<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------------
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
--------------------------
For the quarterly period Commission file number 0-16416
ended JULY 31, 1997
ELECTROPURE, INC.
(FORMERLY, HOH WATER TECHNOLOGY CORPORATION)
(Exact name of registrant as specified in its charter)
CALIFORNIA 33-0056212
(State or Other Jurisdiction (IRS Employer Identification No.)
of Incorporation or Organization)
23251 Vista Grande, Suite A, Laguna Hills, California 93653
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 770-9187
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.01 per share
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X ] No [ ].
At September 10, 1997, 4,999,853 shares of the Registrant's stock were
outstanding.
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<PAGE> 2
ELECTROPURE, INC.
(Formerly, HOH Water Technology Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
------ ------
Assets 1996 1997
------ ------ ------
(Unaudited)
<S> <C> <C>
Current assets:
Cash $ 674 $ 2,166
Receivables:
Trade accounts 7,278 7,278
Due from related parties 78,898 78,898
Allowance for doubtful receivables (85,528) (85,705)
-------- ---------
648 471
Other current assets 20,000 20,000
Total Current Assets $ 21,322 $ 22,637
-------- --------
Propery and equipment, at cost:
Office equipment 539 539
-------- --------
539 539
Less accumulated depreciation and amortization 49 130
-------- --------
490 409
Total Assets $ 21,812 $ 23,046
======== ========
</TABLE>
2
<PAGE> 3
ELECTROPURE, INC.
(Formerly, HOH Water Technology Corporation)
BALANCE SHEETS
<TABLE>
<CAPTION>
October 31, July 31,
----------- --------
Liabilities and Stockholders' Equity (Deficiency) 1996 1997
------------------------------------------------ (Unaudited)
<S> <C> <C>
Current liabilities:
Notes payable to stockholders $ 15,734 $ 29,098
Accounts payable 30,744 30,744
Accrued liabilities 218 3,480
Allowance for loss on lawsuit settlements 23,331 23,331
---------- ----------
Total current liabilities 70,027 86,653
Litigation, claims, commitments and contingencies
Redeemable convertible preferred stock, $.01 assigned par
value. Authorized 2,600,000 shares; issued and outstanding
2,600,000 shares in 1996 and 1997 26,000 26,000
Stockholders' deficit:
Common stock, $.01 assigned par value. Authorized 20,000,000 shares; 1,797,910
shares issued and 1,757,910 shares outstanding in 1996; 4,102,290 shares
issued and 4,062,290 shares outstanding in 1997 22,248 40,623
Class B common stock, $.01 assigned par value. Authorized
83,983 shares; issued and outstanding 83,983 shares in
1996 and 1997 840 840
Additional paid-in capital 16,080,709 16,720,389
Deficit accumulated in the development stage (16,025,246) (16,698,692)
Notes receivable on common stock (152,766) (152,766)
---------- -----------
(74,215) (89,607)
---------- ----------
Total Liabilities and Stockholders' Equity (Deficiency) $ 21,812 $ 23,046
========== ==========
</TABLE>
3
<PAGE> 4
ELECTROPURE, INC.
(Formerly, HOH Water Technology Corporation)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
July 31, July 31,
----------------------------- -----------------------------
1996 1997 1996 1997
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
License fees received $ 5,500 $ 27,700 $ 29,969 $ 66,337
---------- ---------- ---------- ----------
Costs and expenses:
General and administrative 71,673 47,074 119,127 88,365
---------- ---------- ---------- ----------
71,673 47,074 119,127 88,365
---------- ---------- ---------- ----------
Loss from operations (66,173) (19,374) (89,158) (22,028)
---------- ---------- ---------- ----------
Other income and (expense):
Interest expense (358) (577) (1,074) (1,364)
Litigation settlement costs - (112,000) - (112,000)
Financing costs (76,287) (538,055) (76,287) (538,055)
---------- ---------- ---------- ----------
(76,645) (650,632) (77,361) (651,419)
---------- ---------- ---------- ----------
Net income (loss) $ (142,818) $ (670,006) $ (166,519) $ (673,447)
========== ========== ========== ==========
Net income (loss) per share of common stock $ (0.09) $ (0.30) $ (0.10) (0.30)
========== ========== ========== ==========
Weighted average common shares outstanding 1,667,110 2,219,283 1,667,110 2,219,283
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
4
<PAGE> 5
ELECTROPURE, INC.
(Formerly, HOH Water Technology Corporation)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Class B Common Stock
---------------------------------------- -----------------------------------
Amount Amount
Number ----------------------- Number ---------------------
of Per of Per
shares share Total shares share Total
--------- --------- ------ ------ --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1996 2,224,806 $ - $22,248 $83,983 $ - $ 840
Issuance of common stock for
conversion of debt 1,717,484 0.31 17,175 - - -
Issuance of common stock for
litigation settlement 100,000 1.00 1,000 - - -
Issuance of common stock for
services rendered 20,000 1.00 200 - - -
Net Loss - - - - - -
--------- --------- ------ ------ --------- --------
Balance at July 31, 1997 4,062,290 40,623 83,983 - 840
</TABLE>
<TABLE>
<CAPTION>
Deficit
Notes accumulated Net
Additional receivable in the stockholders'
paid-in on common development equity
capital stock stage (deficiency)
----------- ----------- ----------- --------
<S> <C> <C> <C> <C>
Balance at October 31, 1996 $16,080,709 $(152,766) $(16,025,246) $(74,215)
Issuance of common stock for
conversion of debt 520,880 - - 538,055
Issuance of common stock for
litigation settlement 99,000 - - 100,000
Issuance of common stock for
services rendered 19,800 - - 20,000
Net Loss - - (673,447) (673,447)
----------- ----------- ----------- --------
Balance at July 31, 1997 16,720,389 (152,766) (16,698,692) (89,607)
</TABLE>
See accompanying notes to financial statements.
5
<PAGE> 6
ELECTROPURE, INC.
(Formerly, HOH Water Technology Corporation)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
July 31,
---------------------------
1996 1997
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(166,519) $(673,447)
--------- ---------
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 22 81
Financing costs related to issuance of warrants - -
Financing costs related to issuance of common stock 76,287 658,055
Change in assets and liabilities, net of noncash transactions:
Decrease (increase) in receivables 2,100 177
Decrease (increase) in other assets (539) -
Increase in notes payable - 12,000
Increase (decrease) in accounts payable and accrued expenses (1,087) 3,262
Increase in interest payable, net 1,074 1,364
--------- ---------
Total adjustments 77,857 674,939
--------- ---------
Net cash used in operating activities (88,662) 1,492
Cash flows from investing activities: None
Cash flows from financing activities:
Proceeds from issuance of common stock 85,886 -
--------- ---------
Net cash provided by financing activities 85,886 -
--------- ---------
Net increase (decrease) in cash (2,776) 1,492
Cash (overdraft) at beginning of period 3,743 674
--------- ---------
Cash (overdraft) at end of period $ 967 $ 2,166
========= =========
</TABLE>
See accompanying notes to financial statements.
6
<PAGE> 7
(1) INTERIM FINANCIAL STATEMENTS
The accompanying unaudited condensed financial statements include all
adjustments which management believes are necessary for a fair presentation of
the results of operations for the periods presented, except those which may be
required to adjust assets and liabilities to the net realizable value should the
Company not be able to continue operations. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted. It
is suggested that the accompanying condensed financial statements be read in
conjunction with the Company's audited financial statements and footnotes as of
and for the year ended October 31, 1996.
In May, 1996, the Company's shareholders approved amendments to the Articles of
Incorporation which provided for a corporate name change to "Electropure, Inc."
and a one-for-ten reverse stock split of its Class A and Class B common stock.
Such name change and reverse stock split became effective on July 25, 1996 at
which time the Company's trading symbol on the over-the-counter market was
changed to "ELTP".
LIQUIDITY
As of July 31, 1997, the Company had current liabilities in excess of current
assets of $64,016, a deficit accumulated during the development stage of
$16,698,692 and a stockholders' deficit of $89,607. The Company has never
generated a positive cash flow from operations and, as a result of a severe lack
of working capital, in January, 1992 was forced to suspend operations while it
sought additional financing. In May, 1992, the Company entered into a Letter of
Intent with EDI Components (formerly Electropure, Inc.), a California
corporation, to grant an exclusive license to manufacture and market the
Company's patented Electropure ("EDI") technology. From May, 1992, since
entering into such license relationship, through October 31, 1996, the Company
has funded its working capital needs from license fees paid by EDI Components
totaling $451,554. During the nine months ended July 31, 1997, the Company
received an additional $66,337 in such license fees.
The one-for-ten reverse stock split effected by the Company on July 25, 1996,
resulted in a reduction in capital stock as of such date in the amount of
$170,646 for Class A common shares and $7,558 for Class B common shares and an
increase of $178,203 in additional paid-in capital.
(2) DUE FROM RELATED PARTIES
The Company has balances remaining due, including interest, on notes receivable
from related parties. The balance includes net amounts remaining on a $30,000
loan made to a former shareholder and an $80,000 loan made to a corporation
whose significant stockholder was James E. Cruver, a former officer and director
of the Company. The Company received partial payments representing principal
and/or interest on these loans, however, due to the fact that they are
significantly past due and the uncertainty of when or if they will be collected,
interest income was not being recognized until received and the balances at July
31, 1997 are offset by an allowance for doubtful accounts.
7
<PAGE> 8
A total of $23,763 remains due as of July 31, 1997 from former officers and
directors, Harry M. O'Hare, Sr. and David C. Kravitz. Such amount is secured by
37,565 shares of the Company's common stock resulting in an unsecured receivable
in the amount of $23,292, which has been offset by an allowance for doubtful
accounts.
(3) INVENTORY
Inventory, stated at the lower of cost (determined using the first in, first out
method) or replacement market, consists of components for water purification
systems. As of October 31, 1994, the Company had sold all of its inventory.
(4) COMMITMENTS AND CONTINGENCIES
The original cost and accumulated depreciation of assets at July 31, 1997 are as
follows.
<TABLE>
<S> <C>
Furniture and fixtures $539
Less accumulated depreciation and amortization 130
----
$409
----
</TABLE>
COMMITMENTS
In June, 1992, the Company entered into a sub-lease with EDI Components for the
rental of space at its current location in Laguna Hills, California. The Company
paid $500 per month through July, 1995 pursuant to such sub-lease agreement,
which includes the use of all utilities, equipment and facilities on the
premises. Since August 1, 1995, the Company has occupied the premises on a
rent-free basis pursuant to an amendment to the license agreements with EDI
Components. Consequently, the Company had no sub-lease expense for the fiscal
period ended July 31, 1997.
(5) STOCKHOLDERS' DEFICIT
In May, 1997, the Company and its licensee negotiated a settlement of a $3
million default judgment rendered in June, 1996 against the Company and various
current and former officers and directors. The lawsuit was brought in February,
1993 by the Economic Development Bank for Puerto Rico, the preferred shareholder
in the Company's Puerto Rico subsidiary, alleging fraud and misconduct which
ultimately led to its dissolution and subsequent bankruptcy in November, 1993.
The settlement, which was ratified by the Bank's Board of Directors on or about
June 16, 1997, provided for the issuance to the Bank of 100,000 shares of the
Company's Common Stock and 100,000 five-year warrants to purchase Common Stock
at $1.00 per share. In addition, the Company and its licensee, EDI Components,
have issued a $12,000 promissory note to the Bank, bearing 8% annual interest,
to cover certain costs and attorneys fees. The settlement was conditioned upon
termination of the July, 1992 license agreement between the Company and EDI
Components and conveyance of all assets back to the Company. See Note (7) -
"Subsequent Events."
8
<PAGE> 9
In May, 1997, the Company's Board of Directors authorized the issuance of 20,000
shares of Common Stock and 20,000 ten-year warrants to purchase Common Stock at
$1.00 per share as a bonus to an individual who assisted in negotiating the
above settlement with the Puerto Rico bank.
On June 2, 1997, Anthony Frank exercised his option to convert, at approximately
$0.31 per share, the principal and interest accrued on a $500,000 loan made to
EDI Component on February, 1996. The conversion resulted in the issuance of
1,717,484 shares of Common Stock, 319,202 of which are to be sold by Mr. Frank
to Floyd Panning, President of EDI Components, at his cost of $100,000, or
approximately $0.31 per share. An additional 319,202 of such shares were sold by
Mr. Frank to his son, Randall Frank, under identical terms.
(6) NET LOSS PER SHARE OF COMMON STOCK
Net loss per share of common stock is based on the weighted average number of
shares outstanding during each of the respective periods. No effect has been
given to common stock equivalents as the effect to loss per share would be
anti-dilutive.
(7) SUBSEQUENT EVENTS
LICENSE TERMINATION AGREEMENT
Effective August 5, 1997, the Company entered into a License Termination
Agreement with its licensee, EDI Components ("EDI"), to terminate the July, 1992
agreements granting EDI a security interest in and exclusive manufacturing and
marketing rights to the Company's patented water purification technology.
Pursuant to the agreement, 362,500 shares of the Company's Common Stock, valued
at $2.00 per share, were issued to the investors of EDI in amounts commensurate
with their capital investment in such entity. The Company has agreed to issue
Additional Shares upon the Common Stock of the Company first having a per share
market value for thirty consecutive trading days equal to or in excess each of
$3.00, $4.00 and $5.50 per share (each a "Trigger Value"). The aggregate value
of such Additional Shares shall equal $675,006, $675,012 and $674,982,
respectively, for a total additional value of $2,025,000. If all of the
Additional Shares are issued pursuant to the License Termination Agreement, the
investors of EDI will have received a total of 878,979 shares of the Company's
Common Stock, with an aggregate value equal to $2,750,000.
The License Termination Agreement also provided for an extension, until October
1, 1997, on the term within which 95,400 warrants to purchase common stock may
be exercised. Such warrants, excercisable at $0.50 per share, had been
previously granted to various EDI investors pursuant to the July, 1992 license
agreements and were to expire upon termination of such license. As of September
6, 1997, 40,000 of such warrants have been exercised by Floyd Panning, president
of EDI. Mr. Panning exercised such warrants, along with an additional 10,000
warrants granted to him in February, 1993 as a bonus for services rendered. Mr.
Panning issued a full resource promissory note for the $25,000 purchase price,
secured by the shares, payable once the Company has reimbursed him for wages he
deferred while employed by EDI. See "Employment Agreement" below.
9
<PAGE> 10
The Company agreed to assume all liability for payment of the principal and
interest on $210,000 in loans made to EDI between November, 1993 and April,
1997. As of September 8, 1997, the Company has negotiated with two of the
lenders to convert $175,000 in principal loans, plus $10,278 in accrued
interest, for 494,075 shares of common stock at $0.375 per share. The Company
sold an additional 30,983 shares of common stock, at $0.375 per share, to two
individuals for net proceeds of $11,620 which will be utilized to satisfy the
principal and interest accrued on an additional $10,000 of such loans.
EMPLOYMENT AGREEMENT
On August 14, 1997, the Company entered into a five-year Employment Agreement
(effective August 5, 1997) with Floyd Panning engaging him as the Company's
President and Chief Executive Officer. Mr. Panning has the unilateral option to
extend such employment for a period of two (2) years. The Agreement provides Mr.
Panning with five weeks' vacation, the use of a company car and cellular
telephone and participation in any benefit programs offered by the Company (none
at this time). Pursuant to the terms of the Employment Agreement, Mr. Panning
was granted 125,000 warrants to purchase Common Stock at $0.28125 per share.
Such warrants are exercisable in increments of 25,000 annually commencing with
the date of the agreement. The Employment Agreement also provides for the
following:
(a) A base monthly salary of $6,500 increasing to $8,000 per month once the
Company has realized a minimum of $1 million in financing. Each year
thereafter, the base salary shall automatically increase by an amount
equal to five (5%) percent.
(b) Upon realizing the above minimum financing, the Company has agreed to
reimburse Mr. Panning for certain wages deferred while he was employed
at EDI Components (a total of $63,700 was deferred). A $25,000
promissory note issued by Mr. Panning, in consideration for his
exercise of 50,000 warrants to purchase Common Stock at $0.50 per
share, will be satisfied (including accrued interest) with such
deferred wages, net of normal federal, state and local income and
payroll taxes. Mr. Panning agreed to waive any remaining balance of
deferred wages after payment of such promissory note.
(c) Mr. Panning has the right to nominate, subject to shareholder approval,
one person to the Company's Board of Directors during the term of his
employment. In the meantime, Mr. Panning has been named to the
Company's Board of Directors.
(d) Mr. Panning may, without cause, terminate his employment and retain the
right to the following percentage of his base monthly salary:
10
<PAGE> 11
<TABLE>
<CAPTION>
YEAR OF PERCENT
TERMINATION OF SALARY
----------- ---------
<S> <C>
1 60%
2 70%
3 80%
4 90%
5 100%
6 0%
7 0%
</TABLE>
(e) Any termination of employment by the Company shall immediately vest all
125,000 warrants granted to Mr. Panning under the employment agreement.
In addition, termination by the Company of Mr. Panning's employment
without cause, shall automatically accelerate the issuance of
Additional Shares due EDI's investors under the License Termination
Agreement at the then fair market value; provided, however, Mr.
Panning's successor has not been approved by simple majority vote of
such EDI investors (excluding Mr. Panning).
BOARD OF DIRECTORS
On August 5, 1997, Mr. William Farnam was named to the Company's Board of
Directors. Mr. Farnam served for 20 years as Public Works Director and City
Engineer for the City of Inglewood, California and went on to become the
Assistant City Manager there before he retired. Mr. Farnam is a Registered
Professional Civil Engineer in the State of California and received a Bachelor
of Science Degree in Electrical Engineering from the University of Southern
California and is a Management Studies Graduate from the University of
California at Los Angeles.
Mr. Ronald O'Hare, who had served on the Company's Board of Directors since May,
1987, resigned as a Director on August 14, 1997. Mr. O'Hare has been employed by
the Company has Manager of Engineering and Production Design.
Effective August 5, 1997, Mr. Floyd Panning joined the Company's Board of
Directors.
11
<PAGE> 12
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
References to 1996 and 1997 are for the nine months ended July 31, 1996 and
1997, respectively.
License fees received for fiscal 1997 increased by $36,368 compared to 1996. The
increase is primarily due to the fact that the Company's source of revenue was
limited in fiscal 1997 to license fees from EDI Components, which is obligated
to pay the Company's necessary operating expenses. In fiscal 1996, the Company
realized income from the exercise of options which reduced EDI Components'
obligation to cover such costs in that year.
General and administrative expenses for fiscal 1997 decreased by $30,762 as
compared to fiscal 1996. This is due, primarily, to a decrease in fees for
outside services and accounting expense for the current period.
Interest expense for fiscal 1997 increased by $290 as compared to fiscal 1996,
due to the annual compounding of interest accruing on notes payable as well as
the addition of the $12,000 note issued as part of the Puerto Rico litigation
settlement.
Litigation settlement costs for fiscal 1997 were $112,000 as compared to no
expense for 1996, comprised of the $12,000 principal note payable issued to the
Puerto Rico Bank and the cost of 100,000 common shares issued to the Bank in
settlement.
Financing costs for fiscal 1997 increased by $461,768, reflecting the expense
incurred by the Company on the exchange of a $500,000 principal loan, plus
accrued interest, into common shares.
No additional provision for loss on lawsuit settlement has been made in fiscal
1997 as the Company believes that adequate provision has been made to settle
pending lawsuits.
LIQUIDITY AND CAPITAL RESOURCES
At July 31, 1997, the Company had a working capital deficit (total current
assets less total current liabilities) of $64,016, representing a decrease of
$131,779 from the prior year period, primarily as a result of writing off over
$127,000 in accrued liabilities in the fourth quarter of fiscal 1996.
All of the Company's funds have been exhausted and in August, 1997, the Company
began a private placement offering of up to 20 Units, each Unit consisting of
25,000 shares of Common Stock and 12,500 three-year redeemable warrants to
purchase common stock at $2.00 per share. The purchase price of each Unit is
$25,000 and the Company has received a commitment from one corporate investor
for four Units, for a total purchase price of $100,000. The Company believes
that such funds will be
12
<PAGE> 13
sufficient to cover its current working capital requirements for the next
several months. See Part I - "Plan of Operation".
During fiscal 1996, the Company received $81,559 in license fees and realized
net proceeds of $40,000 and $21,886 from the sale of common stock and from the
exercise of warrants to purchase common stock, respectively. During the nine
months ended July 31, 1997, the Company received an additional $66,337 in
license fees.
No assurances can be given that the Company will obtain any significant revenues
from sales or that the Company can obtain additional working capital through the
sale of Common Stock, the sale of other securities, the issuance of indebtedness
or otherwise or on terms acceptable to the Company. Further, no assurances can
be given that any such equity financing will not result in a further dilution to
the existing shareholders.
PLAN OF OPERATION
The Company is currently conducting a private placement offering of securities
to secure up to $500,000 in working capital as a "bridge" to an intended
secondary public offering within the next 6 - 12 months. One corporate investor
has committed to subscribe for $100,000 of such private placement securities and
the Company anticipates that the balance of such offering will be sold within
the next thirty days. Currently, the Company has orders for several of its
patented electrodeionization ("EDI") water treatment modules from which it
expects to realize approximately $20,000 in net revenues.
With the above private placement offering, and with additional working capital
expected from the sale of the Company's EDI products, the Company believes that
it will have adequate sources of working capital through approximately March,
1998, although it may need additional working capital prior to said date,
particularly if the Company is not successful in selling additional private
placement subscriptions.
Upon receipt of sufficient working capital, the Company intend to initiate
operations with a view toward implementing an expanded production and marketing
program. However, no assurances can be given that production and sales will
begin in significant quantities since such sales may be dependent on obtaining
additional working capital through the sale of common stock or other securities.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which adopts
significant changes that apply to all taxable companies. Although the ultimate
impact is unknown, it is the opinion of the Company's management that adoption
of this Statement will not have a material effect on financial results in the
year of adoption. The Company adopted the new Standard for the fiscal year
beginning November 1, 1993.
13
<PAGE> 14
PART II - OTHER INFORMATION
ITEM 1.
In December, 1993, a default judgment was rendered against the Company in the
sum of $20,270 for unpaid corporate credit card charges the majority of which
accrued from 1989. The lawsuit was brought in the Los Angeles County Municipal
Court. During the fiscal year ended October 31, 1994, the Company paid $250 on
this judgment, however, the Company has made no arrangements to satisfy this
obligation as of this writing.
As disclosed in the Company's Form 10-KSB for the fiscal year ended October 31,
1996, the Company is party to three other lawsuits claiming a total of $38,889
of past due payments. The status of these matters has not materially changed
from that which was previously reported and the Company and its counsel expect
the Company to prevail in these lawsuits.
No assurances can be given as to the ultimate outcome of any such litigation or
legal proceeding.
ITEMS 2 THROUGH 6 OMITTED AS NOT APPLICABLE.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, as amended, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: September 10, 1997
ELECTROPURE, INC.
By /s/ CATHERINE PATTERSON
----------------------------------
Catherine Patterson
(Secretary and Chief Financial
Officer with responsibility to
sign on behalf of Registrant as
a duly authorized officer and
principal financial officer)
14
<PAGE> 15
ELECTROPURE, INC.
(Formerly, HOH Water Technology Corporation)
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
PAGE
SEQUENTIALLY
NUMBERED
------------
<S> <C>
10.47.8 Licence Termination Agreement with EDI Components effective
August 5, 1997.
10.47.9 Employment Agreement with Floyd Panning effective August 5,
1997.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.47.8
License Termination Agreement
<PAGE> 2
EXHIBIT 10.47.8; PAGE 1
LICENSE TERMINATION AGREEMENT
THIS LICENSE TERMINATION AGREEMENT (the "Agreement") is made and entered
into on the 5th day of August, 1997, by and between ELECTROPURE, INC. (formerly
HOH Water Technology Corporation), a California corporation (the "Company") and
EDI COMPONENTS (formerly, Electropure, Inc.), a California corporation
("Buyer").
1. EFFECTIVE DATE. The "Effective Date" of this Agreement shall be
August 5, 1997.
2. ISSUANCE OF SHARES. On the "Effective Date" hereof (as hereinabove
defined), the Company hereby issues a number of Shares of Electropure, Inc.
Class A Common Stock, $0.01 par value, (the "Initial Shares") with an aggregate
value equal to $725,000.00 (Buyer's initial principal investment in Electropure,
Inc.) in the names and amounts listed as "Initial Shares" on Exhibit "A"
attached hereto and made a part hereof. For purposes of determining the number
of shares for this issuance, the value of each Initial Share shall be determined
to be Two Dollars ($2.00) per share. Consequently, 362,500 Initial Shares are to
be issued pursuant to this Paragraph 2.
3. LICENSE TERMINATION. In consideration for the Initial Shares and the
Additional Shares described in Paragraph 5 hereof (collectively the "Shares"),
the following shall occur on the Effective Date hereof:
A. The Security Agreement dated as of July 29, 1992, including
any and all amendments thereto, between the Company and Buyer shall terminate
and shall be of no further force and effect;
B. The Electropure License Agreement dated as of July 29,
1992, including any and all amendments thereto, between the Company and Buyer
shall terminate and shall be of no further force and effect;
C. The Master Agreement between the Company and Buyer dated as
of July 29, 1992, including any and all amendments thereto, and particularly
Section 8 of such Master Agreement (providing for a Stock Right Agreement(s)),
and all Stock Right Agreements issued pursuant to such Master Agreement, shall
terminate and shall be of no further force and effect;
D. The Lease Agreement dated as of July 29, 1992, including
any and all amendments thereto, between the Company and Buyer shall terminate
and all assets leased thereby shall be conveyed back to the Company free and
clear of all encumbrances; provided, however, that such conveyance shall exclude
any assets heretofore disposed of, i.e., inventory, obsolete equipment,
furniture and fixtures. Further provided, however, that such conveyance shall
specifically include all capital equipment and molds, as defined in such Lease
Agreement, together with all manufacturing equipment leased thereby to Buyer.
E. The Company shall grant an extension, until October 1,
1997, on the term within which the warrants described in Exhibit "B", attached
hereto and made a part hereof, may be exercised.
<PAGE> 3
EXHIBIT 10.47.8; PAGE 2
F. Concurrently herewith, the Company has entered into an
Employment Agreement with Floyd H. Panning. For a period of five (5) years or
during the term that such Employment Agreement remains in effect or until all
Shares required to be issued hereunder have been issued to Buyer and registered
by the Company, whichever is longer, the Company will grant Floyd H. Panning the
following rights and authority:
(1) The right to nominate, subject to election by the
Company's shareholders, one (1) person to the Board of Directors of the Company.
The Company hereby agrees to use its best efforts to seek shareholder approval
for election of such nominee to the Board of Directors. Further, Mr. Panning
shall be entitled to appoint one (1) person to the Company's Board of Directors
upon execution hereof which appointee shall serve until he shall either resign
or his successor shall be duly elected by a vote of the Company's shareholders.
(a) In the event the nominee submitted by Mr. Panning
shall fail, for any reason, to be elected by the Company's shareholders (other
than the investors of Buyer), then in that event, all Shares issuable by the
Company under this License Termination Agreement shall immediately and
automatically be issuable at the then current Fair Market Value and the Company
shall use its best efforts to register all of such Shares as soon as
practicable.
(2) The authority, in his capacity and during the term
that he remains as President and Chief Executive Officer of the Company, to
enter into agreements of up to $50,000; provided, however, that such limitation
shall not apply in the case of employment arrangements to be negotiated by Floyd
H. Panning with Ronald J. O'Hare and/or Catherine Patterson, the reasonableness
of which shall be determined by the Company's Board of Directors.
G. The Company will assume from Buyer all rights, duties,
interests and obligations as licensor under those certain license agreements
and/or restated license agreements executed with Glegg Water Conditioning, Inc.
and Polymetrics.
H. The Company will assume liability for payment of all
interest and principal for certain loans made to EDI Components as more fully
described in Exhibit "C" attached hereto and made a part hereof. The Company
will abide by any and all terms of said loans and/or will negotiate with each
individual lender to satisfy such liability on modified terms.
I. The Company shall purchase from Buyer, for a nominal fee to
be negotiated, all assets (other than those assets referred to in subparagraph D
above) currently held by Buyer and reasonably deemed necessary by the Company,
including but not limited to, cash reserves, office equipment and supplies,
tools, machinery, and shop supplies.
J. The Company and Buyer will do, or cause to be done, all
such acts and things, and to sign and deliver all such documents, as may be
deemed necessary, advisable and proper to carry out the terms herein stated,
particularly concerning the purchase and/or conveyance of assets as well as the
assumption of liability, rights and obligations under the loan and/or license
agreements referred to in this Paragraph 3, including any necessary UCC
Termination Statement(s) or filing(s) with the U.S. Patent
<PAGE> 4
EXHIBIT 10.47.8; PAGE 3
and Trademark Office to vest in the Company title to the patents described in
the Security Agreement dated as of July 29, 1992.
4. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer represents and
warrants to the Company:
A. The Shares are being acquired by Buyer for investment for
an indefinite period, for Buyer's own account, not as a nominee or agent, and
not with a view to the sale or distribution of any part thereof, and the Buyer
has no present intention of selling, granting participations in, or otherwise
distributing the same, except to the shareholders of Buyer as set forth in
Exhibit "A" attached hereto and made a part hereof.
B. Buyer does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer, or grant participation to such
person or to any third person, with respect to the Shares.
C. That Buyer understands that the Share have not been
registered under the Securities Act of 1933, as amended (the "Act"), in reliance
upon the exemptions from the registration provisions of the Act contained in
Section 4 (2) thereof, and any continued reliance on such exemption is
predicated on the representations of the Buyer set forth herein.
D. Buyer: (1) has adequate means of providing for his current
needs and possible contingencies, (2) has no need for liquidity in this
investment, (3) is able to bear the substantial economic risks of an investment
in the Shares for an indefinite period, (4) at the present time, can afford a
complete loss of such investment, and (5) does not have an overall commitment to
investments which are not readily marketable that is disproportionate to Buyer's
net worth, and Buyer's investment in the Shares will not cause such overall
commitment to become excessive.
E. Buyer is an "accredited investor" (as defined in Regulation
D promulgated under the Act) and the undersigned's total investment in the
Shares does not exceed 10% of the Buyer's net worth.
F. Buyer recognizes that the Company has had no revenues, is
in the development/pre-marketing stage and that the Shares as an investment
involve significant risks.
G. Buyer understands that the Shares must be held indefinitely
unless the sale or other transfer thereof is subsequently registered under the
Act, as amended, or an exemption from such registration is available. Buyer
further understands that the Company is under no obligation to register the
Shares on its behalf or to assist it in complying with any exemption from
registration except as otherwise provided herein.
H. Buyer will not transfer the Shares without registering them
under applicable federal and state securities laws unless the transfer is exempt
from registration. Buyer realizes that the Company may not allow a transfer of
Shares unless the transferee is also an "accredited investor". Buyer understands
that legends will be placed on certificates representing the Shares, with
respect to restrictions
<PAGE> 5
EXHIBIT 10.47.8; PAGE 4
on resale or other disposition of the Shares as provided by this License
Termination Agreement and that stop transfer instructions have or will be placed
with respect to the Shares so as to restrict the assignment, resale or other
disposition thereof.
I. The Company will direct its transfer agent, if any, to, or
will itself, place such a stop transfer order in its books respecting transfer
of the Shares, and the certificate or certificates representing the Shares will
bear the following legend or a legend substantially similar thereto:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF: (1) AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER THAT ACT, OR (2) AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. THESE SECURITIES ARE ALSO
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN THE LICENSE
TERMINATION AGREEMENT DATED AUGUST 5, 1997 BY AND BETWEEN
ELECTROPURE, INC. AND EDI COMPONENTS."
J. That Buyer understands that Rule 144, promulgated by the
Securities and Exchange Commission under the Act, may not be currently available
for sale of the Shares, and there is no assurance that it will be available at
any particular time in the future. If and when Rule 144 is available for sale of
the Common Stock underlying the Shares, such sales in reliance upon Rule 144 may
only be (1) in limited quantities after the Shares have been held for one year
after being sold by the Company, or (2) in unlimited quantities by
non-affiliates after the Shares have been held for two years after being issued
by the Company, in each case in accordance with the conditions of the Rule, all
of which must be met (including the requirement, if applicable, that adequate
information concerning the Company is then available to the public). The Company
and Buyer acknowledges that the Company has no obligation to supply the
information required for sales under Rule 144.
K. Termination of the License by Buyer for the Shares has been
determined by Buyer as fair and appropriate based solely upon Buyer's
independent investigation and due diligence of the Company, and neither Buyer
nor the Company nor any of their agents, including, without limitation, any of
their officers, directors, employees, accountants and attorneys, has made any
representations or warranties whatsoever in connection with the issuance of the
Shares by the Company to Buyer. Buyer has had sufficient opportunity in
connection with the issuance of the Shares to review the Company's business and
affairs (including, without limitation, the Company's financial statements and
other information included in the Company's Form 10-KSB for the fiscal year
ended October 31, 1996 and Forms 10-QSB for the fiscal quarters ended January
31, 1997 and April 30, 1997). The Buyer has had answered to his satisfaction any
questions with respect to the Company's business and affairs. Buyer further has
had the opportunity to obtain independent financial, legal, accounting,
business, tax and other appropriate advice with respect to the transactions
contemplated by this Agreement, and is not relying upon the Company or any of
its agents in any manner in connection with same.
L. As soon as practicable, Buyer agrees to obtain from the
investors of Buyer named on Exhibit "A" hereto, a written document approving the
terms of this License Termination Agreement and agreeing to the representations
and warranties of Buyer contained herein as they apply to each such investor of
Buyer.
<PAGE> 6
EXHIBIT 10.47.8; PAGE 5
5. ADDITIONAL SHARES.
A. Pursuant to the "Amendment to Master Agreement dated July
29, 1992", the Buyer has invested in EDI Components an amount equal to
$725,000.00 in Initial Capital Value (the "Capital Value").
B. Upon the Common Stock of the Company first having a per
share Market Value (as hereinafter defined) for thirty consecutive trading days
equal to or in excess each of $3.00, $4.00 and $5.50 per share (each a "Trigger
Value"), then the Company shall issue to the Buyer within fifteen (15) days of
first reaching each respective Trigger Value, additional shares of Electropure,
Inc. Class A Common Stock, in the names and amounts listed as "Additional
Shares" on Exhibit "C" hereto, with values equal to $675,006.00, $675,012, and
$674,982, respectively, for a total additional value of $2,025,000 (collectively
the "Additional Shares").
C. Fair Market Value per share of Common Stock of the Company
shall be determined as follows:
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the Fair Market Value shall be the last
reported sale price of the Common Stock on such exchange or system for each
trading day or if no such sale is made (or reported) on such day, the average
closing bid and asked prices for such day on such exchange or system; OR
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the Fair Market Value shall be the mean of the last
reported bid and asked prices reported by the Electronic Bulletin Board or
National Quotation Bureau, Inc. on each trading day; OR
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
Fair Market Value shall be the net tangible book value per share as of the end
of the last fiscal year or, if higher, $0.01 per share.
6. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
A. By executing this Agreement, Buyer agrees and understands
that the Company is under no obligation to register the Shares on its behalf or
to assist it in complying with any exemption from registration except on a "best
efforts" basis as set forth below.
B. Electropure intends to file a registration statement within
one (1) year. If Electropure files a registration statement (except on Forms S-4
or S-8) at any time following the date of this Agreement, Electropure shall
provide Buyer with four weeks' notice of its intention to file such registration
statement (the "Registration Statement") pursuant to the Securities Act of 1933,
as amended (the "Act"), to the end that the Shares may be sold under the Act as
promptly as practicable thereafter, subject to the trading restrictions
contained in Paragraph 7 of this Agreement, and Electropure will use its best
efforts to cause such registration to become effective and continue to be
effective (current)
<PAGE> 7
EXHIBIT 10.47.8; PAGE 6
(including the taking of such steps as are necessary to obtain the removal of
any stop order) for a period equal to the lesser of two (2) years following the
issuance of Shares at the $5.50 Trigger Value or until the holder has advised
Electropure that all of the Shares have been sold; provided, that if at the time
of a proposed registration statement, the Shares can be sold under Rule 144 of
the Act without any restriction and the Company removes any legends restricting
transfers of the Shares, the Company does not have to include the Shares in any
registration statement; provided further, that Buyer shall furnish Electropure
with appropriate information (relating to the intentions of such Buyer) in
connection therewith as Electropure shall reasonably request in writing.
C. Subject to the trading restrictions contained in Paragraph
7 of this Agreement, the following provision of this Section 6 shall also be
applicable:
(1) Following the effective date of such registration
statement, Electropure shall upon the request of any owner of the Shares
forthwith supply such a number of prospectuses meeting the requirements of the
Act, as shall be requested by such owner to permit such holder to make a public
offering of all the Shares from time to time offered or sold to such holder,
provided that such holder shall from time to time furnish Electropure with such
appropriate information (relating to the intentions of such holder) in
connection therewith as Electropure shall request in writing.
(2) Electropure shall bear the entire cost and expense of
any registration of securities under this Section 6 notwithstanding that other
shares may be included in any such registration. Any holder whose Shares are
included in any such registration statement pursuant to this Section 6 shall,
however, bear the fees of his own counsel and any registration fees, transfer
taxes or underwriting discounts or commissions applicable to the Shares sold by
it pursuant thereto.
(3) Electropure shall indemnify and hold harmless the
holder and any underwriter who may purchase from or sell for any such holder any
Shares or from and against any and all losses, claims, damages and liabilities
caused by any untrue statement or alleged untrue statement of a material fact
contained in the registration statement or any post-effective amendment thereto
under the Act or any prospectus included therein required to be filed or
furnished by reason of this Section 6 or caused by any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to Electropure by
such holder or underwriter expressly for use therein.
7. HOLDBACK AND RIGHT OF FIRST REFUSAL.
A. In addition to the restrictions imposed on the Shares by
the Securities Act of 1933, as amended (the "Act"), Buyer understands and agrees
that the Shares, when issued shall be subject to the following additional
trading restrictions:
(1) Buyer shall not sell any of the Initial Shares until
the effective date of the Registration Statement referred to in Paragraph 6B
above, nor for a period of six months following the effective date of such
Registration Statement. During the 90-day period beginning six (6) months after
<PAGE> 8
EXHIBIT 10.47.8; PAGE 7
such Registration Statement, Buyer may sell only up to 25% of the Shares
actually held by the Buyer as of such six (6) month anniversary, and in each
90-day period after such initial 90-day period, the Buyer can sell 25% of the
Shares actually then held by it on the first day of each such respective 90-day
period.
(2) Buyer shall not sell any of the Shares issued at a
Trigger Value of $3.00 per share until the effective date of the Registration
Statement referred to in Paragraph 6B above, nor for a period of eighteen (18)
months following the effective date of such Registration Statement. During the
90-day period beginning eighteen (18) months after such Registration Statement,
Buyer may sell only up to 25% of the Shares actually held by the Buyer as of
such eight (18) month anniversary, and in each 90-day period after such initial
90-day period, the Buyer can sell 25% of the Shares actually then held by it on
the first day of each such respective 90-day period.
(3) Buyer shall not sell any of the Shares issued at a
Trigger Value of $4.00 per share until the effective date of the Registration
Statement referred to in Paragraph 6B above, nor for a period of twenty-four
(24) months following the effective date of such Registration Statement. During
the 90-day period beginning twenty-four (14) months after such Registration
Statement, Buyer may sell only up to 25% of the Shares actually held by the
Buyer as of such twenty-four (24) month anniversary, and in each 90-day period
after such initial 90-day period, the Buyer can sell 25% of the Shares actually
then held by it on the first day of each such respective 90-day period.
(4) Buyer shall not sell any of the Shares issued at a
Trigger Value of $5.50 per share until the effective date of the Registration
Statement referred to in Paragraph 6B above, nor for a period of thirty (30)
months following the effective date of such Registration Statement. During the
90-day period beginning thirty (30) months after such Registration Statement,
Buyer may sell only up to 25% of the Shares actually held by the Buyer as of
such thirty (30) month anniversary, and in each 90-day period after such initial
90-day period, the Buyer can sell 25% of the Shares actually then held by it on
the first day of each such respective 90-day period.
(5) For purposes hereof, the percentage of Shares and/or
Initial Shares tradeable by the owner thereof shall be based on the number of
Shares of Common Stock held by the owner of such shares at the beginning of each
respective 90-day period.
B. If Buyer proposes to engage in a bona fide Sale (other than
in the over-the-counter market), directly or indirectly, to an unaffiliated,
bona fide third party, any of the Shares, then prior to taking any such action,
the Buyer shall deliver to the Company a statement in writing (the "Statement")
setting forth (1) the date of the Statement (the "Statement Date"); (2) the
manner in which the Sale is proposed to occur; (3) the consideration for the
Sale; (4) the purchaser's name, address and telephone number; (5) the
purchaser's willingness to supply any additional information about himself as
may be reasonably requested by the Company; and (6) a copy of the related
legally binding offer (the "Offer") of purchase. The Company shall thereupon
have the irrevocable and exclusive option, but not the obligation (the
"Option"), to purchase all of the Shares subject to the Option upon the same
terms and conditions set forth in the Statement. The Option shall be exercised
by the Company by giving notice (the "Option Notice") to the Buyer, within
fifteen (15) days following the date of the Statement, that the Company elects
to exercise the Option. Upon exercise of the Option, the Buyer shall have the
obligation to consummate the Sale on and subject to the terms and conditions set
forth in the Statement. Failure by the
<PAGE> 9
EXHIBIT 10.47.8; PAGE 8
Company to exercise the option to give an Option Notice shall be deemed an
election by it not to exercise the Option. A Sale shall mean any sale of the
Shares.
8. CHANGE IN CONTROL. Within sixty (60) days of a "Change in Control"
(as defined below) of the Company which Change of Control has not been consented
to by Buyer, Buyer shall automatically be entitled to the immediate issuable of
the Shares due hereunder at the then Fair Market Value.
For purposes of this Agreement, a Change in Control of the Company shall
be deemed to have occurred if (A) there shall be consummated (1) any
consolidation or merger of the Company in which the Company is not the
continuing or surviving corporation or pursuant to which shares of the Company's
Common Stock would be converted into cash, securities or other property, other
than a merger of the Company in which the holders of the Company's Common Stock
immediately prior to the merger have the same proportionate ownership of common
stock of the surviving corporation immediately after the merger, or (2) any
sale, lease, exchange or other transfer (in one transaction or a series of
related transactions) of all, or substantially all, of the assets of the
Company, or (B) the stockholders of the Company approved any plan or proposal
for the liquidation or dissolution of the Company, or (C) any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), shall become the beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of twenty percent
(20%) or more of the Company's outstanding Common Stock (except upon the
conversion of Class B Common Stock into Common Stock or upon the issuance of the
Shares contemplated to be issued pursuant to this Agreement or upon the issuance
of shares pursuant to the Company's intended offering of securities), or (D)
during any period of two (2) consecutive years beginning August 12, 1997,
individuals who at the beginning of such period constitute the entire Board of
Directors shall cease for any reason to constitute a majority thereof unless the
election, or the nomination for election by the Company's stockholders, or each
new director was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who were directors at the beginning of the
period.
9. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the parties hereto with respect to the subject matter
hereof and supersedes all prior and contemporaneous agreements and
understandings relating to such subject matter.
10. AMENDMENT. This Agreement may not be amended except by written
document executed by the parties.
11. SUBJECT HEADINGS. Subject headings are included for convenience only
and shall not be deemed part of this Agreement.
12. SEVERABILITY. If any provision of this Agreement shall be held
unenforceable as applied to any circumstance, the remainder of this Agreement
and the application of such provision to other circumstances shall be
interpreted so as best to effect the intent of the parties. The parties further
agree to replace any such unenforceable provision with an enforceable provision
(and to take such other action) which will achieve, to the extent possible, the
purposes of the unenforceable provision.
<PAGE> 10
EXHIBIT 10.47.8; PAGE 9
13. CHOICE OF LAW AND VENUE. This Agreement shall be governed by and
construed under the laws of the State of California in force from time to time.
Any proceeding arising out of this Agreement shall be brought in Orange County,
California.
14. ATTORNEYS' FEES. In any action to enforce this Agreement, the
prevailing party shall be entitled to recover from the non-prevailing party all
reasonable costs, including, without limitation, attorneys' fees.
15. PARTIES BOUND. This Agreement is binding on and shall inure to the
benefit of the parties and their respective successors, assign, heirs, and legal
representatives.
16. SURVIVAL. The representations, warranties, covenants, and agreements
contained in this Agreement shall survive the consummation of the transactions
contemplated hereby.
17. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
COMPANY: ELECTROPURE, INC.
By: /S/ CATHERINE PATTERSON
--------------------------------------------
Catherine Patterson, Chief Financial Officer
23251 Vista Grande, Suite A
Laguna Hills, California 92653
BUYER: EDI COMPONENTS
By: /S/ FLOYD H. PANNING
--------------------------------------------
Floyd H. Panning, President
23251 Vista Grande, Suite A
Laguna Hills, California 92653
<PAGE> 11
EXHIBIT 10.47.8; PAGE 10
EXHIBIT "A"
TO
LICENSE TERMINATION AGREEMENT
<TABLE>
<CAPTION>
TRIGGER VALUE
--------------------------------------------------
INITIAL
SHARES ADDITIONAL SHARES
------- ----------------------------------
TOTAL
SHAREHOLDER $2.00 $3.00 $4.00 $5.50 SHARES
------------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Dhawan, Gil K. 12,500 2,778 2,082 1,516 18,876
Fishman, Richard 12,500 8,331 6,251 4,546 31,628
Fleming, Terry L. 25,000 16,667 12,501 9,090 63,258
Frank, Anthony M. 25,000 16,667 12,501 9,090 63,258
Frank, Randall P. 25,000 16,667 12,501 9,090 63,258
Frank, Tracy F. 12,500 8,331 6,251 4,546 31,628
Hartley, E. Dale 62,500 41,669 31,250 22,726 158,145
Illes, Steve G. 50,000 22,223 16,665 12,122 101,010
Panning, Floyd H. 50,000 33,333 25,000 18,182 126,515
Sugarman, Michael 25,000 16,667 12,501 9,090 63,258
Tarlow, Herbert D. 37,500 25,002 18,749 13,636 94,887
Waldman, Stephen 25,000 16,667 12,501 9,090 63,258
------- ------- ------- ------- -------
TOTALS: 362,500 225,002 168,753 122,724 878,979
======= ======= ======= ======= =======
</TABLE>
<PAGE> 12
EXHIBIT 10.47.8 PAGE 11
EXHIBIT "B"
TO
LICENSE TERMINATION AGREEMENT
<TABLE>
<CAPTION>
EXERCISE NO. OF
WARRANT NO. WARRANTHOLDER PRICE WARRANTS
----------- ---------------- ----- ------
<S> <C> <C> <C>
E-1021 Dhawan, Gil $0.50 10,000
E-1022 Dhawan, Gil $0.50 2,500
E-1013 Fishman, Richard $0.50 6,800
E-1014 Fishman, Richard $0.50 3,200
E-1034 Frank, Anthony M. $0.50 4,000
E-1035 Hartley, E. Dale $0.50 6,400
E-1008 Panning, Floyd $0.50 20,000
E-1022 Panning, Floyd $0.50 20,000
E-1001 Waldman, Stephen $0.50 20,000
E-1026 Waldman, Stephen $0.50 2,500
------ ---------------- ----- ------
95,400
======
</TABLE>
<PAGE> 13
EXHIBIT 10.47.8; PAGE 12
EXHIBIT "C"
TO
LICENSE TERMINATION AGREEMENT
<TABLE>
<CAPTION>
INTEREST PRINCIPAL
LENDER LOAN DATE DUE DATE RATE LOAN AMOUNT
----------------- -------- -------- ----- -------
<S> <C> <C> <C> <C>
Waldman, Stephen(1) 11/02/93 11/02/95 8.5% 25,000
Sugarman, Michael 11/30/95 02/28/96 9% 10,000
Winokur, Dick(2) 08/30/96 N/A N/A 25,000
Frank, Anthony(3) 12/31/96 12/31/98 10% 50,000
Frank, Anthony 02/25/97 02/25/99 10% 50,000
Frank, Anthony 04/10/97 04/10/99 10% 50,000
-------- -------- ----- -------
210,000
-------
</TABLE>
- -----------------------------
1 On 02/28/96, Dr. and Mrs. Waldman converted $5,000 in added principal
plus $6,287.23 in accrued interest into 125,414 shares of the Company's
common stock at $0.12 per share. The $25,000 principal loan remains
outstanding.
2 Mr. Winokur had originally intended to subscribe to the Company's
August, 1995 confidential private placement offering under the
assumption that the July, 1992 license relationship between the Company
and Buyer would be terminated at or around that time. Such subscription
was not concluded and, as a result, the principal amount paid by Mr.
Winokur has been carried by EDI Components as a loan.
3 The loan agreements provide the right to convert each of the $50,000
loans made by Mr. Frank to an EDI investment position and receipt, upon
conversion, in the aggregate: a) a Stock Right Agreement to purchase,
at 25% discount, up to $150,000 in additional shares; b) Warrants to
purchase 53,775 shares of Electropure common Stock at $0.50 per share;
and c) payment by Electropure in the sum of $200,000 upon license
termination.
<PAGE> 1
EXHIBIT 10.47.9
Employment Agreement with Floyd Panning
<PAGE> 2
EXHIBIT 10.47.9; PAGE 1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is entered into as of the 5th day of August, 1997,
between ELECTROPURE, INC. (formerly HOH Water Technology Corporation), a
corporation organized under the laws of the State of California (the "Company"),
and FLOYD H. PANNING, ("Employee").
A. Concurrently herewith, the parties have entered into a License
Termination Agreement upon the terms and conditions set forth therein (the
"License Termination Agreement"). The License Termination Agreement was entered
into in connection with the termination of certain rights licensed and certain
assets leased by the Company to EDI Components ("EDI") on July 29, 1992.
B. In order to induce EDI to enter into the License Termination
Agreement, the Company desires to enter into an employment arrangement upon the
terms and subject to the conditions hereinafter provided.
C. It is understood and agreed between the parties that the terms of this
Employment Agreement, particularly the length of term and compensation
provisions, are primarily intended to compensate Employee for past service to
the Company as well as for future performance and service. Consequently,
termination of this Agreement shall not, by its terms, terminate certain
compensation provisions hereof.
D. Employee, in consideration of the covenants and agreements hereinafter
contained, agrees as follows with respect to the employment by the Company of
Employee and Employee's future business activities.
1. EMPLOYMENT; TERM OF EMPLOYMENT. The Company hereby employs Employee
and Employee hereby accepts such employment upon the terms and conditions
hereinafter set forth. Subject to the provisions for termination as hereinafter
provided, Employee's term of employment by the Company shall be for a period of
five (5) years from the date hereof until July 31, 2002. Thereafter, Employee
shall, in his sole discretion, have the right to continue this Agreement on the
same terms and conditions for an additional period of two years after which this
Agreement shall continue on a year-to-year basis until either party shall
deliver at least 30 days' advance written notice to the other party to the
effect that the employment hereunder shall terminate on such anniversary date.
2. SERVICES TO BE RENDERED BY EMPLOYEE. Employee shall be employed as
President and Chief Executive Officer of the Company and shall, subject to the
direction of the Board of Directors, or a duly authorized committee thereof,
have the general powers and duties of management usually vested in such office
of a corporation, shall have such other powers and duties as from time to time
may be decided upon by the Board of Directors, or a duly authorized committee
thereof, of the Company.
(A) In his capacity as and during the term that Employee is
employed hereunder as President and Chief Executive Officer, Employee shall have
the right and authority to enter into agreements of up to $50,000; provided,
however, that such limitation shall not apply in the case of employment
arrangements to be negotiated by Employee with Ronald J. O'Hare and/or Catherine
Patterson, the reasonableness of which shall be determined by the Company's
Board of Directors.
<PAGE> 3
EXHIBIT 10.47.9; PAGE 2
(B) Employee shall also be entitled to nominate, subject to
shareholder approval, one (1) person to the Company's Board of Directors for a
period of five (5) years or during the term that this Employment Agreement
remains in effect or until all Shares required to be issued pursuant to the
License Termination Agreement have been issued and registered by the Company,
whichever is longer. The Board hereby agrees to use its best efforts to seek
shareholder approval for election of Employee's nominee to the Board of
Directors. Further, Employee shall be entitled to appoint one (1) person to the
Company's Board of Directors upon execution hereof which appointee shall serve
until he shall either resign or his successor shall be duly elected by a vote of
the Company's shareholders.
(1) In the event the nominee submitted by Employee shall
fail, for any reason, to be elected by the Company's shareholders (other than
the investors of Buyer), then in that event, all Shares issuable by the Company
under the License Termination Agreement shall immediately and automatically be
issued at the then current Fair Market Value and the Company shall use its best
efforts to register all of such Shares as soon as practicable.
(C) Employee agrees within six months of the date of this
Agreement to prepare, for approval by the Company's Board of Directors, a
five-year Business Plan, utilizing any tools and/or consulting services deemed
necessary by Employee, but at the Company's expense.
(D) Employee shall have full and complete access to any and
all offices, warehouses, factories, and other facilities leased, owned or
occupied by the Company, together with full and complete access to all books,
records, files, computers and all computer data of the Company, wherever
located, at all times prior to the effective date of any termination of this
Agreement.
3. COMPENSATION.
(A) For the services to be rendered, Employee shall be paid a
Base Monthly Salary of Six Thousand Five Hundred Dollars ($6,500.00) until such
time as the Company has concluded any financing from which it shall realize
proceeds of a minimum of one million ($1,000,000.00) Dollars. Upon receipt of
such financing proceeds, Employee shall be paid a Base Monthly Salary of Eight
Thousand Dollars ($8,000.00) which thereafter shall automatically increase, if
employment shall continue hereunder, at the end of twelve (12) months and each
twelve (12) months thereafter by an amount equal to five (5%) percent of
Employee's then Base Salary. Such Base Salary shall be payable in equal
installments at such times as other employees are paid but in any case at least
in semi-monthly installments.
(B) During the term that this agreement remains in effect,
Employee shall be provided the use of a Company vehicle and cellular telephone
the cost for which, including maintenance, insurance, and registration, shall be
borne solely by the Company.
(C) Employee shall be entitled to participate in disability
insurance, pension plans, stock option plans and in such other employee fringe
benefit programs as the Company may have in effect from time to time for its
employees and executives with salaries and responsibilities comparable to those
of Employee, in accordance with any policies adopted by the Board of Directors
of the Company with regard thereto. It is understood that the Company, by reason
of this Agreement, has not obligated itself to make any benefits available to
its employees.
<PAGE> 4
EXHIBIT 10.47.9; PAGE 3
(D) It is further expressly understood that Employee shall be
entitled to participate in such group life, medical and hospitalization and/or
dental insurance programs as the Company may have in effect from time to time
for its employees and executives.
(E) The Employee shall be entitled to five (5) weeks of paid
vacation per annum, to accrue in accordance with the Company's vacation policy.
(F) The Company shall also pay or reimburse Employee for all
expenses normally reimbursed by the Company and reasonably incurred by Employee
in direct furtherance of Employee's duties hereunder and authorized by the
Company, including expenses for entertainment, traveling, meals, hotel
accommodations, and the like upon submission of vouchers or an itemized list
thereof as the Company may from time to time require, and as may be required in
order to permit all or some of such payments as proper deductions to the Company
under the Internal Revenue Code and the rules and regulations adopted pursuant
thereto now or hereafter in effect.
(G) Concurrent with the date hereof, Employee shall be granted
a ten-year option to purchase One Hundred Twenty Five Thousand (125,000) shares
of the Company's Common Stock at a 25% discount to the Fair Market Value (as
hereinafter defined) of such Common Stock on the date of this Agreement. Such
options shall be exercisable by Employee in increments of Twenty Five Thousand
(25,000) shares per year on a cumulative basis commencing on the date of this
Agreement. The Company agrees that all such options granted hereunder shall be
registered under the Securities Act of 1933 at the Company's expense as soon as
practicable. See Exhibit "A" - "Warrant No. A-3001", which shall be executed by
the Company concurrently with the execution of this Employment Agreement.
(H) Fair Market Value per share of Common Stock of the Company
shall be determined as follows:
(1) If the Common Stock is listed on a National Securities
Exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the NASDAQ system, the Fair Market Value shall be the last
reported sale price of the Common Stock on such exchange or system for each
trading day or if not such sale is made (or reported) on such day, the average
closing bid and asked prices for such day on such exchange or system; OR
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the Fair Market Value shall be the mean of the last
reported bid and asked prices reported by the Electronic Bulletin Board or
National Quotation Bureau, Inc. on each trading day; OR
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
Fair Market Value shall be the net tangible book value per share as of the end
of the last fiscal year or, if higher, $0.01 per share.
(I) By execution hereof, the Company agrees that Employee
shall be authorized by the Company to exercise up to 50,000 outstanding warrants
issued to him at $0.50 per share between April, 1992 and April, 1993 and to
issue for the exercise price thereof a promissory note bearing the minimum
<PAGE> 5
EXHIBIT 10.47.9; PAGE 4
interest rate permitted from time to time by the Internal Revenue Code. Such
promissory note shall be due and payable upon payment by the Company of the
deferred wages due Employee as described in Paragraph 3(J) below.
(J) Once the Company has concluded any financing from which it
shall realize proceeds of a minimum of one million ($1,000,000) dollars,
Employee shall be entitled to a payment of up to $27,500, net of normal federal,
state and local income and payroll taxes, in full reimbursement of all wages
accrued and deferred while he was employed by EDI Components. It is understood
and agreed that, as of the date hereof, the Employee has deferred $63,700 in
wages accrued while employed by EDI Components. (See Exhibit "B" - "Summary of
Deferred and Accrued Wages Due"). It is further understood that the amount due
Employee hereunder will be commensurate with the principal amount, plus accrued
interest, on any promissory note issued by Employee pursuant to Paragraph 3(I)
above and will be deemed full payment of such promissory note plus any and all
accrued but unpaid interest.
4. COMPETITION. While employed by the Company and for three (3) years
thereafter, Employee will neither permit his name to be used by, nor engage in
or carry on, directly or indirectly, either for himself or as a member of a
partnership, or as a stockholder (except as a stockholder of less than one
percent (1%) of the issued and outstanding stock of a publicly held
corporation), investor, officer or director of a corporation or as an employee,
agent, associate or consultant of any person, partnership or corporation in any
business in competition with any EDI-related business carried on by the Company
or a parent, subsidiary, affiliate or successor of the Company without the
written consent of the Company. This consent shall not be unreasonably withheld
nor will the Company in any way interfere with Employee's right to work in his
chosen field. Any failure by the Company to pay when due any compensation
payable or stock purchase options issuable hereunder to Employee shall
immediately and automatically terminate this covenant not to compete and the
provisions hereof shall have no force or effect.
5. TERMINATION BY COMPANY.
(A) For Cause. During the term of this Agreement, the Company
shall have the right, at its option to terminate this Agreement and all of its
obligations to Employee hereunder upon written notice to Employee if the Board
of Directors of the Company, or a duly authorized committee thereof, acting in
good faith and upon reasonable grounds, determines unanimously (excluding
Employee if he then serves on the Board of Directors) that Employee has engaged
in feloneous activity or has been found to be derilict or grossly negligent in
his duties; provided, however, that:
(1) Any such termination shall be approved by Anthony M.
Frank, and
(2) Any such feloneous activity, deriliction of duty or
negligence must be proven in a court of law of competent jurisdiction.
(B) Without Cause.
(1) During the term of this Agreement, the Company shall
have the right, at its option and upon written notice to Employee, to terminate
this Agreement without cause or upon
<PAGE> 6
EXHIBIT 10.47.9; PAGE 5
Employee's death or disability provided that all compensation due Employee
hereunder, including deferred wages (subject to the minimum financing
requirements), shall continue to be paid to Employee, his heirs or assigns, for
the full seven year period commencing with the date of this Agreement as if no
termination had taken place.
(2) Upon the termination of this Agreement without cause by
the Company, Employee's successor shall be approved, by simple majority vote, by
those persons identified on Exhibit "C" (the "Electropure Investors"), except
for Employee, subject to the reasonable concurrence of the Board of Directors.
The rights of the Electropure Investors to approve the termination and selection
of a successor shall survive until such time as all shares of stock issuable
pursuant to the License Termination Agreement between the Company and
Electropure of even date herewith have been cleared of all trading restrictions.
(3) If this Agreement has been terminated without cause and
Employee's successor has not been approved in accordance with Paragraph 5(B)(2)
above, then all shares issuable by the Company under the License Termination
Agreement shall immediately be issuable at the then current Fair Market Value
and the Company shall use its best efforts to register all of such shares as
soon as practicable. Employee shall not be liable in any way for the Company's
failure to issue such stock.
(4) If this Agreement has been terminated by the Company
without cause, all rights of Employee to purchase stock of the Company under
Paragraph 3(G) of this Agreement shall be immediately and irrevocably vested,
and Employee may then exercise any and all such options at any time, all at
once, or at such intervals and in such quantities as Employee elects.
(C) Any termination of this Agreement by the Company, with or
without the approval of the Electropure Investors as to Employee's successor,
shall not prejudice any remedy to which Employee may be entitled either at law,
in equity, under this Agreement, or otherwise. Further, any termination of this
Agreement shall not affect any rights Employee may have as a result of his
ownership of the Company's stock.
(D) Neither the death nor the disability of Employee occurring
during the five (5) year period commencing with the date of this Agreement shall
excuse the Company from its obligation to continue to pay Employee all
compensation due hereunder: however, in the event of Employee's death, payment
shall be made to the estate of Employee; and in the event of disability, then
payment shall be made to Employee's spouse, conservator or Employee's lawful
attorney-in-fact.
6. TERMINATION BY EMPLOYEE.
(A) For Cause. For a period of seven (7) years from the date
of this Agreement, the Employee shall have the right to terminate his employment
by giving written notice thereof to the Company. However, in no event will any
such termination result in the termination of any unexercised stock purchase
options held by Employee, or relieve or excuse the Company from its obligations
to pay Employee all compensation due Employee under Paragraph 3 for a period of
seven (7) years from the date of this Agreement if the Company has committed or
suffered any of the following:
<PAGE> 7
EXHIBIT 10.47.9; PAGE 6
(1) the Company breaches or is in default under any
provision of this Agreement and has not cured such breach within thirty days of
written demand by Employee; or
(2) the Company files a voluntary petition in bankruptcy or
makes an assignment for the benefit of creditors, or the Company consents to the
appointment of a trustee or receiver; or
(3) a trustee or receiver is appointed for the Company's
properties and the appointment is not dismissed or stayed within sixty (60) days
thereafter; or
(4) bankruptcy, reorganization, or liquidation proceedings
are instituted against the Company and same are not dismissed or stayed within
sixty (60) days thereafter; or
(5) the Company's corporate existence is terminated for any
reason, whether voluntarily, or by operation of law, or otherwise.
(6) a Change of Control (as defined in Paragraph 7 hereof)
of the Company shall occur and such Change of Control has not been consented to
by Employee.
(7) the Company shall authorize or cause any significant
change in or diminution of the authority, duties or position of Employee, unless
consented to by Employee.
(B) Without Cause - Within Five Years. If, during the five (5)
year period commencing with the date of this Agreement, Employee elects to
terminate his employment for any reason other than as set forth in subparagraph
(A)(1) through (7) of this Paragraph 6, then Employee shall be entitled to
receive only monthly wages for the balance of the five-year term in the
percentages (based upon Employee's then current base salary) listed below;
provided, however, that any deferred compensation previously paid to Employee
and any stock purchase options previously exercised by Employee prior to the
effective date of such termination shall not be subject to forfeiture. Employee
shall be permitted to exercise any and all vested stock options within the
thirty days following the effective date of termination.
<TABLE>
<CAPTION>
------------------- ---------
YEAR OF PERCENT
TERMINATION OF SALARY
------------------- ---------
<S> <C>
1 60%
2 70%
3 80%
4 90%
5 100%
</TABLE>
(C) Without Cause - After Five Years. If, at any time,
following the five (5) year period commencing with the date of this Agreement,
Employee elects to terminate his employment for any reason other than as set
forth in subparagraph (A)(1) through (7) of this Paragraph 6, then Employee
hereby agrees to forfeit all compensation thereafter due Employee under
Paragraph 3 (A) through (I) of this Agreement; provided, however, that any
deferred compensation previously paid to Employee and any
<PAGE> 8
EXHIBIT 10.47.9; PAGE 7
stock purchase options previously exercised by Employee prior to the effective
date of such termination shall not be subject to forfeiture. Employee shall be
permitted to exercise any and all vested stock options within the thirty days
following the effective date of termination.
7. CHANGE IN CONTROL. For purposes of this Agreement, a Change in
Control of the Company shall be deemed to have occurred any of the following
shall occur and have not been consented to by Employee:
(A) there shall be consummated (1) any consolidation or merger
of the Company in which the Company is not the continuing or surviving
corporation or pursuant to which shares of the Company's Common Stock would be
converted into cash, securities or other property, other than a merger of the
Company in which the holders of the Company's Common Stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, or (2) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, of the assets of the Company, or
(B) the stockholders of the Company approved any plan or
proposal for the liquidation or dissolution of the Company, or
(C) any person (as such term is used in Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), shall become the beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of twenty percent (20%) or more of the Company's
outstanding Common Stock (except upon the conversion of Class B Common Stock
into Common Stock or upon the issuance of the shares required pursuant to the
License Termination Agreement or upon the issuance of shares pursuant to the
Company's intended offering of securities), or
(D) during any period of two (2) consecutive years beginning
August 12, 1997, individuals who at the beginning of such period constitute the
entire Board of Directors shall cease for any reason to constitute a majority
thereof unless the election, or the nomination for election by the Company's
stockholders, or each new director was approved by a vote of at least two-thirds
(2/3) of the directors then still in office who were directors at the beginning
of the period.
8. SOLICITING CUSTOMERS. Employee agrees that he will not for a period
of two (2) years immediately following the termination of his employment with
the Company, either directly or indirectly, as it relates to EDI products: (1)
make known to any competing person, firm, or corporation the names or addresses
of any of the customers of the Company or any other information pertaining to
them, or (2) call on, solicit, or take away, or attempt to call on, solicit, or
take away any of the customers of the Company on whom Employee called or with
whom he became acquainted during his employment with the Company, for
competitive purposes either for himself or for any other person, firm, or
corporation. Any failure by the Company to pay when due any compensation payable
or stock purchase options issuable hereunder to Employee shall immediately and
automatically terminate this covenant not to compete and the provisions hereof
shall have no force or effect.
9. TRADE SECRETS OF THE COMPANY. Employee prior to and during the term
of employment under this Agreement has had and will have access to and become
acquainted with various
<PAGE> 9
EXHIBIT 10.47.9; PAGE 8
trade secrets, consisting of devices, secret inventions, processes, and
compilations of information, records, and specifications, which are owned by the
Company or its subsidiaries; and which are regularly used or to be used in the
operation of the business of the Company. Employee shall not disclose any of the
aforesaid trade secrets, directly or indirectly, or use them in any way, either
during the term of this Agreement or at any time thereafter, except as required
in the course of his employment by the Company. All files, records, documents,
drawings, specifications, equipment, and similar items relating to the business
of the Company, whether prepared by Employee or otherwise coming into his
possession, shall remain the exclusive property of the Company and shall not be
removed under any circumstances from the premises where the work of the Company
is being carried on without the prior written consent of the Company.
10. INVENTIONS AND PATENTS. Employee agrees that as to any inventions
made by him during the term of his employment, solely or jointly with others,
which are made with the Company's equipment, supplies, facilities, trade
secrets, or time or which relate to the business of the Company or the Company's
actual or demonstrably anticipated research or development, or which result from
any work performed by Employee for the Company, shall belong to the Company and
Employee promises to assign such inventions to the Company. Employee also agrees
that the Company shall have the right to keep such inventions as trade secrets,
if the Company chooses. Employee agrees to assign to the Company Employee's
rights in any other inventions where the Company is required to grant those
rights to the United States Government or any agency thereof.
In order to permit the Company to claim rights to which it may be
entitled, Employee agrees to disclose to the Company in confidence all
inventions which Employee makes arising out of Employee's employment.
Employee shall assist the Company in obtaining patents on all
inventions, designs, improvements, and discoveries deemed patentable by the
Company in the United States and in all foreign countries, and shall execute all
documents and do all things necessary to obtain letters patent, to vest the
Company with full and exclusive title thereto, and with others, which are made
with the equipment, supplies, facilities, trade secrets, or time or first
actually reduced to practice.
11. INDEMNITY. The Company shall, to the fullest extent permitted by law
and by the Company's bylaws, indemnify, defend, protect and hold Employee
harmless from and against any and all claims, demands, costs, expenses, fines,
damages, and attorneys' fees, and any claims therefor, pertaining to, or arising
out of, the performance and/or attempted performance of Employee's obligations
hereunder. It is the intention of the parties that the foregoing obligations do
not require payment by Employee of such claims as a condition precedent to
recovery by Employee. See Exhibit "E" - "Indemnity Agreement", which shall be
executed by the parties concurrently with the execution of this Employment
Agreement.
12. SEVERABILITY.In the event any one or more provisions or portions of
this Agreement should be determined to be invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions contained herein shall not in any way be affected or impaired
thereby.
<PAGE> 10
EXHIBIT 10.47.9; PAGE 9
13. RELATIONSHIP OF THE PARTIES. The parties intend that this Agreement
establish an employment relationship between them. Nothing in this Agreement
shall be construed as modifying any rights Employee may have as a result of
Employee's ownership of any of the Company's stock.
14. ASSIGNMENT. The rights of the Company (but not its obligations)
under this Agreement may, without the consent of Employee, be assigned by the
Company to any parent or subsidiary of the Company. Except as provided in the
preceding sentence, the Company may not assign all or any of its rights, duties
or obligations hereunder without prior written consent of Employee. Employee may
assign his rights hereunder without the Company's consent; provided, however,
Employee may not assign his rights to any third party who is a direct or
indirect competitor of the Company. In no event may Employee delegate his duties
hereunder without the written consent of the Company.
15. NOTICES. All notices, requests, demands and other communications
shall be in writing and shall be deemed to have been duly given or made upon
personal delivery or, if mailed by registered or certified mail, postage
prepaid, on the third day following deposition in a United States mail
receptacle:
(a) If to Employee, addressed to him at the address set
forth below:
Floyd H. Panning
317 Calle Chueca
San Clemente, CA 92672
(b) If to the Company, addressed to:
Electropure, Inc.
23251 Vista Grande, Suite A
Laguna Hills, CA 92653
Attn: Corporate Secretary
or to such other address as any party hereto may request by notice given as
aforesaid to the other parties hereto.
16. TITLES AND HEADINGS. Titles and headings to paragraphs hereof are
for purposes of reference only and shall in no way limit, define or otherwise
affect the provisions hereof.
17. COUNTERPARTS. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one counterpart.
18. RIGHTS AND REMEDIES ARE CUMULATIVE. The rights and remedies provided
in this Agreement are cumulative, and the use of any one right or remedy by any
party shall not preclude or waive their right to use any or all other remedies.
Said rights and remedies are given in addition to any other rights which any
party may have by law, statute, ordinance, or otherwise.
<PAGE> 11
EXHIBIT 10.47.9; PAGE 10
19. BINDING ON SUCCESSORS. The provisions of this Agreement shall,
subject to the terms and conditions hereof, be binding upon and inure to the
benefit of the heirs, successors and assigns of the parties.
20. MEDIATION. In the event any controversy arising out of this
Agreement cannot be settled by the parties, the parties shall attempt to resolve
such controversy through mediation, and during such time as the parties are
attempting to resolve such matter through mediation, any statute of limitations
shall be tolled.
21. ATTORNEY'S FEES. In the event of any dispute regarding the
obligations or the respective rights and interests of the parties hereunder, the
prevailing party shall recover, upon demand, from the other party, all
reasonable fees, costs and expenses (including, without limitation, such fees,
costs and expenses of litigation and appeals) incurred by such prevailing party
in enforcing any provision hereof, whether or not litigation has commenced with
respect thereto and without regard to any schedule or the determination by a
court as to the fees, costs and expenses of such enforcement.
22. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
23. ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties hereto and may be modified or amended only by a written instrument
executed by both parties hereto.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
"COMPANY" ELECTROPURE, INC.
By /s/ CATHERINE PATTERSON
-------------------------------
Catherine Patterson
Chief Financial Officer
"EMPLOYEE" /s/ FLOYD H. PANNING
-------------------------------
Floyd H. Panning
<PAGE> 12
EXHIBIT 10.47.9; PAGE 11
23251 Vista Grande, Suite A
Laguna Hills, California 92653
714-770-9347 (Degree) Fax 714-770-9209
ELECTROPURE, INC.
================================================================================
WARRANT NO. A-3001
DATED AUGUST 14, 1997
Void after 5:00 P.M. Los Angeles City Time,
on August 14, 2007
Warrant to Purchase 125,000 Shares of Common Stock
THIS WARRANT, AND THE COMMON STOCK ISSUABLE UPON ITS EXERCISE, HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED, OR OTHERWISE TRANSFERRED, DISPOSED OF OR OFFERED FOR SALE, IN
WHOLE OR IN PART,, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THAT ACT COVERING THIS WARRANT AND/OR THE COMMON STOCK ISSUABLE UPON ITS
EXERCISE, OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO ELECTROPURE, INC.
THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
WARRANT TO PURCHASE COMMON STOCK
OF
ELECTROPURE, INC.
This is to certify that, for value received, FLOYD H. PANNING, or assigns,
("Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from ELECTROPURE, INC. (formerly HOH Water Technology Corporation), a California
corporation ("Company"), One Hundred Twenty Five Thousand (125,000 ) fully paid,
validly issued and nonassessable shares of Common Stock, $0.01 par value, of the
Company ("Common Stock") at any time or from time to time during the period set
forth below until the 5:00 P.M. Los Angeles City Time on August 14, 2007 (the
"Exercise Period") at an initial exercise price equal to $0.28125 per share. The
number of shares of Common Stock to be received upon the exercise of this
Warrant and the price to be paid for each share of Common Stock may be adjusted
from time to time as hereinafter set forth. The shares of Common Stock
deliverable upon such exercise, and as adjusted from time to time are
hereinafter sometimes referred to as "Warrant Shares" and the exercise price of
a share of Common Stock in effect at any time and as adjusted from time to time
is hereinafter sometimes referred to as the "Exercise Price."
<PAGE> 13
EXHIBIT 10.47.9; PAGE 12
A. EXERCISE PERIOD. Holder shall have the right to exercise this Warrant into
shares of Common Stock in increments of up to but not more than Twenty Five
Thousand (25,000) each year, commencing with the date hereof. Holder shall be
entitled to accumulate and exercise in successive years any and all Warrants
which have become exercisable hereunder in prior years. This Warrant shall
terminate at 5:00 P.M. Los Angeles City Time on August 14, 2007 notwithstanding
the fact that the Warrants granted hereunder are exercisable in the increments
stated.
Concurrently herewith, Holder and the Company have entered
into an Employment Agreement upon the terms and conditions set forth therein
(the "Employment Agreement"). The Employment Agreement sets forth certain
conditions precendent to which the Exercise Period hereinabove stated may be
accelerated or truncated.
B. EXERCISE OF WARRANT. During and subject to the Exercise Period, this Warrant
may be exercised in whole or in part at any time and the Holder shall have the
right to exercise this Warrant into the kind and amount of shares of stock and
other securities and property (including cash) receivable by a holder of the
number of shares of Common Stock into which this Warrant might have been
exercisable immediately prior thereto. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. As soon as practicable after
each such exercise of the Warrants, but not later than fourteen (14) days from
the date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificates for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be physically delivered to the Holder.
C. RESERVATION OF SHARES. The Company shall at all times reserve for issuance
and/or delivery upon exercise of this Warrant such number of shares of its
Common Stock as shall be required for issuance and delivery upon exercise of the
Warrants.
D. FRACTIONAL SHARES. No fractional shares or script representing fractional
shares shall be issued upon the exercise of this Warrant. With respect to any
fraction of a share called for upon any exercise hereof, the Company shall pay
to the Holder an amount in cash equal to such fraction multiplied by the current
market value of a share, determined as follows:
(1) If the Common Stock is listed on a National Securities Exchange or
admitted to unlisted trading privileges on such exchange or listed for trading
on the NASDAQ system, the current market value shall be the last reported sale
price of the Common Stock on such exchange or system on the last business day
prior to the date of exercise of this Warrant or if no such sale is made on such
day, the average closing bid and asked prices for such day on such exchange or
system; or
<PAGE> 14
EXHIBIT 10.47.9; PAGE 13
(2) If the Common Stock is not so listed or admitted to unlisted trading
privileges, the current market value shall be the mean of the last reported bid
and asked prices reported by the National Quotation Bureau, Inc. on the last
business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted trading
privileges and bid and asked prices are not so reported, the current market
value shall be an amount, not less than book value thereof as at the end of the
most recent fiscal year of the Company ending prior to the date of the exercise
of the Warrant, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company or, if higher, $0.01 per share.
E. EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense to Holder or any assignee or exchangee of Holder,
at the option of the Holder, upon presentation and surrender hereof to the
Company or at the office of its stock transfer agent, if any, for other warrants
of different denominations entitling the holder thereof to purchase in the
aggregate the same number of shares of Common Stock purchasable hereunder. Upon
surrender of this Warrant to the Company at its principal office or at the
office of its stock transfer agent, if any, with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any transfer tax, the Company
shall, without charge to Holder or any assignee or exchangee of Holder, execute
and deliver a new Warrant in the name of the assignee named in such instrument
of assignment and this Warrant shall promptly be canceled. This Warrant may be
divided or combined with other warrants which carry the same rights upon
presentation hereof at the principal office of the Company or at the office of
its stock transfer agent, if any, together with a written notice specifying the
names and denominations in which new Warrants are to be issued and signed by the
Holder hereof. The term "Warrant" as used herein includes any Warrants into
which this Warrant may be divided or exchanged. Upon receipt of the Company of
evidence satisfactory to it of the loss, theft, destruction or mutilation of
this Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
F. RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be entitled to
any rights of a shareholder in the Company, either at low or equity, and the
rights of the Holder are limited to those expressed in the Warrant and are not
enforceable against the Company except to the extent set forth herein.
G. ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time and the
number and kind of securities purchasable upon the exercise of the Warrants
shall be subject to adjustment from time to time upon the happening of certain
events as follows:
(1) In case the Company shall (i) declare a dividend or make a
contribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivisions, combination or
<PAGE> 15
EXHIBIT 10.47.9; PAGE 14
reclassification shall be adjusted so that it shall equal the price determined
by multiplying the Exercise Price by a fraction, the denominator of which shall
be the number of shares of Common Stock outstanding after giving effect to such
action, and the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to such action. Such adjustment shall be made
successively whenever any event listed above shall occur.
(2) Whenever the Exercise Price payable upon exercise of each Warrant is
adjusted pursuant to Subsection (1) above, the number of shares purchasable upon
exercise of this Warrant shall simultaneously be adjusted by multiplying the
number of shares initially issuable upon exercise of this Warrant by the
Exercise Price in effect on the date hereof and dividing the product so obtained
by the Exercise Price, as adjusted.
(3) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly cause a notice setting forth the adjusted Exercise Price
and adjusted number of shares issuable upon exercise of each Warrant to be
mailed to the Holders, at their last addresses appearing in the Warrant
Register, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certificate public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section G and a certificate signed by such firms shall be conclusive evidence of
the correctness of such adjustment.
(4) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsection (1) above.
(5) Irrespective of any adjustments in the Exercise Price or the number
or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
H. OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be adjusted as
required by the provisions of the foregoing Section, the Company shall forthwith
file in the custody of its Secretary or an Assistant Secretary at its principal
office and with its stock transfer agent, if any, an officer's certificate
showing the adjusted Exercise Price determined as herein provided, setting forth
in reasonable detail the facts requiring such adjustment, including a statement
of the number of additional shares of Common Stock, if any, and such other facts
as shall be necessary to show the reason for and the manner of computing such
adjustment. Each such officer's certificate shall be made available at all
reasonable times for inspection by the holder or any holder of a Warrant
executed and delivered pursuant to Section B and the Company shall, forthwith
after each such adjustment, mail a copy by certified mail of such certificate to
the Holder or any such holder.
I. NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be outstanding, (i)
if the Company shall pay any dividend or make any distribution upon the Common
Stock or (ii) if the Company
<PAGE> 16
EXHIBIT 10.47.9; PAGE 15
shall offer to the holders of Common Stock for subscription or purchase by them
any share of any class or any other rights or (iii) if the capital
reorganization of the Company, reclassification of the capital stock of the
Company, consolidation or merger of the Company with or into another
corporation, sale, lease or transfer of all or substantially all of the property
and assets of the Company to another corporation, or voluntary or involuntary
dissolution, liquidation or winding up of the Company shall be effected, then in
any such case, the Company shall cause to be mailed by certified mail to the
Holder, at least fifteen days prior to the date specified in (x) or (y) below,
as the case may be, a notice containing a brief description of the proposed
action and stating the date on which (x) a record is to be taken for the purpose
of such dividend, distribution or rights, or (y) such reclassification,
reorganization, consolidation, merger, conveyance, lease, dissolution,
liquidation or winding up is to take place and the date, if any is to be fixed,
as of which the holders of Common Stock or other securities shall receive cash
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
J. RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any reclassification,
capital reorganization or other change of outstanding shares of Common Stock of
the Company, or in case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a subsidiary in which merger
the Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the class issuable upon exercise of this Warrant) or in case
of any sale, lease or conveyance to another corporation of the property of the
Company as an entirety, the Company shall, as a condition precedent to such
transaction, cause effective provisions to be made so that the Holder shall have
the right thereafter by exercising this Warrant at any time prior to the
expiration of the Warrant, to purchase the kind and amount of shares of stock
and other securities and property receivable upon such reclassification, capital
reorganization and other change, consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock which might have been purchased
upon exercise of this Warrant immediately prior to such reclassification,
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section J shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common Stock, any such issue
shall be treated as an issue of Common Stock covered by the provisions of
Subsection (1) of Section G hereof.
IN WITNESS THEREOF, the Company has caused this Warrant to be signed and
attested by the Undersigned, being duly authorized, as of the date set forth on
the first part hereof.
ELECTROPURE, INC.
BY /s/ CATHERINE PATTERSON
---------------------------------
Catherine Patterson
Corporate Secretary
<PAGE> 17
EXHIBIT 10.47.9; PAGE 16
23251 Vista Grande, Suite A
Laguna Hills, California 92653
714-770-9347 (Degree) Fax 714-770-9209
ELECTROPURE, INC.
================================================================================
PURCHASE FORM
WARRANT NO. A-3001
DATED AUGUST 14, 1997
Dated:____________________, 19___
The undersigned hereby irrevocably elects to exercise the within Warrant to the
extent of purchasing _________________ shares of Common Stock and hereby makes
payment of $____________________ in payment of the actual exercise price
thereof.
INSTRUCTIONS FOR REGISTRATION OF STOCK
Name ________________________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________________
-----------------------------------
Signature of Warrant Holder
<PAGE> 18
EXHIBIT 10.47.9; PAGE 17
232251 Vista Grande, Suite A
Laguna Hills, California 92653
714-770-9347 (Degree) Fax 714-770-9209
ELECTROPURE, INC.
================================================================================
ASSIGNMENT FORM
WARRANT NO. A-3001
DATED AUGUST 14, 1997
FOR VALUE RECEIVED, FLOYD PANNING (the "Warrant Holder") hereby sells, assigns
and transfers unto:
Name ______________________________________________________________
(Please typewrite or print in block letters)
Address ______________________________________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
____________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ________________________________ Attorney, to
transfer the same on the books of the Company with full power of substitution in
the premises.
Dated:_________________, 19___
-----------------------------------
Signature of Warrant Holder
<PAGE> 19
EXHIBIT 10.47.9; Page 18
EXHIBIT B
SUMMARY OF DEFERRED AND ACCRUED WAGES DUE
FROM EDN COMPONENTS TO
FLOYD H. PANNING
<TABLE>
<CAPTION>
GROSS WAGES
TWO-WEEK PAYROLL -----------------------------------------
PERIOD ENDED DATE DUE PAID DEFERRED
- ------------ ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
7-MAY-94 14-MAY-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
21-MAY-94 28-MAY-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
4-JUN-94 11-JUN-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
18-JUN-94 25-JUN-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
2-JUL-94 9-JUL-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
16-JUL-94 23-JUL-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
30-JUL-94 8-AUG-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
13-AUG-94 20-AUG-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
27-AUG-94 3-SEP-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
10-SEP-94 17-SEP-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
24-SEP-94 1-0CT-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
8-OCT-94 15-OCT-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
22-OCT-94 29-OCT-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
5-NOV-94 12-NOV-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
19-NOV-94 28-NOV-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
3-DEC-94 10-DEC-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
17-DEC-94 24-DEC-94 $ 3,000.00 $ 1,500.00 $ 1,500.00
31-DEC-94 7-JAN-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
14-JAN-95 21-JAN-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
28-JAN-95 4-FEB-95 $ 3,000.00 $ 1,600.00 $ 1,500.00
11-FEB-95 18-FEB-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
26-FEB-95 4-MAR-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
11-MAR-95 18-MAR-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
25-MAR-95 1-APR-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
8-APR-95 15-APR-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
22-APR-95 28-APR-95 $ 3,000.00 $ 1,500.00 $ 1,500.00
6-MAY-95 13-MAY-95 $ 3,000.00 $ 2,050.00 $ 950.00
20-MAY-95 27-MAY-95 $ 3,000.00 $ 2,050.00 $ 950.00
3-JUN-95 10-JUN-95 $ 3,000.00 $ 2,050.00 $ 950.00
17-JUN-95 24-JUN-95 $ 3,000.00 $ 2,050.00 $ 950.00
1-JUL-95 8-JUL-95 $ 3,000.00 $ 2,050.00 $ 950.00
15-JUL-95 22-JUL-95 $ 3,000.00 $ 2,050.00 $ 950.00
29-JUL-95 5-AUG-95 $ 3,000.00 $ 2,050.00 $ 950.00
12-AUG-95 19-AUG-95 $ 3,000.00 $ 2,050.00 $ 950.00
28-AUG-95 2-SEP-95 $ 3,000.00 $ 2,050.00 $ 950.00
9-SEP-95 16-SEP-95 $ 3,000.00 $ 2,050.00 $ 950.00
23-SEP-95 30-SEP-95 $ 3,000.00 $ 2,050.00 $ 950.00
7-OCT-95 14-OCT-95 $ 3,000.00 $ 2,050.00 $ 950.00
21-OCT-95 28-OCT-95 $ 3,000.00 $ 2,050.00 $ 950.00
4-NOV-95 11-NOV-95 $ 3,000.00 $ 2,050.00 $ 950.00
18-NOV-95 25-NOV-95 $ 3,000.00 $ 2,050.00 $ 950.00
2-DEC-95 9-DEC-95 $ 3,000.00 $ 2,050.00 $ 950.00
16-DEC-95 23-DEC-96 $ 3,000.00 $ 2,050.00 $ 950.00
30-DEC-95 6-JAN-96 $ 3,000.00 $ 2,050.00 $ 950.00
13-JAN-96 20-JAN-96 $ 3,000.00 $ 2,050.00 $ 950.00
27-JAN-96 3-FEB-96 $ 3,000.00 $ 2,050.00 $ 950.00
10-FEB-96 17-FEB-96 $ 3,000.00 $ 2,050.00 $ 950.00
24-FEB-96 2-MAR-96 $ 3,000.00 $ 2,050.00 $ 950.00
9-MAR-96 16-MAR-96 $ 3,000.00 $ 2,050.00 $ 950.00
23-MAR-96 30-MAR-96 $ 3,000.00 $ 2,050.00 $ 950.00
6-APR-96 13-APR-96 $ 3,000.00 $ 2,050.00 $ 950.00
20-APR-96 27-APR-96 $ 3,000.00 $ 2,050.00 $ 950.00
----------- ---------- ----------
$156,000.00 $92,300.00 $ 3,700.00
</TABLE>
<PAGE> 20
EXHIBIT 10.47.9; PAGE 19
EXHIBIT C
ELECTROPURE INVESTORS
<TABLE>
<CAPTION>
NO. COMMON SHARES NO. OF PERCENT
SHAREHOLDER CLASS A CLASS B VOTES VOTING
- ----------- -------------------------- ------- ------
<S> <C> <C> <C>
Dhawan, Gil K. 12,500 12,500 3.03%
Fishman, Richard 12,500 12,500 3.03%
Fleming, Terry L. 25,000 25,000 6.06%
Frank, Anthony M. 25,000 25,000 6.06%
Frank, Randall P. 25,000 25,000 6.06%
Frank, Tracy F. 12,500 12,500 3.03%
Hartley, E. Dale 62,500 62,500 15.15%
Illes, Steve G. 50,000 50,000 12.12%
Panning, Floyd H. 100,000 100,000 24.24%
Sugarman, Michael 25,000 25,000 6.06%
Tarlow, Herbert D. 37,500 37,500 9.09%
Waldman, Stephen 25,000 25,000 6.06%
TOTALS: 312,500 100,000 412,500 100.00%
</TABLE>
<PAGE> 21
EXHIBIT 10.47.9; PAGE 20
EXHIBIT D
TO
INDEMNITY AGREEMENT
This Indemnity Agreement (the "Agreement") is made as of the 14th day of
August, 1997, by and between Electropure, Inc. (formerly, HOH Water Technology
Corporation) (the "Corporation"), and FLOYD H. PANNING (the "Indemnitee"), a
director, officer, employee and/or authorized distributor (hereinafter referred
to as "officers and directors") of the Corporation or of the Corporation's
former subsidiary, HOH International, Inc.
RECITALS
A. The Corporation and the Indemnitee recognize that the interpretation of
statutes, regulations, court opinions and the Corporation's Articles of
Incorporation and bylaws is too uncertain to provide the Corporation's officers
and directors with adequate guidance with respect to the legal risks and
potential liabilities to which they may become personally exposed as a result of
performing their duties in good faith for the Corporation.
B. The Corporation and the Indemnitee are aware of the substantial increase in
the number of lawsuits filed against corporate officers and directors.
C. The Corporation and the Indemnitee recognize that the cost of defending
against such lawsuits, whether or not meritorious, may impose substantial
economic hardship upon the Corporation's officers and directors.
D. The Corporation and the Indemnitee recognize that the legal risks, potential
liabilities and expenses of defense associated with litigation against officers
and directors arising or alleged to arise from the conduct of the affairs of the
Corporation are frequently excessive in view of the amount of compensation
received by the Corporation's officers and directors, and thus may act as a
significant deterrent to the ability of the Corporation to obtain experienced
and capable officers and directors.
E. Section 317 of the California General Corporation Law, which sets forth
certain provisions relating to the indemnification of officers and directors
(among others) of a California corporation by such corporation, is specifically
not exclusive of other rights to which those indemnified thereunder may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors, or otherwise.
F. In order to induce capable persons such as the Indemnitee to serve or
continue to serve as officers or directors of the Corporation and to enable them
to perform their duties to the Corporation secure in the knowledge that certain
expenses and liabilities that may be incurred by them will be borne by the
Corporation, the Board of Directors of the Corporation has determined, after due
consideration and investigation of the terms and provisions of this Agreement
and the various other options available to the Corporation and the Indemnitee in
lieu of this Agreement, that the following Agreement is in the best interests of
the Corporation and its shareholders.
<PAGE> 22
EXHIBIT 10.47.9; PAGE 21
G. The Corporation desires to have the Indemnitee serve or continue to serve as
an officer and/or director of the Corporation, and the Indemnitee desires to
serve or continue to serve as an officer and/or director of the Corporation
provided, and on the express condition, that he is furnished with the indemnity
set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and agreement set forth
below, the Corporation and the Indemnitee agree as follows:
1. Continued Service. The Indemnitee agrees to serve or continue to serve as a
director and/or officer of the Corporation for so long as he is duly elected and
appointed or until such time as he continues to serve as a director and/or
officer or resigns in writing. The terms of any existing employment agreement
between the Indemnitee and the Corporation shall continue in effect but shall be
modified or supplemented by the terms of this Agreement.
2. Definitions.
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought in the name of the
Corporation or otherwise and whether of a civil, criminal or administrative or
investigative nature, including, but not limited to, actions, suits or
proceedings brought under or predicated upon the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, their respective state
counterparts or any rule or regulation promulgated thereunder, in which the
Indemnitee may be or may have been involved as a party or otherwise by reason of
the fact that the Indemnitee may be or may have been involved as a party or
otherwise by reason of the fact that the Indemnitee is or was a director and/or
officer of the Corporation, by reason of any action taken by him or of any
inaction on his part while acting as such director and/or officer, or by reason
of the fact that he is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, whether or not he is serving in such
capacity at the time any indemnified liability or reimbursable expense is
incurred.
(b) The term "Expenses" shall include, but shall not be limited to,
damages, judgment, fines, settlement and charges, costs, expenses of
investigation and expenses of defense of legal actions, suits, proceedings or
claims and appeals therefrom, and expenses of appeal, attachment or similar
bonds. "Expenses" shall not include any judgment, fines or penalties actually
levied against the Indemnitee which the Company is prohibited by applicable law
from paying.
3. Indemnity in Third-Party Proceedings. Subject to Paragraph 8, the Corporation
shall indemnify the Indemnitee in accordance with the provisions of this
Paragraph 3 if the Indemnitee is a party to, threatened to be made a party to or
otherwise involved in any Proceeding (other than a Proceeding by the Corporation
itself to procure a judgment in its favor), by reason of the fact that the
Indemnitee is or was a director and/or officer of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, against all Expenses actually and reasonably incurred by the
Indemnitee in connection with the defense or settlement of such Proceeding,
provided it is determined, pursuant to
<PAGE> 23
EXHIBIT 10.47.9; PAGE 22
Paragraph 7 or by the court before which such action was brought, that the
Indemnitee acted in good faith and in a manner that he reasonably believed to be
in the best interests of the Corporation and, in the case of a criminal
proceeding, had no reasonable cause to believe that his conduct was unlawful.
The termination of any such Proceeding by judgment, order of court, settlement,
conviction or upon a plea of nolo contendre or its equivalent shall not, of
itself, create a presumption that the Indemnitee did not act in good faith or in
a manner that he reasonably believed to be in the best interests of the
Corporation, and with respect to any criminal proceeding, that such person had
reasonable cause to believe that his conduct was unlawful.
4. Indemnity in Proceeding by or in the Name of the Corporation. Subject to
Paragraph 8, the Corporation shall indemnify the Indemnitee against all Expenses
actually and reasonably incurred by the Indemnitee in connection with the
defense or settlement of any Proceeding by or in the name of the Corporation to
procure a judgment in its favor by reason of the fact that the Indemnitee was or
is a director and/or officer of the Corporation and is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, but only if
he acted in good faith and in a manner that he reasonably believed to be in the
best interests of the Corporation and its shareholders; provided, however, that
no indemnification for Expenses shall be made under this Paragraph 4 with
respect to any claim, issue or matter as to which the Indemnitee shall have been
adjudged to be liable to the Corporation, unless and only to the extent that any
court in which such Proceeding is brought shall determine upon application that
despite the adjudication of liability, but in view of all the circumstances of
the case, the Indemnitee is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
5. Indemnification of Expenses of Successful Party. Notwithstanding any other
provisions of this Agreement, to the extent that the Indemnitee has been
successful on the merits or otherwise in defense of any Proceeding or in defense
of any claim, issue or matter therein, including the dismissal of an action
without prejudice, the Indemnitee shall be indemnified against all Expenses
incurred in connection therewith.
6. Advances of Expenses. Expenses incurred by the Indemnitee pursuant to
Paragraph 3 and 4 in any Proceeding shall be paid by the Corporation in advance
of the determination of such Proceeding at the written request of the
Indemnitee, if the Indemnitee shall (a) undertake to repay such amount to the
extent that it is ultimately determined that the Indemnitee is not entitled to
indemnification in such amount, and (b) deliver to the Corporation a certificate
affirming in good faith that the Indemnitee has met the relevant standards for
indemnification set forth in Paragraphs 3 and 4.
7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon
Application. Any indemnification or advance under Paragraph 3, 4 or 6 shall be
made no later than 30 days after receipt of the written request of the
Indemnitee therefor, unless, in the case of an indemnification, a determination
is made within said 30-day period by (a) the Board of Directors of the
Corporation by a majority vote of a quorum thereof consisting of directors who
were not parties to such Proceedings, or (b) independent legal counsel in a
written opinion (which counsel shall be appointed if such a quorum is not
obtainable) that the Indemnitee has not met the relevant standards for
indemnification set forth in Paragraphs 3 and 4.
<PAGE> 24
EXHIBIT 10.47.9; PAGE 23
The right to indemnification or advances as provided by this Agreement shall be
enforceable by the Indemnitee in any court of competent jurisdiction. The
Corporation shall bear the burden of proving that indemnification or advances
are not appropriate. The failure of the Corporation to have made a determination
that indemnification or advances are proper in the circumstances shall not be a
defense to the action or create a presumption that the Indemnitee has not met
the applicable standard of conduct. The Indemnitee's Expenses incurred in
connection with successfully establishing his right to indemnification or
advances, in whole or in part, in any such Proceeding shall also be indemnified
by the Corporation.
8. Indemnification Hereunder Not Exclusive.
(a) Notwithstanding any other provision of this Agreement, the Company
shall not indemnify the Indemnitee for any act or omission or transactions for
which indemnification is expressly prohibited by Section 204(a)(11) of the
California General Corporation Law.
(b) The right to indemnification provided by this Agreement shall not be
exclusive of any other rights to which the Indemnitee may be entitled under the
Corporation's Articles of Incorporation, bylaws, any agreement, any vote of
shareholders or disinterested directors, the California General Corporation Law
or otherwise, both as to action in his official capacity and as to action in
another capacity while he holds such office. The indemnification under this
Agreement shall continue as to the Indemnitee even though he may have ceased to
be a director or officer, and shall inure to the benefit of the heirs and
personal representative of the Indemnitee.
9. Partial Indemnification. If the Indemnitee is entitled under any provision of
this Agreement to indemnification by the Corporation for a portion of his
Expenses actually and reasonably incurred by him in any Proceeding but not,
however, for the total amount thereof, the Corporation shall nevertheless
indemnify the Indemnitee for the portion of such Expenses to which the
Indemnitee is entitled.
10. Merger or Consolidation. In the event that the Corporation shall be a
constituent corporation in a consolidation, merger or other reorganization, the
Corporation, if it shall not be the surviving, resulting or acquiring
corporation therein, shall require as a condition thereto that the surviving,
resulting or acquiring corporation agrees to indemnify the Indemnitee to the
full extent provided herein. Whether or not the Corporation is the resulting,
surviving or acquiring corporation in any such transaction, the Indemnitee shall
also stand in the same position under this Agreement with respect to the
resulting, surviving or acquiring corporation as he would have with respect to
the Corporation if its separate existence had continued.
11. Severability. If any provision of this Agreement or the application of any
provision hereof to any person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
revised to the extent (and only to the extent) necessary to make it enforceable,
valid and legal.
12. Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of California.
<PAGE> 25
EXHIBIT 10.47.9; PAGE 24
13. Insurance. The Corporation may purchase and maintain insurance on behalf of
the Indemnitee against any liability asserted against him or incurred by him in
any such capacity as a director, officer or other employee or agent of the
Corporation or an affiliate of the Corporation, or arising out of his status as
such, whether or not the Corporation would have the power to indemnify him
against such liability under the provisions of this Agreement. The purchase and
maintenance of such insurance shall not in any way limit or affect the rights
and obligations of the Corporation and/or the Indemnitee under this Agreement,
and the execution and delivery of this Agreement by the Corporation and the
Indemnitee shall not in any way be construed to limit or affect the rights and
obligations of the Corporation and of the other party or parties thereto under
any such policy or agreement of insurance.
In the event the Indemnitee shall receive payment from any insurance carrier or
from the plaintiff in any action against the Indemnitee with respect to
indemnified amounts after payment on account of all or part of such indemnified
amounts having been made by the Corporation pursuant to this Agreement, the
Indemnitee shall reimburse the Corporation for the amount, if any, by which the
sum of such payments by such insurance carrier or such plaintiff and payments by
the Corporation to the Indemnitee exceeds such indemnified amounts; provided,
however, that such portions, if any, of such insurance proceeds that are
required to be reimbursed to the insurance carrier under the terms of its
insurance policy shall not be deemed to be payments to the Indemnitee hereunder.
In addition, upon payments of indemnified amounts under the terms and conditions
of this Agreement, the Corporation shall be subrogated to the Indemnitee's
rights against any insurance carrier with respect to such indemnified amounts
(to the extent permitted under such insurance policies). Such right of
subrogation shall be terminated upon receipt by the Corporation of the amount to
be reimbursed by the Indemnitee pursuant to the first sentence of this
paragraph.
14. Notices. The Indemnitee shall, as a condition precedent to his right to be
indemnified under this Agreement, give to the Corporation written notice as soon
as practicable of any claim made against him for which indemnity will or could
be sought under this Agreement. Notice to the Corporation shall be directed to
Electropure, Inc., 23251 Vista Grande, Suite A, Laguna Hills, California 92653
(or at such other address or to the attention of such other person as the
Corporation shall designate in writing to the Indemnitee).
15. Effective Date. The Effective Date of this Indemnity Agreement shall be the
date upon which the Indemnitee first serves or served as a director, officer,
employee and/or authorized distributor of the Corporation and shall continue in
effect as hereinabove provided.
ELECTROPURE, INC.
BY /s/ CATHERINE PATTERSON
--------------------------------
Catherine Patterson
Chief Financial Officer
INDEMNITEE
/s/ FLOYD H. PANNING
--------------------------------
Floyd H. Panning
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