adversely alter or impair such Recipient's rights with respect
to such Forfeitable Grant Shares.
20.04 Compliance with Laws. The Plan Administrator may, at any time or from
--------------------
time-to-time, without receiving further consideration from, or paying any
consideration to, any Person who may become entitled to receive or who
has received the grant of an Award hereunder, modify or amend Awards
granted under the Plan as required to:
A. comport with changes in securities, tax or other laws or rules,
regulations or regulatory interpretations thereof applicable to the
Plan or Awards thereunder or to comply with the rules or requirements
of any stock exchange or Nasdaq and/or
B. ensure that the Plan is and remains exempt from the application of
any participation, vesting, benefit accrual, funding, fiduciary,
reporting, disclosure, administration or enforcement requirement of
either the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), or the corresponding provisions of the Internal
Revenue Code of 1986, as amended (Subchapter D of Title A, Chapter 1
of the Code {encompassing Sections 400 to 420 of the Code}).
ARTICLE XXI DAY
MISCELLANEOUS
-------------
21.01 Performance on Business Day. In the event the date on which a party
---------------------------
to the Plan is required to take any action under the terms of the Plan is
not a business day, the action shall, unless otherwise provided herein,
be deemed to be required to be taken on the next succeeding business day.
21.02 Employment Status. In no event shall the granting of an Award be
-----------------
construed to:
A. grant a continued right of employment to a Recipient if such Person
is employed by the Company and/or by the Parent and/or any
Subsidiary, or
B. affect, restrict or interfere with in any way any right the Company
and/or Parent and/or any Subsidiary may have to terminate or
otherwise discharge the employment and/or engagement of such Person,
at any time, with or without cause, except to the extent that such
Person and
-39-
<PAGE>
the Company and/or Parent and/or any Subsidiary may have otherwise
expressly agreed in writing.
Unless otherwise expressly agreed in writing, the application and/or
construction of the terms Termination By Company For Cause, Termination
By Recipient For Good Reason and Termination Of Recipient are solely
intended for, and shall be limited to, the operation of the vesting and
expiration provisions of Awards granted under this Plan, and governing
Award Agreements, and not for any other purpose.
21.03 Non-Liability For Debts; Restrictions Against Transfer. No Options
------------------------------------------------------
or unvested Forfeitable Grant Shares granted hereunder, or any part
--------
thereof,
A. shall be liable for the debts, contracts, or engagements of a
Recipient, or such Recipient's successors in interest as permitted
under this Plan, or
B. shall be subject to disposition by transfer, alienation, or any other
means whether such disposition be voluntary or involuntary or by
operation of law, by judgment, levy, attachment, garnishment, or any
other legal or equitable proceeding (including bankruptcy), and any
attempted disposition thereof shall be null and void ab initio and of
no further force and effect.
21.04 Relationship Of Plan To Other Options And Compensation Plans. The
------------------------------------------------------------
adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company or any Parent or Subsidiary.
Nothing in this Plan shall be construed to limit the right of the Company
to:
A. establish any other forms of incentives or compensation for Employees
and/or Directors of the Company and/or of any Parent and/or any
Subsidiary and/or to any Consultants to the Company and/or to any
Parent and/or any Subsidiary; or
B. to grant options to purchase shares of Common Stock or to award
shares of Common Stock or grant any other securities or rights
otherwise under this Plan in connection with any proper corporate
purpose including but not by way of limitation, in connection with
the acquisition by purchase, lease, merger, consolidation or
otherwise, of the business, stock or assets of any corporation,
partnership, firm or association.
21.05 Severability. If any term or provision of this Plan or the
------------
application thereof to any person or circumstance shall, to any extent,
be determined to be invalid, illegal or unenforceable under present or
future laws, then, and in that event:
A. the performance of the offending term or provision (but only to the
extent its application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this Plan, and, in
lieu of such excused provision, there shall be added a provision as
similar in terms and amount to such excused provision as may be
possible and be legal, valid and enforceable; and
B. the remaining part of this Plan (including the application of the
offending term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable) shall
not be affected thereby, and shall continue in full force and effect
to the fullest extent provided by law.
-40-
<PAGE>
21.06 Headings; References; Incorporation; Gender; Statutory References.
-----------------------------------------------------------------
The headings used in this Plan are for convenience and reference purposes
only, and shall not be used in construing or interpreting the scope or
intent of this Plan or any provision hereof. References to this Plan
shall include all amendments or renewals thereof. All cross-references in
this Plan, unless specifically directed to another agreement or document,
shall be construed only to refer to provisions within this Plan, and
shall not be construed to be referenced to the overall transaction or to
any other agreement or document. Any Exhibit referenced in Plan shall be
construed to be incorporated in this Plan by such reference. As used in
this Plan, each gender shall be deemed to include the other gender,
including neutral genders appropriate for entities, if applicable, and
the singular shall be deemed to include the plural, and vice versa, as
the context requires. Any reference to statutes or laws will include all
amendments, modifications, or replacements of the specific sections and
provisions concerned.
21.07 Applicable Law. This Plan and the rights and remedies of each party
--------------
arising out of or relating to this Plan (including, without limitation,
equitable remedies) shall (with the exception of the Securities Laws) be
solely governed by, interpreted under, and construed and enforced in
accordance with the laws (without regard to the conflicts of law
principles) of the State of Delaware, as if this Plan were made, and as
if its obligations are to be performed, wholly within the State of
Delaware.
-41-
<PAGE>
EXHIBIT 4.6
================================================================================
STOCK OPTION CERTIFICATE
1999 CLEAN ENERGY TECHNOLOGIES, INC. STOCK PLAN
-----------------------------------------------
[To be prepared by the Company and signed by the Recipient]
<TABLE>
<CAPTION>
======================================================================================================================
<S> <C> <C>
Name of Recipient......................... __________________________________
Capacity of Recipient..................... [X] Employee [X] Executive Officer
[_] Director [_] Consultant
Legal Address/Domicile of Recipient....... ____________________________________________________
Citizenship of Recipient.................. [_] United States [X] Canada
[_] Other:
____________________________________________________
Number of Option Shares................... ________________ (__________)
Option Price per Option Share............. U.S. $2.00
Classification of Option.................. [_] Non-Qualified Option [X] Incentive Option
Vesting................................... [_] Fully Vested
[X} Continuous Service Vesting (see sections 2 through 4 below)
---------- -
Option Expiration Date.................... March 5, 2005 (subject to section 4 below)
---------
Option Effective Date..................... March 5, 1999
Securities Exemptions Relied Upon
at the Time of Grant or Exercise:
U.S. Federal.............................. Rule 506 of Regulation D of the United States Securities Act of 1933
Blue Sky.................................. Not Applicable
Provincial................................ Section 45(2)(10) of the Securities Act (British Columbia)
======================================================================================================================
</TABLE>
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH, OR APPROVED OR
DISAPPROVED BY, THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, THE
BRITISH COLUMBIA SECURITIES COMMISSION, OR ANY OTHER STATE, TERRITORIAL OR
PROVINCIAL SECURITIES REGULATORY AGENCY, NOR HAS THE SECURITIES AND EXCHANGE
COMMISSION OR BRITISH COLUMBIA SECURITIES COMMISSION OR ANY OTHER STATE,
TERRITORIAL OR PROVINCIAL SECURITIES REGULATORY AGENCY REVIEWED OR PASSED UPON
OR ENDORSED THE MERITS OF THE OFFERING CONTEMPLATED BY THIS STOCK OPTION
CERTIFICATE OR THE ACCURACY OR ADEQUACY OF ANY OFFERING MATERIALS, INCLUDING THE
1999 CLEAN ENERGY TECHNOLOGIES, INC. STOCK PLAN OR THE PLAN SUMMARY FOR SUCH
STOCK OPTION PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK AND
SUBSTANTIAL AND IMMEDIATE DILUTION. THERE IS A LIMITED PUBLIC MARKET FOR THE
SALE OF THESE SECURITIES BY THE RECIPIENT. THESE SECURITIES MAY NOT BE SOLD OR
TRANSFERRED UNLESS REGISTERED, OR THE RECIPIENT PROVIDES THE COMPANY AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY, OR ITS LEGAL COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED BY REASON OF AN EXEMPTION OR OTHERWISE. AS A
RESULT, THESE SECURITIES ARE SUITABLE ONLY FOR CERTAIN SOPHISTICATED AND
QUALIFIED INVESTORS WHO CAN BEAR THE FINANCIAL RISK OF AN INVESTMENT IN THESE
SECURITIES FOR AN INDEFINITE PERIOD OF TIME.
================================================================================
<PAGE>
================================================================================
THIS STOCK OPTION CERTIFICATE is entered into between Clean Energy Technologies,
Inc., a Delaware corporation (the "Company"), whose principal executive office
is located at 7087 MacPherson Avenue, Burnaby, British Columbia, Canada, V5J
4N4, and the Recipient identified on the first page of this Stock Option
Certificate (the "Recipient"), pursuant to that certain 1999 Clean Energy
Technologies, Inc. Stock Plan dated March 5, 1999, as such Plan may be amended
and/or restated from time to time (the "Plan"). Subject to the terms of this
Stock Option Certificate, the Recipient's rights to purchase the Option Shares
are governed by the Plan, the terms of which are incorporated herein by this
reference. Defined terms in this Stock Option Certificate shall have the same
meaning as defined terms in the Plan.
1. GRANT OF OPTION
This Stock Option Certificate certifies that the Company has granted to the
Recipient, pursuant to the terms of the Plan, a stock option (the "Option")
to purchase, in whole or in part, the number of Option Shares designated on
the first page of this Stock Option Certificate (collectively and
severally, the "Option Shares"), representing shares of the common stock,
par value U.S. $0.0001 (the "Common Stock") of the Company, at the exercise
or Option Price per Option Share designated on the first page of this Stock
Option Certificate (the "Option Price"), subject to the following terms and
conditions.
2. CONTINUOUS SERVICE VESTING -- SCHEDULE
If the Option Shares are subject to vesting by reason of the Continuous
Service Vesting designation set forth on the first page of this Stock
Option Certificate, then, subject to section 5.05 of the Plan, the Option
------------
Shares are subject to vesting based upon continued performance of services
in the capacity set forth on the first page of this Stock Option
Certificate through March 5, 2000.
3. CONTINUOUS SERVICE VESTING -- ACCELERATION OF VESTING IN THE EVENT OF
TERMINATION OF RECIPIENT
If the Option Shares are subject to vesting by reason of the Continuous
Service Vesting designation set forth on the first page of this Stock
Option Certificate, then:
A. Death or Disability. In the event of the death or Disability of the
-------------------
Recipient (as such latter term is defined in the Recipient's
Employment Agreement), all unvested Options Shares which would have
--------
vested within the twelve (12) month period following the date of death
or Disability will vest effective as of the date of death or
Disability, and the prospective right to purchase the balance of the
remaining unvested Option Shares shall lapse.
--------
B. Termination By Company For Cause Or By Recipient Without Good Reason.
--------------------------------------------------------------------
In the event the Recipient's employment with the Company is
terminated, and such termination is attributable to:
(1) an event defined as Termination By Company for Cause (as such
term is defined in the Recipient's Employment Agreement); and/or
(2) termination by the Recipient which does not constitute
---
Termination By Executive For Good Reason (as such term is defined
in the Recipient's Employment Agreement); then
the prospective right to purchase unvested Option Shares shall lapse
--------
to the extent such rights do not vest prior to the effective date of
termination.
C. Termination By Company Without Cause Or By Recipient With Good Reason;
----------------------------------------------------------------------
Change Of Control. In the event the Recipient's employment with the
-----------------
Company is terminated, and such termination is attributable to:
-2-
<PAGE>
================================================================================
(1) an event defined as a Termination by Executive for Good Reason
(as such term is defined in the Recipient's Employment
Agreement);
(2) termination by the Company which does not constitute a
Termination By Company for Cause (as such term is defined in the
Recipient's Employment Agreement) and/or
(3) an event defined as a Change in Control (as such term is defined
in the Recipient's Employment Agreement); then
the prospective right to purchase unvested Option Shares shall vest
--------
as of the effective date of termination.
4. TERM OF OPTION
The right to exercise the Options granted by this Stock Option Certificate
shall commence on the Option Effective Date designated on the first page of
this Stock Option Certificate, and shall expire and be null and void ab
initio and of no further force or effect to the extent not exercised by
5:00 p.m. M.S.T., on the Option Expiration Date designated on the first
page of this Stock Option Certificate (the "Option Expiration Date");
provided, however, if the Option Shares are subject to the Continuous
Service Vesting designation set forth on the first page of this Stock
Option Certificate, then, pursuant to section 5.03 of the Plan, in the
------------
event of Termination Of Recipient, the expiration date shall be accelerated
to two (2) years after the effective date of Termination Of Recipient (if
earlier than the Option Expiration Date).
5. DELIVERIES; MANNER OF EXERCISE AND PAYMENT
This Option shall be exercised by delivery of the following to the
Secretary of the Company at the Company's principal executive offices:
(1) this Stock Option Certificate, duly signed by the Recipient;
(2) full payment for the Option Shares to be purchased in
(a) immediately available funds (in U.S. dollars); or
(b) if then employed by the Company, shares of Common Stock
pursuant to section 8.01(A) of the Plan or the surrender
---------------
or relinquishment of rights to acquire Common Stock pursuant
to section 5.07 or section 8.01(B) of the Plan; or
------------ ---------------
(c) if and to the extent consented to by the Board, other
property constituting good and valuable consideration
pursuant to sections 8.01(C) through 8.01(F) of the Plan,
---------------- -------
and
(3) a Consent of Spouse (as such consent is defined in the Plan) from
the spouse of the Recipient, if any, duly signed by such spouse.
6. EXERICISE AND TRANSFER OF OPTION
Options may only be exercised by the original Recipient hereof, and may not
be Transferred by such Recipient, except upon and following the Death of a
Recipient (if a natural person), but only to the Recipient's Successors as
provided in sections 11.02 and 11.03 of the Plan. Any Transfer or exercise
-------------- -----
of an Option so Transferred in violation of this Stock Option Certificate
shall be null and void ab initio and of no further force and effect.
-3-
<PAGE>
================================================================================
7. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE RECIPIENT
The Recipient hereby represents, warrants and covenants to the Company,
each of which is deemed to be a separate representation, warranty and
covenant, whichever the case may be, that:
A. Domicile. The Recipient's permanent legal residence and domicile, if
--------
the Recipient is an individual, or permanent legal executive offices
and principal place of business, if the Recipient is an Entity, was
and is in the state, territory or province designated on the first
page of this Stock Option Certificate at both the time of the "offer"
and the time of the "sale" of this Option and the Option Shares to the
Recipient.
B. Age. The Recipient, if a natural person, is age eighteen (18) or
---
over.
C. Receipt and Review of Plan and Plan Summary. The Recipient has
-------------------------------------------
received a copy of the Plan as well as a copy of the 1999 Clean Energy
Technologies, Inc. Stock Plan Summary (the "Plan Summary"), which
explains the administration and operation of the Plan, risk factors
concerning an investment in the Common Stock and the Company, the tax
consequences of grants of Options under the Plan, and certain other
relevant matters pertaining to the Plan, and has read and understood
the Plan and the Plan Summary.
D. Independent Review of Investment Merits; Due Diligence. The
------------------------------------------------------
Recipient has taken during the course of the transaction contemplated
by this Stock Option Certificate, and will retake prior to exercising
the Option:
(1) the opportunity to engage such investment professionals and
advisors including, without limitation, accountants, appraisers,
investment, tax and legal advisors, each of whom are independent
of the Company and its advisors and agents, to:
(a) conduct such due diligence review as the Recipient and/or
such investment professionals and advisors deem necessary or
advisable, and
(b) provide such opinions as to:
(i) the investment merits of a proposed investment in the
Option Shares,
(ii) the tax consequences of the grant and exercise of the
Option, and the subsequent disposition of the Option
Shares, and
(iii) the effect of same upon the Recipient's personal
financial circumstances, as the Recipient and/or his,
her or its investment professionals and advisors have
or may deem advisable; and
(2) the Recipient has received and will receive, to the extent he,
she or it has availed or will avail himself, herself or itself of
these opportunities, satisfactory information and answers from
such investment professionals and advisors.
E. Opportunity to Ask Questions and to Review Documents, Books and
---------------------------------------------------------------
Records. Without limiting the generality of subsection 7.D above, the
------- --------------
Recipient and his, her or its investment professionals and advisors
have taken the opportunity during the course of the transaction
contemplated by Stock Option Certificate, and the Recipient and his,
her or its investment professionals and advisors will again take the
opportunity prior to exercising the Option, to the extent the
Recipient and/or such investment professionals and advisors have or
will determine it to be necessary, to:
-4-
<PAGE>
================================================================================
(1) be provided with financial and other written information (in
addition to that contained in the Plan and Plan Summary);
(2) ask questions and receive answers concerning the terms and
conditions of this Stock Option Certificate, an investment in the
Option Shares, and the business of the Company and its finances;
(3) review all documents, books and records of the Company; and
(4) the Recipient and/or his, her or its investment professionals and
advisors have received and will receive, to the extent they have
availed or will avail themselves of these opportunities,
satisfactory information and answers.
F. Offering Communications. With the exception of written information
-----------------------
given to the Recipient by the principal executive officers of the
Company, no person has provided any information (other than the
provision of the Plan and Plan Summary), or made any representations
to the Recipient, concerning the Company or its past, present or
future business; on which the Recipient has relied in offering to
purchase the Option Shares.
G. Restrictions on Transferability of Option Shares. The Recipient has
------------------------------------------------
been informed and understands and agrees as follows:
(1) there are substantial restrictions on the transferability of the
Option Shares as set forth in the Plan and as are more
particularly described in the Plan Summary;
(2) as a result of such restrictions:
(a) it may not be possible for the Recipient to sell or
otherwise liquidate the Option Shares in the case of
emergency and/or other need, and the Recipient must
therefore be able to hold the Option Shares until the lapse
of said restrictions,
(b) the Recipient must have adequate means of providing for the
Recipient's current needs and personal contingencies, and
(c) the Recipient must have no need for liquidity in an
investment in the Option Shares; and
(3) the Recipient has evaluated the Recipient's financial resources
and investment position in view of the foregoing; and the
Recipient is able to bear the economic risk of an investment in
the Option Shares.
H. Securities Purchased For Recipient's Own Account. The Option Shares
------------------------------------------------
will be purchased by the Recipient as principal and not by any other
person, with the Recipient's own funds and not with the funds of any
other person, and for the account of the Recipient and not as a
nominee or agent and not for the account of any other person. The
Recipient will purchase the Option Shares for investment purposes only
for an indefinite period, and not with a view to the sale or
distribution of any part or all thereof by public or private sale or
other disposition. No person other than the Recipient will have any
interest, beneficial or otherwise, in the Option Shares, and the
Recipient is not obligated (and will not be obligated at time of
exercise) to transfer the Option Shares to any other person, nor does
the Recipient have any agreement or understanding to do so.
I. Compliance With Investment Laws. The Recipient has complied or will
-------------------------------
comply (as the case may be) with all applicable investment laws and
regulations in force relating to the legality of an
-5-
<PAGE>
investment in the Option Shares by the Recipient in any jurisdiction
in which he, she or it purchases the Option Shares or enters into this
Stock Option Certificate, and has obtained or will obtain (as the case
may be) any consent, approval or permission required of him, her or it
for the purchase of the Option Shares under the investment laws and
regulations in force in any jurisdiction to which he, she or it is
subject, or in which he, she or it makes such purchase, and the
Company shall have no responsibility therefor.
J. No General Solicitation or Public Advertising. With the exception of
---------------------------------------------
the provision of the Plan and the Plan Summary, the Recipient has not,
with respect to the offer and sale of the this Stock Option
Certificate and/or the Option Shares, seen, received, been presented
with or been solicited:
(1) by any advertisement, article, notice, leaflet or other
communication (whether published in any newspaper, magazine, or
similar media or broadcast over television or radio or otherwise
generally disseminated or distributed); or
(2) through any public or promotional seminar or meeting to which the
Recipient was invited through any such advertisement, article,
notice, leaflet or other communication.
K. Fees and Commissions. The Recipient has not retained any
--------------------
broker-dealer, placement agent or finder to whom the Company will have
any obligation to pay any commissions or fees.
Each representation, warranty and covenant of the Recipient shall be deemed
made at the time of grant of this Option, shall be deemed remade at any
time the Recipient exercises this Option, and shall survive the date of
closing with respect to the exercise of the last Option hereunder.
8. MISCELLANEOUS
A. Preparation of Stock Option Certificate; Costs and Expenses. This
-----------------------------------------------------------
Stock Option Certificate was prepared by the Company solely on behalf
of the Company. Each party acknowledges that:
(1) he, she or it had the advice of, or sufficient opportunity to
obtain the advice of, legal counsel separate and independent of
legal counsel for any other party hereto;
(2) the terms of the transaction contemplated by this Stock Option
Certificate are fair and reasonable to such party; and
(3) such party has voluntarily entered into the transaction
contemplated by this Stock Option Certificate without duress or
coercion
Each party further acknowledges such party was not represented by the
legal counsel of any other party hereto in connection with the
transaction contemplated by this Stock Option Certificate, nor was
such party under any belief or understanding that such legal counsel
was representing his, her or its interests. Except as expressly set
forth in this Stock Option Certificate, each party shall pay all legal
and other costs and expenses incurred or to be incurred by such party
in negotiating and preparing this Stock Option Certificate; in
performing due diligence or retaining professional advisors; in
performing any transactions contemplated by this Stock Option
Certificate; or in complying with such party's covenants, agreements
and conditions contained herein. Each party agrees that no conflict,
omission or ambiguity in this Stock Option Certificate, the Plan
and/or the Plan Summary or the interpretation thereof, shall be
presumed, implied or otherwise construed against the Company or any
other party to this Stock Option Certificate on the basis that such
party was responsible for drafting this Stock Option Certificate.
-6-
<PAGE>
B. Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Stock
Option Certificate, all without undue delay or expense.
C. Interpretation.
--------------
(1) Survival. All representations and warranties made by any party in
--------
connection with any transaction contemplated by this Stock Option
Certificate shall, irrespective of any investigation made by or
on behalf of any other party hereto, survive the execution and
delivery of this Stock Option Certificate and the performance or
consummation of any transaction described in this Stock Option
Certificate.
(2) Entire Agreement/No Collateral Representations. Each party
----------------------------------------------
expressly acknowledges and agrees that this Stock Option
Certificate, together with and subject to the Plan and the Plan
Summary:
(a) is the final, complete and exclusive statement of the
agreement of the parties with respect to the subject matter
hereof;
(b) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances,
communications, discussions, promises, representations,
understandings, conduct, acts, courses of dealing,
warranties, interpretations or terms of any kind, whether
oral or written (collectively and severally, the "prior
agreements"), and that any such prior agreements are of no
force or effect except as expressly set forth herein; and
(c) may not be varied, supplemented or contradicted by evidence
of prior agreements, or by evidence of subsequent oral
agreements. No prior drafts of this Stock Option
Certificate, and no words or phrases from any prior drafts,
shall be admissible into evidence in any action or suit
involving this Stock Option Certificate.
(3) Amendment; Waiver; Forbearance. Except as expressly provided
------------------------------
otherwise herein, neither this Stock Option Certificate nor any
of the terms, provisions, obligations or rights contained herein
may be amended, modified, supplemented, augmented, rescinded,
discharged or terminated (other than by performance), except as
provided in the Plan or by a written instrument or instruments
signed by all of the parties to this Stock Option Certificate. No
waiver of any breach of any term, provision or agreement
contained herein, or of the performance of any act or obligation
under this Stock Option Certificate, or of any extension of time
for performance of any such act or obligation, or of any right
granted under this Stock Option Certificate, shall be effective
and binding unless such waiver shall be in a written instrument
or instruments signed by each party claimed to have given or
consented to such waiver and each party affected by such waiver.
Except to the extent that the party or parties claimed to have
given or consented to a waiver may have otherwise agreed in
writing, no such waiver shall be deemed a waiver or
relinquishment of any other term, provision, agreement, act,
obligation or right granted under this Stock Option Certificate,
or any preceding or subsequent breach thereof. No forbearance by
a party to seek a remedy for any noncompliance or breach by
another party hereto shall be deemed to be a waiver by such
forbearing party of its rights and remedies with respect to such
noncompliance or breach, unless such waiver shall be in a written
instrument or instruments signed by the forbearing party.
-7-
<PAGE>
(4) Remedies Cumulative. The remedies of each party under this Stock
-------------------
Option Certificate are cumulative and shall not exclude any other
remedies to which such party may be lawfully entitled, at law or in
equity.
(5) Severability. If any term or provision of this Stock Option
------------
Certificate or the application thereof to any person or circumstance
shall, to any extent, be determined to be invalid, illegal or
unenforceable under present or future laws, then, and in that event:
(a) the performance of the offending term or provision (but only to
the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this
Stock Option Certificate, and, in lieu of such excused provision,
there shall be added a provision as similar in terms and amount
to such excused provision as may be possible and be legal, valid
and enforceable; and
(b) the remaining part of this Stock Option Certificate (including
the application of the offending term or provision to persons or
circumstances other than those as to which it is held invalid,
illegal or unenforceable) shall not be affected thereby, and
shall continue in full force and effect to the fullest extent
provided by law.
(6) Parties in Interest. Notwithstanding anything else to the contrary
-------------------
herein, nothing in this Stock Option Certificate shall confer any
rights or remedies under or by reason of this Stock Option Certificate
on any persons other than the parties hereto and their respective
successors and assigns, if any, as may be permitted under the Plan or
hereunder, nor shall anything in this Stock Option Certificate relieve
or discharge the obligation or liability of any third person to any
party to this Stock Option Certificate, nor shall any provision give
any third person any right of subrogation or action over or against
any party to this Stock Option Certificate.
(7) No Reliance Upon Prior Representation. Each party acknowledges that:
-------------------------------------
(a) no other party has made any oral representation or promise which
would induce them prior to executing this Stock Option
Certificate to change their position to their detriment, to
partially perform, or to part with value in reliance upon such
representation or promise; and
(b) such party has not so changed its position, performed or parted
with value prior to the time of the execution of this Stock
Option Certificate, or such party has taken such action at its
own risk.
(8) Headings; References; Incorporation; "Person"; Gender; Statutory
----------------------------------------------------------------
References. The headings used in this Stock Option Certificate are for
----------
convenience and reference purposes only, and shall not be used in
construing or interpreting the scope or intent of this Stock Option
Certificate or any provision hereof. References to this Stock Option
Certificate shall include all amendments or renewals thereof. All
cross-references in this Stock Option Certificate, unless specifically
directed to another agreement or document, shall be construed only to
refer to provisions within this Stock Option Certificate, and shall
not be construed to be referenced to the overall transaction or to any
other agreement or document. Any Exhibit referenced in this Stock
Option Certificate shall be construed to be incorporated in this Stock
Option Certificate by such reference. As used in this Stock Option
Certificate, the term "person" is defined in its broadest sense as any
individual, entity or fiduciary who has legal standing to enter into
this Stock Option Certificate such as, by way of example and not
limitation, individual or natural persons and trusts. As
-8-
<PAGE>
used in this Stock Option Certificate, each gender shall be
deemed to include the other gender, including neutral genders
appropriate for entities, if applicable, and the singular shall
be deemed to include the plural, and vice versa, as the context
requires. Any reference to statutes or laws will include all
amendments, modifications, or replacements of the specific
sections and provisions concerned.
D. Enforcement.
-----------
(1) Applicable Law. This Stock Option Certificate and the rights and
--------------
remedies of each party arising out of or relating to this Stock
Option Certificate (including, without limitation, equitable
remedies) shall (with the exception of the Securities Act and the
Blue Sky Laws) be solely governed by, interpreted under, and
construed and enforced in accordance with the laws (without
regard to the conflicts of law principles) of the province of
British Columbia, Canada, as if this Stock Option Certificate
were made, and as if its obligations are to be performed, wholly
within the province of British Columbia, Canada.
(2) Consent to Jurisdiction; Service of Process. Any "action or
-------------------------------------------
proceeding" (as such term is defined below) arising out of or
relating to this Stock Option Certificate shall be filed in and
heard and litigated solely before the provincial courts of
British Columbia, Canada, located within the City of Burnaby,
British Columbia, Canada. Each party generally and
unconditionally accepts the exclusive jurisdiction of such courts
and venue therein; consents to the service of process in any such
action or proceeding by certified or registered mailing of the
summons and complaint in accordance with the notice provisions of
this Stock Option Certificate; and waives any defense or right to
object to venue in said courts based upon the doctrine of "forum
non conveniens." The term "action or proceeding" is defined as
any and all claims, suits, actions, hearings, arbitrations or
other similar proceedings, including appeals and petitions
therefrom, whether formal or informal, governmental or non-
governmental, or civil or criminal.
(3) Waiver of Right to Jury Trial. Each party hereby waives such
-----------------------------
party's respective right to a jury trial of any claim or cause of
action based upon or arising out of this Stock Option
Certificate. Each party acknowledges that this waiver is a
material inducement to each other party hereto to enter into the
transaction contemplated hereby; that each other party has
already relied upon this waiver in entering into this Stock
Option Certificate; and that each other party will continue to
rely on this waiver in their future dealings. Each party warrants
and represents that such party has reviewed this waiver with such
party's legal counsel, and that such party has knowingly and
voluntarily waived its jury trial rights following consultation
with such legal counsel.
E. Successors and Assigns. All of the representations, warranties,
----------------------
covenants, conditions and provisions of this Stock Option Certificate
shall be binding upon and shall inure to the benefit of each party and
such party's respective successors and permitted assigns, spouses,
heirs, executors, administrators, and personal and legal
representatives.
F. Notices. Except as otherwise specifically provided in this Stock
-------
Option Certificate, all notices, demands, requests, consents,
approvals or other communications (collectively and severally called
"notices") required or permitted to be given hereunder shall be given
in accordance with the notice provisions in the Plan.
G. Counterparts. This Stock Option Certificate may be executed in
------------
counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument, binding
on all parties hereto. Any signature page of this Stock Option
Certificate may be detached from any counterpart of this Stock Option
Certificate and reattached to any other
-9-
<PAGE>
counterpart of this Stock Option Certificate identical in form hereto
by having attached to it one or more additional signature pages.
WHEREFORE, the parties hereto have for purposes of this Stock Option Certificate
executed this Stock Option Certificate in Burnaby, British Columbia, Canada,
effective as of the Option Effective Date first set forth on the first page of
this Stock Option Certificate.
COMPANY:
Clean Energy Technologies, Inc.,
a Delaware corporation
By:___________________________________
John P. Thuot, President
ATTEST:
[SEAL] By____________________________
Barry A. Sheahan, Secretary
RECIPIENT:**
__________________________
___________________
-10-
<PAGE>
Attachment
to
Stock Option Certificate
NOTICE OF EXERCISE OF STOCK OPTION
----------------------------------
[To be signed by the Recipient only upon exercise of Option]
TO: Secretary
Clean Energy Technologies, Inc.
7087 MacPherson Avenue
Burnaby, British Columbia, Canada T2P
The undersigned, the holder of Options under that certain Stock Option
Certificate dated effective March 5, 1999 between Clean Energy Technologies,
Inc., a Delaware corporation (the "Company") and the undersigned (the
"Recipient"), hereby irrevocably elects, in accordance with the terms and
conditions of that certain 1999 Clean Energy Technologies, Inc. Stock Plan dated
March 5, 1999, as it may be amended from time to time (the "Plan"), under which
the Stock Option Certificate was granted, to exercise the undersigned's Option
under the Plan to purchase_______________________(______________)/(1)/ shares of
the common stock, no par value ("Common Stock") of the Company (collectively and
severally, the "Option Shares"), for the aggregate purchase price of ___________
_____________________________($______________)/(2)/.
/(1)/ Insert number of Option Shares as specified in the Stock Option
Certificate which are vested Option Shares (as defined by the Plan)
which the Recipient is exercising the Recipient's Option to
purchase.
/(2)/ Number of Option Shares to be exercised as specified above
multiplied by the Option Price per share (U.S. $2.00 per share).
The Recipient hereby remakes, reaffirms and reacknowledges all agreements,
representations, warranties and covenants set forth in the Stock Option
Certificate as of the date of the Recipient's notice, all of which shall survive
the Closing with respect to the shares of Common Stock purchased hereby.
If the Recipient is an Employee as of the date of his, her or its exercise of
the Option, the Recipient acknowledges that the Company shall have the right to
withhold from the compensation of the Recipient such amounts as may be
sufficient to satisfy any federal, state, territorial and/or provincial
withholding tax requirements incident to such exercise pursuant to section
-------
5.06(B) of the Plan, and the Recipient shall remit to the Company any additional
- -------
amounts which may be required.
The Recipient hereby acknowledges that the following legend (or any variation
thereof determined appropriate by the Company) will be placed on the share
certificate or certificates for the Option Shares to comply with applicable
federal, state, territorial and/or provincial securities laws.
The securities represented by this certificate have not been: (1)
registered under the United States Securities Act of 1933, as
amended, in reliance upon an exemption from registration afforded
by such act including, without limitation, Rule 506 of Regulation
D to Section 4(2) of the Securities Act of 1933, or (2)
registered under the securities laws of any state or territory of
the United States or Province of Canada which may be applicable,
in reliance upon an exemption from registration afforded by
-1-
<PAGE>
such state, territorial or provincial securities laws. These securities
have been acquired for the holder's own account for investment purposes and
not with a view for resale or distribution. These securities may not be
sold or transferred unless (a) they have been registered under the United
States Securities Act of 1933 as well as under the securities laws of any
state or territory of the United States or Province of Canada as may then
be applicable, or (b) the transfer agent (or the company if then acting as
its transfer agent) is presented with either a written opinion satisfactory
to counsel for the company or a no-action or interpretive letter from the
United States Securities And Exchange Commission and any applicable state,
territorial or provincial securities regulatory agency to the effect that
such registration is not required under the circumstances of such sale or
transfer.
(Signature must conform in all respects to name of the
Recipient as specified in the Plan, unless the undersigned
is the Recipient's Successor, in which case the undersigned
must submit appropriate proof of the right of the
undersigned to exercise the Option)
Signature: ___________________________________
Print Name: ___________________________________
Address: ___________________________________
___________________________________
Date: ___________________________________
-2-
<PAGE>
EXHIBIT 4.7
CLEAN ENERGY TECHNOLOGIES, INC.
SERIES B PREFERRED STOCK PURCHASE AGREEMENT
This Clean Energy Technologies, Inc. Series B Preferred Stock Purchase
Agreement (the "Agreement") is entered into by and among Clean Energy
Technologies, Inc., a Delaware corporation (the "Company"), whose principal
executive office is located at 7087 MacPherson Avenue, Burnaby, British Columbia
V5J 4N4, and those persons (collectively, the "Purchasers") listed on that
Schedule of Purchasers attached hereto as Exhibit "A" to this Agreement, as such
----------
Schedule may be supplemented from time to time (the "Schedule of Purchasers"),
with reference to the following facts:
RECITALS:
--------
WHEREAS, the Company has offered (the "Offering") to sell shares of its
Series B Convertible Preferred Stock par value $0.0001 (the "Series B Preferred
Stock"), at the price of U.S. $2.00 per share, pursuant to the terms of that
certain Confidential Private Placement Memorandum dated March 8, 1999, as
amended or supplemented from time to time (the "Memorandum");
WHEREAS, each Purchaser has made application, pursuant to the terms of a
Subscription Application, to purchase from the Company the number of shares of
Series B Preferred Stock specified in such Subscription Application;
WHEREAS, the Company has accepted the application of each such Purchaser to
purchase from the Company the number of shares of Series B Preferred Stock set
forth next to such Purchaser's name in the Schedule of Purchasers (collectively,
the "Subscribed Shares"); and
WHEREAS, it is intended that this Agreement act as the binding agreement
governing the purchase of the Subscribed Shares by the Purchasers.
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein, and for valuable consideration, the receipt and sufficiency of
which are hereby mutually acknowledged, the parties to this Agreement
(collectively "parties" and individually "party") agree as follows:
AGREEMENT:
---------
1. SALE OF SERIES B PREFERRED STOCK
Subject to the terms and conditions of this Agreement, at the
"Closing" (as that term is defined below), the Company will issue and sell to
each Purchaser listed on the Schedule of Purchasers, and each such Purchaser
will purchase from the Company, the respective number of Subscribed Shares
specified opposite the name of such Purchaser on the Schedule of Purchasers, at
the purchase price of U.S. $2.00 per Share. The Company's agreement with each
Purchaser hereunder is a separate agreement, and the sale of the Subscribed
Shares to each Purchaser is a separate sale.
2. CLOSING
Each closing of the purchase and sale of the Subscribed Shares
(severally and collectively, a "Closing") shall take place at the offices of
DuMoulin & Boskovich, located at Suite 1800, 1095 West Pender Street, Vancouver,
British Columbia V6E 2M6 (the "Escrow Agent"), which has been appointed as the
escrow agent for the subscription of Shares made pursuant to the Offering, at
the time(s) and in the manner provided in the Memorandum (the "Closing Date"),
but in no event shall any Closing be held later than the "Final Closing Date"
(which, as defined in the Memorandum, is the date which is no later than April
6, 1999. Notwithstanding the foregoing, the Company may, in its sole
discretion, conduct multiple Closings after consummation of the "Minimum
<PAGE>
Offering" (as defined in the Memorandum). In the event of multiple Closings,
the Company may either: (i) enter into separate Series B Preferred Stock
Purchase Agreements with the Purchasers being accepted at the Closing; or (ii)
prepare separate Schedules of Purchasers for such separate Closings, each
Schedule of Purchasers to be attached as a separate Exhibit "A" to this
----------
Agreement.
3. DELIVERY
Subject to the terms of this Agreement, the Company will prepare and
deliver to the Escrow Agent at the Closing, and the Escrow Agent will deliver to
each Purchaser at such Closing, a stock certificate representing the number of
Subscribed Shares set forth opposite such Purchaser's name on the Schedule of
Purchasers against delivery to the Company by each Purchaser at such Closing of
immediately available funds (or such other consideration acceptable to the
Company as specified in the Memorandum) for the purchase price therefor.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents, warrants and covenants to each
Purchaser, each of which is deemed to be a separate representation, warranty or
covenant, that:
(a) Corporate Organization, Power and Authority. The Company is a
-------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, and has all requisite corporate power and authority to
enter into this Agreement.
(b) Authorization and Validity of Agreement. The execution and
---------------------------------------
delivery of this Agreement by the Company, and the performance of the
transactions herein contemplated by the Company including, without limitation,
the sale and issuance of the Subscribed Shares, have been duly authorized by its
Board of Directors, and no further corporate or other action on the part of the
Company is necessary to authorize this Agreement or the performance of such
transactions. This Agreement has been duly executed and delivered by the Company
and, assuming due execution, authorization and delivery by the Purchasers, is
valid and binding upon the Company in accordance with its terms, except as
limited by: (i) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditor rights generally,
and (ii) general principles of equity (regardless of whether such enforcement is
considered in a proceeding in equity or at law).
(c) No Breach or Conflict. Neither the execution or delivery of
---------------------
this Agreement by the Company, nor the performance by the Company of the
transactions contemplated herein, will breach or conflict with any of the
provisions of the Company's Articles of Incorporation or Bylaws, nor, to the
best of the Company's knowledge and belief, will such actions violate or
constitute an event of default under any agreement or other instrument to which
the Company is a party.
(d) Capitalization - Common Stock. The Company is authorized by its
-----------------------------
Certificate of Incorporation to issue two classes of shares, designated,
respectively, "Preferred Stock" and "Common Stock." Each class of stock has a
par value of one tenth of one mil ($0.0001) per share. The number of shares of
Preferred Stock authorized to be issued is 1,000,000, and the number of shares
of Common Stock authorized to be issued is 15,000,000. The Company has
designated two series from the noted Preferred Stock, the "Series A Convertible
Preferred Stock" of which the Company is authorized to issue 1,000 shares, and
the "Series B Convertible Preferred Stock" of which the Company is authorized to
issue 450,000 shares. The Board of Directors is authorized to issue the balance
of the Preferred Stock (i.e., authorized shares available after consideration of
issued and outstanding shares of Series A Convertible Preferred Stock and Series
B Convertible Preferred Stock) at any time and from time-to-time in one or more
series. At the close of business on the date of the Memorandum, the Company had
issued and outstanding: (i) 9,643,750 shares of Common Stock and 1,000 shares of
Series A Convertible Preferred Stock, all of which are fully paid and
nonassessable; and (ii) no shares of Series B Convertible Preferred Stock.
<PAGE>
(e) Validity of Shares. The Subscribed Shares will be duly and
------------------
validly issued, fully paid and nonassessable, and free of any liens or
encumbrances; provided, however, the Subscribed Shares will be subject to such
restrictions on transfer as set forth in the Memorandum and the Purchaser's
Subscription Application. The Company has reserved for issuance sufficient
shares of Series B Preferred Stock to satisfy the Subscribed Shares.
(f) Litigation. Except as disclosed or qualified in the Memorandum,
----------
there are no material actions, proceedings or investigations pending, or to the
knowledge and belief of the Company, threatened, which question the validity of
this Agreement or which might result, either individually or in the aggregate,
in any material adverse change in the assets, conditions, affairs or prospects
of the Company, nor, to the knowledge and belief of the Company, has there
occurred any event nor does there exist any condition which might properly be
the basis therefor.
(g) Absence of Certain Changes. Except as disclosed or qualified in
--------------------------
the Memorandum, to the best of the Company's knowledge and belief, there has not
occurred or arisen, whether or not in the ordinary course of business: (i) any
material adverse change in the financial condition, operations, business or
prospects of the Company considered as a whole; or (ii) any event, condition or
state of facts of any character which materially or adversely affects, or may
materially or adversely affect, the financial condition, operations, business or
prospects of the Company as a whole.
(h) Properties. Except as disclosed or qualified in the Memorandum,
----------
to the best of the Company's knowledge and belief: (i) the Company has good and
marketable title to its properties, and (ii) the use of any property of the
Company for the purpose for which it was acquired is not now, and, based upon
the laws, regulations and ordinances in effect on the date of Closing, in the
future will not be, curtailed to a material degree by any violations prior to
the Closing by the Company of any law, regulation or ordinance (including,
without limitation, laws, regulations or ordinances relating to zoning,
environmental protection, city planning or similar matters).
(i) Pension Benefit Plan. The Company does not have or make
--------------------
contributions to any pension, defined benefit or defined contribution plans
which are subject to the federal Employee Retirement Income Security Act of 1974
("ERISA").
(j) Disclosure. To the best of the Company's knowledge and belief,
----------
neither this Agreement, the Memorandum, the attachments to the Memorandum, nor
any other agreement, document, certificate or written statement furnished to any
Purchaser or to any Purchaser's authorized agents by or on behalf of the Company
in connection with the transactions contemplated herein contains or will contain
any untrue statement of a material fact, or omits or will omit to state any
material facts necessary in order to make the statements contained herein or
therein not misleading. To the best knowledge and belief of the Company's
executive officers, but without having made any independent investigation, there
is no fact within the special knowledge of any of the executive officers of the
Company which has not been disclosed herein or in writing by them to the
Purchasers which materially adversely affects, or in the future in their opinion
may, insofar as they can now foresee, materially adversely affect the business,
properties, assets or condition, financial or other, of the Company. Without
limiting the foregoing, the Company has no knowledge or belief that there
exists, or that there is pending or planned, any statute, rule, law, regulation,
standard or code which would materially adversely affect the condition,
financial or other, of the operations of the Company considered as a whole.
(k) Furnishing of Information. The Company shall provide to holders
-------------------------
of the Subscribed Shares, and the Common Stock into which they may be converted,
annual audited financial statements and quarterly unaudited financial statements
of the Company.
(l) Securities Act; Blue Sky Laws; Provincial Securities Laws.
---------------------------------------------------------
Subject to the accuracy of the Purchasers' representations in the Subscription
Applications, the offer, sale and issuance of the Subscribed Shares in
conformity with the terms of this Agreement constitute transactions exempt from:
(i) the registration requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"); (ii) the registration or
<PAGE>
qualification requirements of the applicable securities laws of the state or
territory where each Purchaser resides (collectively and severally, the "Blue
Sky Laws"); and (iii) the registration requirements of the applicable securities
laws of the province where each Purchaser resides (collectively and severally,
the "Provincial Securities Laws").
5. REPRESENTATIONS AND WARRANTIES OF PURCHASERS
Each Purchaser hereby represents, warrants and covenants to the
Company, each of which is deemed to be a separate representation, warranty or
covenant, that:
(a) Organization, Power and Authority. The Purchaser, if an entity,
---------------------------------
is duly organized, validly existing and in good standing under the laws of its
state of incorporation or organization, and has all requisite corporate or other
power and authority to enter into this Agreement.
(b) Authorization and Validity of Agreement. The execution and
---------------------------------------
delivery of this Agreement by the Purchaser, and the performance of the
transactions herein contemplated, have, if the Purchaser is an entity, been duly
authorized by its governing authority and no further corporate or other action
on the part of the Purchaser are necessary to authorize this Agreement or the
performance of such transactions. This Agreement has been duly executed and
delivered by the Purchaser and, assuming due authorization, execution and
delivery by the Company, is valid and binding upon the Purchaser in accordance
with its terms, except as limited by: (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditor rights generally, and (ii) general principles of equity
(regardless of whether such enforcement is considered in a proceeding in equity
or at law).
(c) No Breach or Conflict. Neither the execution or delivery of
---------------------
this Agreement by the Purchaser, nor the performance by the Purchaser of the
transactions contemplated herein, will breach or conflict with any of the
provisions of the Purchaser's Articles or Certificate of Incorporation, Bylaws,
or other organizational documents, if the Purchaser is an entity, nor, to the
best of the Purchaser's knowledge and belief, will such action violate or
constitute an event of default under any agreement or other instrument to which
the Purchaser is a party.
(d) Representations and Warranties in Subscription Application. The
----------------------------------------------------------
Purchaser incorporates into this Agreement and remakes each and every
representation and warranty of the Purchaser in his, her or its Subscription
Application.
6. PURCHASER CONDITIONS TO CLOSING
The obligation of each Purchaser to purchase the Subscribed Shares at
the Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions, any of which may be waived by such Purchaser with respect
to such Purchaser only:
(a) Accuracy of Company's Representations and Warranties. The
----------------------------------------------------
representations and warranties made by the Company in section 4 hereof shall be
---------
true and correct when made and shall be true and correct on the Closing Date,
with the same force and effect as if they had been made on and as of said date;
the Company's business and assets shall not have been adversely affected in any
material way prior to the Closing Date; and the Company shall have performed all
obligations and conditions herein required to be performed or observed by it on
or prior to the Closing Date.
(b) Consents. The Company shall have obtained any and all consents
--------
(including all governmental or regulatory consents, approvals or authorization
required in connection with the valid execution and delivery of this Agreement
and the Subscription Application), permits and waivers necessary or appropriate
for consummation of the transactions contemplated by this Agreement and the
Subscription Application (with the exception of any consents required pursuant
to applicable investment laws and regulations in force to which each
<PAGE>
Purchaser may be subject relating to the legality of an investment in the
Subscribed Securities in any jurisdiction in which he, she or it purchases the
Subscribed Securities or is otherwise subject to that jurisdiction's laws).
(c) Compliance with Laws and Regulations. At the time of the
------------------------------------
Closing, the purchase of the Subscribed Shares by the Purchasers hereunder shall
be legally permitted by all investment laws and regulations to which the
Purchasers and the Company are subject (with the exception of any applicable
investment laws and regulations in force to which each Purchaser may be subject
relating to the legality of an investment in the Subscribed Securities in any
jurisdiction in which he, she or it purchases the Subscribed Securities or is
otherwise subject to that jurisdiction's laws).
7. COMPANY CONDITIONS TO CLOSING
The Company's obligations to sell and issue the Subscribed Shares at
the Closing is subject to the fulfillment on or prior to the Closing Date of the
following conditions, any of which may be waived by the Company:
(a) Accuracy of Purchaser's Representations and Warranties. The
------------------------------------------------------
representations and warranties made by each Purchaser in section 5 hereof shall
---------
be true and correct when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on and as of said date.
8. INDEMNIFICATION
Each Purchaser hereby agrees to indemnify and defend (with counsel
acceptable to the Company) the Company and its officers, directors, employees
and agents, and to hold them harmless from and against any and all liability,
loss, damage, cost or expense, including costs and reasonable attorneys' fees,
incurred on account of or arising from:
(a) Any breach of, or inaccuracy in, such Purchaser's
representations, warranties or agreements herein;
(b) Any disposition of any of the Subscribed Shares by such
Purchaser contrary to any of such Purchaser's representations, warranties or
agreements herein; and
(c) Any action, suit or proceeding based on: (i) a claim that any
of said representations, warranties or agreements were inaccurate or misleading,
or otherwise cause for obtaining damages or redress from the Company or any
officer, director, employee or agent of the Company under the Securities Act; or
(ii) any disposition by such Purchaser of any of the Subscribed Shares.
9. COMPLIANCE WITH SECURITIES LAWS
Each Purchaser agrees that the certificates representing the
Subscribed Securities shall bear such legend as the Company may deem reasonably
necessary or advisable to facilitate compliance with the Securities Act and the
securities laws of the state or territory or province of the Subscriber's
residence.
10. OTC BULLETIN BOARD(R) LOCK-UP RESTRICTIONS
(a) General. In the event the Common Stock is quoted on the OTC
-------
Bulletin Board(R) before December 31, 2000, each Purchaser agrees, in order to
assist in the creation of an orderly market for the sale of the Common Stock on
the OTC Bulletin Board(R), that any shares of Common Stock into which the
Subscribed Shares may be converted will be subject to certain contractual volume
limitations on their sale on such market (the "OTC Bulletin Board(R) Lock-Up"),
subject to the Company's consent, in its sole discretion, to the waiver of such
volume limitations; provided, however, any such waiver shall, to the extent
granted or extended by the Company, be exercised on a pro rata basis with
respect to all holders of Common Stock (including holders of Common Stock
<PAGE>
other than the Purchasers who are also subject to an OTC Bulletin Board(R) Lock-
Up on similar terms as that contained in this section 10) who desire to sell
----------
shares of Common Stock on the OTC Bulletin Board(R).
(b) Allocation of Lock-Up Shares Amongst Certificates. In order to
-------------------------------------------------
facilitate the OTC Bulletin Board(R) Lock-Up, shares of the Subscribed
Securities purchased by any Purchaser will be allocated equally amongst four
stock certificates. Shares of Common Stock derived by conversion of shares of
Subscribed Securities evidenced by the first stock certificate will be issued
free of the OTC Bulletin Board(R) Lock-Up provision. Shares evidenced by the
second stock certificate can be sold on the OTC Bulletin Board(R) upon the
earlier of three months following the initial quotation of the Common Stock on
the OTC Bulletin Board(R) or June 30, 2000. Shares evidenced by the third stock
certificate can be sold on the OTC Bulletin Board(R) upon the earlier of six
months following the initial quotation of the Common Stock on the OTC Bulletin
Board(R) or September 30, 2000. Shares evidenced by the fourth stock certificate
can be sold on the OTC Bulletin Board(R) upon the earlier of nine months
following the initial quotation of the Common Stock on the OTC Bulletin Board(R)
or December 31, 2000.
(c) Legend. To facilitate compliance with the terms of this section
------ -------
10, the Company shall have the right to place the following legend (or any
- --
variation thereof determined appropriate by the Company) on the second through
fourth share certificates for the Subscribed Shares, including shares of Common
Stock into which such Subscribed Shares may be converted, to effectuate of the
OTC Bulletin Board(R) Lock-Up provision:
"Unless waived by the Company in its sole discretion, the
securities represented by this certificate may not be sold on the
NASD(R) OTC Bulletin Board(R) until the earlier of (i)
___________ (___) months following the initial quotation of the
Common Stock on the OTC Bulletin Board(R), or (ii)
______________, 2000, pursuant to the terms of an OTC Bulletin
Board(R) Lock-Up Provision set forth in full in that certain
Clean Energy Technologies, Inc. Series B Preferred Stock Purchase
Agreement dated March_____, 1999, a copy of which may be
inspected by authorized persons at the principal office of the
company, and all the provisions of which are incorporated by
reference in this certificate."
11. APPROVAL OF PBC LICENSE AGREEMENT PURCHASE RIGHTS
In the event 818879 Alberta exercises its right to terminate the PBC
Burner Technology License after March 4, 2001 if the Company's Common Stock is
not then actively trading on a National Market; each Purchaser hereby approves
the Company exercising its right to acquire title to the PBC Burner Technology
by paying 818879 Alberta up to Cdn. $525,000, plus interest accrued thereon at
the rate of 13% per annum from January 1, 1999, and hereby waives any objection
he, she or it may have to such exercise.
12. ADOPTION OF CERTIFICATE OF INCORPORATION AND BYLAWS
Each Purchaser hereby adopts, accepts and agrees to be bound by all
the terms and provisions of the Certificate of Incorporation and Bylaws of the
Company, as amended from time to time, and to perform all obligations therein
imposed upon a holder with respect to the Subscribed Shares.
13. MISCELLANEOUS
(a) Preparation of Agreement; Costs and Expenses. This Agreement
was prepared by the Company solely on behalf of the Company. Each party
acknowledges that: (i) he, she or it had the advice of, or sufficient
opportunity to obtain the advice of, legal counsel separate and independent of
legal counsel for any other party hereto; (ii) the terms of the transaction
contemplated by this Agreement are fair and reasonable to such party; and (iii)
such party has voluntarily entered into the transaction contemplated by this
Agreement without duress or coercion. Each party further acknowledges such party
was not represented by the legal counsel of any other party hereto in connection
with the transaction contemplated by this Agreement, nor was it under any belief
or understanding that such legal counsel was representing his, her or its
interests. Except as expressly set forth in this
<PAGE>
Agreement, each party shall each pay all legal and other costs and expenses
incurred or to be incurred by such party in negotiating and preparing this
Agreement; in performing due diligence or retaining professional advisors; in
performing any transactions contemplated by this Agreement; or in complying with
such party's covenants, agreements and conditions contained herein. Each party
agrees that no conflict, omission or ambiguity in this Agreement, or the
interpretation thereof, shall be presumed, implied or otherwise construed
against the Company or any other party to this Agreement on the basis that such
party was responsible for drafting this Agreement.
(b) Cooperation. Each party agrees, without further consideration,
-----------
to cooperate and diligently perform any further acts, deeds and things, and to
execute and deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the intent
and provisions of this Agreement, all without undue delay or expense.
(c) Interpretation.
--------------
(i) Survival. All representations and warranties made by any
--------
party in connection with any transaction contemplated by this Agreement
shall, irrespective of any investigation made by or on behalf of any other
party hereto, survive the execution and delivery of this Agreement and the
performance or consummation of any transaction described in this Agreement.
(ii) Entire Agreement/No Collateral Representations. Each
----------------------------------------------
party expressly acknowledges and agrees that this Agreement, together with
the Exhibits attached hereto and the agreements and documents referenced
herein (including the Memorandum and the Purchaser's respective
Subscription Application): (1) is the final, complete and exclusive
statement of the agreement of the parties with respect to the subject
matter hereof; (2) supersedes any prior or contemporaneous agreements,
proposals, commitments, guarantees, assurances, communications,
discussions, promises, representations, understandings, conduct, acts,
courses of dealing, warranties, interpretations or terms of any kind,
whether oral or written (collectively and severally, the "prior
agreements"), and that any such prior agreements are of no force or effect
except as expressly set forth herein; and (3) may not be varied,
supplemented or contradicted by evidence of prior agreements, or by
evidence of subsequent oral agreements. No prior drafts of this Agreement,
and no words or phrases from any prior drafts, shall be admissible into
evidence in any action or suit involving this Agreement.
(iii) Amendment; Waiver; Forbearance. Except as expressly
------------------------------
provided otherwise herein, neither this Agreement nor any of the terms,
provisions, obligations or rights contained herein, may be amended,
modified, supplemented, augmented, rescinded, discharged or terminated
(other than by performance), except by a written instrument or instruments
signed by all of the parties to this Agreement. No waiver of any breach of
any term, provision or agreement contained herein, or of the performance of
any act or obligation under this Agreement, or of any extension of time for
performance of any such act or obligation, or of any right granted under
this Agreement, shall be effective and binding unless such waiver shall be
in a written instrument or instruments signed by each party claimed to have
given or consented to such waiver and each party affected by such waiver.
Except to the extent that the party or parties claimed to have given or
consented to a waiver may have otherwise agreed in writing, no such waiver
shall be deemed a waiver or relinquishment of any other term, provision,
agreement, act, obligation or right granted under this Agreement, or any
preceding or subsequent breach thereof. No forbearance by a party to seek a
remedy for any noncompliance or breach by another party hereto shall be
deemed to be a waiver by such forbearing party of its rights and remedies
with respect to such noncompliance or breach, unless such waiver shall be
in a written instrument or instruments signed by the forbearing party.
(iv) Remedies Cumulative. The remedies of each party under this
-------------------
Agreement are cumulative and shall not exclude any other remedies to which
such party may be lawfully entitled.
(v) Severability. If any term or provision of this Agreement
------------
or the application thereof to any person or circumstance shall, to any
extent, be determined to be invalid, illegal or
<PAGE>
unenforceable under present or future laws, then, and in that event: (1)
the performance of the offending term or provision (but only to the extent
its application is invalid, illegal or unenforceable) shall be excused as
if it had never been incorporated into this Agreement, and, in lieu of such
excused provision, there shall be added a provision as similar in terms and
amount to such excused provision as may be possible and be legal, valid and
enforceable; and (2) the remaining part of this Agreement (including the
application of the offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or unenforceable)
shall not be affected thereby, and shall continue in full force and effect
to the fullest extent provided by law.
(vi) Parties in Interest. Notwithstanding anything else to the
-------------------
contrary herein, nothing in this Agreement shall confer any rights or
remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective successors and assigns, if any, as may
be permitted hereunder, nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third person to any party to
this Agreement, nor shall any provision give any third person any right of
subrogation or action over or against any party to this Agreement.
(vii) No Reliance Upon Prior Representation. Each party
-------------------------------------
acknowledges that: (1) no other party has made any oral representation or
promise which would induce them prior to executing this Agreement to change
their position to their detriment, to partially perform, or to part with
value in reliance upon such representation or promise; and (2) such party
has not so changed its position, performed or parted with value prior to
the time of the execution of this Agreement, or such party has taken such
action at its own risk.
(viii) Headings; References; Incorporation; "Person"; Gender;
------------------------------------------------------
Statutory References. The headings used in this Agreement are for
--------------------
convenience and reference purposes only, and shall not be used in
construing or interpreting the scope or intent of this Agreement or any
provision hereof. References to this Agreement shall include all amendments
or renewals thereof. All cross-references in this Agreement, unless
specifically directed to another agreement or document, shall be construed
only to refer to provisions within this Agreement, and shall not be
construed to be referenced to the overall transaction or to any other
agreement or document. Any Exhibit referenced in this Agreement shall be
construed to be incorporated in this Agreement by such reference. As used
in this Agreement, the term "person" is defined in its broadest sense as
any individual, entity or fiduciary who has legal standing to enter into
this Agreement such as, by way of example and not limitation, individual or
natural persons and trusts. As used in this Agreement, each gender shall be
deemed to include the other gender, including neutral genders appropriate
for entities, if applicable, and the singular shall be deemed to include
the plural, and vice versa, as the context requires. Any reference to
statutes or laws will include all amendments, modifications, or
replacements of the specific sections and provisions concerned.
(d) Enforcement.
-----------
(i) Applicable Law. This Agreement and the rights and remedies
--------------
of each party arising out of or relating to this Agreement (including,
without limitation, equitable remedies) shall (with the exception of the
Securities Act and the Blue Sky Laws) be solely governed by, interpreted
under, and construed and enforced in accordance with the laws (without
regard to the conflicts of law principles) of the State of Delaware, as if
this Agreement were made, and as if its obligations are to be performed,
wholly within the State of Delaware.
(ii) Consent to Jurisdiction; Service of Process. Any "action
-------------------------------------------
or proceeding" (as such term is defined below) arising out of or relating
to this Agreement shall (except to the extent governed by section 13(e)
-------------
relating to arbitration) be filed in and heard and litigated solely before
the state courts of Delaware located within the County of Kent. Each party
generally and unconditionally accepts the exclusive jurisdiction of such
courts and venue therein; consents to the service of process in any such
action or proceeding by certified or registered mailing of the summons and
complaint in accordance with
<PAGE>
the notice provisions of this Agreement; and waives any defense or right to
object to venue in said courts based upon the doctrine of "forum non
conveniens." The term "action or proceeding" is defined as any and all
claims, suits, actions, hearings, arbitrations or other similar
proceedings, including appeals and petitions therefrom, whether formal or
informal, governmental or non-governmental, or civil or criminal.
(iii) Waiver of Right to Jury Trial. Each party hereby waives
-----------------------------
such party's respective right to a jury trial of any claim or cause of
action based upon or arising out of this Agreement. Each party acknowledges
that this waiver is a material inducement to each other party hereto to
enter into the transaction contemplated hereby, that each other party has
already relied upon this waiver in entering into this Agreement, and that
each other party will continue to rely on this waiver in their future
dealings. Each party warrants and represents that such party has reviewed
this waiver with such party's legal counsel, and that such party has
knowingly and voluntarily waived its jury trial rights following
consultation with such legal counsel.
(e) Arbitration.
-----------
(i) Jurisdiction. The parties hereby agree that all
------------
controversies, claims and matters of difference arising out of or in
connection with the transactions contemplated by this Agreement including,
without limitation, the offer and sale of the Subscribed Shares
(collectively, the "Controversies"), shall, to the maximum extent allowed
by law, be resolved by arbitration (an "Arbitration Proceeding") before the
Judicial Arbitration and Mediation Services, Inc. (the "Arbitration
Authority") located in Kent County, Delaware (the "County"), according to
the rules and practices of the Arbitration Authority from time to time in
force. Without limiting the generality of the foregoing, the following
shall be considered Controversies for this purpose: (1) all questions
relating to the breach of any obligation, warranty, promise, right or
condition hereunder; (2) the failure of any party to deny or reject a claim
or demand of any other party; and (3) any question as to whether the right
to arbitrate a certain dispute exists. This agreement to arbitrate shall be
self-executing without the necessity of filing any action in any court and
shall be specifically enforceable under the prevailing arbitration law.
(ii) Initiation. A party shall institute an Arbitration
----------
Proceeding by sending written notice of an intent to arbitrate (the
"Arbitration Notice") to the other parties and to the Arbitration Authority
pursuant to the rules and regulations of the Arbitration Authority. The
Arbitration Notice shall set forth a description of the dispute, the amount
in controversy, and the remedy sought. An Arbitration Proceeding may
proceed in the absence of any party if the Arbitration Notice has been
properly given to such party.
(iii) Selection of Arbitrator. Within ten (10) business days
-----------------------
after receipt of an Arbitration Notice by the parties, they shall mutually
agree upon a single arbitrator (the "Arbitrator") selected from a panel of
retired judges from the Arbitration Authority. If the parties are unable to
agree upon the Arbitrator, then the parties shall, within fifteen (15)
business days after receipt of an Arbitration Notice by the parties, obtain
a list of panelists from the Arbitration Authority equal to the number of
parties plus one. The Arbitration Authority shall arrange and conduct a
conference in person and/or by telephone with all of the parties at a
mutually acceptable time no earlier than ten (10) business days, and no
later than twenty (20) business days, after its delivery of the list of
panelists. At such conference, the parties shall, in such order as
determined by the Arbitration Authority, strike one name from such list
(with no party being allowed to strike a name previously stricken), and the
remaining panelist shall be the Arbitrator. In the event two or more
parties desire to strike the name of the same arbitrator, then the first
party to notify the Arbitration Authority of their decision shall be deemed
to have stricken such name, in which case such other party or parties must
strike another name.
(iv) Procedures. The date of hearing for any Arbitration
----------
Proceeding shall be set, and all matters shall be calendared, in accordance
with applicable rules of civil procedure under Delaware law. All testimony
shall be given under oath. Each party shall have the right to be
represented by legal
<PAGE>
counsel throughout the Arbitration. The admission of all evidentiary
matters shall be governed in accordance with applicable rules of evidence
under Delaware law.
(v) Discovery. The parties shall have the right to engage in
---------
any and all discovery pertaining to civil litigation as they would be
entitled to pursuant to the rules of civil procedure under Delaware law
including, without limitation, all pre-hearing discovery as would be
permitted in civil litigation. Said discovery shall proceed pursuant to the
provisions of Delaware law governing discovery in civil litigation, and all
conditions and objections allowed under Delaware law shall be allowed with
respect to such discovery. The Arbitrator shall rule upon motions to compel
or limit discovery and shall have the authority to impose sanctions,
including attorneys' fees and costs, to the same extent as a court of law
or equity, should the Arbitrator determine that discovery was sought
without substantial justification, or that discovery was refused or
objected to without substantial justification.
(vi) Consolidation. Any Arbitration hereunder may be
-------------
consolidated by the Arbitrator with the arbitration of any other dispute
arising out of or relating to the same subject matter when the Arbitrator
determines that there is a common issue of law or fact creating the
possibility of conflicting rulings by more than one Arbitration Proceeding.
Any disputes over which an Arbitrator shall hear any consolidated matter
shall be resolved by the Arbitrator.
(vii) Application of Law; Scope of Powers; Written Decision. The
-----------------------------------------------------
Arbitrator shall apply such principles of law as provided above in section
-------
13(d)(i) of this Agreement relating to application of law, and shall
--------
endeavor to decide the controversy as though the Arbitrator was a judge in
a Delaware court of law. The Arbitrator shall have the power to issue any
award, judgment, decree or order of relief that a court of law or equity
could issue under such applicable law including, but not limited to, money
damages, specific performance or injunctive relief; and for such purposes
it is hereby expressly acknowledged and agreed that damages at law would be
an inadequate remedy for a breach or threatened breach of any provision of
this Agreement, it being the intention of this sentence to make clear the
agreement of the parties hereto that the respective rights and obligations
of the parties hereunder shall be enforceable in any Arbitration
Proceedings in accordance with principles of equity as well as of law.
(viii) Written Decision. The Arbitrator shall prepare a written
----------------
decision, signed by the Arbitrator, that shall be sent to the parties
within thirty (30) calendar days following the conclusion of the hearing.
The written statement will be supported by written findings of fact and
conclusions of law which adequately set forth the basis of the Arbitrator's
decision and which cite the statutes and precedents applied and relied upon
in reaching said decision.
(ix) Awards. The parties agree to abide by any award, judgment,
------
decree or order rendered in any Arbitration Proceeding by the Arbitrator.
The award, judgment, decree or order of the Arbitrator, and the findings of
the Arbitrator, shall be final, conclusive and binding upon the parties
hereto to the extent and in the manner provided by Delaware statute. Any
judgment upon the award and enforcement of any other judgment, decree or
order of relief granted by the Arbitrator may be entered or obtained in any
court of competent jurisdiction, state or federal, in the county in which
the residence or principal office of a non-prevailing party is located, as
a basis for judgment and for the issuance of execution for its collection
and, at the election of the party making such filing, with the clerk of one
or more other courts, state or federal, having jurisdiction over the party
against whom such an award is rendered, or such party's property. The
parties shall have the right to petition the Superior Court of the
appropriate County to confirm, correct or vacate the Arbitrator's award in
accordance with the applicable rules of civil procedure under Delaware law.
(f) Successors and Assigns. All of the representations, warranties,
----------------------
covenants, conditions and provisions of this Agreement shall be binding
upon and shall inure to the benefit of each party and such party's
respective successors and permitted assigns, spouses, heirs, executors,
administrators, and personal and legal representatives.
<PAGE>
(g) Counterparts; Electronically Transmitted Documents. This
--------------------------------------------------
Agreement may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this Agreement
may be detached from any counterpart of this Agreement and reattached to any
other counterpart of this Agreement identical in form hereto by having attached
to it one or more additional signature pages. If a copy or counterpart of this
Agreement is originally executed and such copy or counterpart is thereafter
transmitted electronically by facsimile or similar device, such facsimiled
document shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
WHEREFORE, the parties hereto have, for purposes of this Agreement,
executed this Agreement in the City of Burnaby, Province of British Columbia, as
of the applicable Closing Date.
COMPANY: PURCHASERS:
CLEAN ENERGY TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ John P. Thuot /s/ Purchasers*
----------------------------- ----------------------------
John P. Thuot, President * Deemed Executed Pursuant to
Subscription Applications
<PAGE>
EXHIBIT 4.8
INVESTOR RELATIONS & STOCK MARKETING ADVISORY SERVICES
------------------------------------------------------
AGREEMENT
---------
1 April, 1999
BETWEEN: CLEAN ENERGY TECHNOLOGIES (Canada) INC.
OF THE FIRST PART hereafter referred to as "the Company"
AND: ABCE ENTERPRISES. INC.
OF THE SECOND PART hereafter referred to as "the Consultant"
WHEREAS:
The Company requires investor relations and stock market advisory services
and desires to retain the Consultant to provide such services, under terms and
conditions acceptable to the Company; and the Consultant is agreeable to such
engagement;
WHEREAS:
The parties desire a written document formalizing and defining their
relationship and evidencing the terms of their agreement;
NOW THEREFORE:
Intending to be legally bound and in consideration of the mutual promises
and covenants contained herein, the parties have agreed as follows:
1. APPOINTMENT
The Company hereby appoints the Consultant to provide investor relations
and stock market advisory services and hereby retains the Consultant on the
terms and conditions of this Agreement.
The Consultant accepts such appointment and agrees to use his efforts and
business connections to perform such services, upon the terms and conditions of
this Agreement.
2. TERM
The initial term of this Agreement shall begin upon signing and run for a
period of One Year. This Agreement will automatically and successively be
renewed month to month there after unless either the Consultant or the Company
gives thirty (30) days written notice of
<PAGE>
termination.
3. SERVICES OF THE CONSULTANT
All services of the consultant shall be under the direction of the Company.
The Consultant shall act generally as the investor relations and stock
marketing consultant for the Company and, as such, shall perform services as
follows:
Consult with and advise the Company with respect to the Company's rating
(if any) of its securities and the market price of it's securities, etc.
Consult with, advise, and assist the Company's relations with underwriters,
brokers, market makers, shareholders, potential investors on the secondary
markets, and financial analysts.
Consult with, and advise the Company on public relations and dissemination
of information pursuant to the market requirements and the appropriate stock
exchanges and regulatory authorities.
Consult with, advise and assist the Company in securing market makers,
promotion and otherwise gaining access to the public securities market.
Consult with, advise and assist the Company in developing appropriate due
diligence material to satisfy the in-house and regulatory requirements of
brokers.
Consult with, advise and assist the Company in developing appropriate
sample broker presentations, corporate mailing pieces, brochures, shareholder
communications, research reports and other collateral material.
4. LIMITATIONS OF SERVICES
The parties recognize that certain responsibilities and obligations are
imposed by federal, provincial and state securities laws and by the applicable
rules and regulations of stock exchanges and in-house due-diligence or
compliance departments of brokerage houses, etc., and both parties agree to be
bound thereby and further agree:
The Consultant shall not release any financial or other material or
information or data about the Company and its business without the written
consent of the Company.
The Consultant shall not conduct any meetings with financial analysts
regarding the Company without first informing the Company of the proposed
meeting and its general agenda,
<PAGE>
and receiving written approval.
5. DUTIES OF THE COMPANY
Company shall supply the Consultant, on a regular basis, with all
appropriate data and information about the Company and its management.
Company shall promptly (as soon as available) supply the Consultant with
copies of financial statements, "final" financial projections, capital budgets,
communications, takeover offers, hostile proxy solicitations and similar matters
pertaining to the services to be rendered by the Consultant as the Company sees
fit.
6. COMPENSATION
(a) For all general investor relations, marketing advice and services the
Company shall pay the Consultant a fee of $6,000.00 (CDN) per month.
(b) The Company shall grant the Consultant an option to purchase 36,000
shares of the common stock of the Company's parent, Clean Energy Combustion
Systems, Inc., at an exercise price of $2.00 (US) per share, vesting monthly in
equal installments over 24 months of continued performance under this Agreement.
(c) Any expenses anticipated by the Consultant must be pre-approved in
writing by the Company.
7. ASSIGNMENT
The rights and obligations of the parties under this Agreement shall inure
to the benefit of and shall be binding upon the successors and assigns of the
parties. This Agreement shall not be assigned without the prior written approval
of both parties.
8. NOTICES
Any notice required or permitted to be given, under this Agreement shall be
sufficient if in writing and if sent by certified mail, return receipt
requested, to the principal office of the party being notified. Interim
communications may be effected via fax and confirmed in accordance with this
paragraph within a reasonable time thereafter.
<PAGE>
9. ENTIRE AGREEMENT
This instrument contains the entire Agreement of the parties and may be
modified or amended only by agreement in writing, signed by the parties hereto.
This Agreement is the entire Agreement of the parties, whether oral or written.
Any provision not severed will remain in full force and effect. This Agreement
shall be governed for all purposes by the laws of British Columbia. If any
provision of this Agreement is declared void, such provision shall be deemed
severed from this Agreement, which shall otherwise remain in full force and
effect. All disputes arising out of or in connection with this agreement, or in
respect of any defined legal relationship associated herewith or derived
therefrom, shall be referred to and formally resolved by arbitration under the
rules of the British Columbia International Commercial Arbitration Center. The
case shall be administered by the British Columbia International Commercial
Arbitration Center in accordance with its "Procedures for Cases under the
B.C.I.C.A.C. Rules".
IN WITNESS WHEREOF
the parties have executed this Agreement as of the date first above written.
/s/ Don Bender /s/ John D. Chato
- ------------------------ ------------------------
_DON BENDER JOHN D. CHATO
Authorized Signatory for Authorized Signatory for
ABCE ENTERPRISES INC. CLEAN ENERGY COMBUSTION
1203-1050 Harwood St. SYSTEMS (Canada) INC.
Vancouver, BC V6E 1R4 7087 MacPherson Ave.
Burnaby, BC, V5J 4N4
<PAGE>
EXHIBIT 10.1
LICENSE AGREEMENT
THIS AGREEMENT dated for reference March 5, 1999.
BETWEEN:
818879 ALBERTA LTD., an Alberta, Canada, corporation
having its head office at 4500 Bankers Hall West,
855 Second Street, S.W., Calgary, AB, T2P 4K6, Canada
("818879")
OF THE FIRST PART
AND:
CLEAN ENERGY TECHNOLOGY INC., a Delaware, U.S.A.
corporation having its head office at 7087
MacPherson Avenue, Burnaby, B.C., V5J 4N4, Canada
("CETI")
OF THE SECOND PART
WHEREAS:
A. 818879 owns the exclusive right to exploit a novel blade combustion
geometry which utilizes pulse blade combustion for which the letters patent
detailed in Schedule "A" attached hereto have been issued or applied for
(the "PBC Technology");
B. John D. Chato, the inventor of the PBC Technology and the original holder
of the Patents, has granted to 818879 and its assignees a 120 day right of
first refusal to acquire from him the exclusive right to exploit any future
inventions using pulse blade combustion which are outside the scope of the
definition of "patents" contained in paragraph 1.1(g) of this Agreement
(the "Right of First Refusal");
C. 818879 has agreed to grant to CETI the exclusive worldwide right and
license to design, engineer, manufacture, market, distribute, lease and
sell burner products using the PBC Technology, and to sublicense and
otherwise commercially exploit the PBC Technology;
D. 818879 has also agreed to grant to CETI an option to purchase the PBC
Technology the Right of First Refusal, and related intellectual property,
as set out in this License Agreement.
NOW THEREFORE in consideration of CETI paying U.S. $10.00 to 818879 and other
good and valuable consideration contemplated by this Agreement (the receipt and
sufficiency of which is hereby acknowledged by 818879), the parties hereto
covenant and agree as follows:
<PAGE>
-2-
1. DEFINITIONS
1.1 In this Agreement the following definitions apply:
(a) "Business Day" means means any day other than a day which is a
Saturday, a Sunday or a statutory holiday in British Columbia, Canada.
(b) "Confidential Information" means all trade secrets, know-how,
proprietary knowledge, technology, improvements and other valuable
information relating to the PBC Technology or the Patents which is not
yet in the public domain.
(c) "License" mean the exclusive world-wide right to design, engineer,
manufacture, market, distribute, lease and sell burner products using
the PBC Technology, and to sublicense and otherwise commercially
exploit the PBC Technology.
(d) "Licensed Activities" mean the designing, engineering, manufacturing,
marketing, distributing, leasing and selling of burner products and
other heating applications which utilize, or are used in conjunction
with, the PBC Technology, and the sublicensing of such activities.
(e) "Licensed Applications" mean all burner products and other heating
applications which utilize, or are used in conjunction with, the PBC
Technology;
(f) "National Market" means any of the New York Stock Exchange, the
American Stock Exchange or the Nasdaq Stock Market (both SmallCap and
National Markets);
(g) "Patents" means and includes:
(i) the patents and patent applications listed in Schedule "A";
(ii) any divisional, continuation or substitute patent applications
which are based on the patents or patent applications listed in
Schedule "A";
(ii) any patent which may issue or be re-issued from any patent
application described in (ii); and
(iv) patents and patent applications corresponding to each of the
patents and patent applications described in (i), (ii) and (iii)
above which are issued, filed, or to be filed in any and all
foreign jurisdictions, and patents (including but not limited to
patents of importation, improvement, or addition, utility models
and inventors certificates) which may subsequently issue thereof,
and any renewals, divisions, renewals, continuations or
extensions thereof.
<PAGE>
-3-
(h) "Personnel" means any employee, officer, director, shareholder,
independent contractor, representative or other agent of an entity;
(i) "Related Party" means any person, corporation, partnership, firm or
other entity which is related to CETI in any of the following ways:
(i) as an affiliate of CETI (as interpreted below);
(ii) as the Personnel of CETI, an affiliate of CETI, or a Sublicense;
(iii) as a financial institution leasing, or otherwise providing
financing for, a purchased item of Licensed Application to CETI
or to a Sublicensee or affiliate of CETI.
For the purpose of this definition, "affiliate" is to be interpreted
broadly to apply to any person, corporation, firm or other entity
which controls, is controlled by or is under common control with CETI
or any Sublicensee; and "control" is also to be interpreted broadly to
include actual control. Without limiting the generality of the
foregoing, "affiliate" shall include any person, corporation, firm or
other entity which has an interest in not less than 35% of the issued
voting capital of CETI or any Sublicensee; and any corporation in
which CETI or any Sublicensee have in aggregate an interest in not
less than 35% of the issued voting capital of that corporation.
(j) "Sublicense" means any agreement between CETI and another party under
which CETI sublicenses its right to pursue any of the Licensed
Activities in respect of any of the Licensed Applications;
(k) "Sublicensee" means the holder of a subsisting Sublicense;
(l) "Term" means the period commencing March 5, 1999 and ending on the
earlier of: (i) March 5, 2019 and (ii) the lapsing date of the newest
of the underlying patents for the PBC Technology, including patents on
any improvements thereto.
2. GRANT OF LICENSE
2.1 For the consideration set out in this Agreement, 818879 hereby grants to
CETI the License for the Term. During the Term, CETI will use its best
efforts to pursue the Licensed Activities to the fullest extent possible,
and without interruption.
<PAGE>
-4-
Ancillary Grant
2.2 Ancillary to this grant of License, 818879 hereby grants to CETI for use
solely in pursuit of the Licensed Activities during the term of this
Agreement, the exclusive right to use the PBC Technology, the Patents,
the Confidential Information and all those ancillary assets owned by
818879 which CETI will need to carry out the Licenced Activities, (the
"Ancillary Assets").
Licensed Trademarks
2.3.1. In order to promote and identify the Licensed Applications, 818879
hereby grants to CETI the right to use any trademarks and trade names
designated by 818879 for use from time to time in conjunction with the
Licensed Applications during the term of this Agreement (the "Licensed
Trademarks"); 818879 authorizes CETI to grant to Sublicensees, when
necessary under a Sublicense, the right to use specified Licensed
Trademarks in a specified territory during the term of this Agreement;
but CETI, each Sublicensee and any applicable Related Party must first
enter into such user agreements with 818879, in forms approved by
818879, as 818879 shall from time to time deem appropriate for each
jurisdiction in which any of the Licensed Trademarks are to be used, but
no such user agreements may require payment of any fee or royalty to
818879 or to CETI. CETI may not use, nor will it allow any Sublicensee
or Related Party to use, the Licensed Trademarks except in connection
with Licensed Activities as permitted under this Agreement.
2.3.2. The Licensee will identify or cause to be identified prominently on each
item of a Licensed Application the applicable patent or pending patent,
together with the trademark and trade name specified by 818879 for such
item. On each item of a Licensed Application must be affixed an
identification plate which indicates:
(a) the relevant patent or pending patent with its serial number or
numbers;
(b) the place of manufacture; and
(c) the following statement: "CETI (or the name of the relevant
Sublicensee as the case may be) under license from 818879". No
trade name other than one of 818879's Licensed Trademarks, as
specified by 818879, one of CETI's trade names, as specified by
CETI, and one of the trade names of a Sublicensee, if such item was
manufactured or distributed by a Sublicensee, may be affixed to any
item of a Licensed Application. Unless 818879 and CETI specifically
agree in writing otherwise, the size of 818879's Licensed
Trademarks and CETI's trade names affixed to items of a Licensed
Application must be at least 100% of the size of the largest of any
Sublicensee's trade names or trademarks affixed to such items.
2.3.3 CETI will use, and cause the Licensed Trademarks to be used, in strict
compliance with all applicable laws and regulations.
<PAGE>
-5-
2.3.4 CETI will conduct any advertising and promotion in which the Licensed
Trademarks are used in such a way as to ensure the continued validity
and enforceability of the Licensed Trademarks.
Patent and Trademark Applications
2.4 Except as provided for in this paragraph, no one other than 818879 may
apply for or register any patent, trademark or other proprietary
intellectual property rights in any jurisdiction with respect to the PBC
Technology, the Confidential Information or the Licensed Applications.
CETI, each Sublicensee and each Related Party will notify 818879 in
writing at least 30 days before using a Patent, a Licensed Trademark or
the Confidential Information in any jurisdiction in which such Patent,
Licensed Trademark or the Confidential Information has not previously
been used by CETI, such Sublicensee or such Related Party. CETI will, at
the request of 818879, execute such documents as may be appropriate for
filing or recording in any jurisdiction evidence as to the status of
CETI or a Sublicensee as a licensee or registered user. 818879 will use
its best efforts to apply for and register patent, trademark or other
proprietary intellectual property rights, or such evidence as to the
status of CETI or a Sublicensee in any jurisdiction requested by CETI,
but 818879's inability or failure to obtain such registration or
evidence will not be a breach of this Agreement. If 818879 fails to
obtain any such registration or evidence CETI may, with the prior
written consent of 818879, attempt to obtain such registration or
evidence in the name of 818879. All costs and expenses of either 818879
or CETI in connection with such attempts (including without limitation
reasonable legal expenses) will be the responsibility of CETI. At the
request of CETI, either during or after the term of this Agreement,
818879 will execute such documents and render such assistance as may be
appropriate to enable CETI to obtain registration or evidence as to
status in any jurisdiction. Other than as set out in this paragraph,
818879 has no obligation whatsoever to apply for or register patents,
trademarks, or other proprietary intellectual rights in any jurisdiction
in which such patents, trademarks or rights are not registered as of the
reference date of this Agreement.
Superior Rights of 818879
2.5 CETI acknowledges that subject only to this exclusive License to CETI,
818879 is the owner of the PBC Technology, the Patents, the Confidential
Information and the Licensed Trademarks. CETI may not, during the term
of this Agreement or at any time after the termination of this Agreement
(unless CETI has exercised its option to purchase under Parts 9 or 10),
in any way whatsoever dispute, object to or challenge, through
proceedings or otherwise, the validity of the Patents, or 818879's
ownership of the PBC Technology, the Patents, the Confidential
Information or the Licensed Trademarks.
No Rights by Implication
2.6 No rights or licenses with respect to the PBC Technology, the Patents or
the Confidential Information, are granted or deemed granted to CETI
other than as expressly set out in paragraph 2.2 of this Agreement.
Without limiting the foregoing, no Sublicensee or Related
<PAGE>
-6-
Party has any right whatsoever to conduct any research, development,
modification, alteration or improvement of the PBC Technology, or any
application of it.
Quality Control
2.7 If CETI manufactures or assembles any items of Licensed Applications, it
covenants to use its best efforts to ensure that each such item:
(a) satisfies any and all applicable governmental laws and regulations;
(b) is constructed of materials of appropriate high quality; and
(c) is tested with due care before its use, operation or sale to any
third party.
Export Licenses
2.8 At the reasonable request of CETI, 818879 will use its best efforts to
obtain any export and re-export authorizations or licenses, which CETI
may require from time to time, but its inability to obtain such
authorizations or licenses will not constitute a breach of this
Agreement. CETI is responsible for the costs and expenses of 818879 in
obtaining any export and re-export authorizations and licenses. If
818879 is unable to obtain any such authorizations or licenses, CETI
may, but is not required to, attempt to obtain such authorizations or
licenses itself, in which case, 818879 will assist and co-operate with
CETI in this process.
3. REPORTS
Contents of Reports
3.1 CETI will deliver to 818879 within 90 days of the end of each year, a
written report, certified by the chief operating officer of CETI as
being true and correct, describing, for the applicable year, all CETI's
initiatives, efforts, and results in pursuit of the Licensed Activities
during the year.
Right to Review
3.2 On seven days' prior notice to CETI, 818879 and its agents may have full
access to the books and records of CETI pertaining to activities under
this Agreement, and may make copies of them at 818879's expense. 818879
and its agents may have such access at all reasonable times during
normal business hours throughout the term of this Agreement.
Information Confidential
3.3 818879 will keep confidential all information obtained in the course of
any examination of
<PAGE>
-7-
CETI's books and records, except when it is necessary
for 818879 to reveal such information in order to enforce its rights
under this Agreement in court, arbitration or similar dispute resolution
or enforcement proceedings and except when compelled by law.
4. SUBLICENSE CONDITIONS
Limited Right to Grant Sublicenses
4.1 818879 grants to CETI the right to grant Sublicenses during the term of
this Agreement, but only with the prior written consent of 818879, such
consent not to be unreasonably withheld, and only if such Sublicense
complies in all respects with the provisions of this Part 4.
Quality Control
4.2 CETI must include in each Sublicense a quality control provision
identical to paragraph 2.7, except that in such Sublicense, a reference
to CETI will instead refer to the relevant Sublicensee.
Sublicensee Bound by License
4.3 In each Sublicense, the Sublicensee must acknowledge that it is bound by
all CETI's obligations contained in this Agreement and that CETI's
rights, powers and remedies with respect to the Sublicensee are at least
as great as 818879's rights, powers and remedies with respect to CETI
contained in this Agreement, and CETI will cause each Sublicensee to
execute any and all additional documents reasonably requested by 818879
to that effect.
CETI's Obligations Continue
4.4 Notwithstanding any such Sublicense, CETI will remain responsible to
818879 for all CETI's obligations under this Agreement.
Termination of Sublicense
4.5.1 Upon the termination or expiry of this Agreement for any reason (other
than the exercise by CETI of its option to purchase under Parts 9 or
10), each Sublicense will automatically terminate except that, for a 90
day period following such termination, each Sublicensee may reinstate
its Sublicense with 818879 (or its assignee, as the case may be) taking
the place of CETI in such Sublicense. Such reinstatement will be
effective upon 818879 receiving a written acknowledgment and agreement
from the relevant Sublicensee to the effect that:
(a) 818879 is the assignee of CETI's rights under such Sublicense;
(b) all rights and remedies of CETI in effect on or before the
effective date of such
<PAGE>
-8-
reinstatement pursuant to such Sublicense are also assigned to
818879; and
(c) the obligations of 818879 (or its assignee, as the case may be)
under such reinstated Sublicense will under no circumstances be
greater than the obligations of 818879 to CETI under this
Agreement.
Sublicense to Become CETI License
4.6 If CETI exercises its option to purchase the PCB Technology under Parts
9 or 10, each Sublicense which is in good standing at the time will
automatically continue as a license with CETI.
5. CONFIDENTIAL INFORMATION
5.1 CETI will maintain the confidentiality of the Confidential Information
during the term of this Agreement and for the period after termination
or expiry of this Agreement until such information has entered the
public domain.
5.2 CETI will not disclose any Confidential Information to any of its
Personnel, to a Sublicensee, to a Related Party, or to any of their
Personnel, except to those specific Personnel to whom knowledge of the
Confidential Information is reasonably necessary to enable them to
pursue the Licensed Activities in accordance with this Agreement.
5.3 CETI will not disclose Confidential Information to a person other than
one identified in paragraph 5.2 unless it is necessary to do so in the
ordinary course of CETI's Licensed Activities and unless:
(a) such person has executed a confidentiality agreement (the
"Confidentiality Agreement") substantially in the form of Schedule "B"
attached to and made a part of this Agreement; or
(b) CETI has taken other steps acceptable to 818879, acting reasonably,
to ensure that such person will maintain the confidentiality of the
Confidential Information during the term of this Agreement and for
the period after termination or expiry of this Agreement during
which such information has not yet entered the public domain.
6. IMPROVEMENTS
Disclosure of Improvements
6.1 818879, CETI, each Sublicensee and each Related Party will immediately
disclose to each other all improvements to the PBC Technology, the
Licensed Applications or the Confidential
<PAGE>
-9-
Information. Nothing contained in this paragraph will by implication or
otherwise sanction the conduct by CETI, any Sublicensee or any Related
Party of those activities expressly prohibited by the terms of paragraph
2.6 of this Agreement.
Improvements Included in License
6.2 Improvements to the PBC Technology, the Licensed Applications or to the
Confidential Information (whether capable of being patented or not) made
by John D. Chato, or by or on behalf of 818879, CETI, any Sublicensee or
any Related Party, will be the exclusive property of 818879, and as
such, will be deemed part of this License and of the right to purchase
in paragraph 9.2 and the PBC Technology Option and may be used by CETI
in connection with the Licensed Activities, subject to the terms and
conditions of this Agreement. Neither party will be entitled to
additional monetary consideration from the other party for the use of
such improvements in the pursuit of the Licensed Activities and neither
party will disclose such improvements to third parties without first
obtaining from such third parties obligations substantially the same as
those set forth in Part 5 CONFIDENTIAL INFORMATION.
Improvements to be Assigned to 818879
6.3 In the case of improvements made to the Licensed Applications or to the
Confidential Information by CETI, any Sublicensee, any Related Party or
their Personnel, during the term of this Agreement, CETI will
immediately take all steps and cause any Sublicensee, Related Party or
their Personnel to take all steps as are reasonably required by 818879
to transfer title and ownership of such improvements to 818879. 818879
alone has the right to apply for and obtain patents or other proprietary
registrations in respect of such improvements. 818879 hereby appoints
CETI as its sole agent and Power of Attorney for the purpose of pursuing
such applications and registrations on behalf of 818879, and 818879 will
assist and co-operate with CETI in this process. Any patents so obtained
will be deemed included in the License, the right to purchase in
paragraph 9.2 and the PBC Technology Option, and will be subject to the
terms and conditions of this Agreement.
7. PROTECTION OF PATENTS & TRADEMARKS
Detect and Report Patent Infringements
7.1 CETI will keep watch to detect any possible infringements or other
unauthorized use of any of the Patents or Licenced Trademarks. Upon
discovery of a possible infringement or other unauthorized use, CETI
will immediately notify 818879.
7.2 Patent and Trademark Infringements
7.2.1 During the term of this License, 818879 will, at the expense of CETI, be
solely responsible for taking all actions, legal or otherwise, which, in
the judgment of 818879 are reasonably necessary to protect or enforce
any of the Patents or Licenced Trademarks. CETI will be solely
<PAGE>
-10-
responsible for paying any award of court costs or damages resulting
from such actions. The selection and conduct of such actions will be at
the sole discretion of 818879. CETI will cooperate with 818879 and not
interfere in any way with 818879 in respect of the conduct of such
actions.
7.2.2 If 818879 does not take action to protect or enforce a Patent or
Licensed Trademark within 120 days after receiving notice from CETI of a
possible infringement or other unauthorized use, then CETI may itself
commence an action to protect or enforce the Patent or Licensed
Trademark. 818879 will have the right to be kept informed of the status
and progress of any such action instituted by CETI.
7.2.3 Any recoveries, awards or settlements by 818879 resulting from efforts
to protect or enforce any of the Patents or Licensed Trademarks, after
the deduction of any costs or expenses incurred by 818879, will be paid
to CETI.
Patent or Trademark Validity Defences
7.3 As between 818879 and CETI, 818879 will have the sole responsibility for
defending, at the expense of CETI, all legal actions asserting the
invalidity of any of the Patents or Licensed Trademarks. 818879 will
conduct such defence, and CETI will cooperate with and not interfere
with 818879's defence of such actions. CETI will be solely responsible
for any award of court costs and damages resulting from such a defence.
If 818879 does not defend against any such action (including appropriate
appeals), CETI may defend against such an action and 818879 will have
the right to be kept informed of the status and progress of each such
defence by CETI.
Other Party's Name in Suit
7.4 Where, in the judgment of either 818879 or CETI, as the case may be, it
is necessary to join the other as a party in order to effectively
prosecute or defend an action asserting infringement or invalidity of
any of the Patents or Licensed Trademarks, each party will allow the
other to so join such other party as a party to the action.
Notification of Suit
7.5 Each Party will immediately notify the other of any suit or action
wherein such party or any Sublicensee or Related Party is named as a
party and which directly or indirectly relates to the use of the
Patents, the Licensed Trademarks, the Licensed Applications or the
Licensed Activities.
Detect and Report Breach of Confidential Information
7.6 Each party will keep watch to detect any possible unauthorized
disclosures or use of the Confidential Information and will immediately
notify the other party of any such possible unauthorized disclosures or
uses.
<PAGE>
-11-
Action Against Confidential Information Breaches
7.7 If any unauthorized disclosure or use of Confidential Information has
not ceased within a reasonable period, not to exceed 15 days, after
written notice given by either 818879 or CETI which demands that the
relevant person or entity terminate such unauthorized disclosure or use,
then 818879 may, and at CETI's request will, at CETI's expense,
immediately bring legal action to enjoin and seek damages for such
unauthorized disclosure or use, and CETI will become a party to such
action if, in the judgment of 818879, it is necessary or advisable; but
if 818879 has not commenced any such action within 30 days after either
818879 or CETI has given notice demanding termination, then CETI may do
so upon written notice to 818879. 818879 will conduct such action and
CETI will cooperate with 818879 in such action. CETI will bear the costs
of such action as well as any award of court costs and damages resulting
from such action. Any recoveries, awards, or settlements resulting from
actions taken against parties making unauthorized disclosures or uses
will be paid to CETI after deduction of any costs or expenses incurred
by 818879.
Requests for Payment
7.8 All amounts payable by CETI to 818879 pursuant to this Article 7 will be
payable immediately after 818879 makes a written request and provides
CETI with a written summary of the amounts outstanding, together with
such supporting documentation as may be reasonably requested by CETI.
8. INDEMNITY BY CETI AND SUBLICENSEES
Indemnity
8.1 CETI will indemnify and hold 818879 harmless from and against any and
all claims, injuries, liabilities, costs and expenses resulting from, or
claimed to have resulted from, any Licensed Activity or the use or
operation of the Licensed Applications by CETI, any Sublicensee, any
Related Party or any Unrelated Party (whether based on negligence,
strict liability or other grounds) and against claims for consequential
damages and/or lost profits arising from such Licensed Activity or the
use or operation of Licensed Applications. CETI will maintain insurance
with reputable insurance companies approved by 818879 (such approval not
to be unreasonably withheld) for such risks and in such amounts as
818879 in its reasonable business judgment determines to be appropriate.
818879 will be named as an additional insured and loss payee on each
such insurance policy.
Sublicensee Indemnity
8.2 CETI will cause each Sublicensee to indemnify and hold 818879 harmless
from and against any and all claims, damages, injuries, liabilities,
costs and expenses incurred by 818879 resulting from a claim in respect
of:
<PAGE>
-12-
(a) a design or manufacturing defect in any item of Licensed Applications
manufactured by such Sublicensee or by any sublicensee of such
Sublicensee (whether characterized as product liability, negligence,
strict liability, breach of warranty or otherwise) or
(b) any other cause which was under the control of such Sublicensee or
any sublicensee of such Sublicensee during the manufacture of any
item of Licensed Applications. CETI will cause Sublicensees to be
solely responsible for all costs and expenses of 818879 in respect of
all such actions brought against 818879. No Sublicensee will
compromise or settle any such claim or action against it without the
prior written consent of 818879 and any such attempted compromise or
settlement will be void and of no effect whatsoever as against
818879.
8.2.1 Each Sublicensee indemnifying 818879 pursuant to this paragraph 9.2 will:
(a) maintain insurance with reputable insurance companies approved by
818879 (such approval not to be unreasonably withheld) for such
risks, and in such amounts as 818879 in its reasonable business
judgment determines to be appropriate, with such polices naming
818879 and CETI as additional insured and loss payees; and
(b) at the reasonable request of either 818879 or CETI, pay premiums on
insurance policies identified by 818879 or CETI which insure 818879
or CETI against adverse final monetary judgment awards in excess of
the insurance coverage provided by such Sublicensee pursuant to part
(i) of this sub-paragraph.
9. TERMINATION AND EXPIRY
Automatic Expiry
9.1 Unless it is terminated on an earlier date pursuant to this Part 9 or by
the exercise by CETI of its option under Part 10, this Agreement will
continue in full force and effect until it automatically expires at the
end of the Term.
Early Termination by 818879 and Resulting Right to Purchase by CETI
9.2 If for any reason CETI's Common Stock is not actively trading on a
National Market by March 4, 2002, then 818879 and CETI will have the
following rights, respectively:
(a) 818879 will have the right, on giving CETI written notice
accompanied by Cdn $1.00, to terminate this Agreement, but ;
(b) if 818879 exercises its termination right, CETI will have the
right, for 90 days following receipt of the written notice of
termination, to obtain the listing of CETI's Common Stock on a
National Market (in which case 818879's
<PAGE>
-13
termination right shall lapse), or, in the alternative, to
purchase title to the PBC Technology, the Confidential
Information, all the Patents, the Right of First Refusal, all
Licensed Trademarks and the Ancillary Assets, by payment of Cdn
$525,000 plus interest accrued thereon at the rate of 13% per
annum from January 1, 1999, but only if 818879 first tenders to
CETI (i) 593,750 shares of CETI's Common Stock, without
additional consideration therefore; to the extent that 818879 is
unable to tender such shares, the monetary consideration referred
to above will be reduced on a pro rata basis based upon the
number of shares of Common Stock actually tendered; and (ii) all
shares of Series A Preferred Stock then remaining outstanding;
(c) if 818879 has not exercised its termination right by March 4,
2003, then CETI has the right, on giving 818879 written notice,
to require 818879 to exercise its termination right within 90
days of receipt of the written notice;
(d) if 818879 fails to exercise its termination right within the 90
day period in (c), title to the PBC Technology, the Confidential
Information, all the Patents, the Right of First Refusal, all
Licensed Trademarks and the Ancillary Assets will automatically
revert to CETI upon payment of Cdn $1.00 to 818879.
Insolvency
9.3 This Agreement will terminate at any time at the option of 818879 if CETI
becomes bankrupt or insolvent, is threatened with bankruptcy or insolvency,
or makes an assignment in favour of creditors.
CETI will Cease Licensed Activities
9.4 Within 90 days of termination of this Agreement for any reason, and except
(i) as permitted under paragraph 9.5, or (ii) if CETI acquires the PCB
Technology and the related intellectual property under its rights in
paragraph 9.2 or Part 10, CETI will cease to pursue any Licensed
Activities and will cease to use the Confidential Information, all the
Patents, any Licensed Trademarks, and the Ancillary Assets in any manner
whatsoever.
Completion Period
9.5 Notwithstanding paragraph 9.4 CETI may, during the nine month period
immediately following termination of this Agreement, complete uses or
operations in progress, finish items of Licensed Applications then in the
process of being manufactured and liquidate its inventory, all in
accordance with the terms and conditions of this Agreement.
Adverse Infringement Judgment not Default
9.6 818879 may not terminate this Agreement by reason only of an adverse
judgment in favour of a
<PAGE>
-13-
third party in respect of an infringement or unfair competition action
involving the use of any of the Patents or any Licensed Trademarks.
10. OPTION
10.1 On or after March 4, 2002, CETI has the option (the "PBC Technology
Option") to purchase from 818879 all its right, title and interest in the
PBC Technology, the Confidential Information, all the Patents, the Right
of First Refusal, all Licensed Trademarks and the Ancillary Assets, for
Cdn $1.00, but only so long as:
(a) CETI's Common Stock has been accepted for listing or quotation on a
National Market by that date; and
(b) CETI has not become bankrupt or insolvent, has not been threatened
with bankruptcy or insolvency, or has not made an assignment in
favour of creditors.
10.2 If following the exercise of the PBC Technology Option, CETI become
bankrupt or insolvent, is threatened with bankruptcy or insolvency, or
makes an assignment in favour of creditors, then 818879 may repurchase
from CETI the PBC Technology, the Confidential Information, all the
Patents, the Right of First Refusal, all Licensed Trademarks and the
Ancillary Assets (the "PBC Technology Repurchase Option"), but the PBC
Technology Repurchase Option will expire once CETI has been accepted for
listing or quotation on a National Market for a period of two years, or if
the percentage of 818879's ownership of outstanding CETI Common Stock
falls below 5%. To exercise the PBC Technology Repurchase Option, 818879
must tender to CETI 593,750 shares of CETI Common Stock, without
additional consideration therefore.
11. GOVERNING LAW
11.1 This Agreement will be governed by and construed in accordance with the
laws of the Province of British Columbia, Canada. The parties irrevocably
attorn to the jurisdiction of the Supreme Court of British Columbia,
Canada, Vancouver Registry, for the purposes of all litigation in respect
of or arising out of the terms of this Agreement.
12. ASSIGNMENT
Assignment by 818879
12.1 818879 may not assign any or all of its rights under this Agreement or
sell the PBC Technology to a third party except with the prior written
consent of CETI, which consent may not to be unreasonably withheld. Any
such assignment or sale will be subject to CETI's rights to acquire
<PAGE>
-15-
the PBC Technology under this Agreement.
Assignment by CETI Restricted
12.2 CETI may not assign any of its rights under this Agreement except with the
prior written consent of 818879, which consent may be arbitrarily
withheld.
13. MISCELLANEOUS
Waiver
13.1 A waiver of any breach of any provision of this Agreement will not be
construed as a continuing waiver of other breaches of the same or other
provisions of this Agreement.
No Other Relationship
13.2 Nothing in this Agreement will be deemed to create an agency, joint
venture, partnership or franchise relationship between the parties.
Notices
13.3 Any notice required or permitted to be given or sent under this Agreement
will be given by hand delivery or by registered or recorded air mail post
to the receiving party at the address appearing on the first page. Either
party may change its address for receiving notices under this Agreement by
giving the other party written notice of its new address. Any such notice
if given or made by registered or recorded delivery air mail post will be
deemed to have been received on the earlier of the date actually received
and the date ten days after the same was posted (and in proving such it
will be sufficient to prove that the envelope containing the same was
properly addressed and posted as aforesaid) and if given or made by hand
delivery will be deemed to have been received at the time of actual
delivery, unless such date is not a Business Day, in which case the date
of delivery will be deemed to be the next succeeding Business Day after
actual delivery.
Entire Understanding; Prior Agreements to be Replaced
13.4 This Agreement embodies the entire agreement between the parties relating
to the subject matter hereof and replaces any prior representations,
warranties or agreements of any kind between the parties.
Severability
13.5 If any term or provision of this Agreement or the application thereof to
any person or circumstance is, to any extent, determined to be invalid,
illegal or unenforceable by a court
<PAGE>
-16-
of competent jurisdiction, then, and in that event:
(a) the performance of the offending term or provision (but only to the
extent its application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this Agreement,
and,in lieu of such excused provision, there shall be added a
provision as similar in terms and amount to such excused provision as
may be possible and be legal, valid and enforceable; and
(b) the remaining part of this Agreement (including the application of the
offending term or provision to persons or circumstances other than
those as to which it is held invalid, illegal or unenforceable) shall
not be affected thereby, and shall continue in full force and effect
to the fullest extend provided by law.
Amendments
13.6 All amendments to this Agreement must be in writing and signed by both
parties.
Rights, Powers, Remedies Cumulative; Waiver
13.7 Each and every right and remedy in this Agreement specifically given to
818879 will be cumulative and will be in addition to every other right and
remedy herein or now or hereafter existing at law, in equity, or by
statute, and each and every right, and remedy, whether specifically given
in this Agreement or otherwise existing may be exercised from time to time
and as often and in such order as may be deemed expedient by 818879, and
the exercise at the same time or thereafter any other right or remedy. It
is expressly understood and agreed by CETI that time is of the essence of
the Agreement and that no delay or omission by 818879 in the exercise of
any right or power or in the pursuit of any remedy accruing upon any
ground for termination hereunder will impair any such right, power or
remedy or be construed to be a waiver thereof or of any such ground for
termination or to be an acquiescence therein, nor will the acceptance by
818879 of any payment be deemed a waiver of any right to take advantage of
any future ground for termination or of any past ground for termination
not completely cured thereby.
Headings
13.8 The headings contained in this Agreement, do not constitute a part of this
Agreement, and may not be employed in interpreting this Agreement.
Cooperation
13.9 Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things, and to execute and
deliver any documents that may be reasonably
<PAGE>
-17-
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Agreement, all
without undue delay or expense.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the reference date appearing on the first page.
Executed by 818879 ALBERTA LTD. in Executed by CLEAN ENERGY
the presence of: TECHNOLOGY INC.by:
S/R. Dirk Stinson S/John Thuot
- -------------------------------- ------------------------------
Authorized Signatory Authorized Signatory
S/Barry Sheahan
------------------------------
Authorized Signatory
<PAGE>
Dated for Reference March 5, 1999
-------------------------------------------------------
BETWEEN:
818879 ALBERTA LTD.
AND:
CLEAN ENERGY TECHNOLOGIES INC.
-------------------------------------------------------
PBC TECHNOLOGY LICENSE
&
PBC TECHNOLOGY OPTION
-------------------------------------------------------
<PAGE>
SCHEDULE "A"
PBC TECHNOLOGY PATENTS
<TABLE>
<CAPTION>
SERIAL PATENT DATE OF
DESCRIPTION JURISDICTION NUMBER NUMBER ISSUE
<S> <C> <C> <C> <C>
Fluid Heater using
Pulsating Combustion Blade United States 4846149 4,846,149 July 11, 1989
Pulsating Combustor Cylinder (United States 07/829,058 5,242,294 September 7, 1993
(
(United States (CIP) 115,635 5,403,180 April 4, 1995
(
(Europe (U.K.) 91910669 486,643 August 23, 1995
Circular Combustor United States 60/098,540 Provisional, filed 8/31/98
</TABLE>
<PAGE>
SCHEDULE "B"
CONFIDENTIALITY AGREEMENT
This Agreement dated for reference __________________________________________
BETWEEN:
CLEAN ENERGY TECHNOLOGY INC., a Delaware, U.S.A,
corporation having its head office at 7087 MacPherson Avenue,
Burnaby, B.C. V5J 4N4, Canada
("CETI")
OF THE FIRST PART
AND:
----------------------------------------------------
("the Recipient")
OF THE SECOND PART
WHEREAS:
A. CETI is in possession of certain confidential information relating to a new
technology and has the exclusive license to pursue certain licensed
activities utilizing such confidential information.
B. CETI is about to enter into a [sublicense/employment/consulting] agreement
(the "Agreement") with the Recipient; and to enable the Recipient to
properly carry out the terms of the Agreement, it will be necessary for
CETI to disclose some or all of such confidential information to the
Recipient;
C. The parties have agreed to enter into this Confidentiality Agreement to
ensure that any such confidential information which is discovered by,
disclosed to, or otherwise made available to the Recipient by CETI or by
any of its agents or employees during the term of the Agreement will be
used by the Recipient only for the purposes of the Agreement and will at
all times be protected by the Recipient in accordance with the terms and
conditions of this Confidentiality Agreement.
NOW THEREFORE in consideration of the payment to the Recipient of $1.00, the
Agreement, and other good and valuable consideration given by CETI to the
Recipient, the Recipient covenants and agrees with CETI as follows:
1. The term "Confidential Information" as used in this Confidentiality
Agreement means: all trade secrets, know-how, proprietary knowledge,
technology, improvements and other information of every nature and kind
whatsoever, relating in any way to the technology, whether disclosed to the
Recipient or discovered by the Recipient as a consequence of or through the
Agreement, including information conceived, originated discovered or
developed CETI which is not at the time in question lawfully in the public
<PAGE>
-21-
domain. The term "Confidential Information" also includes all trade
secrets and all discoveries, concepts and ideas, whether patentable or not,
relating to any present or prospective activities CETI, and any information
relating to the administration, financing, personnel or business of CETI,
or any other information which the Recipient becomes acquainted with or
responsible for as a result of or in consequence of CETI the Agreement or
of disclosing information to the Recipient, or of any other ongoing
association between CETI and the Recipient.
2. All Confidential Information discovered by, disclosed to, or otherwise made
available to the Recipient pursuant to the Agreement or otherwise will be
maintained in secrecy by the Recipient, using the same safeguards as are
customarily used to protect commercially confidential information of a
similar character, but at least using reasonable care, and, except for the
purposes of the Agreement, the Recipient will not use, in any manner, or
disclose to any third party, the Confidential Information, without the
prior written consent of CETI.
3. The Recipient acknowledges that the Confidential Information is the
property of CETI, and the Recipient will not assert any rights under any
inventions, discoveries, concepts, ideas, improvements, know-how, or
related know-how disclosed by CETI, as having been made or acquired by the
Recipient before being associated with CETI or since then and not otherwise
covered by the terms of this Confidentiality Agreement.
4. Nothing in this Confidentiality Agreement will be construed as granting to
the Recipient either expressly, or by implication, estoppel or otherwise,
any licence or right to use the Confidential Information or any other
proprietary information of any kind received from CETI (except the limited
right to use such information for the purposes of the Agreement).
5. All information furnished by CETI pursuant to the Agreement, including
records, notebooks, designs, specifications, prototypes, and electronic
data storage media will be returned by the Recipient on demand and the
Recipient will thereupon certify to CETI that the Recipient has destroyed
all copies and excerpts therefrom.
6. If it is necessary and expressly authorized under the terms of the
Agreement for the Recipient to give access to any Confidential Information
to any other person, the Recipient will restrict such access to those
persons needing to have such information for the purposes of the Agreement,
and will inform and instruct such persons as to the restrictions applicable
to such information, and specifically, as to the terms of this
Confidentiality Agreement.
7. This Confidentiality Agreement must be signed by the Recipient before or
concurrently with the Agreement, and will be effective immediately upon
being signed. It applies to all Confidential Information disclosed by CETI
or discovered by the Recipient as a consequence of the Agreement. When the
Agreement is completed or is otherwise earlier terminated by either of the
parties for any reason, the provisions of this Confidentiality Agreement
will survive the Agreement.
8. The Recipient recognizes that CETI has expended substantial funds and
effort in the development of the Confidential Information, and agrees not
to engage in competition with CETI using any Confidential Information
obtained during the term of the Agreement.
<PAGE>
-22-
9. The Recipient hereby acknowledges to and covenants and agrees with CETI
that a breach by the Recipient of any covenants under this Confidentiality
Agreement may result in damages to CETI, and that a monetary award would
not adequately compensate for such damages. Accordingly, the Recipient
hereby agrees with CETI that in the event of any such breach, in addition
to all other remedies available at law or in equity, CETI will be entitled
as a matter of right to apply to court of competent jurisdiction for
equitable relief by way of restraining order, injunction, decree or
otherwise as may be appropriate to ensure compliance by the Recipient with
the provisions of this Confidentiality Agreement.
10. This Confidentiality Agreement will be governed by and construed in
accordance with the laws of the Province of British Columbia, Canada.
11. The obligations of each of the parties under this Confidentiality Agreement
are to be binding upon their successors, associates, affiliates, and
subsidiaries.
12. The benefits under this Confidentiality Agreement will accrue to and enure
to the benefit of the successors, affiliates and permitted assigns of the
parties.
13. All references to the Recipient, or to CETI will include all subsidiaries,
employees, consultants, agents, directors, and officers of them.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
dates appearing below.
Executed by CLEAN ENERGY )
TECHNOLOGY INC. in the presence of: )
) _______________________________
) Date:__________________________
____________________________________ )
Authorized Signatory )
)
) _______________________________
____________________________________ ) Date:__________________________
Authorized Signatory )
Executed by the Recipient in the
presence of: )
)
) _______________________________
) Date:__________________________
____________________________________ )
Authorized Signatory )
)
) _______________________________
____________________________________ ) Date:__________________________
Authorized Signatory )
<PAGE>
EXHIBIT 10.2
LICENSE AGREEMENT
THIS AGREEMENT dated for reference March 5, 1999.
BETWEEN:
JOHN D. CHATO,
of 1412-1450 Chestnut Street Vancouver, BC V6K 3K3
("Chato")
OF THE FIRST PART
AND:
CLEAN ENERGY TECHNOLOGY INC., a Delaware, U.S.A.
corporation having its head office at 7087
MacPherson Avenue, Burnaby, B.C., V5J 4N4, Canada
("CETI")
OF THE SECOND PART
WHEREAS:
A. John D. Chato ("Chato") is the inventor of, and has the exclusive right to
exploit a novel mantle technology for low emission liquid carbon based fuel
heating for which the letters patent detailed in Schedule "A" attached
hereto have been issued or applied for (the "Mantle Technology");
B. Chato has agreed to grant to CETI the exclusive world-wide right and
license to design, engineer, manufacture, market, distribute, lease and
sell heating products using the Mantle Technology, and to sublicense and
otherwise commercially exploit the Mantle Techonology;
C. Chato has also agreed to grant CETI an option to purchase the Mantle
Technology.
NOW THEREFORE in consideration of CETI paying U.S. $10.00 to Chato and other
good and valuable consideration contemplated by this Agreement (the receipt and
sufficiency of which is hereby acknowledged by Chato), the parties hereto
covenant and agree as follows:
1. DEFINITIONS
1.1 In this Agreement the following definitions apply:
(a) "Business Day" means means any day other than a day which is a
Saturday, a Sunday or a statutory holiday in British Columbia,
Canada;
(b) "Confidential Information" means all trade secrets, know-how,
proprietary knowledge, technology, improvements and other valuable
information relating to the Mantle
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Technology or the Patents which is not yet in the public domain and
which Chato now holds or in the future acquires the right to use.
(c) "License" mean the exclusive world-wide right to design, engineer,
manufacture, market, distribute, lease and sell heating applications
using the Mantle Technology, and to sublicense and otherwise
commercially exploit the Mantle Technology.
(d) "Licensed Activities" mean the designing, engineering, manufacturing,
marketing, distributing, leasing and selling, of all the applications
and inventions owned or developed by Chato which utilize, or are used
in conjunction with, the Mantle Technology, and the sublicensing of
such activities.
(e) "Licensed Applications" mean all the applications and inventions
owned or developed by Chato which utilize, or are used in conjunction
with, the Mantle Technology.
(f) "Patents" means and includes:
(i) the patents and patent applications listed in Schedule "A";
(ii) any divisional, continuation or substitute patent applications
which are based on the patents or patent applications listed in
Schedule "A";
(iii) any patent which may issue or be re-issued any patent
application described in (ii); and
(iv) patents and patent applications corresponding to each of the
patents and patent applications described in (i), (ii) and
(iii) above which are issued, filed, or to be filed in any and
all foreign jurisdictions, and patents (including but limited
to patents of importation, improvement, or addition, utility
models and inventors certificates) which may subsequently issue
thereof, and any renewals, divisions, renewals, continuations
or extensions thereof.
(g) "Personnel" means any employee, officer, director, shareholder,
independent contractor, representative or other agent of an entity;
(h) "Related Party" means any person, corporation, partnership, firm or
other entity which is related to CETI in any of the following ways:
(i) as an affiliate of CETI (as interpreted below);
(ii) as the Personnel of CETI, an affiliate of CETI, or a
Sublicense;
(iii) as a financial institution leasing, or otherwise providing
financing for, a purchased item of Licensed Application to CETI
or to a Sublicensee or affiliate of CETI.
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For the purpose of this definition, "affiliate" is to be interpreted
broadly to apply to any person, corporation, firm or other entity
which controls, is controlled by or is under common control with CETI
or any Sublicensee; and "control" is also to be interpreted broadly
to include actual control. Without limiting the generality of the
foregoing, "affiliate" shall include any person, corporation, firm or
other entity which has an interest in not less than 35% of the issued
voting capital of CETI or any Sublicensee; and any corporation in
which CETI or any Sublicensee have in aggregate an interest in not
less than 35% of the issued voting capital of that corporation.
(i) "Sublicense" means any agreement between CETI and another party under
which CETI sublicenses its right to pursue any of the Licensed
Activities in respect of any of the Licensed Applications;
(j) "Sublicensee" means the holder of a subsisting Sublicense;
(k) "Term" means the period commencing March 5, 1999 and ending on the
earlier of: (i) March 5, 2019 and (ii) the lapsing date of the newest
of the underlying patents for the Mantle Technology, including
patents on any improvements thereto.
2. GRANT OF LICENSE
2.1 For the consideration set out in this Agreement, Chato hereby grants to
CETI the License for the Term. During the Term, CETI will use its best
efforts to pursue the Licensed Activities to the fullest extent possible,
and without interruption.
Ancillary Grant
2.2 Ancillary to this grant of License, Chato hereby grants to CETI for use
solely in pursuit of the Licensed Activities during the term of this
Agreement, the non-exclusive right to use the Mantle Technology, the
Patents, the Confidential Information and all those ancillary assets
owned by Chato which CETI will need to carry out the Licensed Activities
(the "Ancillary Assets").
Licensed Trademarks
2.3.1. In order to promote and identify the Licensed Applications, Chato hereby
grants to CETI the right to use any trademarks and trade names designated
by Chato for use from time to time in conjunction with the Licensed
Applications during the term of this Agreement (the "Licensed
Trademarks"); Chato authorizes CETI to grant to Sublicensees, when
necessary under a Sublicense, the right to use specified Licensed
Trademarks in a specified territory during the term of this Agreement;
but CETI, each Sublicensee and any applicable Related Party must first
enter into such user agreements with Chato, in forms approved by Chato,
as Chato shall from time to time deem appropriate for each jurisdiction
in which any of the Licensed Trademarks are to be used, but no such user
agreements may require payment of any fee or royalty to Chato or to CETI.
CETI may not use, nor will it allow any Sublicensee or Related Party to
use, the
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Licensed Trademarks except in connection with Licensed Activities as
permitted under this Agreement.
2.3.2. The Licensee will identify or cause to be identified prominently on each
item of a Licensed Application the applicable patent or pending patent,
together with the trademark and trade name specified by Chato for such
item. On each item of a Licensed Application must be affixed an
identification plate which indicates:
(a) the relevant patent or pending patent with its serial number or
numbers;
(b) the place of manufacture; and
(c) the following statement: "CETI (or the name of the relevant
Sublicensee as the case may be) under license from Chato". No trade
name other than one of Chato's Licensed Trademarks, as specified by
Chato, one of CETI's trade names, as specified by CETI, and one of
the trade names of a Sublicensee, if such item was manufactured or
distributed by a Sublicensee, may be affixed to any item of a
Licensed Application. Unless Chato and CETI specifically agree in
writing otherwise, the size of Chato's Licensed Trademarks and CETI's
trade names affixed to items of a Licensed Application must be at
least 100% of the size of the largest of any Sublicensee's trade
names or trademarks affixed to such items.
2.3.3 CETI will use, and cause the Licensed Trademarks to be used, in strict
compliance with all applicable laws and regulations.
2.3.4 CETI will conduct any advertising and promotion in which the Licensed
Trademarks are used in such a way as to ensure the continued validity and
enforceability of the Licensed Trademarks.
Patent and Trademark Applications
2.4 Except as provided for in this paragraph, no one other than Chato may
apply for or register any patent, trademark or other proprietary
intellectual property rights in any jurisdiction with respect to the
Mantle Technology, the Confidential Information or the Licensed
Applications. CETI, each Sublicensee and each Related Party will notify
Chato in writing at least 30 days before using a Patent, a Licensed
Trademark or the Confidential Information in any jurisdiction in which
such Patent, Licensed Trademark or the Confidential Information has not
previously been used by CETI, such Sublicensee or such Related Party.
CETI will, at the request of Chato, execute such documents as may be
appropriate for filing or recording in any jurisdiction evidence as to
the status of CETI or a Sublicensee as a licensee or registered user.
Chato will use its best efforts to apply for and register patent,
trademark or other proprietary intellectual property rights, or such
evidence as to the status of CETI or a Sublicensee in any jurisdiction
requested by CETI, but Chato's inability or failure to obtain such
registration or evidence will not be a breach of this Agreement. If Chato
fails to obtain any such registration or evidence CETI may, with the
prior written consent of Chato, attempt to obtain such registration or
evidence in the name of Chato. All costs and expenses of either Chato or
CETI in connection
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with such attempts (including without limitation reasonable legal
expenses) will be the responsibility of CETI. At the request of CETI,
either during or after the term of this Agreement, Chato will execute
such documents and render such assistance as may be appropriate to enable
CETI to obtain registration or evidence as to status in any jurisdiction.
Other than as set out in this paragraph, Chato has no obligation
whatsoever to apply for or register patents, trademarks, or other
proprietary intellectual rights in any jurisdiction in which such
patents, trademarks or rights are not registered as of the reference date
of this Agreement.
Superior Rights of Chato
2.5 CETI acknowledges that subject only to this exclusive License to CETI,
Chato is the owner of the Mantle Technology, the Confidential Information
and the Licensed Trademarks. CETI may not, during the term of this
Agreement or at any time after the termination of this Agreement (unless
CETI has exercised its option to purchase under Part 11), in any way
whatsoever dispute, object to or challenge, through proceedings or
otherwise, the validity of the Patents, or Chato's ownership of the
Mantle Technology, the Patents, the Confidential Information or the
Licensed Trademarks.
No Rights by Implication
2.6 No rights or licenses with respect to the Mantle Technology the Patents
or the Confidential Information, are granted or deemed granted to CETI
other than as expressly set out in paragraph 2.2 of this Agreement.
Without limiting the foregoing, no Sublicensee or Related Party has any
right whatsoever to conduct any research, development, modification,
alteration or improvement of the Mantle Technology, or any application of
it.
Quality Control
2.7 If CETI manufactures or assembles any items of Licensed Applications, it
covenants to use its best efforts to ensure that each such item:
(a) satisfies any and all applicable governmental laws and regulations;
(b) is constructed of materials of appropriate high quality; and
(c) is tested with due care before its use, operation or sale to any
third party.
Export Licenses
2.8 At the reasonable request of CETI, Chato will use its best efforts to
obtain any export and re-export authorizations or licenses, which CETI
may require from time to time, but its inability to obtain such
authorizations or licenses will not constitute a breach of this
Agreement. CETI is responsible for the costs and expenses of Chato in
obtaining any export and re-export authorizations and licenses. If Chato
is unable to obtain any such authorizations or licenses, CETI may, but is
not required to, attempt to obtain such authorizations or licenses
itself, in
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which case, Chato will assist and co-operate with CETI in this process.
3. REPORTS
Contents of Reports
3.1 CETI will deliver to Chato within 90 days of the end of each year, a
written report, certified by the chief operating officer of CETI as being
true and correct, describing, for the applicable year, all CETI's
initiatives, efforts, and results in pursuit of the Licensed Activities
during the year.
Right to Review
3.2 On seven days' prior notice to CETI, Chato and its agents may have full
access to the books and records of CETI pertaining to activities under
this Agreement, and may make copies of them at Chato's expense. Chato and
its agents may have such access at all reasonable times during normal
business hours throughout the term of this Agreement.
Information Confidential
3.4 Chato will keep confidential all information obtained in the course of
any examination of CETI's books and records, except when it is necessary
for Chato to reveal such information in order to enforce its rights under
this Agreement in court, arbitration or similar dispute resolution or
enforcement proceedings and except when compelled by law.
4. ROYALTY PAYMENTS
4.1 As consideration for the License, CETI will pay Chato an on going royalty
payment (the "Royalty") equal to 10% of the net profits of CETI derived
from these Licensed Activities (after reasonable allowance for bad debts
and the allocation of administrative and overhead items to these Licensed
Activities).
4.2 The Royalty is payable annually immediately following delivery of the
report referred to in paragraph 3.1.
5. SUBLICENSE CONDITIONS
Sublicense Right Limited
5.1. Chato grants to CETI the right to grant Sublicenses during the term of
this Agreement, but only with the prior written consent of Chato, such
consent not to be unreasonably withheld, and only if such Sublicense
complies in all respects with the provisions of this Part 5. The right of
CETI to grant a Sublicense shall exist only so long as CETI is in
compliance with the terms of this Agreement and is current in making
payments to Chato as required under it.
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Quality Control
5.2 CETI must include in each Sublicense a quality control provision
identical to paragraph 2.7, except that in such Sublicense, a reference
to CETI will instead refer to the relevant Sublicensee.
Sublicensee Bound by License
5.3 In each Sublicense, the Sublicensee must acknowledge that it is bound by
all CETI's obligations contained in this Agreement and that CETI's
rights, powers and remedies with respect to the Sublicensee are at least
as great as Chato's rights, powers and remedies with respect to CETI
contained in this Agreement, and CETI will cause each Sublicensee to
execute any and all additional documents reasonably requested by Chato to
that effect.
CETI's Obligations Continue
5.4 Notwithstanding any such Sublicense, CETI will remain responsible to
Chato for all CETI's obligations under this Agreement.
Termination of Sublicense
5.5.1 Upon the termination or expiry of this Agreement for any reason (other
than by the exercise by CETI of its option to purchase under Part 11)
each Sublicense will automatically terminate except that, for a 90 day
period following such termination, each Sublicensee may reinstate its
Sublicense, with Chato (or its assignee, as the case may be) taking the
place of CETI in such Sublicense. Such reinstatement will be effective
upon Chato receiving a written acknowledgment and agreement from the
relevant Sublicensee to the effect that:
(a) Chato is the assignee of CETI's rights under such Sublicense;
(b) all rights and remedies of CETI in effect on or before the effective
date of such reinstatement pursuant to such Sublicense are also
assigned to Chato; and
(c) the obligations of Chato (or its assignee, as the case may be) under
such reinstated Sublicense will under no circumstances be greater
than the obligations of Chato to CETI under this Agreement.
5.6 If CETI exercises its option to purchase the Mantle Technology under Part
11, each Sublicense which is in good standing at the time will
automatically continue as a license with CETI.
6. CONFIDENTIAL INFORMATION
6.1 CETI will maintain the confidentiality of the Confidential Information
during the term of this Agreement and for the period after termination or
expiry of this Agreement until such information has entered the public
domain.
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6.2 CETI will not disclose any Confidential Information to any of its
Personnel, to a Sublicensee, to a Related Party, or to any of their
Personnel, except to those specific Personnel to whom knowledge of the
Confidential Information is reasonably necessary to enable them to pursue
the Licensed Activities in accordance with this Agreement.
6.3 CETI will not disclose Confidential Information to a person other than
one identified in paragraph 6.2 unless it is necessary to do so in the
ordinary course of CETI's Licensed Activities and unless:
(a) such person has executed a confidentiality agreement (the
"Confidentiality Agreement") substantially in the form of Schedule
"B" attached to and made a part of this Agreement; or
(b) CETI has taken other steps acceptable to Chato, acting reasonably, to
ensure that such person will maintain the confidentiality of the
Confidential Information during the term of this Agreement and for
the period after termination or expiry of this Agreement during which
such information has not yet entered the public domain.
7. IMPROVEMENTS
Disclosure of Improvements
7.1 Chato, CETI, each Sublicensee and each Related Party will immediately
disclose to each other all improvements to the Mantle Technology, the
Licensed Applications or the Confidential Information. Nothing contained
in this paragraph will by implication or otherwise sanction the conduct
by CETI, any Sublicensee or any Related Party of those activities
expressly prohibited by the terms of paragraph 2.6 of this Agreement.
Improvements Included in License
7.2 Improvements to the Mantle Technology, the Licensed Applications or to
the Confidential Information made by Chato, CETI, any Sublicensee or any
Related Party will be the exclusive property of Chato, and as such, will
be deemed part of this License, and may be used by CETI in connection
with the Licensed Activities, subject to the terms and conditions of this
Agreement. No party will be entitled to additional monetary consideration
(beyond compensation already set forth in this Agreement) from any other
party for the use of such improvements in the pursuit of the Licensed
Activities and no party will disclose such improvements to third parties
without first obtaining from such third parties obligations substantially
the same as those set forth in Part 6 CONFIDENTIAL INFORMATION.
Improvements to be Assigned to Chato
7.3 In the case of improvements made to the Licensed Applications or to the
Confidential Information by CETI, any Sublicensee, any Related Party or
their Personnel, during the term of
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this Agreement, CETI will immediately take all steps and cause any
Sublicensee, Related Party or their Personnel to take all steps as are
reasonably required by Chato to transfer title and ownership of such
improvements to Chato. Chato alone has the right to apply for and obtain
the appropriate patents or other proprietary registrations in respect of
such improvements. Chato hereby appoints CETI as its sole agent and Power
of Attorney for the purpose of pursuing such applications and
registrations on behalf of Chato, and Chato will assist and co-operate
with CETI in this process. Any patents so obtained will be deemed
included in the License and the Mantle Technology Option, and will be
subject to the terms and conditions of this Agreement.
8. PROTECTION OF PATENTS & TRADEMARKS
Detect and Report Patent Infringements
8.1 CETI will keep watch to detect any possible infringements or other
unauthorized use of any of the Patents or Licenced Trademarks. Upon
discovery of a possible infringement or other unauthorized use, CETI will
immediately notify Chato.
8.2 Patent and Trademark Infringements
8.2.1 During the term of this License, Chato will, at the expense of CETI, be
solely responsible for taking all actions, legal or otherwise, which, in
the judgment of Chato are reasonably necessary to protect or enforce any
of the Patents or Licenced Trademarks. CETI will be solely responsible
for paying any award of court costs or damages resulting from such
actions. The selection and conduct of such actions will be at the sole
discretion of Chato. CETI will cooperate with Chato and not interfere in
any way with Chato in respect of the conduct of such actions.
8.2.2 If Chato does not take action to protect or enforce a Patent or Licensed
Trademark within 120 days after receiving notice from CETI of a possible
infringement or other unauthorized use, then CETI may itself commence an
action to protect or enforce the Patent or Licensed Trademark. Chato will
have the right to be kept informed of the status and progress of any such
action instituted by CETI.
8.2.3 Any recoveries, awards or settlements by Chato resulting from efforts to
protect or enforce any of the Patents or Licensed Trademarks, after the
deduction of any costs or expenses incurred by Chato, will be paid to
CETI.
Patent or Trademark Validity Defences
8.3 As between Chato and CETI, Chato will have the sole responsibility for
defending, at the expense of CETI, all legal actions asserting the
invalidity of any of the Patents or Licensed Trademarks. Chato will
conduct such defence, and CETI will cooperate with and not interfere with
Chato's defence of such actions. CETI will be solely responsible for any
award of court costs and damages resulting from such a defence. If Chato
does not defend against any such action (including appropriate appeals),
CETI may defend against such an action and Chato will
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have the right to be kept informed of the status and progress of each
such defence by CETI.
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CETI Name in Suit
8.4 Where, in the judgment of either Chato or CETI, as the case may be, it is
necessary to join the other as a party in order to effectively prosecute
or defend an action asserting infringement or invalidity of any of the
Patents or Licensed Trademarks, each party will allow the other to so
join such other party as a party to the action.
Notification of Suit
8.5 Each Party will immediately notify the other of any suit or action
wherein such party or any Sublicensee or Related Party is named as a
party and which directly or indirectly relates to the use of the Patents,
the Licensed Trademarks, the Licensed Applications or the Licensed
Activities.
Detect and Report Breach of Confidential Information
8.6 Each party will keep watch to detect any possible unauthorized
disclosures or use of the Confidential Information and will immediately
notify the other party of any such possible unauthorized disclosures or
uses.
Action Against Confidential Information Breaches
8.7 If any unauthorized disclosure or use of Confidential Information has not
ceased within a reasonable period, not to exceed 15 days, after written
notice given by either Chato or CETI which demands that the relevant
person or entity terminate such unauthorized disclosure or use, then
Chato may, and at CETI's request will, at CETI's expense, immediately
bring legal action to enjoin and seek damages for such unauthorized
disclosure or use, and CETI will become a party to such action if, in the
judgment of Chato, it is necessary or advisable; but if Chato has not
commenced any such action within 30 days after either Chato or CETI has
given notice demanding termination, then CETI may do so upon written
notice to Chato. Chato will conduct such action and CETI will cooperate
with Chato in such action. CETI will bear the costs of such action as
well as any award of court costs and damages resulting from such action.
Any recoveries, awards, or settlements resulting from actions taken
against parties making unauthorized disclosures or uses will be paid to
CETI after deduction of any costs or expenses incurred by Chato.
Requests for Payment
8.8 All amounts payable by CETI to Chato pursuant to this Article 8 will be
payable immediately after Chato makes a written request and provides CETI
with a written summary of the amounts outstanding, together with such
supporting documentation as may be reasonably requested by CETI.
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9. INDEMNITY BY CETI AND SUBLICENSEES
Indemnity
9.1 CETI will indemnify and hold Chato harmless from and against any and all
claims, injuries, liabilities, costs and expenses resulting from, or
claimed to have resulted from, any Licensed Activity or the use or
operation of the Licensed Applications by CETI, any Sublicensee, any
Related Party or any Unrelated Party (whether based on negligence, strict
liability or other grounds) and against claims for consequential damages
and/or lost profits arising from such Licensed Activity or the use or
operation of Licensed Applications. CETI will maintain insurance with
reputable insurance companies approved by Chato (such approval not to be
unreasonably withheld) for such risks and in such amounts as Chato in its
reasonable business judgment determines to be appropriate. Chato will be
named as an additional insured and loss payee on each such insurance
policy.
Sublicensee Indemnity
9.2 CETI will cause each Sublicensee to indemnify and hold Chato harmless
from and against any and all claims, damages, injuries, liabilities,
costs and expenses incurred by Chato resulting from a claim in respect
of:
(a) a design or manufacturing defect in any item of Licensed Applications
manufactured by such Sublicensee or by any sublicensee of such
Sublicensee (whether characterized as product liability, negligence,
strict liability, breach of warranty or otherwise) or
(b) any other cause which was under the control of such Sublicensee or
any sublicensee of such Sublicensee during the manufacture of any
item of Licensed Applications. CETI will cause Sublicensees to be
solely responsible for all costs and expenses of Chato in respect of
all such actions brought against Chato. No Sublicensee will
compromise or settle any such claim or action against it without the
prior written consent of Chato and any such attempted compromise or
settlement will be void and of no effect whatsoever as against Chato.
9.2.1 Each Sublicensee indemnifying Chato pursuant to this paragraph 9.2 will:
(a) maintain insurance with reputable insurance companies approved by
Chato (such approval not to be unreasonably withheld) for such risks,
and in such amounts as Chato in its reasonable business judgment
determines to be appropriate, with such polices naming Chato and CETI
as additional insured and loss payees; and
(b) at the reasonable request of either Chato or CETI, pay premiums on
insurance policies identified by Chato or CETI which insure Chato or
CETI against adverse final monetary judgment awards in excess of the
insurance coverage provided by such Sublicensee pursuant to part (i)
of this sub-paragraph.
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10. TERMINATION AND EXPIRY
Automatic Expiry
10.1 Unless it is terminated on an earlier date pursuant to this Part 10 or by
the exercise by CETI of its option under Part 11, this Agreement will
continue in full force and effect until it automatically expires at the
end of the Term.
Early Termination
10.2 If 818879 Alberta Ltd. terminates the PBC Burner Technology License which
it granted to CETI on March 5, 1999, and if CETI does not exercise its
concurrent right to purchase the PBC Burner Technology, then at Chato's
option, this Agreement will terminate concurrently with the termination
of the PBC Burner Technology License, and all CETI's rights under this
Agreement will be at an end.
Defaults - Insolvency
10.3 This Agreement will terminate at any time at Chato's option if CETI:
(a) defaults in a Royalty payment due to Chato;
(b) becomes bankrupt or insolvent, is threatened with bankruptcy or
insolvency, or makes an assignment in favour of creditors.
Payment Obligations Continue
10.4 Termination of this Agreement for any reason does not release CETI from
any of its obligations or liabilities to Chato under this Agreement
including, without limitation, its obligations to pay Chato any amounts
accrued but unpaid before the date of such termination.
CETI will Cease Licensed Activities
10.5 Upon termination of this Agreement for any reason, and except (i) as
permitted under paragraph 10.6, or (ii) if CETI acquires the Mantle
Technology under Part 11, CETI will immediately cease to pursue any
Licensed Activities in respect of the Licensed Applications and will
immediately cease to use the Confidential Information and Licensed
Trademarks in any manner whatsoever.
Completion Period
10.6 Notwithstanding paragraph 10.5, CETI may, during the nine month period
immediately following termination of this Agreement, complete uses or
operations in progress, finish items of Licensed Applications then in the
process of being manufactured and liquidate its inventory, all in
accordance with the terms and conditions of this Agreement.
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Adverse Judgment not Default
10.7 Chato may not terminate this Agreement by reason only of an adverse
judgment in favour of a third party in respect of an infringement or
unfair competition action involving the use of the Licensed Trademarks.
11. OPTION
11.1 If CETI acquires title to the PBC Technology under its rights in either
part 9 or part 10 of its license from 818879 Alberta Inc. in respect of
the PBC Technology, then on the same date, CETI has the option under this
Agreement (the "Mantle Technology Option") to purchase from Chato all his
right, title and interest in and to the Mantle Technology, the
Confidential Information, the Patents, all Licensed Trademarks and the
Ancillary Assets for Cdn $1.00; in such event CETI will continue to pay
the Royalty to Chato or to his designated assigns in perpetuity.
12. GOVERNING LAW
12.1 This Agreement will be governed by and construed in accordance with the
laws of the Province of British Columbia, Canada. The parties irrevocably
attorn to the jurisdiction of the Supreme Court of British Columbia,
Canada, Vancouver Registry, for the purposes of all litigation in respect
of or arising out of the terms of this Agreement.
13. ASSIGNMENT
Assignment by Chato
13.1 Chato may freely assign its right to receive the Royalty under this
Agreement, but he may not sell, assign or otherwise dispose of his other
rights under this Agreement except with the prior written consent of
CETI, which consent may not be unreasonably withheld. Any such assignment
will be subject to CETI's rights to acquire the Mantle Technology under
Part 11.
Assignment by CETI Restricted
13.2 CETI may not assign any of its rights under this Agreement except with
the prior written consent of Chato, which consent may be arbitrarily
withheld
14. MISCELLANEOUS
Waiver
14.1 A waiver of any breach of any provision of this Agreement will not be
construed as a
<PAGE>
-15-
continuing waiver of other breaches of the same or other provisions of
this Agreement.
No Other Relationship
14.2 Nothing in this Agreement will be deemed to create an agency, joint
venture, partnership or franchise relationship between the parties.
Notices
14.3 Any notice required or permitted to be given or sent under this Agreement
will be given by hand delivery or by registered or recorded air mail post
to the receiving party at the address appearing on the first page. Either
party may change its address for receiving notices under this Agreement
by giving the other party written notice of its new address. Any such
notice if given or made by registered or recorded delivery air mail post
will be deemed to have been received on the earlier of the date actually
received and the date ten days after the same was posted (and in proving
such it will be sufficient to prove that the envelope containing the same
was properly addressed and posted as aforesaid) and if given or made by
hand delivery will be deemed to have been received at the time of actual
delivery, unless such date is not a Business Day, in which case the date
of delivery will be deemed to be the next succeeding Business Day after
actual delivery.
Entire Understanding; Prior Agreements to be Replaced
14.4 This Agreement embodies the entire agreement between the parties relating
to the subject matter hereof and replaces any prior representations,
warranties or agreements of any kind between the parties.
Severability
14.5 If any term or provision of this Agreement or the application thereof to
any person or circumstance is, to any extent, determined to be invalid,
illegal or unenforceable by a court of competent jurisdiction, then, and
in that event:
(a) the performance of the offending term or provision (but only to the
extent its application is invalid, illegal or unenforceable) shall be
excused as if it had never been incorporated into this Agreement,
and, in lieu of such excused provision, there shall be added a
provision as similar in terms and amount to such excused provision as
may be possible and be legal, valid and enforceable; and
(b) the remaining part of this Agreement (including the application of
the offending term or provision to persons or circumstances other
than those as to which it is held invalid, illegal or unenforceable)
shall not be affected thereby, and shall continue in full force and
effect to the fullest extend provided by law.
Amendments
14.6 All amendments to this Agreement must be in writing and signed by both
parties.
<PAGE>
-16-
<PAGE>
-17-
Rights, Powers, Remedies Cumulative; Waiver
14.7 Each and every right and remedy in this Agreement specifically given to
Chato will be cumulative and will be in addition to every other right and
remedy herein or now or hereafter existing at law, in equity, or by
statute, and each and every right, and remedy, whether specifically given
in this Agreement or otherwise existing may be exercised from time to
time and as often and in such order as may be deemed expedient by Chato,
and the exercise at the same time or thereafter any other right or
remedy. It is expressly understood and agreed by CETI that time is of the
essence of the Agreement and that no delay or omission by Chato in the
exercise of any right or power or in the pursuit of any remedy accruing
upon any ground for termination hereunder will impair any such right,
power or remedy or be construed to be a waiver thereof or of any such
ground for termination or to be an acquiescence therein, nor will the
acceptance by Chato of any payment be deemed a waiver of any right to
take advantage of any future ground for termination or of any past ground
for termination not completely cured thereby.
Headings
14.8 The headings contained in this Agreement, do not constitute a part of
this Agreement, and may not be employed in interpreting this Agreement.
Cooperation
14.9 Each party agrees, without further consideration, to cooperate and
diligently perform any further acts, deeds and things, and to execute and
deliver any documents that may be reasonably necessary or otherwise
reasonably required to consummate, evidence, confirm and/or carry out the
intent and provisions of this Agreement, all without undue delay or
expense.
IN WITNESS WHEREOF the parties hereto have executed this Agreement as of
the reference dates appearing on the first page.
Executed by JOHN D. CHATO in the )
presence of: )
) /s/ John D. Chato
- ------------------------------- ) -----------------------------
Witness ) JOHN D. CHATO
)
Executed by CLEAN ENERGY
TECHNOLOGY INC. by
/s/ John Thuot
- -------------------------------
JOHN THUOT
/s/ Barry Sheahan
- -------------------------------
<PAGE>
-18-
BARRY SHEAHAN A:\Chato lic agmt
Dated for Reference March 5, 1999
-------------------------------------------------------
BETWEEN:
JOHN D. CHATO
AND:
CLEAN ENERGY TECHNOLOGIES INC.
----------------------------------------------------
MANTLE TECHNOLOGY LICENSE
&
MANTLE TECHNOLOGY OPTION
----------------------------------------------------
<PAGE>
SCHEDULE "A"
MANTLE TECHNOLOGY PATENTS
<TABLE>
<CAPTION>
SERIAL PATENT DATE OF
DESCRIPTION JURISDICTION NUMBER NUMBER ISSUE
<S> <C> <C> <C> <C>
Improvements in
Diesel Burners United States 60/095,238 Provisional, filed 8/4/98
</TABLE>
<PAGE>
SCHEDULE "B"
CONFIDENTIALITY AGREEMENT
This Agreement dated for reference
-----------------------
BETWEEN:
CLEAN ENERGY TECHNOLOGY INC., a Delaware, U.S.A,
corporation having its head office at 7087 MacPherson Avenue,
Burnaby, B.C. V5J 4N4, Canada
("CETI")
OF THE FIRST PART
AND:
------------------------------
("the Recipient")
OF THE SECOND PART
WHEREAS:
A. CETI is in possession of certain confidential information relating to a new
pulse blade technology and has the exclusive license to pursue certain
licensed activities utilizing such confidential information.
B. CETI is about to enter into a [sublicense/employment/consulting] agreement
(the "Agreement") with the Recipient; and to enable the Recipient to
properly carry out the terms of the Agreement, it will be necessary for
CETI to disclose some or all of such confidential information to the
Recipient;
C. The parties have agreed to enter into this Confidentiality Agreement to
ensure that any such confidential information which is discovered by,
disclosed to, or otherwise made available to the Recipient by CETI or by
any of its agents or employees during the term of the Agreement will be
used by the Recipient only for the purposes of the Agreement and will at
all times be protected by the Recipient in accordance with the terms and
conditions of this Confidentiality Agreement.
NOW THEREFORE in consideration of the payment to the Recipient of $1.00, the
Agreement, and other good and valuable consideration given by CETI to the
Recipient, the Recipient covenants and agrees with CETI as follows:
1. The term "Confidential Information" as used in this Confidentiality
Agreement means: all trade secrets, know-how, proprietary knowledge,
technology, improvements and other information of every nature and kind
whatsoever, relating in any way to the Mantle Technology, whether
<PAGE>
-22-
disclosed to the Recipient or discovered by the Recipient as a consequence
of or through the Agreement, including information conceived, originated
discovered or developed CETI which is not at the time in question lawfully
in the public domain. The term " Confidential Information" also includes
all trade secrets and all discoveries, concepts and ideas, whether
patentable or not, relating to any present or prospective activities CETI,
and any information relating to the administration, financing, personnel or
business of CETI, or any other information which the Recipient becomes
acquainted with or responsible for as a result of or in consequence of CETI
disclosing information to the Recipient, and any ongoing association
between CETI and the Recipient.
2. All Confidential Information discovered by, disclosed to, or otherwise made
available to the Recipient pursuant to the Agreement will be maintained in
secrecy by the Recipient, using the same safeguards as are customarily used
to protect commercially confidential information of a similar character,
but at least using reasonable care, and, except for the purposes of the
Agreement, the Recipient will not use, in any manner, or disclose to any
third party, the Confidential Information, without the prior written
consent of CETI.
3. The Recipient acknowledges that the Confidential Information is the
property of CETI, and the Recipient will not assert any rights under any
inventions, discoveries, concepts, ideas, improvements, know-how, or
related know-how disclosed by CETI, as having been made or acquired by the
Recipient before being associated with CETI or since then and not otherwise
covered by the terms of this Confidentiality Agreement.
4. Nothing in this Confidentiality Agreement will be construed as granting to
the Recipient either expressly, or by implication, estoppel or otherwise,
any licence or right to use the Confidential Information or any other
proprietary information of any kind received from CETI (except the limited
right to use such information for the purposes of the Agreement).
5. All information furnished by CETI pursuant to the Agreement, including
records, notebooks, designs, specifications, prototypes, and electronic
data storage media will be returned by the Recipient on demand and the
Recipient will thereupon certify to CETI that the Recipient has destroyed
all copies and excerpts therefrom.
6. If it is necessary and expressly authorized under the terms of the
Agreement for the Recipient to give access to any Confidential Information
to any other person, the Recipient will restrict such access to those
persons needing to have such information for the purposes of the Agreement,
and will inform and instruct such persons as to the restrictions applicable
to such information, and specifically, as to the terms of this
Confidentiality Agreement.
7. This Confidentiality Agreement must be signed by the Recipient before or
concurrently with the Agreement, and will be effective immediately upon
being signed. It applies to all Confidential Information disclosed by CETI
or discovered by the Recipient as a consequence of the Agreement. When
the Agreement is completed or is otherwise earlier terminated by either of
the parties for any reason, the provisions of this Confidentiality
Agreement will survive the Agreement.
<PAGE>
-23-
8. The Recipient recognizes that CETI has expended substantial funds and
effort in the development of the Confidential Information, and agrees not
to engage in competition with CETI using any Confidential Information
obtained during the term of the Agreement.
9. The Recipient hereby acknowledges to and covenants and agrees with CETI
that a breach by the Recipient of any covenants under this Confidentiality
Agreement may result in damages to CETI, and that a monetary award would
not adequately compensate for such damages. Accordingly, the Recipient
hereby agrees with CETI that in the event of any such breach, in addition
to all other remedies available at law or in equity, CETI will be entitled
as a matter of right to apply to court of competent jurisdiction for
equitable relief by way of restraining order, injunction, decree or
otherwise as may be appropriate to ensure compliance by the Recipient with
the provisions of this Confidentiality Agreement.
10. This Confidentiality Agreement will be governed by and construed in
accordance with the laws of the Province of British Columbia, Canada.
11. The obligations of each of the parties under this Confidentiality Agreement
are to be binding upon their successors, associates, affiliates, and
subsidiaries.
12. The benefits under this Confidentiality Agreement will accrue to and enure
to the benefit of the successors, affiliates and permitted assigns of the
parties.
13. All references to the Recipient, or to CETI will include all subsidiaries,
employees, consultants, agents, directors, and officers of them.
IN WITNESS WHEREOF the parties hereto have executed this Agreement on the
dates appearing below.
Executed by CLEAN ENERGY )
TECHNOLOGY INC. in the presence of:)
)
- ------------------------------- ) -----------------------------
Authorized Signatory ) Date
)
- ------------------------------- )
Authorized Signatory )
Executed by the Recipient in the )
presence of: )
)
- ------------------------------- ) -----------------------------
Authorized Signatory ) Date
)
<PAGE>
-24-
- ------------------------------- ) -----------------------------
Authorized Signatory ) A:\Chato lic agmt
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated this 5th day of March, 1999,
is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and JOHN D. CHATO (the "Executive"), with reference
to the following facts:
RECITALS:
--------
WHEREAS:
A. The Company desires to employ the Executive as its Head of Research and
Development in order to enable the Company to avail itself of the skill,
knowledge and experience of the Executive and to assure the successful
management of the Company, and the Executive desires to become employed in
such executive officers position or positions;
B. The Company and the Executive desire to enter into a written employment
agreement formally documenting their relationship and setting forth the
duties and responsibilities the Company desires the Executive to undertake,
and which the Executive has agreed to undertake.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties to this Agreement (collectively
"parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
A. Set forth below are definitions of capitalized words or terms which
(together with those common words and terms set forth in section 14.L)
------------
are generally used throughout this Agreement, or references to
sections or paragraphs containing those definitions (capitalized terms
used only in a specific section or paragraph of this Agreement are
defined in that section or paragraph):
B. "Advance" is defined in section 9.
---------
C. "Affiliate" means any "Person" (as defined below) controlling,
controlled by, or under common control with a party.
D. "Agreement" means this Agreement, as originally executed and as it may
be: (i) amended, modified, supplemented and/or restated from time to
time (but only to the extent amended, modified, supplemented and/or
restated in accordance with the terms of this Agreement); and/or (ii)
renewed or extended in accordance with its terms.
E. "Applicable Laws" means any federal (both of the United States and
Canada), state, provincial local or foreign laws or regulations as may
be applicable.
<PAGE>
F. "Board" means the Board of Directors of the Company, as such body may
be reconstituted from time to time.
G. "Company" means Clean Energy Technologies, Inc., a Delaware
Corporation, and any successor and assign of the Company, as more
particularly described in, or permitted and prescribed pursuant to,
section 16.A.
------------
H. "Disability" (or the related term "Disabled") means any of the
following:
(1) the receipt of any disability insurance benefits by the
Executive;
(2) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent;
(3) the Executive's material inability due to medically documented
mental or physical illness or disability to fully perform the
Executive's regular obligations of his office and as an employee
of the Company (with reasonable accommodations for such
disability, if then required by Applicable Law), for a six (6)
month continuous period, or for nine (9) cumulative months within
any one (1) year continuous period; or
(4) the reasonable determination by the Board that the Executive will
not be able to fully perform the Executive's regular obligations
of his office and as an employee of the Company (with reasonable
accommodations if then required by Applicable Law) for a six (6)
month continuous period.
If the Board determines that the Executive is Disabled under
subsection (4) above, and the Executive disagrees with the conclusion
--------------
of the Board, then the Company shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the
Executive at the Company's sole expense. The determination of such
physician shall be provided in writing to the parties and shall be
final and binding upon the parties for all purposes of this Agreement.
The Executive hereby consents to examination in the manner set forth
above, and waives any physician-patient privilege arising from any
such examination as it relates to the determination of the purported
disability.
I. "Employee Benefit Plan" is defined in section 4.D.
-----------
J. "Employee Deductions" are defined in section 6.
---------
K. "Monthly Salary" is defined in section 4.A.
-----------
L. "Performance Bonus" is defined in section 4.C.
-----------
-2-
<PAGE>
M. means an individual or natural person, a corporation, partnership
(limited or general), joint-venture, association, business trust,
limited liability company/partnership, business trust, trust (whether
revocable or irrevocable), pension or profit sharing plan, individual
retirement account, or fiduciary or custodial arrangement.
N. "Personal Time-Off" is defined in section 7.
---------
O. "Subsidiary" shall mean any corporation, partnership (limited or
general), joint-venture, association, business trust, limited
liability company/partnership, business trust or rust in which the
Company holds a controlling interest, including but not limited to
Clean Energy Technologies (Canada) Inc., a British Columbia
corporation.
P. "Termination By Company For Cause" means a termination of the
Executive caused by a determination of two-thirds of the Board,
excluding the Executive if then a member of the Board, that one of the
following events has occurred:
(1) Any of the Executive's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Executive has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform:
(a) any of the Executive's material obligations, promises or
covenants under this Agreement, or
(b) any of the material warranties, obligations, promises or
covenants in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
(3) The Executive has intentionally failed and/or refused to obey any
lawful and proper order or directive of the Board, and/or the
Executive has intentionally interfered with the compliance by
other employees of the Company with any such orders or
directives;
(4) The Executive has intentionally breached the Executive's
fiduciary duties to the Company;
(5) The Executive has intentionally caused the Company to be
convicted of a crime, or to incur criminal penalties in material
amounts;
(6) The Executive has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation,
and/or any other dishonest act against the Company and/or any of
its Affiliates, subsidiaries, joint ventures; or (B) any
-3-
<PAGE>
other offense involving moral turpitude, which offense is
followed by conviction or by final action of any court of law; or
(C) a felony;
(7) The Executive repeatedly and intemperately used alcohol or drugs,
to the extent that such use (A) interfered with or is likely to
interfere with the Executive's ability to perform the Executive's
duties, and/or (B) endangered or is likely to endanger the life,
health, safety, or property of the Executive, the Company, or any
other person;
(8) The Executive has intentionally demonstrated or committed such
acts of racism, sexism or other discrimination as would tend to
bring the Company into public scandal or ridicule, or could
otherwise result in material and substantial harm to the
Company's business, reputation, operations, affairs or financial
position; and/or
(9) The Executive engaged in other conduct constituting legal cause
for termination.
(10) No act, nor failure to act, on the Executive's part shall be
considered "intentional" unless the Executive has acted, or
failed to act, with a lack of good faith and with a lack of
reasonable belief that the Executive's action or failure to act
was in the best interests of the Company. In the event the
Executive is both Disabled and the provisions of subsection (7)
--------------
of this subsection P are applicable, the Company shall
------------
nevertheless have the right to deem such event as a Termination
By Company For Cause.
Q. Termination By Executive For Good Reason" means the Executive's
termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(1) Any of the Company's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Company intentionally and continually breached or wrongfully
failed to fulfill or perform:
(a) its material obligations, promises or covenants under this
Agreement; or
(b) any material warranties, obligations, promises or covenants
of the Company in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
-4-
<PAGE>
(3) The Company terminated this Agreement and the Executive's
employment hereunder, and such termination does not constitute
Termination By Company For Cause;
(4) Without the consent of the Executive, the Company:
(a) substantially altered or materially diminished the position,
nature, status, prestige or responsibilities of the
Executive from those in effect by mutual agreement of the
parties from time-to-time;
(b) assigned additional duties or responsibilities to the
Executive which were wholly and clearly inconsistent with
the position, nature, status, prestige or responsibilities
of the Executive then in effect; or
(c) removed or failed to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be
changed or augmented from time-to-time with the consent of
the Executive), or as a director of the Company, except in
connection with the Disability of the Executive;
(5) Without the consent ratification (express or implied) of the
Executive, the Executive was removed from the Board without his
consent; or the Company failed to nominate or reappoint the
Executive to the Board (unless the Executive is deceased or
Disabled, or such removal or failure is attributable to an event
which would constitute Termination By Company For Cause), or if
the Executive was so nominated, the stockholders of the Company
failed to re-elect the Executive to the Board;
(6) The Company intentionally required the Executive to commit or
participate in any felony or other serious crime; and/or
(7) The Company engaged in other conduct constituting legal cause for
termination.
In the event any of the events described above in this subsection Q
------------
occurs, and such event is reasonably susceptible of being cured, the
Company shall be entitled to a grace period of thirty (30) days
following receipt of written notice of such event. If the Executive
determines, in his sole discretion, that such event is not reasonably
susceptible of being cured within a period of thirty (30) days), the
Executive may grant a longer cure period to the Company to cure such
event to the reasonable satisfaction of the Executive, provided the
Company promptly commences and diligently pursues such cure. The noted
grace periods shall not apply to any other event described in this
subsection Q.
------------
2. EMPLOYMENT OBLIGATIONS
A. Engagement; Duties. The Company hereby engages the Executive as its
------------------
Head of
-5-
<PAGE>
Research and Development, and the Executive accepts such position,
upon the terms and conditions set forth herein. As the Company's Head
of Research and Development, the Executive shall do and perform all
services, acts, or things necessary or advisable to discharge his
duties as the Company's Head of Research and Development under this
Agreement and the Company's Bylaws including, but not limited to, the
management, conduct and supervision of the Company's day-to-day
product research and development.
The Executive shall report only to the Board, and any significant
employment decisions and/or agreements, contracts and/or joint
ventures negotiated by the Executive shall be subject to the review
and approval/ratification by any of such parties. The Executive's
responsibilities with respect to the Company and each of its
Subsidiaries may be changed or supplemented by the Board from time-to-
time, in their discretion. The Executive shall also hold such offices
with the Subsidiaries and/or joint ventures of the Company as the
Board may, in its discretion and with the consent of the Executive,
from time-to-time determine. The Board shall determine the amount of
the Executive's total remuneration which will be allocated to and paid
by the Company and by each of its Subsidiaries. The Executive shall be
reasonably available to travel as the needs of the Company's business
may require.
B. Performance. The Executive shall devote the Executive's entire and
-----------
undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and
the business of the Company (and/or its Subsidiaries); provided,
however, the foregoing shall not be construed to prohibit the
Executive from attending to personal matters from time-to-time as
needed during business hours to the extent reasonably necessary to
address such matters. The Executive shall at all times faithfully,
loyally, conscientiously, diligently and, to the best of the
Executive's ability, perform all of the Executive's duties and
obligations under this Agreement, and otherwise promote the interests
and welfare of the Company (and/or its Subsidiaries), all consistent
with the highest and best standards of the Company's industry. The
Executive shall, in all cases:
(1) strictly comply with and adhere to all Applicable Laws, and the
Company's Articles of Incorporation, Bylaws and policies;
(2) obey all reasonable rules and regulations and policies now in
effect or as subsequently modified governing the conduct of
employees of the Company, and
(3) not commit any acts of gross negligence, willful misconduct,
dishonesty, fraud or misrepresentation, racism, sexism or other
discrimination, or any other acts which would tend to bring the
Company (and/or its Subsidiaries) into public
-6-
<PAGE>
scandal or ridicule, or would otherwise result in material harm
to the Company's business or reputation.
C. Facilities and Services. The Company (and/or its Subsidiaries) shall
-----------------------
provide such support staff, facilities, equipment and supplies as are
reasonably necessary or suitable for the adequate performance of the
Executive's duties and obligations under this Agreement, including
technical and secretarial help.
3. TERM
A. Initial Term. The Company hereby employ the Executive pursuant to the
------------
terms of this Agreement, and the Executive hereby accepts such
employment with the Company, for the period beginning on the date of
this Agreement and ending on March 5, 2000 (the "Initial Term").
B. Automatic Renewal; Termination by the Company. Unless this Agreement
---------------------------------------------
is previously terminated by either party as provided in section 10
----------
below, this Agreement will be automatically renewed for additional and
consecutive one (1) year terms (each, a "Renewal Term") following the
expiration of each Initial or Renewal Term, (each a "Term"), unless
------
either party gives written notice to the other party, no later than
sixty (60) days prior to the expiration of the then pending Term, of
its election not to automatically renew this Agreement for an
---
additional year.
4. COMPENSATION
A. Monthly Base Salary. The Company shall pay or caused to be paid to the
-------------------
Executive a monthly base salary of ten thousand Canadian dollars
(Cdn. $10,000.00) (the "Monthly Salary"). The Monthly Salary shall be
payable in periodic installments as agreed from time-to-time by the
Executive and the Board, but at least semi-monthly, and shall be
subject to any Tax Withholdings and/or Employee Deductions that are
applicable. In any pay period in which the Executive shall be employed
for less than the entire number of business days in such pay period,
the Monthly Salary for such pay period shall be prorated on the basis
of the number of business days during which the Executive was actually
employed during such pay period, divided by the actual number of
business days in such pay period.
B. Automatic Percentage Increase In Monthly Base Salary. Commencing on
----------------------------------------------------
the first annual anniversary date of this Agreement, and on each
annual anniversary date thereafter, the Monthly Salary then effective
shall be increased by an amount equal to five percent (5%) of the
Monthly Salary for the immediately prior year. Additionally,
commencing on or prior to the first annual anniversary date of this
Agreement, and on or prior to each annual anniversary date thereafter,
the Board shall review the Executive's Monthly Salary to determine
whether to increase the Monthly Salary by an amount in
-7-
<PAGE>
excess of said five percent (5%) increment, without any obligation by
the Board to authorize such increase.
C. Performance Bonus. The Board shall from time-to-time, but not less
-----------------
than one (1) time per year, evaluate the performance of the Executive
and award to the Executive a performance bonus (the "Performance
Bonus") in such amount as the Board may determine, in its sole
discretion, to be reasonable, after taking into consideration other
compensation paid or payable to the Executive under this Agreement, as
well as the financial and non-financial progress of the business of
the Company (and/or its Subsidiaries) and the contributions of the
Executive toward that progress. Payment of the Performance Bonus shall
be subject to any applicable Tax Withholdings and/or Employee
Deductions.
D. Participation in Employee Benefit Plans. The Executive shall have the
---------------------------------------
same rights, privileges, benefits and opportunities to participate in
any employee benefit plans of the Company which may now or hereafter
be in effect on a general basis for the Company's executive officers
or employees, including without limitation retirement, pension,
profit-sharing, savings and insurance (including, but not limited to,
health, dental, disability and/or group insurance) (collectively,
"Employee Benefit Plans"). In the event the Executive receives
payments from a disability plan maintained by the Company, the Company
(and/or its Subsidiaries) shall have the right to offset such payments
against Monthly Salary otherwise payable to the Executive during the
period for which payments are made by such disability plan.
E. Stock Options.
-------------
(1) The Company agrees to grant to the Executive an option (the
"Option") to purchase up to one hundred thousand (100,000)
unregistered shares of the Company's common stock, which right to
purchase shall vest incrementally over a period of five (5) years
based upon continuous employment, with the first increment of
twenty thousand (20,000) shares vesting one year from the date of
this Agreement. The purchase price per share shall be U.S. $2 per
share.
(2) The term for the Executive to exercise the Option with respect to
any vested share shall expire five (5) years from the date of
vesting of such share provided, however, if the Executive's
employment with the Company has been previously terminated
pursuant to subsection (4) below, the expiration date shall be
--------------
accelerated to two (2) years after the effective date of
termination (if earlier than the option expiration date).
(3) In the event of the death or Disability of the Executive, all
unvested Options Shares which would have vested within the twelve
--------
(12) month period following the date of death or Disability will
vest effective as of the date of death or
-8-
<PAGE>
Disability, and the prospective right to purchase the balance of
the remaining unvested option shares shall lapse.
--------
(4) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as Termination By Company for Cause; and/or
(b) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason; then
the prospective right to purchase unvested option shares shall
--------
lapse to the extent such rights do not vest prior to the
effective date of termination.
(5) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as a Termination by Executive for Good
Reason;
(b) termination by the Company which does not constitute a
Termination By Company for Cause and/or
(c) an event defined as a Change in Control; then
the prospective right to purchase all unvested options shares
--------
which would have vested within the twelve (12) month period
following the date of such event will vest effective as of the
date of such event, and the prospective right to purchase the
balance of the remaining unvested option shares shall lapse.
--------
(6) The grant of the Options shall be evidenced by a Stock Option
Certificate reflecting the above terms plus such additional terms
and conditions as required by a Plan established by the Company
and containing such other terms as the Company believes to be
reasonable.
(7) The Executive shall be responsible for all income taxes
(including tax withholdings) attributable to the grant or
exercise of the Option, or the sale of the option shares acquired
by exercise of the Option.
5. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized to incur, and
the Company (and/or its Subsidiaries) shall directly pay or reimburse the
Executive for his or her payment of the Executive's reasonable and
necessary business expenses, duly and actually incurred by the Executive in
connection with the duties and services to be performed by the Executive
under this Agreement, including without limitation entertainment, meals,
travel, lodging and other similar
-9-
<PAGE>
out-of-pocket expenses, upon the Executive's submission to the Company
(and/or its Subsidiaries) of itemized expense statements setting forth the
date, purpose and amount of the expense incurred, together with
corresponding receipts showing payment by the Executive in cases where he
or she seeks reimbursement, all in conformity with business expense payment
and/or reimbursement policies as may be established by the Company (and/or
its Subsidiaries) from time to time, all of which shall comply with the
substantiation requirements of the Internal Revenue Code 0f 1986, as
amended, and the Income Tax Act of Canada, as amended, and any other
applicable taxing authorities, and regulations promulgated by such
authorities thereto, pertaining to the deductibility of such expenses.
Direct payment and/or reimbursement shall be made by the Company (and/or
its Subsidiaries) no later than thirty (30) days of the Executive
submission of the foregoing documentation. The Executive shall be entitled
to direct payment and/or reimbursement in full for the aforesaid business
expenses, notwithstanding that the Company is prohibited under the Code
and/or regulations promulgated thereunder from deducting the entire amount
of such expenses. The Company (and/or its Subsidiaries) shall have the
option to pay directly the persons entitled to payment for such business
expenses.
6. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Company (and/or its Subsidiaries) shall be entitled to deduct from any
payments to the Executive pursuant to the terms of this Agreement
(including any payments arising from the early termination of this
Agreement), amounts sufficient to cover applicable federal (United States
and Canada), state, provincial, local and/or foreign income tax
withholdings and/or deductions as may be required in connection with such
payment, including without limitation old-age and survivor's and other
social security payments, state or provincial disability and other
withholdings payment as may be required by law (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions
applicable to such payment such as, for example, deductions relating to any
Employee Benefit Plan in which the Executive participates (collectively,
the "Employee Deductions").
7. PERSONAL TIME-OFF
The Executive shall be entitled each calendar year during the term of this
Agreement to such number of personal time-off days for such purposes,
including vacations and time for personal affairs ("Personal Time-Off") as
are approved by the Board, but not less than the greater of (i) fifteen
(15) business days, or (ii) the number of personal time-off days (including
vacation and personal days) generally given by the Company to its
employees. Personal Time-Off shall be in addition to regular paid legal
holidays provided to all employees of the Company. The Executive's
compensation shall be paid in full with respect to approved Personal Time-
Off days. Should the Executive fail to use all Personal Time-Off days in
any calendar year, the Executive shall have the option of (i) receiving
payment for such days on a pro rata basis, or (ii) "carrying-over" unused
Personal Time-Off days to succeeding years. Personal time-off shall be
taken during a period or periods mutually satisfactory to both the Company
and the Executive.
-10-
<PAGE>
8. INSURANCE
If requested by the Company, the Executive shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its
expense and for its own benefit, to obtain disability and/or life insurance
on the life of the Executive. The Executive represents and warrants that he
has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance company at rates now prevailing in the
city of the Company's principal executive offices, for healthy persons of
the Executive's own age and gender.
9. ADVANCES
A. Provision Of Advances; Offsets Generally. The Company (and/or its
----------------------------------------
Subsidiaries) may from time-to-time, upon written consent from the
Chairman of the Board or the Board, and without any obligation to do
so, make advances to the Executive against any compensation or other
amounts to be paid by the Company (and/or its Subsidiaries) to the
Executive (each, an "Advance"). Any amounts due hereunder to the
Executive shall, at the election of the Company, be offset by any then
outstanding Advances.
B. Offset Rights Against Termination Pay. Subject to the terms of any
-------------------------------------
written agreement relating to Advances, in the event of termination of
employment of executive, the Executive agrees that the Company (and/or
its Subsidiaries) shall have the right to offset the amount of any and
all outstanding Advance(s) against any salary or wages due, or any
other amounts due to the Executive from the Company, and that any
remaining balance of the Advance(s) shall be repaid by the Executive
within thirty (30) days after the Executive's termination date. If
such Advance(s) are not repaid within said thirty (30) days, simple
interest shall accrue on the unpaid balance at the rate of ten percent
(10%) per annum. The Executive agrees to pay all costs of collection
incurred by the Company (and/or its Subsidiaries) with respect
thereto, including reasonable attorneys' fees and legal costs.
C. Right of Set-Off. The Company's obligation to make payments to the
----------------
Executive hereunder shall not, except with respect to Advance(s) as
provided above, be affected by any circumstance, including without
limitation any set-off, counterclaim, recoupment, defense or other
right which the Company (and/or its Subsidiaries) may have against the
Executive or others.
10. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
A. Death or Disability. Notwithstanding any other term of this Agreement,
-------------------
the applicable Term shall terminate upon the death or Disability of
the Executive, subject to compliance with Applicable Laws.
-11-
<PAGE>
B. Termination of Agreement by Company for Cause. Subject to compliance
---------------------------------------------
with Applicable Laws, the Company may terminate this Agreement and the
Executive's employment hereunder at any time in the event such
termination constitutes Termination By Company For Cause, upon giving
written notice to the Executive specifying in reasonable detail:
(1) the event which constitutes the cause;
(2) the pertinent facts and circumstances underlying the cause; and
(3) the effective date of the termination (which date may, at the
Company's election, be effective upon receipt of said written
notice by the Executive). Such notice shall also afford the
Executive an opportunity to be heard in person by the Board (with
the assistance of the Executive's legal counsel, if the Executive
so desires). Such hearing shall be held reasonably promptly after
such notice but, in any event, before the effective date of the
prospective termination.
C. Termination of Agreement by Executive for Good Reason. The Executive
-----------------------------------------------------
may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By
Executive For Good Reason, upon giving written notice to the Company
specifying in reasonable detail:
(1) the event which constitutes the good reason;
(2) the pertinent facts and circumstances underling the good reason;
and
(3) the effective date of termination (not to exceed ninety {90} days
from the date of such notice, but which date may, at the
Executive's election, be effective upon receipt of said written
notice by the Company).
11. EFFECT OF TERMINATION
A. Death Or Disability; Termination By Company For Cause; Termination By
---------------------------------------------------------------------
Executive For Good Reason. In the event the Executive's employment
-------------------------
hereunder is terminated before the expiration of a Term, and such
termination is attributable to:
(1) an event defined as Death or Disability;
(2) an event defined as Termination By Company For Cause; and/or
(3) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason, then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business
---------
-12-
<PAGE>
Expenses] and section 7 [ Personal Time-Off] shall terminate as
---------
of the effective date of the termination; provided, however:
(a) The Company (and/or its Subsidiaries) shall pay the
Executive's accrued but unpaid Monthly Salary and Personal
Time-Off days through the effective date of the termination
on or before the close of business on such effective date;
and the Executive shall not be entitled to Monthly Salary
and/or Personal Time-Off days after the effective date of
the termination;
(b) The Company (and/or its Subsidiaries) shall pay any declared
but unpaid Performance Bonus;
(c) The Company (and/or its Subsidiaries) shall reimburse the
Executive for any business expenses incurred prior to the
effective date of the termination, within three (3) business
days after the Executive's submission of the Executive's
expense report to the Company; and
(d) The Executive shall not be entitled to continue to
participate in any Employee Benefit Plans except to the
extent provided in such plans for terminated participants,
or as may be required by Applicable Law. Notwithstanding the
foregoing, amounts which are vested in any Employee Benefit
Plans shall be payable in accordance with such plan.
B. Termination By Executive For Good Reason Or Termination By Company
------------------------------------------------------------------
Without Cause. In the event the Executive's employment hereunder is
-------------
terminated before the expiration of a Term, and such termination is
attributable to:
(1) an event defined as a Termination by Executive for Good Reason;
and/or
(2) termination by the Company which does not constitute a
Termination By Company for Cause; then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses], and section 7 [Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination date;
provided, however:
(a) The Company (and/or its Subsidiaries) shall continue to pay
the Executive's then effective Monthly Salary through the
pending Term of this Agreement, on the same basis as
previously paid to the Executive, but subject to such
minimum increases as are described in section 4;
---------
(b) The Company (and/or its Subsidiaries) shall pay the
Executive's declared but unpaid Performance Bonus;
-13-
<PAGE>
(c) At the election of the Executive, the Company (and/or its
Subsidiaries) shall (i) permit the Executive to continue to
participate in any Employee Benefit Plans, except to the
extent prohibited in such plans for terminated employees, or
as may be required by Applicable Law; or (ii) provide the
Executive with additional compensation, payable on a monthly
basis, which would approximate the cost to the Executive to
obtain comparable benefits;
(d) The Company (and/or its Subsidiaries) shall reimburse the
Executive for the Executive's business expenses incurred
through the effective date of the termination, within three
(3) business days of the Executive's submission of the
Executive's expense report to the Company; and
C. Mitigation. The Executive shall not be required to mitigate the amount
----------
of any payment pursuant to this section 11 by seeking other employment
----------
or otherwise, and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in
any subsequent employment. The provisions of this section 11 shall not
----------
be deemed to prejudice the rights of the Company or the Executive to
any remedy or damages to which such party may be entitled by reason of
a breach of this Agreement by the other party, whether at law or
equity.
12. REPRESENTATIONS AND WARRANTIES OF PARTIES
A. By All Parties. Each of the parties to this Agreement hereby
--------------
represents and warrants to each of the other parties to this
Agreement, each of which is deemed to be a separate representation and
warranty, as follows:
(1) Organization, Power and Authority. Such party, if an entity, is
---------------------------------
duly organized, validly existing and in good standing under the
laws of its state, territory or province of incorporation or
organization, and has all requisite corporate or other power and
authority to enter into this Agreement.
(2) Authorization. The execution and delivery of this Agreement by
-------------
such party, and the performance by such party of the transactions
herein contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions.
(3) Validity. This Agreement has been duly executed and delivered by
--------
such party and, assuming due authorization, execution and
delivery by all of the other parties hereto, is valid and binding
upon such party in accordance with its terms, except as limited
by: (1) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to
creditor rights generally;
-14-
<PAGE>
and (2) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
(4) Non-Contravention. Neither the execution or delivery of this
-----------------
Agreement, nor the performance by such party of the transactions
contemplated herein: (1) if such party is an entity, will breach
or conflict with any of the provisions of such party's governing
organizational documents; or (2) to the best of such party's
knowledge and belief, will such actions violate or constitute an
event of default under any agreement or other instrument to which
such party is a party.
(5) Legal Representation. Such party: (1) had the advice, or
--------------------
sufficient opportunity to obtain the advice, of legal counsel
separate and independent from legal counsel for any other party
hereto; and (2) such party was not represented by the legal
counsel of any other party hereto in connection with the
transactions contemplated by this Agreement, nor was such party
under any belief or understanding that such legal counsel was
representing such party's interests.
(6) Fairness. The terms and conditions of the transactions
--------
contemplated by this Agreement are fair and reasonable to such
party based upon all of the facts and circumstances at the time
this Agreement is entered into; and such party has voluntarily
entered into the transactions contemplated by this Agreement,
without duress or coercion.
B. By Executive. The Executive hereby represents and warrants to the
------------
Company that the Executive is not Disabled at the time of the
execution and delivery of this Agreement by the Executive.
13. NON-LIABILITY FOR EXECUTIVE'S DEBTS
Except as provided under Applicable Laws, the Executive's rights and
obligations under this Agreement shall not be subject to encumbrance or to
the claims of the Executive's creditors (other than the Company), or
subject to the debts, contracts or engagements of the Executive or the
Executive's heirs, successors and assigns, and any attempt to do any of the
foregoing shall be null and void ab initio and without force and effect.
14. INTERPRETATION AND CONSTRUCTION
A. Preparation of Agreement. The parties have participated jointly in the
------------------------
negotiation and drafting of this Agreement and each provision hereof.
In the event any ambiguity, conflict, omission or other question of
intent or interpretation arises, this Agreement shall be construed as
if jointly drafted by the parties, and no presumption or burden of
proof shall be presumed, implied or otherwise construed favoring or
disfavoring any party by virtue of the authorship of this Agreement or
of any provision hereof.
-15-
<PAGE>
B. Performance on Business Day. In the event the date on which a party is
---------------------------
required to take any action under the terms of this Agreement is not a
business day, the action shall, unless otherwise provided herein, be
deemed to be required to be taken on the next succeeding business day.
For purposes of this section, the term "business day" shall mean
Monday through Friday (excluding any legal holidays).
C. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made by any party in connection with any transaction
contemplated by this Agreement shall, irrespective of any
investigation made by or on behalf of any other party hereto, survive
the execution and delivery of this Agreement and the performance or
consummation of any transaction described in this Agreement, and shall
continue in full force and effect forever thereafter (subject to any
applicable statutes of limitation).
D. Independent Significance. The parties intend that each representation,
------------------------
warranty and covenant shall have independent significance. If any
party has falsely made or breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter (regardless of the relative levels of specificity)
which the party has not falsely made or breached shall not detract
from or mitigate the fact that the party has falsely made or breached
the first representation, warranty or covenant.
E. Entire Agreement; No Collateral Representations. Each party expressly
-----------------------------------------------
acknowledges and agrees that this Agreement:
(1) is the final, complete and exclusive statement of the agreement
of the parties with respect to the subject matter hereof;
(2) supersede any prior or contemporaneous agreements, memorandums,
proposals, commitments, guaranties, assurances, communications,
discussions, promises, representations, understandings, conduct,
acts, courses of dealing, warranties, interpretations or terms of
any kind, whether oral or written (collectively and severally,
the "prior agreements"), and that any such prior agreements are
of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of
prior agreements, or by evidence of subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases from
any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
F. Amendment; Waiver; Forbearance. Except as expressly provided herein,
------------------------------
neither this Agreement nor any of the terms, provisions, obligations
or rights contained herein, may be amended, modified, supplemented,
augmented, rescinded, discharged or terminated (other than by
performance), except by a written instrument or instruments signed by
all of the parties to this Agreement. No waiver of: (i) any breach of
any term, provision or
-16-
<PAGE>
agreement; (ii) the performance of any act or obligation under this
Agreement; and/or (iii) any right granted under this Agreement, shall
be effective and binding unless such waiver shall be in a written
instrument or instruments signed by each party claimed to have given
or consented to such waiver. Except to the extent that the party or
parties claimed to have given or consented to a waiver may have
otherwise agreed in writing, no such waiver shall be deemed a waiver
or relinquishment of any other term, provision, agreement, act,
obligation or right under this Agreement, or of any preceding or
subsequent breach thereof. No forbearance by a party in seeking a
remedy for any noncompliance or breach by another party hereto shall
be deemed to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless such
waiver shall be in a written instrument or instruments signed by the
forbearing party.
G. Remedies Cumulative. The remedies of each party under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.
H. Severability. If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall to any extent
be determined to be invalid, illegal or unenforceable under present or
future laws, then, and in such event:
(1) the performance of the offending term or provision (but only to
the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this
Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused
provision as may be possible and still be legal, valid and
enforceable; and
(2) the remaining part of this Agreement (including the application
of the offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby, and shall continue
in full force and effect to the fullest legal extent.
I. Time is of the Essence. Except and to the extent there is a specific
----------------------
cure provision in this Agreement, each party understands and agrees
that:
(1) time of performance is strictly of the essence with respect to
each and every date, term, condition, obligation and provision
hereof imposed upon such party; and
(2) the failure to timely perform any of the terms, conditions,
obligations or provisions hereof by such party shall constitute a
material breach and a noncurable (but waivable) default under
this Agreement by such party.
-17-
<PAGE>
J. Parties in Interest. Nothing in this Agreement shall confer any rights or
-------------------
remedies under or by reason of this Agreement on any persons other than the
parties hereto and their respective successors and assigns, if any, or as
may be permitted hereunder; nor shall anything in this Agreement relieve or
discharge the obligation or liability of any third person to any party to
this Agreement; nor shall any provision give any third person any right of
subrogation or action against any party to this Agreement.
K. No Reliance Upon Prior Representations. Each party acknowledges that: (1)
--------------------------------------
no other party has made any oral representation or promise which would
induce such party, prior to executing this Agreement, to change such
party's position to his, her or its detriment, to partially perform, or to
part with value in reliance upon such representation or promise; and (2)
such party has not so changed its position, performed or parted with value
prior to the time of the execution of this Agreement, or such party has
taken such action at its own risk.
L. Rules of Construction. In interpreting the meaning of this Agreement: (i)
---------------------
the term "person" is defined in its broadest sense to include any
individual or natural person, entity (as such term is defined in this
subsection L) and/or fiduciary (as such term is defined in this
------------
subsection L), and their respective successors and assigns; (ii) the term
------------
"entity" means any legal entity, including any corporation, association,
joint stock company, partnership (limited, general or limited liability),
joint-venture, and limited liability company, business trust, trust
(whether revocable or irrevocable), pension or profit sharing plan,
individual retirement account, or fiduciary or custodial arrangement; (iii)
the term "fiduciary" means any person acting in a fiduciary capacity,
including in their capacity as a trustee or a custodian; (iv) the term
"affiliate" means any person controlling, controlled by, or under common
control with a party (for purposes of the foregoing, the term "control"
(including with the correlative meanings, the terms "controlled by" and
"under common control with") means the possession directly or indirectly of
the power to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities or by
contract or otherwise); (v) the term "subsidiary" means any entity in which
a party holds a controlling interest; (vi) the words "herein" and
"hereunder" and other words of similar report refer to this Agreement as a
whole, and not to any particular sections, subsections, paragraph,
subparagraph or other subdivision of this Agreement; (vii) the words
"including," "includes," and "include" shall be deemed to be followed by
the words "including without limitation;" (viii) the word "or" shall not be
deemed to be exclusive unless the context indicates otherwise; and (ix) the
word "all" shall be deemed to include the word "any," and vice versa. All
pronouns and any variation thereof used in this Agreement shall be deemed
to refer to the masculine, feminine, or neuter (as the case may be), and to
the singular or plural (as the case may be), as the identity of the person
or persons or the context may require for proper interpretation of this
Agreement. Any references in this Agreement to "dollars" shall be deemed to
refer to the currency of Canada, unless such reference specifically
references a dollar-denominated currency of a country other than Canada.
The headings
-18-
<PAGE>
used in this Agreement are for convenience and reference purposes
only, and shall not be used in construing or interpreting the scope or
intent of this Agreement or any provision hereof. Each cross-
references in this Agreement shall, unless specifically directed to
another agreement or document, be construed only to refer to
provisions within this Agreement, and shall not be construed to refer
to the overall transaction or to any other agreement or document. Each
exhibit, addendum, schedule and/or attachment referenced in this
Agreement shall be construed to be incorporated into this Agreement by
such reference and made a part hereof. References to any agreements
(other than this Agreement) shall include all amendments,
modifications, supplements and/or renewals thereof. Unless the context
requires otherwise: (1) any reference herein to any federal, state,
provincial, local or foreign statutes or laws (collectively, the
"Statutes") will be deemed to include all rules and regulations
promulgated thereunder: and (2) any references herein to any Statute
and/or any specific section or provision of any such Statute are
intended to refer to such section or provision thereof as presently
enacted and as subsequently amended, succeeded, recodified or
renumbered.
15. ENFORCEMENT
A. Governing Law. This Agreement and the rights and remedies of each
-------------
party arising out of or relating to this Agreement (including
equitable remedies) shall be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without regard
to the conflicts of law principles) of the province of British
Columbia, as if this Agreement were made, and as if its obligations
were to be performed in their entirety, within the province of British
Columbia.
B. Recovery of Fees and Costs. If any party institutes, or should any
--------------------------
party otherwise become a party to, any action or proceeding based upon
or arising out of this Agreement, including the enforcement or
interpretation of this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or any
provision hereof, or for a declaration of rights in connection
herewith, or for any other relief, including equitable relief, in
connection herewith, the "prevailing party" (as such term is defined
below) in any such action or proceeding, whether or not such action or
proceeding proceeds to final judgment or determination, shall be
entitled to receive from the non-prevailing party as a cost of suit,
and not as damages, all fees, costs and expenses of enforcing any
right of the prevailing party (collectively, "fees and costs"),
including:
(1) reasonable attorneys' fees and costs and expenses;
(2) witness fees (including experts engaged by the parties, but
excluding officers, directors, employees, managers or general
partners of the parties);
(3) accountants' fees;
-19-
<PAGE>
(4) fees of other professionals and
(5) any and all other similar fees incurred in the prosecution or
defense of the action or proceeding; including the following:
(a) postjudgment motions;
(b) contempt proceedings;
(c) garnishment, levy, and debtor and third party examinations;
(d) discovery; and
(e) bankruptcy litigation.
All of the aforesaid fees and costs shall be deemed to have accrued
upon the commencement of such action, and shall be paid whether or not
such action is prosecuted to judgment. Any judgment or order entered
in such action shall contain a specific provision providing for the
recovery of the aforesaid fees, costs and expenses incurred in
enforcing such judgment and an award of prejudgment interest from the
date of the breach at the maximum rate of interest allowed by law. The
term "prevailing party" is defined as the party who is determined to
prevail by the court after its consideration of all damages and
equities in the action or proceeding (the court shall retain the
discretion to determine that no party is the prevailing party, in
which case no party shall be entitled to recover its fees and costs
under this subsection).
----------
16. ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
A. Assignment or Delegation. Except as specifically provided in this
------------------------
Agreement, neither party (an "assigning party") may directly or
indirectly sell, license, transfer or assign (whether through a
merger, consolidation, conversion, sale of assets, sale or exchange of
securities, or by operation of law, or otherwise) any of such party's
rights or interests under this Agreement, or delegate any of such
party's duties or obligations under this Agreement, in whole or in
part, including to any subsidiary or to any affiliate, without the
prior written consent of the other party (a "consenting party"), which
consent may be withheld in the consenting party's sole and absolute
discretion; provided, however:
(1) Subject to prior compliance with subsection (3) and subsection
-------------- ----------
(4) below, an assigning party may assign all of the rights and
---
interests and delegate all of the duties and obligations of the
assigning party under this Agreement in connection with a
transaction whose principal purpose is to change the State in
which the assigning party is incorporated, or to form a holding
company, or to effect a similar reorganization as to form of
entity without change of beneficial ownership, including through:
-20-
<PAGE>
(a) a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or
other reorganization with respect to the assigning party
and/or its stockholders; or
(b) the sale, transfer, exchange or other disposition by the
assigning party of its assets in a single or series of
related transactions, so long as such transferee, purchaser
or surviving person shall expressly assume such obligations
of the assigning party;
(2) Subject to subsection (3) and subsection (4) below, an assigning
-------------- --------------
party may, with the prior written consent of the consenting
party, which consent the consenting party may withhold in its
sole and absolute discretion, assign all of the rights and
interests and delegate all of the duties and obligations of the
assigning party under this Agreement to any other person in
connection with the transfer or sale of the entire business of
the assigning party (other than with respect to a sale described
in subsection (1) above), or the merger or consolidation of the
assigning party with or into any other person (other than with
respect to a merger or consolidation described in subsection (1)
above), so long as such transferee, purchaser or surviving person
shall expressly assume such obligations of the assigning party;
(3) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary, no assignment or transfer under subsection
----------
(1) or subsection (2) may be effectuated unless the proposed
--- --------------
transferee or assignee first executes such agreements (including
a restated Employment Agreement) in such form as the consenting
party may deem reasonably satisfactory to:
(a) evidence the assumption by the proposed transferee or
assignee of the obligations of the assigning party; and
(b) to ensure that the consenting party continues to receive
such rights, benefits and protections (both legal and
economic) as were contemplated by the consenting party when
entering into this Agreement; and
(4) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary:
(a) any assumption by a successor or assign under subsection (1)
--------------
or subsection (2) above shall in no way release the
--------------
assigning party from any of its obligations or liabilities
under this Agreement; and
(b) and any merger, consolidation, reorganization, sale or
conveyance under subsection (1) or subsection (2) above
-------------- --------------
shall not be deemed to abrogate
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<PAGE>
the rights of the consenting party elsewhere contained in
this Agreement.
(5) Any purported assignment or transfer in violation of the terms of
this subsection 16.A shall be null and void ab initio and of no
---------------
force and effect, and shall vest no rights or interests in the
purported assignee or transferee.
B. Successors and Assigns. Subject to subsection 16.A above, each and
---------------------- ---------------
every representation, warranty, covenant, condition and provision of
this Agreement as it relates to each party hereto shall be binding
upon and shall inure to the benefit of such party and his, her or its
respective successors and permitted assigns, spouses, heirs,
executors, administrators and personal and legal representatives,
including any successor (whether direct or indirect, or by merger,
consolidation, conversion, purchase of assets, purchase of securities
or otherwise).
17. MISCELLANEOUS
A. Costs and Expenses. Except as expressly set forth in this Agreement,
------------------
each party shall pay all legal and other fees, costs and expenses
incurred or to be incurred by such party in negotiating and preparing
this Agreement; in performing due diligence or retaining professional
advisors; and in complying with such party's covenants, agreements and
conditions contained herein.
B. Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Agreement,
all without undue delay or expense.
C. Notices. Unless otherwise specifically provided in this Agreement, all
-------
notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required
or permitted to be given hereunder, or which are given with respect to
this Agreement, shall be in writing, and shall be given by:
(1) personal delivery (which form of notice shall be deemed to have
been given upon delivery),
(2) by telegraph or by private airborne/overnight delivery service
(which forms of notice shall be deemed to have been given upon
confirmed delivery by the delivery agency),
(3) by electronic or facsimile or telephonic transmission, provided
the receiving party has a compatible device or confirms receipt
thereof (which forms of notice
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<PAGE>
shall be deemed delivered upon confirmed transmission or
confirmation of receipt), or
(4) by mailing in the Canadian or United States mail (as may be
applicable) by registered or certified mail, return receipt
requested, postage prepaid (which forms of notice shall be
deemed to have been given upon the fifth {5th} business day
following the date mailed.
Notices shall be addressed at the addresses first set forth
below, or to such other address as the party shall have specified
in a writing delivered to the other parties in accordance with
this paragraph. Any notice given to the estate of a party shall
be sufficient if addressed to the party as provided in this
subsection C.
------------
If to the Company: Clean Energy Technologies, Inc.
7087 MacPherson Avenue
Burnaby, British Columbia, Canada V5J 4N4
If to Executive: John D. Chato
__________________________________
__________________________________
D. Counterparts; Electronically Transmitted Documents. This Agreement may
--------------------------------------------------
be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this
Agreement may be detached from any counterpart of this Agreement and
reattached to any other counterpart of this Agreement identical in
form hereto by having attached to it one or more additional signature
pages. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document
shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
E. Execution by All Parties Required to be Binding. This Agreement shall
-----------------------------------------------
not be construed to be an offer shall have no force and effect until
this Agreement is fully executed and delivered by all parties hereto
pursuant to the terms of section17.D. Until such time as all parties
fully execute this Agreement, any party who has previously executed
and delivered this Agreement may revoke such execution and delivery.
F. WHEREFORE, the parties hereto have executed this Agreement in the City
of Burnaby, Province of British Columbia, Canada, as of the date first
set forth above.
COMPANY: Clean Energy Technologies, Inc.
a Delaware Corporation
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<PAGE>
By: /s/ John P. Thuot
-------------------------------
John P. Thuot, President
EXECUTIVE: /s/ John D. Chato
----------------------------------
John D. Chato
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<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated this 5th day of March, 1999,
is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and JOHN P. THUOT (the "Executive"), with reference
to the following facts:
RECITALS:
--------
WHEREAS:
A. The Company desires to employ the Executive as its President in order to
enable the Company to avail itself of the skill, knowledge and experience
of the Executive and to assure the successful management of the Company,
and the Executive desires to become employed in such executive officers
position or positions;
B. The Company and the Executive desire to enter into a written employment
agreement formally documenting their relationship and setting forth the
duties and responsibilities the Company desires the Executive to undertake,
and which the Executive has agreed to undertake.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties to this Agreement (collectively
"parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
A. Set forth below are definitions of capitalized words or terms which
(together with those common words and terms set forth in section 14.L)
------------
are generally used throughout this Agreement, or references to
sections or paragraphs containing those definitions (capitalized terms
used only in a specific section or paragraph of this Agreement are
defined in that section or paragraph):
B. "Advance" is defined in section 9.
---------
C. "Affiliate" means any "Person" (as defined below) controlling,
controlled by, or under common control with a party.
D. "Agreement" means this Agreement, as originally executed and as it may
be: (i) amended, modified, supplemented and/or restated from time to
time (but only to the extent amended, modified, supplemented and/or
restated in accordance with the terms of this Agreement); and/or (ii)
renewed or extended in accordance with its terms.
E. "Applicable Laws" means any federal (both of the United States and
Canada), state, provincial local or foreign laws or regulations as may
be applicable.
<PAGE>
F. "Board" means the Board of Directors of the Company, as such body may
be reconstituted from time to time.
G. "Company" means Clean Energy Technologies, Inc., a Delaware
Corporation, and any successor and assign of the Company, as more
particularly described in, or permitted and prescribed pursuant to,
section 16.A.
------------
H. "Disability" (or the related term "Disabled") means any of the
following:
(1) the receipt of any disability insurance benefits by the
Executive;
(2) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent;
(3) the Executive's material inability due to medically documented
mental or physical illness or disability to fully perform the
Executive's regular obligations of his office and as an employee
of the Company (with reasonable accommodations for such
disability, if then required by Applicable Law), for a six (6)
month continuous period, or for nine (9) cumulative months within
any one (1) year continuous period; or
(4) the reasonable determination by the Board that the Executive will
not be able to fully perform the Executive's regular obligations
of his office and as an employee of the Company (with reasonable
accommodations if then required by Applicable Law) for a six (6)
month continuous period.
If the Board determines that the Executive is Disabled under
subsection (4) above, and the Executive disagrees with the conclusion
--------------
of the Board, then the Company shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the
Executive at the Company's sole expense. The determination of such
physician shall be provided in writing to the parties and shall be
final and binding upon the parties for all purposes of this Agreement.
The Executive hereby consents to examination in the manner set forth
above, and waives any physician-patient privilege arising from any
such examination as it relates to the determination of the purported
disability.
I. "Employee Benefit Plan" is defined in section 4.D.
-----------
J. "Employee Deductions" are defined in section 6.
---------
K. "Monthly Salary" is defined in section 4.A.
-----------
L. "Performance Bonus" is defined in section 4.C.
-----------
M. "Person" means an individual or natural person, a corporation,
partnership (limited or general), joint-venture, association, business
trust, limited liability company/partnership,
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<PAGE>
business trust, trust (whether revocable or irrevocable), pension or
profit sharing plan, individual retirement account, or fiduciary or
custodial arrangement.
N. "Personal Time-Off" is defined in section 7.
---------
O. "Subsidiary" shall mean any corporation, partnership (limited or
general), joint-venture, association, business trust, limited
liability company/partnership, business trust or rust in which the
Company holds a controlling interest, including but not limited to
Clean Energy Technologies (Canada) Inc., a British Columbia
corporation.
P. "Termination By Company For Cause" means a termination of the
Executive caused by a determination of two-thirds of the Board,
excluding the Executive if then a member of the Board, that one of the
following events has occurred:
(1) Any of the Executive's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Executive has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform:
(a) any of the Executive's material obligations, promises or
covenants under this Agreement, or
(b) any of the material warranties, obligations, promises or
covenants in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
(3) The Executive has intentionally failed and/or refused to obey any
lawful and proper order or directive of the Board, and/or the
Executive has intentionally interfered with the compliance by
other employees of the Company with any such orders or
directives;
(4) The Executive has intentionally breached the Executive's
fiduciary duties to the Company;
(5) The Executive has intentionally caused the Company to be
convicted of a crime, or to incur criminal penalties in material
amounts;
(6) The Executive has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation,
and/or any other dishonest act against the Company and/or any of
its Affiliates, subsidiaries, joint ventures; or (B) any other
offense involving moral turpitude, which offense is followed by
conviction or by final action of any court of law; or (C) a
felony;
(7) The Executive repeatedly and intemperately used alcohol or drugs,
to the extent that such use (A) interfered with or is likely to
interfere with the Executive's
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<PAGE>
ability to perform the Executive's duties, and/or (B) endangered
or is likely to endanger the life, health, safety, or property of
the Executive, the Company, or any other person;
(8) The Executive has intentionally demonstrated or committed such
acts of racism, sexism or other discrimination as would tend to
bring the Company into public scandal or ridicule, or could
otherwise result in material and substantial harm to the
Company's business, reputation, operations, affairs or financial
position; and/or
(9) The Executive engaged in other conduct constituting legal cause
for termination.
(10) No act, nor failure to act, on the Executive's part shall be
considered "intentional" unless the Executive has acted, or
failed to act, with a lack of good faith and with a lack of
reasonable belief that the Executive's action or failure to act
was in the best interests of the Company. In the event the
Executive is both Disabled and the provisions of subsection (7)
--------------
of this subsection P are applicable, the Company shall
------------
nevertheless have the right to deem such event as a Termination
By Company For Cause.
Q. Termination By Executive For Good Reason" means the Executive's
termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(1) Any of the Company's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Company intentionally and continually breached or wrongfully
failed to fulfill or perform:
(a) its material obligations, promises or covenants under this
Agreement; or
(b) any material warranties, obligations, promises or covenants
of the Company in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
(3) The Company terminated this Agreement and the Executive's
employment hereunder, and such termination does not constitute
Termination By Company For Cause;
(4) Without the consent of the Executive, the Company:
(a) substantially altered or materially diminished the position,
nature, status, prestige or responsibilities of the
Executive from those in effect by mutual agreement of the
parties from time-to-time;
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<PAGE>
(b) assigned additional duties or responsibilities to the
Executive which were wholly and clearly inconsistent with
the position, nature, status, prestige or responsibilities
of the Executive then in effect; or
(c) removed or failed to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be
changed or augmented from time-to-time with the consent of
the Executive), or as a director of the Company, except in
connection with the Disability of the Executive;
(5) Without the consent ratification (express or implied) of the
Executive, the Executive was removed from the Board without his
consent; or the Company failed to nominate or reappoint the
Executive to the Board (unless the Executive is deceased or
Disabled, or such removal or failure is attributable to an event
which would constitute Termination By Company For Cause), or if
the Executive was so nominated, the stockholders of the Company
failed to re-elect the Executive to the Board;
(6) The Company intentionally required the Executive to commit or
participate in any felony or other serious crime; and/or
(7) The Company engaged in other conduct constituting legal cause for
termination.
In the event any of the events described above in this subsection Q
------------
occurs, and such event is reasonably susceptible of being cured, the
Company shall be entitled to a grace period of thirty (30) days
following receipt of written notice of such event. If the Executive
determines, in his sole discretion, that such event is not reasonably
susceptible of being cured within a period of thirty (30) days), the
Executive may grant a longer cure period to the Company to cure such
event to the reasonable satisfaction of the Executive, provided the
Company promptly commences and diligently pursues such cure. The noted
grace periods shall not apply to any other event described in this
subsection Q.
------------
2. EMPLOYMENT OBLIGATIONS
A. Engagement; Duties. The Company hereby engages the Executive as its
------------------
President, and the Executive accepts such position, upon the terms and
conditions set forth herein. As the Company's President, the Executive
shall do and perform all services, acts, or things necessary or
advisable to discharge his duties as the Company's President under
this Agreement and the Company's Bylaws including, but not limited to,
the following:
(1) Managing, conducting and supervising the day-to-day
administrative business of the Company (and/or its Subsidiaries)
such as, by way of example and not limitation, hiring and firing
employees and consultants and establishing compensation levels
for such employees and consultants; and negotiating and entering
into contracts on behalf of the Company (and/or its Subsidiaries)
with respect to the ordinary operations of the business of the
Company (and/or its
-5-
<PAGE>
Subsidiaries) such as, by way of example and not limitation,
exploration, equipment, purchase and lease contracts.
(2) On behalf of the Company, negotiating and entering into
agreements, contracts and/or joint ventures with third parties
relating to the exploitation of the Company's products and
technologies;
(3) Acting as the Company's liaison with its attorneys, certified
public accountants, bankers, joint venture partners, market
makers for the Company's securities and the investment community;
and
(4) Developing and implementing long-term strategic, business and
fiscal planning for the Company (and/or its Subsidiaries) and
their businesses, including but not limited to plans or capital
requirements for financing, the commercial exploitation of the
Company's products and technologies, finance, and positioning the
Company's securities in the various capital markets.
The Executive shall report only to the Board, and any significant
employment decisions and/or agreements, contracts and/or joint
ventures negotiated by the Executive shall be subject to the review
and approval/ratification by any of such parties. The Executive's
responsibilities with respect to the Company and each of its
Subsidiaries may be changed or supplemented by the Board from time-to-
time, in their discretion. The Executive shall also hold such offices
with the Subsidiaries and/or joint ventures of the Company as the
Board may, in its discretion and with the consent of the Executive,
from time-to-time determine. The Board shall determine the amount of
the Executive's total remuneration which will be allocated to and paid
by the Company and by each of its Subsidiaries. The Executive shall be
reasonably available to travel as the needs of the Company's business
may require.
The Executive acknowledges and agrees that he understands that the
Company in the near future to hire a Chief Executive Officer, in which
case the Executive's position shall be President and Chief Operating
Officer.
B. Performance. The Executive shall devote the Executive's entire and
-----------
undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and
the business of the Company (and/or its Subsidiaries); provided,
however, the foregoing shall not be construed to prohibit the
Executive from attending to personal matters from time-to-time as
needed during business hours to the extent reasonably necessary to
address such matters. The Executive shall at all times faithfully,
loyally, conscientiously, diligently and, to the best of the
Executive's ability, perform all of the Executive's duties and
obligations under this Agreement, and otherwise promote the interests
and welfare of the Company (and/or its Subsidiaries), all consistent
with the highest and best standards of the Company's industry. The
Executive shall, in all cases:
-6-
<PAGE>
(1) strictly comply with and adhere to all Applicable Laws, and the
Company's Articles of Incorporation, Bylaws and policies;
(2) obey all reasonable rules and regulations and policies now in
effect or as subsequently modified governing the conduct of
employees of the Company, and
(3) not commit any acts of gross negligence, willful misconduct,
dishonesty, fraud or misrepresentation, racism, sexism or other
discrimination, or any other acts which would tend to bring the
Company (and/or its Subsidiaries) into public scandal or
ridicule, or would otherwise result in material harm to the
Company's business or reputation.
C. Facilities and Services. The Company (and/or its Subsidiaries) shall
-----------------------
provide such support staff, facilities, equipment and supplies as are
reasonably necessary or suitable for the adequate performance of the
Executive's duties and obligations under this Agreement, including
technical and secretarial help.
3. TERM
A. Initial Term. The Company hereby employ the Executive pursuant to the
------------
terms of this Agreement, and the Executive hereby accepts such
employment with the Company, for the period beginning on the date of
this Agreement and ending on March 5, 2000 (the "Initial Term").
B. Automatic Renewal; Termination by the Company. Unless this Agreement
---------------------------------------------
is previously terminated by either party as provided in section 10
----------
below, this Agreement will be automatically renewed for additional and
consecutive one (1) year terms (each, a "Renewal Term") following the
expiration of each Initial or Renewal Term, (each a "Term"), unless
------
either party gives written notice to the other party, no later than
sixty (60) days prior to the expiration of the then pending Term, of
its election not to automatically renew this Agreement for an
---
additional year.
4. COMPENSATION
A. Monthly Base Salary. The Company shall pay or caused to be paid to the
-------------------
Executive a monthly base salary of nine thousand one hundred sixty six
Canadian dollars and sixty seven cents (Cdn. $9,166.67) (the "Monthly
Salary"). The Monthly Salary shall be payable in periodic installments
as agreed from time-to-time by the Executive and the Board, but at
least semi-monthly, and shall be subject to any Tax Withholdings
and/or Employee Deductions that are applicable. In any pay period in
which the Executive shall be employed for less than the entire number
of business days in such pay period, the Monthly Salary for such pay
period shall be prorated on the basis of the number of business days
during which the Executive was actually employed during such pay
period, divided by the actual number of business days in such pay
period.
-7-
<PAGE>
B. Automatic Percentage Increase In Monthly Base Salary. Commencing on
----------------------------------------------------
the first annual anniversary date of this Agreement, and on each
annual anniversary date thereafter, the Monthly Salary then effective
shall be increased by an amount equal to five percent (5%) of the
Monthly Salary for the immediately prior year. Additionally,
commencing on or prior to the first annual anniversary date of this
Agreement, and on or prior to each annual anniversary date thereafter,
the Board shall review the Executive's Monthly Salary to determine
whether to increase the Monthly Salary by an amount in excess of said
five percent (5%) increment, without any obligation by the Board to
authorize such increase.
C. Performance Bonus. The Board shall from time-to-time, but not less
-----------------
than one (1) time per year, evaluate the performance of the Executive
and award to the Executive a performance bonus (the "Performance
Bonus") in such amount as the Board may determine, in its sole
discretion, to be reasonable, after taking into consideration other
compensation paid or payable to the Executive under this Agreement, as
well as the financial and non-financial progress of the business of
the Company (and/or its Subsidiaries) and the contributions of the
Executive toward that progress. Payment of the Performance Bonus shall
be subject to any applicable Tax Withholdings and/or Employee
Deductions.
D. Participation in Employee Benefit Plans. The Executive shall have the
---------------------------------------
same rights, privileges, benefits and opportunities to participate in
any employee benefit plans of the Company which may now or hereafter
be in effect on a general basis for the Company's executive officers
or employees, including without limitation retirement, pension,
profit-sharing, savings and insurance (including, but not limited to,
health, dental, disability and/or group insurance) (collectively,
"Employee Benefit Plans"). In the event the Executive receives
payments from a disability plan maintained by the Company, the Company
(and/or its Subsidiaries) shall have the right to offset such payments
against Monthly Salary otherwise payable to the Executive during the
period for which payments are made by such disability plan.
E. Stock Options.
-------------
(1) The Company agrees to grant to the Executive an option (the
"Option") to purchase up to eighty thousand (80,000) unregistered
shares of the Company's common stock, which right to purchase
shall vest incrementally over a period of five (5) years based
upon continuous employment, with the first increment of sixteen
thousand (16,000) shares vesting one year from the date of this
Agreement. The purchase price per share shall be U.S. $2 per
share.
(2) The term for the Executive to exercise the Option with respect to
any vested share shall expire five (5) years from the date of
vesting of such share provided, however, if the Executive's
employment with the Company has been previously terminated
pursuant to subsection (4) below, the expiration date shall be
--------------
accelerated to two (2) years after the effective date of
termination (if earlier than the option expiration date).
-8-
<PAGE>
(3) In the event of the death or Disability of the Executive, all
unvested Options Shares which would have vested within the twelve
--------
(12) month period following the date of death or Disability will
vest effective as of the date of death or Disability, and the
prospective right to purchase the balance of the remaining
unvested option shares shall lapse.
--------
(4) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as Termination By Company for Cause; and/or
(b) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason; then
the prospective right to purchase unvested option shares shall
--------
lapse to the extent such rights do not vest prior to the
effective date of termination.
(5) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as a Termination by Executive for Good
Reason;
(b) termination by the Company which does not constitute a
Termination By Company for Cause and/or
(c) an event defined as a Change in Control; then
the prospective right to purchase all unvested options shares
--------
which would have vested within the twelve (12) month period
following the date of such event will vest effective as of the
date of such event, and the prospective right to purchase the
balance of the remaining unvested option shares shall lapse.
--------
(6) The grant of the Options shall be evidenced by a Stock Option
Certificate reflecting the above terms plus such additional terms
and conditions as required by a Plan established by the Company
and containing such other terms as the Company believes to be
reasonable.
(7) The Executive shall be responsible for all income taxes
(including tax withholdings) attributable to the grant or
exercise of the Option, or the sale of the option shares acquired
by exercise of the Option.
5. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized to incur, and
the Company (and/or its Subsidiaries) shall directly pay or reimburse the
Executive for his or her payment of the Executive's reasonable and
necessary business expenses, duly and actually incurred by the Executive in
connection with the duties and services to be performed by the Executive
under this
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<PAGE>
Agreement, including without limitation entertainment, meals, travel,
lodging and other similar out-of-pocket expenses, upon the Executive's
submission to the Company (and/or its Subsidiaries) of itemized expense
statements setting forth the date, purpose and amount of the expense
incurred, together with corresponding receipts showing payment by the
Executive in cases where he or she seeks reimbursement, all in conformity
with business expense payment and/or reimbursement policies as may be
established by the Company (and/or its Subsidiaries) from time to time, all
of which shall comply with the substantiation requirements of the Internal
Revenue Code 0f 1986, as amended, and the Income Tax Act of Canada, as
amended, and any other applicable taxing authorities, and regulations
promulgated by such authorities thereto, pertaining to the deductibility of
such expenses. Direct payment and/or reimbursement shall be made by the
Company (and/or its Subsidiaries) no later than thirty (30) days of the
Executive submission of the foregoing documentation. The Executive shall be
entitled to direct payment and/or reimbursement in full for the aforesaid
business expenses, notwithstanding that the Company is prohibited under the
Code and/or regulations promulgated thereunder from deducting the entire
amount of such expenses. The Company (and/or its Subsidiaries) shall have
the option to pay directly the persons entitled to payment for such
business expenses.
6. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Company (and/or its Subsidiaries) shall be entitled to deduct from any
payments to the Executive pursuant to the terms of this Agreement
(including any payments arising from the early termination of this
Agreement), amounts sufficient to cover applicable federal (United States
and Canada), state, provincial, local and/or foreign income tax
withholdings and/or deductions as may be required in connection with such
payment, including without limitation old-age and survivor's and other
social security payments, state or provincial disability and other
withholdings payment as may be required by law (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions
applicable to such payment such as, for example, deductions relating to any
Employee Benefit Plan in which the Executive participates (collectively,
the "Employee Deductions").
7. PERSONAL TIME-OFF
The Executive shall be entitled each calendar year during the term of this
Agreement to such number of personal time-off days for such purposes,
including vacations and time for personal affairs ("Personal Time-Off") as
are approved by the Board, but not less than the greater of (i) fifteen
(15) business days, or (ii) the number of personal time-off days (including
vacation and personal days) generally given by the Company to its
employees. Personal Time-Off shall be in addition to regular paid legal
holidays provided to all employees of the Company. The Executive's
compensation shall be paid in full with respect to approved Personal Time-
Off days. Should the Executive fail to use all Personal Time-Off days in
any calendar year, the Executive shall have the option of (i) receiving
payment for such days on a pro rata basis, or (ii) "carrying-over" unused
Personal Time-Off days to succeeding years. Personal time-off shall be
taken during a period or periods mutually satisfactory to both the Company
and the Executive.
-10-
<PAGE>
8. INSURANCE
If requested by the Company, the Executive shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its
expense and for its own benefit, to obtain disability and/or life insurance
on the life of the Executive. The Executive represents and warrants that
he has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance company at rates now prevailing in the
city of the Company's principal executive offices, for healthy persons of
the Executive's own age and gender.
9. ADVANCES
A. Provision Of Advances; Offsets Generally. The Company (and/or its
----------------------------------------
Subsidiaries) may from time-to-time, upon written consent from the
Chairman of the Board or the Board, and without any obligation to do
so, make advances to the Executive against any compensation or other
amounts to be paid by the Company (and/or its Subsidiaries) to the
Executive (each, an "Advance"). Any amounts due hereunder to the
Executive shall, at the election of the Company, be offset by any then
outstanding Advances.
B. Offset Rights Against Termination Pay. Subject to the terms of any
-------------------------------------
written agreement relating to Advances, in the event of termination of
employment of executive, the Executive agrees that the Company (and/or
its Subsidiaries) shall have the right to offset the amount of any and
all outstanding Advance(s) against any salary or wages due, or any
other amounts due to the Executive from the Company, and that any
remaining balance of the Advance(s) shall be repaid by the Executive
within thirty (30) days after the Executive's termination date. If
such Advance(s) are not repaid within said thirty (30) days, simple
interest shall accrue on the unpaid balance at the rate of ten percent
(10%) per annum. The Executive agrees to pay all costs of collection
incurred by the Company (and/or its Subsidiaries) with respect
thereto, including reasonable attorneys' fees and legal costs.
C. Right of Set-Off. The Company's obligation to make payments to the
----------------
Executive hereunder shall not, except with respect to Advance(s) as
provided above, be affected by any circumstance, including without
limitation any set-off, counterclaim, recoupment, defense or other
right which the Company (and/or its Subsidiaries) may have against the
Executive or others.
10. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
A. Death or Disability. Notwithstanding any other term of this Agreement,
-------------------
the applicable Term shall terminate upon the death or Disability of
the Executive, subject to compliance with Applicable Laws.
B. Termination of Agreement by Company for Cause. Subject to compliance
---------------------------------------------
with Applicable Laws, the Company may terminate this Agreement and the
Executive's employment hereunder at any time in the event such
termination constitutes Termination
-11-
<PAGE>
By Company For Cause, upon giving written notice to the
Executive specifying in reasonable detail:
(1) the event which constitutes the cause;
(2) the pertinent facts and circumstances underlying the cause; and
(3) the effective date of the termination (which date may, at the
Company's election, be effective upon receipt of said written
notice by the Executive). Such notice shall also afford the
Executive an opportunity to be heard in person by the Board (with
the assistance of the Executive's legal counsel, if the Executive
so desires). Such hearing shall be held reasonably promptly after
such notice but, in any event, before the effective date of the
prospective termination.
C. Termination of Agreement by Executive for Good Reason. The Executive
-----------------------------------------------------
may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By
Executive For Good Reason, upon giving written notice to the Company
specifying in reasonable detail:
(1) the event which constitutes the good reason;
(2) the pertinent facts and circumstances underling the good reason;
and
(3) the effective date of termination (not to exceed ninety {90} days
from the date of such notice, but which date may, at the
Executive's election, be effective upon receipt of said written
notice by the Company).
11. EFFECT OF TERMINATION
A. Death Or Disability; Termination By Company For Cause; Termination By
-- ---------------------------------------------------------------------
Executive For Good Reason. In the event the Executive's employment
-------------------------
hereunder is terminated before the expiration of a Term, and such
termination is attributable to:
(1) an event defined as Death or Disability;
(2) an event defined as Termination By Company For Cause; and/or
(3) termination by the Executive which does not constitute
Termination By Executive For Good Reason, then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses] and section 7 [ Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination;
provided, however:
(a) The Company (and/or its Subsidiaries) shall pay the
Executive's accrued but unpaid Monthly Salary and Personal
Time-Off days through the
-12-
<PAGE>
effective date of the termination on or before the close of
business on such effective date; and the Executive shall not
be entitled to Monthly Salary and/or Personal Time-Off days
after the effective date of the termination;
(b) The Company (and/or its Subsidiaries) shall pay any declared
but unpaid Performance Bonus;
(c) The Company (and/or its Subsidiaries) shall reimburse the
Executive for any business expenses incurred prior to the
effective date of the termination, within three (3) business
days after the Executive's submission of the Executive's
expense report to the Company; and
(d) The Executive shall not be entitled to continue to
participate in any Employee Benefit Plans except to the
extent provided in such plans for terminated participants,
or as may be required by Applicable Law. Notwithstanding the
foregoing, amounts which are vested in any Employee Benefit
Plans shall be payable in accordance with such plan.
B. Termination By Executive For Good Reason Or Termination By Company
------------------------------------------------------------------
Without Cause. In the event the Executive's employment hereunder is
-------------
terminated before the expiration of a Term, and such termination is
attributable to:
(1) an event defined as a Termination by Executive for Good Reason;
and/or
(2) termination by the Company which does not constitute a
Termination By Company for Cause; then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses], and section 7 [Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination date;
provided, however:
(a) The Company (and/or its Subsidiaries) shall continue to pay
the Executive's then effective Monthly Salary through the
pending Term of this Agreement, on the same basis as
previously paid to the Executive, but subject to such
minimum increases as are described in section 4;
---------
(b) The Company (and/or its Subsidiaries) shall pay the
Executive's declared but unpaid Performance Bonus;
(c) At the election of the Executive, the Company (and/or its
Subsidiaries) shall (i) permit the Executive to continue to
participate in any Employee Benefit Plans, except to the
extent prohibited in such plans for terminated employees, or
as may be required by Applicable Law; or (ii) provide the
Executive with additional compensation, payable on a monthly
basis, which would approximate the cost to the Executive to
obtain comparable benefits;
-13-
<PAGE>
(d) The Company (and/or its Subsidiaries) shall reimburse the
Executive for the Executive's business expenses incurred
through the effective date of the termination, within three
(3) business days of the Executive's submission of the
Executive's expense report to the Company; and
C. Mitigation. The Executive shall not be required to mitigate the amount
----------
of any payment pursuant to this section 11 by seeking other employment
----------
or otherwise, and no such payment shall be offset or reduced by the
amount of any compensation or benefits provided to the Executive in
any subsequent employment. The provisions of this section 11 shall not
----------
be deemed to prejudice the rights of the Company or the Executive to
any remedy or damages to which such party may be entitled by reason of
a breach of this Agreement by the other party, whether at law or
equity.
12. REPRESENTATIONS AND WARRANTIES OF PARTIES
A. By All Parties. Each of the parties to this Agreement hereby represents
--------------
and warrants to each of the other parties to this Agreement, each of
which is deemed to be a separate representation and warranty, as
follows:
(1) Organization, Power and Authority. Such party, if an entity, is
---------------------------------
duly organized, validly existing and in good standing under the
laws of its state, territory or province of incorporation or
organization, and has all requisite corporate or other power and
authority to enter into this Agreement.
(2) Authorization. The execution and delivery of this Agreement by
-------------
such party, and the performance by such party of the transactions
herein contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions.
(3) Validity. This Agreement has been duly executed and delivered by
--------
such party and, assuming due authorization, execution and
delivery by all of the other parties hereto, is valid and binding
upon such party in accordance with its terms, except as limited
by: (1) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to
creditor rights generally; and (2) general principles of equity
(regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(4) Non-Contravention. Neither the execution or delivery of this
-----------------
Agreement, nor the performance by such party of the transactions
contemplated herein: (1) if such party is an entity, will breach
or conflict with any of the provisions of such party's governing
organizational documents; or (2) to the best of such party's
knowledge and belief, will such actions violate or constitute an
event of default under any agreement or other instrument to which
such party is a party.
-14-
<PAGE>
(5) Legal Representation. Such party: (1) had the advice, or
--------------------
sufficient opportunity to obtain the advice, of legal counsel
separate and independent from legal counsel for any other party
hereto; and (2) such party was not represented by the legal
counsel of any other party hereto in connection with the
transactions contemplated by this Agreement, nor was such party
under any belief or understanding that such legal counsel was
representing such party's interests.
(6) Fairness. The terms and conditions of the transactions
--------
contemplated by this Agreement are fair and reasonable to such
party based upon all of the facts and circumstances at the time
this Agreement is entered into; and such party has voluntarily
entered into the transactions contemplated by this Agreement,
without duress or coercion.
B. By Executive. The Executive hereby represents and warrants to the
------------
Company that the Executive is not Disabled at the time of the
execution and delivery of this Agreement by the Executive.
13. NON-LIABILITY FOR EXECUTIVE'S DEBTS
Except as provided under Applicable Laws, the Executive's rights and
obligations under this Agreement shall not be subject to encumbrance or to
the claims of the Executive's creditors (other than the Company), or
subject to the debts, contracts or engagements of the Executive or the
Executive's heirs, successors and assigns, and any attempt to do any of the
foregoing shall be null and void ab initio and without force and effect.
14. INTERPRETATION AND CONSTRUCTION
A. Preparation of Agreement. The parties have participated jointly in the
------------------------
negotiation and drafting of this Agreement and each provision hereof.
In the event any ambiguity, conflict, omission or other question of
intent or interpretation arises, this Agreement shall be construed as
if jointly drafted by the parties, and no presumption or burden of
proof shall be presumed, implied or otherwise construed favoring or
disfavoring any party by virtue of the authorship of this Agreement or
of any provision hereof.
B. Performance on Business Day. In the event the date on which a party is
---------------------------
required is not a business day, the action shall, unless otherwise
provided herein, be deemed to be required to be taken on the next
succeeding business day. For purposes of this section, the term
"business day" shall mean Monday through Friday (excluding any legal
holidays).
C. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made by any party in connection with any transaction
contemplated by this Agreement shall, irrespective of any
investigation made by or on behalf of any other party hereto, survive
the execution and delivery of this Agreement and the performance or
consummation of any transaction described in this Agreement, and shall
continue in full force and effect forever thereafter (subject to any
applicable statutes of limitation).
-15-
<PAGE>
D. Independent Significance. The parties intend that each representation,
------------------------
warranty and covenant shall have independent significance. If any
party has falsely made or breached any representation, warranty or
covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same
subject matter (regardless of the relative levels of specificity)
which the party has not falsely made or breached shall not detract
from or mitigate the fact that the party has falsely made or breached
the first representation, warranty or covenant.
E. Entire Agreement; No Collateral Representations. Each party expressly
------------------------------------------------
acknowledges and agrees that this Agreement:
(1) is the final, complete and exclusive statement of the agreement
of the parties with respect to the subject matter hereof;
(2) supersede any prior or contemporaneous agreements, memorandums,
proposals, commitments, guaranties, assurances, communications,
discussions, promises, representations, understandings, conduct,
acts, courses of dealing, warranties, interpretations or terms of
any kind, whether oral or written (collectively and severally,
the "prior agreements"), and that any such prior agreements are
of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of
prior agreements, or by evidence of subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases from
any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
F. Amendment; Waiver; Forbearance. Except as expressly provided herein,
------------------------------
neither this Agreement nor any the terms, provisions, obligations or
rights contained herein, may be amended, modified, supplemented,
augmented, rescinded, discharged or terminated (other than by
performance), except by a written instrument or instruments signed by
all of the parties to this Agreement. No waiver of: (i) any breach of
any term, provision or agreement; (ii) the performance of any act or
obligation under this Agreement; and/or (iii) any right granted under
this Agreement, shall be effective and binding unless such waiver
shall be in a written instrument or instruments signed by each party
claimed to have given or consented to such waiver. Except to the
extent that the party or parties claimed to have given or consented to
a waiver may have otherwise agreed in writing, no such waiver shall be
deemed a waiver or relinquishment of any other term, provision,
agreement, act, obligation or right under this Agreement, or of any
preceding or subsequent breach thereof. No forbearance by a party in
seeking a remedy for any noncompliance or breach by another party
hereto shall be deemed to be a waiver by such forbearing party of its
rights and remedies with respect to such noncompliance or breach,
unless such waiver shall be in a written instrument or instruments
signed by the forbearing party.
-16-
<PAGE>
G. Remedies Cumulative. The remedies of each party under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.
H. Severability. If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall to any extent
be determined to be invalid, illegal or unenforceable under present or
future laws, then, and in such event:
(1) the performance of the offending term or provision (but only to
the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this
Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused
provision as may be possible and still be legal, valid and
enforceable; and
(2) the remaining part of this Agreement (including the application
of the offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby, and shall continue
in full force and effect to the fullest legal extent.
I. Time is of the Essence. Except and to the extent there is a specific
----------------------
cure provision in this Agreement, each party understands and agrees
that:
(1) time of performance is strictly of the essence with respect to
each and every date, term, condition, obligation and provision
hereof imposed upon such party; and
(2) the failure to timely perform any of the terms, conditions,
obligations or provisions hereof by such party shall constitute a
material breach and a noncurable (but waivable) default under
this Agreement by such party.
J. Parties in Interest. Nothing in this Agreement shall confer any rights
-------------------
or remedies under or by reason of this Agreement on any persons other
than the parties hereto and their respective successors and assigns,
if any, or as may be permitted hereunder; nor shall anything in this
Agreement relieve or discharge the obligation or liability of any
third person to any party to this Agreement; nor shall any provision
give any third person any right of subrogation or action against any
party to this Agreement.
K. No Reliance Upon Prior Representations. Each party acknowledges that:
--------------------------------------
(1) no other party has made any oral representation or promise which
would induce such party, prior to executing this Agreement, to change
such party's position to his, her or its detriment, to partially
perform, or to part with value in reliance upon such representation or
promise; and (2) such party has not so changed its position, performed
or parted with value prior to the time of the execution of this
Agreement, or such party has taken such action at its own risk.
-17-
<PAGE>
L. Rules of Construction. In interpreting the meaning of this Agreement:
---------------------
(i) the term "person" is defined in its broadest sense to include any
individual or natural person, entity (as such term is defined in this
subsection L) and/or fiduciary (as such term is defined in this
------------
subsection L), and their respective successors and assigns; (ii) the
------------
term "entity" means any legal entity, including any corporation,
association, joint stock company, partnership (limited, general or
limited liability), joint-venture, and limited liability company,
business trust, trust (whether revocable or irrevocable), pension or
profit sharing plan, individual retirement account, or fiduciary or
custodial arrangement; (iii) the term "fiduciary" means any person
acting in a fiduciary capacity, including in their capacity as a
trustee or a custodian; (iv) the term "affiliate" means any person
controlling, controlled by, or under common control with a party (for
purposes of the foregoing, the term "control" (including with the
correlative meanings, the terms "controlled by" and "under common
control with") means the possession directly or indirectly of the
power to direct or cause the direction of the management and policies
of a person, whether through the ownership of voting securities or by
contract or otherwise); (v) the term "subsidiary" means any entity in
which a party holds a controlling interest; (vi) the words "herein"
and "hereunder" and other words of similar report refer to this
Agreement as a whole, and not to any particular sections, subsections,
paragraph, subparagraph or other subdivision of this Agreement; (vii)
the words "including," "includes," and "include" shall be deemed to be
followed by the words "including without limitation;" (viii) the word
"or" shall not be deemed to be exclusive unless the context indicates
otherwise; and (ix) the word "all" shall be deemed to include the word
"any," and vice versa. All pronouns and any variation thereof used in
this Agreement shall be deemed to refer to the masculine, feminine, or
neuter (as the case may be), and to the singular or plural (as the
case may be), as the identity of the person or persons or the context
may require for proper interpretation of this Agreement. Any
references in this Agreement to "dollars" shall be deemed to refer to
the currency of Canada, unless such reference specifically references
a dollar-denominated currency of a country other than Canada. The
headings used in this Agreement are for convenience and reference
purposes only, and shall not be used in construing or interpreting the
scope or intent of this Agreement or any provision hereof. Each cross-
references in this Agreement shall, unless specifically directed to
another agreement or document, be construed only to refer to
provisions within this Agreement, and shall not be construed to refer
to the overall transaction or to any other agreement or document. Each
exhibit, addendum, schedule and/or attachment referenced in this
Agreement shall be construed to be incorporated into this Agreement by
such reference and made a part hereof. References to any agreements
(other than this Agreement) shall include all amendments,
modifications, supplements and/or renewals thereof. Unless the context
requires otherwise: (1) any reference herein to any federal, state,
provincial, local or foreign statutes or laws (collectively, the
"Statutes") will be deemed to include all rules and regulations
promulgated thereunder: and (2) any references herein to any Statute
and/or any specific section or provision of any such Statute are
intended to refer to such section or provision thereof as presently
enacted and as subsequently amended, succeeded, recodified or
renumbered.
-18-
<PAGE>
15. ENFORCEMENT
A. Governing Law. This Agreement and the rights and remedies of each
-------------
party arising out of or relating to this Agreement (including
equitable remedies) shall be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without regard
to the conflicts of law principles) of the province of British
Columbia, as if this Agreement were made, and as if its obligations
were to be performed in their entirety, within the province of British
Columbia.
B. Recovery of Fees and Costs. If any party institutes, or should any
--------------------------
party otherwise become a party to, any action or proceeding based upon
or arising out of this Agreement, including the enforcement or
interpretation of this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or any
provision hereof, or for a declaration of rights in connection
herewith, or for any other relief, including equitable relief, in
connection herewith, the "prevailing party" (as such term is defined
below) in any such action or proceeding, whether or not such action or
proceeding proceeds to final judgment or determination, shall be
entitled to receive from the non-prevailing party as a cost of suit,
and not as damages, all fees, costs and expenses of enforcing any
right of the prevailing party (collectively, "fees and costs"),
including:
(1) reasonable attorneys' fees and costs and expenses;
(2) witness fees (including experts engaged by the parties, but
excluding officers, directors, employees, managers or general
partners of the parties);
(3) accountants' fees;
(4) fees of other professionals and
(5) any and all other similar fees incurred in the prosecution or
defense of the action or proceeding; including the following:
(a) postjudgment motions;
(b) contempt proceedings;
(c) garnishment, levy, and debtor and third party examinations;
(d) discovery; and
(e) bankruptcy litigation.
All of the aforesaid fees and costs shall be deemed to have accrued
upon the commencement of such action, and shall be paid whether or not
such action is prosecuted to judgment. Any judgment or order entered
in such action shall contain a specific provision providing for the
recovery of the aforesaid fees, costs and expenses incurred in
enforcing such judgment and an award of prejudgment interest from the
date
-19-
<PAGE>
of the breach at the maximum rate of interest allowed by law. The
term "prevailing party" is defined as the party who is determined to
prevail by the court after its consideration of all damages and
equities in the action or proceeding (the court shall retain the
discretion to determine that no party is the prevailing party, in
which case no party shall be entitled to recover its fees and costs
under this subsection).
----------
16. ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
A. Assignment or Delegation. Except as specifically provided in this
-- ------------------------
Agreement, neither party (an "assigning party") may directly or
indirectly sell, license, transfer or assign (whether through a
merger, consolidation, conversion, sale of assets, sale or exchange of
securities, or by operation of law, or otherwise) any of such party's
rights or interests under this Agreement, or delegate any of such
party's duties or obligations under this Agreement, in whole or in
part, including to any subsidiary or to any affiliate, without the
prior written consent of the other party (a "consenting party"), which
consent may be withheld in the consenting party's sole and absolute
discretion; provided, however :
(1) Subject to prior compliance with subsection (3) and subsection (4)
------------- -------------
below, an assigning party may assign all of the rights and
interests and delegate all of the duties and obligations of the
assigning party under this Agreement in connection with a
transaction whose principal purpose is to change the State in
which the assigning party is incorporated, or to form a holding
company, or to effect a similar reorganization as to form of
entity without change of beneficial ownership, including through:
(a) a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or
other reorganization with respect to the assigning party
and/or its stockholders; or
(b) the sale, transfer, exchange or other disposition by the
assigning party of its assets in a single or series of
related transactions, so long as such transferee, purchaser
or surviving person shall expressly assume such obligations
of the assigning party;
(2) Subject to subsection (3) and subsection (4) below, an assigning
------------- -------------
party may, with the prior written consent of the consenting party,
which consent the consenting party may withhold in its sole and
absolute discretion, assign all of the rights and interests and
delegate all of the duties and obligations of the assigning party
under this Agreement to any other person in connection with the
transfer or sale of the entire business of the assigning party
(other than with respect to a sale described in subsection (1)
-------------
above), or the merger or consolidation of the assigning party with
or into any other person (other than with respect to a merger or
consolidation described in subsection (1) above), so long as such
-------------
transferee, purchaser or surviving person shall expressly assume
such obligations of the assigning party;
-20-
<PAGE>
(3) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary, no assignment or transfer under subsection
----------
(1) or subsection (2) may be effectuated unless the proposed
--- --------------
transferee or assignee first executes such agreements (including
a restated Employment Agreement) in such form as the consenting
party may deem reasonably satisfactory to:
(a) evidence the assumption by the proposed transferee or
assignee of the obligations of the assigning party; and
(b) to ensure that the consenting party continues to receive
such rights, benefits and protections (both legal and
economic) as were contemplated by the consenting party when
entering into this Agreement; and
(4) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary:
(a) any assumption by a successor or assign under subsection (1)
--------------
or subsection (2) above shall in no way release the
--------------
assigning party from any of its obligations or liabilities
under this Agreement; and
(b) and any merger, consolidation, reorganization, sale or
conveyance under subsection (1) or subsection (2) above
-------------- --------------
shall not be deemed to abrogate the rights of the consenting
party elsewhere contained in this Agreement.
(5) Any purported assignment or transfer in violation of the terms of
this subsection 16.A shall be null and void ab initio and of no
---------------
force and effect, and shall vest no rights or interests in the
purported assignee or transferee.
B. Successors and Assigns. Subject to subsection 16.A above, each and
---------------------- ---------------
every representation, warranty, covenant, condition and provision of
this Agreement as it relates to each party hereto shall be binding
upon and shall inure to the benefit of such party and his, her or its
respective successors and permitted assigns, spouses, heirs,
executors, administrators and personal and legal representatives,
including any successor (whether direct or indirect, or by merger,
consolidation, conversion, purchase of assets, purchase of securities
or otherwise).
17. MISCELLANEOUS
A. Costs and Expenses. Except as expressly set forth in this Agreement,
------------------
each party shall pay all legal and other fees, costs and expenses
incurred or to be incurred by such party in negotiating and preparing
this Agreement; in performing due diligence or retaining professional
advisors; and in complying with such party's covenants, agreements and
conditions contained herein.
-21-
<PAGE>
B. Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Agreement,
all without undue delay or expense.
C. Notices. Unless otherwise specifically provided in this Agreement,
-------
all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required
or permitted to be given hereunder, or which are given with respect to
this Agreement, shall be in writing, and shall be given by:
(1) personal delivery (which form of notice shall be deemed to have
been given upon delivery),
(2) by telegraph or by private airborne/overnight delivery service
(which forms of notice shall be deemed to have been given upon
confirmed delivery by the delivery agency),
(3) by electronic or facsimile or telephonic transmission, provided
the receiving party has a compatible device or confirms receipt
thereof (which forms of notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or
(4) by mailing in the Canadian or United States mail (as may be
applicable) by registered or certified mail, return receipt
requested, postage prepaid (which forms of notice shall be deemed
to have been given upon the fifth {5th} business day following
the date mailed.
Notices shall be addressed at the addresses first set forth below, or
to such other address as the party shall have specified in a writing
delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed
to the party as provided in this subsection C.
------------
If to the Company: Clean Energy Technologies, Inc.
7087 MacPherson Avenue
Burnaby, British Columbia, Canada V5J 4N4
If to Executive: John P. Thuot
_____________________________________
_____________________________________
D. Counterparts; Electronically Transmitted Documents. This Agreement may
--------------------------------------------------
be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this
Agreement may be detached from any counterpart of this Agreement and
reattached to any other counterpart of this Agreement identical in
form
-22-
<PAGE>
hereto by having attached to it one or more additional signature
pages. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document
shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
E. Execution by All Parties Required to be Binding. This Agreement shall
-----------------------------------------------
not be construed to be an offer Agreement is fully executed and
delivered by all parties hereto pursuant to the terms of section17.D.
-----------
Until such time as all parties fully execute this Agreement, any party
who has previously executed and delivered this Agreement may revoke
such execution and delivery.
F. WHEREFORE, the parties hereto have executed this Agreement in the City
of Burnaby, Province of British Columbia, Canada, as of the date first
set forth above.
COMPANY: Clean Energy Technologies, Inc.
a Delaware Corporation
By: /s/ John D. Chato
----------------------
John D. Chato, Chairman
EXECUTIVE: /s/ John P. Thuot
---------------------------
John P. Thuot
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<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated this 5/th/ day of March,
1999, is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and BARRY A. SHEAHAN (the "Executive"), with
reference to the following facts:
RECITALS:
--------
WHEREAS:
A. The Company desires to employ the Executive as its Chief Financial Officer
in order to enable the Company to avail itself of the skill, knowledge and
experience of the Executive and to assure the successful management of the
Company, and the Executive desires to become employed in such executive
officers position or positions;
B. The Company and the Executive desire to enter into a written employment
agreement formally documenting their relationship and setting forth the
duties and responsibilities the Company desires the Executive to undertake,
and which the Executive has agreed to undertake.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties to this Agreement (collectively
"parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
A. Set forth below are definitions of capitalized words or terms which
(together with those common words and terms set forth in section 14.L)
------------
are generally used throughout this Agreement, or references to
sections or paragraphs containing those definitions (capitalized terms
used only in a specific section or paragraph of this Agreement are
defined in that section or paragraph):
B. "Advance" is defined in section 9.
---------
C. "Affiliate" means any "Person" (as defined below) controlling,
controlled by, or under common control with a party.
D. "Agreement" means this Agreement, as originally executed and as it may
be: (i) amended, modified, supplemented and/or restated from time to
time (but only to the extent amended, modified, supplemented and/or
restated in accordance with the terms of this Agreement); and/or (ii)
renewed or extended in accordance with its terms.
E. "Applicable Laws" means any federal (both of the United States and
Canada), state, provincial local or foreign laws or regulations as may
be applicable.
<PAGE>
F. "Board" means the Board of Directors of the Company, as such body may
be reconstituted from time to time.
G. "Company" means Clean Energy Technologies, Inc., a Delaware
Corporation, and any successor and assign of the Company, as more
particularly described in, or permitted and prescribed pursuant to,
section 16.A.
------------
H. "Disability" (or the related term "Disabled") means any of the
following:
(1) the receipt of any disability insurance benefits by the
Executive;
(2) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent;
(3) the Executive's material inability due to medically documented
mental or physical illness or disability to fully perform the
Executive's regular obligations of his office and as an employee
of the Company (with reasonable accommodations for such
disability, if then required by Applicable Law), for a six (6)
month continuous period, or for nine (9) cumulative months within
any one (1) year continuous period; or
(4) the reasonable determination by the Board that the Executive will
not be able to fully perform the Executive's regular obligations
of his office and as an employee of the Company (with reasonable
accommodations if then required by Applicable Law) for a six (6)
month continuous period.
If the Board determines that the Executive is Disabled under
subsection 4 above, and the Executive disagrees with the conclusion of
------------
the Board, then the Company shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the
Executive at the Company's sole expense. The determination of such
physician shall be provided in writing to the parties and shall be
final and binding upon the parties for all purposes of this Agreement.
The Executive hereby consents to examination in the manner set forth
above, and waives any physician-patient privilege arising from any
such examination as it relates to the determination of the purported
disability.
I. "Employee Benefit Plan" is defined in section 4.D.
-----------
J. "Employee Deductions" are defined in section 6.
---------
K. "Monthly Salary" is defined in section 4.A.
-----------
L. "Performance Bonus" is defined in section 4.C.
-----------
-2-
<PAGE>
M. "Person" means an individual or natural person, a corporation,
partnership (limited or general), joint-venture, association, business
trust, limited liability company/partnership, business trust, trust
(whether revocable or irrevocable), pension or profit sharing plan,
individual retirement account, or fiduciary or custodial arrangement.
N. "Personal Time-Off" is defined in section 7.
---------
O. "Subsidiary" shall mean any corporation, partnership (limited or
general), joint-venture, association, business trust, limited
liability company/partnership, business trust or rust in which the
Company holds a controlling interest, including but not limited to
Clean Energy Technologies (Canada) Inc., a British Columbia
corporation.
P. "Termination By Company For Cause" means a termination of the
Executive caused by a determination of two-thirds of the Board,
excluding the Executive if then a member of the Board, that one of the
following events has occurred:
(1) Any of the Executive's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Executive has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform:
(a) any of the Executive's material obligations, promises or
covenants under this Agreement, or
(b) any of the material warranties, obligations, promises or
covenants in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
(3) The Executive has intentionally failed and/or refused to obey any
lawful and proper order or directive of the Board, and/or the
Executive has intentionally interfered with the compliance by
other employees of the Company with any such orders or
directives;
(4) The Executive has intentionally breached the Executive's
fiduciary duties to the Company;
(5) The Executive has intentionally caused the Company to be
convicted of a crime, or to incur criminal penalties in material
amounts;
(6) The Executive has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation,
and/or any other dishonest act against the Company and/or any of
its Affiliates, subsidiaries, joint ventures; or (B) any
-3-
<PAGE>
other offense involving moral turpitude, which offense is
followed by conviction or by final action of any court of law; or
(C) a felony;
(7) The Executive repeatedly and intemperately used alcohol or drugs,
to the extent that such use (A) interfered with or is likely to
interfere with the Executive's ability to perform the Executive's
duties, and/or (B) endangered or is likely to endanger the life,
health, safety, or property of the Executive, the Company, or any
other person;
(8) The Executive has intentionally demonstrated or committed such
acts of racism, sexism or other discrimination as would tend to
bring the Company into public scandal or ridicule, or could
otherwise result in material and substantial harm to the
Company's business, reputation, operations, affairs or financial
position; and/or
(9) The Executive engaged in other conduct constituting legal cause
for termination.
(10) No act, nor failure to act, on the Executive's part shall be
considered "intentional" unless the Executive has acted, or
failed to act, with a lack of good faith and with a lack of
reasonable belief that the Executive's action or failure to act
was in the best interests of the Company. In the event the
Executive is both Disabled and the provisions of subsection 7 of
------------
this subsection P are applicable, the Company shall nevertheless
------------
have the right to deem such event as a Termination By Company For
Cause.
Q. Termination By Executive For Good Reason" means the Executive's
termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(1) Any of the Company's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Company intentionally and continually breached or wrongfully
failed to fulfill or perform:
(a) its material obligations, promises or covenants under this
Agreement; or
(b) any material warranties, obligations, promises or covenants
of the Company in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
-4-
<PAGE>
(3) The Company terminated this Agreement and the Executive's
employment hereunder, and such termination does not constitute
Termination By Company For Cause;
(4) Without the consent of the Executive, the Company:
(a) substantially altered or materially diminished the position,
nature, status, prestige or responsibilities of the
Executive from those in effect by mutual agreement of the
parties from time-to-time;
(b) assigned additional duties or responsibilities to the
Executive which were wholly and clearly inconsistent with
the position, nature, status, prestige or responsibilities
of the Executive then in effect; or
(c) removed or failed to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be
changed or augmented from time-to-time with the consent of
the Executive), or as a director of the Company, except in
connection with the Disability of the Executive;
(5) Without the consent ratification (express or implied) of the
Executive, the Executive was removed from the Board without his
consent; or the Company failed to nominate or reappoint the
Executive to the Board (unless the Executive is deceased or
Disabled, or such removal or failure is attributable to an event
which would constitute Termination By Company For Cause), or if
the Executive was so nominated, the stockholders of the Company
failed to re-elect the Executive to the Board;
(6) The Company intentionally required the Executive to commit or
participate in any felony or other serious crime; and/or
(7) The Company engaged in other conduct constituting legal cause for
termination.
In the event any of the events described above in this subsection Q
------------
occurs, and such event is reasonably susceptible of being cured, the
Company shall be entitled to a grace period of thirty (30) days
following receipt of written notice of such event. If the Executive
determines, in his sole discretion, that such event is not reasonably
susceptible of being cured within a period of thirty (30) days), the
Executive may grant a longer cure period to the Company to cure such
event to the reasonable satisfaction of the Executive, provided the
Company promptly commences and diligently pursues such cure. The noted
grace periods shall not apply to any other event described in this
subsection Q.
------------
2. EMPLOYMENT OBLIGATIONS
(1) Engagement; Duties. The Company hereby engages the Executive as
------------------
its Chief
-5-
<PAGE>
Financial Officer, and the Executive accepts such position, upon
the terms and conditions set forth herein. As the Company's Chief
Financial Officer, the Executive shall do and perform all
services, acts, or things customary for a chief financial officer
to perform, as well as such other things as may be necessary or
advisable to discharge his duties as the Company's Chief
Financial Officer under this Agreement and the Company's Bylaws.
The Executive shall report only to the Board and the President of
the Company. The Executive's responsibilities with respect to the
Company and each of its Subsidiaries may be changed or
supplemented by the Board from time-to-time, in their discretion.
The Executive shall also hold such offices with the Subsidiaries
and/or joint ventures of the Company as the Board may, in its
discretion and with the consent of the Executive, from time-to-
time determine. The Board shall determine the amount of the
Executive's total remuneration which will be allocated to and
paid by the Company and by each of its Subsidiaries. The
Executive shall be reasonably available to travel as the needs of
the Company's business may require.
B. Performance. The Executive shall devote the Executive's entire
-----------
and undivided business time, energy, abilities and attention
solely and exclusively to the performance of the Executive's
duties hereunder and the business of the Company (and/or its
Subsidiaries); provided, however, the foregoing shall not be
construed to prohibit the Executive from attending to personal
matters from time-to-time as needed during business hours to the
extent reasonably necessary to address such matters. The
Executive shall at all times faithfully, loyally,
conscientiously, diligently and, to the best of the Executive's
ability, perform all of the Executive's duties and obligations
under this Agreement, and otherwise promote the interests and
welfare of the Company (and/or its Subsidiaries), all consistent
with the highest and best standards of the Company's industry.
The Executive shall, in all cases:
(1) strictly comply with and adhere to all Applicable Laws, and
the Company's Articles of Incorporation, Bylaws and
policies;
(2) obey all reasonable rules and regulations and policies now
in effect or as subsequently modified governing the conduct
of employees of the Company, and
(3) not commit any acts of gross negligence, willful misconduct,
dishonesty, fraud or misrepresentation, racism, sexism or
other discrimination, or any other acts which would tend to
bring the Company (and/or its Subsidiaries) into public
scandal or ridicule, or would otherwise result in material
harm to the Company's business or reputation.
C. Facilities and Services. The Company (and/or its Subsidiaries)
-----------------------
shall provide such support staff, facilities, equipment and supplies
as are reasonably necessary or suitable
-6-
<PAGE>
for the adequate performance of the Executive's duties and obligations
under this Agreement, including technical and secretarial help.
3. TERM
A. Initial Term. The Company hereby employ the Executive pursuant to
------------
the terms of this Agreement, and the Executive hereby accepts such
employment with the Company, for the period beginning on the date of
this Agreement and ending on March 5, 2000 (the "Initial Term").
B. Automatic Renewal; Termination by the Company. Unless this Agreement
---------------------------------------------
is previously terminated by either party as provided in section 10
----------
below, this Agreement will be automatically renewed for additional and
consecutive one (1) year terms (each, a "Renewal Term") following the
expiration of each Initial or Renewal Term, (each a "Term"), unless
------
either party gives written notice to the other party, no later than
sixty (60) days prior to the expiration of the then pending Term, of
its election not to automatically renew this Agreement for an
---
additional year.
4. COMPENSATION
A. Monthly Base Salary. The Company shall pay or caused to be paid to
-------------------
the Executive a monthly base salary of nine thousand one hundred sixty
six Canadian dollars and sixty seven cents (Cdn. $9,166.67) (the
"Monthly Salary"). The Monthly Salary shall be payable in periodic
installments as agreed from time-to-time by the Executive and the
Board, but at least semi-monthly, and shall be subject to any Tax
Withholdings and/or Employee Deductions that are applicable. In any
pay period in which the Executive shall be employed for less than the
entire number of business days in such pay period, the Monthly Salary
for such pay period shall be prorated on the basis of the number of
business days during which the Executive was actually employed during
such pay period, divided by the actual number of business days in such
pay period.
B. Automatic Percentage Increase In Monthly Base Salary. Commencing on
----------------------------------------------------
the first annual anniversary date of this Agreement, and on each
annual anniversary date thereafter, the Monthly Salary then effective
shall be increased by an amount equal to five percent (5%) of the
Monthly Salary for the immediately prior year. Additionally,
commencing on or prior to the first annual anniversary date of this
Agreement, and on or prior to each annual anniversary date thereafter,
the Board shall review the Executive's Monthly Salary to determine
whether to increase the Monthly Salary by an amount in excess of said
five percent (5%) increment, without any obligation by the Board to
authorize such increase.
C. Performance Bonus. The Board shall from time-to-time, but not less
-----------------
than one (1) time per year, evaluate the performance of the Executive
and award to the Executive a performance bonus (the "Performance
Bonus") in such amount as the Board may
-7-
<PAGE>
determine, in its sole discretion, to be reasonable, after taking into
consideration other compensation paid or payable to the Executive
under this Agreement, as well as the financial and non-financial
progress of the business of the Company (and/or its Subsidiaries) and
the contributions of the Executive toward that progress. Payment of
the Performance Bonus shall be subject to any applicable Tax
Withholdings and/or Employee Deductions.
D. Participation in Employee Benefit Plans. The Executive shall have
---------------------------------------
the same rights, privileges, benefits and opportunities to participate
in any employee benefit plans of the Company which may now or
hereafter be in effect on a general basis for the Company's executive
officers or employees, including without limitation retirement,
pension, profit-sharing, savings and insurance (including, but not
limited to, health, dental, disability and/or group insurance)
(collectively, "Employee Benefit Plans"). In the event the Executive
receives payments from a disability plan maintained by the Company,
the Company (and/or its Subsidiaries) shall have the right to offset
such payments against Monthly Salary otherwise payable to the
Executive during the period for which payments are made by such
disability plan.
E. Stock Options.
-------------
(1) The Company agrees to grant to the Executive an option (the
"Option") to purchase up to eighty thousand (80,000) unregistered
shares of the Company's common stock, which right to purchase
shall vest incrementally over a period of five (5) years based
upon continuous employment, with the first increment of sixteen
thousand (16,000) shares vesting one year from the date of this
Agreement. The purchase price per share shall be U.S. $2 per
share.
(2) The term for the Executive to exercise the Option with respect to
any vested share shall expire five (5) years from the date of
vesting of such share provided, however, if the Executive's
employment with the Company has been previously terminated
pursuant to subsection 4 below, the expiration date shall be
------------
accelerated to two (2) years after the effective date of
termination (if earlier than the option expiration date).
(3) In the event of the death or Disability of the Executive, all
unvested Options Shares which would have vested within the
--------
twelve (12) month period following the date of death or
Disability will vest effective as of the date of death or
Disability, and the prospective right to purchase the balance of
the remaining unvested option shares shall lapse.
--------
(4) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
-8-
<PAGE>
(a) an event defined as Termination By Company for Cause; and/or
(b) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason; then
the prospective right to purchase unvested option shares shall
--------
lapse to the extent such rights do not vest prior to the
effective date of termination.
(5) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as a Termination by Executive for Good
Reason;
(b) termination by the Company which does not constitute a
Termination By Company for Cause and/or
(c) an event defined as a Change in Control; then
the prospective right to purchase all unvested options shares
--------
which would have vested within the twelve (12) month period
following the date of such event will vest effective as of the
date of such event, and the prospective right to purchase the
balance of the remaining unvested option shares shall lapse.
--------
(6) The grant of the Options shall be evidenced by a Stock Option
Certificate reflecting the above terms plus such additional terms
and conditions as required by a Plan established by the Company
and containing such other terms as the Company believes to be
reasonable.
(7) The Executive shall be responsible for all income taxes
(including tax withholdings) attributable to the grant or
exercise of the Option, or the sale of the option shares acquired
by exercise of the Option.
5. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized to incur, and
the Company (and/or its Subsidiaries) shall directly pay or reimburse the
Executive for his or her payment of the Executive's reasonable and
necessary business expenses, duly and actually incurred by the Executive in
connection with the duties and services to be performed by the Executive
under this Agreement, including without limitation entertainment, meals,
travel, lodging and other similar out-of-pocket expenses, upon the
Executive's submission to the Company (and/or its Subsidiaries) of itemized
expense statements setting forth the date, purpose and amount of the
expense incurred, together with corresponding receipts showing payment by
the Executive in cases where he or she seeks reimbursement, all in
conformity with business expense payment and/or reimbursement policies as
may be established by the Company (and/or its Subsidiaries) from time to
time, all of which shall comply with the substantiation requirements of the
Internal Revenue Code 0f 1986, as
-9-
<PAGE>
amended, and the Income Tax Act of Canada, as amended, and any other
applicable taxing authorities, and regulations promulgated by such
authorities thereto, pertaining to the deductibility of such expenses.
Direct payment and/or reimbursement shall be made by the Company (and/or
its Subsidiaries) no later than thirty (30) days of the Executive
submission of the foregoing documentation. The Executive shall be entitled
to direct payment and/or reimbursement in full for the aforesaid business
expenses, notwithstanding that the Company is prohibited under the Code
and/or regulations promulgated thereunder from deducting the entire amount
of such expenses. The Company (and/or its Subsidiaries) shall have the
option to pay directly the persons entitled to payment for such business
expenses.
6. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Company (and/or its Subsidiaries) shall be entitled to deduct from any
payments to the Executive pursuant to the terms of this Agreement
(including any payments arising from the early termination of this
Agreement), amounts sufficient to cover applicable federal (United States
and Canada), state, provincial, local and/or foreign income tax
withholdings and/or deductions as may be required in connection with such
payment, including without limitation old-age and survivor's and other
social security payments, state or provincial disability and other
withholdings payment as may be required by law (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions
applicable to such payment such as, for example, deductions relating to any
Employee Benefit Plan in which the Executive participates (collectively,
the "Employee Deductions").
7. PERSONAL TIME-OFF
The Executive shall be entitled each calendar year during the term of this
Agreement to such number of personal time-off days for such purposes,
including vacations and time for personal affairs ("Personal Time-Off") as
are approved by the Board, but not less than the greater of (i) fifteen
(15) business days, or (ii) the number of personal time-off days (including
vacation and personal days) generally given by the Company to its
employees. Personal Time-Off shall be in addition to regular paid legal
holidays provided to all employees of the Company. The Executive's
compensation shall be paid in full with respect to approved Personal Time-
Off days. Should the Executive fail to use all Personal Time-Off days in
any calendar year, the Executive shall have the option of (i) receiving
payment for such days on a pro rata basis, or (ii) "carrying-over" unused
Personal Time-Off days to succeeding years. Personal time-off shall be
taken during a period or periods mutually satisfactory to both the Company
and the Executive.
8. INSURANCE
If requested by the Company, the Executive shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its
expense and for its own benefit, to obtain disability and/or life insurance
on the life of the Executive. The Executive represents and warrants that he
has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance
-10-
<PAGE>
company at rates now prevailing in the city of the Company's principal
executive offices, for healthy persons of the Executive's own age and
gender.
9. ADVANCES
A. Provision Of Advances; Offsets Generally. The Company (and/or its
----------------------------------------
Subsidiaries) may from time-to-time, upon written consent from the
Chairman of the Board or the Board, and without any obligation to do
so, make advances to the Executive against any compensation or other
amounts to be paid by the Company (and/or its Subsidiaries) to the
Executive (each, an "Advance"). Any amounts due hereunder to the
Executive shall, at the election of the Company, be offset by any then
outstanding Advances.
B. Offset Rights Against Termination Pay. Subject to the terms of any
-------------------------------------
written agreement relating to Advances, in the event of termination of
employment of executive, the Executive agrees that the Company (and/or
its Subsidiaries) shall have the right to offset the amount of any and
all outstanding Advance(s) against any salary or wages due, or any
other amounts due to the Executive from the Company, and that any
remaining balance of the Advance(s) shall be repaid by the Executive
within thirty (30) days after the Executive's termination date. If
such Advance(s) are not repaid within said thirty (30) days, simple
interest shall accrue on the unpaid balance at the rate of ten percent
(10%) per annum. The Executive agrees to pay all costs of collection
incurred by the Company (and/or its Subsidiaries) with respect
thereto, including reasonable attorneys' fees and legal costs.
C. Right of Set-Off. The Company's obligation to make payments to the
----------------
Executive hereunder shall not, except with respect to Advance(s) as
provided above, be affected by any circumstance, including without
limitation any set-off, counterclaim, recoupment, defense or other
right which the Company (and/or its Subsidiaries) may have against the
Executive or others.
10. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
A. Death or Disability. Notwithstanding any other term of this
-------------------
Agreement, the applicable Term shall terminate upon the death or
Disability of the Executive, subject to compliance with Applicable
Laws.
B. Termination of Agreement by Company for Cause. Subject to compliance
---------------------------------------------
with Applicable Laws, the Company may terminate this Agreement and the
Executive's employment hereunder at any time in the event such
termination constitutes Termination By Company For Cause, upon giving
written notice to the Executive specifying in reasonable detail:
(1) the event which constitutes the cause;
-11-
<PAGE>
(2) the pertinent facts and circumstances underlying the cause; and
(3) the effective date of the termination (which date may, at the
Company's election, be effective upon receipt of said written
notice by the Executive). Such notice shall also afford the
Executive an opportunity to be heard in person by the Board (with
the assistance of the Executive's legal counsel, if the Executive
so desires). Such hearing shall be held reasonably promptly after
such notice but, in any event, before the effective date of the
prospective termination.
C. Termination of Agreement by Executive for Good Reason. The Executive
-----------------------------------------------------
may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By
Executive For Good Reason, upon giving written notice to the Company
specifying in reasonable detail:
(1) the event which constitutes the good reason;
(2) the pertinent facts and circumstances underling the good reason;
and
(3) the effective date of termination (not to exceed ninety {90} days
from the date of such notice, but which date may, at the
Executive's election, be effective upon receipt of said written
notice by the Company).
11. EFFECT OF TERMINATION
A. Death Or Disability; Termination By Company For Cause; Termination By
---------------------------------------------------------------------
Executive For Good Reason. In the event the Executive's employment
-------------------------
hereunder is terminated before the expiration of a Term, and such
termination is attributable to:
(1) an event defined as Death or Disability;
(2) an event defined as Termination By Company For Cause; and/or
(3) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason, then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses] and section 7 [ Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination;
provided, however:
(a) The Company (and/or its Subsidiaries) shall pay the
Executive's accrued but unpaid Monthly Salary and Personal
Time-Off days through the effective date of the termination
on or before the close of business on such
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<PAGE>
effective date; and the Executive shall not be entitled to
Monthly Salary and/or Personal Time-Off days after the
effective date of the termination;
(b) The Company (and/or its Subsidiaries) shall pay any declared
but unpaid Performance Bonus;
(c) The Company (and/or its Subsidiaries) shall reimburse the
Executive for any business expenses incurred prior to the
effective date of the termination, within three (3) business
days after the Executive's submission of the Executive's
expense report to the Company; and
(d) The Executive shall not be entitled to continue to
participate in any Employee Benefit Plans except to the
extent provided in such plans for terminated participants,
or as may be required by Applicable Law. Notwithstanding the
foregoing, amounts which are vested in any Employee Benefit
Plans shall be payable in accordance with such plan.
B. Termination By Executive For Good Reason Or Termination By Company
------------------------------------------------------------------
Without Cause. In the event the Executive's employment hereunder is
-------------
terminated before the expiration of a Term, and such termination is
attributable to:
(1) an event defined as a Termination by Executive for Good Reason;
and/or
(2) termination by the Company which does not constitute a
Termination By Company for Cause; then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses], and section 7 [Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination date;
provided, however:
(a) The Company (and/or its Subsidiaries) shall continue to pay
the Executive's then effective Monthly Salary through the
pending Term of this Agreement, on the same basis as
previously paid to the Executive, but subject to such
minimum increases as are described in section 4;
---------
(b) The Company (and/or its Subsidiaries) shall pay the
Executive's declared but unpaid Performance Bonus;
(c) At the election of the Executive, the Company (and/or its
Subsidiaries) shall (i) permit the Executive to continue to
participate in any Employee Benefit Plans, except to the
extent prohibited in such plans for terminated employees, or
as may be required by Applicable Law; or (ii) provide the
Executive with additional compensation, payable on a monthly
basis,
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<PAGE>
which would approximate the cost to the Executive to obtain
comparable benefits;
(d) The Company (and/or its Subsidiaries) shall reimburse the
Executive for the Executive's business expenses incurred
through the effective date of the termination, within three
(3) business days of the Executive's submission of the
Executive's expense report to the Company; and
C. Mitigation. The Executive shall not be required to mitigate the
----------
amount of any payment pursuant to this section 11 by seeking other
----------
employment or otherwise, and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the
Executive in any subsequent employment. The provisions of this
section 11 shall not be deemed to prejudice the rights of the Company
----------
or the Executive to any remedy or damages to which such party may be
entitled by reason of a breach of this Agreement by the other party,
whether at law or equity.
12. REPRESENTATIONS AND WARRANTIES OF PARTIES
A. By All Parties. Each of the parties to this Agreement hereby
--------------
represents and warrants to each of the other parties to this
Agreement, each of which is deemed to be a separate representation and
warranty, as follows:
(1) Organization, Power and Authority. Such party, if an entity, is
---------------------------------
duly organized, validly existing and in good standing under the
laws of its state, territory or province of incorporation or
organization, and has all requisite corporate or other power and
authority to enter into this Agreement.
(2) Authorization. The execution and delivery of this Agreement by
-------------
such party, and the performance by such party of the transactions
herein contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions.
(3) Validity. This Agreement has been duly executed and delivered
--------
by such party and, assuming due authorization, execution and
delivery by all of the other parties hereto, is valid and binding
upon such party in accordance with its terms, except as limited
by: (1) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to
creditor rights generally; and (2) general principles of equity
(regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(4) Non-Contravention. Neither the execution or delivery of this
-----------------
Agreement, nor the performance by such party of the transactions
contemplated herein: (1) if
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<PAGE>
such party is an entity, will breach or conflict with any of the
provisions of such party's governing organizational documents; or
(2) to the best of such party's knowledge and belief, will such
actions violate or constitute an event of default under any
agreement or other instrument to which such party is a party.
(5) Legal Representation. Such party: (1) had the advice, or
--------------------
sufficient opportunity to obtain the advice, of legal counsel
separate and independent from legal counsel for any other party
hereto; and (2) such party was not represented by the legal
counsel of any other party hereto in connection with the
transactions contemplated by this Agreement, nor was such party
under any belief or understanding that such legal counsel was
representing such party's interests.
(6) Fairness. The terms and conditions of the transactions
--------
contemplated by this Agreement are fair and reasonable to such
party based upon all of the facts and circumstances at the time
this Agreement is entered into; and such party has voluntarily
entered into the transactions contemplated by this Agreement,
without duress or coercion.
B. By Executive. The Executive hereby represents and warrants to the
------------
Company that the Executive is not Disabled at the time of the
execution and delivery of this Agreement by the Executive.
13. NON-LIABILITY FOR EXECUTIVE'S DEBTS
Except as provided under Applicable Laws, the Executive's rights and
obligations under this Agreement shall not be subject to encumbrance or to
the claims of the Executive's creditors (other than the Company), or
subject to the debts, contracts or engagements of the Executive or the
Executive's heirs, successors and assigns, and any attempt to do any of the
foregoing shall be null and void ab initio and without force and effect.
14. INTERPRETATION AND CONSTRUCTION
A. Preparation of Agreement. The parties have participated jointly in
------------------------
the negotiation and drafting of this Agreement and each provision
hereof. In the event any ambiguity, conflict, omission or other
question of intent or interpretation arises, this Agreement shall be
construed as if jointly drafted by the parties, and no presumption or
burden of proof shall be presumed, implied or otherwise construed
favoring or disfavoring any party by virtue of the authorship of this
Agreement or of any provision hereof.
B. Performance on Business Day. In the event the date on which a party
---------------------------
is required to take any action under the terms of this Agreement is
not a business day, the action shall, unless otherwise provided
herein, be deemed to be required to be taken on the next
-15-
<PAGE>
succeeding business day. For purposes of this section, the term
"business day" shall mean Monday through Friday (excluding any legal
holidays).
C. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made by any party in connection with any transaction
contemplated by this Agreement shall, irrespective of any
investigation made by or on behalf of any other party hereto, survive
the execution and delivery of this Agreement and the performance or
consummation of any transaction described in this Agreement, and shall
continue in full force and effect forever thereafter (subject to any
applicable statutes of limitation).
D. Independent Significance. The parties intend that each
------------------------
representation, warranty and covenant shall have independent
significance. If any party has falsely made or breached any
representation, warranty or covenant contained herein in any respect,
the fact that there exists another representation, warranty or
covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not falsely made
or breached shall not detract from or mitigate the fact that the party
has falsely made or breached the first representation, warranty or
covenant.
E. Entire Agreement; No Collateral Representations. Each party
-----------------------------------------------
expressly acknowledges and agrees that this Agreement:
(1) is the final, complete and exclusive statement of the agreement
of the parties with respect to the subject matter hereof;
(2) supersede any prior or contemporaneous agreements, memorandums,
proposals, commitments, guaranties, assurances, communications,
discussions, promises, representations, understandings, conduct,
acts, courses of dealing, warranties, interpretations or terms of
any kind, whether oral or written (collectively and severally,
the "prior agreements"), and that any such prior agreements are
of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of
prior agreements, or by evidence of subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases from
any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
F. Amendment; Waiver; Forbearance. Except as expressly provided
------------------------------
herein, neither this Agreement nor any of the terms, provisions,
obligations or rights contained herein, may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated (other
than by performance), except by a written instrument or instruments
signed by all of the parties to this Agreement. No waiver of: (i)
any breach of any term, provision or agreement; (ii) the performance
of any act or obligation under this Agreement; and/or (iii) any right
granted under this Agreement, shall be effective and binding unless
such waiver shall be in a written instrument or instruments signed by
each party claimed to
-16-
<PAGE>
have given or consented to such waiver. Except to the extent that the
party or parties claimed to have given or consented to a waiver may
have otherwise agreed in writing, no such waiver shall be deemed a
waiver or relinquishment of any other term, provision, agreement, act,
obligation or right under this Agreement, or of any preceding or
subsequent breach thereof. No forbearance by a party in seeking a
remedy for any noncompliance or breach by another party hereto shall
be deemed to be a waiver by such forbearing party of its rights and
remedies with respect to such noncompliance or breach, unless such
waiver shall be in a written instrument or instruments signed by the
forbearing party.
G. Remedies Cumulative. The remedies of each party under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.
H. Severability. If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall to any extent
be determined to be invalid, illegal or unenforceable under present or
future laws, then, and in such event:
(1) the performance of the offending term or provision (but only to
the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this
Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused
provision as may be possible and still be legal, valid and
enforceable; and
(2) the remaining part of this Agreement (including the application
of the offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby, and shall continue
in full force and effect to the fullest legal extent.
I. Time is of the Essence. Except and to the extent there is a
----------------------
specific cure provision in this Agreement, each party understands and
agrees that:
(1) time of performance is strictly of the essence with respect to
each and every date, term, condition, obligation and provision
hereof imposed upon such party; and
(2) the failure to timely perform any of the terms, conditions,
obligations or provisions hereof by such party shall constitute a
material breach and a noncurable (but waivable) default under
this Agreement by such party.
J. Parties in Interest. Nothing in this Agreement shall confer any
-------------------
rights or remedies under or by reason of this Agreement on any persons
other than the parties hereto and their respective successors and
assigns, if any, or as may be permitted hereunder; nor shall anything
in this Agreement relieve or discharge the obligation or liability of
any
-17-
<PAGE>
third person to any party to this Agreement; nor shall any provision
give any third person any right of subrogation or action against any
party to this Agreement.
K. No Reliance Upon Prior Representations. Each party acknowledges
--------------------------------------
that: (1) no other party has made any oral representation or promise
which would induce such party, prior to executing this Agreement, to
change such party's position to his, her or its detriment, to
partially perform, or to part with value in reliance upon such
representation or promise; and (2) such party has not so changed its
position, performed or parted with value prior to the time of the
execution of this Agreement, or such party has taken such action at
its own risk.
L. Rules of Construction. In interpreting the meaning of this
---------------------
Agreement: (i) the term "person" is defined in its broadest sense to
include any individual or natural person, entity (as such term is
defined in this subsection L) and/or fiduciary (as such term is
------------
defined in this subsection L), and their respective successors and
------------
assigns; (ii) the term "entity" means any legal entity, including any
corporation, association, joint stock company, partnership (limited,
general or limited liability), joint-venture, and limited liability
company, business trust, trust (whether revocable or irrevocable),
pension or profit sharing plan, individual retirement account, or
fiduciary or custodial arrangement; (iii) the term "fiduciary" means
any person acting in a fiduciary capacity, including in their capacity
as a trustee or a custodian; (iv) the term "affiliate" means any
person controlling, controlled by, or under common control with a
party (for purposes of the foregoing, the term "control" (including
with the correlative meanings, the terms "controlled by" and "under
common control with") means the possession directly or indirectly of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
securities or by contract or otherwise); (v) the term "subsidiary"
means any entity in which a party holds a controlling interest; (vi)
the words "herein" and "hereunder" and other words of similar report
refer to this Agreement as a whole, and not to any particular
sections, subsections, paragraph, subparagraph or other subdivision of
this Agreement; (vii) the words "including," "includes," and "include"
shall be deemed to be followed by the words "including without
limitation;" (viii) the word "or" shall not be deemed to be exclusive
unless the context indicates otherwise; and (ix) the word "all" shall
be deemed to include the word "any," and vice versa. All pronouns and
any variation thereof used in this Agreement shall be deemed to refer
to the masculine, feminine, or neuter (as the case may be), and to the
singular or plural (as the case may be), as the identity of the person
or persons or the context may require for proper interpretation of
this Agreement. Any references in this Agreement to "dollars" shall be
deemed to refer to the currency of Canada, unless such reference
specifically references a dollar-denominated currency of a country
other than Canada. The headings used in this Agreement are for
convenience and reference purposes only, and shall not be used in
construing or interpreting the scope or intent of this Agreement or
any provision hereof. Each cross-references in this Agreement shall,
unless specifically directed to another agreement or document, be
construed only to refer to provisions within this
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<PAGE>
Agreement, and shall not be construed to refer to the overall
transaction or to any other agreement or document. Each exhibit,
addendum, schedule and/or attachment referenced in this Agreement
shall be construed to be incorporated into this Agreement by such
reference and made a part hereof. References to any agreements (other
than this Agreement) shall include all amendments, modifications,
supplements and/or renewals thereof. Unless the context requires
otherwise: (1) any reference herein to any federal, state, provincial,
local or foreign statutes or laws (collectively, the "Statutes") will
be deemed to include all rules and regulations promulgated thereunder:
and (2) any references herein to any Statute and/or any specific
section or provision of any such Statute are intended to refer to such
section or provision thereof as presently enacted and as subsequently
amended, succeeded, recodified or renumbered.
15. ENFORCEMENT
A. Governing Law. This Agreement and the rights and remedies of each
-------------
party arising out of or relating to this Agreement (including
equitable remedies) shall be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without regard
to the conflicts of law principles) of the province of British
Columbia, as if this Agreement were made, and as if its obligations
were to be performed in their entirety, within the province of British
Columbia.
B. Recovery of Fees and Costs. If any party institutes, or should any
--------------------------
party otherwise become a party to, any action or proceeding based upon
or arising out of this Agreement, including the enforcement or
interpretation of this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or any
provision hereof, or for a declaration of rights in connection
herewith, or for any other relief, including equitable relief, in
connection herewith, the "prevailing party" (as such term is defined
below) in any such action or proceeding, whether or not such action or
proceeding proceeds to final judgment or determination, shall be
entitled to receive from the non-prevailing party as a cost of suit,
and not as damages, all fees, costs and expenses of enforcing any
right of the prevailing party (collectively, "fees and costs"),
including:
(1) reasonable attorneys' fees and costs and expenses;
(2) witness fees (including experts engaged by the parties, but
excluding officers, directors, employees, managers or general
partners of the parties);
(3) accountants' fees;
(4) fees of other professionals and
(5) any and all other similar fees incurred in the prosecution or
defense of the action or proceeding; including the following:
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<PAGE>
(a) postjudgment motions;
(b) contempt proceedings;
(c) garnishment, levy, and debtor and third party examinations;
(d) discovery; and
(e) bankruptcy litigation.
All of the aforesaid fees and costs shall be deemed to have accrued
upon the commencement of such action, and shall be paid whether or not
such action is prosecuted to judgment. Any judgment or order entered
in such action shall contain a specific provision providing for the
recovery of the aforesaid fees, costs and expenses incurred in
enforcing such judgment and an award of prejudgment interest from the
date of the breach at the maximum rate of interest allowed by law. The
term "prevailing party" is defined as the party who is determined to
prevail by the court after its consideration of all damages and
equities in the action or proceeding (the court shall retain the
discretion to determine that no party is the prevailing party, in
which case no party shall be entitled to recover its fees and costs
under this subsection ).
-----------
16. ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
A. Assignment or Delegation. Except as specifically provided in this
------------------------
Agreement, neither party (an "assigning party") may directly or
indirectly sell, license, transfer or assign (whether through a
merger, consolidation, conversion, sale of assets, sale or exchange of
securities, or by operation of law, or otherwise) any of such party's
rights or interests under this Agreement, or delegate any of such
party's duties or obligations under this Agreement, in whole or in
part, including to any subsidiary or to any affiliate, without the
prior written consent of the other party (a "consenting party"), which
consent may be withheld in the consenting party's sole and absolute
discretion; provided, however:
(1) Subject to prior compliance with subsection (3) and
--------------
subsection (4) below, an assigning party may assign all of the
--------------
rights and interests and delegate all of the duties and
obligations of the assigning party under this Agreement in
connection with a transaction whose principal purpose is to
change the State in which the assigning party is incorporated, or
to form a holding company, or to effect a similar reorganization
as to form of entity without change of beneficial ownership,
including through:
(a) a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or
other reorganization with respect to the assigning party
and/or its stockholders; or
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<PAGE>
(b) the sale, transfer, exchange or other disposition by the
assigning party of its assets in a single or series of
related transactions, so long as such transferee, purchaser
or surviving person shall expressly assume such obligations
of the assigning party;
(2) Subject to subsection (3) and subsection (4) below, an assigning
-------------- --------------
party may, with the prior written consent of the consenting
party, which consent the consenting party may withhold in its
sole and absolute discretion, assign all of the rights and
interests and delegate all of the duties and obligations of the
assigning party under this Agreement to any other person in
connection with the transfer or sale of the entire business of
the assigning party (other than with respect to a sale described
in subsection (1) above), or the merger or consolidation of the
--------------
assigning party with or into any other person (other than with
respect to a merger or consolidation described in subsection (1)
--------------
above), so long as such transferee, purchaser or surviving person
shall expressly assume such obligations of the assigning party;
(3) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary, no assignment or transfer under subsection
----------
(1) or subsection (2) may be effectuated unless the proposed
--- --------------
transferee or assignee first executes such agreements (including
a restated Employment Agreement) in such form as the consenting
party may deem reasonably satisfactory to:
(a) evidence the assumption by the proposed transferee or
assignee of the obligations of the assigning party; and
(b) to ensure that the consenting party continues to receive
such rights, benefits and protections (both legal and
economic) as were contemplated by the consenting party when
entering into this Agreement; and
(4) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary:
(a) any assumption by a successor or assign under subsection
----------
(1) or subsection (2) above shall in no way release the
--- -------------
assigning party from any of its obligations or liabilities
under this Agreement; and
(b) and any merger, consolidation, reorganization, sale or
conveyance under subsection (1) or subsection (2) above
-------------- --------------
shall not be deemed to abrogate the rights of the
consenting party elsewhere contained in this Agreement.
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<PAGE>
(5) Any purported assignment or transfer in violation of the terms of
this subsection 16.A shall be null and void ab initio and of no
---------------
force and effect, and shall vest no rights or interests in the
purported assignee or transferee.
B. Successors and Assigns. Subject to subsection 16.A above, each and
---------------------- ---------------
every representation, warranty, covenant, condition and provision of
this Agreement as it relates to each party hereto shall be binding
upon and shall inure to the benefit of such party and his, her or its
respective successors and permitted assigns, spouses, heirs,
executors, administrators and personal and legal representatives,
including any successor (whether direct or indirect, or by merger,
consolidation, conversion, purchase of assets, purchase of securities
or otherwise).
17. MISCELLANEOUS
A. Costs and Expenses. Except as expressly set forth in this Agreement,
------------------
each party shall pay all legal and other fees, costs and expenses
incurred or to be incurred by such party in negotiating and preparing
this Agreement; in performing due diligence or retaining professional
advisors; and in complying with such party's covenants, agreements and
conditions contained herein.
B. Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Agreement,
all without undue delay or expense.
C. Notices. Unless otherwise specifically provided in this Agreement,
-------
all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required
or permitted to be given hereunder, or which are given with respect to
this Agreement, shall be in writing, and shall be given by:
(1) personal delivery (which form of notice shall be deemed to have
been given upon delivery),
(2) by telegraph or by private airborne/overnight delivery service
(which forms of notice shall be deemed to have been given upon
confirmed delivery by the delivery agency),
(3) by electronic or facsimile or telephonic transmission, provided
the receiving party has a compatible device or confirms receipt
thereof (which forms of notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or
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<PAGE>
(4) by mailing in the Canadian or United States mail (as may be
applicable) by registered or certified mail, return receipt
requested, postage prepaid (which forms of notice shall be deemed
to have been given upon the fifth {5th} business day following
the date mailed.
Notices shall be addressed at the addresses first set forth below, or
to such other address as the party shall have specified in a writing
delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed
to the party as provided in this subsection C.
------------
If to the Company: Clean Energy Technologies, Inc.
7087 MacPherson Avenue
Burnaby, British Columbia, Canada V5J 4N4
If to Executive: Barry A. Sheahan
__________________________________
__________________________________
D. Counterparts; Electronically Transmitted Documents. This Agreement
--------------------------------------------------
may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this
Agreement may be detached from any counterpart of this Agreement and
reattached to any other counterpart of this Agreement identical in
form hereto by having attached to it one or more additional signature
pages. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document
shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
E. Execution by All Parties Required to be Binding. This Agreement
-----------------------------------------------
shall not be construed to be an offer and shall have no force and
effect until this Agreement is fully executed and delivered by all
parties hereto pursuant to the terms of section17.D. Until such time
-----------
as all parties fully execute this Agreement, any party who has
previously executed and delivered this Agreement may revoke such
execution and delivery.
F. WHEREFORE, the parties hereto have executed this Agreement in the City
of Burnaby, Province of British Columbia, Canada, as of the date first
set forth above.
COMPANY: Clean Energy Technologies, Inc.
a Delaware Corporation
By: /s/ John P. Thuot
----------------------------
John P. Thuot, President
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<PAGE>
EXECUTIVE: /s/ Barry A. Sheahan
-------------------------------
Barry A. Sheahan
-24-
<PAGE>
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (the "Agreement"), dated this 5/th/ day of March,
1999, is entered into by and between CLEAN ENERGY TECHNOLOGIES, INC., a Delaware
corporation (the "Company") and JAMES V. DEFINA (the "Executive"), with
reference to the following facts:
RECITALS:
--------
WHEREAS:
A. The Company desires to employ the Executive as its Projects Director in
order to enable the Company to avail itself of the skill, knowledge and
experience of the Executive and to assure the successful management of the
Company, and the Executive desires to become employed in such executive
officers position or positions;
B. The Company and the Executive desire to enter into a written employment
agreement formally documenting their relationship and setting forth the
duties and responsibilities the Company desires the Executive to undertake,
and which the Executive has agreed to undertake.
NOW, THEREFORE, in consideration of the mutual covenants and promises contained
herein, and for valuable consideration, the receipt and sufficiency of which are
hereby mutually acknowledged, the parties to this Agreement (collectively
"parties" and individually a "party") agree as follows:
AGREEMENT:
---------
1. DEFINITIONS
A. Set forth below are definitions of capitalized words or terms which
(together with those common words and terms set forth in section 14.L)
------------
are generally used throughout this Agreement, or references to
sections or paragraphs containing those definitions (capitalized terms
used only in a specific section or paragraph of this Agreement are
defined in that section or paragraph):
B. "Advance" is defined in section 9.
---------
C. "Affiliate" means any "Person" (as defined below) controlling,
controlled by, or under common control with a party.
D. "Agreement" means this Agreement, as originally executed and as it may
be: (i) amended, modified, supplemented and/or restated from time to
time (but only to the extent amended, modified, supplemented and/or
restated in accordance with the terms of this Agreement); and/or (ii)
renewed or extended in accordance with its terms.
E. "Applicable Laws" means any federal (both of the United States and
Canada), state, provincial local or foreign laws or regulations as may
be applicable.
<PAGE>
F. "Board" means the Board of Directors of the Company, as such body may
be reconstituted from time to time.
G. "Company" means Clean Energy Technologies, Inc., a Delaware
Corporation, and any successor and assign of the Company, as more
particularly described in, or permitted and prescribed pursuant to,
section 16.A.
------------
H. "Disability" (or the related term "Disabled") means any of the
following:
(1) the receipt of any disability insurance benefits by the
Executive;
(2) a declaration by a court of competent jurisdiction that the
Executive is legally incompetent;
(3) the Executive's material inability due to medically documented
mental or physical illness or disability to fully perform the
Executive's regular obligations of his office and as an employee
of the Company (with reasonable accommodations for such
disability, if then required by Applicable Law), for a six (6)
month continuous period, or for nine (9) cumulative months within
any one (1) year continuous period; or
(4) the reasonable determination by the Board that the Executive will
not be able to fully perform the Executive's regular obligations
of his office and as an employee of the Company (with reasonable
accommodations if then required by Applicable Law) for a six (6)
month continuous period.
If the Board determines that the Executive is Disabled under
subsection (4) above, and the Executive disagrees with the conclusion
--------------
of the Board, then the Company shall engage a qualified independent
physician reasonably acceptable to the Executive to examine the
Executive at the Company's sole expense. The determination of such
physician shall be provided in writing to the parties and shall be
final and binding upon the parties for all purposes of this Agreement.
The Executive hereby consents to examination in the manner set forth
above, and waives any physician-patient privilege arising from any
such examination as it relates to the determination of the purported
disability.
I. "Employee Benefit Plan" is defined in section 4.D.
-----------
J. "Employee Deductions" are defined in section 6.
---------
K. "Monthly Salary" is defined in section 4.A.
-----------
L. "Performance Bonus" is defined in section 4.C.
-----------
M. "Person" means an individual or natural person, a corporation,
partnership (limited or general), joint-venture, association, business
trust, limited liability company/partnership,
-2-
<PAGE>
business trust, trust (whether revocable or irrevocable), pension or
profit sharing plan, individual retirement account, or fiduciary or
custodial arrangement.
N. "Personal Time-Off" is defined in section 7.
---------
O. "Subsidiary" shall mean any corporation, partnership (limited or
general), joint-venture, association, business trust, limited
liability company/partnership, business trust or rust in which the
Company holds a controlling interest, including but not limited to
Clean Energy Technologies (Canada) Inc., a British Columbia
corporation.
P. "Termination By Company For Cause" means a termination of the
Executive caused by a determination of two-thirds of the Board,
excluding the Executive if then a member of the Board, that one of the
following events has occurred:
(1) Any of the Executive's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Executive has intentionally and continually breached or
wrongfully failed and/or refused to fulfill and/or perform:
(a) any of the Executive's material obligations, promises or
covenants under this Agreement, or
(b) any of the material warranties, obligations, promises or
covenants in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
(3) The Executive has intentionally failed and/or refused to obey any
lawful and proper order or directive of the Board, and/or the
Executive has intentionally interfered with the compliance by
other employees of the Company with any such orders or
directives;
(4) The Executive has intentionally breached the Executive's
fiduciary duties to the Company;
(5) The Executive has intentionally caused the Company to be
convicted of a crime, or to incur criminal penalties in material
amounts;
(6) The Executive has committed: (A) any act of fraud,
misrepresentation, theft, embezzlement or misappropriation,
and/or any other dishonest act against the Company and/or any of
its Affiliates, subsidiaries, joint ventures; or (B) any other
offense involving moral turpitude, which offense is followed by
conviction or by final action of any court of law; or (C) a
felony;
-3-
<PAGE>
(7) The Executive repeatedly and intemperately used alcohol or drugs,
to the extent that such use (A) interfered with or is likely to
interfere with the Executive's ability to perform the Executive's
duties, and/or (B) endangered or is likely to endanger the life,
health, safety, or property of the Executive, the Company, or any
other person;
(8) The Executive has intentionally demonstrated or committed such
acts of racism, sexism or other discrimination as would tend to
bring the Company into public scandal or ridicule, or could
otherwise result in material and substantial harm to the
Company's business, reputation, operations, affairs or financial
position; and/or
(9) The Executive engaged in other conduct constituting legal cause
for termination.
(10) No act, nor failure to act, on the Executive's part shall be
considered "intentional" unless the Executive has acted, or
failed to act, with a lack of good faith and with a lack of
reasonable belief that the Executive's action or failure to act
was in the best interests of the Company. In the event the
Executive is both Disabled and the provisions of subsection (7)
--------------
of this subsection P are applicable, the Company shall
------------
nevertheless have the right to deem such event as a Termination
By Company For Cause.
Q. Termination By Executive For Good Reason" means the Executive's
termination of this Agreement based on his reasonable determination
that one of the following events has occurred:
(1) Any of the Company's representations or warranties in this
Agreement is not materially true, accurate and/or complete;
(2) The Company intentionally and continually breached or wrongfully
failed to fulfill or perform:
(a) its material obligations, promises or covenants under this
Agreement; or
(b) any material warranties, obligations, promises or covenants
of the Company in any agreement (other than this Agreement)
entered into between the Company and the Executive, without
cure, if any, as provided in such agreement;
(3) The Company terminated this Agreement and the Executive's
employment hereunder, and such termination does not constitute
Termination By Company For Cause;
(4) Without the consent of the Executive, the Company:
-4-
<PAGE>
(a) substantially altered or materially diminished the position,
nature, status, prestige or responsibilities of the
Executive from those in effect by mutual agreement of the
parties from time-to-time;
(b) assigned additional duties or responsibilities to the
Executive which were wholly and clearly inconsistent with
the position, nature, status, prestige or responsibilities
of the Executive then in effect; or
(c) removed or failed to reappoint or re-elect the Executive to
the Executive's offices under this Agreement (as they may be
changed or augmented from time-to-time with the consent of
the Executive), or as a director of the Company, except in
connection with the Disability of the Executive;
(5) Without the consent ratification (express or implied) of the
Executive, the Executive was removed from the Board without his
consent; or the Company failed to nominate or reappoint the
Executive to the Board (unless the Executive is deceased or
Disabled, or such removal or failure is attributable to an event
which would constitute Termination By Company For Cause), or if
the Executive was so nominated, the stockholders of the Company
failed to re-elect the Executive to the Board;
(6) The Company intentionally required the Executive to commit or
participate in any felony or other serious crime; and/or
(7) The Company engaged in other conduct constituting legal cause for
termination.
In the event any of the events described above in this subsection O
------------
occurs, and such event is reasonably susceptible of being cured, the
Company shall be entitled to a grace period of thirty (30) days
following receipt of written notice of such event. If the Executive
determines, in his sole discretion, that such event is not reasonably
susceptible of being cured within a period of thirty (30) days), the
Executive may grant a longer cure period to the Company to cure such
event to the reasonable satisfaction of the Executive, provided the
Company promptly commences and diligently pursues such cure. The
noted grace periods shall not apply to any other event described in
this subsection O.
------------
2. EMPLOYMENT OBLIGATIONS
A. Engagement; Duties. The Company hereby engages the Executive as its
------------------
Projects Director, and the Executive accepts such position, upon the
terms and conditions set forth herein. As the Company's Projects
Director, the Executive shall be responsible for managing and handiing
various research and development, proto-type development and product
manufacturing projects, as well as such other things as may be
necessary or advisable to discharge his duties as the Company's
Projects Director under this
-5-
<PAGE>
Agreement and the Company's Bylaws.
The Executive shall report only to the Board and the Company's
President and Head of Research and Development. The Executive's
responsibilities with respect to the Company and each of its
Subsidiaries may be changed or supplemented by the Board from time-to-
time, in their discretion. The Executive shall also hold such offices
with the Subsidiaries and/or joint ventures of the Company as the
Board may, in its discretion and with the consent of the Executive,
from time-to-time determine. The Board shall determine the amount of
the Executive's total remuneration which will be allocated to and paid
by the Company and by each of its Subsidiaries. The Executive shall
be reasonably available to travel as the needs of the Company's
business may require.
B. Performance. The Executive shall devote the Executive's entire and
-----------
undivided business time, energy, abilities and attention solely and
exclusively to the performance of the Executive's duties hereunder and
the business of the Company (and/or its Subsidiaries); provided,
however, the foregoing shall not be construed to prohibit the
Executive from attending to personal matters from time-to-time as
needed during business hours to the extent reasonably necessary to
address such matters. The Executive shall at all times faithfully,
loyally, conscientiously, diligently and, to the best of the
Executive's ability, perform all of the Executive's duties and
obligations under this Agreement, and otherwise promote the interests
and welfare of the Company (and/or its Subsidiaries), all consistent
with the highest and best standards of the Company's industry. The
Executive shall, in all cases:
(1) strictly comply with and adhere to all Applicable Laws, and the
Company's Articles of Incorporation, Bylaws and policies;
(2) obey all reasonable rules and regulations and policies now in
effect or as subsequently modified governing the conduct of
employees of the Company, and
(3) not commit any acts of gross negligence, willful misconduct,
dishonesty, fraud or misrepresentation, racism, sexism or other
discrimination, or any other acts which would tend to bring the
Company (and/or its Subsidiaries) into public scandal or
ridicule, or would otherwise result in material harm to the
Company's business or reputation.
C. Facilities and Services. The Company (and/or its Subsidiaries) shall
-----------------------
provide such support staff, facilities, equipment and supplies as are
reasonably necessary or suitable for the adequate performance of the
Executive's duties and obligations under this Agreement, including
technical and secretarial help.
-6-
<PAGE>
3. TERM
A. Initial Term. The Company hereby employ the Executive pursuant to
------------
the terms of this Agreement, and the Executive hereby accepts such
employment with the Company, for the period beginning on the date of
this Agreement and ending on March 5, 2000 (the "Initial Term").
B. Automatic Renewal; Termination by the Company. Unless this Agreement
---------------------------------------------
is previously terminated by either party as provided in section 10
----------
below, this Agreement will be automatically renewed for additional and
consecutive one (1) year terms (each, a "Renewal Term") following the
expiration of each Initial or Renewal Term, (each a "Term"), unless
------
either party gives written notice to the other party, no later than
sixty (60) days prior to the expiration of the then pending Term, of
its election not to automatically renew this Agreement for an
---
additional year.
4. COMPENSATION
A. Monthly Base Salary. The Company shall pay or caused to be paid to
-------------------
the Executive a monthly base salary of nine thousand one hundred sixty
six Canadian dollars and sixty seven cents (Cdn. $9,166.67) (the
"Monthly Salary"). The Monthly Salary shall be payable in periodic
installments as agreed from time-to-time by the Executive and the
Board, but at least semi-monthly, and shall be subject to any Tax
Withholdings and/or Employee Deductions that are applicable. In any
pay period in which the Executive shall be employed for less than the
entire number of business days in such pay period, the Monthly Salary
for such pay period shall be prorated on the basis of the number of
business days during which the Executive was actually employed during
such pay period, divided by the actual number of business days in such
pay period.
B. Automatic Percentage Increase In Monthly Base Salary. Commencing on
----------------------------------------------------
the first annual anniversary date of this Agreement, and on each
annual anniversary date thereafter, the Monthly Salary then effective
shall be increased by an amount equal to five percent (5%) of the
Monthly Salary for the immediately prior year. Additionally,
commencing on or prior to the first annual anniversary date of this
Agreement, and on or prior to each annual anniversary date thereafter,
the Board shall review the Executive's Monthly Salary to determine
whether to increase the Monthly Salary by an amount in excess of said
five percent (5%) increment, without any obligation by the Board to
authorize such increase.
C. Performance Bonus. The Board shall from time-to-time, but not less
-----------------
than one (1) time per year, evaluate the performance of the Executive
and award to the Executive a performance bonus (the "Performance
Bonus") in such amount as the Board may determine, in its sole
discretion, to be reasonable, after taking into consideration other
compensation paid or payable to the Executive under this Agreement, as
well as the financial and non-financial progress of the business of
the Company (and/or its Subsidiaries) and the contributions of the
Executive toward that progress. Payment of
-7-
<PAGE>
the Performance Bonus shall be subject to any applicable Tax
Withholdings and/or Employee Deductions.
D. Participation in Employee Benefit Plans. The Executive shall have
---------------------------------------
the same rights, privileges, benefits and opportunities to participate
in any employee benefit plans of the Company which may now or
hereafter be in effect on a general basis for the Company's executive
officers or employees, including without limitation retirement,
pension, profit-sharing, savings and insurance (including, but not
limited to, health, dental, disability and/or group insurance)
(collectively, "Employee Benefit Plans"). In the event the Executive
receives payments from a disability plan maintained by the Company,
the Company (and/or its Subsidiaries) shall have the right to offset
such payments against Monthly Salary otherwise payable to the
Executive during the period for which payments are made by such
disability plan.
E. Stock Options.
-------------
(1) The Company agrees to grant to the Executive an option (the
"Option") to purchase up to sixty thousand (60,000) unregistered
shares of the Company's common stock, which right to purchase
shall vest incrementally over a period of five (5) years based
upon continuous employment, with the first increment of sixteen
thousand (16,000) shares vesting one year from the date of this
Agreement. The purchase price per share shall be U.S. $2 per
share.
(2) The term for the Executive to exercise the Option with respect to
any vested share shall expire five (5) years from the date of
vesting of such share provided, however, if the Executive's
employment with the Company has been previously terminated
pursuant to subsection (4) below, the expiration date shall be
--------------
accelerated to two (2) years after the effective date of
termination (if earlier than the option expiration date).
(3) In the event of the death or Disability of the Executive, all
unvested Options Shares which would have vested within the twelve
--------
(12) month period following the date of death or Disability will
vest effective as of the date of death or Disability, and the
prospective right to purchase the balance of the remaining
unvested option shares shall lapse.
--------
(4) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as Termination By Company for Cause; and/or
(b) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason; then
-8-
<PAGE>
the prospective right to purchase unvested option shares shall
--------
lapse to the extent such rights do not vest prior to the
effective date of termination.
(5) In the event the Executive's employment with the Company is
terminated, and such termination is attributable to:
(a) an event defined as a Termination by Executive for Good
Reason;
(b) termination by the Company which does not constitute a
Termination By Company for Cause and/or
(c) an event defined as a Change in Control; then
the prospective right to purchase all unvested options shares
--------
which would have vested within the twelve (12) month period
following the date of such event will vest effective as of the
date of such event, and the prospective right to purchase the
balance of the remaining unvested option shares shall lapse.
--------
(6) The grant of the Options shall be evidenced by a Stock Option
Certificate reflecting the above terms plus such additional terms
and conditions as required by a Plan established by the Company
and containing such other terms as the Company believes to be
reasonable.
(7) The Executive shall be responsible for all income taxes
(including tax withholdings) attributable to the grant or
exercise of the Option, or the sale of the option shares acquired
by exercise of the Option.
5. BUSINESS EXPENSES
During the Term of this Agreement the Executive is authorized to incur, and
the Company (and/or its Subsidiaries) shall directly pay or reimburse the
Executive for his or her payment of the Executive's reasonable and
necessary business expenses, duly and actually incurred by the Executive in
connection with the duties and services to be performed by the Executive
under this Agreement, including without limitation entertainment, meals,
travel, lodging and other similar out-of-pocket expenses, upon the
Executive's submission to the Company (and/or its Subsidiaries) of itemized
expense statements setting forth the date, purpose and amount of the
expense incurred, together with corresponding receipts showing payment by
the Executive in cases where he or she seeks reimbursement, all in
conformity with business expense payment and/or reimbursement policies as
may be established by the Company (and/or its Subsidiaries) from time to
time, all of which shall comply with the substantiation requirements of the
Internal Revenue Code 0f 1986, as amended, and the Income Tax Act of
Canada, as amended, and any other applicable taxing authorities, and
regulations promulgated by such authorities thereto, pertaining to the
deductibility of such expenses. Direct payment and/or reimbursement shall
be made by the Company (and/or its Subsidiaries) no later than thirty (30)
days of the Executive submission of the foregoing documentation. The
Executive shall be entitled to direct payment and/or reimbursement in full
for
-9-
<PAGE>
the aforesaid business expenses, notwithstanding that the Company is
prohibited under the Code and/or regulations promulgated thereunder from
deducting the entire amount of such expenses. The Company (and/or its
Subsidiaries) shall have the option to pay directly the persons entitled to
payment for such business expenses.
6. TAX WITHHOLDINGS AND EMPLOYEE DEDUCTIONS
The Company (and/or its Subsidiaries) shall be entitled to deduct from any
payments to the Executive pursuant to the terms of this Agreement
(including any payments arising from the early termination of this
Agreement), amounts sufficient to cover applicable federal (United States
and Canada), state, provincial, local and/or foreign income tax
withholdings and/or deductions as may be required in connection with such
payment, including without limitation old-age and survivor's and other
social security payments, state or provincial disability and other
withholdings payment as may be required by law (collectively, the "Tax
Withholdings"), as well as all other elective employee deductions
applicable to such payment such as, for example, deductions relating to any
Employee Benefit Plan in which the Executive participates (collectively,
the "Employee Deductions").
7. PERSONAL TIME-OFF
The Executive shall be entitled each calendar year during the term of this
Agreement to such number of personal time-off days for such purposes,
including vacations and time for personal affairs ("Personal Time-Off") as
are approved by the Board, but not less than the greater of (i) fifteen
(15) business days, or (ii) the number of personal time-off days (including
vacation and personal days) generally given by the Company to its
employees. Personal Time-Off shall be in addition to regular paid legal
holidays provided to all employees of the Company. The Executive's
compensation shall be paid in full with respect to approved Personal Time-
Off days. Should the Executive fail to use all Personal Time-Off days in
any calendar year, the Executive shall have the option of (i) receiving
payment for such days on a pro rata basis, or (ii) "carrying-over" unused
Personal Time-Off days to succeeding years. Personal time-off shall be
taken during a period or periods mutually satisfactory to both the Company
and the Executive.
8. INSURANCE
If requested by the Company, the Executive shall submit to such physical
examinations and otherwise take such actions and execute and deliver such
documents as may be reasonably necessary to enable the Company, at its
expense and for its own benefit, to obtain disability and/or life insurance
on the life of the Executive. The Executive represents and warrants that
he has no reason to believe that he is not insurable for disability or life
coverage with a reputable insurance company at rates now prevailing in the
city of the Company's principal executive offices, for healthy persons of
the Executive's own age and gender.
-10-
<PAGE>
9. ADVANCES
A. Provision Of Advances; Offsets Generally. The Company (and/or its
----------------------------------------
Subsidiaries) may from time-to-time, upon written consent from the
Chairman of the Board or the Board, and without any obligation to do
so, make advances to the Executive against any compensation or other
amounts to be paid by the Company (and/or its Subsidiaries) to the
Executive (each, an "Advance"). Any amounts due hereunder to the
Executive shall, at the election of the Company, be offset by any then
outstanding Advances.
B. Offset Rights Against Termination Pay. Subject to the terms of any
-------------------------------------
written agreement relating to Advances, in the event of termination of
employment of executive, the Executive agrees that the Company (and/or
its Subsidiaries) shall have the right to offset the amount of any and
all outstanding Advance(s) against any salary or wages due, or any
other amounts due to the Executive from the Company, and that any
remaining balance of the Advance(s) shall be repaid by the Executive
within thirty (30) days after the Executive's termination date. If
such Advance(s) are not repaid within said thirty (30) days, simple
interest shall accrue on the unpaid balance at the rate of ten percent
(10%) per annum. The Executive agrees to pay all costs of collection
incurred by the Company (and/or its Subsidiaries) with respect
thereto, including reasonable attorneys' fees and legal costs.
C. Right of Set-Off. The Company's obligation to make payments to the
----------------
Executive hereunder shall not, except with respect to Advance(s) as
provided above, be affected by any circumstance, including without
limitation any set-off, counterclaim, recoupment, defense or other
right which the Company (and/or its Subsidiaries) may have against the
Executive or others.
10. TERMINATION OF AGREEMENT BEFORE EXPIRATION OF TERM
A. Death or Disability. Notwithstanding any other term of this
-------------------
Agreement, the applicable Term shall terminate upon the death or
Disability of the Executive, subject to compliance with Applicable
Laws.
B. Termination of Agreement by Company for Cause. Subject to compliance
---------------------------------------------
with Applicable Laws, the Company may terminate this Agreement and the
Executive's employment hereunder at any time in the event such
termination constitutes Termination By Company For Cause, upon giving
written notice to the Executive specifying in reasonable detail:
(1) the event which constitutes the cause;
(2) the pertinent facts and circumstances underlying the cause; and
(3) the effective date of the termination (which date may, at the
Company's election, be effective upon receipt of said written
notice by the Executive). Such notice
-11-
<PAGE>
shall also afford the Executive an opportunity to be heard in
person by the Board (with the assistance of the Executive's legal
counsel, if the Executive so desires). Such hearing shall be held
reasonably promptly after such notice but, in any event, before
the effective date of the prospective termination.
C. Termination of Agreement by Executive for Good Reason. The Executive
-----------------------------------------------------
may terminate this Agreement and the Executive's employment hereunder
at any time in the event such termination constitutes Termination By
Executive For Good Reason, upon giving written notice to the Company
specifying in reasonable detail:
(1) the event which constitutes the good reason;
(2) the pertinent facts and circumstances underling the good reason;
and
(3) the effective date of termination (not to exceed ninety {90} days
from the date of such notice, but which date may, at the
Executive's election, be effective upon receipt of said written
notice by the Company).
11. EFFECT OF TERMINATION
A. Death Or Disability; Termination By Company For Cause; Termination By
---------------------------------------------------------------------
Executive For Good Reason. In the event the Executive's employment
-------------------------
hereunder is terminated before the expiration of a Term, and such
termination is attributable to:
(1) an event defined as Death or Disability;
(2) an event defined as Termination By Company For Cause; and/or
(3) termination by the Executive which does not constitute
---
Termination By Executive For Good Reason, then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses] and section 7 [ Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination;
provided, however:
(a) The Company (and/or its Subsidiaries) shall pay the
Executive's accrued but unpaid Monthly Salary and Personal
Time-Off days through the effective date of the termination
on or before the close of business on such effective date;
and the Executive shall not be entitled to Monthly Salary
and/or Personal Time-Off days after the effective date of
the termination;
(b) The Company (and/or its Subsidiaries) shall pay any declared
but unpaid Performance Bonus;
-12-
<PAGE>
(c) The Company (and/or its Subsidiaries) shall reimburse the
Executive for any business expenses incurred prior to the
effective date of the termination, within three (3) business
days after the Executive's submission of the Executive's
expense report to the Company; and
(d) The Executive shall not be entitled to continue to
participate in any Employee Benefit Plans except to the
extent provided in such plans for terminated participants,
or as may be required by Applicable Law. Notwithstanding the
foregoing, amounts which are vested in any Employee Benefit
Plans shall be payable in accordance with such plan.
B. Termination By Executive For Good Reason Or Termination By Company
------------------------------------------------------------------
Without Cause. In the event the Executive's employment hereunder is
-------------
terminated before the expiration of a Term, and such termination is
attributable to:
(1) an event defined as a Termination by Executive for Good Reason;
and/or
(2) termination by the Company which does not constitute a
Termination By Company for Cause; then
all rights and obligations of the Company and the Executive under
section 2 [Employment Obligations], section 4 [Compensation],
--------- ---------
section 5 [Business Expenses], and section 7 [Personal Time-Off]
--------- ---------
shall terminate as of the effective date of the termination date;
provided, however:
(a) The Company (and/or its Subsidiaries) shall continue to pay
the Executive's then effective Monthly Salary through the
pending Term of this Agreement, on the same basis as
previously paid to the Executive, but subject to such
minimum increases as are described in section 4;
---------
(b) The Company (and/or its Subsidiaries) shall pay the
Executive's declared but unpaid Performance Bonus;
(c) At the election of the Executive, the Company (and/or its
Subsidiaries) shall (i) permit the Executive to continue to
participate in any Employee Benefit Plans, except to the
extent prohibited in such plans for terminated employees, or
as may be required by Applicable Law; or (ii) provide the
Executive with additional compensation, payable on a monthly
basis, which would approximate the cost to the Executive to
obtain comparable benefits;
(d) The Company (and/or its Subsidiaries) shall reimburse the
Executive for the Executive's business expenses incurred
through the effective date of the termination, within three
(3) business days of the Executive's submission of the
Executive's expense report to the Company; and
-13-
<PAGE>
C. Mitigation. The Executive shall not be required to mitigate the
----------
amount of any payment pursuant to this section 11 by seeking other
----------
employment or otherwise, and no such payment shall be offset or
reduced by the amount of any compensation or benefits provided to the
Executive in any subsequent employment. The provisions of this
section 11 shall not be deemed to prejudice the rights of the Company
----------
or the Executive to any remedy or damages to which such party may be
entitled by reason of a breach of this Agreement by the other party,
whether at law or equity.
12. REPRESENTATIONS AND WARRANTIES OF PARTIES
A. By All Parties. Each of the parties to this Agreement hereby
--------------
represents and warrants to each of the other parties to this
Agreement, each of which is deemed to be a separate representation and
warranty, as follows:
(1) Organization, Power and Authority. Such party, if an entity, is
---------------------------------
duly organized, validly existing and in good standing under the
laws of its state, territory or province of incorporation or
organization, and has all requisite corporate or other power and
authority to enter into this Agreement.
(2) Authorization. The execution and delivery of this Agreement by
-------------
such party, and the performance by such party of the transactions
herein contemplated, have, if such party is an entity, been duly
authorized by its governing organizational documents, and are not
prohibited by its governing organization documents, and no
further corporate or other action on the part of such party is
necessary to authorize this Agreement, or the performance of such
transactions.
(3) Validity. This Agreement has been duly executed and delivered
--------
by such party and, assuming due authorization, execution and
delivery by all of the other parties hereto, is valid and binding
upon such party in accordance with its terms, except as limited
by: (1) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to
creditor rights generally; and (2) general principles of equity
(regardless of whether such enforcement is considered in a
proceeding in equity or at law).
(4) Non-Contravention. Neither the execution or delivery of this
-----------------
Agreement, nor the performance by such party of the transactions
contemplated herein: (1) if such party is an entity, will breach
or conflict with any of the provisions of such party's governing
organizational documents; or (2) to the best of such party's
knowledge and belief, will such actions violate or constitute an
event of default under any agreement or other instrument to which
such party is a party.
(5) Legal Representation. Such party: (1) had the advice, or
--------------------
sufficient opportunity to obtain the advice, of legal counsel
separate and independent from legal counsel for any other party
hereto; and (2) such party was not represented by the legal
counsel of any other party hereto in connection with the
transactions
-14-
<PAGE>
contemplated by this Agreement, nor was such party under any
belief or understanding that such legal counsel was representing
such party's interests.
(6) Fairness. The terms and conditions of the transactions
--------
contemplated by this Agreement are fair and reasonable to such
party based upon all of the facts and circumstances at the time
this Agreement is entered into; and such party has voluntarily
entered into the transactions contemplated by this Agreement,
without duress or coercion.
B. By Executive. The Executive hereby represents and warrants to the
------------
Company that the Executive is not Disabled at the time of the
execution and delivery of this Agreement by the Executive.
13. NON-LIABILITY FOR EXECUTIVE'S DEBTS
Except as provided under Applicable Laws, the Executive's rights and
obligations under this Agreement shall not be subject to encumbrance or to
the claims of the Executive's creditors (other than the Company), or
subject to the debts, contracts or engagements of the Executive or the
Executive's heirs, successors and assigns, and any attempt to do any of the
foregoing shall be null and void ab initio and without force and effect.
14. INTERPRETATION AND CONSTRUCTION
A. Preparation of Agreement. The parties have participated jointly in
------------------------
the negotiation and drafting of this Agreement and each provision
hereof. In the event any ambiguity, conflict, omission or other
question of intent or interpretation arises, this Agreement shall be
construed as if jointly drafted by the parties, and no presumption or
burden of proof shall be presumed, implied or otherwise construed
favoring or disfavoring any party by virtue of the authorship of this
Agreement or of any provision hereof.
B. Performance on Business Day. In the event the date on which a party
---------------------------
is required to take any action under the terms of this Agreement is
not a business day, the action shall, unless otherwise provided
herein, be deemed to be required to be taken on the next succeeding
business day. For purposes of this section, the term "business day"
shall mean Monday through Friday (excluding any legal holidays).
C. Survival of Representations and Warranties. All representations and
------------------------------------------
warranties made by any party in connection with any transaction
contemplated by this Agreement shall, irrespective of any
investigation made by or on behalf of any other party hereto, survive
the execution and delivery of this Agreement and the performance or
consummation of any transaction described in this Agreement, and shall
continue in full force and effect forever thereafter (subject to any
applicable statutes of limitation).
D. Independent Significance. The parties intend that each
------------------------
representation, warranty and covenant shall have independent
significance. If any party has falsely made or breached
-15-
<PAGE>
any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty
or covenant relating to the same subject matter (regardless of the
relative levels of specificity) which the party has not falsely made
or breached shall not detract from or mitigate the fact that the party
has falsely made or breached the first representation, warranty or
covenant.
E. Entire Agreement; No Collateral Representations. Each party
-----------------------------------------------
expressly acknowledges and agrees that this Agreement:
(1) is the final, complete and exclusive statement of the agreement
of the parties with respect to the subject matter hereof;
(2) supersede any prior or contemporaneous agreements, memorandums,
proposals, commitments, guaranties, assurances, communications,
discussions, promises, representations, understandings, conduct,
acts, courses of dealing, warranties, interpretations or terms of
any kind, whether oral or written (collectively and severally,
the "prior agreements"), and that any such prior agreements are
of no force or effect except as expressly set forth herein; and
(3) may not be varied, supplemented or contradicted by evidence of
prior agreements, or by evidence of subsequent oral agreements.
No prior drafts of this Agreement, and no words or phrases from
any prior drafts, shall be admissible into evidence in any action
or suit involving this Agreement.
F. Amendment; Waiver; Forbearance. Except as expressly provided
------------------------------
herein, neither this Agreement nor any of the terms, provisions,
obligations or rights contained herein, may be amended, modified,
supplemented, augmented, rescinded, discharged or terminated (other
than by performance), except by a written instrument or instruments
signed by all of the parties to this Agreement. No waiver of: (i)
any breach of any term, provision or agreement; (ii) the performance
of any act or obligation under this Agreement; and/or (iii) any right
granted under this Agreement, shall be effective and binding unless
such waiver shall be in a written instrument or instruments signed by
each party claimed to have given or consented to such waiver. Except
to the extent that the party or parties claimed to have given or
consented to a waiver may have otherwise agreed in writing, no such
waiver shall be deemed a waiver or relinquishment of any other term,
provision, agreement, act, obligation or right under this Agreement,
or of any preceding or subsequent breach thereof. No forbearance by a
party in seeking a remedy for any noncompliance or breach by another
party hereto shall be deemed to be a waiver by such forbearing party
of its rights and remedies with respect to such noncompliance or
breach, unless such waiver shall be in a written instrument or
instruments signed by the forbearing party.
-16-
<PAGE>
G. Remedies Cumulative. The remedies of each party under this Agreement
-------------------
are cumulative and shall not exclude any other remedies to which such
party may be lawfully entitled.
H. Severability. If any term or provision of this Agreement, or the
------------
application thereof to any person or circumstance, shall to any extent
be determined to be invalid, illegal or unenforceable under present or
future laws, then, and in such event:
(1) the performance of the offending term or provision (but only to
the extent its application is invalid, illegal or unenforceable)
shall be excused as if it had never been incorporated into this
Agreement, and, in lieu of such excused provision, there shall be
added a provision as similar in terms and amount to such excused
provision as may be possible and still be legal, valid and
enforceable; and
(2) the remaining part of this Agreement (including the application
of the offending term or provision to persons or circumstances
other than those as to which it is held invalid, illegal or
unenforceable) shall not be affected thereby, and shall continue
in full force and effect to the fullest legal extent.
I. Time is of the Essence. Except and to the extent there is a
----------------------
specific cure provision in this Agreement, each party understands and
agrees that:
(1) time of performance is strictly of the essence with respect to
each and every date, term, condition, obligation and provision
hereof imposed upon such party; and
(2) the failure to timely perform any of the terms, conditions,
obligations or provisions hereof by such party shall constitute a
material breach and a noncurable (but waivable) default under
this Agreement by such party.
J. Parties in Interest. Nothing in this Agreement shall confer any
-------------------
rights or remedies under or by reason of this Agreement on any persons
other than the parties hereto and their respective successors and
assigns, if any, or as may be permitted hereunder; nor shall anything
in this Agreement relieve or discharge the obligation or liability of
any third person to any party to this Agreement; nor shall any
provision give any third person any right of subrogation or action
against any party to this Agreement.
K. No Reliance Upon Prior Representations. Each party acknowledges
--------------------------------------
that: (1) no other party has made any oral representation or promise
which would induce such party, prior to executing this Agreement, to
change such party's position to his, her or its detriment, to
partially perform, or to part with value in reliance upon such
representation or promise; and (2) such party has not so changed its
position, performed or parted with value prior to the time of the
execution of this Agreement, or such party has taken such action at
its own risk.
-17-
<PAGE>
L. Rules of Construction. In interpreting the meaning of this
---------------------
Agreement: (i) the term "person" is defined in its broadest sense to
include any individual or natural person, entity (as such term is
defined in this subsection L) and/or fiduciary (as such term is
------------
defined in this subsection L), and their respective successors and
------------
assigns; (ii) the term "entity" means any legal entity, including any
corporation, association, joint stock company, partnership (limited,
general or limited liability), joint-venture, and limited liability
company, business trust, trust (whether revocable or irrevocable),
pension or profit sharing plan, individual retirement account, or
fiduciary or custodial arrangement; (iii) the term "fiduciary" means
any person acting in a fiduciary capacity, including in their capacity
as a trustee or a custodian; (iv) the term "affiliate" means any
person controlling, controlled by, or under common control with a
party (for purposes of the foregoing, the term "control" (including
with the correlative meanings, the terms "controlled by" and "under
common control with") means the possession directly or indirectly of
the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting
securities or by contract or otherwise); (v) the term "subsidiary"
means any entity in which a party holds a controlling interest; (vi)
the words "herein" and "hereunder" and other words of similar report
refer to this Agreement as a whole, and not to any particular
sections, subsections, paragraph, subparagraph or other subdivision of
this Agreement; (vii) the words "including," "includes," and "include"
shall be deemed to be followed by the words "including without
limitation;" (viii) the word "or" shall not be deemed to be exclusive
unless the context indicates otherwise; and (ix) the word "all" shall
be deemed to include the word "any," and vice versa. All pronouns and
any variation thereof used in this Agreement shall be deemed to refer
to the masculine, feminine, or neuter (as the case may be), and to the
singular or plural (as the case may be), as the identity of the person
or persons or the context may require for proper interpretation of
this Agreement. Any references in this Agreement to "dollars" shall be
deemed to refer to the currency of Canada, unless such reference
specifically references a dollar-denominated currency of a country
other than Canada. The headings used in this Agreement are for
convenience and reference purposes only, and shall not be used in
construing or interpreting the scope or intent of this Agreement or
any provision hereof. Each cross-references in this Agreement shall,
unless specifically directed to another agreement or document, be
construed only to refer to provisions within this Agreement, and shall
not be construed to refer to the overall transaction or to any other
agreement or document. Each exhibit, addendum, schedule and/or
attachment referenced in this Agreement shall be construed to be
incorporated into this Agreement by such reference and made a part
hereof. References to any agreements (other than this Agreement) shall
include all amendments, modifications, supplements and/or renewals
thereof. Unless the context requires otherwise: (1) any reference
herein to any federal, state, provincial, local or foreign statutes or
laws (collectively, the "Statutes") will be deemed to include all
rules and regulations promulgated thereunder: and (2) any references
herein to any Statute and/or any specific section or provision of any
such Statute are intended to refer to such section or provision
thereof as presently enacted and as subsequently amended, succeeded,
recodified or renumbered.
-18-
<PAGE>
15. ENFORCEMENT
A. Governing Law. This Agreement and the rights and remedies of each
-------------
party arising out of or relating to this Agreement (including
equitable remedies) shall be solely governed by, interpreted under,
and construed and enforced in accordance with the laws (without regard
to the conflicts of law principles) of the province of British
Columbia, as if this Agreement were made, and as if its obligations
were to be performed in their entirety, within the province of British
Columbia.
B. Recovery of Fees and Costs. If any party institutes, or should any
--------------------------
party otherwise become a party to, any action or proceeding based upon
or arising out of this Agreement, including the enforcement or
interpretation of this Agreement or any provision hereof, or for
damages by reason of any alleged breach of this Agreement or any
provision hereof, or for a declaration of rights in connection
herewith, or for any other relief, including equitable relief, in
connection herewith, the "prevailing party" (as such term is defined
below) in any such action or proceeding, whether or not such action or
proceeding proceeds to final judgment or determination, shall be
entitled to receive from the non-prevailing party as a cost of suit,
and not as damages, all fees, costs and expenses of enforcing any
right of the prevailing party (collectively, "fees and costs"),
including:
(1) reasonable attorneys' fees and costs and expenses;
(2) witness fees (including experts engaged by the parties, but
excluding officers, directors, employees, managers or general
partners of the parties);
(3) accountants' fees;
(4) fees of other professionals and
(5) any and all other similar fees incurred in the prosecution or
defense of the action or proceeding; including the following:
(a) postjudgment motions;
(b) contempt proceedings;
(c) garnishment, levy, and debtor and third party examinations;
(d) discovery; and
(e) bankruptcy litigation.
All of the aforesaid fees and costs shall be deemed to have accrued
upon the commencement of such action, and shall be paid whether or not
such action is prosecuted to judgment. Any judgment or order entered
in such action shall contain a specific provision providing for the
recovery of the aforesaid fees, costs and expenses
-19-
<PAGE>
incurred in enforcing such judgment and an award of prejudgment
interest from the date of the breach at the maximum rate of interest
allowed by law. The term "prevailing party" is defined as the party
who is determined to prevail by the court after its consideration of
all damages and equities in the action or proceeding (the court shall
retain the discretion to determine that no party is the prevailing
party, in which case no party shall be entitled to recover its fees
and costs under this subsection ).
-----------
16. ASSIGNMENT AND DELEGATION; SUCCESSORS AND ASSIGNS.
A. Assignment or Delegation. Except as specifically provided in this
------------------------
Agreement, neither party (an "assigning party") may directly or
indirectly sell, license, transfer or assign (whether through a
merger, consolidation, conversion, sale of assets, sale or exchange of
securities, or by operation of law, or otherwise) any of such party's
rights or interests under this Agreement, or delegate any of such
party's duties or obligations under this Agreement, in whole or in
part, including to any subsidiary or to any affiliate, without the
prior written consent of the other party (a "consenting party"), which
consent may be withheld in the consenting party's sole and absolute
discretion; provided, however:
(1) Subject to prior compliance with subsection (3) and subsection
-------------- ----------
(4) below, an assigning party may assign all of the rights and
---
interests and delegate all of the duties and obligations of the
assigning party under this Agreement in connection with a
transaction whose principal purpose is to change the State in
which the assigning party is incorporated, or to form a holding
company, or to effect a similar reorganization as to form of
entity without change of beneficial ownership, including through:
(a) a merger or consolidation or stock exchange or divisive
reorganization (i.e., spin-off, split-off or split-up) or
other reorganization with respect to the assigning party
and/or its stockholders; or
(b) the sale, transfer, exchange or other disposition by the
assigning party of its assets in a single or series of
related transactions, so long as such transferee, purchaser
or surviving person shall expressly assume such obligations
of the assigning party;
(2) Subject to subsection (3) and subsection (4) below, an assigning
-------------- --------------
party may, with the prior written consent of the consenting
party, which consent the consenting party may withhold in its
sole and absolute discretion, assign all of the rights and
interests and delegate all of the duties and obligations of the
assigning party under this Agreement to any other person in
connection with the transfer or sale of the entire business of
the assigning party (other than with respect to a sale described
in subsection (1) above), or the merger or consolidation of the
--------------
assigning party with or into any other person (other than with
respect to a merger or consolidation described in subsection (1)
--------------
above), so long as such transferee,
-20-
<PAGE>
purchaser or surviving person shall expressly assume such
obligations of the assigning party;
(3) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary, no assignment or transfer under
subsection (1) or subsection (2) may be effectuated unless the
-------------- --------------
proposed transferee or assignee first executes such agreements
(including a restated Employment Agreement) in such form as the
consenting party may deem reasonably satisfactory to:
(a) evidence the assumption by the proposed transferee or
assignee of the obligations of the assigning party; and
(b) to ensure that the consenting party continues to receive
such rights, benefits and protections (both legal and
economic) as were contemplated by the consenting party when
entering into this Agreement; and
(4) Notwithstanding anything in subsection (1) or subsection (2)
-------------- --------------
above to the contrary:
(a) any assumption by a successor or assign under subsection (1)
--------------
or subsection (2) above shall in no way release the
--------------
assigning party from any of its obligations or liabilities
under this Agreement; and
(b) and any merger, consolidation, reorganization, sale or
conveyance under subsection (1) or subsection (2) above
-------------- --------------
shall not be deemed to abrogate the rights of the consenting
party elsewhere contained in this Agreement.
(5) Any purported assignment or transfer in violation of the terms of
this subsection 16.A shall be null and void ab initio and of no
---------------
force and effect, and shall vest no rights or interests in the
purported assignee or transferee.
B. Successors and Assigns. Subject to subsection 16.A above, each and
---------------------- ---------------
every representation, warranty, covenant, condition and provision of
this Agreement as it relates to each party hereto shall be binding
upon and shall inure to the benefit of such party and his, her or its
respective successors and permitted assigns, spouses, heirs,
executors, administrators and personal and legal representatives,
including any successor (whether direct or indirect, or by merger,
consolidation, conversion, purchase of assets, purchase of securities
or otherwise).
17. MISCELLANEOUS
A. Costs and Expenses. Except as expressly set forth in this Agreement,
------------------
each party shall pay all legal and other fees, costs and expenses
incurred or to be incurred by such party in negotiating and preparing
this Agreement; in performing due diligence or retaining
-21-
<PAGE>
professional advisors; and in complying with such party's covenants,
agreements and conditions contained herein.
B. Cooperation. Each party agrees, without further consideration, to
-----------
cooperate and diligently perform any further acts, deeds and things,
and to execute and deliver any documents that may be reasonably
necessary or otherwise reasonably required to consummate, evidence,
confirm and/or carry out the intent and provisions of this Agreement,
all without undue delay or expense.
C. Notices. Unless otherwise specifically provided in this Agreement,
-------
all notices, demands, requests, consents, approvals or other
communications (collectively and severally called "notices") required
or permitted to be given hereunder, or which are given with respect to
this Agreement, shall be in writing, and shall be given by:
(1) personal delivery (which form of notice shall be deemed to
have been given upon delivery),
(2) by telegraph or by private airborne/overnight delivery service
(which forms of notice shall be deemed to have been given upon
confirmed delivery by the delivery agency),
(3) by electronic or facsimile or telephonic transmission, provided
the receiving party has a compatible device or confirms receipt
thereof (which forms of notice shall be deemed delivered upon
confirmed transmission or confirmation of receipt), or
(4) by mailing in the Canadian or United States mail (as may be
applicable) by registered or certified mail, return receipt
requested, postage prepaid (which forms of notice shall be deemed
to have been given upon the fifth {5th} business day following
the date mailed.
Notices shall be addressed at the addresses first set forth below, or
to such other address as the party shall have specified in a writing
delivered to the other parties in accordance with this paragraph. Any
notice given to the estate of a party shall be sufficient if addressed
to the party as provided in this subsection C.
------------
If to the Company: Clean Energy Technologies, Inc.
7087 MacPherson Avenue
Burnaby, British Columbia, Canada V5J 4N4
If to Executive: James V. DeFina
_________________________________
_________________________________
-22-
<PAGE>
D. Counterparts; Electronically Transmitted Documents. This Agreement
--------------------------------------------------
may be executed in counterparts, each of which shall be deemed an
original, and all of which together shall constitute one and the same
instrument, binding on all parties hereto. Any signature page of this
Agreement may be detached from any counterpart of this Agreement and
reattached to any other counterpart of this Agreement identical in
form hereto by having attached to it one or more additional signature
pages. If a copy or counterpart of this Agreement is originally
executed and such copy or counterpart is thereafter transmitted
electronically by facsimile or similar device, such facsimile document
shall for all purposes be treated as if manually signed by the party
whose facsimile signature appears.
E. Execution by All Parties Required to be Binding. This Agreement
-----------------------------------------------
shall not be construed to be an offer and shall have no force and
effect until this Agreement is fully executed and delivered by all
parties hereto pursuant to the terms of section17.D. Until such time
-----------
as all parties fully execute this Agreement, any party who has
previously executed and delivered this Agreement may revoke such
execution and delivery.
F. WHEREFORE, the parties hereto have executed this Agreement in the City
of Burnaby, Province of British Columbia, Canada, as of the date first
set forth above.
COMPANY: Clean Energy Technologies, Inc.
a Delaware Corporation
By: /s/ John P. Thuot
-------------------------
John P. Thuot, President
EXECUTIVE: /s/ James V. DeFina
----------------------------
James V. DeFina
-23-
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report relating to the Clean Energy Combustion Systems, Inc. dated
June 11, 1999 on the financial statements for the period ended May 31, 1999, in
the Registration Statement on Form SB-2 of Clean Energy Combustion Systems, Inc.
/s/ Deloitte & Touche LLP
Chartered Accountants
Vancouver, British Columbia, Canada
September 30, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS TABLE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CLEAN ENERGY
COMBUSTION SYSTEM, INC.'S CONSOLIDATED BALANCE SHEET AT MAY 31, 1999, AND CLEAN
ENERGY COMBUSTION SYSTEM, INC.'S CONSOLIDATED STATEMENT OF LOSS FOR THE
FIVE-MONTH INTERIM PERIOD ENDED MAY 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 5-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAY-31-1999
<CASH> 416,374
<SECURITIES> 0
<RECEIVABLES> 5,437
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 421,811
<PP&E> 25,847
<DEPRECIATION> 2,846
<TOTAL-ASSETS> 444,812
<CURRENT-LIABILITIES> 211,574
<BONDS> 0
0
251
<COMMON> 964
<OTHER-SE> 500,285
<TOTAL-LIABILITY-AND-EQUITY> 444,812
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 268,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (268,262)
<INCOME-TAX> 0
<INCOME-CONTINUING> (268,262)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (268,262)
<EPS-BASIC> (0.11)
<EPS-DILUTED> (0.11)
</TABLE>
