<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON _____________
REGISTRATION NO. _______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
---------------------------------
e-SCRUB ENVIRONMENTAL ENTERPRISES, INC.
(NAME OF SMALL BUSINESS ISSUER IN ITS CHARTER)
VIRGINIA
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)
--------------
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)
54-1750987
(I.R.S. EMPLOYER
IDENTIFICATION NO.)
301 SOUTH WEST STREET
ALEXANDRIA, VA 22314
(703) 836 1760
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)
301 SOUTH WEST STREET
ALEXANDRIA, VA 22314
(ADDRESS AND PRINCIPAL PLACE OF BUSINESS OR
INTENDED PRINCIPAL PLACE OF BUSINESS)
RALPH D. GENUARIO
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
301 SOUTH WEST STREET
ALEXANDRIA, VA 22314
(NAME, ADDRESS AND TELEPHONE NUMBER OF AGENT FOR SERVICE)
COPY TO:
THREE ARROWS CAPITAL CORP.
10101 GROSVENOR PLACE #2016
ROCKVILLE, MD 20852
================================================================================
<PAGE>
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE 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 OF 1933, 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, PLEASE 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 DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. |_|
- --------------------------------------------------------------------------------
CALCULATION OF REGISTRATION FEE
================================================================================
<TABLE>
<CAPTION>
Title of Each Class of Securities Amount To Offering Price Aggregate Amount Of
To Be Registered. Be Registered Per Share Offering Price Registration Fee
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.001par value 800,000 $12.50 $10,000,000 $2,640
- ----------------------------------------------------------------------------------------------------------
</TABLE>
----------
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 of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
THE INFORMATION IN THIS OFFERING CIRCULAR IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION AND CERTAIN STATE SECURITIES DIVISIONS IS EFFECTIVE.
THIS OFFERING CIRCULAR IS NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT
SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT
PERMITTED.
800,000 SHARES
e-SCRUB ENVIRONMENTAL ENGINEERING
COMMON STOCK
-----------------------
This offering includes a minimum escrowed number of shares - 24,000 - and a
maximum number of shares - 800,000. The minimum must be reached by ___________
or funds will be returned with interest.
Prior to this offering, there has been little public market for the common
stock. The Company has not applied for listing on any recognized exchange or
trading market.
PLEASE SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT CERTAIN FACTORS
YOU SHOULD CONSIDER BEFORE BUYING SHARES OF ANY COMMON STOCK.
-------------------
Neither the Securities and Exchange Commission nor any other regulatory
body has approved or disapproved of these securities or passed upon the accuracy
or adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
--------------------
<TABLE>
PER SHARE TOTAL
--------- -----
<CAPTION>
<S> <C> <C>
Public offering price........................ $ 12.50 $10,000,000
Underwriting discount........................ $ 0.625 $ 500,000
Proceeds, before expenses, to the Company.... $ 11.875 $ 9,500,000
</TABLE>
THREE ARROWS CAPITAL CORP
Prospectus dated _____________
<PAGE>
The next page of the cover represents page 2 and is made up of three overleaf
sections. Page 2a is 8 1/2 by 11 and pictures a lightning bolt and a small inset
of an "e-SCRUB Treatment Facility" graphic representation. The text of the page
is: e-SCRUB Environmental Engineering. Makes Electrons Work For You. Converts
Pollution into Agricultural Fertilizer. E-SCRUB Technology Allows Utilities To
Burn High-Sulfur Coal As Cleanly As Natural Gas. e-SCRUB Environmental
Engineering has formed a joint venture to own and operate e-SCRUB treatment
facilities. Management estimates that there are adequate coal savings to
retrofit at least 6,000 MWe over the next five years. These savings are
sufficient to cover all debt amortization. In addition, management estimates
revenues of $60,000 per each MWe that we retrofit; 6,000 MWe represents
installation of e-SCRUB facilities at just three mid-size power plants.
Pages 2b and 2c is a graphic representation of the e-SCRUB process that
illustrates the technical solution and steps in the process. The text of the
page is: Electron Scrubbing to Remove Unwanted By-Products. The e-SCRUB system
virtually eliminates pollution produced by coal-burning power plants, resulting
in cleaner air and more green. Dirty flue gas from the boiler is collected in
the spray dryer. Spray Dryer. Bring Injection. Dry By-Product Collector. Ammonia
Handling System. e-Beam Building & Process Chamber. Brine Recirculation. Ammonia
Sulfate Solution. Wet ESP. Brine Solution. Flue Gas Stack. ID Fan. Brine Holding
Tank. Clean gas emerges from the flue gas stack. Treated emissions result in
cleaner air, an environment everyone can enjoy, and lucrative pollution credits
for our shareholders. If untreated, dirty emissions can cause respiratory
problems in humans and environmental problems such as acid rain and smog. The
by-product of the e-SCRUB system is sold as agricultural fertilizer.
The e-SCRUB system is designed to remove over 98 percent of SO2, 90 percent of
NOx and 99.9 percent of fine particulate from flue gas generated by users of
high-sulfur coal. The system consists of a synergistic combination of five
components that have relatively low pressure drop. e-SCRUB efficiently converts
pollution into an agricultural fertilizer that allows utilities to burn two
percent to five percent sulfur coal as cleanly as natural gas. The savings
realized from switching to high-sulfur coal pays for capital costs. Management
estimates that the resulting fertilizer sales and pollution credits generate
significant revenues of $50,000 per MWe. Management estimates that there are
adequate coal savings to retrofit at least 6,000 MWe over the next five years.
These savings are sufficient to cover all debt amortization. In addition
management estimates revenues of $60,000 per each MWe that we retrofit; 6000 MWe
represents installation of just three mid-sized power plants.
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND COMPANY FINANCIAL STATEMENTS, NOTES TO THOSE FINANCIAL
STATEMENTS AND THE GLOSSARY THAT APPEARS ELSEWHERE IN THIS PROSPECTUS.
GENERAL
We design and produce the e-SCRUB-TM- system that removes pollutants
emitted from power plants that burn high sulfur coal. These pollutants, when
released into the air, cause acid rain, smog and lung disease. Our e-SCRUB
process is a patented system that uses electrons to convert these pollutants
into a saleable fertilizer, which can be sold to offset operating costs of the
system. After installation, our system allows old power plants to burn
inexpensive, high-sulfur coal as cleanly as modern, natural-gas-fired plants.
The e-SCRUB system allows power plants to switch to the least expensive fuel,
yet meet all of the stringent requirements of the Clean Air Act Amendments of
1990 (CAAA) for 2000 and beyond.
Our company has a unique approach to the business of controlling air
pollution at power plants that burn high sulfur coal. In addition to designing
and manufacturing the e-SCRUB systems, we will own and operate the e-SCRUB
treatment facilities that are installed at the power plants. Thus, utilities can
concentrate on generating power, while we convert their pollution problems into
company revenues as well as jobs for miners.
4
<PAGE>
Installation of an e-SCRUB treatment system will allow a utility to switch
back to burning less-expensive, high-sulfur coal. In return for meeting all CAAA
regulations, the utility will split the coal cost savings with us, which repays
the capital costs in less than 10 years. In addition to the revenues generated
from the coal saving, revenues are also produced from the sale of the fertilizer
and emission credits. These credits, which are generated by the e-SCRUB system,
are traded on the Chicago Board of Trade, and when coupled with the fertilizer
sales, provide substantial earnings potential for the Company. Management
estimates that revenues are almost $60,000 per MWe for installing a single
e-SCRUB system on a typical 1900 MWe coal-fired power plant. Management
estimates that there is sufficient revenue from coal savings to retrofit 6000
MWe that burn high sulfur coal.
To implement this plan, we have formed a joint venture limited liability
company, VIRTEX, with National Diversified. VIRTEX will provide bond financing
for e-SCRUB systems. The bonds are repaid by splitting the coal savings with the
utility company. VIRTEX will contract with the Company for the design,
construction, installation and operation of the e-SCRUB systems.
FOCUS ON POWER PLANTS BURNING HIGH SULFUR
Our patented equipment and e-SCRUB process are mature technologies that
allow older power plants with access to inexpensive high sulfur coal to convert
the new CAAA requirements into additional fuel savings instead of increasing
electric rates for the consumer.
The pollution emitted from older power plants that burn high sulfur coal is
especially severe. For those plants that are located near urban areas or
downwind of cities, the CAAA mandates substantial reduction of all pollution
emitted from their sites. Except for e-SCRUB, there is no other technology that
cost effectively removes all pollutants from power plants that burn high sulfur
coal. To meet current CAAA requirements, many of these plants will switch to
more expensive and less efficient low-sulfur coal. Moreover, they must also
install additional pollution control equipment that costs hundreds of millions
of dollars per plant; all of which substantially increases operating costs.
ELIMINATE AIR POLLUTION WITH ELECTRONS
When coal or oil are burned to produce electricity, sulfur dioxide (SO2),
nitrous oxide (NOx) and fine particulates are discharged into the air. The
emission of sulfur dioxide (SO2) into the air causes acid rain, which damages
forests, lakes and streams. The emission of nitrous oxide (NOx) into the air is
the largest contributing factor to urban smog, with its attendant detrimental
health affects, and the emission of fine particulates contributes to lung
disease in cities.
Using the e-SCRUB system, we inject electrons and ammonia into power-plant
flue gasses to remove all of these pollutants and convert them into fertilizer.
Unlike all other pollution control systems, because of the effect of the
electrons used in the process, our system efficiency actually increases as the
sulfur content of the coal increases. Thus, we treat the sulfur and other
"pollutants" as feed stock for the production of fertilizer rather than as waste
to be disposed of!
ECONOMIC BENEFITS OF e-SCRUB
No country in the world uses more energy than the United States and the
demand for electricity grows every year. Control efforts have largely focused on
substituting low sulfur coal while high-sulfur coalfields have been passed over.
Low sulfur coal costs 38% more and provides only 75% of the energy of high
sulfur coal. Our process makes high sulfur fuels more desirable since their
pollution can now be converted to a rich fertilizer for use in the U.S. Using
the e-SCRUB process in this manner to produce fertilizer eliminates the wastes
associated with conventional production methods.
High sulfur coal typically provides 12,500 Btu's per pound at a cost of
$15-$17 per ton on-site while low sulfur coal provides only 9,200 Btu's per
pound at a cost of $25-$28 per ton shipped. Since four
5
<PAGE>
tons of low-sulfur coal are required to equal the energy output of three tons of
high-sulfur coal, power plant costs are closer to $36 per ton, on an equivalency
basis:
<TABLE>
<S> <C> <C>
- ------------------ --------------- ---------------
Sulfur Cost Energy
Content
- ------------------ --------------- ---------------
High $15-$17 12,500 Btus
- ------------------ --------------- ---------------
Low $25-$27 9,200 Btus
- ------------------ --------------- ---------------
</TABLE>
With the e-SCRUB system there is no need to pay high pollution fines or
transport over long distances low sulfur coal, which has low heating value.
Power plants that have already switched or are planning to convert to low sulfur
coal can go back to using high sulfur coal that is locally mined. By utilizing
the best coal for generating power, utilities save money, miners save their jobs
and the whole economy benefits by burning less fuel to generate the same power.
REVENUES FROM OWNING AND OPERATING e-SCRUB SYSTEMS.
The profit margin on the sale of our equipment is great business for the
Company; however, the income stream generated from operation and maintenance of
e-SCRUB systems is even more attractive. By permitting power plants to switch
back to burning high sulfur coal, the Company splits the coal savings. In
addition, the "emission credits" awarded by an EPA program for the removal of
air pollutants are sold on the Chicago Board of Trade. The fertilizer alone,
produced without the hazardous waste phosphogypsum, adds revenue that largely
offsets operating costs.
A typical U.S. electric generating plant ranges in size from 200 MWe to
1900 MWe, which usually consists of three 625 MWe boilers. To retrofit a 1900
MWe plant will require an e-SCRUB system that has capital costs of nearly $270
million and annual operating costs of $23 million. Savings in fuel, sale of
emission credits and fertilizer will produce an annual offset of nearly $114
million, in management's estimation. Management plans initial installations that
range in size from 50 MWe up to 150 MWe, at a capital cost that ranges from
approximately $10 million to $21 million. The initial 50 MWe installation can be
upgraded to 625 MWe for an additional $89 million. Management estimates that
there is sufficient revenue from the coal savings to fully amortize the bonds in
ten years or less; and for these initial systems, revenues from credits and
fertilizer sales will be almost $40,000 per MWe
To implement our business plan, we have signed a Consortium Agreement with
Southern Environmental Inc. (SEI) and its parent, Southern Erectors, (the SEI
family) to supply process equipment and provide marketing, detailed engineering,
fabrication and erection services. To process the fertilizer, we have an
agreement with AGRO Oy. We have formed a joint venture limited liability
company, VIRTEX, with National Diversified Co. (NDC) to use commercial bonds to
finance the e--SCRUB Treatment Facilities.
OUR OFFICES
Our principal executive offices are located at 301 South West Street,
Alexandria, VA 22314, and our telephone number is (703) 836 1760, fax (703) 836
2878. Our corporate website can be found at WWW.ESCRUB.NET Information contained
on our website does not constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Shares offered by the Company ................. 800,000
Shares to be outstanding after this Offering... 9,478,594
Use of Proceeds................................ sales, marketing and customer support; test and
installation of equipment; expansion of production
facilities; potential acquisitions; working capital and
general corporate purposes.
</TABLE>
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following summary financial and other data for each of the years
ended December 31, 1997 and 1998 have been derived from our audited financial
statements included elsewhere in this prospectus. The summary financial and
other data for the nine months ended September 1999 are derived from our
unaudited financial statements, which in our opinion, consists of normal
recurring adjustments necessary for a fair presentation of this information. You
should read "Management's Discussion and Analysis of Financial Condition and
Results of Operations", which has been prepared on the same basis as the audited
financial statements and include all adjustments, our financial statements and
notes included elsewhere in this prospectus for a further explanation of the
financial data summarized here.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, MONTHS ENDED SEPTEMBER 30
----------------------- -------------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................. $ 209,200 $ 458,351 $1,041,649
Gross profit (loss) .................. $ 116,417 $ 222,320 $ 672,662
Other Operating Revenue .............. $ 12,076 $ 297,203 $ 167,300
EBITDA (loss) from operations ........ $ 17,147 $ 248,023 $ 379,783
Retained earnings--historical ........ $3,601,048 $3,476,927 $3,332,124
Historical retained earnings per share
- -- before/after split ................ $ 0.91/$0.45 $0.81/$0.40 $0.77/$0.38
Weighted average common shares
Issued before split .................. 3,966,600 4,308,297 4,399,297
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA: AT SEPTEMBER 30, 1999
---------------------
ACTUAL
<S> <C>
Working capital .............. $ 310,000
Total assets ................. $9,520,416
Total liabilities ............ $3,762,957
Stockholders' equity ......... $5,757,459
</TABLE>
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE FOLLOWING RISKS AND OTHER INFORMATION IN THIS PROSPECTUS BEFORE DECIDING TO
INVEST IN THE SHARE OF OUR COMMON STOCK.
OUR LIMITED OPERATING HISTORY MAKES EVALUATING OUR BUSINESS DIFFICULT
Although we were incorporated in February 1995, we have not initiated sales
of our line of products to date and have functioned primarily as a engineering
and development activity. As a result, we have a limited operating history upon
which you may evaluate our business and prospects. Our prospectus must be
considered in light of risks, expenses, delays, problems and difficulties
frequently encountered by early state companies.
THE MARKET FOR OUT TECHNOLOGY IS UNCERTAIN
Our success is highly dependent on market acceptance of our e-SCRUB system.
In addition, our economics are complex and rely upon assumptions regarding the
sale of diverse items such as fertilizer and emission credits. The market for
this type of equipment is new and we are not certain that our target customers
will purchase our systems or that financing on attractive terms can be gained.
Thus, demand and market acceptance for our systems is uncertain. We cannot
assure you that the market for air pollution control equipment will continue to
emerge or become sustainable. If the market for our systems fails to grow,
develops more slowly than we expect, or becomes saturated with competing
products or services, then our business, financial condition and results of
operations will be materially adversely affected.
THE DELIVERY OF OUR SYSTEM REQUIRES A LONG LEAD-TIME
The design, manufacture and delivery of our system requires a long lead
time due to the amount of customization typically involved in its product. This
amount of time is difficult to predict. In the event our system takes longer to
develop for particular customers than predicted, we may lose existing customers
or find it more difficult to obtain additional customers.
OUR SYSTEMS REQUIRE A VERY LARGE CAPITAL OUTLAY
The very large costs required for installation and operation of our
equipment reflect a heavy burden upon coal-fired electric generating plants.
Even though emission control is mandated, such plants may not be able to justify
large expenses or other wise not be eligible to use the capital markets to cover
such costs.
WE MAY INCUR MATERIAL COSTS AS A RESULT OF WARRANTY AND PRODUCT LIABILITY
CLAIMS, WHICH WOULD NEGATIVELY IMPACT OUR PROFITABILITY
The development, manufacture, sale and use of our products involves a risk
of warranty and product liability claims. In addition, as we increase our
efforts in foreign countries we expose ourselves to laws and regulations that
may not be similar or as clear as those in the U.S. We maintain product
liability insurance. Our product liability insurance policies have limits,
however, that if exceeded, may result in material costs that would have an
adverse effect on our future profitability. In addition, warranty claims are not
covered by our product liability insurance and there may be types of product
liability claims that are also not covered by our product liability insurance.
THERE ARE RISKS RELATED TO DOING BUSINESS WITH FEDERAL AND STATE GOVERNMENT
AGENCIES
Contracts with Federal and state government agencies require annual funding
approval and are terminable at the discretion of such agencies. A reduction in
spending by the DOE or other agencies could limit the continued funding of our
existing contract, which may impact our ability to obtain additional contracts.
The limitations, if significant, could also have a material adverse effect on
our business, financial condition and results of operations.
8
<PAGE>
WE MAY BE UNABLE TO MEET OUR FUTURE CAPITAL REQUIREMENTS
Based on our current operating plan, we anticipate that the net proceeds of
this offering and cash provided by operations will allow us to meet our cash
requirements for at least 24 months following the date of this prospectus. We
may require additional funding sooner than anticipated. In addition, unplanned
acquisition and development opportunities and other contingencies may arise,
which could require us to raise additional capital. If we raise additional
capital through the sale of equity, including preferred stock, or convertible
debt securities, the percentage ownership of our then existing stockholders will
be diluted.
We currently do not have a credit facility or any commitments for
additional financing. We cannot be certain that additional financing will be
available when and to the extent required. If adequate funds are not available
on acceptable terms, we may be unable to fund our expansion, develop or enhance
our products or respond to competitive pressures. Such limitation could have a
material adverse effect on our business, financial condition and results of
operations.
OUR FAILURE TO PROTECT OUR PROPRIETARY TECHNOLOGY MAY IMPAIR OUR
COMPETITIVE POSITION
Although we seek to protect our intellectual property rights through
patents, copyrights, trade secrets and other measures, we cannot be certain
that:
o we will be able to protect our technology adequately;
o our patents and any other issued patents will not be successfully
challenged by one or more third parties, which could result in our loss
of the right to prevent others from exploiting the technology claimed in
the patents or inventions claimed in any other issued patents;
o competitors will not be able to develop similar technology
independently;
o intellectual property laws will protect our intellectual property
rights; and
o third parties will not assert that our products infringe upon their
patents, copyrights or trade secrets.
If we are not successful in protecting our intellectual property, there
could be a material adverse effect on our business, financial condition and
results of operations.
PROTECTION OF OUR INTELLECTUAL PROPERTY RIGHTS MAY RESULT IN COSTLY
LITIGATION
Litigation may be necessary in order to enforce our patents, copyrights or
other intellectual property rights, to protect our trade secrets, to determine
the validity and scope of the proprietary rights of others or to defend against
claims of infringement. This type of litigation could result in the expenditure
of significant financial and managerial resources and could result in
injunctions preventing us from installing certain products. Such claims could
materially adversely affect our business, financial condition and results of
operations.
WE MAY NOT BE ABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE
In the past, our market was not characterized by rapid technological change
and frequent new product announcements. However, this could change. Significant
technological changes could render our existing technology obsolete. If we are
unable to successfully respond to these developments or do not respond in a
cost-effective way, our business, financial condition and results of operations
will be materially adversely affected. To be successful, we must adapt to our
rapidly changing market by continually improving the responsiveness, services
and features of our products and by developing the features and configurations
necessary to meet customer needs. Our success will depend, in part, on our
ability to adapt to rapidly changing technologies to enhance existing services
and to develop the services and technologies that address the needs of our
customers.
9
<PAGE>
DILUTION.
The Offering price is substantially higher than the pro forma book value
per outstanding ordinary share. Based upon the Offering price of $12.50 per
share, investors purchasing Shares in the Offering will incur immediate and
substantial dilution of $11.81 per share on a minimum Offering and $10.75 on a
maximum Offering. This amounts to 94% on a minimum Offering and 86% on a maximum
Offering. (See "Dilution.")
IF WE LOSE OUR KEY PERSONNEL OR ARE UNABLE TO RECRUIT ADDITIONAL PERSONNEL,
OUR BUSINESS MAY SUFFER
We are dependent on the continued employment and performance of our
executive officers and key employees, particularly Ralph D. Genuario, President,
Nicholas Confurto, Chief Operating Officer, Dr. Maija Liisa Harkonen, Director
of International Projects and James Blackburn, Chief Electrical Engineer. We
intend to enter into three-year employment agreements with Ralph D. Genuario and
Dr. Maija Liisa Harkonen. We intend to apply for key man life insurance policies
on our key employees. The loss of the services of our executive officers or key
employees could have a material adverse effect on our business, financial
condition and results of operations.
WE MAY BE ADVERSELY AFFECTED BY PROBLEMS IN THE AVAILABILITY OF OR
INCREASES IN THE PRICES OF COMPONENTS AND RAW MATERIALS
Increases in the prices of raw materials or components or problems in their
availability could depress our installations, by-product sales or increase the
costs of operations. We are dependent upon components purchased from their
parties as well as raw materials such as ammonia. We enter into contracts each
year for the supply of key components at fixed prices or upon fixed terms.
However, if key suppliers are unable or unwilling to meet our supply
requirements, we could experience supply interruptions or cost increases, either
of which could have an adverse effect on our gross profit.
THE PROFITABILITY OF OUR INTERNATIONAL OPERATIONS COULD BE ADVERSELY
AFFECTED BY ECONOMIC TURMOIL, WAR OR CIVIL UNREST
Our planned or existing international operations are subject to various
economic, political and other risks that are generally not present in our North
American operations. International risks include:
o instability of foreign economies and governments;
o privatization of utility industry;
o price and currency exchange controls;
o unfavorable changes in monetary and tax policies and other regulatory
changes;
o fluctuations in the relative value of currencies;
o expropriation and nationalization of our foreign assets; and
o war and civil unrest
We anticipate that, over time, international sales will become a
significant portion of our total sales and revenues.
REGULATORY UNCERTAINTIES COULD HARM OUR BUSINESS
Our system operates on effluents that are the subject of continual
investigation and control by a variety of governmental organizations concerned
with pollution abatement. Our ability to design, develop and sell our products
will continue to be affected by such rules and regulations. The implementation
of unfavorable regulations or unfavorable interpretations of existing
regulations by courts or regulatory bodies could require us to incur significant
compliance costs, cause the development of the affected markets to become
impractical and otherwise adversely affect our business, financial condition and
results of operations.
10
<PAGE>
OUR SUCCESS IS DEPENDENT ON OUR ABILITY TO MANAGE GROWTH
Our rapid growth has placed, and is expected to continue to place, a
significant strain on our managerial, technical, operational and financial
resources. If we are unable to manage our growth effectively, our business,
financial condition and results of operations will be materially adversely
affected. To manage our expected growth, we will have to implement and improve
our operational and financial systems and train and manage a growing employee
base. We will also need to maintain and expand our relationships with customers,
subcontractors and other third parties.
WE RELY ON SUBCONTRACTORS
In order to meet our requirements under contracts, we rely on the efforts
and skills of subcontractors for manufacturing certain components and for
delivery to our customers. The absence of qualified subcontractors with whom we
have a satisfactory relationship could adversely affect the quality of our
services and products and our ability to perform under our contracts.
EXISTING MANAGEMENT WILL BE ABLE TO EXERCISE SIGNIFICANT CONTROL OVER OUR
COMPANY
The ability of existing management to exercise significant control over the
Company may discourage, delay or prevent a takeover attempt that a stockholder
might consider in his or her best interest and that might result in a
stockholder receiving a premium for his or her common stock. Following the
closing of the offering, present management will control 56 % of the issued
shares of our common stock. Accordingly, if management were to act together, it
would have the ability to:
o control the vote of all matters submitted to our stockholders,
including any merger, consolidation or sale of all or
substantially all of our assets;
o elect all of the members of our board of directors;
o prevent or cause a change in control of our company; and
o decide whether to issue additional common stock or other
securities or declare dividends.
BEST EFFORTS OFFERING AND LIMITED STATE REGISTRATIONS MEAN THAT THE FUNDS
SOUGHT IN THIS OFFERING MAY NOT BE ACHIEVED
This offering of the Company's common stock is conducted on a "best effort"
basis by Three Arrows Capital Corp. No underwriter, placement agent, or other
person has contracted with the Company to purchase or sell all or any of the
shares. There is no assurance that the Company will be capable of selling all or
any of the shares. If the minimum is not reached the Company will not be able to
rapidly realize the plans set out in the Business section and will rely instead
on its internal growth and/or bank or other financing for its expansion.
Additionally, this offering will be qualified in a limited number of states,
which means that not all potential buyers of the shares will be able to do
without separate registration or an exception.
YEAR 2000 RISKS MAY HARM OUR BUSINESS
Although we use internal software that is Year 2000 compliant, can operate
on a stand-alone basis and does not rely on technology supplied by third
parties, there can be no assurance that discovered Year 2000 problems will not
occur in the hardware, software or equipment of our customers that will require
substantial revision.
In addition, there can be no assurance that governmental agencies, utility
companies, overseas entities, third-party service providers and others outside
of our control will be Year 2000 compliant. The failure by these entities to be
Year 2000 compliant could result in a systemic failure beyond our control such
as transportation systems, telecommunications or electrical failure. Any of
these failures could also prevent us from delivering our system to our
customers, which could have a material adverse effect on our business, results
of operations and financial condition.
11
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statement based on our current
expectations, assumptions, estimates and projections about our systems and our
industry. These forward-looking statements involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in these
forward-looking statements as a result of certain factors, as more fully
described in the "Risk Factors" section and elsewhere in this prospectus. The
Company undertakes no obligation to update publicly any forward-looking
statements for any reason, even if new information becomes available or other
events occur in the future.
12
<PAGE>
USE OF PROCEEDS
The net proceeds to us from the sale of 800,000 shares of common stock
offered by us are estimated to be approximately $9,450,000 after deducting
underwriting commissions and other expenses of the offering. We expect to use
the net proceeds approximately as follows:
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE
APPROXIMATE OF NET
DOLLAR AMOUNT PROCEEDS
------------- --------
<S> <C> <C>
Sales, marketing and customer support ........... $ 2 million 21%
Test and installation of equipment .............. $ 2 million 21%
Expansion of production facilities .............. $ 4.05 million 34%
Research and development ........................ $ 0.45 million 4%
Working capital and general corporate purposes .. $ 0.95 million 10%
---------------- ----
Total .................................. $ 9.45 million 100%
</TABLE>
If only the minimum amount of the offering is raised we expect to devote
100% of such funds to sales, marketing and customer support.
SALES, MARKETING AND CUSTOMER SUPPORT. Represents anticipated costs
associated with marketing our systems to targeted markets and advertisers,
including salaries for employees that market our systems and travel expenses
with respect to marketing.
TEST AND INSTALLATION OF EQUIPMENT. Represents anticipated costs associated
with the development of specific systems for clients.
EXPANSION OF PRODUCTION FACILITIES. Represents costs associated with
expanding our in-house capabilities for design and development of our products.
Costs include additional design, simulation, test equipment and the purchase of
additional prototyping tolls. Includes salaries for production employees. We may
also include acquisitions although no such companies have been identified to
date.
RESEARCH AND DEVELOPMENT. Represents costs associated with initiatives
intended to enhance the performance and increase the capability of our products.
Costs include the hiring of additional employees, construction of prototypes and
testing.
WORKING CAPITAL AND GENERAL CORPORATE PURPOSES. Working capital may be
used, among other things, to pay salaries of our executive officers, rent, trade
payables, professional fees and other operating expenses. Please see
"Management."
The allocation of the net proceeds from this offering set forth above
represents our best estimate based upon our currently proposed plans and
assumptions relating to our operations and certain assumptions regarding general
economic conditions. If any of these factors change, we may find it necessary or
advisable to reallocate some of the proceeds within the above-described
categories or to use portions for other purposes.
We anticipate that the net proceeds of this offering, even on a minimum
basis, together with our projected revenues from our operations, will be
sufficient to fund our operations and capital requirements for at least 24
months following this offering. We cannot assure you, however, that such funds
will not be expended earlier due to unanticipated changes in economic conditions
or other circumstances that we cannot foresee. In the event our plans change or
our assumptions change or prove to be inaccurate, we could be required to seek
additional financing sooner than currently anticipated. We also expect that,
when the opportunity arises, we may acquire or invest in complementary
businesses, products or technologies. We have no present understandings,
commitments or agreements with respect to any material acquisition or
investment.
13
<PAGE>
Pending the use of proceeds in the manner mentioned above, the net proceeds
of this offering will be invested principally in short-term, interest-bearing
investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our common stock. We
do not intend to declare or pay any dividends on our common stock in the
foreseeable future. We currently intend to retain future earnings, if any, to
finance the expansion of our business.
DILUTION
Purchasers of the Common Stock offered hereby will experience an immediate
and substantial dilution in the net tangible book value of their Common Stock
from the Offering price. The net tangible book value of the Company as of
September 30, 1999 was 5,757,419 or $0.66 per Share of Common Stock following a
split. Net tangible book value per share represents the amount of the Company's
tangible net worth divided by the total number of shares of Common Stock
outstanding as of September 30, 1999. After giving effect to the sale of 800,000
shares of Common Stock by the Company in the Offering and the application of the
net proceeds therefrom (assuming the maximum Offering is subscribed and after
deduction of underwriting discounts and commissions and estimated Offering
expenses payable by the Company), the pro forma net tangible book value of the
Company as of September 30, 1999 would have been $15,207,389 or $1.75 per Share
of Common Stock. This represents an immediate increase in net tangible book
value of $1.09 per Share to existing shareholders and an immediate dilution of
$10.75 per Share to purchasers of Shares in a maximum offering and an immediate
dilution of $11.81 in a minimum offering. This would amount to a 86 % dilution
and a 95 % dilution, respectively. The following table illustrates the per Share
dilution:
<TABLE>
<CAPTION>
Offering price: $12.50 MINIMUM MAXIMUM
------------- -------------
<S> <C> <C>
Net tangible book value per common share
before the Offering $ 0.66 $ 0.66
Increase attributable to new investors $ 285,000 $ 9,449,970
Pro forma net tangible book value per share
after the Offering $ 0.69 $ 1.75
Dilution in net tangible book value per share
to new investors $ 11.81 $ 10.75
</TABLE>
The Offering price of the Shares has been determined based on an estimate
by management of the Company's earnings potential over the next five years.
Management makes no representations that the Company will generate such earnings
and there can be no assurance as to when the Company will generate revenues and
earnings, if ever. The Offering price is arbitrary and does not reflect the
Company's asset value, net worth, present earnings, cash flow or any other
established criteria of value. The Offering price of the Shares may or may not
be an indication of their present value or the value of the Company or their
future value or the future value of the Company.
14
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of 30
September 1999 and as adjusted to give effect to the sale of 24,000 shares of
Common Stock (assuming the minimum number of Shares offered hereby are sold) and
the sale of 800,000 shares (assuming the maximum number of Shares offered hereby
are sold) and the application of the estimated net proceeds therefrom, assuming
an Offering price at $12.50 per share for the Common Stock. A stock split was
approved at a shareholder's meeting on October 16, 1998. No further stock
splits, stock dividends, or other forms of re-capitalization are planned at this
time. See "Use of Proceeds."
<TABLE>
<CAPTION>
Amount Outstanding
As of September 30, 1999
Prior to Offering Minimum Maximum
---------------- ----------- ------------
<S> <C> <C> <C>
Debt:
Short-term debt $ 82,765 $ 82,765 $ 82,765
Long-term debt (average interest rate 11%) $ 1,109,778 $ 1,109,778 $ 1,109,778
Total Debt $ 1,192,543 $ 1,192,543 1,192,543
------------ ------------ ------------
Shareholder's (deficit) Equity:
Common stock, 11,000,000 authorized, no
par value, 8,678,594 shares issued and
outstanding, on October 31, 1999 $ 2,425,335 $ 2,425,335 $ 2,425,335
Additional paid-in capital 0 0 0
Retained earnings (deficit) $ 3,332,124 $ 3,332,124 $ 3,332,124
Total shareholders' equity (deficit) $ 27,500,000 $137,500,000 $137,500,000
Total capitalization $ 33,257,459 $143,257,459 $143,257,459
------------ ------------ ------------
</TABLE>
The following table sets forth a comparison as of September 30, 1999 of the
number of shares of Common Stock acquired by current shareholders from the
Company, the total consideration paid for such shares of Common Stock and the
average price per share paid by such current shareholders and to be paid by the
prospective purchasers of the Shares (based upon an offering price of $12.50).
<TABLE>
<CAPTION>
Shares Purchased Consideration Avg. Cash Price
Number Percent Amount Per Share
--------- ---- ----------- ---------
<S> <C> <C> <C> <C>
After split
Existing shareholders 8,678,594 78.9 % $ 8,132,215 $ 0.94
New investors 800,000 7.3 % $10,000,000 $ 12.50
Total 9,478,594 86.2 % $11,540,120 $ 1.91
</TABLE>
15
<PAGE>
SELECTED FINANCIAL DATA
The selected statements of operations data for the years ended December 31,
1997 and December 31, 1998 and for the nine-month period ended September 30,
1999 and the selected balance sheet data as of December 31, 1998 and September
30, 1999 have been derived from the audited and unaudited financial statements
included elsewhere in this prospectus. Results for the nine months ended
September 30, 1999 are not necessarily indicative of those for the full fiscal
year. The data presented below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements and accompanying notes thereto appearing elsewhere in
the prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30
----------------------------------------- --------------------------
1995 1996 1997 1998 1999
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues ............................ $ 324,578 $ 152,000 $ 209,200 $ 458,351 $ 1,041,649
Other operating revenue ............. -- $ 7,616 $ 12,076 $ 297,203 $ 167,300
Cost of revenues .................... (153,453 (93,428) (92,783) (236,031) (368,987)
Gross profit ........................ $ 171,125 $ 58,572 $ 116,417 $ 222,320 $ 672,662
Overhead ............................ (71,713) (134,117) (111,542) (248,650) (372,975)
Operating costs and expenses:
Selling, general and
administrative ................... 0.00 0.00 0.00 0.00 0.00
Research and development ............ 0.00 0.00 0.00 0.00 0.00
Total operating costs and
expenses ......................... $ 71,713 $ 134,117 $ 111,542 $ 248,650 $ 372,975
Income (loss) from operations ....... $ 99,412 (67,929) $ 16,951 $ 270,873 $ 466,987
Interest income (expense), net ...... 213 911 196 (21,747) (87,204)
Other income ........................ $ 5,721,095 $ 1,103
EBITDA (loss)--historical ........... $ 5,820,720 (67,018) $ 17,147 $ 248,023 $ 379,783
Retained earnings)--historical ...... $ 3,635,520 $ 3,593,736 $ 3,601,048 $ 3,476,927 $ 3,332,124
Historical retained earnings per
share--before/after split ........ $1.83/$0.92 $ 0.94/$0.47 $ 0.91/$0.45 $0.81/$0.40 $0.77/$0.38
Weighted average common
shares outstanding
- --- before split .................... 1,986,623 3,821,000 3,966,600 4,308,297 4,399,297
- --- after split ..................... 3,973,246 7,642,000 7,933,200 8,616,594 8,798,594
</TABLE>
The adjusted balance sheet data as of September 30, 1999 reflects the sale
of 800,000 shares of common stock offered hereby after deducting the
underwriting commission and other offering expenses.
<TABLE>
<CAPTION>
AS OF DECEMBER 31 SEPTEMBER 30, 1999
------------------------------------------------- -----------------------
AS
1995 1996 1997 1998 ACTUAL ADJUSTED
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents ..... $ 66,701 $ 367,380 $ 46,734 $ 8,954 $ 310,000 $ 310,000
Working capital
Total assets .................. $6,683,209 $7,798,602 $9,122,154 $9,556,522 $9,520,416 $9,520,416
Total liabilities ............. $2,604,689 $3,761,866 $4,095,636 $4,018,876 $3,762,997 $3,762,957
Total stockholders' equity .... $4,078,520 $4,036,736 $5,026,518 $5,537,646 $5,757,419 $5,757,459
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis of the financial condition and
results of operations of the Company should be read in conjunction with our
financial statements and notes thereto and the other financial information
included elsewhere in this prospectus. In addition to historical information,
this Management Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this prospectus contain forward-looking
information that involve risks and uncertainties The Company's actual results
could differ materially from those anticipated by such forward-looking
information as a result of certain factors, including but not limited to, those
set forth under "Risk Factors" and elsewhere in this prospectus.
We were incorporated in Virginia on February 5, 1995 and began to derive
revenues from grants immediately thereafter. Revenues are generated from design
and engineering charges as well as sales of our products. Our fees relate to the
time expended and expertise involved in customizing our system to the needs of
each individual customer. In the future, we intend to generate substantial
additional revenue from operation of our systems, from sharing in fuel cost
savings and from the sale of emission credits, which is explained elsewhere in
this prospectus. We anticipate that these sources of revenue will become the
greater portion of future revenues.
Our initial contract was entered into with the Department of Energy (DOE)
for engineering services. The DOE accounted for 90 % of our revenues in 1997 and
1998 and 75 % for the nine months ended September 30, 1999. These contracts
provide for revenue relating to labor, materials and delivery of goods. Our
policy is to recognize revenues when time and material charges are incurred,
services are performed or goods are delivered in accordance with conditions of
related contracts. Amounts billed to customers that do not meet the conditions
of our revenue recognition policy are recorded as deferred revenue until such
conditions are met.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
operating information expressed as a percentage of revenue:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, ENDED SEPTEMBER 30
----------------------- ------------------
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues .......................... $209,200 $458,351 $1,041,649
Cost of revenues .................. 44 % 51 % 35 %
Gross profit ...................... 56 % 49 % 65 %
Overhead .......................... 53 % 54 % 36 %
Operating costs and expenses:
Selling, general and
administrative ................. 0.00 0.00 0.00
Research and development .......... 0.00 0.00 0.00
Total operating costs and
expenses ....................... 53 % 54 % 36 %
Income (loss) from operations ..... 8 % 59 % 45 %
Interest income (expense), net .... 1 % N/A N/A
Other income ...................... 6 % 65 % 16 %
EBITDA (loss)--historical ......... 8 % 54 % 36 %
</TABLE>
FISCAL 1999 COMPARED TO FISCAL 1998 AND FISCAL 1997
REVENUES.
Our revenues from all sources were a factor of 1.6 greater than fiscal 1998 and
a factor of 3.7 greater than fiscal 1997.
17
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A).
Our SG&A expenses for the years in question were zero.
RESEARCH AND DEVELOPMENT EXPENSES (R&D).
Our R&D expenses for the years in question were zero.
OVERHEAD EXPENSES.
Our overhead expenses were 1.5 greater than fiscal 1998 and 3.34 greater than
fiscal 1997
INTEREST EXPENSE (NET).
Our net interest expenses were 3.8 greater than fiscal 1998 and we recorded a
small net in 1997
EARNINGS BEFORE INCOME TAX, DEPRECIATION AND AMORTIZATION (EBITDA).
Our EBITDA was a factor of 1.5 greater than fiscal 1998 and 22 greater than
fiscal 1997
INCOME TAXES.
Due to our large depreciation and amortization, we paid no income tax in fiscal
1998 and fiscal 1997; we expect to pay no income tax in fiscal 1999.
RETAINED EARNINGS.
Our retained earnings were 96 % of fiscal year 1998 and 96 % of fiscal 1997.
LIQUIDITY AND CAPITAL RESOURCES
We believe our operations have not been and, in the foreseeable future,
will not be materially adversely affected by inflation or changing prices.
RECENTLY ISSUED FINANCIAL STANDARDS
We believe that recently issued financial standards will not have a
significant impact on our results of operations, financial position or cash
flows.
YEAR 2000 RISK
Many currently installed computer systems and software products are coded
to accept or recognize only two digit entries in date code field. These systems
and software products will need to accept four digit entries to distinguish 21st
century dates from 20th century dates. As a result, computer systems and/or
software used by many companies and governmental agencies may need to be
upgraded to comply with such Year 2000 requirements or risk system failure or
miscalculations causing disruptions of normal business activities.
STATE OF READINESS
We have made a preliminary assessment of the Year 2000 readiness of our
products and operating, financial and administrative systems, including the
hardware and software that comprise our system. Our assessment plan consists of:
18
<PAGE>
o assessing non-information technology such as material hardware,
software and services that are both directly and indirectly related to
the delivery of our system to our users;
o assessing information technology such as operating, financial and
administrative systems;
o assessing repair or replacement requirements;
o implementing repair or replacement; and
o creating contingency plans in the event of Year 2000 failures.
The software, which has been developed, tested and currently comprises our
system and which is characterized as non-information technology systems is Year
2000 compliant. Our Year 2000 compliance process is complete with respect to
systems, which have been developed. We are conducting testing procedures for all
other information and non-information software and systems which we are in the
process of developing and which we believe might be affected by Year 2000
issues. Since third parties developed and currently support many of the
operating, financial and administrative systems that we use, which are
characterized as information technology systems, steps will be taken to insure
that these third-party systems are Year 2000 compliant. We plan to conform this
compliance through a combination of the representation by these third parties of
their products' Year 2000 compliance, as well as specific testing of these
systems. This testing was successfully completed by July 1, 1999 and required no
revision or replacement. We have the ability to use numerous third party system
developers and supporters and numerous sub-contractors and our developers,
supporters and sub-contractors may be replaced without a material adverse effect
on our operations. Accordingly, we do not consider any particular third party
relationships to be material to our operations.
COSTS
To date, we have incurred immaterial costs on Year 2000 compliance issues.
Most of our expenses are related to, and are expected to continue to be related
to, the operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. We anticipate
that our expenses shall continue to be immaterial. Such expenses, if higher than
anticipated, could have a material adverse effect on our business, results of
operations and financial condition.
RISKS
We are not currently aware of any Year 2000 compliance problems relating to
our system or products that would have a material adverse effect on our
business, results of operations and financial condition. There can be no
assurance that we will not discover Year 2000 compliance problems in our system
or products that will require substantial revision. In addition, there can be no
assurance that third-party software, hardware or services in which our system
will operate will not need to be revised or replaced, all of which could be
time-consuming and expensive. Our failure to fix or replace our internally
developed proprietary software or third-party software, hardware or services on
a timely basis could, in the worst case scenario, result in lost revenues,
increased operating costs or the loss of customers and other business
interruptions, such as delays in delivering products to our customers due to our
sub-contractors' delay in supplying us with components, any of which could have
a material adverse effect on our business, financial condition and results of
operations. Moreover, the failure of our customers to fix or replace their
software or hardware on a timely basis could result in an indirect adverse
effect on our business, financial condition and results of operations.
We do not as of yet have a contingency plan for Year 2000 issues but plan
to create one prior to the end of the third quarter of 1999 if we determine
pursuant to our evaluations that such plan is necessary. We may consider
contracting with other system developers, supporters and sub-contractors that
are Year 2000 compliant if we determine that our existing developers, supporters
and sub-contractors are not compliant.
In addition, there can be no assurance that governmental agencies, utility
companies, third-party service providers and others outside of our control will
by Year 2000 compliant. The failure by such entities to be Year 2000 compliant
could result in a systematic failure beyond our control such as a transportation
systems, telecommunications or electrical failure, which could also prevent us
from
19
<PAGE>
delivering our system to our customers or decrease the commercial activity of
our customers, which could have a material adverse effect on our business,
financial condition and results of operations.
20
<PAGE>
BUSINESS
GENERAL
We design and produce the e-SCRUB-TM- system that removes pollutants
emitted from power plants that burn high sulfur coal. These pollutants, when
released into the air, cause acid rain, smog and lung disease. Our e-SCRUB
process is a patented system that uses electrons to convert these pollutants
into a saleable fertilizer, which can be sold to offset operating costs of the
system. After installation, our system allows old power plants to burn
inexpensive, high-sulfur coal as cleanly as modern, natural-gas-fired plants.
The e-SCRUB system allows power plants to switch to the least expensive fuel,
yet meet all of the stringent requirements of the Clean Air Act Amendments of
1990 (CAAA) for 2000 and beyond.
Our company has a unique approach to the business of controlling air
pollution at power plants that burn high sulfur coal. In addition to designing
and manufacturing the e-SCRUB systems, we will own and operate the e-SCRUB
treatment facilities that are installed at the power plants. Thus, utilities can
concentrate on generating power, while we convert their pollution problems into
company revenues as well as jobs for miners.
Installation of an e-SCRUB treatment system will allow a utility to switch
back to burning less-expensive, high-sulfur coal. In return for meeting all CAAA
regulations, the utility will split the coal cost savings with us, which repays
the capital costs in less than 10 years. In addition to the revenues generated
from the coal saving, revenues are also produced from the sale of the fertilizer
and emission credits. These credits, which are generated by the e-SCRUB system,
are traded on the Chicago Board of Trade, and when coupled with the fertilizer
sales, provide substantial earnings potential for the Company. Management
estimates that revenues are almost $60,000 per MWe for installing a single
e-SCRUB system on a typical 1900 MWe coal-fired power plant. Management
estimates that there is sufficient revenue from coal savings to retrofit 6000
MWe that burn high sulfur coal.
To implement this plan, we have formed a joint venture limited liability
company, VIRTEX, with National Diversified. VIRTEX will provide bond financing
for e-SCRUB systems. The bonds are repaid by splitting the coal savings with the
utility company. VIRTEX will contract with the Company for the design,
construction, installation and operation of the e-SCRUB systems.
FOCUS ON POWER PLANTS BURNING HIGH SULFUR
Our patented equipment and e-SCRUB process are mature technologies that
allow older power plants with access to inexpensive high sulfur coal to convert
the new CAAA requirements into additional fuel savings instead of increasing
electric rates for the consumer.
The pollution emitted from older power plants that burn high sulfur coal is
especially severe. For those plants that are located near urban areas or
downwind of cities, the CAAA mandates substantial reduction of all pollution
emitted from their sites. Except for e-SCRUB, there is no other technology that
cost effectively removes all pollutants from power plants that burn high sulfur
coal. To meet current CAAA requirements, many of these plants will switch to
more expensive and less efficient low-sulfur coal. Moreover, they must also
install additional pollution control equipment that costs hundreds of millions
of dollars per plant; all of which substantially increases operating costs.
ELIMINATE AIR POLLUTION WITH ELECTRONS
When coal or oil are burned to produce electricity, sulfur dioxide (SO2),
nitrous oxide (NOx) and fine particulates are discharged into the air. The
emission of sulfur dioxide (SO2) into the air causes acid rain, which damages
forests, lakes and streams. The emission of nitrous oxide (NOx) into the air is
the largest contributing factor to urban smog, with its attendant detrimental
health affects, and the emission of fine particulates contributes to lung
disease in cities.
21
<PAGE>
Using the e-SCRUB system, we inject electrons and ammonia into power-plant
flue gasses to remove all of these pollutants and convert them into fertilizer.
Unlike all other pollution control systems, because of the effect of the
electrons used in the process, our system efficiency actually increases as the
sulfur content of the coal increases. Thus, we treat the sulfur and other
"pollutants" as feed stock for the production of fertilizer rather than as waste
to be disposed of!
ECONOMIC BENEFITS OF E-SCRUB
No country in the world uses more energy than the United States and the
demand for electricity grows every year. Control efforts have largely focused on
substituting low sulfur coal while high-sulfur coalfields have been passed over.
Low sulfur coal costs 38% more and provides only 75% of the energy of high
sulfur coal. Our process makes high sulfur fuels more desirable since their
pollution can now be converted to a rich fertilizer for use in the U.S. Using
the e-SCRUB process in this manner to produce fertilizer eliminates the wastes
associated with conventional production methods.
High sulfur coal typically provides 12,500 Btu's per pound at a cost of
$15-$17 per ton on-site while low sulfur coal provides only 9,200 Btu's per
pound at a cost of $25-$28 per ton shipped. Since 4 tons of low-sulfur coal are
required to equal the energy output of 3 tons of high-sulfur coal, power plant
costs are closer to $36 per ton, on an equivalency basis:
<TABLE>
<S> <C> <C>
- ----------------- -------------- ---------------
SULFUR COST ENERGY
CONTENT
- ----------------- -------------- ---------------
High $15-$17 12,500 Btus
- ----------------- -------------- ---------------
Low $25-$27 9,200 Btus
- ----------------- -------------- ---------------
</TABLE>
With the e-SCRUB system there is no need to pay high pollution fines or
transport over long distances low sulfur coal, which has low heating value.
Power plants that have already switched or are planning to convert to low sulfur
coal can go back to using high sulfur coal that is locally mined. By utilizing
the best coal for generating power, utilities save money, miners save their jobs
and the whole economy benefits by burning less fuel to generate the same power.
REVENUES FROM OWNING AND OPERATING e-SCRUB SYSTEMS.
The profit margin on the sale of our equipment is great business for the
Company; however, the income stream generated from operation and maintenance of
e-SCRUB systems is even more attractive. By permitting power plants to switch
back to burning high sulfur coal, the Company splits the coal savings. In
addition, the "emission credits" awarded by an EPA program for the removal of
air pollutants are sold on the Chicago Board of Trade. The fertilizer alone,
produced without the hazardous waste phosphogypsum, adds revenue that largely
offsets operating costs.
A typical U.S. electric generating plant ranges in size from 200 MWe to
1900 MWe, which usually consists of three 625 MWe boilers. To retrofit a 1900
MWe plant will require an e-SCRUB system that has capital costs of nearly $270
million and annual operating costs of $23 million. Savings in fuel, sale of
emission credits and fertilizer will produce an annual offset of nearly $114
million, in management's estimation. Management plans initial installations that
range in size from 50 MWe up to 150 MWe, at a capital cost that ranges from
approximately $10 million to $21 million. The initial 50 MWe installation can be
upgraded to 625 MWe for an additional $89 million. Management estimates that
there is sufficient revenue from the coal savings to fully amortize the bonds in
ten years or less; and for these initial systems, revenues from credits and
fertilizer sales will be almost $40,000 per MWe
To implement our business plan, we have signed a Consortium Agreement with
Southern Environmental Inc. (SEI) and its parent, Southern Erectors, (the SEI
family) to supply process equipment and provide marketing, detailed engineering,
fabrication and erection services. To process the fertilizer, we have an
agreement with AGRO Oy. We have formed a joint venture limited liability
company, VIRTEX, with National Diversified Co. (NDC) to use commercial bonds to
finance the e--SCRUB Treatment Facilities.
22
<PAGE>
e-SCRUB CAPITAL COST ANALYSIS--U.S. MARKET
BACKGROUND.
e-SCRUB was designed to remove all pollutants generated by utilities
burning high sulfur coal, thus reducing acid rain, urban smog and lung disease
caused by emission of fine dust particles. Starting in the year 2000, Title IV
(acid rain abatement) and Title I (ozone non-attainment) of the CAAA, mandate a
substantial reduction of emissions from power plants.
Our process converts the pollutants into fertilizer. This by-product
largely offsets the operating costs of the process. For a typical power plant on
the East Coast that has access to mine-mouth coal, the savings that are
generated from switching back to burning this fuel are sufficient to pay for the
capital cost of the e-SCRUB installation. Generally, high sulfur coal such as
that found in the eastern part of the U.S. has the highest energy content of any
fossil fuel; thus, utilities can burn much less of it to produce the needed
power. The Company sees high levels of sulfur in this coal as an asset since it
becomes a feedstock for a very valuable fertilizer rather than a pollutant.
To implement our business plan, we have signed a Consortium Agreement with
Southern Environmental Inc. (SEI) and its parent, Southern Erectors, (the SEI
family) to provide marketing, detailed engineering, fabrication and erection
services. To process the fertilizer, we have an agreement with Kemira AGRO Oy.
We have formed a joint venture limited liability company, VIRTEX, with
National Diversified Co. (NDC) to use commercial bonds to finance the e--SCRUB
Treatment Facilities. They will supply bond financing for up to five e-SCRUB
projects. Each project will be in the range of 50 MWe to 150 MWe; after
operation, they will be expanded to treat a total of 6000 MWe.
ECONOMIC ANALYSIS--CONVENTIONAL LIMESTONE SCRUBBING & SCR SYSTEMS.
During the period from 1968 through 1980, a large number of coal-fired
power plants were built at mine site (mine-mouth power plants). The coal that is
typically found at these locations (high sulfur) has approximately 12,500 Btus
per pound with a sulfur content ranging from 2 % to 4 %. To satisfy the Phase I
requirements of CAAA in 1990, many utilities switched to low sulfur (and lower
energy) coal known as Phase I "compliant coal". Thus Phase I requirements of a
50 % reduction in SO2 emissions could be met by simply switching to a different
type of coal. Currently, Phase I compliant coal delivered, costs range from $25
to $28 per ton while mine-mouth, high sulfur, coal costs range from $15 to $17
per ton. At these levels most utilities found it more economical to satisfy the
Phase I requirements of CAAA by simply switching to Phase I compliant coal and
passing along the higher costs through rate increases.
Mandatory pollution reduction regulations beginning 2000 forces utilities
to implement costly operating increases unless they use a scrubbing process to
reduce emissions of sulfur dioxide (SO2). The EPA did not agree on a schedule
for NOx reductions until 1998 and now their rules governing Title I mean that
most utilities in the Midwest and East Coast will have to substantially reduce
their NOx emissions as well, starting in the year 2000. This is the same year
when utilities must further reduce their level of SO2 emissions by 80 %.
Meeting the NOx reductions will require power plants to switch to low
sulfur coal and install a NOx removal system (Selective Catalytic Reduction,
SCR) at an approximate cost of $50 to $100 per KWe. To meet the SO2 standards,
utilities will have to either switch to Phase II compliant coal or install
scrubbers at an approximate cost of $140 per kWe. Scrubbers are more
cost-effective to operate on the power plants that burn Phase I compliant coal
than high sulfur coal. Phase II compliant coal must be transported from Wyoming
where transport costs to the east bring a price of between $25 and $28 per ton.
Such coal, however, has a heating rate of only 8,000 Btu per pound so that
approximately four tons of Phase II compliant coal must be burned to produce the
same power as three tons of high sulfur coal. Energy requirements increase the
cost to generate the same amount of power to $35 to $37 per ton or a $20 per ton
cost differential over mine-mouth coal.
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NEW ECONOMICS USING e-SCRUB TECHNOLOGY
The Keystone, PA, power plant is a typical example of a mine-mouth power
plant in size and age. It was completed in the late 1970's and has two 625 MWe
boilers, each of which burns two million tons of coal annually at a load factor
of 75 %. To retrofit each boiler with an e-SCRUB system costs approximately $137
per kWe or $89 million for each of the three units ($267 million for the entire
plant). With a coal differential of $20 per ton between Phase II compliant coal
and high sulfur coal each e-SCRUB system installed at a 2000 MWe power plant
will provide coal savings of $40 million per year. Hence the capital costs
(principal plus interest) of our system could be recovered in less than 5 years.
For any scrubbing system the largest single operating expense for the
treatment facility is the cost of the reagent. Since this is provided without
cost in exchange for the fertilizer produced by the e-SCRUB system, the annual
operating costs are reduced to only $12,000 per MWe. In addition, emission
credits provided under the CAAA are estimated to be $180 and $2,800,
respectively, for each ton of SO2 and NOx removed. Management expects that sales
of credits and fertilizer provides revenue of $60,000 per MWe, which is
sufficient to cover all operating costs and yield earnings of $48,000 per MWe.
We plan to build five 50 MWe to 150 MWe e-SCRUB facilities, using a
combination of bond and private financing. For these initial systems management
estimates revenues from credits and fertilizer sales will be almost $40,000 per
MWe. After operating these systems, the joint venture limited liability company,
VIRTEX, will finance the capital cost of at least three 2000 MWe treatment
facilities, which we would own and operate at each power plant. VIRTEX will
purchase the e-SCRUB systems from the Company while also contracting with us to
maintain and operate the facilities. The Company and National Diversified
Company will own the JVLLC on an equal basis. The JVLLC would guarantee to meet
all of the utility's air emissions requirements to include paying fines for
non-performance and share the coal savings equally with the utility while
maintaining all of the emission credits.
For a power plant such as Keystone, management projects that the e-SCRUB
installation would have all its capital costs paid for in eight years from the
coal savings while producing an additional $96 million after expenses. We plan
to retrofit a total of 6 GWe or just three power plants over the next five
years.
MARKETS
UNITED STATES. No country uses more energy than the U.S. and the demand for
electricity grows every year. The more coal burned to generate electricity,
however, the more SO2, NOx and dust is emitted into the atmosphere. In the face
of increasingly more stringent environmental laws, power companies must invest
in pollution control equipment. The U.S. has 200 GWe of installed electric
generation capacity fueled by coal. By the year 2000, 80% will be burning low
sulfur fuel and least 10% will still be burning high sulfur fuel. Thus, the U.S.
high sulfur market is at least 20 GWe. Our analysis suggests that retrofitting
costs are approximately $137 million per MWe. We expect to capture just 6 GWe of
this market.
O & M MARKETS
The profit margins on sales of our equipment is attractive but small when
compared to the income stream generated by revenues from operation and
maintenance (O & M) of the equipment. In conjunction with an EPA-administered
program designed to provide market-based incentives to reduce air pollution,
electric utilities are awarded "emission credits" based on the actual quantities
of air pollutants removed from their emission streams. These credits are virtual
commodities constituting the right to emit a certain quantity of a regulated
pollutant. Electric utilities and other entities purchase these credits as
needed to entitle them to release pollutants they are unable to remove from
their emissions. These credits have substantial value and are traded freely on
the Chicago Board of Trade. Our system generates a substantial quantity of these
credits that can be sold to other utilities. Our estimates of annual operating
income from the credits are approximately $100 million per plant.
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<PAGE>
By removing pollutants from utility off-gas in an efficient and
cost-effective way, our process enables many power plants to switch from high to
low sulfur coal and generate significant cost savings. A typical 2000 MWe power
plant uses 6 million tons of coal annually; and it would realize total cost
savings of $120 million per year, which we would split with the plant. Sums of
this magnitude would easily service debt incurred for the equipment.
OVERSEAS MARKETS
Countries with large installed electric generating capacities using low
heating value or high sulfur content indigenous fuels are our target markets.
Several of these countries have to continue to burn these fuels for economic or
security reasons yet have treaty obligations that require significant reductions
of emissions that cause acid rain. For these markets, the only cost-effective
way to satisfy such requirements is to use electron scrubbing. Our overseas
markets are principally Eastern Europe and China. Eastern European countries and
the Baltic States have applied for full membership in the European Union and
must, therefore, comply with strict environmental laws and regulations.
1. POLAND. In October 1995 Poland announced the synchronization of its
utility grid to Germany, allowing the large-scale export of excess
power. Poland has almost 10 GWe of installed capacity burning high
sulfur coal, much of which could be exported if acid rain emissions
were reduced. A potential order from Poland for three of our 1.25
(MWe) electron beam systems has been delayed due to the privatization
of the power sector by the government.
2. ESTONIA. The Estonian government owns the world's largest oil shale
burning utility industry, which has a capacity of 4 GWe. We completed
a design for Estonia that satisfied EU regulations but this is on hold
pending privatization of the Estonian power sector.
3. CHINA. China is the world's second largest single market for e-SCRUB
system. China is the world's largest producer and consumer of coal and
has over 300 GWe of installed coal burning electric generating
capacity. We estimate that retrofitting just 10 percent of the base
load power plants would cost nearly $2 billion. China has passed
strict regulations that mandate the installation of scrubbers on
existing power plants. These regulations call for substantial
reductions of SO2 emissions and the investment of approximately $18
billion over the next eight years.
SALES
We are currently in discussion with four power plants located in the
Midwest and East Coast with regard to installing e-SCRUB Treatment Facilities.
None are NOx compliant and all must substantially reduce SO2 emissions. The
plants range in size from 50 MWe ($10 million) to 133 MWe ($20 million). We
believe that the timing of our approach is fortuitous since de-regulation and
the resulting turnover in base-load power plants has placed tremendous pressure
on utilities to reduce their operating costs. A major benefit to utilities of
using our systems is to allow them to focus solely on producing energy in full
compliance with all air pollution control requirements, both national and
regional.
To provide the bond financing for these projects, the Company has
established VIRTEX, a Joint Venture Limited Liability Company, with National
Diversified Company. Each party has a 50 % ownership in VIRTEX. VIREX buys the
e-SCRUB system from the Company. It also provides all other bonding requirements
for our utility customers.
The Company and its Consortium partners the SEI family is responsible for
design, fabrication and installation of e-SCRUB Treatment Facilities. VIRTEX
will contract with the Company to own and operate them. VIRTEX shares equally in
the coal savings with the utilities and retains all of the emission credits.
This is why owning and operating e-SCRUB Treatment Facilities rather than
selling them is the basis our business plan for the domestic market. We expect
that equipping just three 2000 MWe power plants will generate almost $500
million EBITDA over the next six years.
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Finally, we also have an agreement with TIPAC Inc., a wholly owned
subsidiary of NDC, to supply electron beam processing equipment for Volatile
Organic Compound (VOC) and odor destruction.
THE e-SCRUB TEAM
We have developed a set of strategic partners to leverage our assets
and provide comprehensive installation and operating capabilities along with
extensive marketing aid. We hold patents on both the e-SCRUB process and the
electron gun but we also hold an exclusive license agreement with Allied Signal
Corp. to use its proprietary high temperature aluminum alloy for electron beam
windows. In addition, Southern Environmental, Inc. (SEI) and Southern Erectors
(SE) provide design, fabrication, erection, project management and marketing
services with us. VIRTEX Air Systems, LLC, is our joint venture with National
Diversified Co., to provide financing packages. Finally, we also have an
agreement with TIPAC Inc., which is a whole owned subsidiary of NDC, to supply
electron beam processing equipment for Volatile Organic Compound (VOC) and odor
destruction.
COMPETITION
There is only one other commercial vendor of electron scrubbing beside
us - Ebara Corporation, a Japanese firm. Our two approaches are differentiated
by the method to collect the by-product (ammonium-sulfate fertilizer) and the
means to produce a dry by-product. You either use a dry or wet electrostatic
precipitator (DESP) or (WESP). Ebara's process uses a DESP that involves
production of an exothermic reaction with inefficient gas temperatures. Ebara
must inject cooling water into their reaction chamber that produces a
hydroscopic by-product. Their process requires periodic scraping with further
drying under a steam heat arrangement.
ADVANTAGES OVER EBARA
e-SCRUB has several important advantages over Ebara. It uses a WESP
situated downstream of the reaction chamber, thus eliminating the need for
continuous water injection since the by-product is dissolved in a brine
solution. The brine solution is then delivered to a spray dryer, which lowers
the flue gas temperature at the system's entrance. The dry by-product formed in
the spray dryer is collected in the vessel's hopper.
In both systems the NOx and SO2 removal efficiency increases with
higher sulfur concentrations and higher humidity. The WESP used by the e-SCRUB
process automatically saturates the gas stream with water vapor, which produces
nearly 100 percent removal efficiency. e-SCRUB's process use of this technique
proves far more cost-effective and efficient than Ebara's approach for utilities
that wish to burn high sulfur coal.
EBARA USES A DRY ELECTROSTATIC PRECIPITATOR. DESPs collect particulate
matter from dry (unsaturated) flue gases onto electrodes and separate by
mechanical and gravity action. For this process to operate the particulate
matter must be: (1) of the proper electrical conductivity; (2) of the proper
diameter for effective electrostatic field or diffusion charging; and (3) that
it flow freely through the DESP without sticking on internal surfaces such as
the discharge electrodes, collecting plates or collection hoppers. Flue gas
stream temperature and humidity must also avoid dew point conditions inside the
chamber. Another limiting factor of this technology is the possibility of very
fine particles making their way back into the main body of the gas stream during
mechanical cleaning of the electrodes.
e-SCRUB USES A WET ELECTROSTATIC PRECIPITATOR. WESPs operate on fully
saturated flue gas streams and use the condensed moisture for the continuous
irrigation of the electrodes. They also use coarse droplet sprays to
periodically wash all the electrodes and collection hoppers to a clean state. As
a stand-alone particulate collection device, a WESP has inherent advantages such
as: (1) collection efficiency is independent of the particle's electrical
conductivity since the saturated gas conditions coats them with a thin film of
highly conductive moisture; (2) electrode spray wash down eliminates the
possibility of particle re-enter; (3) WESPs can capture sub-micron size
particles at significantly higher efficiency levels; (4) WESPs can capture
condensed organic compounds and fine mists, such as SO3 mist, without first
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condensing onto solid particles; and (5) sticky particulate matter can be
effectively collected and washed off the electrodes.
INTELLECTUAL PROPERTY
We have two patents: one on the e-SCRUB process (No. 5,695,616);
another on the electron gun (No. 5,783,900). We also have an exclusive license
agreement with Allied Signal Corp. to use its proprietary, high temperature
aluminum alloy (8022) for electron beam windows, a material that allows us to
manufacture the most compact high power electron gun in the world.
The e-SCRUB process is an engineering patent that is designed to
improve performance and lower maintenance and capital costs over the existing
art, since the basic patents on electron scrubbing have long since expired. The
electron gun is also an engineering patent that improves the efficiency and
increases output power over existing art. The basic patent on this type of e-gun
has also long since expired. In addition to the patents mentioned above, we have
entered into an exclusive, 17-year license agreement with Allied Signal Corp.
This agreement allows us the exclusive use of its proprietary, high temperature
Aluminum alloy (8092) for electron beam windows. This is the only known material
of its kind in the world that allows the Company's electron gun to achieve its
unprecedented output power (- 1 MW) in just two 3 m x 25 cm sections. This is a
factor of six greater concentration of power than competing systems, and this
allows a much smaller (factor of four) and more cost effective electron
scrubbing system to be constructed.
EQUIPMENT
Our 1.25 MW electron beam generator (e-beam) is the most efficient,
highest powered and most cost-effective electron beam generator in its class in
the world. We have designed it so:
- ONE SIZE FITS ALL. Although the size of power plants needing
pollution control equipment vary, we employ the same e-beam
equipment for each, regardless of the particular installation;
- RELIABLE. Our technology has been proven reliable in hundreds of
Department of Defense (DoD) and DoE applications; and
- INSTALLATION WITHOUT MAJOR DISRUPTION. Our equipment has a much
smaller footprint than other systems, requiring far less space. As
a result, it can be installed without interruption operation of
the power plant, saving the utility tens of thousands of dollars.
Our facility has assembled an entire e-beam system, which can treat the
flue gas from boilers up to 100 MWe. It consists of a 1.25 MWe modulator, a high
power transformer and a compact electron gun, which can deliver over 900 kWe
into the flue gas. Other electron gun technology uses titanium foil for the
window that separates the flue gas from the electron gun assembly. This
arrangement requires a high power blower system to cool the foil, which wastes
substantial power; moreover, this type of window cannot support the high current
densities produced by our electron gun. Under an exclusive license with Allied
Signal, we use a high temperature aluminum alloy (8022) for the electron beam
window, which can be cooled with a foil support structure containing cooling
channels Our window requires no blower arrangement, thus saving substantial
amount of auxiliary power.
CAPABILITIES
Our experience dates back to the mid 1970s and includes obtaining
exclusive process data at both the Kaweczyn Pilot Facility in Warsaw, Poland and
the AGAIA II Pilot Facility in Karlsruhe, Germany. These are largest electron
scrubbing testing facilities in the world. Our team members represent the most
preeminent experts on electron scrubbing and are frequently asked to work on the
electron scrubbing projects of the International Atomic Energy Agency (IAEA).
Our combined team represents nearly two hundred man-years of experience in the
design and construction of air pollution control equipment and represents very
large as well as small projects. Our major products and services are:
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- Spray dryers
- Electron beam equipment
- Dry and wet ESPs
- Process and system engineering
- Ductwork
- ID fans
- Large scale ammonia installations
- Wet, dry and semi-dry scrubbing systems.
EMPLOYEES
Currently we have six employees and eleven consultants and believe that
we will have 20 additional professional employees within the next 12 months. We
expect to employ almost all senior engineers and pulse power technicians.
Currently, all of our employees are senior management, operations, or
administrative. No clerical personnel are expected to be hired over the next
twelve months. None of our employees are presently covered by collective
bargaining agreements, though we anticipate some future employees will be
eligible for collective bargaining agreements. Founders, directors, advisors,
and key employees are granted stock options to encourage adding value for all
stockholders.
FACILITIES
We lease office and warehouse space (11,280 square feet total) under an
agreement that expires 31 December 2001. This space is sufficient for us to
assemble up to five e-Beam generators per year. Annual rentals are $106,079,
plus our pro-rate share of real estate taxes. The lease may be canceled at any
time effective at no cost to the lessee, by providing lessor with 90 days
written notice of cancellation.
PROPERTIES
Our physical assets primarily consist of test equipment and inventory.
This equipment includes the highest average power test equipment and facility in
the United States that is used to burn-in our electron beam equipment and
modulators. As part of our inventory, we have assembled one complete 1.25 MW
electron beam system at our headquarters and we have sufficient high power
modulators and equipment on hand to assemble a second 1.25 MW unit.
DEREGULATION OF THE ELECTRIC UTILITY INDUSTRY
In October 1992, the National Energy Policy Act was signed in the
United States, giving wholesale suppliers access to the transmission lines. In
April 1996, the Federal Energy Regulatory Commission (FERC) issued orders
establishing rules providing for open access to electricity transmission
systems, thereby encouraging competition in the generation of electricity. While
broad deregulation is still being considered at the federal level, a number of
states have taken significant deregulation initiatives as provided for by FERC.
Deregulation of the electric utility industry, where implemented, would
enable industrial, commercial and residential customers to shop for the lowest
cost supply of power and the best available service. This fundamental change in
the industry is expected to compel electric utilities to be more aggressive in
developing and defending market share, to be more focused on their cost and
pricing structure, and to be more flexible in reacting to changes in the market.
We believe that the move toward a competitive market for electricity should
prove beneficial to coal demand. According to Resource Data Institute (RDI), a
coal industry consultant, 21 of the 25 lowest cost electric generating stations
in the U.S. are coal fired. As deregulation occurs and competition from
generators increases, electricity generators will become increasingly sensitive
to fuel costs because such costs typically represent about 78% of the variable
cost of generating electricity from fossil fuels. Coal is the lowest cost fuel
available to most electricity generators.
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COAL DEMAND
Coal is one of the world's major energy sources. The International
Energy Agency (IEA) estimates that nearly 20 % of the world's total primary
energy supply came from coal in 1997. In most parts of the world, coal is
primarily used for the generation of electricity. Worldwide, coal combustion
accounted for 37% of the generation of electricity in 1997. While more than 60
countries produce coal, the United States has the largest reserve base, with an
estimated 29 % of the world's recoverable bituminous and subbituminous coal
reserves, followed by Russia, China, India, South Africa and Australia.
Coal is an important source of energy for power generators in the U.S.
Coal-fired plants currently produce approximately 57 % of the country's
electricity. More than two-thirds of the country's capacity for generating
electricity-using coal is located east of the Mississippi River. In 1998
approximately 1.1 billion tons of coal was mined in the U.S. (Source: RDI,
Outlook for Coal, Winter 1998-199). Coal's share of the fuel market for
electricity generation has risen from 46 % to 57 % over the last 20 years. Coal
has a low delivered cost relative to other competing fuels.
AVERAGE PRODUCTION COSTS OF ELECTRICITY GENERATION
In megawatt hours, the average production costs of electricity
generation are: coal $17.40; natural gas $33.67; nuclear $20.02; and hydro
$0.65. (Source: RDI Database, September 14, 1998.) On average, coal-fired
electricity generation is less expensive than generation from natural gas or
nuclear power. Hydroelectric power is inexpensive but cannot grow due to a lack
of suitable new dam sites. The heat value of coal is commonly measured in
British thermal unit, or Btu. Coal found in the eastern and midwestern regions
of the United States tends to have a heat content ranging from 10,000 to 14,000
Btu per pound. Most coal found in the western United States yields less than
10,000 Btu per pound. By comparison, one barrel of crude oil contains between
4.8 million and 5.4 million Btu and one cubic foot of natural gas contains
between 950 and 1,050 Btu.
Electricity demand will grow as the economy grows. According to RDI, in
the aggregate, domestic coal-fired generating plants currently run at 65 %
capacity utilization with an optimal sustainable capacity utilization of 85 %
for a typical plant. Electricity generators that burn coal will seek to meet
increased electricity demand by using the available capacity of their existing
power plants rather than building new power plants. Expanding capacity at
existing power plants using coal makes economic sense if the price of
electricity exceeds variable costs.
A significant portion of the generating plants that use nuclear fuel is
likely to be retired during the next 15 years because the operating licenses for
many plants will expire. We believe that it is likely that licenses will not be
renewed or costly requirements will be imposed as a condition to renewal.
Although gas will replace some of this capacity, we believe that coal also will
be used.
To the extent that the cost of environmental control technology
continues to decline and environmental regulations tighten, we expect more
electricity generators that use coal to install scrubbers. As scrubbing
increases at existing generating plants, we believe that high sulfur coals with
low delivered costs and high-Btu content will become increasingly attractive to
electricity generators because the cost of operating the scrubber is typically
less than 10% of variable costs. We believe that high-Btu content is an
important advantage because it lowers the delivered energy cost of the coal.
Transportation costs are based on tons and not heat content or heat
content per ton. As a result, higher Btu coals can have an inherent
transportation cost advantage, which lowers the delivered cost on a heat content
or energy content basis. The advantage of retrofitting scrubbers to generating
plants should become apparent as the current bank of sulfur dioxide (SO)
emission allowances declines and the more restrictive phase of the Clean Air Act
(CAA) becomes effective in 2000. A sulfur dioxide emission allowance is an
authorization under the CAA for a power generating plant to emit one ton of SO.
RDI recently forecast that by 2015 the owners of plants with up to 80,000
megawatts of existing coal-fired
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capacity may invest in scrubbers to comply with the new environmental
regulations. The majority of these plants are located east of the Mississippi.
FEDERAL CLEAN AIR ACT AMENDMENTS OF 1990 (CAAA)
The CAAA and similar state laws, which regulate emissions into the air,
affect coal-burning operations primarily through permitting and/or emissions
control requirements. In addition, the EPA has issued certain, and is
considering further, regulations relating to fugitive dust and coal combustion
emissions which we believe would we well within our existing capabilities. In
July 1997, the EPA adopted new, more stringent National Ambient Air Quality
Standards (NAAQS) for particulate matter, which may require some states to
change existing implementation plans. The e-SCRUB process currently satisfies
these NAAQS, which are expected to be implemented by 2003.
The CAAA reduces emissions of sulfur dioxide from electric power plants
in two phases. Only certain facilities are subject to the Phase I requirements.
By the year 2000, Phase II requires nearly all facilities to reduce such
emissions. The affected utilities will be able to meet these requirements by
switching to lower sulfur fuels, by installing pollution control devices such as
scrubbers, by reducing electricity generating levels or by purchasing or trading
so-called pollution "credits." Specific emissions sources receive these
"credits" which utilities and industrial concerns can trade or sell to allow
other units to emit higher levels of sulfur dioxide. In addition, the CAA
requires a study of utility power plant emission of certain toxic substances and
their eventual regulation, if warranted. The effect of the CAAA cannot be
completely ascertained at this time, although the reduction of SO2 emissions is
projected generally to increase the demand for low sulfur coal and potentially
decrease demand for high sulfur coal.
The CAAA also affects coal-burning utilities that currently are major
sources of NOx in moderate or higher ozone non-attainment areas to install
reasonably available control technology (RACT) for NOx, which are precursors of
ozone. The EPA recently announced a proposal that would require twenty-two
Eastern states to make substantial reductions in NOx emissions by the year 2003.
The EPA expects such states will achieve these reductions by requiring power
plants to make substantial reductions in their NOx emissions. This in turn will
require power plants to install reasonably available control technology and
additional control measures.
Installation of reasonably available control technology and additional
measures required under the EPA proposal, could, in the absence of our
technology, make it more costly to operate coal-fired plants and, depending on
the requirements of individual state implementation plans and the development of
revised new source performance standards, could make coal a less attractive fuel
alternative in the planning and building of utility power plants in the future.
Any reduction in coal's share of the capacity for power generation could have a
material adverse effect on our business, financial condition and results of
operations. The effect such regulations, or other requirements that may be
imposed in the future, could have on the utility industry in general and on us
in particular cannot be predicted with certainty. No assurance can be given that
the implementation of the CAAA, the now NAAQS or any other future regulatory
provisions will not materially adversely affect our business, financial
condition or results of operations.
REGULATION
Our domestic business is subject to regulation by federal, state, and
local governmental agencies; much of its overseas business is regulated by
European Union rules. The domestic requirements for the construction of
treatment facilities to remove SO2 and NOx are driven by the CAAA. We have
received a business license from the city of Alexandria; a permit from the fire
department of the city of Alexandria; and a permit from the State of Virginia to
operate an electron beam facility. The Company has prepared a detailed Safety
Plan that satisfies all relevant OSHA, EPA, and local government requirements.
Our operation consists of assembly of components into various subassemblies,
which are in turn assembled into the final system. All subassemblies are tested
for quality control and the full system is tested to assure meeting all customer
specifications. The Company does not anticipate any problems in complying with
OSHA, EPA and local government regulations as the Company carries out its
manufacturing activities.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following are our directors and executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ralph D. Genuario 53 President, Treasurer, Director and Acting CFO
Nicholas Confuorto 46 Acting Chief Operating Officer and Director
Dr. Maija Liisa Harkonen 38 Director of International Projects and Director
James Blackburn 58 Chief Electrical Engineer
Elizabeth Richardson 36 Director
Robert C. McFarlane 57 Director
Jay Sullivan 38 Director
</TABLE>
RALPH D. GENUARIO is a founder and has been President and a director of
the Company since incorporation in 1995. He holds a BS from the University of
Scranton and an MS from Purdue University. He has over twenty-five years of
senior management experience in the areas of national defense, energy, and
environment, which included senior business and program development manager in
e-SCRUB-related technologies at several industrial firms. Mr. Genuario has
secured a patent on both the e-SCRUB process and electron gun technology. He
also has experience with corporate mergers and acquisitions.
NICHOLAS CONFUORTO has been serving as the Acting Chief Operating
Officer on a part-time basis and will convert to full-time when additional
capital is secured. He holds a Civil Engineering degree from Columbia
University. From 1998 to the present he has served as a Vice President of Belco
Technologies, Inc. From 1996 to 1998 he was the Vice President of Projects and
Procurement for Research-Cottrell and from 1992 to 1996 he served as their Vice
President of Engineering, R&D and Procurement. He has implemented numerous
Electrical Precipitator Projects (ESP) and supervised the construction and
installation of cooling towers, NOx controls, chimneys and dry scrubbing
equipment.
DR. MAIJA LISA HARKONEN is a founder, Corporate Secretary, and Director
of International Projects for the Company since 1995. She holds a BA from the
University of Texas and MA and Ph.D. degrees from Georgetown University. She has
fifteen years of experience in environmental research, marketing, and
international and government relations. Dr. Harkonen initiated and administered
the e-SCRUB Estonia program and secured funding from TDA. Dr. Harkonen is the
key person in negotiating contracts for the Company's e-SCRUB projects and
teaming agreements. She is also the principal point of contact with officials of
foreign governments and multilateral international organizations.
JAMES BLACKBURN has served as the Company's Chief Electrical Engineer
since 1997. He holds a BS degree from the University of Mariett, Ohio in
Electrical Engineering. From 1966 to 1997 he was with the US Army Harry Diamond
Laboratories. He has held senior electrical engineering positions and is
responsible for numerous patents and publications in related fields.
ELIZABETH RICHARDSON has been a director of the Company since 1998. She
holds a BS from the University of Maryland in Economics and an MS from George
Washington University in Operations Research. She served as the Senior Economist
for Apogee Research from 1987 to 1990 and Analyst at the Congressional Budget
Office from 1983 to 1987. She is responsible for the Company's corporate
offerings, and she has been a Consultant in private practice from 1990 to the
present time.
AMBASSADOR ROBERT C. MCFARLANE has been a director of the Company since
1998. He holds a Master's Degree from the Institute de Hautes Etudes
Internationales in Geneva, Switzerland. He served in the White House as the
Director of the National Security Council from 1982 to 1986 and retired from the
U.S. Marine Corps in 1986. He has been the President of Global Energy Investors,
a developer of large energy infrastructure projects in Asia and South America,
from 1987 to the present time. He was the
31
<PAGE>
architect of the Strategic Defense Initiative under which critical technology
was developed for the Company's electron beam generator.
JAY SULLIVAN was elected a director in 1999. He holds a Bachelor's
degree from Boise State University and has completed the Program for Senior
Managers in Government at Harvard University. He has been the president of a
public and government affair firm, Jamison and Sullivan, specializing in energy,
natural resource and technology issues since 1993. He served as the Deputy
Director of Public Affairs in the Department of the Interior and Director of
Congressional Affairs in the Bureau of Land Management.
All directors currently hold office until the next annual meeting of
stockholders (October 2000) and until their successors are duly elected and
qualified. Our executive officers serve at the discretion of the Board of
Directors and until their successors are duly elected and qualified.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued, for
the fiscal years ended December 31, 1998, for our President and the three most
highly compensated executive offices other than our President, whose salary and
bonus were in excess of $100,000. There is no executive officer, other than
those listed on the following table, who was awarded, earned or paid more than
$100,000 for the fiscal year ended December 31, 1998.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION AWARDS ($)
--------------------- --------------------------------
RESTRICTED SECURITIES
STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) AWARD OPTIONS/SARS(#)
- --------------------------- --------- -------- ---------- ---------------
<S> <C> <C> <C> <C>
Ralph D. Genuario ......................... $141,461 $21,219
President
Dr. Maija L. Harkonen ..................... $111,091 $16,664
Director of International Projects
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth stock options granted during the year
ended December 31, 1998 and 30 September 1999 for employees and consultants.
Because directors have their own stock option plan, no corporate officers who
are also directors participate in the employee stock option plan. Because of an
impending merger, options granted prior to 1997 were vested and exercised in
January 1997.
The following options:
- were granted under the Company's 1996 Employee Stock Option Plan;
- vest 30 months from the first anniversary date of grant; and
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<PAGE>
EMPLOYEE & CONSULTANT OPTION AWARDS FROM 27 JUNE 97 TO 23 JANUARY 98
<TABLE>
<CAPTION>
NAME OPTION OPTION STATUS OPTION EXERCISE EXERCISE OPTION PRICE BEFORE SPLIT
TOTAL TOTAL DATE AMOUNT DATE
BEFORE AFTER
SPLIT SPLIT
<S> <C> <C> <C> <C> <C> <C> <C>
Yi Zeng 24,500 49,000 Employee 96,97,98 2/17/98 $0.50
Emanoil Chirvasuta 7,500 15,000 Employee 97,98 7,500 2/28/98 $0.50
Soma Bakhtari 2,500 5,000 Consultant 12/29/97 2,500 2/20/98 $0.50
Don Spitzer 5,000 10,000 Consultant 6/27/97 declined $0.50
Loran Walter 5,000 10,000 Consultant 6/27/97 5,000 3/1/98 $0.50
Gerard Holcomb 1,000 2,000 Consultant 6/27/97 declined $0.50
Richard Foster 10,000 20,000 Consultant 6/27/97 10,000 2/9/98 $0.50
Calvin van Ourkerk 1,000 2,000 Consultant 6/27/97 declined $0.50
George Troutman 2,500 5,000 Consultant 8/18/97 2,500 2/13/98 $0.50
Owen Fortune 2,500 5,000 Consultant 6/27/97 declined $0.50
Luther B. Kohne 15,000 30,000 Consultant 1/23/98 15,000 4/10/98 $0.50
--------------- ------
TOTAL 76,500 153,000 42,500
</TABLE>
EMPLOYEE & CONSULTANT OPTION AWARDS 28 FEB 98 TO 30 SEPT 99
<TABLE>
<CAPTION>
NAME OPTION OPTION STATUS OPTION EXERCISE EXERCISE OPTION PRICE BEFORE SPLIT
TOTAL TOTAL DATE AMOUNT DATE
BEFORE AFTER
SPLIT SPLIT
<S> <C> <C> <C> <C> <C> <C> <C>
Yi Zeng 10,000 20,000 Employee 8/4/98 VOIDED $0.50
Soma Bakhtari 2,500 5,000 Employee 12/21/98 VOIDED $0.50
Valentin Chiscop 2,500 5,000 Employee 12/22/98 0 $0.50
James Blackburn 5,000 10,000 12/21/98 0 $0.50
5,000 10,000 6/2/99 0 $0.50
-----------------
TOTAL 25,000 50,000
</TABLE>
CORPORATE OFFICERS AND BOARD OF DIRECTORS OPTIONS
The following table sets forth certain information regarding options
held as of December 31, 1998 and 30 September 1999 by each of the Company's
executive officers, which are also members of the board of directors. Because of
an impending merger, options granted prior to 1997 were vested and exercised in
January 1997. No options were exercised by such persons during the remaining
fiscal 1998 or 1999. There was no active trading market for our common stock as
of 30 September 1999 but an offering of 439,968 shares (after split number of
shares = 879,936) was made in 1997 at a price of $2.50 per share (or $1.25 after
split). In 1998 a private placement sold an additional 76,440 shares before
split (after split number of share = 152,880) at a price of $5.00 (or $2.50
after split). The value of unexercised in-the-money options at fiscal year-end
is based on the assumed price in this offering of $12.50 per share less the
exercise price per share.
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<PAGE>
BOARD OF DIRECTORS AND ADVISORS TO BOD
AWARDED OPTIONS FOR JOINING BOD AND FOR ATTENDANCE FROM 31 OCT 95 TO 28 FEB 98
<TABLE>
<CAPTION>
NAME CURRENT TOTAL TOTAL REWARD OPTION DATE OPTIONS EXERCISE OPTION AFTER SPLIT VALUE
* OPTIONS OPTIONS FOR EXERCISE DATE PRICE OF UNEXERCISED
BEFORE AFTER BEFORE BEFORE IN-THE-MONEY
SPLIT SPLIT SPLIT SPLIT OPTIONS AT YEAR-END
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ralph Genuario * 26,000 52,000 BoD 95,96,97 26,000 2/17/98 $0.50 $0.00
Jack White 26,000 52,000 BoD 95,96,97 22,500 2/17/98 $0.50 $85,750
Maija Harkonen * 26,000 52,000 BoD 95,96,97 26,000 2/17/98 $0.50 $0.00
Mamadi Diane 15,000 30,000 BoD 96&97 15,000 2/18/98 $0.50 $0.00
John Hutzler 22,000 44,000 BoD&A 95,96,97 22,000 2/6/98 $0.50 $0.00
James Klugh 13,000 26,000 BoD 96&97 0 $0.50 $318,500
Nick Confuroto * 5,000 10,000 BoD 6/27/97 0 $0.50 $122,500
Gary Schreiber * 5,000 10,000 BoD(A) 6/27/97 5,000 2/9/98 $0.50 $0.00
Hanns Paur * 5,000 10,000 BoD(A) 6/27/97 5000 2/13/98 $0.50 $0.00
TOTAL 143,000 286,000 121,500 $526,750
</TABLE>
AWARDED OPTIONS FOR JOINING BOD AND FOR ATTENDANCE FROM 29 FEB 98 TO 30 SEPT 99
<TABLE>
<CAPTION>
NAME CURRENT TOTAL TOTAL REWARD OPTION DATE OPTIONS EXERCISE OPTION AFTER SPLIT VALUE
* OPTIONS OPTIONS FOR EXERCISE DATE PRICE OF UNEXERCISED
BEFORE SPLIT AFTER SPLIT BEFORE SPLIT BEFORE IN-THE-MONEY
SPLIT OPTIONS AT YEAR-END
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Ralph Genuario * 10,000 20,000 BoD Nov-8-99 None - $0.50 $245,000
Jack White 4,000 8,000 BoD Nov-8-99 None - $0.50 $98,000
Maija Harkonen * 10,000 20,000 BoD Nov-8-99 None - $0.50 $245,000
Mamadi Diane 3,000 6,000 BoD Nov-8-99 None - $0.50 $73,500
Nick Confuroto * 7,000 14,000 BoD Nov-8-99 None - $0.50 $171,500
Elizabeth 4,000 8,000 BoD Nov-8-99 None - $0.50 $98,000
Richardson *
5,000 10,000 Joining Oct 5,98 None - $0.50 $122,500
Robert 1,000 2,000 BoD Nov-8-99 None - $0.50 $24,500
McFarlane *
5,000 10,000 Joining Oct-19-99 None - $0.50 $122,500
TOTAL 49,000 98,000 $1,200,500
</TABLE>
EMPLOYMENT AGREEMENTS
We intend to enter into three-year employment agreements with Dr. Maija
L. Harkonen and Ralph D. Genuario within the next twelve months. Pursuant to the
agreements, Mr. Genuario and Dr. Harkonen will be entitled to base salaries of
$125,000 and $92,400, respectively. Each employment agreement also will provide
that the employee is entitled to a bonus as determined by the board of
directors, from time to time, and options under the Companies Executive Bonus
Plan and its Stock Option Plan for the BoD. Each Employment Agreement will
provide for a term of three years and will be renewable upon mutual consent.
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<PAGE>
The employment agreements may be terminated for cause and, in the event
of change in control of the Company, each employee will be entitled to a lump
sum payment equal to the greater of one year's salary or the base salary and
benefits that would have been received by the employee if he had remained
employed by the Company the remainder of the three year term.
The employment agreements will also contain confidentiality and
non-competition provisions prohibiting the employee from competing against the
Company and disclosing trade secrets and other proprietary information.
EMPLOYEE STOCK OPTION PLAN
In 1996 the board of directors of the Company adopted an employee stock
option plan for our key employees and consultants. As of the date of this
prospectus, options not terminated to purchase 39,500 shares of common stock are
outstanding under this plan. Options to purchase all the shares are exercisable
at $0.50. The options vest over a period of 30 months. This plan terminates at
the close of business on 1 January 2000
Our board of directors, or a committee administers these plans and is
authorized, in its discretion, to grant options to all eligible employees of
this plan, including officers who are not directors and consultants, to the
Company. The plan provides for the granting of both incentive stock options and
non-qualified stock options. Options can be granted under this plan on terms and
at prices as determined by the board of directors, or a committee of the board
of directors, except that the exercise price of incentive options will not be
less than the fair market value of common stock on the date of grant. In the
case of an incentive stock option granted to a stockholder who owns more than
10% of the total combined voting power of all classes of stock of the Company,
the per share exercise proceeds will not be less than 110 % of the fair market
value on the date of grant. The aggregate fair market value, determined on the
date of grant, of the shares covered by incentive stock options granted under
the plan that become exercisable by a grantee for the first time in any calendar
year is subject to a $100,000 limit.
1996 DIRECTOR OPTION PLAN
Non-employee directors and advisors to the board of directors are
entitled to participate in the Director Option Plan. This plan was adopted by
the board of directors and approved by stockholders in October 1996. This plan
has a term of ten years, unless terminated sooner by the board.
This plan provides for the automatic grant of 5,000 options to purchase
common stock to each non-employee director at the time he or she is first
elected to the board of directors. Each option grant under this plan will have a
term of four years and will vest after a three-month period. The exercise price
of all options granted under this plan to date was $0.50.
Currently, the plan provides for vesting to accelerate and become fully
vested in the event of a change of control of the Company and the options are
not assumed or substituted by a successor competitor.
COMMITTEES OF THE BOARD OF DIRECTORS
We have not yet established a compensation or audit committee of the
Board of Directors. We intend to do so within 90 days after the consummation of
this offering, which will be comprised of at least two independent directors.
DIRECTOR COMPENSATION
The Company does not reimburse its directors for travel expenses
incurred in connection with their activities on behalf of the Company, and it
does not pay cash its directors any fees for board participation. Each
non-employee director will automatically be granted options to purchase 5,000
shares
35
<PAGE>
of common stock at the time he or she is first elected to the Board of Directors
and options to purchase 1,000 share of common stock for attendance at each Board
meeting.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
In the event that a claim for indemnification against such liabilities,
other than the payment by us of expenses incurred or paid by our director,
officer or controlling person 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 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 of 1933, as
amended, and will be governed by the final adjudication of such issue.
We have a $1,250,000 key-man life insurance policy on Ralph D. Genuario
with the proceeds payable to the Company. There are no arrangements that require
the proceeds to be used to pay benefits to the estate of the insured or to a
surviving spouse. The proceeds, up to the balance due, are assigned to SBLS,
which loaned us $1,250,000 for working capital.
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to the
beneficial ownership of shares of common stock held by:
- each person or entity who is known by the Company to beneficially
own five percent or more of the common stock;
- each director (D) and executive officer (O) of the Company; and
- all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
AFTER SPLIT PERCENTAGE OF SHARES
NUMBER OF SHARES BENEFICIALLY OWNED(2)
BENEFICIALLY ---------------------
OWNED BEFORE AFTER
OFFERING OFFERING
NAME OF BENEFICIAL OWNER
<S> <C> <C> <C>
Ralph D. Genuario (D,O)........................................ 3,279,864 37.8% 34.6%
Dr. Maija L. Harkonen (D,O).................................... 1,632,000 18.8% 17.2%
Mamadi Diane .................................................. 1,180,000 13.6% 12.4%
Nicholas Confuorto (D,O)....................................... 360,800 4.2% 3.8%
Elizabeth Cardon (D) .......................................... 196,000 2.3% 2.1%
Jay Sullivan (D)............................................... 7,700 0.1% 0.1%
--------- ---- ----
All directors and executive officers as a group (6 persons).... 6,656,364 76.7% 70.2%
</TABLE>
Note: Assumes all options exercised and all convertible securities converted.
(1) Unless otherwise indicated the address for each named individual or group
is in care of e-SCRUB Environmental Engineering at 301 South West Street,
Alexandria, VA 22314.
(2) These percentages pertain to issued shares. Unless otherwise indicated, we
believe that all persons named in the table have sole voting and investment
power with respect to all shares of common stock beneficially owned by
them. A person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days from the date of this prospectus
upon the exercise of options, warrants or convertible securities. Each
beneficial owner's percentage ownership is determined by assuming that
options, warrants or convertible securities that are held by such person
(but no those held by any other person) and which are exercisable within 60
days of the date of this prospectus have been exercised and converted.
36
<PAGE>
CERTAIN TRANSACTIONS
Mr. Ralph D. Genuario and Mamadi Diane have personally guaranteed the
Company's working capital loan with the SBLS (Small Business Loan Source, Inc.).
The loan amount is $1,250,000; the term is 7.5 years from 1996 through 2003; the
interest rate is 2.75 points over prime. Mr. Genuario is our President and
Chairman of our board of directors. In return for his guarantee to the note
including keeping the note current, Mr. Diane received 475,000 (prior to split)
shares of stock.
In 1995 the Company issued Mr. Ralph D. Genuario 50,000 shares of
common stock in exchange for a cash payment of $2,000 and the contribution of
the two patent applications mentioned above, along with intellectual property
rights. These property rights included the designs of a 50 MWe electron
scrubbing demonstration facility. In the opinion of management, the patents have
a fair market value of $350,000; and the intellectual property rights have a
fair market value of $350,000.
We believe that these transactions were fair and reasonable to us and
were on terms no less favorable than could have been obtained from unaffiliated
third parties. Any such future transactions will be on terms no less favorable
to us than could be obtained from unaffiliated parties and will be approved by
our compensation committee.
CERTAIN ARTICLES AND BYLAWS
The Certificate of Incorporation and Bylaws of the Company contain
certain provisions regarding the rights and privileges of shareholders, some of
which may have the effect of discouraging certain types of transactions that
involve an actual or threatened change of control of the Company, diminishing
the opportunities for a shareholder to participate in tender offers, including
tender offers at a price above the then current market value of the Common Stock
or over a shareholder's cost basis in the Common Stock, and inhibiting
fluctuations in the market price of the Common Stock that could result from
takeover attempts. Such provisions could work to the detriment of shareholders
in the event that management has any interests over and above those of the
shareholders. These provisions of the Articles and Bylaws are summarized below.
Reference is made to the full text of the Articles and Bylaws. The following
summary is qualified in its entirety by such reference.
Size of Board and Election of Directors. The Articles provide that
the number of Directors shall be fixed from time to time as provided in the
Bylaws. The Bylaws currently provide for between three and seven persons to
serve on the Board but the number of Directors may be changed (to not less than
three) by amendment to the Bylaws which requires the vote of a majority of the
Board. The Articles further provide that the Board may amend the Bylaws by
action taken in accordance with such Bylaws, except to the extent that any
matters under the Articles or applicable law are specifically reserved to the
shareholders.
Shareholder Nominations and Proposals. The Company's Bylaws provide
for advance notice requirements for Shareholder nominations and proposals at
annual meetings of the Company. Shareholders may nominate Directors or submit
other proposals only upon written notice to the Company not less than 10 days
nor more than 60 days prior to the annual meeting of Shareholders at which the
proposal is intended to be submitted. Notwithstanding the foregoing, in the
event that less than 60 days advance notice of a Shareholders' meeting is given,
a Shareholder nomination or proposal (as the case may be) must be made not more
than 10 days after the date of such notice. A Shareholder's notice must contain
certain additional information as specified in the Bylaws. The Board may reject
any proposals that are not made in accordance with procedures set forth in the
Bylaws or that are not proper subjects of Shareholder action in accordance with
the provisions of applicable law.
OPTION FOR SHAREHOLDERS OWNING MORE THAN 10%
The shareholders owning more than 10 % are Ralph D. Genuario, Dr. Maija
L. Harkonen and Mamadi Diane.
37
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
We are authorized to issue 11,000,000 shares of common stock, no par
value per share and no shares of preferred stock. As of the date of this
prospectus, we have outstanding 8,678,594 shares of common stock owned by
approximately 141 holders of record.
COMMON STOCK
The holders of common stock are entitled to one vote for each share
held of record in the election of directors of the Company and in all other
matters to be voted on by the stockholders. There is no cumulative voting with
respect to the election of directors. As a result, the holders of more than 50
percent of the shares voting for the election of directors can elect all of the
directors. Holders of common stock are entitled:
- To receive any dividends as may be declared by the Board of
Directors out of funds legally available for such purpose; and
- In the event of the liquidation, dissolution, or winding up of
E-Scrub, to share ratably in all assets remaining after payment of
liabilities and after provision has been made for each class of
stock, if any, having preference over the common stock. All of the
outstanding shares of common stock are, and the shares of common
stock offered hereby will be, upon issuance and sale, validly
issued, fully paid, and nonassessable. Holders of common stock
have no preemptive right to subscribe for or purchase additional
shares of any class of our capital stock.
PREFERRED STOCK
The board of directors has the authority, within the limitations and
restrictions stated in the certificate of incorporation to provide by resolution
for the issuance of shares of preferred stock, in one or more classes or series,
and to fix the rights, preferences, privileges and restrictions, thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares constituting any
series or the designation of such series. The issuance of preferred stock could
have the effect of decreasing the market price of the common stock and could
adversely affect the voting and other rights of the holders of common stock.
TRANSFER AGENT AND REGISTRAR
We intend to act as our own Transfer Agent and Registrar for the common
stock initially and later to arrange for a stock transfer and trust company to
take this responsibility.
REPORTS TO STOCKHOLDERS
We intend, subject to the sale of shares of common stock in this
offering, that on or before the date of this prospectus, we will decide if we
should register our common stock under the provisions of Section 12(g) of the
Exchange Act of 1934 and if so we will use our best efforts to maintain
registration. Such registration will require us to comply with periodic
reporting, proxy solicitation and certain other requirements of the Exchange
Act.
LIMITATIONS OF DIRECTORS' LIABILITY AND INDEMNIFICATION OF DIRECTORS
AND OFFICERS
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
company pursuant to the foregoing provisions or otherwise, the Company has 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
therefore
38
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the company of expenses incurred or paid
by a director, officer or controlling person of the Company 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, the
Company will submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
LIMITATIONS ON TRANSFER OF SHARES
There is currently little public market for the Company's Common Stock,
and there is little likelihood that an active trading market will develop in the
near future as a result of this Offering. The Offering Statement of which this
Offering Circular is a part is intended to be qualified with the Securities and
Exchange Commission pursuant to Regulation SB-2 under the Securities Act, and as
such, the Shares will become freely traded under the federal securities laws.
The Shares, however, will have been registered in only a limited number of
states and may not be sold or otherwise transferred to persons who are residents
of any state in which the Shares have not been registered unless they are
subsequently registered or there exists an exemption from the applicable state's
registration requirements with respect to such sale or transfer.
QUALIFIED SMALL BUSINESS ISSUER CAPITAL GAINS TAX EXCLUSION
In 1993, IRS Section 1202 was enacted to provide a 50-percent exclusion
of any gain from the sale of "qualified small business stock." For the Shares to
qualify for the exclusion, several tests must be met. For instance the Shares
must be purchased directly from the Company, not in a later trading market, and
the Shares must be held for at least five years. In addition, a "qualified small
business" must not have more than $50 million in assets at all times before the
issuance of the stock and immediately thereafter.
Further, at least 80 percent of the assets must be used in the "active
conduct of one or more qualified trades or businesses" throughout the holding
period. There are also limitations on the persons who may use the exclusion.
Prospective investors should consult their own tax advisers as to the
availability of the exclusion.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, we will have 9,478,591 shares of
common stock outstanding, assuming no exercise of outstanding options and
warrants, of which the 800,000 shares being offered hereby will be freely
tradable without restriction or further registration under the Securities Act,
except for any shares purchased by an "affiliate", which will be subject to the
resale limitations of Rule 144 promulgated under the Securities Act.
Of the remaining shares of common stock currently outstanding shares
owned by officers and directors are "restricted securities" or owned by
"affiliates", as those terms are defined in Rule 144, and may not be sold
publicly unless they are registered under the Securities Act or are sold
pursuant to Rule 144 or another exemption from registration. A portion of the
restricted shares, will be eligible for sale, without registration, under Rule
144, 90 days following the completion date of this prospectus.
LOCKUP AGREEMENT
All executive officers, directors and principal shareholders (over 95%
of the 9,478,591 outstanding shares of common stock) have agreed for a period of
12 months following the qualification date of this prospectus, without the
representative's prior written consent, not to:
- sell or otherwise dispose of any shares of common stock in any
public market transaction including pursuant to Rule 144; and
39
<PAGE>
- exercise any rights held by such holders to cause us to register
any shares of common stock for sale pursuant to the Securities
Act, in each case, for a period of 12 months following the
completion date of this prospectus, without the representative's
prior written consent.
RULE 144
In general, under Rule 144 as currently in effect, subject to the
satisfaction of certain other conditions, a person, including an affiliate of
the Company or persons whose shares are aggregated with an affiliate who has
owned restricted shares of common stock beneficially for at least one year is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of:
- 1% of the then outstanding shares of the issuer's common stock; or
- the average weekly trading volume during the four calendar weeks
preceding such sale, provided that certain public information
about the issuer as required by Rule 144 is then available and the
seller complies with certain other requirements.
RULE 144(K)
A person who is not an affiliate, has not been an affiliate within nine
months prior to sale, and has beneficially owned the restricted shares for at
least two years, is entitled to sell such shares under Rule 144(k) without
regard to any of the limitations described above.
MINIMAL PRIOR MARKET
Prior to this offering, there has been little active market for the
common stock and no prediction can be made as to the effect, if any, that market
sales of shares of common stock or the availability of such shares for sale will
have on the market prices of the common stock prevailing from time to time.
Nevertheless, the possibility that substantial amounts of common stock may be
sold in the public market may adversely affect prevailing market prices for the
common stock and could impair our ability to raise capital through the sale of
our equity securities.
PLAN OF DISTRIBUTION
The Company is offering to sell up to 800,000 shares of Common Stock at
an offering price of $12.50 per share. The Company has agreed to pay to a
broker-dealer, Three Arrows Capital Corporation, 10101 Grosvenor Place #2016,
Rockville, MD 20852 (301) 897 3889 (the "Selling Agent") a sales commission of 5
percent, or $0.625 per share. In addition, the Company has issued warrants to
the broker-dealer to purchase shares at the Offering price, within the four
years following the completion of the Offering, at the rate of one warrant for
each fifteen shares sold, and paid a fee of $ 10,000 for due diligence and
consultation. Warrants to be received by Three Arrows Capital Corp. are
restricted from sale, transfer, assignment or hypothecation for a period of two
years from the effective date of the offering except to officers or partners
(not directors) of the underwriter and members of the selling group and/or their
officers or partners. Three Arrows Capital Corp. is a registered broker-dealer
with the NASD and is registered with the states of New York, Maryland, Virginia
and numerous other jurisdictions. The Company has also agreed to indemnify the
Selling Agent for any material misstatement in its filing. The Company has no
plans, proposals, arrangements, or understandings with the Selling Agent, other
than the warrants shares of the Company's common stock, with regard to future
transactions. No other material relationships exist between the Selling Agent
and the Company or its management.
No officers, employees, or directors of the Company will be paid a
commission in connection with the sale of any Shares nor will any officer,
employee or director of the Company undertake the sale of the shares. Sale of
the shares will only be undertaken by the underwriter. None of the principal
shareholders nor management of the Company nor the Underwriter will buy shares
in the Offering to meet the escrow. The Shares will be offered by the Selling
Agent on behalf of the Company primarily through direct solicitations, media
coverage, and posting of announcements.
40
<PAGE>
The Company reserves the right to reject any subscription in its
entirety or to allocate Shares among prospective investors. If any subscription
is rejected, funds received by the Company for such subscription will be
returned without interest or deduction. The termination date of the Offering is
October 15, 2000. Subscribers will be required to make certain representations
and warranties in the subscription agreement that should be carefully read
before signing.
Investors will have payment for stock deposited in an escrow account
in The Business Bank, 8399 Leesburg Pike, Vienna VA 22101 by noon of the next
business day after receipt by the broker-dealer. If the minimum proceeds of
$300,000 are not raised, the Subscriber's funds will be promptly returned, with
interest, by the escrow date of _________, 2000. Escrowed funds will be invested
only in investments permissible under SEC Rule 15c2-4.
Within five days of its receipt of a subscription agreement from the
Selling Agent confirming that an accompanying check for the purchase price of
Shares has been received, following escrow, the Company will send by first class
mail a written confirmation to notify the subscriber of the extent, if any, to
which subscription has been accepted by the Company. The Company reserves the
right to reject orders for the purchase of Shares in whole or in part. Not more
than thirty days following the mailing of its written confirmation, and upon
achieving the minimum number of total Shares to be sold, a subscriber's Common
Stock certificate will be mailed by first class mail. The Company shall not use
the proceeds paid by an investor until such time as escrow is broken.
Officers and directors of the Company will be required to sign
"lock-up" agreements for any and all shares they own or have beneficial rights
to own that specify such shares will not be sold for a period of twenty-four
months following qualification without the express written consent of Three
Arrows Capital Corp.
LEGAL MATTERS
Certain legal matters with respect to the validity of the common stock
offered hereby will be passed upon for us by Mr. Timothy McGary, Esq.
EXPERTS
The financial statements for the year ended December 31, 1997 have been
audited by the firm of Minter, Morrison & Grant, CPAs, and for 1998, by
Crutchley, Marginot & Tosi, independent auditors, as indicated in their reports
with respect thereto, and are included herein in reliance upon such reports
given upon the authority of such firms as experts in accounting and auditing.
Data for 1999 has not been audited.
ADDITIONAL INFORMATION
We have filed a registration statement on Form SB-2 under the
Securities and Exchange Commission in Washington, D.C. with respect to the
securities offered hereby. This prospectus, which constitutes a part of the
registration statement, does not contain all of the information set forth in the
registration statement and the exhibits and schedules thereto. For further
information with respect to us and the securities offered hereby, reference is
made to the registration statement and the exhibits and schedules thereto filed
as a part thereof. Statements contained in this prospectus as to the contents of
any contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. The registration statement, including all amendments, exhibits and
schedules thereto, may be inspected without charge at the office of the
Securities and Exchange Commission at Judiciary Plaza, 450 Fifth Street, NW,
Washington, D.C. 20549. Copies of such material may also be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, NW, Washington, D.C. 20549. In addition, the Securities and
Exchange Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issues that file
electronically with the Commission. The address of the site is
HTTP://WWW.SEC.GOV.
41
<PAGE>
As a result of this offering, we will become subject to the information
and reporting requirements of the SEC and will be required to file periodic
reports, proxy statements and other information with the SEC. We intend to
furnish to our stockholders annual reports containing audited financial
statements and we may also issue quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
e-SCRUB Environmental Enterprises, Inc.
(d.b.a. e-SCRUB Environmental Engineering, Inc.)
Balance Sheet
(unaudited)
September 30, 1999
ASSETS
<TABLE>
<S> <C>
Current Assets:
Cash $ 310,000
Accounts Receivables 500,000
Inventories 6,953,574
-----------
Total Current Assets $ 7,763,574
-----------
Property:
Test Equipment 3,349,000
Engineering Design 2,000,000
Office Furniture & Equipment 53,986
Leasehold Improvements 61,361
-----------
$ 5,464,347
ACCUMULATED DEPRECIATION (4,381,558)
-----------
Total Property Net of Depreciation $ 1,082,789
-----------
Other Assets:
Patents 361,572
Intellectual Property Rights 312,481
Loan Costs, Net of Amortization $ --
-----------
Total Other Assets $ 674,053
-----------
Total Assets: $ 9,520,416
-----------
-----------
Liabilities and Stockholders Equity
Current Liabilities
Accounts Payable $ 107,750
Accrued Expenses 20,000
Current Portion of Long-Term Debt 28,000
Notes Payable, unsecured 82,765
Loans from Stockholders 509,664
-----------
Total Current Liabilities $ 748,179
-----------
Long-Term Debt, Net of Current Maturities $ 1,109,778
-----------
Deferred Income Taxes $ 1,905,000
-----------
Total Liabilities $ 3,762,957
-----------
Stockholders' Equity
Common Stock 2,425,335
Retained Earnings 3,332,124
-----------
Total Stockholders' Equity 5,757,459
-----------
Total Liabilities and Capital 9,520,416
-----------
-----------
</TABLE>
42
<PAGE>
Statement of Income and Retained Earnings
(Unaudited)
September 30, 1999
<TABLE>
<S> <C>
Sales $ 1,041,649
-----------
Cost of Sales $ 368,987
-----------
Gross Profit $ 672,662
-----------
Other Operating Revenue $ 167,300
-----------
Gross Income $ 839,962
-----------
Overhead $ 372,975
-----------
Operating Income $ 466,987
-----------
Earnings Before Income Tax,
Depreciation and Amortization
Interest Income $ 1,500
Interest Expense (88,704)
EBITDA $ 379,783
-----------
Depreciation and Amortization (846,106)
Benefit From Income Taxes 321,520
Provision For Income Taxes $ --
-----------
Net Income $ (144,803)
-----------
Retained Earnings, Beginning $ 3,476,927
-----------
Retained Earnings, End $ 3,332,124
-----------
</TABLE>
This is to certify that to the best of my knowledge and belief, the financial
data is accurate and complete as prepared from the Company's general accounting
records, and that the descriptions and amounts herein accurately reflect the
Company's financial status as of September 30, 1999
/s/ Ralph D. Genuario President September 30, 1999
- --------------------------
Ralph D. Genuario
Crutchley, Marginot & Tosi: A Professional Corporation,
Certified Public Accountants
43
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
FINANCIAL REPORT
December 31, 1998
Springfield Corporate Center
6225 Brandon Avenue, Suite 330
Springfield, Virginia 22150
CONTENTS
<TABLE>
<S> <C>
Independent Auditors' Report 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of Income and Retained Earnings 3
Statement of Cash Flows 4
Notes to Financial Statements 5 - 12
SUPPLEMENTARY INFORMATION
Independent Auditors' Report on the Supplementary Information 13
Direct Costs and Overhead 14
</TABLE>
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheet of Virginia Accelerators
Corporation as of December 31, 1998, and the related statement of income and
retained earnings, and cash flows for the years ended December 31, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virginia Accelerators
Corporation as of December 31, 1998, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.
/s./ Crutchley, Marginot, and Tosi
Crutchley, Marginot, and Tosi
44
<PAGE>
BALANCE SHEET - DECEMBER 31, 1998
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS
Cash $ 8,954
Accounts receivable 749,543
Inventories 6,195,077
TOTAL CURRENT ASSETS 6,953,574
PROPERTY
Test equipment 3,349,000
Engineering design 2,000,000
Leasehold improvements 61,361
Furniture and equipment 44,248
TOTAL 5,454,609
Less accumulated depreciation (3,525,714)
Total property 1,928,895
OTHER ASSETS
Deposits 9,440
Loan costs, net of accumulated amortization $14,513 30,640
Patents, net of accumulated amortization $21,354 343,538
Intellectual property rights, net of accumulated amortization $79,779 290,221
Organization costs, net of accumulated amortization $462 214
Total other assets 674,053
Total assets $ 9,556,522
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 370,529
Accrued expenses 101,596
Current portion of long-term debt 188,632
Loans from stockholders 301,053
Notes payable, unsecured 114,765
Total current liabilities 1,076,575
LONG-TERM DEBT, less current maturities 1,037,301
DEFERRED INCOME TAXES 1,905,000
Total liabilities 4,018,876
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 5,500,000 Class A and 2,100,000 Class B
shares; issued and outstanding Class B
shares; issued and outstanding 4,400,840 Class A shares 2,060,719
Retained earnings 3,476,927
Total stockholders' equity 5,537,646
Total liabilities and stockholders' equity $ 9,556,522
</TABLE>
45
<PAGE>
<TABLE>
<S> <C>
SALES $ 458,351
COST OF SALES (236,031)
Gross profit 222,320
OTHER OPERATING REVENUE 297,203
519,523
OVERHEAD (248,650)
Total operating income 270,873
FINANCIAL AND OTHER INCOME (EXPENSE)
Interest income 2,245
Interest expense (26,269)
Gain on sale of equipment 2,333
Loan fees (2,262)
Other 1,103
Net financial income (expense) (22,850)
Earnings before depreciation, amortization, income taxes
and unconsummated merger and acquisition costs 248,023
DEPRECIATION AND AMORTIZATION (564,071)
UNCONSUMMATED MERGER AND ACQUISITION COSTS (331,873)
BENEFIT FROM INCOME TAXES 523.800
Net (loss) (124,121)
RETAINED EARNINGS
Beginning of year 3,601,048
End of year $ 3,476,927
EARNINGS (LOSS) PER SHARE $ (0.02)
NET ASSETS PER SHARE OUTSTANDING AT DECEMBER 31, 1998
(4,400,840 shares) $ 1.26
</TABLE>
See Notes to Financial Statements.
46
<PAGE>
CASH FLOWS FROM OPERATING ACTIVITIES
<TABLE>
<S> <C>
Net (loss) $(124,121)
Non-cash (income) expenses included in net loss
Depreciation and amortization 1,128,971
Unconsummated merger and acquisition costs 181,873
Gain on disposal of property (2,333)
Change in assets and liabilities
(Increase) decrease in
Accounts receivable (472,026)
Inventories (1,207,346)
Deferred income taxes 16,000
Increase (decrease) in
Accounts payable 153,428
Accrued expenses 27,486
Income taxes payable (14,500)
Deferred income taxes (525,300)
Net cash (used in) operating activities (837,868)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property (11,528)
Proceeds from sale of property 4,436
Additions to intellectual property rights (20,000)
Additions to patent application costs (3,319)
Business acquisition costs (86,876)
Net cash (used in) investing activities (117,287)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of common stock 635,249
Net loans from officers 301,053
Principal curtailment of long-term borrowings (26,013)
Proceeds from long-term borrowings 7,086
Net cash provided by financing activities 917,375
Net decrease in cash (37,780)
CASH AND CASH EQUIVALENTS
Beginning of year 46,734
End of year $8,954
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for interest $60,455
SUPPLEMENTAL SCHEDULE OF NON CASH INVESTING AND
FINANCING ACTIVITIES
Accounts receivable written off as part of unconsummated merger and
acquisition costs $150,000
</TABLE>
See Notes to Financial Statements.
47
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company is primarily engaged in environmental technology innovation,
technology development, and manufacture of electron beam equipment for
addressing environmental remediation and pollution prevention and other
industrial applications. The Company began operations as a sole proprietorship
in January 1990 and was subsequently incorporated on February 15, 1995.
A summary of significant accounting policies is as follows:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Revenue Recognition
Income under short-term contracts is recognized as projects are completed.
The estimated income under long-term, fixed-price contracts in process is
recognized using the percentage-of-completion method of accounting. Income under
this method is determined on the basis of management estimates of completion to
date. Earnings are recorded when progress on each contract reaches a point where
experience is sufficient to estimate final results with reasonable accuracy. As
long-term contracts extend over one year, revisions in cost and earnings
estimates are recognized in the accounting period when the additional data
becomes known.
Inventories
Inventories include material, labor and overhead and are stated at the lower of
cost or market. Inventories contributed to the Company are stated at the fair
market value at the time of the contribution.
Property
Equipment purchased is stated at cost. Equipment contributed to the Company is
stated at the fair market value at the time of the contribution. Depreciation is
computed using straightline and accelerated methods over the estimated useful
lives of the assets for both financial statement and income tax purposes.
48
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31. 1998
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Patent Applications
The Company was granted a patent for Electron Beam Flue Gas Scrubbing Treatment
and a registered trademark for E-Scrub. Beginning in 1998, the patent and
trademark are amortized over seventeen years. A patent for the Large Area
Electron Irradiator was granted in 1998.
Intellectual Property Rights
Intellectual property rights consist of engineering, analytical and planning
efforts in support of a technology program. These rights are amortized over
seventeen years.
Business Acquisition Costs
Direct costs associated with a merger and an acquisition of businesses accounted
for using the purchase method of accounting were recorded as additions to the
cost of the acquisition. The merger and acquisition were abandoned in 1998, and
costs totaling $181,873 were written of. Additionally revenues receivable of
$150,000 related to the merger and acquisition were also written off as
uncollectible.
Organization Costs
Organization costs are amortized over five years.
Income taxes
Effective January 1, 1996, the Company changed its method of reporting for tax
purposes to the accrual method. Previously, income was reported on the cash
basis for income tax purposes. Deferred income taxes are provided on a liability
method whereby deferred income tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards and
deferred income tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred income tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized. Deferred income tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
Earnings Per Share
Primary earnings (loss) per common share are computed by dividing net income
(loss) by the weighted average number of common shares and, as appropriate,
dilutive common stock equivalents, outstanding for the period. Stock options and
warrants are considered to be common stock equivalents. The number of shares
used to compute primary earnings (loss) per common share were 4,308,297 in 1998.
49
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
2. COMMON STOCK TRANSACTIONS
In 1996, the Company changed its capital structure by establishing two classes
of common stock. Class A consists of 5,500,000 authorized voting shares and
Class B consists of 2,100,000 authorized non-voting shares. Class B shares
contain a conversion option to Class A shares at a date to be determined by the
Board of Directors. Because of the imminent merger and acquisition, the Board of
Directors recommended, and the shareholders voted on January 5, 1998 to convert
all Class B shares to Class A.
The Board of Directors has approved increasing the authorized Class A shares to
11,000,000 Class A shares. The Board has also approved a two-for-one stock
split. At the October 1999 shareholders' meeting, the shareholders will vote on
increasing the authorized shares and approving the stock split.
Starting in December 1996, the Company filed stock offering disclosure documents
in various states. The offering is exempt from federal filing and disclosure
requirements pursuant to Regulation D of the Securities Act of 1933. It is,
however, subject to the laws and regulations of the various states and the
District of Columbia in which the offerings are made. As of December 31, 1998,
439,968 shares had been sold.
As of December 31, 1998, the Company has granted options for services equal to
74,000 shares, in addition to those granted under stock option plans, as
discussed in Note 3. These options are exercisable for the purchase of Class A
shares at $.50 per share. 64,500 shares have been exercised as of December 31,
1998. Additionally, 8,600 shares have been awarded for services through December
31, 1998.
The Company started a private placement offering on May 1, 1998. The Company
sold 36,100 shares for $5 per share as of December 31, 1998.
The Company is currently preparing to file a registration with the Securities
and Exchange Commission (SEC) under a special legislation statement known as
SB-2 that contemplates an offering of 800,000 shares at $12.50 per share.
3. STOCK OPTION PLANS
In 1996, the Company adopted two stock option plans. One plan is for its
employees, for which the Company has reserved 400,000 Class A shares and the
other for its directors, for which the Company has reserved 243,000 Class A
shares. The options in both plans are exercisable for the purchase of Class A
shares at $.50 per share.
Issuance of options under the employee plan is limited to employees of the
Company and is at the discretion of the Board of Directors. Options not
terminated were 39,500 shares as of December 31, 1998. All other options that
were previously awarded were voided due to early termination of employment as
per the stock option agreement. 32,000 options were exercised as of December 31,
1998.
50
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31. 1998
3. STOCK OPTION PLANS (Continued)
Under the directors' plan, options are granted for attendance at Board of
Directors' meetings, at the rate of 1,000 options per meeting. In addition, an
initial award of 5,000 options per director was made to each of the six founding
directors. Advisors to the Board of Directors are also awarded options. 96,000
options were awarded in 1996, 47,000 options were awarded in 1997 and 40,000
options were awarded in 1998. 133,000 options were exercised as of December 31,
1998.
4. LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Company leased office and warehouse space under an agreement which expired
December 31, 1998, with an option to renew for an additional three consecutive
one-year terms. The lease was renewed. Annual rentals are $126,000, including
their pro-rata share of real estate taxes. This lease may be canceled at any
time effective April 1, 1996 and thereafter, at no cost to the lessee, by
providing lessor with 90 days written notice of cancellation. Therefore, the
total minimum rental commitment as of December 31, 1998 is $31,500.
The payments for rent and related real estate taxes were $121,713 for the year
of which $60,857 was capitalized in inventory.
5. LICENSE AGREEMENT
The Company entered into an exclusive rights and license agreement to
manufacture, use and sell a certain product in the course of its business.
License fees due under the agreement include a non-refundable $25,000 fee, which
has been paid, plus 10% of the net sales price of the licensed product. A
minimum license fee of $20,000 is due during the second license year which was
paid as of December 31, 1998. The agreement terminates at the end of fifteen
(15) years from the first commercial sale of the product or the expiration date
of the last of any patents obtained in connection with the product, whichever is
last to occur.
51
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31. 1998
6. PROPERTY DEPRECIATION AND AMORTIZATION
Depreciation
and Estimate
Amortization Accumulated Useful Life
Expense Depreciation (Years)
Test equipment $669,800 $2,182,917 5
Engineering design 400,000 1,316,667 5
Leasehold improvements 1,573 5,052 39
Furniture and equipment 9,071 20,998 3-7
Total 1,080,444 $3,525,634
Organization costs 135 5
Intellectual property rights 20,588 17
Patents 21,354 17
Loan costs 6,450 7
Total $1,128,971
Expense of operations $564,900
Capitalized in inventory 564,071
Total $1,128,971
7. LONG-TERM DEBT AND NOTES PAYABLE, UNSECURED
The Company has obtained a seven-year working capital loan dated October 1, 1996
totaling $1,250,000, maturity date April 1, 2004. The loan is guaranteed by the
U.S. Small Business Administration and two stockholders/directors of the
Company, and is secured by substantially all of the assets of the Company, both
currently in existence and acquired in the future. In addition, the proceeds of
certain contracts have been assigned to the lender. Payments were interest only
until October 1998. Interest is computed at prime plus 2 3/4%. The outstanding
balance was $1,225,933 as of December 31, 1998.
An officer and shareholder of the Company personally paid interest totaling
$85,504. These payments are not reflected in the financial statements. The
officer and shareholder is a generator of the loan and was awarded 475,000
shares of the Company in prior years with the understanding that he would be
required to make loan payments on behalf of the Company when requested.
The Company borrowed $37,969 on unsecured lines of credit, with no fixed
maturity and interest at 15.25 - 15.50% per annum. Minimum payments are $860 per
month.
52
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
7. LONG-TERM DEBT AND NOTES PAYABLE, UNSECURED (Continued)
The Company issued a promissory note for $3,806 to an employee. The note bears
interest at prime and is payable six weeks after the Company receives payment
from the Department of Energy.
The Company borrowed $100,000, of which $27,000 has been repaid, on an unsecured
loan which was due upon the occurrence of certain events in 1998. Interest
accrues at 15% per annum. The note is overdue. The Company issued 20,000 shares
to the lender.
The Company borrowed $112,618 from two of its officers. Additionally, the
Company owes these officers/shareholders compensation totaling $188,435 and has
issued promissory notes for these obligations. The total amount owed to these
officers/shareholders was $301,053 at December 31, 1998. The notes bear interest
at rates ranging from prime to 13.809%. The notes are payable on demand.
Aggregate maturities required on long-term debt as of December 31, 1998, are due
in future years as follows:
1999 $ 188,632
2000 209,419
2001 232,498
2002 258,120
2003 286,566
Thereafter 50,698
Total $1,225,933
Interest incurred is reflected in the financial statements as follows:
Expense of operations $25,558
Capitalized in inventory 41,012
Total $66,570
8. LIFE INSURANCE
The Company has a term life insurance policy with a face value of $1,250,000 on
the life of one of its founders. Proceeds are assigned to the lender of the
Company's long-term debt as of December 31, 1998.
53
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31, 1998
9. RETIREMENT PLAN
In 1996, the Company adopted a simplified employee pension plan. All employees
at least age 21, regardless of how long employed, are eligible to participate.
Participants may elect salary reduction contributions. Employer contributions
are discretionary. There were no employer contributions for 1998.
10. PROVISION FOR INCOME TAXES
Until January 1, 1996, the Company reported its income on the cash basis for tax
purposes. In addition, the Company has acquired assets, the taxation of which
has been deferred under either of Sections 118 or 351 of the Internal Revenue
Code, as discussed in notes 2 and 3. Accordingly, deferred income taxes have
been provided for in the financial statements.
The net deferred income tax liability consisted of the following at December 31,
1998:
Deferred income tax liabilities
Property and inventories $ 1,924,000
Patent applications pending 130,000
Intellectual property rights 110,000
Total 2,164, 000
Deferred income tax asset
Provision netted against common stock $ (259,000)
Total $ 1,905,000
The provision for deferred income taxes of $259,000 for patent applications
pending and intellectual property rights has been netted against the common
stock, and is included with the deferred income taxes on the contributed
property and inventories in the noncurrent deferred income tax liability on the
balance sheet.
The income tax rate which has been applied to deferred income tax assets and
liabilities is a blended rate of 38%, based upon a federal rate of 34% and a
state rate of 6%. The federal rate of 34% is available to companies with annual
taxable incomes under $10,000,000.
11. SUPPLEMENTAL CONTRACT INFORMATION
The Corporation has a grant from the Department of Energy for a grant in the
amount of approximately $1.9 million to build a fifty megawatt electron
scrubbing technology demonstrator. The objective of this demonstrator is to
penetrate the domestic utility market. The grant includes cost sharing of
approximately $700,000 by the Corporation. The project was completed in June
1999.
54
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
For the Year Ended December 31. 1998
12. UNCONSUMMATED MERGER AND ACQUISITION COSTS
The Company was the successful bidder in September 1997 for the purchase of a
business and had been in the process of finalizing settlement terms as late
as June 1998. The acquisition included a merger with another entity. Business
acquisition costs totaling $94,997 were incurred and sales of $150,000 were
billed and recorded as of December 31, 1997. The $150,000 receivable was
likely to have been recoverable only if the transaction was consummated. The
acquisition and merger did not take place due the merger partner's inability
to meet its commitments, and the merger and acquisition costs amounting to
$181,873 were expensed during 1998. The $150,000 receivable was also written
off as part of the unconsummated merger and acquisition costs.
13. SUBSEQUENT EVENTS
The Company changed auditors due to the previous auditor's independence being
impaired for fees due to them in connection with the abandoned acquisition of a
business. The Company has signed a note in the amount of $113,000.
During June 1999, the Company entered into a joint venture agreement with
another corporation for the purpose of designing, manufacturing, selling,
constructing, and installing e-SCRUB(TM) air pollution control systems
throughout the world (with the exception of any territorial agreements that the
Company had in place on June 11, 1999). The joint venture corporation deposited
$250,000 into an escrow account. The escrow funds are released to the Company
according to an agreed upon schedule.
INDEPENDENT AUDITORS' REPORT ON THE SUPPLEMENTARY INFORMATION
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplementary information is presented for
purposes of additional analysis and is not a required part of the basic
financial statements. Such information has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
October 4, 1999
/s./ Crutchley, Marginot, and Tosi
Crutchley, Marginot, and Tosi
55
<PAGE>
DIRECT COSTS
Labor $162,691
Subcontracts 14,843
Consultants 27,729
Travel 30,690
Printing 78
Total direct costs $236,031
OVERHEAD
Salaries and related taxes $46,888
Rent and utilities 83,472
Office 7,704
Professional fees 32,524
Consultants 5,000
Travel, meals and entertainment 25,083
Supplies 2,115
Telephone 6,741
Insurance 18,763
Repairs and maintenance 2,335
Miscellaneous 2,481
Contract labor 7,582
Conferences, dues, subscriptions 364
Taxes and licenses 544
Postage and delivery 3,958
Equipment rental and small equipment 2,597
Bank charges 499
Total overhead $248,650
See Independent Auditors' Report on the Supplementary
Information.
See Independent Auditors' Report on the Supplementary Information.
56
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
FINANCIAL REPORT
DECEMBER 31, 1997 and 1996
MINTER, MORRISON AND GRANT
CERTIFIED PUBLIC ACCOUNTANTS
ALEXANDRIA, VIRGINIA
C O N T E N T S
INDEPENDENT AUDITOR'S REPORT 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income and retained earnings 3
Statements of cash flows 4
Notes to financial statements 5-12
INDEPENDENT AUDITOR'S REPORT
ON THE SUPPLEMENTARY INFORMATION 13
SUPPLEMENTARY INFORMATION
Direct costs and overhead 14
57
<PAGE>
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Virginia Accelerators
corporation as of December 31, 1997 and 1996, and the related statements of
income and retained earnings, and cash flows for the years ended December 31,
1997 and 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the. accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virginia Accelerators
Corporation as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s./ Minter, Morrison, and Grant
Minter, Morrison, and Grant
February 6, 1998, except for Note 12 as to which the date is August 4, 1998
58
<PAGE>
BALANCE SHEETS
December 31, 1997 and 1996
MINTER, Morrison AND GRANT
CERTIFIED Public Accountants
1997 1996
ASSETS
CURRENT ASSETS
Cash $ 46,734 $ 367,380
Accounts receivable 277,517 --
Inventories 4,987,731 2,580,620
Prepaid expenses -- 18,655
Preferred income taxes 16,000 31,700
Total current assets $5,327,982 $2,998,355
PROPERTY
Test equipment $3,349,000 $3,349,000
Engineering design 2,000,000 2,000,000
Leasehold improvements 61,361 60,000
Furniture and equipment 37,986 33,694
$5,448,347 $5,442,694
Less accumulated depreciation 2,448,346 1,365,909
$3,000,001 $4,076,785
OTHER ASSETS
Deposits $ 9,440 $ 9,440
Loan costs, net of accumulated
Amortization 1997 $8,149,
1996 $1,613 37,004 43,540
Patents 361,572 358,600
Intellectual property rights, net
of accumulated amortization 1997
$59,191, 1996 $38,603 290,809 311,397
Business acquisition costs 94,997 _
Organization costs, net of
Accumulated amortization
1997 $327, 1996 $191 349 485
$ 794,171 $ 723,462
TOTAL ASSETS $9,122,154 $7,798,602
The accompanying notes are an integral part of the financial Statements.
59
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 217,101 $ 100,395
Accrued expenses 74,110 179,742
Current portion of long-term debt 127,440 104,167
Notes payable, unsecured 73,000
Income taxes payable 14,500 20,366
Total current liabilities $ 506,151 $ 404,670
LONG-TERM, less current maturities $1,159,185 $ 926,896
DEFERRED INCOME TAXES $2,430,300 $2,430,300
TOTAL LIABILITIES $4,095,636 $3,761,866
STOCKHOLDERS' EQUITY
Common stock, no par value; authorized 5,500,000 Class A
and 2,100,000 Class B shares; issued and outstanding
2,176,300 Class A and 1,790,300 Class B shares in
1997 and 1,991,000 Class A shares and 1,830,000 Class B
shares in 1996 $1,425,470 $ 443,000
Retained earnings $3,601,048 3,593,736
Total stockholders' equity $5,026,518 $4,036,736
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $9,122,154 $7,798,602
</TABLE>
60
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
STATEMENTS OF INCOME AND RETAINED EARNINGS
For the years ended December 31, 1997 and 1996
1997 1996
SALES $209,200 $152,000
COST OF SALES 92,783 93,428
Gross Profit $116,417 58,572
OTHER OPERATING REVENUE 12,076 7,616
$128,493 $66,188
OVERHEAD $111,542 134,117
Operating income (loss) $16,951 ($67,929)
FINANCIAL INCOME (EXPENSE)
Interest income $4,603 5,118
Interest expense (4,407) (4,207)
$196 $911
Income (loss) before income taxes $17,147 $67,018
PROVISION FOR INCOME TAXES
Current income tax expense (benefit) (5,865) 6,466
Deferred income tax (benefit) 15,700 (31,700)
$9,835 ($25,234)
NET INCOME (LOSS) $7,312 $41,784
RETAINED EARNINGS, beginning 3,593,736 3,635,520
RETAINED EARNINGS, ending
EARNINGS (LOSS) PER SHARE ($0.02)
NET ASSETS PER SHARE OUTSTANDING AT
DECEMBER 31, 1997 (3,966,600 shares in 1997
and 3,821,000 shares in 1996) $1.27 $1.06
61
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES $7,312 ($41,784)
Net income (loss)
Noncash (income) expenses included in net income (loss)
Depreciation and amortization 12,772 5,561
Change in assets and liabilities
(Increase) decrease in
Accounts receivable (202,517) 114,000
Inventories, net of depreciation and amortization (1,345,186) (810,159)
Prepaid expenses 18,655 (9,531)
Deferred income taxes 15,700 (31,700)
Increase (decrease) in
Accounts payable 36,887 53,769
Accrued expenses (105,632) 95,800
Income taxes payable (5,866) 6,466
Net cash used in operating activities ($1,567,875) ($617,578)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property ($5,653.00) ($33,120)
Additions to patent application costs ($2,972.00) (4,612)
Business acquisition costs ($15,178.00)
Net cash used in investing activities ($23,803.00) ($37,732)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock $907,470
Net loans from stockholder ($29,921)
Loan costs (45,153)
Proceeds from long-term borrowings 363,562 1,031,063
Net cash provided by financing activities $1,271,032 $955,989
Net increase (decrease) in cash ($320,646) $300,679
Cash, beginning 367,380 66,701
Cash, ending $46,734 $367,380
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash payments for interest $137,360 $12,923
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES
Exchange of accrued salaries and vacations
and loans for common stock $326,080
Accounts payable incurred for business
acquisition costs $79,819
Stock subscription receivable $75,000
</TABLE>
62
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business and formation
The Company is primarily engaged is environmental technology innovation,
technology development, and manufacture of electron beam equipment for
addressing environmental remediation and pollution prevention and other
industrial applications. The Company began operations as a sole proprietorship
in January 1990 and was subsequently incorporated on February 15, 1995.
Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Revenue recognition
Income under short-term contracts is recognized as projects are completed.
The estimated income under long-term, fixed-price contracts in process is
recognized using the percentage-of-completion method of accounting. Income under
this method is determined on the basis of management estimates of completion to
date. Earnings are recorded when progress on each contract reaches a point where
experience is sufficient to estimate final results with reasonable accuracy. As
long-term contracts extend over one year, revisions in coat and earnings
estimates are recognized in the accounting period when the additional data
becomes known.
Inventories
Inventories include material, labor, overhead and are stated at the lower of
cost or market. Inventories contributed to the Company are stated at the fair
market value at the time of the contribution.
Property
Equipment purchased is stated at cost. Equipment contributed to the Company is
stated at the fair market value at the time of the contribution. Depreciation is
computed using straight-line and accelerated methods over the estimated useful
lives of the assets for both financial statement and income tax purposes.
63
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant Accounting Policies (continued)
Patent applications pending
The Company was granted a patent for Electron Beam Flue Gas Scrubbing Treatment
and a registered trademark for E-Scrub. A patent is still pending for the Large
Area Electron Irradiator. Amortization on these patents and trademark will begin
in 1998.
Intellectual property rights
Intellectual property rights consist of engineering, analytical and planning
efforts in support of a technology program. These rights are amortized over
seventeen years.
Business acquisition costs
Direct coats associated with acquiring businesses accounted for using the
purchase method of accounting are recorded an additions to the cost of the
acquisition. No acquisitions were consummated in 1997.
Organization costs
Organization costs are amortized over five years.
Income taxes
Effective January 1, 1996, the Company changed its method of reporting for tax
purposes to the accrual method. Previously, income was reported on the cash
basis for income tax purposes. Deferred income taxes are provided on a liability
method whereby deferred income tax assets are recognized for deductible
temporary differences and operating loss and tax credit carryforwards and
deferred income tax liabilities are recognized for taxable temporary
differences. Temporary differences are the differences between the reported
amounts of assets and liabilities and their tax bases. Deferred income tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred income tax
assets will not be realized. Deferred income tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates on the date of
enactment.
64
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Significant Accounting Policies (continued)
Earnings per share
Primary earnings (loss) per common share are computed by dividing net income
(loss) by the weighted average number of common shares and, as appropriate,
dilutive common stock equivalents, outstanding for the period. Stock options
and warrants are considered to be common stock equivalents. The number of
shares used to compute primary earnings (loss) per common share were
3,677,565 in 1997 and 2,448,500 in 1996.
2. COMMON STOCK TRANSACTIONS
In 1996, the Company changed its capital structure by establishing two classes
of common stock. Class A consists of 5,500,000 authorized voting shares and
Class B consists of 2,100,000 authorized nonvoting shares. Class B shares
contain a conversion option to Class A shares at a date to be determined by the
Board of Directors, such date being no earlier than one year after the Company's
shares are listed on a national stock exchange. Accordingly, 2,100,000 Class A
shares are being reserved to accommodate future conversions of Class B shares as
they occur.
In December 1996, the Company filed Form U-7 Disclosure Document with the state
of Virginia in connection with its offer to sell up to 200,000 units for a
minimum of $250,000 and a maximum of $1,000,000. Each unit consists of one share
of Class A common stock and one share of Class B common stock. The offering is
exempt from federal filing and disclosure requirements pursuant to Regulation D
of the Securities Act of 1933. It is, however, subject to the laws and
regulations of the various states and the District of Columbia in which the
offering is to be made. As of December 31, 1997, 145,084 unite had been sold
under this offering, of which 15,000 unite for $75,000 was received January 21,
1998.
During 1997, the Company granted options for 41,500 shares, in addition to those
granted under stock option plans, as discussed in Note 3. These options are
exercisable for the purchase of Class A shares at $.50 per share. On January 3,
1998, the Company converted all shares of Class B common stock to Class A common
stock.
3. STOCK OPTION PLANS
In 1996, the Company adopted two stock option plans. One plan is for its
employees, for which the Company has reserved 400,000 Class A shares and the
other for its directors, for which the Company has reserved 243,000 Class A
shares. The options in both plans are exercisable for the purchase of Class A
shares at $.5O per share.
MINTER, MORRISON AND GRANT
CERTIFIED PUBLIC ACCOUNTANTS
65
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
3. STOCK OPTION PLANS (continued)
Issuance of options under the employee plan is limited to employees of the
Company and is at the discretion of the Board of Directors. Options for 37,500
shares were granted in 1996, all of which were voided due to early terminations
from employment. Options for 32,000 shares were granted in 1997, none of which
were exercised as of December 31, 1997.
Under the directors plan, options are granted for attendance at Board of
Directors' meetings, at the rate of 1,000 options per meeting. In addition,
an initial award of 5,000 options per director was made to each of the six
founding directors. 96,000 options were awarded in 1996 and an additional
52,000 options were awarded in 1997. None of these options were exercised as
of December 31, 1997.
4. LEASE COMMITMENTS AND TOTAL RENTAL EXPENSE
The Company leased office space under a month-to-month agreement until September
30, 1995 at a monthly rent of $800.
Effective October 1, 1995, the Company leased office and warehouse space under
an agreement which expires September 30, 1998, with an option to renew for an
additional three consecutive one-year terms. Annual rentals are $106,079, plus
their pro-rata share of real estate taxes. This lease may be canceled at any
time effective April 1, 1996 and thereafter, at no cost to the lessee, by
providing lessor with 90 days written notice of cancellation. Therefore, the
total minimum rental commitment as of December 31, 1997 is $26,520.
The payments for rent and related real estate taxes were $118,922 for year ended
December 31, 1997 and $118,203 for the period ended December 31, 1996, of which
$107,030 in 1997 and $106,383 in 1996 was capitalized in inventory.
5. LICENSE AGREEMENT
The Company entered into an exclusive rights and license agreement to
manufacture, use and sell a certain product in the course of its business.
License fees due under the agreement include a non-refundable $25,000 fee, which
has been paid, plus 10% of the net sales price of the licensed product.
A minimum license fee of $20,000 is due during the second license year, none of
which had been paid at December 31, 1997. The agreement terminates at the end of
fifteen (15) years from the first commercial sale of the product or the
expiration date of the last of any patents obtained in connection with the
product, whichever is last to occur.
6. PROPERTY DEPRECIATION AND AMORTIZATION
<TABLE>
<CAPTION>
Depreciation
and Accumulated
amortization depreciation Estimated
expense 31-Dec useful
life
1997 1996 1997 1996 (years)
<S> <C> <C> <C> <C> <C>
Test equipment $ 669,800 $ 669,800 $1,513,117 $ 843,317 5
Engineering design $ 400,000 $ 400,000 916,667 516,667 5
Leasehold improvements 1,556 1,539 3,479 1,923 39
Furniture and equipment 11,081 3,887 15,083 4,002
TOTAL $1,082,437 $1,075,226 $2,448,346 $1,365,909
Organization costs 136 135 5
Intellectual property rights 20,588 20,588 17
Loan costs 6,536 1,613 7
Total $1,109,697 $1,097,562
</TABLE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Expense of operations $12,772 $5,561
Capitalized in inventory 1,096,925 1,092,001
TOTAL $1,109,697 $1,097,562
</TABLE>
7. LONG-TERM DEBT AND NOTES PAYABLE, UNSECURED
The Company has obtained a seven-year working capital loan dated October 1, 1996
totaling $1,250,000, maturity date April 1, 2004. The loan is guaranteed by the
U.S. Small Business Administration and two stockholders /directors of the
Company, and is secured by substantially all of the assets of the Company, both
currently in existence and acquired in the future. In addition, the proceeds of
certain contracts have been assigned to the lender. Payments are interest only
until June 1997, at which time principal and interest are payable monthly over
seven years. Interest is computed at prime plus 2 3/4t. The outstanding balance
was $1,250,000 as of December 31, 1997 and $1,031,063 as of December 31, 1996.
The Company borrowed $37,500 on unsecured lines of credit, with no fixed
maturity and interest at 15.25 - 15.50V per annum. Minimum payments are $860 per
month.
66
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
7. LONG-TERM DEBT AND NOTES PAYABLE. UNSECURED (continued)
The Company borrowed $100,000, of which $27,000 has been repaid, on an unsecured
loan which is due upon the occurrence of certain events in 1998. Interest
accrues at 15V per annum.
Principal maturities for the next five years are as follows:
1998 $200,440
1999 $142,775
2000 $159,965
2001 $177,818
2002 $195,983
Interest incurred is reflected in the financial statements as follows:
1997: Expense of operations ($4,407)+ Capitalized in inventory ($108,833)=
$113,240
1996: Expense of operations ($4,207)+ Capitalized in inventory ($16,414)=$20,621
8. LIFE INSURANCE
The Company has a term life insurance policy with a face value of $1,250,000 on
the life of one of its founders. Proceeds are assigned to the lender of the
Company's long-term debt as of December 31, 1997.
9. RETIREMENT PLAN
In 1996, the Company adopted a simplified employee pension plan. All employees
at least age 21, regardless of how long employed, are eligible to participate.
Participants may elect salary reduction contributions. Employer contributions
are discretionary and totaled $ -0- for 1997 and $21,088 for 1996.
10. PROVISION FOR INCOME TAXES
Until January 1, 1996, the Company reported its income on the cash basis for tax
purposes. In addition, the Company has acquired assets, the taxation of which
has been deferred under either of Sections 118 or 351 of the internal Revenue
Code, as discussed in notes 2 and 3. Accordingly, deferred income taxes have
been provided for in the financial statements.
67
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
10. PROVISION FOR INCOME TAXES (continued)
The net deferred income tax liability consisted of the following at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred income tax liabilities
Property and inventories $2,171,300 $2,171,300
Patent applications pending 133,000 133,000
Intellectual property rights 126,000 126,000
TOTAL $2,430,300 $2,430,300
Deferred income tax asset 16,000 31,700
Accounts payable and accrued expenses $2,414,300 $2,398,600
The deferred income tax amounts have been
reported on the balance sheet as follows:
1997 1996
Deferred income tax (asset) (16,000) (31,700)
Deferred income tax (liability) 2,430,300 2,430,300
TOTAL 2,414,300 $2,398,600
</TABLE>
The provision for deferred income taxes of $259,000 for patent applications
pending and intellectual property rights has been netted against the common
stock, and is included with the deferred income taxes on the contributed
property and inventories in the noncurrent deferred income tax liability on the
balance sheet.
The income tax rate which has been applied to deferred income tax assets and
liabilities is a blended rate of 38t, based upon a federal rate of 34t and a
state rate of 6%. The federal rate of 34t is available to companies with annual
taxable incomes under $10,000,000.
11. SUPPLEMENTAL CONTRACT INFORMATION
In October 1995, the Company received a contract request from the Institute of
Nuclear Chemistry and Technology, Warsaw, Poland for three electron beam
generators in the amount of $9,375,000. The request requires test data to show
that certain operational requirements have been met for the first generator. The
request also depends on the equipment performance and final order from the power
sector. Management estimates that completion will be approximately
68
<PAGE>
VIRGINIA ACCELERATORS CORPORATION
NOTES TO FINANCIAL STATEMENTS
December 31, 1997 and 1996
11. SUPPLEMENTAL CONTRACT INFORMATION (continued)
The Corporation is negotiating with the Department of Energy for a grant in the
amount of approximately $10,000,000 to build a fifty megawatt electron scrubbing
technology demonstrator. The objective of this demonstrator is to penetrate the
domestic utility market. Management estimates that the entire. project should be
completed within thirty months of the receipt of the order. Management expects
that this grant will be funded by the third quarter of 1998.
12. SUBSEQUENT EVENTS
The Company was the successful bidder in September 1997 for the purchase of a
business and had been in the process of finalizing settlement terms as late as
June 1998. Business acquisition costs totaling $94,997 were incurred and sales
of $150,000 were billed and recorded as of December 31, 1997. The $150,000
receivable was likely to have been recoverable only if the transaction was
consummated. As of August 4, 1998, the transaction will not be consummated. The
pro forma effect on the financial statements as of December 31, 1997, net of
income taxes, is $151,900.
69
<PAGE>
GLOSSARY
BTU. British thermal unit. A unit for measuring heat quantity in the customary
system of English Units of Measurement, equal to the amount of heat required to
raise the temperature of one pound of water one degree Fahrenheit. One Btu is
approximately equivalent to 251.9 calories. A pound of good coal when burned
should yield 12,000 to 15,000 Btu.
DIFFUSION CHARGING. Diffusion refers to the spontaneous migration of
substances from regions where their concentration is high to regions where their
concentration is low. This redistribution of a substance is due to the random
motion of the molecules of the substance, usually a gas or liquid. Charging is
the process where an electrode acquires an electric charge.
ELECTRODE. A terminal through which electric current passes between metallic and
nonmetallic parts of an electric circuit. In most familiar circuits current is
carried by metallic conductors which form the electrodes, while the current
passes for some distance through a nonmetallic conductor that is located between
the electrodes
ELECTRON. An Electron is elementary particle carrying a unit charge of negative
electricity. Ordinary electric current is the flow of electrons through a wire
conductor. The electron is one of the basic constitutes of matter. An atom
consists of a small, dense, positively charged nucleus surrounded by electrons
that move about in orbits, forming clouds of charge.
ELECTROSTATIC FIELD. Electrostatic Field is created by the presence of free
charges such as electrons, which exert forces on other free charges. It consists
of the region throughout which these forces are be exerted.
ELECTROSTATIC PRECIPITATOR. An electrostatic precipitator is one of the major
types of particulate control equipment. An electrostatic precipitator applies
electrical force to separate particles from the gas stream. An electrostatic
field is established between electrodes, and particles passing through the
resulting electrical field acquire a charge. The charged particles are attracted
to and collected on an oppositely charged plate, and the cleaned gas flows
through the device. Periodically, the plates are cleaned by rapping to shake off
the layer of dust that accumulates. The dust is collected in hoppers at the
bottom of the device. (AIR POLLUTION CONTROL: A DESIGN APPROACH, by C. David
Cooper and F.C. Alley.Illinois, Prospect Heights: Waveland Press, Inc., 1994,
pp. 120-121.
70
<PAGE>
High-voltage electrostatic precipitators (EPS) have been widely used throughout
the world for particulate removal since they were perfected by Fredrick Cottrell
early in the twentieth century. Most of the original units were used for
recovery of process materials, but today gas cleaning for air pollution control
is often the main reason for their installation. The ESP has distinct advantages
over other aerosol collection devices: (1) it can easily handle high-temperature
gases; (2) it has an extremely small pressure drop; (3) it has an extremely high
collection efficiency if operated properly in selected aerosols; (4) it can
handle a wide range of particulate sizes an dust concentrations; (5) its
operating and maintenance costs are lower than those of ant other type
(FUNDAMENTALS OF AIR POLLUTION, by Richard W. Boubel et. all. New York: Academic
Press, 1994, p. 466).
EXOTHERMIC REACTION WITH INEFFICIENT GAS TEMPERATURE. Many chemical
reactions are very energetic. Some chemical reactions release large amounts of
heat (exothermic), whereas others require considerable heat input (endothermic).
The formation of our by-product is an example of an exothermic reaction.
HYDROSCOPIC BY-PRODUCT. Certain substances have an affinity for water molecules,
and they will remove water vapor from the ambient air while attaching the water
molecules directly to themselves. Our by-product is an example of hydroscopic
material.
KWE. Watt (W) is a unit of power, or work done per unit time. It is
used as a measure of electrical and mechanical power. One watt is amount of
power that is delivered to a component of an electric circuit when a current of
1 ampere flows through the component and a voltage of 1 volt exists across it.
The derivative units are kilowatt (1,000 W) or kWe and megawatt (1,000,000 W) or
MWe used in electric power systems. Milliwatt (0.001 W) and microwatt (0.000001
W) used in electronics.
MODULATOR. An electronic device for modulating electric power so that it can be
converted into a beam of energetic electrons.
OUTPUT POWER (~ 1 MW). Watt (W) is a unit of power, or work done per unit time.
It is used as a measure of electrical and mechanical power. One watt is amount
of power that is delivered to a component of an electric circuit when a current
of 1 ampere flows through the component and a voltage of 1 volt exists across
it. A derivative unit is megawatt (1,000,000 W) or 1 MW used in electrical
equipment. The Company's electron beam equipment delivers 1 MW of electrons into
the flue gas.
PARTICULATES. Particulate matter (or particulates) are very small-diameter
solids or liquids that remain suspended in exhaust gasses and can be discharged
into the atmosphere. They can be formed by gas conversion reactions in the
atmosphere between certain pollutant gases that were emitted previously. Major
sources of particles include industrial processes, coal- an oil-burning electric
power plants, residential fuel combustion, and highway vehicles.
Particulate effects include reductions in visibility such as smog or haze,
soiling of buildings and other materials, corrosive and erosive damage of
materials, and alteration of local weather. Also, particulates can damage human
and animal health, and retard plant growth. (AIR POLLUTION CONTROL: A DESIGN
APPROACH, by C. David Cooper and F.C. Alley. Illinois, Prospect Heights:
Waveland Press, Inc.: 1994, p. 46).
REAGENT. Reagent is a substance that takes part in one or more chemical
reactions or biological processes. The Company's process uses ammonia as a
reagent in order to produce fertilizer by-product.
SATURATED GAS. Saturated gas is the condition whereby it cannot absorb any more
water vapor. Hence, the relative humidity of saturated gas is 100 per cent.
SUB-MICRON SIZE. Smaller than one micron which is the same as micrometer, that
is, a unit of linear distance equal to 0.000001 (one millionth) m.
71
<PAGE>
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- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THE OFFERING CIRCULAR AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY THE UNDERWRITERS. THIS OFFERING CIRCULAR DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED BY THIS OFFERING CIRCULAR, OR AN OFFER TO BUY
ANY SECURITIES BY PERSONS IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IS UNLAWFUL. THE DELIVERY OF THIS OFFERING
CIRCULAR SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS
OFFERING CIRCULAR. UNTIL OCTOBER 15, 2000 ALL DEALERS EFFECTING TRANSACTIONS IN
THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION,
MAY BE REQUIRED TO DELIVER AN OFFERING CIRCULAR. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER AN OFFERING CIRCULAR WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
TABLE OF CONTENTS PAGE
Offering Summary 3
Risk Factors 5
Use of Proceeds 9
Dividend Policy 10
Dilution 10
Capitalization 11
Selected Financial Data 12
Management's Discussion and Analysis
Of Financial Condition and Results of
Operations 13
Business 17
Management 28
Principal Shareholders 32
Description of Securities 34
Plan of Distribution 37
Financial Statements 39
Appendix (not enclosed)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
E-SCRUB
ENVIRONMENTAL
ENTERPRISES, INC.
800,000 SHARES OF COMMON STOCK
------------------------
OFFERING CIRCULAR
------------------------
THREE ARROWS CAPITAL CORP.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
Information Not Required in prospectus
Item 13. Other Expenses of Issuance and Distribution.
He estimated expenses of this offering, all of which will be paid by
Registrant, are as follows:
SEC Registration Fee $ 2,640
National Association of Securities Dealers, Inc. Fee 1,500
Nasdaq Listing Fee *
Accounting Fees and Expenses *
Registrant's Legal Fees and Expenses *
Blue Sky Expenses and Counsel Fees *
Printing and Engraving Fees *
Transfer Agent and Registrar's Fees and Expenses *
Document Preparation 10,000
Miscellaneous Expenses *
Total ___*____
* To be completed by amendment
Item 14 Indemnification.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act") may be permitted to directors, officers and
controlling persons of Registrant pursuant to the provisions of its Restated
Articles of Incorporation, its By-Laws, applicable Bermuda Acts or otherwise,
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by Registrant for expenses
incurred or paid by a director, officer or controlling person of Registrant 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, Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes:
(1) For purposes of determining any liability under the Securities Act, to
treat the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by Registrant under Rule 424(b)(1), or (4), or 497(h) under the
Securities Act as part of this registration statement as of the time the
Commission declared it effective.
(2) For determining any liability under the Securities Act, to treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
Item 15. Recent Sales of Unregistered Securities
The Company made a public offering of securities under Regulation D 504
(SCOR) in 1997.
<PAGE>
Item 16. Exhibits.
(a) Exhibits:
1 Form of Underwriting Agreement.
3.1 Copy of Registrant's Articles of Incorporation.
3.2 Copy of Registrant's By-Laws.
3.3 Certificate of Good Standing.
4.1 Stock Certificate Specimen.
5.1 Opinion of Counsel.
10.1 Escrow Agreement
10.2 Stock Option Plan.
10.3 Stock Option Agreement.
10.4 SEI Agreement
10.5 TIPAZ Agreement.
10.6 Patent.
10.7 Warrants.
10.8 Allied Signal Agreement.
10.9 LLC Addendum.
10.10 Trademark.
23.1 Consent of Three Arrows Capital Corp.
23.2 Consent of Timothy J. McGary, Esq., (included in their opinion
set forth in Exhibit 5.1
23.3 Consent of Crutchley Marginot & Tosi.
23.4 Consent of Minter, Morrison and Grant, CPAs.
24 Power of Attorney (included as part of Signature Page).
27 Financial Data Schedule.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
pursuant to Rule 415 under the Securities Act, a post-effective amendment to
this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act;
(ii) To reflect in the prospectus any facts or events which,
individually or in the aggregate, represent a fundamental change in
the information in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the total dollar value 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 prospectus filed with the Securities and
Exchange Commission (the "Commission") pursuant to Rule 424(b) if, in
the aggregate, the changes in 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 in the effective registration
statement; (iii) To include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, to 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) To file a post-effective amendment to remove from registration any
of the securities that remain unsold at the end of the offering.
<PAGE>
Registrant hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
<PAGE>
SIGNATURE PAGE
POWER OF ATTORNEY TO SIGN AMENDMENTS
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Ralph D. Genuario with full power to
act without the other, his true and lawful attorney-in-fact and agent for him
and in his name, place and stead, in any and all capacities, to sign any or all
amendments to this Registration Statement and to file the same, with all
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 in and about the premises
in order to effectuate the same, as fully, for all intents and purposes, as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or any of them, may lawfully do or cause to be
done by virtue hereof. In accordance with the requirements of the Securities Act
of 1933, the registrant certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing on Form SB-2, and has duly caused
this registration statement to be signed on its behalf by the undersigned in
Virginia on December 21, 1999.
Registrant: e-Scrub Environmental Enterprises, Inc.
(d.b.a. E-Scrub Environmental Engineering, Inc.)
/s/ Ralph D. Genuario
Ralph D. Genuario
President, Director and Acting CFO
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Ralph D. Genuario President, Director and Acting CFO December 22, 1999
Ralph D. Genuario
/s/ Nicholas Confuorto Acting COO and Director December 22, 1999
Nicholas Confuorto
/s/ Dr. Maija Lisa Harkonen Director of Int'l Projects & Director December 22, 1999
Dr. Maija Lisa Harkonen
/s/ James Blackburn Chief Electrical Engineer December 22, 1999
James Blackburn
/s/ Elizabeth Richardson Director December 22, 1999
Elizabeth Richardson
/s/ Robert C. McFarlane Director December 22, 1999
Robert C. McFarlane
</TABLE>
By: /s/ Ralph D. Genuario
Ralph D. Genuario
ATTORNEY-IN-FACT
By power of attorney filed with Registration Statement No. 333-________________
<PAGE>
Exhibit 1
UNDERWRITING & SELLING AGREEMENT
In regard to the offerings being made by Virginia Accelerators Corporation
(VAC), or successors, in a stock offering under the Securities Act of 1933 or an
exemption, private placement, merger or acquisition, VAC agrees to pay to the
Three Arrows Capital Corp. (TAC):
1. A commission of 5.00% of the gross proceeds of the offering, contingent
upon achieving the minimum specified in the offering. Warrants on shares at
the offering price at the rate of one warrant per fifteen shares sold,
effective at the minimum, are also granted. The term of the warrants to run
from the date of this Agreement and for four years from the end of the
offering period, not to exceed five years from the initial offering date,
and cannot be sold, transferred, assigned or hypothecated for at least one
year from the effective date of the offering. One registration right is
granted.
2. A due diligence fee of $4,000 and consulting fee of $5,950 plus mutually
agreed expenses including fees of any state where Three Arrows Capital
Corp. must register for the VAC offering. If the offering is terminated,
TAC will be reimbursed only for the actual, accountable, out-of-pocket
expenses.
3. Hold Three Arrows Capital Corp. and its agents harmless from, and indemnify
their agents for, any and all costs of investigation of claims, costs,
expenses, attorney fees or other liabilities or disbursements arising out
of any administrative investigation or proceeding or any litigation,
commenced or threatened, relating to this underwriting which stem from any
misstatements or incorrect information from VAC principals, employees,
directors or agents, including without limitation, the implementation of
this Agreement, the distribution of stock or funds, the investment of
funds, the interpretation of this Agreement or similar matters. The
Underwriter will not be indemnified for any claims, costs, expenses or
other liability arising from its bad faith or negligence or that of its
employees, officers, directors or agents.
4. All subscription checks will be mailed to TAC for prompt deposit to the
Escrow Account, at the escrow agent, no later than noon of the next
business day. Such funds will be handled in accordance with the Escrow
Agreement filed as an exhibit to the offering document. TAC will fully
comply with the provisions of Rules 2730, 2740, 2750 and 2420 of the NASD
Conduct Rules.
For VAC For TAC
/s/ RALPH D. GENUARIO /s/ RONALD PETERSON
- --------------------------------- ---------------------------------
(Signature) (Signature)
RALPH D. GENUARIO, CEO RONALD PETERSON, PRESIDENT
- --------------------------------- ---------------------------------
(Name & title) (Name & title)
MARCH 1, 1999 FEBRUARY 23, 1999
- --------------------------------- ---------------------------------
(Date) (Date)
<PAGE>
Exhibit 3.1
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF e-SCRUB ENVIRONMENTAL ENTERPRISES, INC.
(formerly known as Virginia Accelerators Corporation)
The undersigned hereby file this Amended and Restated Articles of Incorporation
under the provisions of Title 13.1 of the Code of Virginia, hereby adopts the
following Amended and Restated Articles of Incorporation for such corporation:
ARTICLE I.
NAME
The name of the corporation is e-Scrub Environmental Enterprises, Inc.
ARTICLE II.
DURATION
The period of its duration is perpetual.
ARTICLE III.
PURPOSE
A. The purposes for which the Corporation is organized are:
1. to transfer electron beam accelerator technology for purposes of
environmental remediation, and other industrial application.
2. to transact any and all lawful business for which corporations may be
incorporated under the Code of Virginia; and,
3. to have and exercise all rights and powers that are now or may hereafter be
granted to a corporation by law.
B. The Corporation may in its bylaws confer powers, not in conflict with law,
upon its directors in addition to the foregoing and in addition to the powers
and authorities expressly conferred upon them by statute. The Corporation is a
for-profit corporation.
ARTICLE IV.
SHARE STRUCTURE
A. The Corporation shall have authority to issue two classes of shares, to be
designated respectively, "Class A" and "Class B". The total number of shares
which the Corporation is authorized to issue is Eleven Million Two Hundred Forty
Thousand Sixteen (11,240,016) shares. The number of Class A shares authorized is
Eleven Million (11,000,000) shares without par value. The number of Class B
shares authorized is Two Hundred Forty Thousand Sixteen (240,016) shares, which
are also without par value.
B. No shareholder will have a preemptive right to acquire unissued shares of
the Corporation.
ARTICLE V.
VOTING RIGHTS, SERIES, AMENDMENTS
A. All voting rights shall be vested in holders of Class A shares. Each
Class A shareholder may vote in person or by proxy for as many persons as there
are directors to be elected.
<PAGE>
B. The shares authorized by these Articles of Incorporation may be issued from
time to time in series. The shares of each such series shall be subject to the
provisions of this Article and additional provisions with respect to each such
series as shall be fixed by the Board of Directors as provided in this Article.
C. The Board of Directors of the Corporation shall have the power to amend
the Articles of Incorporation to fix in whole or part the preferences,
limitations and relative rights, within the limits of Section 13.1-638 of the
Virginia Corporations Act, or any successor statute, of (i) any class of
shares before the issuance of that class, or (ii) one or more of any series
within a class before the issuance of any shares of that series.
ARTICLE VI.
CONVERSION RIGHTS
A. The holders of Class B have the option to convert the Class B shares to
Class A shares. This option may be exercised at any time between the giving of
notice of conversion by the Board of Directors (which shall be a date, at the
option of the Board of Directors, after one year from the date the Corporation's
shares are listed on a national stock exchange, such as the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq Stock Market, and ending on
the close of business on the fifth day before the conversion date in the
conversion notice described below, by both (a) delivering to the Corporation a
written notice electing to convert the shares to Class A; and (b) surrendering
the certificate or certificates for the shares at the office of the Corporation
or transfer agent. On surrendering the shares duly endorsed to the Coorporation,
the shareholder is entitled to receive one Class A share for each Class B share
so converted (on payment of transfer taxes, if any, on the Class A shares to be
issued in exchange for the Class B shares).
B. The Corporation will mail, postage prepaid, notice of the beginning of the
conversion period, not fewer than 20 days or more than 60 days before the date
fixed for conversion. The notice is sent to each record holder of the Class B
shares to be converted at the shareholder's address as it appears on the
Corporation's books. The conversion notice must include the following
information: (1) the class or series of shares to be converted; (2) the date
fixed for conversion; (3) the conversion ration; and (4) the place where
shareholders may obtain new shares of Class A upon meeting requirements set
forth in paragraph C below.
C. The number of Class A shares to be issued as provided in paragraph A of
This article is adjusted approximately amending paragraph A to take into account
all increases or reductions in the number of outstanding Class A shares that
have accrued since the date the initial series was first issued, so as to fairly
and equitable preserve so far as reasonable possible the original conversion
rights of Class B shares. This provision applies when the number of Class A
shares has been affected by a split, share dividend, merger, or other capital
change or reorganization. When such an adjustment is required, no redemption
notice may be given until the amendment and adjustment have been accomplished.
D. When required to be completely convert the Class B shares, the Corporation
will issue fractional shares, or certificates representing fractional shares,
calculated to the nearest 1/100 share, on any terms that the Board of Directors
may fix. In making these calculations, fractions of less than 1/100 share shall
be disregarded. Fractional shares shall have the proportionally the same voting
<PAGE>
rights, dividends, and liquidation preferences as full shares of the same class
and series.
E. The initial series of converted shares may not be reissued and will cease
to be a part of the Corporation's authorized shares.
F. The Corporation must at all times reserve out of its authorized but
unissued Class A shares the full number of Class A shares that would be
deliverable on converting all Class B shares from time to time outstanding so
that it can convert its initial series of shares.
ARTICLE VIII.
BOARD OF DIRECTORS
The number of directors constituting the Board of Directors is up to seven.
Date: November 15, 1999
/s./ Ralph D. Genuario
- ----------------------
Ralph D. Genuario
Chairman of the Board of Directors
ATTEST:
/s./ MAIJA HARKONEN
- ----------------------
MAIJA HARKONEN, Secretary
Certificate pursuant to Section 13.1-711(D), Code of Virginia
I, MAIJA HARKONEN, Secretary of the above referenced corporation, do, pursuant
to 13.1-711(D), Code of Virginia, certify as follows:
1. That the above Amended and Restated Articles of Incorporation contained
certain amendments requiring the approval of the shareholders of the corporation
and amendments requiring only approval of the Board of Directors. Such
amendments are as follows:
a. Article I - Effects a change of name of the corporation from Virginia
Accelerators Corporation to e-Scrub Environmental Enterprises, Inc. requiring
approval of the shareholders.
b. Article IV(A) - Provides for in increase in the authorized number of "Class
A" shares of the Corporation from Five Million Five Hundred Thousand shares
to(5,500,000) to Eleven Million (11,000,000) shares requiring approval of
shareholders.
c. Deleting reference to the registered agent requiring only approval of the
Board of Directors.
2. That on the on the 11th day of October, 1999 the Board of Directors met and
approved the restatement of the Articles of Incorporation and recommended to the
Shareholders the approval of the above referenced amendments requiring their
approval.
3. That at the annual meeting of the shareholders held on the 15th day of
October, 1999 the shareholders approved such amendment, the information required
to be stated pursuant to Section 13.1-710(b) is as follows:
<PAGE>
a. The number of outstanding shares of the corporations is 4,420,340, all of
Class "A" shares, there is no outstanding shares of Class "B" stock, and no
voting groups exist within the Class "A" shares.
b. The total amount of total number of shares present, in person or by proxy,
and the number of shares voting for and against the amendments is as follows:
Present and Voting: 3,896,932
2. Article I amendment, providing for a change of name:
For: 3,896,932 (100%)
Against: 0 (0%)
3. Article IV(A) amendment, providing for an increase in authorized shares:
For: 3,896,932 (100%)
Against: 0 (0%)
c. The undersigned, in her capacity as the Secretary of the Corporation
certifies that the above referenced amendments were approved by both the board
of directors and shareholders of the corporation in accordance with the Articles
of Incorporation, the Bylaws and the general corporate law of Virginia.
Dated: November 15, 1999
/s./ MAIJA HARKONEN
- ----------------------
MAIJA HARKONEN, Secretary
AMENDMENT TO THE ARTICLES OF INCORPORATION
Of Virginia Accelerators Corporation
The undersigned hereby file this Amendment to the Articles of Incorporation
under the provisions of Title 13.1 of the Code of Virginia, hereby adopts the
following:
Article IV of the existing articles incorporation is hereby repealed and the
following is adopted in its place, with an effective date of April 1, 1998::
ARTICLE IV.
SHARE STRUCTURE
A. The Corporation shall have authority to issue two classes of shares, to be
designated respectively, "Class A" and "Class B". The total number of shares
which the Corporation is authorized to issue is Five Million Seven Hundred Forty
Sixteen Thousand (7,420,016) shares. The number of Class A shares authorized is
Five Million Five Hundred (5,500,000) shares without par value. The number of
Class B shares authorized is Two Hundred Forty Thousand Sixteen (240,016)
shares, which are also without par value.
<PAGE>
B. No shareholder will have a preemptive right to acquire unissued shares of the
Corporation.
Date: November 15, 1999
/s./ RALPH D. GENUARIO
- ----------------------
RALPH D. GENUARIO, Chairman of the Board of Directors
ATTEST:
/s./ MAIJA HARKONEN
- ----------------------
MAIJA HARKONEN, Secretary
Certificate pursuant to Section 13.1-710, Code of Virginia
I, MAIJA HARKONEN, Secretary of the above referenced corporation, do, pursuant
to Section 13.1-710, Code of Virginia, certify as follows:
1. That the above Amended Articles of Incorporation contained certain
amendments requiring the approval of the shareholders of the corporation. Such
amendments effect a reduction of the stated capital of the corporation, by
reducing the number of authorized "Class "B" shares from Two Million One Hundred
Thousand (2,100,000) shares to Two Hundred Forty Thousand Sixteen (240,016)
shares.
2. That on the on the 5th day of January, 1998 the Board of Directors met and
approved the restatement of the Articles of Incorporation and recommended to the
Shareholders the approval of the above referenced amendments requiring their
approval.
3. That at the special meeting of the shareholders held on the 5th day of
January, 1998 the shareholders approved such amendment, the information required
to be stated pursuant to Section 13.1-710(b) is as follows:
a. The number of outstanding shares of the corporations is 2,176,300 of Class
"A" shares, there were 1,790,300 outstanding shares of Class "B" stock, and no
voting groups exist within the Class "A" shares, and Class "B" shares enjoy no
voting rights.
b. That contemporaneously with the adoption of this amendment the shareholders
of the corporation approved a plan whereby the holders of Class B shares of
stock would be issued a share of Class A stock in exchange for, and not in
addition to, each share of Class "B" stock held.
c. The total amount of total number of shares present, in person or by proxy,
and the number of shares voting for and against the amendments is as follows:
Voting Group - A (Class A Shares)
1. Present and Voting: 1,856,700 shares (Class A)
2. Those voting on such amendment
For: 1,856,700
Against: 0
Voting Group - B (Class B Shares)
1. Present and Voting: 1,010,000
2. Those voting on such amendment:
For: 1,010,000
Against: 0
<PAGE>
d. The undersigned, in her capacity as the Secretary of the Corporation
certifies that the above referenced amendments were approved by both the board
of directors and shareholders of the corporation in accordance with the Articles
of Incorporation, the Bylaws and the general corporate law of Virginia.
Dated: November 15, 1999
/s./ MAIJA HARKONEN
- ----------------------
MAIJA HARKONEN, Secretary
<PAGE>
Exhibit 3.2
NOTICE
AMENDMENTS TO THE BY-LAWS
At the annual meeting of the shareholders of Virginia Accelerators Corporation
held on October 31, 1997 two resolutions were passed to amend the By-laws of the
corporation:
(1) The date of the annual meeting of Shareholders was changed from October 31,
1997 to the third Friday of October. (Article 2 & 1).
(2) The time of sending the notice of the shareholders' meeting was changed
from "not less than three nor more than ten days before the date of the
meeting" to "30-37 days prior to the annual meeting.
DEC 4, 1996
AMENDED AND RESTATED BY-LAWS OF
VIRGINIA ACCELERATORS CORPORATION
ARTICLE I.
OFFICES
The place where the principal business of the corporation will be transacted is
301 South West Street, Alexandria. Virginia 22314. The corporation may have such
other offices. either within or without the State of Virginia as the Board of
Directors may designate or as the business of the corporation may from time to
time require.
ARTICLE II.
STOCKHOLDERS
1. ANNUAL MEETING. The annual meeting of the stockholders shall be held on the
31st day of October in each year, beginning with the year 1995, at 7 o'clock
p.m., for the purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday such meeting shall be held on the next
succeeding business day.
2. SPECIAL MEETINGS. Special meetings of the stockholders. for any purpose or
purposes. unless otherwise prescribed by statute. may be called by the president
or by the directors. and shall be called by the president at the request of the
holders of not less than 51% of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING. The Directors may designate any place, either within or
without the State unless otherwise prescribed by statute, and the place of
meeting for any annual meeting or for any special meeting called by the
Directors. A waiver of notice sinned by all stockholders entitled to vote at a
meeting may designate any place, either within or without the state unless
otherwise prescribed by statute, and the place for holding such meeting. If no
designation is made. or if a special meeting be otherwise called, the place of
meeting shall be at the principal office of the corporation.
<PAGE>
4. NOTICE OF MEETING. Written or printed notice stating the place, day and
hour of the meeting and, in case of a special meeting, the purpose or purposes
for which the meeting is called. shall be delivered not less than three nor more
than ten days before the date of the meeting, either personally or by mail, by
or at the direction of the President, or the Secretary, or the officer or
persons calling the meeting, to each Stockholder of record entitles to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail. addressed to the Stockholder at his address
as it appears on the stock transfer books of the corporation, with postage
thereon prepaid.
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE. For the purpose of
determining Stockholders entitled to notice of or to vote at any meeting of
Stockholders or any adjournment thereof, or Stockholders entitled to receive
payment of any dividend. or in order to make a determination of Stockholders for
any other proper purpose, the Directors of the corporation may provide that the
stock transfer books shall be closed for a stated period but not to exceed, in
any case, 30 days. If the stock transfer books shall be closed for the purpose
of determining stockholders entitled to notice of or to vote at a meeting of
stockholders, such books shall be closed for at least 30 days immediately
preceding such meeting. In lieu of closing the stock transfer books, the
directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than 30 days
and, in case of a meeting of stockholders, not less than 30 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of Stockholders entitled to notice of or to vote at
a meeting of stockholders, or Stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the Directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of Stockholders. When a
determination of Stockholders entitled to vote at any meeting of stockholders
had been made as provided in this section, such determination shall apply to any
adjournment thereof.
6. VOTING LISTS. The officer or agent having charge of the stock transfer
books for shares of the corporation shall make, at least 30 days before each
meeting of stockholders, a complete list of the stockholders entitles to vote at
such meeting, or any adjournment thereof, arranged in alphabetical order, with
the address of and the number of shares held by each, which shall be kept on
file at the principal office of the corporation and shall be subject to
inspection by any stockholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any stockholder during the whole time of
the meeting. The original stock transfer book shall be prima facie evidence as
to who are the stockholders entitled to examine such list or transfer books or
to vote at the meeting of stockholders.
7. QUORUM. At any meeting of stockholders a majority of the outstanding shares
of the corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum. If less than said number of the outstanding shares are
represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The stockholders present at a duly organized meeting may continue to
<PAGE>
transact business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.
8. PROXIES. At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder or by his duly authorized attorney in
fact. Such proxy shall be filed with the secretary of the corporation before or
at the time of the meeting.
9. VOTING. Each stockholder of Class A Shares is entitled to vote in
accordance with the terms and provisions of the certificate of incorporation and
these by-laws. Each stockholder of Class A shares shall be entitled to one vote,
in person or by proxy, for each share of stock. The corporation also has class B
shares which are non-voting shares. Upon the demand of any stockholder, the vote
for directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote: all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS. The order of business at all meeting of the
stockholders, shall be as follows:
a. Roll Call
b. Proof of notice of meeting or waiver of notice;
c. Reading of minutes of preceding meeting;
d. Reports of Officers;
e. Reports of Committees;
f. Election of Directors;
g. Unfinished Business; and
h. New Business.
11. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise provided by law, any
action required to be taken at a meeting of the stockholders, or any other
action which may be taken at a meeting of the stockholders, may be taken without
a meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the stockholders entitled to vote with respect to the subject
matter thereof.
ARTICLE III
BOARD OF DIRECTORS
1. GENERAL POWERS. The business and affairs of the corporation shall be
managed by its board of directors. The directors shall in all cases act as a
board. and the may adopt such rules and regulations for the conduct of their
meetings and the management of the corporation. as they may deem proper, not
inconsistent with these by-laws and the laws of this State.
2. NUMBER, TENURE AND QUALIFICATIONS. The number of directors of the
corporation shall be up to seven. Each director shall hold office until the next
annual meeting of stockholders and until his successor shall have been elected
and qualified. The number of directors may be increased or decreased (provided
such decrease does not shorten the term of any incumbent director) from time to
time by amendment to this bylaw by a vote of the majority of the then serving
directors: provided however, that, the directors may not increase or decrease
the number of directors by more than 30% of the number of directors elected by
the stockholders.
<PAGE>
3. REGULAR MEETINGS. A regular meeting of the directors, shall be held without
other notice than this by-law immediately after, and at the same place as, the
annual meeting of stockholders. The directors may provide, by resolution, the
time and place for the holding of additional regular meetings without other
notice than such resolution.
4. SPECIAL MEETINGS. Special meetings of the directors may be called by or at
the request of the president or any two directors. The person or persons
authorized to call special meetings of the directors may fix the place for
holding any special meeting of the directors called by them.
5. NOTICE. Notice of any special meeting shall be given at least three days
previously thereto by written notice delivered personally, or by telegram or
mailed to each director at his business address. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notice be given by telegram, such notice shall
be deemed to be delivered when the telegram is delivered to the telegraph
company. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM. At any meeting of the directors three shall constitute a quorum for
the transaction of business, but if less than said number is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
7. MANNER OF ACTING. The act of the majority of the directors present at a
meeting at which a quorum is present shall be the act of the directors.
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Newly created directorships
resulting from an increase in the number of directors and vacancies occurring in
the board for any reason except the removal of directors without cause may be
filled by a vote of a majority of the directors then in office, although less
than a quorum exists. Vacancies occurring by reason of the removal of directors
without cause shall be filled by vote of the stockholders. A director elected to
fill a vacancy caused by resignation. death or removal shall be elected to hold
office for the unexpired term of his predecessor.
9. REMOVAL OF DIRECTORS. Any or all of the directors may be removed for cause
by vote of the stockholders or by action of the board. Directors may be removed
without cause only by vote of the stockholders.
10. RESIGNATION. A director may resign at any time by giving written notice to
the board. the president or the secretary of the corporation. Unless otherwise
specified in the notice. the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION. Members and Advisors of the Board of Directors can be
compensated as a fixed sum and expenses and/or stock options for actual
attendance at each regular or special meeting of the Board of Directors. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
12. PRESUMPTION OF ASSENT. A director of the corporation who is present at a
meeting of the directors at which action on any corporate matter is taken shall
<PAGE>
be presumed to have assented to the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof or shall forward such dissent by registered mail
to the secretary of the corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
13. EXECUTIVE AND OTHER COMMITTEES. The board, by resolution, may designate
from among its members an executive committee and other committees, each
consisting of three or more directors. Each such committee shall serve at the
pleasure of the board.
14. EMPLOYEES. The board of directors shall have the power to employ or to
authorize the employment of a president and such other offices and employees as
may be deemed necessary, to prescribe the duties thereof, and to fix their
compensation.
15. BONDS. The board of directors may require all officers, employees and
agents of the corporation handling funds or property belonging to or in the
possession or under the control of the corporation to furnish the corporation
with a satisfactory bond of indemnity, indemnifying the corporation and its
members against any fraudulent, dishonest or unlawful act on the part of such
officers and employees. Such bonds shall be furnished by a responsible bonding
company and shall be approved by the board of directors.
16. OFFICES AND RECORDS. The directors may have or establish one or more
offices of the corporation and keep the books and records of the corporation,
except as otherwise provided by statute. in such place or places in the State of
Virginia or outside the State of Virginia, as the board of directors may from
time to time determine.
ARTICLE IV.
OFFICERS
1. NUMBER. The officers of the corporation shall be a president. a
vice-president, a secretary and a treasurer, each of whom shall be elected by
the directors. Such other officers and assistant officers as may be deemed
necessary may be elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE. The officers of the corporation to be elected
by the directors shall be elected annually at the first meeting of the directors
held after each annual meeting of the stockholders. Each officer shall hold
office until his successor shall have been duly elected and shall have qualified
or until his death or until he shall resign or shall have been removed in the
manner hereinafter provided.
3. REMOVAL. Any officer or agent elected or appointed by the directors may be
removed by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES. A vacancy in any office because of death, resignation, removal.
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
<PAGE>
5. PRESIDENT. The president shall be the principal executive officer of the
corporation and. subject to the control of the directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of the
directors. He may sign, with the secretary or any other proper officer of the
corporation thereunto authorized by the directors, certificates for shares of
the corporation, and deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the corporation, or shall be
required by law to be otherwise signed or executed: and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
6. VICE-PRESIDENT. In the absence of the president or in event of his death,
inability or refusal to act, the vice-president shall perform the duties of the
president, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the president. The vice-president shall perform such
other duties as from time to time may be assigned to him by the President or by
the directors.
7. SECRETARY. The secretary shall keep the minutes of the stockholders' and of
the directors' meetings in one or more books provided for that purpose, see that
all notices are duly given in accordance with the provisions of these by-laws or
as required. be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the directors.
8. TREASURER. If required by the directors, the treasurer shall give a bond
for the faithful discharge of his duties in such sum and with such surety or
sureties as the directors shall determine. He shall have charge and custody of
and be responsible for all funds and securities of the corporation: receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever. and deposit all such moneys in the name of the corporation in such
banks. trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
9. SALARIES. The salaries of the officers shall be fixed from time to time by
the directors and no officer shall be prevented from receiving such salary by
reason of the fact that he is also a director of the corporation.
ARTICLE V.
CONTRACTS. LOANS CHECKS AND DEPOSITS
1. CONTRACTS. The directors may authorize any officer or officers, agent or
agents. to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the corporation, and such authority may be general or
confined to specific instances.
2. LOANS. No loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
<PAGE>
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name of the
corporation, shall be signed by such officer or officers, anent or agents of the
corporation and in such manner as shall from time to time be determined by
resolution of the directors; provided, however, that if, when, after, and as
authorized or provided for by resolution or resolutions of the board of
directors the signature or signatures of any such officer or officers, person or
persons. may be facsimile or facsimiles, engraved or printed, and shall have the
same force and effect and bind the corporation as though such officer or
officers, person or persons, had signed the same personally, and, in event of
the death, disability, removal, or resignation of any such officer or officers,
person or persons, as though and with the same effect as if such death.
disability, removal, or resignation had not occurred.
4. DEPOSITS. All funds of the corporation not otherwise employed shall be
deposited from time to time to the credit of the corporation in such banks,
trust companies or other depositaries as the directors may select.
ARTICLE VI.
CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES. Certificates representing shares of the
corporation shall be in such form as shall be determined by the directors. Such
certificates shall be signed by the president and by the secretary or by such
other officers authorized by law and by the directors. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the stockholders, the number of shares and date )f issue, shall be
entered on the stock transfer books of the corporation. All certificates
surrendered to the corporation for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and canceled, except that in case of a lost.
destroyed or mutilated certificate a new one may be issued therefor upon such
terms and indemnity to the corporation as the directors may prescribe.
2. TRANSFERS OF SHARES.
a. Upon surrender to the corporation or the transfer agent of the corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession. assignment or authority to transfer, it shall be the duty of the
corporation to issue a new certificate to the person entitled thereto, and
cancel the old certificate; every such transfer shall be entered on the transfer
book of the corporation which shall be kept at its principal office.
b. The corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof, and. accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
3. REGULATIONS. The board of directors shall have power and authority to make
all such rules and regulations as they may deem expedient concerning the issue,
transfer, and registration or the replacement of certificates for shares of the
capital stock of the corporation.
<PAGE>
ARTICLE VII.
FISCAL YEAR
The fiscal year of the corporation shall begin on the 1st day of January, in
each year.
ARTICLE VIII.
DIVIDENDS
The directors may from time to time declare, and the corporation may pay,
dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX.
SEAL
The directors shall provide a corporate seal which shall be circular in form and
shall have inscribed thereon the name of the corporation, the state of
incorporation. year of incorporation and the words "Corporate Seal".
ARTICLE X.
WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice is required to be given to
any stockholder or director of the corporation under the provisions of these
by-laws or under the provisions of the articles of incorporation, a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein. shall be deemed equivalent to
the giving of such notice.
ARTICLE XI.
AMENDMENTS
These by-laws may be altered, amended or repealed and new by-laws may be adopted
by a vote of the stockholders representing a majority of all the shares issued
and outstanding, at any annual stockholders' meeting or at any special
stockholders' meeting when the proposed amendment has been set out in the notice
of such meeting.
ARTICLE XII.
LIMITATION OF LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
1. NON-LIABILITY OF DIRECTORS AND OFFICERS IN SOME CASES. No director or
officer or member of the executive committee shall be liable for acts as such if
excused from liability under any present or future provision or provisions of
the Virginia Business Corporation Act; and, in addition, to the fullest extent
now or hereafter permitted by the Virginia Business Corporation Act, each
officer or director or member of the executive committee shall, in the discharge
of any duty imposed or power conferred upon him or her by the corporation, be
fully protected if, in the
<PAGE>
exercise of ordinary care, such officer, director, or member of the executive
committee acted in good faith and in reliance upon the written opinion of any
attorney of the corporation, the books of account or reports made to the
corporation by any of its officials or by an independent certified public
accountant, or by an appraiser selected with reasonable care by the board of
directors or by such committee, or in reliance upon other records of the
corporation.
2. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Each director, officer, former
director, and former officer of this corporation and each person who may have
served at its request as a director or officer of another corporation in which
it owned shares of capital stock or of which is a creditor, shall be and hereby
is, indemnified by the corporation against liabilities imposed upon such
director or officer and against expenses actually and reasonably incurred in
connection with any claim made against such person, or the defense of any action
suit, or proceeding to or in which such person is or may be made a party by
reason of being or having been such director or officer, and against such sums
as independent counsel selected by the board of directors shall deem reasonable
payment made in settlement of any such claim, action, suit, or proceeding
primarily with a view of avoiding expenses of litigation; provided, however,
that no director or officer shall be indemnified with respect to matters as to
which that person shall be adjudged in such action. suit, or proceeding to be
liable for negligence or misconduct in performance of duty. or with respect to
any matters which shall be settled by the payment of sums which counsel selected
by the board of directors shall not deem reasonable payment, made primarily with
a view to avoiding expenses of litigation, or with respect to matters for which
such indemnification shall be in addition to, but shall not exclude, any other
rights to which directors or officers may be entitled.
ARTICLE XIII.
BOOKS. DOCUMENTS AND ACCOUNTS
1. LOCATION. The directors shall have power to keep the books, documents. and
accounts of the corporation outside the State of Virginia, except that a record
of its stockholders, giving the names and addresses of all stockholders and the
number and class of shares held by each. shall be kept at its registered office
or principal place of business or at the office of its transfer agent or
registrar and the original or a duplicate stock ledger shall at all times be
kept within the State of Virginia.
2. OPEN TO INSPECTION. All books and records provided by statute shall be open
to inspection by the stockholders. The stockholders may examine such books and
records at all reasonable times.
ARTICLE XIV.
MISCELLANEOUS PROVISIONS
1. RESIGNATIONS. Any director or officer may resign at any time. Each such
resignation shall be made in writing and shall take effect at the time specified
therein, or, if no time be specified, at the time of its receipt by either the
directors or the president or the secretary. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided in the
resignation.
<PAGE>
2. SIGNING OF CHECKS, NOTES, ETC. In addition to and cumulative of, but in no
way limiting or restricting, any other provision or provisions of these by-laws
which confer any authority relative thereto, all checks, drafts, and other
orders for the payment of money or monies out of funds of the corporation and
all notes and other evidences of indebtedness of the corporation shall be signed
on behalf of the corporation, in such manner, and by such officer or officers,
person or persons, as shall from time to time be determined or designated by or
pursuant to resolution or resolutions of the board of directors.
3. PERSONS. Wherever used or appearing in these by-laws, the singular shall
include the plural wherever appropriate.
4. LAWS AND STATUTES. Wherever used or appearing in these by-laws, the words
"law", "laws", "statute", and "statutes", shall mean and refer respectively, to
laws and statutes, or a law or a statute, of the State of Virginia, to the
extent only that such is or are expressly applicable, except where otherwise
expressly stated or the context requires that such words not be so limited.
<PAGE>
Exhibit 3.3
State Corporation Commission
I Certify the Following from the Records of the Commission:
VIRGINIA ACCELERATORS CORPORATION is a corporation existing under and by virtue
of the laws of Virginia, and is in good standing.
The date of incorporation is February 15, 1995. Nothing more is hereby
certified.
Signed and Sealed at Richmond on this Date: November 9, 1999
/s./ Joel H. Peck
- ------------------------------------------
Joel H. Peck, Clerk of the Commission
<PAGE>
Exhibit 4.1
SPECIMEN OF SECURITY
Standard Stock Certificate
<PAGE>
Exhibit 5.1
TIMOTHY J. MCGARY
ATTORNEY AT LAW
10500 SAGER AVENUE, SUITE F
FAIRFAX, VIRGINIA 22030-2418
TELEPHONE (703) 591-1336
FAX (703) 591-2253
November 17, 1999
e-Environmental Enterprises, Inc.
301 S. West Street
Alexandria, Virginia 22314
Re: e-Scrub Environmental Enterprises, Inc.
Gentlemen,
I have acted as counsel to e-Scrub Environmental Enterprises, Inc. (f.k.a.
Virginia Accelerators Corp.), a corporation organized and existing under the
laws of the Commonwealth of Virginia (the "Company"), in connection with the
offering and sale of up to a maximum of eight hundred thousand (800, 000) shares
of common stock ("Shares") of the Company. In addition to this assignment the
undersigned routinely functions as the general counsel to the corporation on a
contract basis.
In connection with my representation of the Company, I have not been requested
to, nor have I assisted the Company in connection with the preparation,
execution and delivery of the offering documents and am not familiar with the
certain steps taken by the Company in connection therewith. I have, for the
purposes of this opinion, only been requested to verify that the Company was a
legitimate company, authorized to do business and in good standing with the
Commonwealth of Virginia.
I have made such inquiry of the officers of the Company and have examined such
corporate and other records, documents, agreements and instruments, certificates
of the officers of the Company and of public officials and have examined such
questions of law as I have deemed necessary for the purposes of this opinion. In
rendering this opinion, I have relied, as to all questions of fact material to
this opinion, upon certificates of public officials and the officers of the
Company. I have assumed the genuineness of all signatures and the authenticity
of all documents submitted to me as originals and the conformity to original
documents of all documents submitted to me as copies, whether certified or not.
In rendering my opinion, I have relied on the following documents:
1. The Certificate of Incorporation issued by the State Corporation
Commission, dated February 15, 1995.
2. A copy of the Bylaws of the Corporation
3. The minute book and other corporate records containing resolutions of the
shareholders, board of directors, and various amendments to the Articles of
Incorporation culminating in a restatement of the Articles of Incorporation
dated December 12, 1996 and a restatement of the Articles of Incorporation
adopted by the Board of Directors and Shareholders on October 11, and October
<PAGE>
15, 1999 respectively, such restatement as been forwarded to the State
Corporation Commission, but a certificate of Amendment as not been issued.
4. A certificate of the State Corporation Commission dated November 9, 1999
indicating that the corporation was organized on February 15, 1995 and remains a
duly incorporated and validly existing corporation under the laws of the
Commonwealth of Virginia.
The documents identified in clauses (1) through (4) above are herein referred to
as the "Documents".
In rendering this opinion, I have assumed the following to be true:
(1) The authenticity and completeness of all Documents submitted to me as
originals and the conformity to original documents of all documents submitted to
me as copies;
(2) Regarding Documents executed by parties, that such parties (if they are
corporations) have the corporate power to enter into and perform all obligations
under those Documents, the due authorization by all requisite corporate action
of the execution, delivery, and performance of the Documents by such parties (if
they are corporations);
(3) Physical delivery of the Documents where delivery is a prerequisite to
their enforceability; and
(4) The capacity of natural persons.
(5) The issuance by the Virginia State Corporation Commission of a certificate
of Amendment with respect to the amendments adopted on October 15, 1999.
I disclaim any responsibility for any changes that might have occurred with
respect to the status of the Company, or any other factual matters addressed in
the Certificate of Good Standing ("Certificate") from and after the date of the
Certificate. I also assume that the Certificate from public officials and the
records upon which it is based are accurate and complete. Factual matters
concerning the Company stated to be "to the best of my knowledge" are based on
my general knowledge in connection with my limited representation of the company
without any special investigation.
Based on the foregoing, and in reliance on and subject to the assumptions,
qualifications, exceptions, and limitations set forth in this letter, I am of
the opinion that:
The Shares have been, or will be, upon the occurrence of the issuance of the
certificate mentioned in paragraph (5) above, duly and validly authorized and
will after the registration statement relating thereto has been declared
effective by the securities administrators of the state or body in which it was
filed, and upon issuance and delivery against receipt by the Company of the
offering price specified in such registration statement, be legally validly
issued, paid and non-assessable.
This opinion is provided to you as a legal opinion and not as a guarantee of the
matters discussed herein. My opinion is strictly limited to the matters
expressly stated herein, and no other opinions may be implied or inferred.
<PAGE>
The sole claim of any invalidity of or irregularity in any corporate action that
is known to the undersigned is a certain action pending in the United States
District Court for the District of Columbia, between M. Diane a former director
of the company and the Company. Mr. Diane, makes certain unspecified allegations
of irregularity of notice of a shareholders meeting, among other claims with
respect the dealings between Mr. Diane and the company. However, such action
does not seek any remedy that includes the invalidation of the action of the
shareholder at such meeting.
This opinion is rendered as of the date set forth above. I expressly disclaim
any obligation to advise you of any changes in the circumstances, laws, or
events that may occur after this date or otherwise to update this opinion.
Thank you for your consideration and co-operation in this regard. If you have
any further questions or require any additional information, please do not
hesitate to contact me at the above telephone number.
Sincerely,
/s./ Timothy J. McGary
- ----------------------
Timothy J. McGary
<PAGE>
Exhibit 10.1
ESCROW AGREEMENT
This ESCROW AGREEMENT is made and entered into this first day of September
1999 by and between e-SCRUB, Inc. a Virginia Corporation (the "COMPANY"); Three
Arrows Capital Corp. (the "UNDERWRITER") and The Business Bank, (the "ESCROW
AGENT").
BACKGROUND. Pursuant to the Offering of the Company dated on or about
October 15, 1999, the Company is offering for sale through Three Arrows Capital
Corp., shares of common stock (the "SHARES"), $______ par value per share, of
the Company (the "COMMON STOCK") at a price of $20.00 per share (the
"OFFERING"). Those persons who desire to purchase shares ("SUBSCRIBERS") are
required to execute and deliver to the Underwriter a subscription agreement
("SUBSCRIPTION AGREEMENT") and are required to pay the purchase price of the
shares subscribed for by check, directed or made payable, to the Escrow Agent as
escrow agent for the Company.
The sale of any shares pursuant to the Offering is subject to various
conditions, including the receipt of acceptable Subscriptions and payment in
respect of the shares of Common Stock. The purpose of this Escrow Agreement is
to assure that no proceeds of the Offering are disbursed to or on behalf of, the
Company until the conditions set forth herein shall be satisfied. Once
acceptable Subscriptions and funds for the minimum number of shares have been
received, the Escrow Agent, pursuant to this Escrow Agreement, funds will be
released to the Company. The parties hereto, wish to set forth herein the terms
and conditions governing the escrow account and the funds being delivered to and
held by the Escrow Agent.
NOW THEREFORE, in consideration of the mutual promises herein contained,
each intending to be legally bound hereby, the parties hereto agree as follows:
1. ESCROW AGENT. On behalf of the Subscribers, the Company hereby
designates and appoints The Business Bank as Escrow Agent to serve in accordance
with the terms and conditions of this Escrow Agreement and the Escrow Agent
agrees to act as such Escrow Agent in accordance with the terms and conditions
of this Escrow Agreement.
2. CREATION OF ESCROW. At any time and from time to time after the date
hereof until completion of the Offering and Closing thereunder, the Underwriter
shall cause to be delivered to the Escrow Agent, from the Subscribers, funds or
instruments payable to the Escrow Agent as escrow agent representing the
purchase price of shares subscribed for by Subscribers. The Escrow Agent shall
accept and hold in escrow all such funds so received by it for deposit in escrow
hereunder (the "ESCROWED FUNDS") until released as set forth herein. The Escrow
Agent shall maintain books and records of account detailing the source of all
funds received by the Escrow Agent.
3. INVESTMENT OF ESCROWED FUNDS. Pending release from escrow, the Escrowed
Funds shall be invested by the Escrow Agent in interest bearing short-term
United States government securities or other short-term federally insured money
market investments which are readily liquid. All interest accrued on the
Escrowed Funds or interest earned on the Escrowed Funds shall be retained by the
Escrow Agent as part of the Escrowed Funds and released in accordance with the
provisions of this
1
<PAGE>
Escrow Agreement. It is acknowledged and agreed that the Escrowed Funds,
including any interest or earnings thereon, are not assets or deposit
liabilities of the Escrow Agent or the Company, but constitute funds submitted
to the Escrow Agent by the Subscribers for safekeeping, pending disbursement in
accordance with the provisions of this Escrow Agreement.
4. INFORMATION. The Company has undertaken responsibility for tax reporting
of the interest or other amounts earned on the Escrowed Funds with respect to
each Subscriber in the event of the release of Escrowed Funds in accordance with
the provisions of Section 5(b) hereof, and disbursement of said interest or
other earnings to Subscribers. From time to time upon the request of the
Underwriter as agent for the Subscribers, the Escrow Agent shall furnish to the
Underwriter a statement of the amount of Escrowed Funds held by the Escrow
Agent, the approximate amount of any accrued interest thereon, and such
information as the Underwriter may reasonably request, The Escrow Agent shall
immediately notify the Underwriter if any check or instrument representing
Escrowed Funds or other purported transfer to Escrow Agent of Escrowed Funds
fails to result in the actual delivery of funds to the Escrow Agent.
5. RELEASE OF ESCROWED FUNDS.
(a) RELEASE OF ESCROWED FUNDS TO THE COMPANY. Immediately upon the receipt
of the Officer's Certificate of the Company as described below, the Escrow Agent
shall release and deliver to the Company such portion of the Escrowed Funds as
represents payment of the purchase price of shares in respect of which the
Company has accepted Subscriptions plus all interest or other earnings accrued
on such portion of the Escrowed Funds. The Escrow Agent shall not release any
portion of the Escrowed Funds to the Company unless the following condition (the
"CONDITION") shall have been satisfied: it has received a certification of the
President or Chairman of the Board of Directors of the Company to the effect
that (i) the Company has received acceptable Subscriptions (including payment in
full of the purchase price) with respect to not less than 15,000 shares, and has
accepted Subscriptions with respect to not less than 15,000 shares, and all
terms of the Offering have been complied with. Such certification shall also
indicate the number of shares with respect to which Subscriptions have been
accepted and the number of shares, if any, and identity of the Subscribers with
respect to which Subscriptions have been rejected. Notwithstanding anything to
the contrary contained herein, the delivery of the foregoing certification shall
be in the sole discretion of the Company, and nothing contained herein shall
constitute any obligation, express or implied, of the Company to deliver such
certification, or to deliver it at any specified time.
(b) RELEASE OF ESCROWED FUNDS TO SUBSCRIBERS. Immediately after receiving a
certification of the President or Chairman of the Board of Directors of the
Company to the effect that the Company has either (i) terminated the Offering in
whole or in part; or (ii) rejected, revoked or canceled in whole or in part any
Subscription; or if the Condition shall not have been satisfied prior to October
15, 2000 then the Escrow Agent shall return to the Subscriber whose Subscription
shall have been rejected, revoked or canceled, in whole or in part, as a result
of termination of the Offering, the failure of satisfaction of the Condition
prior to October 15, 2000 or otherwise, Escrowed Funds representing such
Subscriber's rejected, revoked or canceled payments, or all Subscribers'
payments in the event of termination of the Offering as a whole or the failure
of satisfaction of the Condition, without such Subscriber's share of any
interest or other earnings accrued on such portion of the
2
<PAGE>
Escrowed Funds.
6. LIMITATION OF LIABILITY. It is agreed that the duties of the Escrow
Agent are limited to those herein specifically provided and are ministerial in
nature. It is further agreed that the Escrow Agent shall incur no liability
whatsoever except by reason of its willful misconduct, gross negligence or bad
faith. The Escrow Agent shall be under no obligation in respect to amounts held
in escrow hereunder other than faithfully to follow the instructions herein
contained or delivered to the Escrow Agent in accordance with this Escrow
Agreement. It shall not be required to institute legal proceedings of any kind.
It shall have no responsibility for the genuineness or validity of any document
or other item deposited with it, and it shall be fully protected in acting in
accordance with the Escrow Agreement upon written instructions given to it and
reasonably believed by it to have been duly executed by the Company or
Underwriter in accordance herewith. The Company shall indemnify and hold the
Escrow Agent harmless with respect to anything done by the Escrow Agent in good
faith in any and all matters covered by this Agreement in accordance with the
instructions or provisions set forth herein. NEITHER THE ESCROW AGENT NOR ANY OF
ITS OFFICERS, DIRECTORS OR EMPLOYEES HAVE REVIEWED THE OFFERING NOR HAVE THEY OR
DO THEY MAKE ANY REPRESENTATIONS, OR STATEMENTS REGARDING THE TRUTH, ACCURACY OR
EFFECTIVENESS OF THE OFFERING.
7. COMPENSATION. The Company shall pay all compensation, expenses and other
charges of the Escrow Agent relating to its services hereunder, including all
fees and commissions relating to the investment of the aforesaid escrowed funds,
for so long as the Escrow Agent holds any amount in Escrow hereunder. The Escrow
Agent shall not make any deduction or setoff of the amount of compensation for
its services hereunder (including all expenses, fees and commissions) against
the Escrowed Funds.
8. RESIGNATION. The Escrow Agent, or any successor to it hereafter
appointed, may at any time resign by giving notice in writing to the Company and
Underwriter and, upon the appointment of a successor Escrow Agent as hereinafter
provided, shall be discharged from any further duties hereunder, In the event of
such resignation, a successor Escrow Agent, which shall be a bank or trust
company organized under the laws of the United States of America, shall be
appointed by the Company. Any such successor Escrow Agent shall deliver to the
Company and Underwriter a written instrument accepting such appointment
hereunder, and thereupon it shall succeed to all of the unaccrued rights and
duties of the Escrow Agent hereunder and shall be entitled to receive all of the
then remaining amounts held in escrow hereunder.
9. TERMINATION. This Escrow Agreement shall terminate upon the earlier of,
(i) the receipt by the Escrow Agent of a written notice of termination signed by
the Company accompanied by sufficient certifications or other documentation to
verify that all Subscriptions and commitments to which the Escrowed Funds relate
shall have been accepted and certificates representing such Shares issued, or
rejected in whole; or (ii) the distribution of all of the Escrowed Funds in
accordance with this Escrow Agreement. Upon termination pursuant to clause (i)
above, the Escrow Agent shall deliver any Escrowed Funds remaining after return
to Subscribers of Escrowed Funds representing rejected Subscriptions as
instructed in such notice of termination in accordance with the provisions of
Section 5(b) hereof
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<PAGE>
10. NOTICES. Except as otherwise provided in this Agreement, any notice or
other communication hereunder shall be in writing and shall be deemed delivered
upon personal delivery or upon receipt if sent by facsimile transmission,
express delivery service or mailed by registered or certified first class mail,
postage prepaid, and addressed as follows:
To the Company: e-SCRUB, Inc.
301 South West Street
Alexandria, VA 22314
Ralph D. Genuario, President
Fax: (703) 836 2878
To the Escrow Agent: The Business Bank
8399 Leesburg Pike
Vienna, VA 22101
Attention: Harold C. Rauner, President
Fax: 703 556 0654
To the Underwriter: Three Arrows Capital Corp.
10101 Grosvenor Place #1718
No. Bethesda, MD 20852-4679
Attention: Ronald Peterson, President
Fax: (301) 493 4664
or to such other addresses or persons as the parties, from time to time, may
furnish one another by notice given in accordance with this section.
11. MISCELLANEOUS.
(a) ASSIGNMENT. This Escrow Agreement and the rights of the parties
hereunder may not be assigned by the Escrow Agent without the consent of the
Company and Underwriter, which consent may be withheld in the absolute
discretion of the Company and Underwriter, and any attempted assignment in
Violation of this Section 11 (a) shall be void. This Escrow Agreement and all
action taken hereunder in accordance with its terms shall be binding upon and
inure to the benefit of each of the parties hereto and its respective
successors, permitted assigns, heirs, and legal representatives.
(b) AMENDMENT. This Escrow Agreement may be amended, consistent with the
protection of the interests of the Subscribers, upon written notice to the
Escrow Agent at any time by the Company or Underwriter, however the duties,
responsibilities or compensation of the Escrow Agent may not be modified without
its consent.
(c) WAIVER, Waiver of any term or condition of this Escrow Agreement by any
party shall not be construed as a waiver of a subsequent breach or failure of
the same term or condition, or a waiver of any other term, or condition of this
Escrow Agreement.
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<PAGE>
(d) GOVERNING LAW. This Escrow Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Virginia.
(e) INTEGRATION. This Escrow Agreement constitutes the entire agreement
between the parties hereto with respect to the subject matter hereof and there
are no other agreements, covenants, representations or warranties except as set
forth herein.
(f) AUTHORITY. Each party executing this Escrow Agreement warrants its
authority to execute this Escrow Agreement.
(g) COUNTERPARTS. This Escrow Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
(h) ATTORNEYS FEES. In the event Escrow Agent is required to seek legal
advise, take any legal action or defend any legal action the Company shall
reimburse Escrow Agent for all attorney's fees and costs associated therewith
which are incurred by Escrow Agent.
(i) BENEFICIARIES. The terms and provisions of this Escrow Agreement shall
create no right in any person, firm or corporation other than the parties and
their respective successors and assigns and no third party shall have the right
to enforce of benefit from the terms hereof.
(j) TRANSMITTAL. The Underwriter specifically agrees to transmit all
received funds to the Escrow Agent no later than noon of the day following
receipt.
(k) COMMENCEMENT OF THE OFFERING. The Escrow Period will commence upon
qualification of the Offering by the Securities and Exchange Commission.
(l) COLLECTED FUNDS. The phrase "collected funds" relates to the total
amount of funds received by the Escrow Agent from the Underwriter.
IN WITNESS WHEREOF, the parties hereto have caused this Escrow Agreement to
be signed the day and year first above written,
ATTEST:
E-SCRUB, INC.
_______________________________ By: _____________________________
Name: _________________________ Name: _____________________________
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<PAGE>
Title: _________________________ Title: _____________________________
THREE ARROWS CAPITAL CORP.
_______________________________ By: ____________________________
Name: _________________________ Name: ____________________________
Title: _________________________ Title: _____________________________
THE BUSINESS BANK
_______________________________ By: ____________________________
Name: _________________________ Name: ____________________________
Title: _________________________ Title: _____________________________
6
<PAGE>
Exhibit 10.2
e-SCRUB Environmental Enterprises Inc.
Operating as e-SCRUB Environmental Engineering
Stock Option Plan
A. Purpose and Scope.
The purposes of this Plan are: (i) to encourage stock ownership by key
management employees of e-SCRUB Environmental Enterprises Inc. (herein called
the "Company"); (ii) to provide an incentive for such employees to expand and
improve the profits and prosperity of the Company; and (iii) to assist the
Company in attracting and retaining key personnel through the grant of (i)
Options to purchase shares of the Company's common stock, and (ii) Stock
Appreciation Rights related to those Options.
B. Definitions.
Unless otherwise required by the context:
1. "Board" shall mean Board of Directors of the Company.
2. "Committee" shall mean the Stock Option Plan Committee, which is appointed
by the Board.
3. "Company" shall mean e-SCRUB Environmental Enterprises Inc., a Virginia
corporation.
4. "Code" shall mean the Internal Revenue Code of 1954, as amended.
5. "Option" shall mean a right to purchase Stock, granted pursuant to the
Plan.
6. "Option Price" shall mean the purchase price for Stock under an Option, as
determined in Section F below.
7. "Participant" shall mean an employee of the Company to whom an Option is
granted under the Plan, including an employee who is a director.
8. "Plan" shall mean this e-SCRUB Environmental Enterprises Inc. Stock Option
Plan.
9. "Stock" shall mean the common stock of the Company, par value $0.00.
10. "Stock Appreciation Right" shall mean a right to receive cash or Stock,
granted pursuant to Section H of the Plan.
C. Stock To Be Optioned.
Subject to the provisions of Section M of the Plan, the maximum number of shares
of Stock that may be optioned or sold under the Plan is 800,000 Class A shares.
Such shares maybe treasury, or unauthorized, but unissued, shares of Stock of
the Company. In the event of any change in the outstanding Stock as a result of
a stock split, reverse stock split, stock dividend, recapitalization,
<PAGE>
combination or reclassification, appropriate proportionate adjustments will be
made in this Plan, including the number of shares of Stock that may be optioned
and other rights and matters determined on a per share basis under this Plan or
option agreement hereunder. No such adjustments will be required by reason of
the issuance or sale by the Company or other consideration of additional shares
of Stock or securities convertible into or exchangeable for shares of its Stock.
D. Administration.
The Plan shall be administered by the Committee. Two members of the Committee
shall constitute a quorum for the transaction of business. The Committee shall
be responsible to the Board for the operation of the Plan, and shall make
recommendations to the Board with respect to participation in the Plan by
employees of the Company, and with respect to the extent of that participation.
The interpretation and construction of any provision of the Plan by the
Committee shall be final, unless otherwise determined by the Board. No member of
the Board or the Committee shall be liable for any action or determination made
by him in good faith.
E. Eligibility.
The Board, upon recommendation by the Committee, may grant options to any
persons who, at a particular time, are employees of the Company. Options may be
awarded by the Board at any time and from time to time to new Participants, or
to then Participants, or to a greater or lesser number of Participants, and may
include or exclude previous Participants, as the Board, upon recommendation by
the Committee, shall determine. Options granted at different times need not
contain similar provisions.
F. Option Price.
The purchase price for Stock under each Option shall be 100 percent of the fair
market value of the Stock at the time the Option is granted, but in no event
less than the par value of the Stock.
G. Terms and Conditions of Options.
Options granted pursuant to the Plan shall be authorized by the Board and shall
be evidenced by agreements in such form as the Board, upon recommendation by the
Committee, shall from time to time approve. Such agreements shall comply with
and be subject to the following terms and conditions.
1. Employment Agreement. The Board may, in its discretion, include in any
option granted under the Plan a condition that the Participant shall agree to
remain in the employ of, and render services to, the Company for a period of
time (specified in the agreement) following the date the Option is granted. No
such agreement shall impose upon the Company, however, any obligation to employ
the Participant for any period of time.
2. Time and Method of Payment. The Option Price shall be paid in full in cash
at the time an Option is exercised under the Plan. Otherwise, an exercise of any
Option granted under the Plan shall be invalid and of no effect. Promptly the
exercise of an Option and the payment of the full Option Price, the Participant
shall be entitled to the issuance of a stock certificate evidencing his
<PAGE>
ownership of such Stock. A Participant shall have none of the rights of a
shareholder until shares are issued to him, and no adjustment will be made for
dividends or other rights for which the record date is prior to the date such a
stock certificate is issued.
3. Number of Shares. Each Option shall state the total number of shares of
Stock to which it pertains. The number of shares to which a Participant is
entitled under an Option shall be reduced by the number of Stock Appreciation
Rights (described in Section H below) related to the Option that have been
previously exercised by the Participants.
4. Option Period and Limitations on Exercise of Options. The Board may, in its
discretion, provide that an Option may not be exercised in whole or in part for
any period or periods of time specified in the Option agreement. Except as
provided in the Option agreement, an Option may be exercised in whole or in part
at any time during its term. No Option may be exercised after the expiration of
ten years from the date it is granted. No Option may be exercised for a
fractional share of stock.
5. Other Provisions. The option agreement may contain such other terms,
provisions and conditions, including such special forfeiture conditions, rights
of repurchase, rights of first refusal and other restrictions on the transfer of
Stock issued upon exercise of any Option granted hereunder, not inconsistent
with this Plan, as may be determined by the Committee in its sole discretion.
H. Stock Appreciation Rights.
The Board may, upon recommendation of the Committee, grant Stock Appreciation
Rights to Participants at the same time as such Participants are awarded Options
under the Plan. Such Stock Appreciation Rights shall be evidenced by agreements
in such form, as the Board shall from time to time approve. Such agreements
shall comply with, and be subject to, the following terms and conditions:
1. Employment Agreement. The Board may, in its discretion, include in any
Stock Appreciation Rights granted under the Plan a condition that the
Participant shall agree to remain in the employ of, and render services to, the
Company for a period of time (specified in the agreement) from the date the
Stock Appreciation Rights are granted. No such agreement shall impose on the
Company, however, any obligation to employ the Participant for any period of
time.
2. Grant. Each Stock Appreciation Right shall relate to a specific Option
under the Plan, and shall be awarded to a Participant concurrently with the
grant of such Option. The number of Stock Appreciation Rights granted to a
Participant shall be equal to the number of shares that the Participant is
entitled to receive pursuant to the related Option. The number of Stock
Appreciation Rights held by a Participant shall be reduced by:
a. the number of Stock Appreciation Rights exercised for Stock or cash under
the Stock Appreciation Rights agreement; and
<PAGE>
b. the number of shares of Stock purchased by such Participant pursuant to the
related Option.
3. Manner of Exercise. A Participant shall exercise Stock Appreciation Rights
by giving written notice of such exercise to the Company. The date upon which
such written notice is received by the Company shall be the exercise date for
the Stock Appreciation Rights.
4. Appreciation Available. Each Stock Appreciation Right shall entitle a
Participant to the following amount of appreciation: the excess of the fair
market value of a share of Stock on the exercise date over the option price of
the related Option. The total appreciation available to a Participant from any
exercise of Stock Appreciation Rights shall be equal to the number of Stock
Appreciation Rights being exercised, multiplied by the amount of appreciation
per Right determined under the proceeding sentence.
5. Payment of Appreciation. In the discretion of the Committee, the total
appreciation available to a Participant from an exercise of Stock
Appreciation Rights maybe paid the Participant either in Stock or in cash. If
paid in cash, the amount thereof shall be the amount of appreciation
determined in Paragraph 4 above. If paid in Stock, the number of shares of
Stock that shall be issued pursuant to the exercise of Stock Appreciation
Rights shall be determined by dividing the amount of appreciation determined
in Paragraph 4 above by the fair market value of a share of Stock on the
exercise date of the Stock Appreciation Rights; provided. however, that no
fractional shares shall be issued upon the exercise of Stock Appreciation
Rights.
6. Limitations Upon Exercise of Stock Appreciation Rights. A participant may
exercise a Stock Appreciation Right for cash only in conjunction with the
exercise of the Option to which the Stock Appreciation Right relates. Stock
Appreciation Rights may be exercised only at such times and by such persons as
may exercise Options under the Plan. Adjustment to the number of shares in the
Plan and the price per share pursuant to Section M below shall also be made to
any Stock Appreciation Rights held by each Participant. Any termination,
amendment, or revision of the Plan pursuant to Section N below shall be deemed a
termination. amendment, or revision of Stock Appreciation Rights to the same
extent.
I. Termination of Employment.
Except as provided in Section J below, if a Participant ceases to be employed by
the Company, his Options and Stock Appreciation Rights shall terminate
immediately; Provided, however, that if a Participant's cessation of employment
with the Company is due to his retirement with the consent of the Company, the
Participant may, at any time within three months after the cessation of his
employment, exercise his Options and Stock Appreciation Rights to the extent
that he was entitled to exercise them on the date of cessation of employment,
but in no event shall any Option or Stock Appreciation Right be exercisable more
than ten years after the date it was granted. The Committee may cancel an Option
or Stock Appreciation Right during the three-month period referred to in this
paragraph, if the Participant engages in employment or activities contrary, in
the opinion of the Committee, to the best interest of the Company. The Committee
<PAGE>
shall determine in each case whether a termination of employment shall be
considered a retirement with the consent of the Company, and subject to
applicable law, whether a leave of absence shall constitute a termination of
employment. Any such determination of the Committee shall be final and
conclusive, unless overruled by the Board.
J. Rights in the Event of Death.
If a Participant dies while employed by the Company, or within three months
after having retired with the consent of the Company, and without having fully
exercised his Options and Stock Appreciation Rights, the executors or
administrators, or legatees or heirs, of his estate shall have the right to
exercise such Options and Stock Appreciation Rights to the extent that such
deceased Participant was entitled to exercise the Options and Stock Appreciation
Rights on the date of his death; provided, however, that in no event shall the
Options or Stock Appreciation Rights be exercisable more than ten years from the
date they were granted.
K. No Obligation to Exercise An Option or Stock Appreciation Rights.
The granting of an Option or Stock Appreciation Rights shall impose no
obligation upon the Participant to exercise such Option or Stock Appreciation
Rights.
L. Nonassignability.
Options or Stock Appreciation Rights shall not be transferable other than by
will or by laws of descent and distribution, and during a Participant's lifetime
shall be exercisable only by such Participant.
M. Effect of Change in Stock Subject to the Plan: Regulatory Compliance.
The aggregate number of shares of Stock available for options under the Plan,
the shares subject to any Option, the price per share, and the number of
related Stock Appreciated Rights shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Stock subsequent to
the effective date of the Plan resulting from (1) a subdivision or
consolidation of shares or any other capital adjustment. (2) the payment of a
Stock dividend, or (3) other increase or decrease in such shares effected
without receipt of consideration of the Company. If the Company shall be the
surviving corporation in any merger or consolidation, any Option or Stock
Appreciation Rights shall pertain or apply, and relate to the securities to
which a holder of the number of shares of Stock subject to the Option would
have been entitled after the merger or consolidation. Upon dissolution or
liquidation of the Company, or upon a merger or consolidation in which the
Company is not the surviving corporation, all Options and Stock Appreciation
Rights outstanding under the Plan shall terminate; provided, however, that
each Participant (and each other person entitled under Section J to exercise
an Option or Stock Appreciation Rights) shall have the right, immediately
prior to such dissolution or liquidation, or such merger or consolidation, to
exercise such Participant's Options or Stock Appreciation Rights in whole or
in part, but only to the extent that such Options and Stock Appreciation
Rights are otherwise exercisable under the terms of the Plan. The right to
exercise an Option will be further subject to the requirement that if at any
time the Board determines, in its discretion, that the listing, registration
or qualification of the shares of Stock issued under this Plan called for
thereunder upon any securities exchange or under and state or federal law, or
the consent or approval of any governmental regulatory authority, is
necessary or desirable as a condition of or in connection with the granting
of the Option or the purchase
<PAGE>
of shares of Option Stock thereunder, the option may not be exercised, in whole
or in part, unless and until such listing, registration, qualification, consent
or approval is effected or obtained free of any conditions not acceptable to the
Board, in its discretion.
N. Agreement and Representation of Employees
As a condition to the exercise of any portion of an Option, or of any Stock
Appreciation Rights, the company may require the person exercising such Option
or Stock Appreciation Rights to represent and warrant at the time of such
exercise that any shares of Stock acquired at exercise are being acquired only
for investment without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such a representation is required
under the Securities Act of 1933 or any other applicable law, regulation, or
rule of any governmental agency.
O. Reservation of Shares of Stock.
The Company, under the term of this Plan, will at all times reserve and keep
available, and will seek or obtain from any regulatory body having jurisdiction
any requisite authority necessary to issue and to sell, the number of shares of
Stock that shall be sufficient to satisfy the requirements of this Plan. The
inability of the Company to obtain from any regulatory body having jurisdiction
the authority deemed necessary by counsel for the Company for the lawful
issuance and sale of its Stock hereunder shall relieve the Company of any
liability in respect of the failure to issue or sell Stock as to which the
requisite authority has not been obtained.
P. Proceeds From Sale of Stock.
Cash proceeds from the sale of shares of Stock issued from time to time upon the
exercise of Options granted pursuant to this Plan will be added to the general
funds of the Company and as such will be used from time to time for general
corporate purposes.
Q. Modifications, Extensions, and Renewal of Options.
Subject to the terms and conditions and within the limitations of this Plan, the
Committee may modify, extend or renew outstanding options granted under this
Plan, or accept the surrender of outstanding Options (to the extent not
therefore exercised). Notwithstanding the foregoing, however, no modification of
any Option will, without the consent of the holder of the Option, alter or
impair any rights or obligations under any Option therefore granted under this
Plan.
R. Amendment and Discontinuance.
The Board may amend, suspend or discontinue this Plan at any time or from time
to time; provided further that no such action may, without the approval of the
stockholders of the Company, materially increase (other than by reason on an
adjustment pursuant to Section C) hereof the maximum number of shares of Stock
that may be issued under Options granted pursuant to this Plan or materially
modify eligibility requirements for the Participants.
<PAGE>
S. Effective Date of Plan; Gender, etc.
The Plan shall be effective from the date the Plan is approved by the Board.
Pronouns, nouns, and terms as used in this Plan include the masculine, feminine,
neuter, singular, and plural forms thereof wherever appropriate to the context.
<PAGE>
Exhibit 10.3
STOCK OPTION AGREEMENT
e-SCRUB Environmental Enterprises Inc.
Operating As e-SCRUB Environmental Engineering
A. A Stock Option for a total of _____ shares of Class A Common Stock, par value
$0.00, of e-SCRUB Environmental Enterprises Inc, a Virginia corporation herein
the "Company") is hereby granted to _____________________________________
(herein the "Optionee", subject in all respect to the terms and provision
e-SCRUB Environmental Enterprises Inc. Stock Option Plan (herein the "Plan"),
dated _____________________, which has been adopted by the Company and which is
incorporated herein by reference.
B. The option price as determined by the Board of Directors of the Company
is ______________ dollars per share.
C. This Option may not be exercised if the issuance of shares of Common Stock of
the Company upon such exercise would constitute a violation of any applicable
Federal or State securities or other law or valid regulation. The Optionee, as a
condition to his exercise of this Option, shall represent to the Company that
the shares of Common Stock of the Company that she/he acquires under this option
are being acquired by her/him for investment and not with a present view to
distribution or resale, unless counsel for the Company is then of the opinion
that such a representation is not required under the Securities Act of 1933 or
any other applicable law, regulation, or rule of any governmental agency.
D. This Option may not be transferred in any manner otherwise than by will or
the laws of descent and distribution, and may be exercised during the lifetime
of the Optionee only by him. The terms of this Option shall be binding upon the
executors, administrators, heirs, successors, and assigns of the Optionee.
E. This Option may not be exercised more than ten years from the print of its
grant, and may be exercised during such term only in accordance with the terms
of this Plan.
F. This Option can be exercised by full-time employees of the company only in
the case that the company for has continuously employed him no less than two and
a half years.
DATED this _____day of _______________, 19
e-SCRUB Environmental Enterprises Inc.
BY:
Name: Ralph D. Genuario
Title: President
ATTEST:
ACKNOWLEDGEMENT
The Optionee acknowledges receipt of a copy of this Plan, a copy of which is
annexed hereto, and represents that he is familiar with the terms and provisions
thereof. The Optionee hereby accepts this Option subject to all terms and
provisions of the Plan. The Optionee hereby agrees to accept as binding,
conclusive, and final all decisions and interpretations of the Board of
Directors and, where applicable, the Stock Option Plan Committee, upon any
questions arising under the Plan. As a condition to the issuance of shares of
Common Stock of the Company under this Option, the Optionee agrees to remit to
<PAGE>
the Company at the time of any exercise of this Option any taxes required to be
withheld by the Company under Federal, State, or Local law as a result of the
exercise of this Option.
This Option Agreement shall be interpreted under the laws of the State of
Virginia, and may not be amended except in writing signed by an authorized
officer of the Company and the Optionee.
- ----------------
Optionee
<PAGE>
Exhibit 10.4
Consortium Agreement
Effective Date: May 27, 1999
This Consortium Agreement (CA) is between Virginia Accelerators Corporation
(VAC), located at 301 South West Street, Alexandria, VA, and Southern
Environmental Inc. (SEI), located at 6690 West Nine Mile Road, Pensacola,
Florida. It defines general principles for cooperation between the parties to
design, fabricate, erect and market eSCRUBTM systems in the United States and
South-East Asia. This Agreement also defines a scope of supply of each party for
the first US and the first South-East Asian eSCRUBTM project that fall under
this Agreement. The initial term of this Agreement will be for 5 (five) years.
The Agreement is renewable.
General
VAC specializes in electron scrubbing system engineering and has a patent on the
eSCRUBTM process. VAC also designs and manufactures electron beam equipment for
the e-SCRUBTM air pollution control process that efficiently and
cost-effectively reduces S02, NOx and fine particulate from flue gas. SEI
specializes in air pollution control (APC) systems and has provided wet and dry
electrostatic precipitators, particulate scrubbers, fabric filters, and
mechanical dust collectors for various industrial applications. SEI is widely
recognized for APC engineering; its parent Southern Erectors Inc. is widely
recognized for its fabrication and erection services.
Exclusive Agreement
WHEREAS VAC desires to manufacture, design, build and market e-SCRUBTM air
pollution control systems in the United States and South-East Asia and wishes to
engage SEI in detail designing, fabricating, erecting and marketing e-SCRUBTM
systems;
WHEREAS SEI desires to cooperate with VAC in designing, fabrication, erection
and marketing e-SCRUBTM systems in the United States and South-East Asia and
wishes to provide detail design, fabrication, erecting and marketing services;
NOW, THEREFORE, in consideration of the mutual promises herein contained and for
other valuable consideration, the sufficiency of which is hereby acknowledged,
VAC and SEI agree as follows:
ARTICLE 1. The Parties to this CA will cooperate in designing, fabricating,
erecting and marketing e-SCRUBTM systems in the United States and South-East
Asia. The first eSCRUBTM project in the United States that falls under this
Agreement is called "the Homer City e-SCRUBr10 Project" and the first e-SCRUBTM
project in South-East Asia that falls under this Agreement is called "the
Singapore e-SCRUBTM Project."
ARTICLE 2. The general scope of responsibilities regarding e-SCRUBTM projects in
the United States is as follows:
2.1. VAC is responsible for overall e-SCRUBTM project execution, project
management and system design and may delegate any tasks and sub-tasks
<PAGE>
from its scope of responsibilities to SEI or third entities. VAC will make
arrangements for a long-term supply of ammonia and by-product removal. VAC is
responsible for bonding requirements relating to its scope of work. VAC
arranges for e-SCRUBTM performance guarantees.
2.2. SEl is responsible for detailed design, fabrication and erection of various
components of the e-SCRUBTM process. The components may include but are not
restricted to items such as the Spray Dryer, Dry By-product Collector (Dry ESP),
e-Beam Building, Wet ESP, ID Fan, Ammonia Injection System, Byproduct Storage
and Handling System, Ductwork and Foundations. A detailed scope of work for each
project is agreed upon on the case by case basis by parties to this CA. SEl is
responsible for bonding requirements relating to its scope of work. SEl may
subcontract tasks belonging to its scope of supply to third entities ("SEI's
subcontractors"). When subcontracting tasks belonging to its scope of supply to
third entities, SEI will execute a non-disclosure with them in writing. In such
a non-disclosure agreement between SEI and its subcontractors the parties agree
not to use or disclose, or cause to be used or disclosed, any trade secret,
confidential information or proprietary information acquired by them on the
e-SCRUBTM process and technology.
2.3. A detailed scope of work for both parties for the first U.S. e-SCRUBTM
project that falls under this CA is attached to this Agreement as ATTACHMENT 1
and is entitled "The Homer City e-SCRUBTM Project: System Design, Engineering,
Fabrication & Erection Responsibilities." The parties agree to the scope of work
expressed in ATTACHMENT 1 within the framework expressed in items 2.1 and 2.2.
of this Agreement. Parties agree that Southern Erectors Inc. assumes the
responsibility for fabrication and erection for the Homer City e-SCRUBTM Project
unless prevented from doing so by local labor laws or merit shop requirements in
which case SEI may exercise the right provided in the item 2.2 of this
Agreement. Each party to this Agreement is responsible for its own pre-contract
expenses unless otherwise mutually decided.
2.4. The parties agree that the scope of responsibilities expressed in "The
Homer City e-SCRUBTM Project: System Design, Engineering, Fabrication & Erection
Responsibilities" and in the items 2.1. and 2.2. of this Agreement will serve as
a model for cooperation between the parties on subsequent e-SCRUBTM projects in
the United States; however a specific scope of work, schedule and payment terms
for each new e-SCRUBTMproject will be mutually agreed upon on the case by case
basis.
ARTICLE 3. The general scope of responsibilities regarding e-SCRUBTM projects in
South East Asia is the same as it is for the United States as expressed in items
2.1 and 2.2. of this Agreement.
3.1. The scope of work of the parties of this CA for the Singapore e-SCRUBTM
project is attached to this Agreement as ATTACHMENT 2 and it is entitled "The
Singapore e-SCRUBTM Project: System D&E Responsibilities." The parties agree to
the scope of work expressed in ATTACHMENT 2 and in the items 2.1 and 2.2. of
this Agreement for the Singapore e-SCRUBTM project. SEI has the responsibility
for fabrication and will provide a construction advisor to assist BPC in
erection of the e-beam building and the foundations. Each party to this
Agreement is responsible for its own pre-contract expenses unless otherwise
mutually decided.
ARTICLE 4. Limits of Liability are negotiated on contract by contract basis
consistent with the industry standards and/or bonding requirements.
<PAGE>
ARTICLE 5. Each party to this Agreement will pursue vigorously marketing and
sales policies and coordinate procedures and efforts to realize the maximum
sales potential for e-SCRUB'n4 systems in the United States and South-East Asia.
ARTICLE 6. SEI, in return for the exclusiveness provided by this Agreement will
perform the cost breakdown for projects on an open book basis. The margin for
each project will be mutually negotiated and agreed upon prior to bidding the
work. In cases where contracts signed by parties to this Agreement make an
allowance for increased costs or expansion of the scope of work, VAC shall have
the right to audit these costs. Adjustments to future project costing, if
warranted, will be made following said review of cost estimates by mutual
agreement between the two parties. VAC will not be responsible to SEI for any
cost over-runs on these projects unless over-runs are attributable to VAC's
incomplete technical data via written documentation.
ARTICLE 7. For each and every e-SCRUBTM project covered by this Agreement SEI
will appoint a point of contact as "Program Manager" and identify him/her in
writing to VAC. SEI will also appoint a point of contact who may be the same
person as "Program Manager" for implementing this Agreement and identify him/her
in writing to VAC.
ARTICLE 8. The Parties to this CA are bound by the Non-Disclosure Agreement
signed by VAC on January 12, 1999. The Non-Disclosure Agreement is attached to
this CA as ATTACHMENT 3.
Further Parties Agree:
ARTICLE 9. The initial term of this Agreement will be for 5 (five) years
commencing on the date the Agreement is signed by both parties. Thereafter,
parties may renew this Agreement in writing.
ARTICLE 10. Each party to this Agreement is considered an independent entity
acting for its own account, and no party to this Agreement is authorized to make
any commitment or representation, expressed or implied, on the behalf of the
other parties unless authorized to do so by other parties in writing.
ARTICLE 11. Each party will be fully responsible for the financial gains or
losses for the scope of work provided by that party. A detailed scope of work
and price Agreement will be executed prior to the start of each project
proposed.
ARTICLE 12. This Agreement is non-transferable and cannot be assigned to any
other company subsidiary or division without the expressed written consent by
the other party.
ARTICLE 13. No new members can be added to this consortium without unanimous
mutual decision in favor of such an addition.
ARTICLE 14. VAC may terminate this Agreement by giving a written notice to SEI
six (6) months prior to the date the termination takes effect; SEI may terminate
this Agreement by giving a written notice to VAC twelve (12) months prior to the
date the termination takes effect. Termination will not release the parties from
the responsibilities and commitments assumed for projects that they bid during
the time this Agreement has been in force.
<PAGE>
ARTICLE 15. Neither party will be responsible for delays nor failure of
performance resulting from acts beyond the reasonable control of such party.
Such acts will include, but not be limited to, acts of God, strikes, walkouts,
riots, acts of war, epidemics, power failure(s), earthquakes, or other
disasters.
ARTICLE 16. To the extent that agents, employees or representatives of VAC or
SEI or their customers or contractors enter upon premises occupied by, or under
the control of of either party to this CA, in the course of the performance of
this Agreement, the parties shall take all necessary precautions to prevent the
occurrence of any injury to any persons, or of any damage to any property
arising out of acts or omissions of such persons, and except to the extent that
any such injury or damage is due to the other party's negligence, shall
indemnify the other party, its officers, employees and agents, against any loss,
claim, damages, liability, expense (including reasonable attorneys' fees) and
cause of action, whatsoever arising out of any act or omission of the party, its
agents, or employees.
ARTICLE 17. This Agreement shall be deemed to be a contract made in the State of
Virginia and shall be interpreted in accordance with the laws of the State of
Virginia.
ARTICLE 18. Any dispute relating to the interpretation or performance of this
Agreement will be resolved at the request of either party though binding
arbitration. Arbitration will be conducted in the county of Alexandria located
in the state of Virginia in accordance with the then-existing rules of the
American Arbitration Association. Judgement upon any award by the arbitrators
may be entered by a state or federal court having jurisdiction. VAC and SEI
intend that this Agreement to arbitrate be irrevocable.
ARTICLE 19. In the event any action is brought to enforce this Agreement, the
substantially prevailing party will be entitled to recover its cost of
enforcement including, without limitation, reasonable attorneys' fees and court
costs.
ARTICLE 20. All notices and demands will be in writing and will be served by
personal service or mail at the address of the receiving party set forth in this
Agreement. All notices or demands by mail will be by certified or registered
mail, return receipt requested, or by nationally recognized private express
courier, and will be deemed complete upon receipt.
ARTICLE 21. No waiver, amendment or modification of any provisions of this
Agreement will be effective unless in writing and signed by duly authorized
representatives of the parties to this Agreement.
ARTICLE 22. No failure or delay by either party in exercising any right, power
or remedy under this Agreement, except as specifically provided in this
Agreement, will operate as a waiver of any such right, power or remedy.
Article 23. If any provisions of this Agreement are held by a court of competent
jurisdiction to be invalid under any applicable statute or rule of law, they are
to that extent to be deemed omitted and the remaining provisions of this
Agreement will remain in full force and effect.
ARTICLE 24. This Agreement, including the attached exhibits, constitutes the
entire Agreement between VAC and SEI. This Agreement supersedes, terminates, and
<PAGE>
otherwise renders null and void any and all prior or contemporaneous Agreements
or contracts, whether written or oral, entered into between the parties with
respect to the matters expressly set forth in this Agreement. In witness of
this, the parties in this Agreement, by their representatives duly authorized
officers or representatives, have each executed this Agreement, effective as of
the date first written above.
Date: 1 June, 1999
/s./ Ralph D. Genuario
Ralph D. Genuario, President
Virginia Accelerators Corporation
Date: 27 May, 1999
/s./
Southern Environmental Inc.
(Spreadsheet 5 - 1,2,3,4)
ATTACHMENT 1
The Homer City e-SCRUBTM Project
VAC/SEI System Design, Engineering, Fabrication & Erection Responsibilities
Item System Design Detailed Design Fabrication Erection
<TABLE>
<S> <C> <C> <C> <C>
1. Spray Dryer (SD)/Hopper Delumper VAC SEI SEI SEI
2. SD Support/Access Steel VAC SEI SEI SEI
3. Air Compressors VAC SEI SEI SEI
4. Compressed Air Piping/Valves VAC - SEI SEI SEI
5. Air Compressor Building VAC SEI SEI SEI
6. Ductwork - SD to ID Fan VAC SEI SEI SEI
7. Expansion Joints - SD to ID Fan VAC SEI SEI SEI
8. Duct Support Steel - SD to ID Fan VAC SEI SEI SEI
9. Dry Product Collector (DESP) VAC SEI SEI SEI
10. DESP Support/Access Steel VAC SEI SEI SEI
11. e-BEAM Equipment VAC VAC VAC SEI
12. e-BEAM Building VAC SEI SEI SEI
13. WESP VAC SEI SEI SEI
14. WESP Support/Access Steel VAC SEI SEI SEI
15. WESP Process Tanks/Pumps VAC SEI SEI SEI
16. WESP Tank Agitators VAC SEI SEI SEI
17. WESP Process Piping/Valves VAC SEI SEI SEI
18. Brine Recirculation System VAC SEI SEI SEl
19. Ductwork - to SD VAC SEI SEI SEI
20. Expansion Joints - to SD VAC SEI SEI SEI
21. Duct Support Steel -to SD VAC SEI SEI SEI
22. Ductwork -ID Fan to Stack VAC SEI SEI SEI
23. Expansion Joints - ID Fan to Stack VAC SEI SEI SEI
24. Duct Support Steel - ID Fan to Stack VAC SEI SEI SEI
25. ID Fan/Motor/Fan Dampers VAC SEI SEI SEI
26. ID Fan Motor Control Center VAC SEI SEI SEI
27. Stack VAC SEI SEI SEI
28. ID Fan/Stack Condensate System VAC SEI SEI SEI
29. Ammonia Injection System VAC SEI SEI SEI
30. Ammonia Storage Tank VAC SEI SEI SEI
31. Product Bin(s) VAC SEI SEI SEI
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
32. Product Bin Support/Access Steel VAC SEI SEI SEl
33. Materials Handling Equipment VAC SEI SEI SEI
34. Process Field Instrumentation VAC VAC VAC SEI
35. Process Automatic Controller VAC VAC VAC SEl
36. Foundations/Earthworks/Sumps SEI SEI SEI SEI
37. Below Grade Grounding Grid SEI SEI SEI SEI
38. Over Grade Grounds - to SD VAC SEI SEI SEI
39. Over Grade Grounds - SD to ID Fan VAC SEI SEI SEI
40. Over Grade Grounds - ID Fan to Stack VAC SEI SEI SEI
41. Cathodic Protection System SEI SEI SEI SEI
42. 480 V Feeder OWNER OWNER OWNER OWNER
43. 480 V Motor Control Centers (1) VAC SEI SEI SEI
44. Low Voltage Wiring & Conduit (2) VAC SEI SEI SEI
45. Area Lighting and Receptacles VAC SEI SEI SEI
46. Accessway - SD to Boilerhouse OWNER OWNER OWNER OWNER
</TABLE>
**Item System Desi n Detailed Design Fabrication Erection
<TABLE>
<S> <C> <C> <C> <C>
47. Communications System VAC SEI S 1 S
48. Emergency Power and Lighting VAC SEI SEI SEI
49. Freeze Protection System VAC SEI SEI SEI
50. Finish Paint VAC SEI SEl SEI
51. Thermal Insulation & Lagging VAC SEI SEI SEI
52. Storm Water Drainage System SEI SEI SEI SEI
53. Process Drains for Tank Cleanout SEI SEI SEI SEI
54. Plumbing Facilities VAC SEI SEI SEI
55. Fire Protection System VAC SEI SEI SEI
56. Acoustical Treatment VAC SEI SEI SEI
57. Makeup Water Supply OWNER OWNER OWNER OWNER
58. Stack CEM System/ Test Access VAC SEI SEI SEI
</TABLE>
Notes:
(1) For VAC-supplied electrical equipment only.
(2) For VAC-supplied equipment only. Includes 480 V power distribution, control
wiring and instrumentation wiring.
VAC will be responsible for duties, licenses, taxes, bonds, freight and
insurance policies for items in its scope of supply. VAC will be responsible for
construction supervision for items in its scope of supply.
SEI will be responsible for duties, licenses, taxes, bonds, freight and
insurance policies for items in its scope of supply. SEI will be responsible
site and construction supervision for items in its scope of supply.
**ATTACHMENT 2
The Singapore e-SCRUBTM Project
System Design, Engineering, Fabrication and Erection Responsibilities
Item System Design Detailed Design Fabrication Erection
<TABLE>
<S> <C> <C> <C> <C>
1. Spray Dryer (SD)/Hopper Delumper VAC SEI SEI BPC
2. SD Support/Access Steel VAC SEI SEI BPC
3. Air Compressors VAC SEI SEI BPC
4. Compressed Air Piping/Valves VAC SEI SEI BPC
5. Air Compressor Building VAC BPC BPC BPC
6. Ductwork - SD to ID Fan VAC SEI SEI BPC
7. Expansion Joints - SD to ID Fan VAC SEI SEI BPC
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
8. Duct Support Steel - SD to ID Fan VAC SEI SEI BPC
9. Dry Product Collector (DESP) VAC SEI SEI BPC
10. DESP Support/Access Steel VAC SEI SEI BPC
11. e-BEAM Equipment VAC VAC VAC BPC
12. e-BEAM Building VAC BPC BPC BPC
13. WESP VAC SEI SEI BPC
14. WESP Support/Access Steel VAC SEI SEI BPC
15. WESP Process Tanks/Pumps VAC SEI SEI BPC
16. WESP Tank Agitators VAC SEI SEI BPC
17. WESP Process Piping/Valves VAC SEI SEI BPC
18. Brine Recirculation System VAC SEI SEI BPC
19. Ductwork - to SD BPC BPC BPC BPC
20. Expansion Joints - to SD BPC BPC BPC BPC
21. Duct Support Steel - to SD BPC BPC BPC BPC
22. Ductwork -ID Fan to Stack BPC BPC BPC BPC
23. Expansion Joints - ID Fan to Stack BPC BPC BPC BPC
24. Duct Support Steel - ID Fan to Stack BPC BPC BPC BPC
25. ID Fan/Motor/Fan Dampers VAC VAC VAC BPC
26. ID Fan Motor Control Center BPC BPC BPC BPC
27. Stack BPC BPC BPC BPC
28. ID Fan Condensate Recovery System VAC VAC VAC BPC
29. Ammonia Injection System VAC SEI SEI BPC
30. Ammonia Storage Tank BPC BPC BPC BPC
31. Product Bin(s) BPC BPC BPC BPC
32. Product Bin Support/Access Steel BPC BPC BPC BPC
33. Materials Handling Equipment BPC BPC BPC BPC
34. Process Field Instrumentation VAC VAC VAC BPC
35. Process Automatic Controller VAC VAC VAC BPC
36. Foundations/Earthworks/Sumps BPC BPC BPC BPC
37. Below Grade Grounding Grid BPC BPC BPC BPC
38. Over Grade Grounds - SD to ID Fan VAC SEI SEI BPC
39. Over Grade Grounds - to SD BPC BPC BPC BPC
40. Over Grade Grounds - ID Fan to Stack BPC BPC BPC BPC
41. Cathodic Protection System BPC BPC BPC BPC
.i2. 480 V Feeder BPC BPC BPC BPC
43. 480 V Motor Control Centers (1) VAC SEI SEI BPC
44. Low Voltage Wiring & Conduit (2) VAC SEI SEI BPC
45. Area Lighting and Receptacles BPC BPC BPC BPC
46. Accessway - SD to Boilerhouse BPC BPC BPC BPC
</TABLE>
**Item System Design Detailed Design Fabrication Erection
<TABLE>
<S> <C> <C> <C> <C>
47. Communications System PC BPC BPC B
48. Emergency Power and Lighting BPC BPC BPC BPC
49. Freeze Protection System BPC BPC BPC BPC
50. Finish Paint BPC BPC BPC BPC
51. Thermal Insulation & Lagging BPC BPC BPC BPC
52. Storm Water Drainage System BPC BPC BPC BPC
53. Process Drain for Tank Cleanout BPC BPC BPC BPC
54. Plumbing Facilities BPC BPC BPC BPC
55. Fire Protection System BPC BPC BPC BPC
56. Acoustical Treatment BPC BPC BPC BPC
57. Makeup Water Supply BPC BPC BPC BPC
58. Stack CEM System/ Test Access BPC BPC BPC BPC
</TABLE>
Notes:
(1) For VAC-supplied electrical equipment only. BPC to provide MCC for ID Fan.
<PAGE>
(2) For VAC-supplied equipment only. Includes 480 V power distribution, control
wiring and instrumentation wiring.
VAC will be responsible for duties, licenses, taxes, bonds, freight and
insurance policies for items in its scope of supply. VAC will be responsible for
construction supervision for items in its scope of supply.
SEI will be responsible for duties, licenses, taxes, bonds, freight and
insurance policies for items in its scope of supply. SEI will be responsible for
site and construction supervision for items in its scope of supply.
<PAGE>
Exhibit 10.5
9 September 1999
Mr. Spencer Brown, Jr.
National Diversified Company
1700 N Valley Mills Drive
Suite 1
Waco, TX 76710
Reference: Manufacturing and Sales Agreement for TIPAZ
Dear Spencer,
We are sending you one copy of the executed Manufacturing and Sales Agreement
for TIPAZ (TIPAZ Agreement.)
As we discussed with you and your staff this TIPAZ Agreement is exclusive of the
Utility customers. In addition VAC will be paid for desert activity, undertaken
in support of the TIPAZ Agreement. VAC agrees to perform this design activity at
cost.
Please initial your concurrence below:
Agreed to:
Date: 9/9/99
By: /s./ Spencer Brown, Jr.
Spencer Brown, Jr., CEO
National Diversified Co./ VIRTEX
Tipaz, Inc.
Best regards,
/s./ Ralph D. Genuario
Ralph D. Genuario, President
VAC
VACCOPY
MANUFACTURING AND SALES AGREEMENT
This agreement is made and executed to be effective as of August ____, 1999,
between Virginia Accelerator Corporation ("VAC") and Tipaz, Inc. ("TIPAZ").
WHEREAS, it is believed that VAC possesses the manufacturing capability to
manufacture ZetronTM E-beam units on behalf of TIPAZ;
WHEREAS, TIPAZ is engaged in worldwide marketing of VOC and odor destruction
equipment and processes and believes that its existing marketing efforts can be
supplemented and/or complemented by the e-SCRUBTM units manufactured by VAC and
TIPAZ desires to market and distribute these units on behalf of VAC; and
WHEREAS, each of the parties expects that by entering into this agreement, and
by the full and faithful observance and performance of their various duties,
obligations, and responsibilities, a mutually satisfactory relationship with the
other will be established and maintained;
<PAGE>
THEREFORE, in consideration of the mutual covenants, the parties agree as
follows:
1. FEASIBILITY. The parties agree to use their best efforts to cooperate
assessing the economic and technical feasibility of VAC supplying electron beam
equipment to TIPAZ.
2. MANUFACTURING FOR TIPAZ. In the event that it is determined that the project
is economically and technically feasible, VAC would design, build (or
sub-contract), assemble, and supply electron beam processing equipment to meet
TIPAZ' specifications for its worldwide markets in VOC and odor destruction. It
is understood that such electron beam processing equipment will be based, in
part, on VAC's e-SCRUB TM design.
3. MARKETING OF VAC PRODUCTS.
A. VAC grants the non-exclusive right to TIPAZ to market and sell VAC's
e-SCRUBTM units to any customer not listed on VAC's basic target list of
customers. as described on Exhibit A, attached to this agreement.
B. VAC will sell e-SCRUB TM units to TIPAZ at its cost plus 10%.
C. Once a sale is made by TIPAZ to a customer, TIPAZ shall have exclusivity with
respect to any future sales of products or purchases to such customer.
D. VAC further agrees not to directly or indirectly compete with TIPAZ for sales
obtained or targeted by TIPAZ, through circumvention through the bidding
process, initial representation, or otherwise.
4. ADVERTISING. VAC and TIPAZ will cooperate in providing for advertising and
promotion of the e-SCRUB' products and processes. TIPAZ agrees to participate
in, actively promote and faithfully comply with the terms and conditions of any
advertising and merchandising program that may be established from time-to-time
between VAC and its authorized distributors.
5. PRODUCT WARRANTY POLICY. VAC agrees to protect TIPAZ and hold it harmless
from any loss or claim arising out of inherent defects or negligence in the
design or negligence in the manufacturing of any of VAC's products. TIPAZ must
give VAC immediate notice of any such loss or claim and cooperate fully with VAC
in handling of the loss or claim. TIPAZ agrees to protect VAC andhold it
harmless from any loss or claim arising out of the negligence of TIPAZ,its
agents, employees, or representatives, in connection with the installation,use,
sale, or servicing of VAC's products.
6. USE OF SUPPLIER'S NAME AND TRADEMARKS. TIPAZ will not use, authorize, or
permit the use of the name "Virginia Accelerator Corporation" or any other
trademark owned by VAC as part of its firm, corporate, or business name or in
any other way, except to designate products purchased from VAC under the terms
of this agreement. VAC shall obtain the exclusive use of any trademark or trade
name used in connection with the manufacturing of the e SCRUBTM products and/or
processes.
7. RELATIONSHIP OF PARTIES. During the term of this agreement, the relationship
between VAC and TIPAZ is that of Vendor and Vendee. No agent or employee of
either VAC or TIPAZ shall be deemed to be an agent or representative of the
other party. Neither party will enter into any contract or
<PAGE>
commitment in the name of or on behalf of the other party, nor will either party
be able to bind the other party in any respect whatsoever, except by written
agreement of the parties.
8. TERM OF AGREEMENT. This Agreement will continue in full force and effect from
and after the date as of which this agreement is executed until December 31,
2009, unless terminated by a party under the following terms and conditions:
(a) the other party (i) discontinues substantially all of its business; (ii)
files a petition in bankruptcy or a petition to take advantage of any insolvency
act; (iii) makes an assignment for the benefit of its creditors:
(b)
- -------------------------------
Further Parties Agree:
ARTICLE 9. This Agreement is non-transferable and cannot be assigned to any
other company subsidiary or division without the expressed written consent by
the other party.
ARTICLE 10. Should any invention be made by either VAC or TIPAZ during the
course of this AGREEMENT, such invention conceived solely by employees of VAC
shall belong exclusively to VAC, such invention conceived solely by TIPAZ shall
belong exclusively to TIPAZ and such invention conceived jointly by employees of
VAC and TIPAZ shall be jointly owed. Nothing contained in this AGREEMENT shall
be deemed to grant any right or license to any patents or inventions owed by
either party.
ARTICLE 11. Neither party will be responsible for delays nor failure of
performance resulting from acts beyond the reasonable control of such party.
Such acts will include, but not be limited to, acts of God, strikes, walkouts,
riots, acts of war, epidemics, failure of suppliers to perform, governmental
regulations, power failure(s), earthquakes, or other disasters.
ARTICLE 12. To the extent that agents, employees or representatives of VAC or
TIPAZ or their customers or contractors enter upon premises occupied by, or
under the control of VAC, in the course of the performance of this Agreement,
the parties shall take all necessary precautions to prevent the occurrence of
any injury to any persons, or of any damage to any property arising out of acts
or omissions of such persons, and except to the extent that any such injury or
damage is due to the other party's negligence, shall indemnify the other party,
its officers, employees and agents, against any loss, claim, damages, liability,
expense (including reasonable attorneys' fees) and cause of action, whatsoever
arising out of any act or omission of the party, its agents, or employees.
ARTICLE 13. This Agreement shall be deemed to be a contract made in the State of
Virginia and shall be interpreted in accordance with the laws of the State of
Virginia.
ARTICLE 14. Any dispute relating to the interpretation or performance of this
Agreement will be resolved at the request of either party though binding
arbitration. Arbitration will be conducted in the county of Alexandria located
in the state of Virginia in accordance with the then-existing rules of the
<PAGE>
American Arbitration Association. Judgement upon any award by the arbitrators
may be entered by a state or federal court having jurisdiction.
ARTICLE 15. In the event any action is brought to enforce this Agreement, the
substantially prevailing party will be entitled to recover its cost of
enforcement including, without limitation, reasonable attorneys' fees and court
costs.
ARTICLE 16. All notices and demands will be in writing and will be served by
personal service or mail at the address of the receiving party set forth in this
Agreement. All notices or demands by mail will be by certified or registered
mail, return receipt requested, or by nationally recognized private express
courier, and will be deemed complete upon receipt.
ARTICLE 17. This Agreement, including the attached exhibits, constitutes the
entire Agreement between VAC and TIPAZ' This Agreement supersedes, terminates,
and otherwise renders null and void any and all prior or contemporaneous
Agreements or contracts, whether written or oral, entered into between the
parties with respect to the matters expressly set forth in this Agreement.
IN WITNESS WHEREOF, the parties below have signed their names with the intent to
be legally bound by the terms of this Agreement as of the first date recited
above.
TIPAZ, INC.
By: /s./ Spencer Brown, Jr.
Spencer Brown, Jr., Chairman and CEO
VIRGINIA ACCELERATOR CORPORATION
By: /s./ Ralph Genuario
Ralph Genuario, President
<PAGE>
Exhibit 10.6
United States Patent Number 5,783,900, dated July 21, 1998
Large-Area Electron Irradiator With Improved Electron Injection.
Inventors: Stanley Humphries, Jr. and Ralph D. Genuario
Assignee: Virginia Accelerators, Inc.
Abstract: A broad-beam high energy electron accelerator has an electron
injection section arranged for increased current density with greater uniformity
and higher transmission through the foil exit window. A plurality of cathode
rods are disposed in a transverse plane and spaced at about 2.4 cm. and a
reflector plate behind the cathode rods is biased negative relative thereto. A
planar control grid is disposed distal of said cathode rods and a screen grid is
disposed parallel to and distal of the control grid. Field-shaping wires are
disposed in a plane parallel to the plane of the cathode rods and between the
same and the reflector plate, with the respective field-shaping wires being
disposed parallel to said rods and midway between them. The same positive bias
(e.g., 11kV) is applied to both the control grid and the field-shaping wires.
United States Patent Number 5,695,616, dated December 9, 1998
Electron Beam Flue Gas Scrubbing Treatment
Inventors: Dennis Helfritch and Ralph Genuario
Assignees: Virginia Accelerators Corporation and Research-Cottrell Companies,
Inc.
Abstract: A flue-gas scrubbing arrangement removes sulfur oxides and nitrogen
oxides from stack gases at low energy costs and converts these into non-noxious
ammonium sulfate-nitrate, which is utilizable as an agricultural fertilizer. The
flue gases, cleaned of fly ash, pass through a spray dryer, where water is
spray-injected to cool and humidify the gas. Then the humidified gas passes
through an e-beam reactor where high energy electrons bombard water and oxygen
to create strong reagents that react with the SO2 and NOx to form sulfuric and
nitric acids. These react with ammonia gas that is injected into the flue gas
stream to form sulfate and nitrate salts of ammonia. The ammonia should be
present in near stoichiometric amounts relative to the sulfur and nitrogen
oxides. The flue gas with the moisture and entrained salts pass to a wet
precipitator, where the salts are removed in aqueous solution, and the
remaining, scrubbed flue gases pass to the stack. The aqueous solution is then
fed back to the spray dryer, where the incoming flue gases pick up the water and
precipitate the ammonium sulfate-nitrate as particles of about 100um. Cooling
water from the electron beam generation equipment can be used as make-up water
for the spray dryer.
<PAGE>
Exhibit 10.7
WARRANT TO PURCHASE COMMON STOCK
IN e-SCRUB ENVIRONMENTAL ENTERPRISES INC.
OPERATING AS e-SCRUB ENVIRONMENTAL ENGINEERING
THIS CERTIFIES that, for value received, _________________, or his or her
registered heirs, assigns or transferees, is entitled, subject to the terms and
conditions set forth in this Warrant, to purchase from e-SCRUB Environmental
Enterprises Inc., a Virginia corporation (the "Corporation"), up to ________
shares fully paid and non assessable Class A common stock of the Corporation
(the "Class A Stock"), on the dates described in Section 1 below, at the price
of $12.50 per share, subject to the adjustments described in Section 6 below.
1. Exercise of Warrant. This Warrant is exercisable commencing any time between
the giving of notice by the Board of Directors (which shall be a date, at the
option of the Board of Directors, after one year from the date the Corporation's
share are listed on a national stock exchange, such as the New York Stock
Exchange, the American Stock Exchange, or the NASDAQ Stock Market, and ending on
the close of business on the fifth day before the exercise date stated in the
exercise notice described below, by both (a) delivering to the Corporation a
written notice electing to exercise the rights under this Warrant to purchase a
share of Class A stock; and (b) presenting and surrendering this Warrant with
the form of Election to Purchase duly executed at the office of the Corporation
or at such other address as the Corporation may designate by notice in writing
to the holder hereto at the address of such holder appearing on the books of the
Corporation, and upon payment to the Corporation of the purchase price by
certified or bank cashier's check. The shares of Class A Stock so purchased
shall be deemed to be issued to the holder hereof as the record owner of such
shares of Class A Stock as of the close of business on the date on which this
Warrant shall have been surrendered and payment made for such shares.
Certificates for the shares of Class A Stock so purchased shall be delivered or
mailed to the holder promptly after this Warrant has expired or has been
exercised in full; a new Warrant identical in form representing the number of
shares of Class A Stock with respect to which this Warrant shall not then have
been exercised shall also be issued to the holder thereof.
2. Reservation of Shares. The Corporation hereby agrees that at all times there
shall be reserved for issuance and/or delivery upon exercise of this Warrant
such numbers of shares of its Class A Stock as shall be required for issuance or
delivery upon exercise of this Warrant.
3. Notice of Exercise Period. The Corporation will mail, postage prepaid, notice
of the beginning of the exercise period, not fewer than 20 days or more than 60
days before the period fixed for exercise. The notice will be sent to the record
holder of this Warrant at the Shareholder's address as it appears on the
Corporation's books. The exercise notice must include the following information:
(1) the warrants that may be exercised; (2) the dates fixed for the exercise of
the warrants; (3) any adjustment in the number of shares that may be purchased
with each warrant; and (4) the place where the holder may present and surrender
this Warrant and obtain shares of Class A Stock.
4. Holder's Rights. Nothing herein shall be construed to confer upon the holder
of this Warrant, as such, any of the rights of a shareholder of the Corporation.
<PAGE>
5. Exchange, Loss. Theft or Mutilation. Subject to the limitations on transfer
set forth in Section 1, this Warrant is exchangeable, upon its surrender by the
holder at the main office of the Corporation presently located at 301 South West
Street, Alexandria, Virginia 22314, for new warrants (containing the same terms
as this Warrant) each representing the right to purchase such number of shares
of Class A Stock as shall be designated by such holder at the time of such
surrender, but not exceeding in the aggregate the remaining number of shares of
Class A Stock which may be purchased hereunder. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
this Warrant and upon delivery of a bond of indemnity satisfactory to the
Corporation (or in the case of mutilation, upon surrender of this Warrant), the
Corporation will issue to the holder a replacement containing the same terms as
this Warrant. As used herein, "Wan-ant" shall include all new warrants issued in
exchange for or replacement of this Warrant.
6. Anti-Dilution Provisions. If the Corporation shall pay a dividend in shares
of its Class A Stock, subdivide (split) its outstanding Shares of Class A Stock,
issue by reclassification of its shares of Class A Stock any shares or other
securities of the Corporation, or distribute to holders of its Class A Stock any
securities of the Corporation or of another entity, the number of shares of
Class A Stock the holder hereof is entitled to purchase pursuant to this Warrant
immediately prior thereto shall be adjusted so that the holder shall be entitled
to receive upon exercise the number of shares of Class A Stock or other
securities which he or she would have owned or would have been entitled to
receive after the happening of any of the events described above had this
Warrant been exercised immediately prior to the happening of such event, and the
exercise price shall be correspondingly adjusted; provided however, that no
adjustment in the number of shares and/or the exercise price shall be required
unless such adjustment would require an increase or decrease of at least 1 % in
such number and/or price; and provided further, however, that any adjustments
which by reason of this Section 6 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. An adjustment made
pursuant to this Section 6 shall become effective immediately after the record
date in the case of the stock dividend or other distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or reclassification. The holder of this Warrant shall be entitled to
participate in any subscription or other rights offering made to shareholders as
though the holder had purchased the full number of shares as to which this
Warrant remains unexercised immediately prior to the record date for such rights
offering. If the Corporation is consolidated or merged with or into another
corporation or if all or substantially all of its assets are conveyed to another
corporation. this Warrant shall be thereafter exercisable for the purchase of
the kind and number of shares of stock or other securities or property, if any,
receivable upon such consolidation, merger or conveyance by a holder of the
number of shares of Class A Stock of the Corporation which could have been
purchased on the exercise of this Warrant immediately prior to such
consolidation, merger or conveyance, and in any such case. appropriate
adjustment (as determined by the Corporation's Board of Directors) shall be made
in the application of the provisions herein set forth with respect to the rights
and interests thereafter of the holder of this Warrant to the end that the
provisions set forth herein (including provisions with respect to changes in and
other adjustments of the number of shares of Class A Stock the holder of this
Warrant is entitled to purchase) shall thereafter be applicable, as nearly as
possible, in relation to any shares of Class A Stock or other securities or
other property thereafter deliverable on the exercise of this Warrant.
<PAGE>
Upon any adjustment of the number of shares of Class A Stock or other securities
of the holder of this Warrant is entitled to purchase, and of any change in the
exercise price per share, then in each such case the Corporation shall give
written notice thereof to the then registered holder of this Warrant at the
address of such holder as shown on the books of the Corporation, which notice
shall state such change and set forth in reasonable detail the method of
calculation and the facts upon which such calculation is based. Each such notice
shall be accompanied by a statement of the firm of independent certified public
accountants retained to audit the financial statements of the Corporation to the
effect that such firm concurs in the Corporation's calculation of the change.
7. Fractional Shares. Upon exercise of this Warrant, if necessary, the
Corporation will issue fractional shares, or certificates representing
fractional shares, calculated to the nearest 1/100 share, on any terms that the
Board of Directors may fix. In making these calculations, fractions of less the
1/100 share shall be disregarded. Fractional shares shall have proportionally
the same voting rights, dividends, and liquidation preferences as full shares of
the same class and series.
8. Tranferees. The provisions of this Warrant shall apply to any transferee. No
transfer of this Warrant shall be effective until registered in the books of the
Corporation.
9. Notice of Certain Events. If at any time:
(a) The Corporation shall declare a dividend or other distribution on its Class
A Stock payable otherwise than in cash at the same rate as the immediately
preceding regular dividend or in common stock;
(b) The Corporation shall authorize the granting to the holders of its Class A
Stock of rights to subscribe for or purchase any shares of capital stock of any
class or of any other rights;
(c) There shall be any plan or agreement of reorganization of the capital stock
of the Corporation, or consolidation or merger of the Corporation with, or sale
of all or substantially all of its assets to, another corporation; or
(d) There shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; then the Corporation shall give to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Corporation at least 10 days prior to the applicable record date or dates, a
written notice summarizing such action or event and stating the record date or
dates for any such dividend or rights (or if a record is not to be taken, the
date or dates as of which the holders of Class A Stock of record to be entitled
to such dividend or rights are to be determined), the date on which any such
reorganization, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up is expected to become effective, and the
dates as of which it is expected the holders of Class A Stock of record shall be
entitled to effect any exchange of their Class A Stock for securities or other
property deliverable upon any such reorganization, reclassification,
consolidation, reclassification, consolidation, merger, sale of assets,
dissolution, liquidation or winding up.
10. Applicable Law. This Warrant shall be governed by and construed under the
laws of the Commonwealth of Virginia.
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be signed by its
<PAGE>
duly authorized officers on the ______day of _____________, 1999.
e-SCRUB ENVIRONMENTAL ENTERPRISES INC.
Signature:
RALPH D. GENUARIO, President
[Seal]
Attest:
Signature:
Maija L. Harkonen, Secretary
<PAGE>
Exhibit 10.8
LICENSE AGREEMENT
This ageement, dated January 19, 1996, is made by and between: AlliedSignal
Technologies Inc., an Arizona corporation ("Licensor"), and Virginia
Accelerators Corporation, a Virginia corporation ("Licensee").
BACKGROUND
Whereas, Licensor has developed certain proprietary information and patent
rights relating to rapid solidification of HTA-8022 bar stock and foil (as
defined below); and
Whereas, Licensee is interested in acquiring a license from Licensor under such
proprietary information and patent rights for use in making electron beam
accelerator windows; and
Whereas, Licensor is willing to grant Licensee such a license under the terms
and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises herein set forth, the
parties hereto agree as follows:
SECTION 1 - DEFINITIONS
As used in this Agreement, the following terms shall have the indicated meanings
set forth below:
1.1 "RS HTA-8022" shall mean high temperature aluminum alloy 8022 produced
by rapid solidification from the melt at a quench rate of at least
10 DEG. C/sec, as described in U.S. Patent 4,879,095.
1.2 "Product" shall mean RS HTA-8022 bar stock and foil.
1.3 "Devices" shall mean electron beam accelerator windows made from Product.
1.4 "Technical Information" shall mean existing information owned and/or
controlled by Licensor relating to RS HTA-8022, as set forth in Section 3.1
below, excluding, however, such information unrelated to the use of RS HTA-8022
as a window for high power electron guns (the "Excluded Information").
1.5 "Patents" shall mean U.S. Patents 4,650,130 (issued 3/17/87), 4,805,686
(issued 2/12/89), 4,878,967 (issued 11/7/89), 4.879,095, (issued 11/7/89),
4,828,632(issued 5/9/89), 4,869,751 (issued 9/26/89) and 4,898,612 (issued
2/6/90), which are owned by Licensor, and any reissue or reexamination of any
such issued patents.
1.6 "Net Sales Price" shall mean the amount actually billed by Licensee, as
shown on its invoices, on arms-length sales of Product after deducting from the
gross sales (i) normal and customary cash and trade discounts and credits for
returns and allowances, (ii) insurance costs and transportation charges, if any,
paid or allowed by Licensee, and (iii) sales or other excise taxes or duties
imposed upon and paid by Licensee. If Licensee uses rather than sells Product,
then the Net Sales Price shall mean the average Net Sales Price of Product sold
by Licensee during the period in question; if there are no such sales during
such period, then the parties shall agree on a reasonable Net Sales Price for
<PAGE>
the purpose of calculating royalties, such as based on the sales price published
by Licensee in its product list.
1.7 "Territory" shall mean the United States of America.
1.8 "Effective Date" shall be the date first above written.
1.9 "License Year" shall be a year period commencing on January 1 and ending on
December 31 during the term of this Agreement.
SECTION 2 - LICENSE
2.1 Subject to the provisions of this Agreement, Licensor grants to Licensee, an
exclusive right and license in the Territory, with the right to grant
sublicenses to third parties upon terms and conditions consistent with this
Agreement and subject to Licensor's consent, under Technical Information and
Patents to manufacture, use, and sell Product solely for the purpose of making
Devices in the Territory.
2.2 Licensee shall diligently pursue any and all means to market and promote the
commercial use of Product in Devices during the term of this Agreement. In order
to maintain the exclusive right and license granted under Section 2.1 Licensee
must meet the minimum annual royalty obligation set forth under Section 4.22. If
Licensee does not meet such minimum annual royalty obligation by the end of the
second License Year, then Licensor may at its option at any time terminate this
Agreement and the license of Section 2.1.
SECTION 3 - TECHNICAL INFORMATION AND CONFIDENTIALITY
3.1 As soon as practicable after execution of this Agreement, Licensor shall
furnish to Licensee Technical Information as follows:
a. Production process;
b. Methods of analysis;
c. Equipment list; and
d. Materials of construction.
The information to be disclosed to Licensee shall be in the documentary form in
which it exists in Licensor's files.
3.2 For a period of twenty (20) years from the Effective Date, Licensee shall
maintain all Technical Information in strict confidence and shall not disclose
the same to others or use the same during or after the term of this Agreement
unless such use is expressly licensed hereunder or by a separate agreement.
However, Licensee may disclose to a contractor Technical Information limited to
that necessary for the manufacture of the Product for Licensee, provided that
such party agrees to a confidentiality obligation at least as stringent as that
set forth herein.
3.3 It is agreed that Licensee's obligation of confidentiality hereunder
shall not extend to any Technical Information which Licensee can prove:
(a) was in the public domain prior to disclosure, or thereafter comes into
the public domain without any breach by Licensee; or
(b) was known by Licensee prior to disclosure, as shown by written records;
or
(c) was disclosed to Licensee by a third party not in violation of any
obligation of confidentiality from or through Licensor.
<PAGE>
Any combination of known information shall only be within any of the
foregoing exclusions only if the combination as such is within such
exclusion.
3.4 Licensee agrees that no Technical Information furnished to it by Licensor,
nor any direct product of such Technical Information, is intended to or will be
exported directly or indirectly to any prohibited destination as defined in the
regulations of the United States Department of Commerce or Department of State
now or hereafter in effect governing the export of technical data, except after
compliance with such regulations.
3.5 Licensor shall, at the written request of Licensee, furnish technical
assistance to Licensee, provided Licensor has available, in its sole judgment,
sufficient manpower at the time of request to perform such services. Licensee
shall reimburse Licensor for all costs, expenses and any taxes incurred by and
in connection with furnishing the services of any of Licensor's representative,
including but not limited to a fee of Three Thousand Dollars ($3,000.00) per day
per representative plus cost of transportation, hotel accommodations, meals,
insurance and communications. Such technical assistance shall be limited to 20
man-days and shall be provided within six (6) months following the Effective
Date.
SECTION 4 - ROYALTIES
4.1. Lump Sum Royalty Payment
4.1.1 For the rights and licenses granted in Section 2.1 above, upon execution
of this Agreement Licensee shall pay to Licensor, the non-refundable sum of
Twenty-Five Thousand US Dollars ($25,000 US), such sum not being creditable
against the running royalty due to Licensor in accordance with Section 4.2,
hereinbelow.
4.2 Running Royalties.
4.2.1 In addition to the Lump Sum Royalty Payment specified in Section 4. 1. 1,
Licensor shall pay to Licensee a running royalty of ten percent (10%) based on
the Net Sales Price of Product manufactured and sold or used by Licensee.
4.2.2. In order to maintain the exclusive right and license granted under
Section 2.1, running royalties paid to Licensor by Licensee during the second
License Year must equal or exceed Twenty Thousand US Dollars ($20,000 US).
4.3 Royalties shall be paid on revenues received within thirty (30) days of the
end of each calendar quarter in U.S. Dollars at Licensor's address specified in
Article 9.2 or as otherwise stated by Licensor, and shall be net of all taxes.
If Licensee and a customer of Licensee (or any sublicensee) agree that payment
shall be made in a currency other than U.S. Dollars, Licensee shall pay Licensor
royalties using the retail exchange rate (listed in the Wall Street Journal) in
effect on the date that Licensee (or its sublicensee) receives payment from the
customer.
4.4 Licensee shall pay interest to Licensor at a rate of two (2) percent over
the prime interest rate published in the Wall Street Journal on any and all
amounts that are at any time overdue and payable to Licensor under this
Agreement. The payment of such interest shall not replace any of Licensor's
other rights under this Agreement resulting from Licensee's failure to pay any
amounts due hereunder.
<PAGE>
SECTION 5 - RECORDS
5.1 Licensee shall furnish a written statement with each royalty payment
specifying the amount of Product manufactured and sold or used by Licensee and
any sublicensee, and a calculation of the royalty due.
5.2 Licensee shall keep, and require its sublicensees to keep, detailed and
accurate records of the amount of Product produced and sold or used for each
application to enable the determination of royalties payable hereunder, and will
furnish copies thereof to Licensor at Licensor's request.
5.3 Licensor shall have the right, not more than once annually, to have
Licensee's books and records examined by an independent certified accountant
reasonably acceptable to Licensee for the purpose of verifying such royalty
statements. The cost of such examination shall be borne by Licensor; provided,
however, if such audits reveal an error of ten (10) percent or more in favor of
Licensor, then the cost of such audit shall be at the expense of Licensee. In
all sublicensing agreements, Licensee shall procure for Licensor similar rights
to have the books and records of the sublicensee examined for the purpose of
verifying royalty statements and shall impose the same obligations relative to
payment for such examination.
SECTION 6 - PATENT RIGHTS
6.1 Licensor warrants that it has good title to the Patents and to the Technical
Information furnished to Licensee under this Agreement and that it has the right
to grant to Licensee the license granted hereunder.
6.2 Licensee shall be responsible at its own cost and expense for maintaining
the Patents. Licensor shall pay the maintenance fees due on the Patents and
shall invoice Licensee for the amount of the maintenance fees paid. Licensee
shall reimburse Licensor for such maintenance fees within thirty (30) days of
receipt of such invoice.
6.3 If one or more of the patents comprising the Patent Rights is declared or
becomes invalid or unenforceable by a final, unappealable decision, Licensee
shall be relieved of further payments to Licensor with respect to such
patent(s).
6.4 If a third party appears to be infringing any of the Patents, Licensee shall
promptly notify Licensor, and vice versa, and the parties shall mutually agree
on a proper course of action. Licensor shall have the sole right to bring suit
against any infringer of the Patents.
6.5 Licensee shall promptly advise Licensor in writing of any claim of
infringement and of the commencement against it of any suit or action for
infringement of patents made or brought against Licensee and based upon the
manufacture and sale by Licensee of the Product. Licensee shall be fully
responsible for and shall have sole charge in the defense of any suit or action.
Licensor shall render Licensee reasonable assistance to Licensee in the defense
of such suit or action and Licensor shall have the right to be represented
therein by advisory counsel of its own selection and at its own expense.
6.6 Licensor makes no warranty or guaranty of non-infringement by the practice
of the Technical Information and/or Patents and shall not be liable for any
infringement of any adversely held patent.
<PAGE>
SECTION 7 - TERMINATION
7.1 If Licensee shall delay in paying royalties or providing statements to
Licensor as provided in Article 5 or default on any other obligation under this
Agreement, Licensor may give written notice to Licensee specifying the claimed
particulars of such default. If such default is not remedied within thirty (30)
days after submission of such notice, Licensor may (a) terminate this Agreement
by giving written notice to Licensee, and/or (b) enforce the defaulted
obligation by any available lawful means. Any indulgence by Licensor shall not
be construed as a waiver of Licensor's rights under this paragraph either with
respect to such default or to similar subsequent defaults. Termination of this
Agreement shall not relieve Licensee of its obligations under Section 3.2.
SECTIONS - TERM
8.1 Unless sooner terminated as provided herein, the term of this Agreement
shall extend for a period of fifteen (15) years from the date of the first
commercial sale of Product or to the expiration date of the last to expire of
the Patents, whichever date is the later.
8.2 After expiration of this Agreement in accordance with Article 8.1, neither
party shall have any further rights or obligations under this Agreement except
that the confidentiality obligations of Article 3 shall remain in effect for the
period therein specified.
SECTION 9 - GENERAL PROVISIONS
9.1 This Agreement shall not be assignable by Licensee without the prior written
consent of Licensor. No assignment shall be valid until the assignee has assumed
the rights and obligations of the assignor under this Agreement.
9.2 Notices and written statements required under this Agreement shall be deemed
to have been given upon mailing, postpaid, to the recipient party at the
following address or at such other address as may from time to time be
designated in writing to the other party:
If to Licensor:
AlliedSignal Technologies Inc. One Gateway 426 N. 44th Street Phoenix, Arizona
85008 U.S.A.
Attention: President
If to Licensee:
Virginia Accelerators Corporation
301 South West Street
P.O. Box 26296
Alexandria, VA 22314
Attention: Ralph D. Genuario,
Managing Director
9.3 Licensor assumes no responsibility and does not make any warranty with
respect to the Technical Information or any Product manufactured, used or sold
by Licensee. Licensee shall exonerate, defend, indemnify and hold Licensor
<PAGE>
harmless against any loss, cost, expense, payment or damage in any way resulting
from or connected with any and all claims, demands, liabilities and suits
arising out of the manufacture, use or sale by Licensee of the Product or the
use of the Technical Information.
Licensor makes no representation or warranty as to the merchantability or
suitability or fitness for any particular purpose of the Product, including but
not limited to the suitability for use in Devices.
9.4 This Agreement embodies the entire agreement and understanding between the
parties relating to the subject of this Agreement and there are no other
representations or agreements relating thereto.
9.5 No change in, addition to, or waiver of the provisions of this Agreement
shall be binding upon either party unless approved in writing by its authorized
representative and no modifications shall be effected by the acknowledgment or
acceptance of purchase order forms containing other or different provisions.
9.6 This Agreement shall be construed and the legal relations between the
parties shall be determined according to the laws of the State of Delaware,
without regard to its conflicts of law principles.
9.7 Upon execution by the parties, this Agreement shall be deemed effective as
from the date first written above.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed in
duplicate by their authorized representatives.
AGREED:
Virginia Accelerators Corporation
By: /s./ Ralph D Genuario
Ralph D. Genuario, President
AGREED:
AlliedSignal Technologies Inc.
By: /s./ T.K. Grigoriou
T.K. Grigoriou, President
<PAGE>
Exhibit 10.9
STATE of DELAWARE
LIMITED LIABILITY COMPANY
CERTIFICATE of FORMATION
First: The name of the limited liability company is Virtex Air Systems, LLC.
Second: The address of its registered office in the State a Delaware is 15 East
North Street, Dower, DE in the city of Dover County of Kent. The name of its
Registered agent at such address is Paracorp Incorporated.
Third: (Use this paragraph only if the company is to have a specific effective
date of dissolution "The latest date on which the limited liability company is
to dissolve is ___________."
Fourth: (Insert any other matters the members determine to include herein.)
- --------------------------------------------------------------------------------
In Witness Whereof, the undersigned have executed this Certificate of Formation
of Virtex Air Systems, LLC this 20th day of July 1999.
By:
/s./Spencer Brown Jr.
Spencer Brown Jr.
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF LIMITED
LIABILITY COMPANY OF "VIRTEX AIR SYSTEMS LLC", FILED IN THIS OFFICE ON THE
TWENTY-FIRST DAY OF JULY, A.D. 1999, AT 9 O'CLOCK A.M.
/s./Edward J. Freel, Secretary of State
Edward J. Freel
AUTHENTICATION: 9878713
DATE:07-21-99
ADDENDUM
VAC and NDC agree to amend the Escrow Fund Agreement ('the Agreement by deleting
the present Section 4.08 of the Agreement and replacing it with the following
addendum:
4.08 Whereas VAC is contributing earmarks totaling $11,250,000 to VIRTEX Air
Systems, L.L.C. (the Company) that will result in the construction and operation
of several assets; each asset will be: the equivalent to the 50 MWe e-SCRUBTM
Technology Demonstration (the Unit). Whereas the Unit will be carried on the
balance sheet of the Company as an asset of approximately $11,250,000; and this
Unit is projected to generate earnings before income taxes, depreciation &
amortization (EBITDA) of approximately $1,780,000 per annum. Whereas the final
construction costs will not be determined until after the Unit is completed and
the actual EBITDA. will not be known until after the Unit is placed in
operation.
In return for its share of the ownership of this asset, NDC agrees to pay VAC a
Management Fee (the VAC Fee) equal to one-half of the actual DOE earmark funds
<PAGE>
received. NDC we'll pay the VAC Fee in five equal installments over a
thirty-month period (bi-annual payment). The first installment will be due
within twelve months after the facet earmarked f reds are received. However, in
no case will the payments start until after the completion of the Unit. In
addition if no earnings are achieved in a bi-annual period, then no bi-annual
payment will be due.
NDC agrees to pay the Fee to VAC is live equal installments over a thirty month
period (bi-annual payment). However, in no case will any payments to VAC start
until after the completion of construction of the Unit and the Unit is
operating. In addition if no earnings ate achieved in a bi-annual period, then
no bi-annual payment will be due to VAC.
NDC's obligation under this agreement will in no event exceed profit
distributions to NDC paid out of VIRTEX to NDC. It profit distributions to NDC
are less than the Management Fee referred to above, then the excess Management
Fee aver the profit distribution amount will be deferred until profit
distributions to NDC from VIRTEX will cover the Management Fee payable to VAC.
It is understood that this scenario may extend the payment time frames PAO the
above mentioned 30-mouth period.
4-09 The newly formed company Virtex shall have the right to purchase
e-SCRUB equipment and related components directly from either VAC or
its manufacturers, sub-contractors, vendors and other direct sources.
Virtex agrees that it will pay VAC at 6% management fee for handling on
any such purchases on a case by cue basis.
ESCROW FUND AGREEMENT
This Escrow Fund Agreement dated this 3rd of June, 1999, ("Escrow Agreement"),
is entered into by and between Virginia Accelerators Corporation ("VAC"),
located at 301 Southwest Street, Alexandria, Virginia; National Diversified
Company ("NDC"), located at 1700 N. Valley Mills Drive, Suite 1, Waco, Texas;
and Bernhard P. Molldrem located at 2nd Floor, Maurice Bldg. 333 East Onendaga
Street, Syracuse, NY ("Escrow Agent").
RECITALS
1. The parties have agreed to entered into negotiations to establish a business
entity,("The Company"), in the form of a limited liability company that will be
RDG incorporated in Delaware or in another state at least as favorable to the
owners of the Company, for the purpose of designing, manufacturing, selling,
constructing, and installing e-SCRUBTM air pollution control system throughout
the world (with the exception of any existing VAC territorial agreements in
place as of June 11, 1999. This agreement will be effective immediately upon its
execution and shall govern relationship between the parties until such time as
the new entity has been formed and a separate or related agreement has been
reached providing for the management and operation of the new company.
2. VAC desires to engage process of designing, manufacturing, selling,
constructing, and installing e-SCRUBTM air pollution control systems, and to
offer related engineering services throughout the world, in conjunction with
<PAGE>
NDC, within the framework of the organization of the new company. VAC is willing
to make available certain proprietary information for NDC for use in its
evaluation of the future business relationship contemplated by the parties. This
technology will also be made available to the new company to be formed pursuant
to the subsequent agreements.
3. NDC desires to engage in the designing, manufacturing, selling, constructing,
and installing e-SCRUBTM air pollution control systems and other related
engineering services throughout the world, in conjunction with VAC within the
framework of the new company.
4. This Escrow Agreement is entered into to create as escrow fund to secure
VAC's agreement to negotiate exclusively with NDC during the term of this
agreement.
In consideration of the promises and agreements of the parties, and for other
good and valuable consideration, the receipt of which is acknowledged, the
parties agree as follows:
ARTICLE 1
ESCROW DEPOSIT
1.01 NDC contemporaneously with the execution of this agreement shall deposit
$250,000.00 with Escrow Agent, to secure their obligations as described in this
agreement. This amount shall be known as the "escrow fund".
DISBURSEMENT
1.02 The assets in the escrow fund are to be retained by the escrow agent as an
escrow trustee pursuant to this agreement. The assets (and income earned on
them) may be disbursed from the escrow fund only in accordance with Article 2,
below.
INVESTMENT DECISIONS
1.03 The assets in the escrow fund shall be invested at the sole discretion and
direction of the escrow agent, in a Trust account.
ARTICLE 2
DUTIES OF ESCROW AGENT
INVESTMENT BY AGENT
2.01 The Escrow Agent shall receive and hold the escrow fund pursuant to the
terms of this escrow agreement and shall invest the escrow funds as provided in
Paragraph 1.03, above. Interest or other income earned by the assets held in the
escrow fund shall also be invested in accordance with the same procedures, until
the escrow fund is disbursed as provided below.
DISBURSEMENTS
2.02 The Escrow Agent shall disburse the escrow fund only in accordance with the
joint written instructions signed by all parties. All interest and other income
earned on the escrow fund at the time of disbursement shall be
<PAGE>
distributed in the same proportion as the distribution of the escrow fund. Upon
disbursement of all of the escrow fund, including interest, or other income
earned on it, the escrow agreement shall terminate.
(.0)
ARTICLE 3
OPERATION
OBLIGATIONS
3.01 The Escrow Agent shall be obligated only for the performance of the duties
that are specifically set forth in this agreement. The Escrow Agent shall be
protected and acting or refraining from acting on any instrument believed to be
genuine and to have been signed or presented to the proper party or parties. The
Escrow Agent shall not be liable for any action taken or omitted in good faith
and believed to be authorized by this escrow agreement nor for any action taken
or omitted in accordance with the advice of the escrow agent's counsel.
LIMITATION OF LIABILITY
3.02 The Escrow Agent shall have no liability under, or duty to inquire into the
terms and provisions of the future agreement contemplated herein. It is agreed
that the Escrow Agent's duties are purely administrative in nature and that the
escrow agent shall incur no liability whatsoever except willfull conduct or
gross negligence, so long as the Escrow Agent has acted in good faith. The
Escrow Agent shall not be bound by any modification to this Agreement, unless it
is in writing, signed by all of the parties to the Escrow Agreement.
GOVERNING LAW
3.03 This Escrow Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
EXCLUSIVITY
3.04 VAC will not seek discussions, negotiations, or contacts with any other
parties to form any other entity, or venture used to exploit the "e-SCRUB
technology", and will cease and disengage from any existing discussions with any
parties other than NDC.
TERM OF ESCROW AGREEMENT
3.05 This Agreement shall terminate upon the formation of the new company,
satisfaction of all contingencies described herein, and the disbursement of
funds pursuant to the terms of this Agreement. Unless extended in writing, this
Agreement shall terminate 60 days following the date of its execution.
ARTICLE 4
CONTINGENCIES TO BE MET PRIOR TO RELEASE OF ESCROW MONEY TO VAC
4.01 Completion of due diligence examination, in a form acceptable to NDC. In
this regard, VAC agrees to make available all relevant material with respect to
present or future products, research and development, inventions, processes,
techniques, designs or technical information and data, marketing plans,
<PAGE>
financial statements, patent information, etc., relating to the operation and
development of the E-SCRUBTM systems. The due diligent examination will include,
at a minimum, an examination of business operations of VAC, its business plan
and technology, and all related agreements and intellectual property rights.
Upon verification of the following items, the escrow funds will be released to
VAC according to the schedule, which gives the number of days after the Escrow
Agreement is signed, and amounts that are listed below:
<TABLE>
<CAPTION>
Item Amount # of Days
<S> <C> <C>
a) Business Plan with Projected Financial Statement. $25,000 5
b) Verification of DoE earmark in the amount of
$1,250,000 for the design of the 50 MWe Technology
Demonstration e-SCRUBTM project. $25,000 5
c) Verification of DoE earmark in the amount of
$10,000,000 for the construction of the 50 MWe
Technology Demonstration e-SCRUBTM project. $25,000 30
d) Verification of interest in e-SCRUBTM process
by one of the following power plants (or such other
plant acceptable to NDC): $25,000 30
1) Homer City, Pennsylvania;
2) Alexandria, Virginia;
3) Chalk Point or Morgantown, Maryland.
e) Verification of interest by one of the following
members of Congress to establish a 50 MWe
Technology Demonstration e-SCRUBTM project in
his respective district. $25,000 30
1) Congressman John P. Murtha
2) Congressman James P. Moran
3) Congressman Steny Hoyer
f) Formation of the Company. $75,000 60
g) Any one of the following events occur: $50,000 60
</TABLE>
1) allocation of DoE money for a demonstration, or 2) a contract with a utility
to install a demonstration project, or 3) a letter of intent with a utility to
install a demonstration project.
4.02 After the formation of the company, the $250,000 will be credited against
letter of credit as provided in item 4.07.
FORMATION OF NEW COMPANY
4.03 The New Company will be owned in accordance with the following percentages:
a. VAC 50%
b. NDC 50%
4.04 The Company will be incorporated in Delaware or in another state at least
as favorable to the owners of the Company.
4.05 VAC and NDC will execute all necessary documents to register the company
with the proper governmental offices in the Commonwealth of Virginia and any
other states that all parties being necessary.
4.06 The Company shall establish a board of directors; VAC shall appoint 50% of
the directors and the Chairman of the Board, and NDC shall appoint 50% of the
directors and vice Chairman of Board. The Company shall establish a management
<PAGE>
organization to be in charge of the daily management. One general manager shall
be chosen by VAC, and one deputy general manager will be chosen by NDC.
4.07 VAC shall contribute any exclusive, royalty free license covering the
intellectual property for the e-SCRUBTM system and sub-systems, including
trademarks, licensing agreements, patents, engineering designs and equipment
specifications. NDC shall contribute capital in the form of cash or financing,
in an amount to be determined following the completion of the due diligence
examination, and a reasonable valuation of the assets contributed, or to be
contributed by VAC, in light of the future capital requirements which may be
necessitated by operations of the new entity. The final contribution amount will
be an amount determined following negotiations between the parties, as a minimum
amount necessary to secure bonds according to a schedule agreed upon by the
parties. The contribution may be made all, or substantially all, in the form of
a letter of credit, which will be retired over time by NDC's contributions from
their respective shares of the profits. The letter of credit will be totally
retired when the New Company's accumulated profits equals twice the amount of
the letter of credit. The full contribution by NDC will be computed following an
audit by NDC of existing VAC operations, including, specifically all assets to
be transferred to the New Company, verification by NDC of the VAC team members
and any existing contracts VAC has with each member, verification by NDC of all
existing licensing agreements, including, but not necessarily limited to R-C,
Inc., Helfritch, and Allied Signal, and verification of the ammonia/fertilizer
contract with Royster Clark, Inc.
4.08 Whereas VAC is contributing earmarks totaling $11,240,000 to the Company
that will result in the construction and operation of an asset, the 50 MWe
Technology Demonstration e-SCRUBTM treatment facility. Whereas this facility
will be carried on the Company's balance sheet as an $11,250,000 asset and will
produce earnings before income tax, depreciation and amortization of $1,780,000
per annum. In return for its share of the ownership of this asset, NDC will pay
VAC one half of the earmark funds. As these funds are paid to VAC, NDC will pay
within 30 days one half of amounts that are tendered by the DoE.
MISCELLANEOUS PROVISIONS
5.01 It is agreed that VAC and NDC have not formed a partnership by this
agreement, and no party authorizes the other to act as its general agent or
partner for any purpose whatsoever.
5.02 This agreement may not be assigned by any party without the prior written
consent of all other parties.
5.03 It is acknowledged by all parties that each may be furnished with, or may
otherwise receive or have access to certain proprietary information or material
which relate to past, present, or future products, research and development,
inventions, processes, techniques, designs, or technical information and data,
marketing plans, financial statements, proforma statements, etc., relating to
the business and operation of the various parties to this agreement. All parties
to this agreement agree not to disclose such proprietary information to third
parties, unless specifically authorized to make such disclosure by the other
parties, in writing.
<PAGE>
5.04 This agreement shall be binding on and enure to the benefit of the parties
to this agreement and their respective successors and permitted assigns. No
other person shall have any rights under this escrow agreement.
5.05 Any notice, statement or other communication that is required or that may
be given under the terms of this agreement shall be writing and shall be
sufficient in all respects if properly addressed and delivered personally, of
the United States Certified Mail, postage pre-paid as follows:
if to VAC: 301 Southwest Street, Alexandria, Virginia
if to NDC: National Diversified Company, Attention: Spencer Brown,
1700 N. Valley Mills Drive, Suite 1, Waco, Texas 76710
if to Escrow Agent: Bernhard P. Molldren, 2nd floor Monroe Building, 333 East
Onoxdaga Sreet, Syracuse, NY
or to any other address that any party shall designate in writing to the
other parties in accordance with this provision.
5.06 This agreement constitutes the entire agreement between the parties hereto
pertaining to the subject matter described herein, and supersedes, except for
Appendix A, Proprietary Information Agreement, all prior and contemporaneous
agreements, representations, warranties and understandings of the parties. No
supplement, modification or amendment of this agreement shall be binding unless
executed in writing by all parties. No waiver of any of the provisions of this
agreement shall be deemed or shall constitute a waiver of any other provision,
whether similar or dissimilar, nor shall any waiver constitute a continuing
waiver. No waiver shall be binding unless in writing and signed by the party
making such waiver.
5.07 This agreement is executed by agents having full authority to act on behalf
of their respective corporations.
Dated to be effective as of June 30, 1999.
VIRGINIA ACCELERATORS CORPORATION
BY: /s./ Ralph D. Genuario
Ralph D. Genuario, President
NATIONAL DIVERSIFIED COMPANY
By: /s./ Spencer Brown, Jr.
Spencer Brown, Jr., Chariman & CEO
APPENDIX A
NON-DISCLOSURE AGREEMENT
A. During the cooperation between National Diversified Co. located at 1700 North
Valley Mills Drive, Suite #1, Waco, TX 76710 and Virginia Accelerators
Corporation, located at 301 South West Street, Alexandria, VA 22314, it may be
necessary for either party to provide proprietary information to the other, and,
with respect to such information, the parties agree as follows:
<PAGE>
(1) Proprietary information is defined as, but not limited to, performance,
sales financial, contractual and special marketing information, ideas, technical
data and concepts originated by the disclosing party, not previously published
or otherwise disclosed to the general public, not previously available to the
receiving party of others without restriction, nor normally furnished to others
without compensation, and which the disclosing party desires to protect against
unrestricted disclosure or competitive use, and which is furnished pursuant to
this Agreement and appropriately identified as being proprietary when furnished.
(2) The receiving party of proprietary information agrees to hold such
information in confidence for a period of three years from that date of its
receipt.
(3) The parties each will designate in writing one or more individuals within
their own organization as the only person(s) authorized to receive proprietary
information exchanged between the parties pursuant to this Agreement.
(4) Proprietary information must be submitted in writing and shall be clearly
identified as such.
(5) Each party is authorized to incorporate such proprietary information i n any
analysis contemplated by this Agreement, provided such analysis bears a
restrictive legend similar to that provided for in their normal course of
business.
(6) Proprietary information which is exchanged may be used only by the receiving
party in connection with the analysis or in the performance of any contract
award thereunder.
(7) Neither party shall divulge or use, for any purpose not connected with the
analysis contemplated in this Agreement, any program or system concept of other
information disclosed to it by the other party in connection with the
performance of this Agreement, and marked with a proprietary legend, to any
person or office other than such persons(s) and offices) appropriate for the
execution of this agreement.
(8) Each party receiving proprietary or confidential information will require
that all third parties to this Agreement, if any, to which it may give such
proprietary or confidential information protect the same in accordance with the
provisions contained herein.
(9) The standard of care for protecting such information, imposed on the party
receiving such information, will be that degree of care the receiving party uses
to prevent disclosure, publication, or dissemination of its own proprietary
information.
(10) Neither party shall be liable for the inadvertent or accidental disclosure
of proprietary information, if such disclosure occurs despite the exercise of
the same degree of care as such party normally takes to preserve its own such
data.
B. The obligation with respect to the protection, handling and non-disclosure of
proprietary information imposed in the preceding paragraphs shall terminate
three years from the date of its receipt, unless the parties enter into a
definitive subcontract, in which case, the rights and obligations of the parties
shall be governed by the contractual arrangements, or
<PAGE>
(1) Information which becomes lawfully known or available to receiving party
from a source other than the disclosing party and without breach of this
Agreement by the recipient.
(2) Information developed independently by the receiving party.
(3) Information which becomes available to the receiving party by inspection or
analysis of products available in the market.
(4) Information which is within, or later falls within, the public domain
without breach of this Agreement by the recipient.
(5) Information furnished to the parties with unlimited rights.
(6) Information disclosed with written approval of the other party.
(7) Information disclosed by the party providing the same to others on a
non-restricted basis.
(8) Nothing herein shall restrict either party from disclosing any portion of
such information on a restricted basis pursuant to a judicial or other lawful
Government order, but only to the extent of such order.
C. Any information, other than proprietary information identified as provided
above, shall not be restricted by either party as to the other party is use
thereof.
D. No license to the other party, under any trademark, patent or copyright, or
applications which are now or may thereafter be owned by such party, is either
granted or implied by the conveying of information to that party. None of the
information which may be submitted or exchanged by the parties shall constitute
any representation, warranty, assurance, guarantee, or inducement by either
party to the other with respect to the infringement of trademarks, patents,
copyrights, or any right of privacy, or other rights of third persons.
Date: June, 30, 1999
National Diversified Co.
1700 North Valley Mills Drive
Suite #1
Waco, TX 76710
/s./ Spencer Brown, Jr.
Spencer Brown, Jr., President
Date: May 28, 1999
Virginia Accelerators Corporation
301 S. West Street
Alexandria, VA 22314
(703) 836-1760
/s./ Ralph D. Genuario
Ralph D. Genuario, President
<PAGE>
Exhibit 10.10
The United States of America
CERTIFICATE OF REGISTRATION
PRINCIPAL REGISTER
The Mark shown in this certificate has been registered in the United States
Patent and Trademark Office to the named registrant.
The records of the United States Patent and Trademark Office show that an
application for registration of the Mark shown in this Certificate was filed in
the Office; that the application was examined and determined to be in compliance
with the requirements of the law and with the regulations prescribed by the
Commissioner of Patents and Trademarks, and that the Applicant is entitled to
registration of the Mark under the Trademark Act of 1946, as Amended.
A copy of the Mark and pertinent data from the application are a part of this
certificate.
This registration shall remain in force for TEN (10) years, unless terminated
earlier as provided by law, and subject to compliance with the provisions of
Section 8 of the Trademark Act of 1946, as Amended.
/s./ Bruce Lehman
Bruce Lehman
Commissioner of Patents and Trademarks
Maintenance Requirements
Section 8: This registration will be cancelled after six (6) years by the
Commissioner of Patents and Trademarks, UNLESS, before the end of the sixth year
following the date of registration shown on this certificate, the registrant
files in the U.S. Patent and Trademark Office an affidavit of continued use as
required by Section 8 of the Trademark Act of 1946, 15 U.S.C. Section 1058, as
Amended. It is recommended that the Registrant contact the Patent and Trademark
Office approximately five years after the date shown on this registration to
determine the requirements and fees for filing a Section 8 affidavit that are in
effect at that time. Currently, a fee of $100, and a specimen showing how the
mark is used in commerce, is required for each international class of goods
and/or services identified in the certificate of registration and must be
enclosed with the affidavit.
Section 9: This registration will expire by law after ten (10) years, UNLESS,
before the end of the tenth year following the date of registration shown on
this certificate, the registrant files in the U.S. Patent and Trademark Office
an application for renewal of the registration as required by Section 9 of the
Trademark Act of 1946, 15 U.S.C. Section 1059, as Amended. It is recommended
that the Registrant contact the Patent and Trademark Office approximately nine
years after the date shown on this registration to determine the requirements
and fees for filing a Section 9 application for renewal that are in effect at
that time. Currently, a fee of $300, and a specimen showing how the mark is used
in commerce, is required for each international class of goods and/or services
identified in the certificate of registration and must be enclosed with the
affidavit.
<PAGE>
Exhibit 23.1
September 1, 1999
CONSENT & CERTIFICATION BY UNDERWRITER
The undersigned hereby consents to being named as underwriter in an
offering statement filed with the Securities and Exchange Commission by
e-SCRUB, Inc. pursuant to Regulation SB-2 in connection with a proposed
offering of Common Stock to the public.
The undersigned hereby certifies that it furnished the statements and
information set forth in the offering statement with respect to the undersigned,
its directors and officers or partners, that such statements and information are
accurate, complete and fully responsive to the requirements of Parts I, II and
III of the Offering Statement thereto, and do not omit any information required
to be stated therein with respect of any such persons, or necessary to make the
statements and information therein with respect to any of them not misleading.
If Preliminary Offering Circulars are distributed, the undersigned
hereby undertakes to keep an accurate and complete record of the name and
address of each person furnished a Preliminary Offering Circular and, if such
Preliminary Offering Circular is inaccurate or inadequate in any material
respect, to furnish a revised Preliminary Offering Circular or a Final Offering
Circular to all persons to whom the securities are to be sold at least 48 hours
prior to the mailing of any confirmation of sale to such persons, or to send
such a circular to such persons under circumstances that it would normally be
received by them 48 hours prior to their receipt of confirmation of the sale.
THREE ARROWS CAPITAL CORP.
Underwriter
Ronald Peterson
President
<PAGE>
Exhibit 23.3
Independent Auditors' Consent
We consent to the use in the Disclosure Document, Form SB-2, dated ______ 1999,
prepared by e-SCRUB Environmental Enterprises, of our report dated December 31,
1998 appearing in the Disclosure Document.
Crutchley Marginot & Tosi. Signed by Armand D. Liberati, CPA, Shareholder/
owner. Dated November 16, 1999.
We consent to the use in the Disclosure Document, Form U-7, dated December 31,
1996, prepared by Virginia Accelerators Corporation of our report dated December
31, 1995 appearing in the Disclosure Document.
Dated May 21, 1997. Minter, Morrison and Grant Certified Public Accounts, Signed
by Jeffrey A Kohne, CPA, Partner.
We consent to the use in the Disclosure Document, Form U-7, dated December __,
1996, prepared by Virginia Accelerators Corporation, of our report dated
December 31, 1995 appearing in the Disclosure Document.
Undated, Minter, Morrison and Grant Certified Public Accounts, Signed by
Jeffrey A. Kohne, CPA, Partner.
<PAGE>
Exhibit 23.4
Independent Auditors' Consent
We consent to the use in the Disclosure Document, Form SB-2, dated ______ 1999,
prepared by e-SCRUB Environmental Enterprises, of our report dated December 31,
1998 appearing in the Disclosure Document.
Crutchley Marginot & Tosi. Signed by Armand D. Liberati, CPA, Shareholder/
owner. Dated November 16, 1999.
We consent to the use in the Disclosure Document, Form U-7, dated December 31,
1996, prepared by Virginia Accelerators Corporation of our report dated December
31, 1995 appearing in the Disclosure Document.
Dated May 21, 1997. Minter, Morrison and Grant Certified Public Accounts, Signed
by Jeffrey A Kohne, CPA, Partner.
We consent to the use in the Disclosure Document, Form U-7, dated December __,
1996, prepared by Virginia Accelerators Corporation, of our report dated
December 31, 1995 appearing in the Disclosure Document.
Undated, Minter, Morrison and Grant Certified Public Accounts, Signed by
Jeffrey A. Kohne, CPA, Partner.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-END> SEP-30-1999 DEC-31-1998 DEC-31-1997
<CASH> 310,000 8,954 46,734
<SECURITIES> 0 0 0
<RECEIVABLES> 500,000 749,543 277,517
<ALLOWANCES> 0 0 0
<INVENTORY> 6,953,574 6,195,077 4,987,731
<CURRENT-ASSETS> 7,763,574 6,953,574 5,327,982
<PP&E> 5,464,347 5,454,609 5,448,347
<DEPRECIATION> 4,381,558 3,525,714 2,448,346
<TOTAL-ASSETS> 9,520,416 9,556,522 9,122,154
<CURRENT-LIABILITIES> 748,179 1,076,575 506,151
<BONDS> 0 0 0
0 0 0
0 0 0
<COMMON> 2,425,335 2,060,719 1,425,420
<OTHER-SE> 3,332,124 3,476,927 3,601,048
<TOTAL-LIABILITY-AND-EQUITY> 9,520,416 9,556,522 9,122,154
<SALES> 1,041,649 458,351 209,200
<TOTAL-REVENUES> 1,210,449 761,235 225,879
<CGS> 368,987 236,031 92,783
<TOTAL-COSTS> 368,987 236,031 92,783
<OTHER-EXPENSES> 1,219,081 814,983 111,542
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 88,704 26,269 4,407
<INCOME-PRETAX> (466,323) (316,048) 17,147
<INCOME-TAX> (321,520) (523,801) 9,835
<INCOME-CONTINUING> (144,803) 207,752 7,312
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 331,873 0
<CHANGES> 0 0 0
<NET-INCOME> (144,803) (124,121) 7,312
<EPS-BASIC> (0.017) (0.02) 0
<EPS-DILUTED> (0.017) (0.02) 0
</TABLE>
