<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
--------------------------------------
AMENDMENT NO. 1
TO
SCHEDULE 13D
(RULE 13d-101)
UNDER THE SECURITIES EXCHANGE ACT OF 1934
ELECTROPURE, INC.
(Name of Issuer)
Common Stock, $0.01 par value per share
(Title of Class of Securities)
286133
(CUSIP Number)
Catherine Patterson
Electropure, Inc.
23251 Vista Grande, Suite A
Laguna Hills, CA 92653
(714) 770-9347
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
August 14, 1997
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule
13G to report the acquisition which is the subject of this Schedule
13D, and is filing this schedule because of Rule 13d-1 (b) (3) or (4),
check the following box [ ].
(Continued on following pages)
(Page 1 of 9 pages)
The information required in the remainder of this cover page
shall not be deemed to be "filed" for the purpose of Section 18 of the
Securities Exchange Act of 1934 or otherwise subject to the
liabilities of that section of the Act but shall be subject to all
other provisions of the Act (however, see the Notes).
<PAGE> 2
13D - AMENDMENT NO. 1
CUSIP NO. 286133 PAGE 2 OF 9 PAGES
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
FLOYD H. PANNING
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
(a) [ ]
(b) [ ]
- --------------------------------------------------------------------------------
3 SEC USE ONLY
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4 SOURCE OF FUNDS
PF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)
[ ]
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OR ORGANIZATION
CALIFORNIA, USA
- --------------------------------------------------------------------------------
NUMBER OF 7 SOLE VOTING POWER
SHARES 519,840
----------------------------------------------------------
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY NONE
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EACH 9 SOLE DISPOSITIVE POWER
REPORTING 519,840
----------------------------------------------------------
PERSON 10 SHARED DISPOSITIVE POWER
WITH NONE
- --------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
519,840
- --------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
- --------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
10.0% OF THE COMMON STOCK
6.2% OF VOTING POWER
- --------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- --------------------------------------------------------------------------------
* SEE INSTRUCTIONS BEFORE FILLING OUT!
<PAGE> 3
PAGE 3 OF 9 PAGES
This Amendment No. 1 amends, in relevant part as follows, the Schedule
13D, filed June 2, 1997, of Floyd H. Panning (the "Reporting Person") with
respect to the common stock, $0.01 par value per share ("Common Stock") of
Electropure, Inc., a California corporation, formerly HOH Water Technology
Corporation.
ITEM 1. SECURITY AND ISSUER
Common Stock, $0.01 par value, of Electropure, Inc., a California
corporation ("Electropure"). Electropure's principal executive office is located
at 23251 Vista Grande, Suite A, Laguna Hills, California 92653.
ITEM 2. IDENTITY AND BACKGROUND
(a) Floyd H. Panning
(b) 317 Calle Chueca, San Clemente, CA 92673
(c) President, Electropure, Inc., 23251 Vista Grande, Suite A,
Laguna Hills, CA
(d) Not applicable
(e) Not applicable
(f) U.S.A.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
Of the $125,000 used to acquire the shares of Common Stock of
Electropure indicated below, $100,000 was the investment value granted Mr.
Panning in EDI Components, the exclusive licensee of Electropure, for two years'
of service as its President beginning in April, 1992. The balance of $25,000 is
in the form of a note receivable due the Company on the exercise of 50,000
warrants. Such note is payable once the Company has satisfied certain
obligations to Mr. Panning for deferred wages due him. Consequently, the funds
utilized to purchase the shares in question are or will be from Mr. Panning's
personal funds.
ITEM 4. PURPOSE OF THE TRANSACTION
Effective August 14, 1992, Electropure entered into a License
Termination Agreement with its licensee, EDI Components, to terminate a July,
1992 agreement granting EDI exclusive manufacturing and marketing rights to the
Company's patented water purification technology. The agreement provides for the
initial issuance of 362,500 shares of Electropure Common Stock valued, for
purposes of such transaction, at $2.00 per share. Such shares are to be
distributed to the shareholders of EDI Components in amounts commensurate with
their capital investment in such entity. Pursuant to Mr. Panning's $100,000
investment in EDI Components, as described above, Mr. Panning received 50,000
shares of the 362,500 shares issued pursuant to the License
<PAGE> 4
PAGE 4 OF 9 PAGES
Termination Agreement. The License Termination Agreement provides for additional
issuances of shares to the EDI investors. See Item 6. "Contracts, Arrangements,
Understandings or Relationships with Respect to the Securities of the Issuer."
Pursuant to the terms of an Employment Agreement entered into with Mr.
Panning on August 14, 1997, the Company has granted him 125,000 ten-year
warrants to purchase Common Stock at $0.28125 per share. Such warrants are
exercisable in increments of 25,000 annually. See Item 6. - "Contracts,
Arrangements, Understandings or Relationships with Respect to the Securities of
the Issuer."
Concurrent with the execution of the above License Termination
Agreement and Employment Agreement, Mr. Panning was named to the Company's Board
of Directors on August 14, 1997. On such date, the Board of Directors authorized
the granting of 10,000 warrants to each Director as annual consideration for
service on the Board. As a result, Mr. Panning was granted 10,000 ten-year
warrants to purchase Common Stock at $0.375 per share.
Mr. Panning may in the future acquire, hold and dispose of shares of
Common Stock or warrants or options for such Common Stock or other securities of
Electropure and such transactions may be in the open market, privately or
directly from Electropure.
Except as set forth above, Mr. Panning does not have any plans or
proposals which may have, which related to or which would result in:
(a) The acquisition by any person of additional securities of
Electropure, or the disposition of securities of Electropure;
(b) An extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving Electropure or any of
its subsidiaries;
(c) A sale or transfer of a material amount of assets of Electropure
or any of its subsidiaries;
(d) Any change in the present Board of Directors or management of
Electropure, including any plans or proposals to change the
number or term of directors or to fill any existing vacancies on
the Board;
(e) Any material change in the present capitalization or dividend
policy of Electropure;
(f) Any other material change in Electropure's business or corporate
structure;
(g) Changes in Electropure's charter, bylaws or instruments,
correspondence thereto or other actions which may impede the
acquisition or control of Electropure by any person;
<PAGE> 5
PAGE 5 OF 9 PAGES
(h) Causing a class of securities of Electropure to be delisted from
a national securities exchange or to cease to be quoted in an
inter-dealer quotation system of a registered national securities
association;
(i) A class of equity securities of Electropure becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934; or
(j) Any action similar to any of those enumerated above.
ITEM 5. INTEREST IN SECURITIES OF ISSUER
(a) Mr. Panning owns the following shares of Electropure:
519,840 shares of Common Stock with one vote per share(1).
Mr. Panning owns beneficially 7.4% of the Common Stock; 10.0% if
all of the warrants described in in Item 6 are exercised. Mr.
Panning owns 6.2% of the voting power of all classes of stock of
Electropure.
(b) Mr. Panning has the sole voting and dispositive power over the
shares he owns.
(c) Since June 2, 1997, Mr. Panning has entered into the following
transactions with regard to Electropure's Common Stock:
On August 14, 1997, Mr. Panning received 50,000 shares of Common
Stock, valued at $2.00 per share, as part of an initial issuance
of shares to the investors of EDI Components ("EDI"), in
accordance with the terms of the License Termination Agreement
entered into between the Company and EDI.
Also on August 14, 1997, pursuant to the terms of a five-year
Employment Agreement entered into with the Company, Mr. Panning
was granted 125,000 ten-years warrants to purchase Common Stock
at $0.28125 per share. Such warrants are exercisable in
increments of 25,000 each year on a cumulative basis.
Concurrent with the execution of the above employment agreement,
Mr. Panning was named to the Company's Board of Directors. On
August 14, 1997, Mr. Panning, along with each of the Company's
Directors, was granted 10,000 ten-year warrants to purchase
Common Stock at $0.375 per share.
On August 22, 1997, Mr. Panning exercised his right to purchase
50,000 shares of the Company's Common Stock at $0.50 per share.
Mr. Panning issued a Full Recourse Promissory Note for the
$25,000 purchase price, secured by the shares,
- --------
(1) Includes warrants for 125,000 shares of Common Stock exercisable at
$0.28125 per share; 10,000 shares exercisable at $1.25 per share; and
10,000 shares exercisable at $0.375 per share.
<PAGE> 6
PAGE 6 OF 9 PAGES
payable once the Company has reimbursed Mr. Panning for wages he
deferred while employed by EDI Components. Of the warrants
exercised, 40,000 had been issued pursuant to the July, 1992
license arrangement between the Company and EDI Components
whereby the Company issued warrants to all EDI investors in
conjunction with their capital investment in that entity. The
balance of 10,000 warrants exercised had been issued to Mr.
Panning in February, 1993 as a bonus for services rendered to the
Company.
The following Warrants are currently exercisable by Mr. Panning:
<TABLE>
<CAPTION>
DATE GRANTED PURCHASE PRICE NO. OF SHARES
------------ -------------- -------------
<S> <C> <C>
12/17/92 $1.25 10,000
08/14/97 $0.375 10,000
08/14/97 $0.28125 125,000
</TABLE>
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE SECURITIES OF THE ISSUER
Pursuant to the transactions described in Item 5 above and the Schedule 13D
filed June 2, 1997, Mr. Panning has the right, until December 17, 2002 to
purchase 10,000 shares of Electropure's Common Stock at $1.25 per share.
Additionally, Mr. Panning has the right, until August 14, 2007 to purchase
10,000 shares of Common Stock at $0.375 per share. Finally, Mr. Panning
currently holds the right to purchase, at $0.28125 each, 125,000 shares of
Common Stock until August 14, 2007, subject to the terms of his Employment
Agreement with the Company.
In addition to the 362,500 shares of Common Stock (valued at $725,000)
issued to the investors of EDI Components (of which Mr. Panning received 50,000
shares) pursuant to the License Termination Agreement described in Item 4 above,
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. Of such Additional Shares, if and when issued by the Company, Mr.
Panning is to receive 33,333, 25,000 and 18,182 shares valued at $99,999,
$100,000 and $100,001, respectively, for a total additional value of $300,000.
If all of the Additional Shares are issued pursuant to the License Termination
Agreement, Mr. Panning will have received 126,515 shares of the Company's Common
Stock valued at $400,000.
On August 14, 1997, the Company entered into a five-year Employment
Agreement (effective 08/05/97) with Mr. 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). In addition to the 125,000 Warrants granted to Mr. Panning
<PAGE> 7
PAGE 7 OF 9 PAGES
pursuant to the Employment Agreement, as described in Items 4 and 5 above, the
terms of such Employment Agreement also provide 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 a the following percentage of his base monthly salary:
<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).
<PAGE> 8
PAGE 8 OF 9 PAGES
ITEM 7. EXHIBITS
10.11.A Subscription Agreement - 07/28/88 *
10.11.B Subscription Agreement - 08/18/88 *
10.11.C Warrants for 10,000 shares (Warrant No. 359 - 12/17/92) *
10.11.D Warrants for 10,000 shares (Warrant No. 372 - 02/25/93) *
10.11.E Warrants for 20,000 shares (Warrant No. E-1008 - 04/20/92) *
10.11.F Warrants for 20,000 shares (Warrant No. E-1021 - 04/20/93) *
10.11.G Stock Right Agreement No. E-1008 - 04/20/92 *
10.11.H Stock Right Agreement No. E-1021 - 04/20/93 *
10.11.I Warrants for 10,000 shares (Warrant No. A-3010 - 08/14/97)
10.11.J Full Recourse Term Note and Security Agreement - 08/22/97
10.47.8 License Termination Agreement dated August 14, 1997 (effective
08/05/97) **
10.47.9 Employment Agreement dated August 14, 1997 (effective
08/05/97), including exhibits thereto, particularly Warrant
No. A-3001 (08/14/97) to purchase 125,000 shares. **
- --------------
* Previously filed in connection with Schedule 13D filed on June 2, 1997 by
the Reporting Person.
** Previously filed in connection with Issuer's Form 10-QSB for
the fiscal quarter ended July 31, 1997.
<PAGE> 9
PAGE 9 OF 9 PAGES
SIGNATURES
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this Amendment No. 1 to Schedule 13D
is true, complete and correct.
Dated: August 22, 1997
/S/ FLOYD H. PANNING
----------------------------------
FLOYD H. PANNING
<PAGE> 10
AMENDMENT NO. 1
TO
SCHEDULE 13D
FLOYD H. PANNING
(Name of Reporting Person)
INDEX TO EXHIBITS
-----------------
<TABLE>
<CAPTION>
PAGE
SEQUENTIALLY
NUMBERED
------------
<C> <S> <C>
10.11.I Warrants for 10,000 shares (Warrant No. A-3010 - 08/14/97)
10.11.J Full Recourse Term Note and Security Agreement - 08/22/97
</TABLE>
<PAGE> 1
EXHIBIT 10.11.I; PAGE 1
WARRANT NO. A-3010
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 HOH WATER
TECHNOLOGY CORPORATION THAT AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
--------------------------------
WARRANT TO PURCHASE COMMON STOCK
OF
HOH WATER TECHNOLOGY CORPORATION
--------------------------------
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 HOH WATER TECHNOLOGY CORPORATION, a California corporation
("Company"), Ten Thousand (10,000) 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 from the date hereof until 5:00 P.M.
Los Angeles City Time on August 14, 2007 (the "Exercise Period") at an initial
exercise price equal to $0.375 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."
(A) EXERCISE OF WARRANT. This Warrant may be exercised in
whole or in part at any time during the Exercise Period, and during the Exercise
Period 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
seven (7) 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
<PAGE> 2
EXHIBIT 10.11.I; PAGE 2
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.
(B) 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.
(C) 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
(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.
(D) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, 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, execute and deliver a new
Warrant I 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
<PAGE> 3
EXHIBIT 10.11.I; PAGE 3
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.
(E) 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.
(F) 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 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 F 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
<PAGE> 4
EXHIBIT 10.11.I; PAGE 4
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.
(G) 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 A 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.
(H) 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 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.
(I) 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
<PAGE> 5
EXHIBIT 10.11.I; PAGE 5
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 I 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 F 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.
HOH WATER TECHNOLOGY CORPORATION
By /S/ CATHERINE PATTERSON
---------------------------------
Catherine Patterson
Corporate Secretary
<PAGE> 6
EXHIBIT 10.11.I; PAGE 6
PURCHASE FORM NO. A-3010
------------------------
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> 7
EXHIBIT 10.11.I; PAGE 7
ASSIGNMENT FORM NO. A-3010
--------------------------
FOR VALUE RECEIVED, _______________________________________________ (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> 8
EXHIBIT 10.11.J; PAGE 1
FULL RECOURSE
TERM NOTE AND SECURITY AGREEMENT
$25,000.00 SAN CLEMENTE, CA
AUGUST 22, 1997
FLOYD H. PANNING, an individual, residing at 317 Calle Chueca, San Clemente, CA
("Buyer"), and ELECTROPURE, INC., a California corporation, with its principal
office located at 23251 Vista Grande, Suite A, Laguna Hills, CA ("Seller"),
agree as follows:
- --------------------------------------------------------------------------------
SECTION 1: VALUE AND EFFECTIVE DATE OF NOTE
- --------------------------------------------------------------------------------
1.1 VALUE This Full Recourse Term Note and Security Agreement (the "Note" or
"Agreement") evidences indebtedness incurred by Buyer for the purchase from
Seller, upon the exercise of options and warrants of 50,000 shares of the Common
Stock of Electropure, Inc. (the "Shares") as of the Effective Date hereof. The
total purchase price for such Shares equals Twenty Five Thousand Dollars
($25,000.00).
The Value of this Note shall be the unpaid amount due Seller on the
above purchase price in the sum of TWENTY FIVE THOUSAND DOLLARS ($25,000.00).
1.2 EFFECTIVE DATE The Effective Date of this Note shall be August 22, 1997.
- --------------------------------------------------------------------------------
SECTION 2: PAYMENTS AND PREPAYMENTS
- --------------------------------------------------------------------------------
2.1 PAYMENTS Subject to the terms of Section 4 hereof and subject to the terms
of that certain Employment Agreement executed by and between the parties on or
about August 5, 1997, Buyer hereby unconditionally and absolutely promises to
pay to the Seller, upon presentation and surrender of this Note, the sum of
TWENTY FIVE THOUSAND DOLLARS ($25,000.00), in lawful money of the United States,
at such time as Seller has paid all deferred wages due Buyer pursuant to
Paragraph 3(J) of said Employment Agreement (the "Maturity Date"), the terms of
which are incorporated herein by reference. Accrued interest shall be paid on
the Maturity Date in accordance with the terms set forth in Section 3 hereof.
All payments and prepayments shall be made in immediately available funds to
Seller at 23251 Vista Grande, Suite A, Laguna Hills, CA 92653 or at such other
location as Seller may designate from time to time.
2.2 OPTIONAL PREPAYMENT Buyer may, from time to time, upon at least three days'
prior written notice to Seller, prepay this Note in whole or in part without
premium or penalty, provided that any prepayment shall first be applied to
interest accrued, if any, on unpaid amounts due Seller hereunder.
1
<PAGE> 9
EXHIBIT 10.11.J; PAGE 2
- --------------------------------------------------------------------------------
SECTION 3: INTEREST
- --------------------------------------------------------------------------------
3.1 INTEREST The unpaid principal amount from time to time outstanding hereunder
shall bear interest at the minimum interest rate permitted, as designated from
time to time by the Internal Revenue Code.
3.2 BASIS OF COMPUTATION Interest shall be computed for the actual number of
days elapsed on the basis of a year consisting of 360 days, including the date
the payment of the Note is due and excluding the date Payment of the Note, or
any portion thereof, is paid.
- --------------------------------------------------------------------------------
SECTION 4: COLLATERAL
- --------------------------------------------------------------------------------
4.1 GRANT OF SECURITY INTEREST
(A) COLLATERAL As security for this Note, Buyer hereby grants to Seller
a continuing security interest in, lien on, and right of set-off against, all of
the 50,000 Shares described in Section 1.1 hereof, hereinafter referred to as
the "Collateral".
(B) GENERAL PROVISIONS REGARDING COLLATERAL This Note shall be secured
by all of the Collateral, and this Note, on the Effective Date hereof, shall
constitute the grant of a security interest in such Collateral. Seller may
exchange, waive, or release any of the Collateral and Seller agrees that the
grant of such security interest shall in no way encumber Buyer from selling the
Collateral; provided, however, that any sale of the Collateral by Buyer shall
accelerate the Maturity Date of this Note and all principal and interest accrued
thereon shall immediately become due and payable to Seller. Following the
occurrence of any Default or Event of Default which has not been cured by Buyer
in accordance with the provisions set forth in Section 6.3 hereof (an "Uncured
Default") Seller may:
(1) Apply Collateral and direct the order or manner of sale thereof
as he may determine; and
(2) Settle, compromise, collect, or otherwise liquidate the
Collateral in any manner, all without affecting Seller's right to
take any other action with respect to collection of this Note.
4.2 PERFECTION AND PROTECTION OF SECURITY INTEREST Buyer shall, at his expense,
promptly perform all steps requested by Seller at any time to perfect, maintain,
protect, and enforce the liens and security interest granted to Seller hereunder
("Seller's Liens") including, without limitation: (a) executing and filing
financing or continuation statements and amendments thereof, in form and
substance satisfactory to Seller; (b) delivering to Seller the originals of all
instruments, documents, and chattel paper, and all other Collateral of which
Seller determines he should have physical possession in order to perfect and
protect Seller's security
2
<PAGE> 10
EXHIBIT 10.11.J; PAGE 3
interest therein, duly endorsed or assigned to Seller without restriction; (c)
placing notations on such of Buyer's books of account to disclose Seller's
security interest; and (d) taking such other steps as are deemed necessary or
desirable by Seller to maintain and protect Seller's Liens. To the extent
permitted by applicable law, Seller may file, without the applicable signature
of Buyer, one or more financing statements disclosing Seller's Liens. Buyer
agrees that a carbon, photographic, photostatic, or other reproduction of this
Agreement or of a financing statement is sufficient as a financing statement.
Buyer shall, if requested, provide Seller with an executed UCC-1 Financing
Statement in recordable form.
4.3. TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL Buyer represents and
warrants to Seller and agrees with Seller that: (a) at the time of execution of
this Full Recourse Term Note and Security Agreement, all of such Collateral is
owned by Buyer free and clear and is not subject to any prior Lien; (b) Buyer
will use, store and maintain the Collateral with all reasonable care and will
use the Collateral for lawful purposes only; and (c) Buyer will not, without
Seller's prior written approval, sell, or dispose of or permit the sale or
disposition of any Collateral.
4.4 ACCESS AND EXAMINATION Seller may at all reasonable times, upon notice to
Buyer, (and at any time when a Default or Event of Default exists) have access
to, examine, audit, make extracts from or copies of and inspect any or all of
Buyer's records, files, and books of account pertaining to the Collateral.
4.5 SELLER'S RIGHT (NOT DUTY) TO CURE BUYER'S DEFAULT(S) Seller may, in his
discretion and at any time, for Buyer's account and at Buyer's expense, remedy
or cure any Uncured Default, pay any amount, reserve, protect, maintain or
enforce Buyer's rights in and to the Collateral or Seller's Liens therein which
Buyer fails to pay or do, including, without limitation, payment of any other
Lien upon or with respect to the Collateral. All payments that Seller makes
under this section and all out-of-pocket costs and expenses, including without
limitation Seller's reasonable attorneys' fees and expenses, that Seller pays or
incurs in connection with any action taken by him hereunder shall be charged as
Additional Value under this Full Recourse Term Note and Security Agreement. Any
payment made or other action taken by Seller under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
thereafter as herein provided.
4.6 POWER OF ATTORNEY Buyer hereby appoints Seller and Seller's designees as
Buyer's attorney-in-fact, with power WHEN AN UNCURED DEFAULT EXISTS: (a) to
endorse Buyer's name on any checks, notes, acceptances, money orders, or other
forms of payment or security that come into Seller's possession with regard to
the Collateral; (b) to notify the post office authorities, when an Uncured
Default exists and only with regard to the Collateral, to change the address for
delivery of Buyer's mail to an address designated by Seller and to receive, open
and dispose of all mail addressed to Buyer; and (c) to do all things necessary
to carry out this Agreement; PROVIDED, HOWEVER, THAT SUCH POWER OF ATTORNEY
SHALL ONLY BE EFFECTIVE UPON THE EXISTENCE OF AN UNCURED DEFAULT. Subject to
that restriction only, Buyer ratifies and approves all acts of such attorney.
Neither Seller, his attorneys, nor their agents will be liable for
3
<PAGE> 11
EXHIBIT 10.11.J; PAGE 4
any acts or omissions or for any error of judgment or mistake of fact or law.
This power, being coupled with an interest, is irrevocable until this Note has
been fully satisfied and terminated.
4.7 SELLER'S RIGHTS, DUTIES AND LIABILITIES Buyer assumes all responsibility and
liability arising from or relating to the use, sale or other disposition of the
Collateral. Neither the Seller, nor any of his agents shall be liable or
responsible in any way for the safekeeping of any of the Collateral, or for any
act or failure to act with respect to the Collateral, or for any loss or damage
thereto, or for any diminution in the value thereof, or for any act of default
of any other person whomsoever, all of which shall be at Buyer's sole risk;
PROVIDED, HOWEVER, that Seller shall be responsible for the safekeeping of
Collateral consisting of certificates representing Shares of capital stock
pledged and delivered to Seller by Buyer. This Full Recourse Term Note and
Security Agreement shall not be affected by any failure of Seller to take any
steps to perfect Seller's Liens or to collect or realize upon the Collateral,
nor shall loss of or diminution in the value of the Collateral release Buyer
from its liability under this Full Recourse Term Note and Security Agreement.
Seller may, UPON THE EVENT OF AN UNCURED DEFAULT, without notice to or consent
from Buyer, sue upon or otherwise collect, extend the time for payment of,
modify or amend the terms of, compromise or settle for cash, credit or otherwise
upon any terms, grant other indulgences, extensions, renewals, compositions, or
releases, and take or omit to take any other action with respect to the
Collateral, any security therefor, any agreement relating thereto, any insurance
applicable thereto, or any person liable directly or indirectly in connection
with any of the foregoing, without discharging or otherwise affecting the
liability of Buyer for this Full Recourse Term Note and Security Agreement or
under this Agreement.
- --------------------------------------------------------------------------------
SECTION 5: REPRESENTATIONS AND WARRANTIES
- --------------------------------------------------------------------------------
5.1 PERSONAL OBLIGATION It is expressly understood that this Note is solely a
personal obligation of Buyer.
5.2 LIENS At the time of execution of this Full Recourse Term Note and Security
Agreement, none of the Collateral is subject to any mortgage, pledge, title
retention lien, or other lien, encumbrance or security interest.
- --------------------------------------------------------------------------------
SECTION 6: DEFAULT
- --------------------------------------------------------------------------------
6.1 EVENTS OF DEFAULT Each of the following occurrences is hereby defined as an
"Event of Default":
(A) Buyer shall fail to make any payment of principal, interest, or other
amounts payable hereunder when and as due; or
(B) Buyer files a voluntary petition in bankruptcy or makes an assignment
for the benefit of creditors, or Buyer consents to the appointment of a trustee
or receiver; or
4
<PAGE> 12
EXHIBIT 10.11.J; PAGE 5
(C) A trustee or receiver is appointed for Buyer's properties and the
appointment is not dismissed or stayed within sixty (60) days thereafter; or
(D) Buyer shall fail to comply with any provision of this Agreement, which
failure does not otherwise constitute an Event of Default, and such failure
shall continue for thirty days after notice thereof to Buyer by Seller or any
other holder of this Full Recourse Term Note and Security Agreement.
6.2 NOTICE OF DEFAULT Immediately upon learning of the occurrence of any Event
of Default, Buyer shall provide Seller with written notice describing the same
and the steps being taken by Buyer affected in respect thereof.
6.3 CURE OF DEFAULT Upon the occurrence of any Event of Default(s), Buyer shall
have thirty (30) days from the date Notice thereof is received by Buyer within
which to effect a cure of such Default(s).
6.4 WAIVER OF DEFAULT Seller may, in his sole and absolute discretion, by
written notice to Buyer, at any time and from time to time, waive any Event of
Default, which shall be for such period and subject to such conditions as shall
be specified in any such notice. In the case of any such waiver, Seller and
Buyer shall be restored to their former positions and rights hereunder and under
the Note, respectively, and any Event of Default so waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to or impair any right
consequent thereon or to any subsequent or other Event of Default.
6.5 SECURITIES ACT OF 1933 Buyer and Seller both recognize that, by reason of
certain prohibitions contained in the Securities Act of 1933, as from time to
time amended (the "Securities Act"), and applicable state securities laws, the
Seller may be compelled, with respect to any sale of all or any part of the
Collateral conducted without prior registration or qualification of such
Collateral under the Securities Act and/or such state securities laws, to limit
purchasers to those who will agree, among other things, to acquire the
Collateral for their own account, for investment and not with a view to the
distribution or resale thereof. Buyer and Seller both acknowledge that any such
private sales may be at prices and on terms less favorable to the Seller than
those obtainable through a public sale without such restrictions (including,
without limitation, a public offering made pursuant to a registration statement
under the Securities Act) and, notwithstanding such circumstances, Buyer agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Seller shall have no obligation to engage in
public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the issuer thereof to register it for a form
of public sale requiring registration under the Securities Act or under
applicable state securities laws.
- --------------------------------------------------------------------------------
SECTION 7: MISCELLANEOUS
- --------------------------------------------------------------------------------
7.1 NOTICES All notices, requests and demands to or upon the respective parties
hereto shall be in writing and shall be deemed to have been given or made
5
<PAGE> 13
EXHIBIT 10.11.J; PAGE 6
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 Seller to: Electropure, Inc.
23251 Vista Grande, Suite A
Laguna Hills, CA 92653
(B) If to Buyer to: Floyd H. Panning
317 Calle Chueca
San Clemente, CA 92673
or to such other address as may be hereafter designated in writing by the
respective parties hereto.
7.2 NONWAIVER; CUMULATIVE REMEDIES No failure to exercise, and no delay in
exercising, on the part of Seller or Buyer, any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege by such party. The rights and remedies of
Seller and Buyer, respectively, herein provided are cumulative and not exclusive
of any rights or remedies provided by law.
7.3 SURVIVAL OF AGREEMENTS All agreements, representations and warranties made
herein shall survive the delivery of this Note.
7.4 SUCCESSORS This Agreement shall, upon execution and delivery by Buyer, and
acceptance by Seller, become effective and shall be binding upon and inure to
the benefit of Seller, Buyer and their respective successors and assigns. Except
as otherwise provided herein, Buyer may not transfer or assign any of its rights
to interest hereunder without the prior written consent of Seller. Furthermore,
Seller agrees that he shall not sell or assign any of his rights or obligations
hereunder to any third party without the prior written consent of Buyer, which
consent shall not be unreasonably withheld.
7.5 CAPTIONS Captions in this Agreement are for convenience of reference only
and shall not define or limit any of the terms or provisions hereof. References
herein to Sections or provisions without reference to the document in which they
are contained are references to this Agreement.
7.6 SINGULAR AND PLURAL Unless the context requires otherwise, wherever used
herein the singular shall include the plural and vice versa, and the use of one
gender shall also denote the others where applicable.
7.7 CONSTRUCTION This Agreement and any document or instrument executed in
connection herewith shall be governed by, and construed and interpreted in
accordance with, the internal laws of the State of California.
6
<PAGE> 14
EXHIBIT 10.11.J; PAGE 7
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first written above.
"SELLER" "BUYER"
ELECTROPURE, INC.
By /S/ CATHERINE PATTERSON By /S/ FLOYD H. PANNING
-------------------------------- ---------------------------------
CATHERINE PATTERSON FLOYD H. PANNING
Chief Financial Officer
7
