<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
-------------------
FOR QUARTER ENDED MARCH 31, 2000 COMMISSION FILE NO. 001-15567
PROBEX CORP.
(Exact name of registrant as specified in charter)
COLORADO 33-0294243
- ---------------------------- --------------------------------
(State or other Jurisdiction (IRS Employer Identification No.)
of Incorporation)
1467 LEMAY, SUITE 111, CARROLLTON, TEXAS 75007
- ---------------------------------------- --------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (972) 466-1555
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
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
--- ---
As of May 5, 2000, there were 22,504,658 shares of common stock, no par value,
of the registrant issued and outstanding.
Transitional Small Business Disclosure Format (check one)
YES X NO
--- ---
<PAGE> 2
PROBEX CORP.
MARCH 31, 2000
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited) as of
March 31, 2000 and September 30, 1999......................1
Consolidated Statements of Operations (unaudited) for the
three months ended March 31, 2000 and 1999 and the period
from April 1, 1988 (Inception) to March 31, 2000...........3
Consolidated Statements of Operations (unaudited) for the
six months ended March 31, 2000 and 1999 and the period
from April 1, 1988 (Inception) to March 31, 2000...........4
Consolidated Statements of Stockholders' Equity
(unaudited) for the period from April 1, 1988 (Inception)
to March 31, 2000..........................................5
Consolidated Statements of Cash Flows (unaudited) for the
six months ended March 31, 2000 and 1999 and the period
from April 1, 1988 (Inception) to March 31, 2000..........16
Notes to Consolidated Financial Statements (unaudited)....17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................36
PART II OTHER INFORMATION
Item 1. Legal Proceedings.........................................40
Item 2. Changes in Securities and Use of Proceeds.................40
Item 3. Defaults Upon Senior Securities...........................41
Item 4. Submission of Matters to a Vote of Security Holders.......41
Item 5. Other Information.........................................41
Item 6. Exhibits and Reports on Form 8-K..........................41
SIGNATURES..................................................................43
</TABLE>
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash in banks $ 4,443,407 $ 2,658,055
Receivables 31,572 8,708
Prepaid expense 57,482 13,687
----------- -----------
Total Current Assets 4,532,461 2,680,450
----------- -----------
PROPERTY AND EQUIPMENT
Lab and research equipment 1,865,742 892,850
Leasehold Improvements 69,769 66,489
Other 200,628 157,346
----------- -----------
2,136,139 1,116,685
----------- -----------
Accumulated depreciation and amortization (432,577) (324,301)
----------- -----------
Total Property and Equipment 1,703,562 792,384
----------- -----------
INTANGIBLE ASSETS - PATENTS (net of accumulated amortization of 94,716 15,149
$899 as of March 31, 2000 and $0 as of September 30, 1999)
RESTRICTED CASH -- 190,142
OTHER ASSETS 2,938 2,938
----------- -----------
Total Assets $ 6,333,677 $ 3,681,063
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
1
<PAGE> 4
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
2000 1999
----------- -------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 71,452 $ 287,764
Promissory note 750,000 750,000
Accrued expenses 759,342 263,581
----------- -----------
Total Current Liabilities 1,580,794 1,301,345
----------- -----------
LONG-TERM LIABILITIES
Obligations under capital leases 15,080 20,361
----------- -----------
Total Long-Term Liabilities 15,080 20,361
----------- -----------
Total Liabilities 1,595,874 1,321,706
----------- -----------
COMMITMENTS AND CONTINGENCIES -- --
STOCKHOLDERS' EQUITY
Series A 10% Cumulative Convertible Preferred Stock, no par
value, authorized 10,000,000 shares:
issued and outstanding- 529,000 at Mar. 31, 2000 and None at Sep. 30, 1999 4,574,412 --
subscribed not issued - 6,000 at Mar. 31, 2000 and 190,000 at Sep. 30, 1999 60,000 1,608,227
Common Stock, no par value, authorized 50,000,000 shares:
Issued and outstanding-21,124,444 at Mar 31, 2000 and 18,932,029 at Sep 30, 1999 8,715,331 7,329,260
Subscribed not issued-524,606 at Mar. 31, 2000 and 2,011,388 at Sep. 30, 1999 1,305,321 1,316,600
Deferred Stock Expense (3,125) (5,209)
Deficit Accumulated During Development Stage (9,913,509) (7,889,521)
Less: Treasury Stock (common: 62,690 shares at March 31, 2000
and None at September 30, 1999) at cost (627) --
----------- -----------
Total Stockholders' Equity 4,737,803 2,359,357
Total Liabilities and Stockholders' Equity $ 6,333,677 $ 3,681,063
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
2
<PAGE> 5
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
(INCEPTION) TO
THREE MONTHS ENDED MARCH 31, MARCH 31,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ 86,729
COST OF REVENUE -- -- 173,493
----------- ----------- -----------
GROSS LOSS -- -- (86,764)
OPERATING EXPENSES
Salaries and wages 177,558 43,554 1,368,364
Research and development 387,447 240,641 3,363,496
Stock compensation expense 1,042 34,675 455,987
Stock services expense 7,013 15,000 417,990
Consulting fees 11,931 -- 164,836
Legal fees 82,260 4,000 411,476
Directors fees -- -- 591
Accounting fees 6,792 9,900 165,210
Insurance 38,080 19,345 304,059
Payroll taxes 15,829 4,288 102,466
Travel and entertainment 65,965 7,834 451,746
Telephone 23,724 10,675 197,910
Vehicle expenses 2 1,552 6,011
Office supplies 20,597 7,158 170,838
Rent 15,636 9,303 154,606
Depreciation 13,764 7,509 90,230
Marketing services 57,889 -- 144,400
Stock Exchange Fees 46,314 738 64,120
Utilities 4,169 3,502 45,337
Miscellaneous 106,337 10,901 453,432
----------- ----------- -----------
Loss from Operations 1,082,349 430,575 8,619,869
----------- ----------- -----------
OTHER INCOME AND EXPENSE
Stock financing expense -- -- (720,321)
Loss on sale of land -- -- (47,109)
Loss on sale of property and equipment -- -- (158,797)
Interest expense (28,786) (28,034) (255,363)
Miscellaneous income 69,983 (733) 119,876
----------- ----------- -----------
Total Other Income and (Expense) 41,197 (28,767) (1,061,714)
----------- ----------- -----------
NET LOSS $(1,041,152) $ (459,342) $(9,681,583)
=========== =========== ===========
NET LOSS PER SHARE $ (0.05) $ (0.03)
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
3
<PAGE> 6
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
(INCEPTION) TO
THREE MONTHS ENDED MARCH 31, MARCH 31,
2000 1999 2000
----------- ----------- -----------
<S> <C> <C> <C>
REVENUE $ -- $ -- $ 86,729
----------- ----------- -----------
COST OF REVENUE -- -- 173,493
----------- ----------- -----------
GROSS LOSS -- -- (86,764)
OPERATING EXPENSES
Salaries and wages 350,326 91,998 1,368,364
Research and development 701,402 590,508 3,363,496
Stock compensation expense 2,084 48,217 455,987
Stock services expense 7,563 15,000 417,990
Consulting fees 28,152 -- 164,836
Legal fees 92,440 9,930 411,476
Directors fees -- -- 591
Accounting fees 19,484 11,045 165,210
Insurance 81,192 32,324 304,059
Payroll taxes 29,521 7,737 102,466
Travel and entertainment 111,577 31,898 451,746
Telephone 39,328 21,639 197,910
Vehicle expenses 2 1,552 6,011
Office supplies 42,604 11,585 170,838
Rent 35,829 18,816 154,606
Depreciation 25,915 15,140 90,230
Marketing services 85,923 -- 144,400
Stock Exchange Fees 48,652 1,275 64,120
Utilities 6,647 8,148 45,337
Miscellaneous 151,868 19,826 453,432
----------- ----------- -----------
Loss from Operations 1,860,509 936,638 8,619,869
----------- ----------- -----------
OTHER INCOME AND EXPENSE
Stock financing expense -- -- (720,321)
Loss on sale of land -- -- (47,109)
Loss on sale of property and equipment -- -- (158,797)
Interest expense (57,480) (48,367) (255,363)
Miscellaneous income 108,801 4,614 119,876
----------- ----------- -----------
Total Other Income and (Expense) 51,321 (43,753) (1,061,714)
----------- ----------- -----------
NET LOSS $(1,809,188) $ (980,391) $(9,681,583)
=========== =========== ===========
NET LOSS PER SHARE $ (0.09) $ (0.07)
=========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
4
<PAGE> 7
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------- Deferred
Shares/Units Shares/Units Stock
Issued Subscribed Amount Expense
------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net loss for the period April 1, 1988 (Inception)
to September 30, 1988 -- $ -- $ --
Shares/Units issued:
Units issued August 1988 - $.000133 per share 27,500,000 3,667
Shares issued September 1988 - $.001 per share 10,000,000 10,000
Shares/Units subscribed but not paid or issued:
Units subscribed August 1988 - $.000133 per share 7,500,000 1,000
Shares subscribed September 1988 - $.001 per share 2,000,000 2,000
Net loss for the year ended September 30, 1989
Shares/Units Issued:
Issued June 1989 - subscribed at Sept 30, 1988 9,500,000 (9,500,000)
Units Issued June 1989 - $.01 per share - public offering 30,000,000 300,000
Stock offering costs from public offering (58,440)
Net loss for the year ended September 30, 1990
Shares Issued / Sold:
Issued for acquisition of subsidiary - December 1989 308,000,000
Sold for divestiture of subsidiary - September 1990 (308,000,000)
Activity for the year ended September 30, 1991
Net loss for the year ended September 30, 1992
Net income for the year ended September 30, 1993
<CAPTION>
Deficit
Accumulated
During Total
Development Stockholders'
Stage Equity
----------- --------------
<S> <C> <C>
Net loss for the period April 1, 1988 (Inception)
to September 30, 1988 $ (14) $ (14)
Shares/Units issued:
Units issued August 1988 - $.000133 per share 3,667
Shares issued September 1988 - $.001 per share 10,000
Shares/Units subscribed but not paid or issued:
Units subscribed August 1988 - $.000133 per share 1,000
Shares subscribed September 1988 - $.001 per share 2,000
Net loss for the year ended September 30, 1989 (5,707) (5,707)
Shares/Units Issued:
Issued June 1989 - subscribed at Sept 30, 1988 --
Units Issued June 1989 - $.01 per share - public offering 300,000
Stock offering costs from public offering (58,440)
Net loss for the year ended September 30, 1990 (253,512) (253,512)
Shares Issued / Sold:
Issued for acquisition of subsidiary - December 1989 --
Sold for divestiture of subsidiary - September 1990 --
Activity for the year ended September 30, 1991 --
Net loss for the year ended September 30, 1992 (848) (848)
Net income for the year ended September 30, 1993 889 889
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
5
<PAGE> 8
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
-------------------------------------- Deferred During Total
Shares/Units Shares/Units Stock Development Stockholders'
Issued Subscribed Amount Expense Stage Equity
------------ ------------ -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Shares/Units Issued/Split:
Shares issued August 1993 - $.00003
per share for cash 308,000,000 8,000 8,000
Shares/Units - reverse stock split - 200
for 1 - Sept 1993 (383,075,000) --
Net loss for the year ended September 30, 1994 (401,897) (401,897)
Shares/Units Issued / Split:
Shares/Units - reverse stock split - 3.20834
for 1 - Jan. 1994 (1,323,352) --
Shares issued for technology license March 1994 9,950,000 --
Units issued in private placement - $0.92
per unit
Issued March 1994 642,500 591,100 591,100
Issued April 1994 45,000 41,400 41,400
Issued May 1994 322,391 296,600 296,600
Issued July 1994 22,500 20,700 20,700
Issued August 1994 97,500 89,700 89,700
Stock offering costs for private placement (134,413) (134,413)
Shares Issued:
Issued for directors fees - July 1995 - $0.033
per share
- no cash and basis is average book value 300,000 9,900 9,900
Issued for financial advisory services - Sept.
1995 - $0.033 per share
- no cash and basis is average book value 46,995 1,551 1,551
Stock offering costs from private placement in 1994 (5,635) (5,635)
Stock offering costs from Convertible Notes private
placement - 1995 (22,000) (22,000)
Net loss for the year ended September 30, 1995 (413,655) (413,655)
Shares Issued:
Issued for employee services - Oct. '95/Apr. '96
- $0.013 per share
- - no cash and basis is average book value 556,627 7,236 7,236
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
6
<PAGE> 9
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
-------------------------------------- Deferred During Total
Shares/Units Shares/Units Stock Development Stockholders'
Issued Subscribed Amount Expense Stage Equity
------------ ------------ -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issued for financial advisory fees -
Oct. '95/May-Aug '96 - $0.013 per share
- no cash and basis is average book value 72,333 940 940
Issued for consulting services - Nov. 1995
- $0.013 per share
- no cash and basis is average book value 5,000 65 65
Issued for compensation to officers - Feb.
1996 - $0.013 per share
- no cash and basis is average book value 500,000 6,500 6,500
Issued for extension of payable terms - Apr.
1996 - $0.013 per share
-no cash and basis is average book value 50,000 650 650
Issued by Transfer Agent in Error - Mar./
Apr. 1996 70,667 --
Issued for conversion of 12% Aug. 1995
Notes - May 1996 494,670 371,000 371,000
Subscribed for conversion of 12% Aug. 1995
Notes - Mar. 1996 7,067 5,300 5,300
Issued for independent. contractor services
- Mar./Apr - Aug'96
- $0.013 per Share - no cash and basis is
average book value 39,090 508 508
Stock offering costs from Convertible Notes
private placement -1995 (26,690) (26,690)
Net loss for the year ended September 30, 1996 (931,610) (931,610)
Shares Issued:
Issued for employee services - Dec.1996 -
$0.013 per share
- no cash and basis is average book value 125,000 1,625 1,625
Issued for directors services - Dec. 1996
- $0.013 per share
- no cash and basis is average book value 579,720 7,536 7,536
Issued for consulting services - Oct. '96/Dec.
'96 - $0.013 per share
- no cash and basis is average book value 66,947 870 870
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
7
<PAGE> 10
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
---------------------------------- Deferred During Total
Shares/Units Shares/Units Stock Development Stockholders'
Issued Subscribed Amount Expense Stage Equity
------------ ------------ -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issued for consulting services -
Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 14,171 3,543 3,543
Units issued from conversion of warrants/new offer
- $0.25 per share Issued Jan-Mar 1997 470,000 117,500 117,500
Issued for employee services -
Jan.1997 - $0.25 per share
- no cash and basis is recent stock offerings 200,000 50,000 50,000
Issued for employee services -
Jan.1997 - $0.25 per share - no cash and basis
is recent stock offerings - vested over 2 yrs 400,000 100,000 (64,583) 35,417
Issued for loan extension -
Feb, 1997 - $0.25 per share
- no cash and basis is recent stock offerings 6,813 1,703 1,703
Issued for loan extension -
Feb, 1997 - $0.25 per share
- no cash and basis is recent stock offerings 500,000 107,660 107,660
Issued for stock that was subscribed
- Apr 1997 - from Mar 1996 - no cash
as the cash was received previously 7,067 (7,067) --
Subscribed from conversion of warrant/
new stock offer - Apr. 1997 190,000 47,500 47,500
Issued from conversion of warrants/
new offer - $0.25 per share
Issued Apr-Jun 1997 632,067 159,018 159,018
Issued for loan extension -
12% Notes Payable - $0.25 per share
Issued Apr-Jun 1997 197,564 49,391 49,391
Issued for consulting services
- Apr.-Jun. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 553,000 138,250 138,250
Issued for conversion of 12% Jun.'96
Notes-May 1997-$0.25 per share
- no cash and basis is recent stock offerings 724,702 180,175 180,175
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
8
<PAGE> 11
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
---------------------------------- Deferred During Total
Shares/Units Shares/Units Stock Development Stockholders'
Issued Subscribed Amount Expense Stage Equity
------------ ------------ -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Issued for employee services - May 1997 -
$0.25 per share - no cash and basis is recent
stock offerings 52,183 13,046 13,046
Issued for conversion of 10% Mar.'96
Note-May 1997-$0.11 per share
Issued May 1997 - basis is agreed upon price 304,545 33,499 33,499
Issued for stock offering - $0.11 per share
Issued May 1997 - basis is agreed upon price 1,219,996 130,000 130,000
Issued for conversion-deferred compensation
for three officers - $0.11 per unit -
no cash and basis is recent stock offerings 1,908,631 201,668 201,668
Stock offering costs (5,251) (5,251)
Issued for stock that was subscribed -
Jul 1997 - from Jun 1997
- no cash as the cash was received previously 190,000 (190,000) --
Issued for consulting services -
Jul. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 52,500 13,125 13,125
Issued from conversion of warrants/
new offer - $0.25 per share
Issued Jul-Sep 1997 1,193,000 298,250 298,250
Cancelled that were issued by Transfer Agent
in Error - Mar. / Apr. 1996 (70,667) --
Issued for conversion of 12% Jul / Aug.'96
Note-Sep 1997-$0.20 per Share issued
Sep 1997 - basis is agreed upon price 538,300 107,660 107,660
Issued for conversion of 12% Notes Payable-
Apr 1996 - $0.25 per Share issued
Sep 1997 - basis is recent stock offerings 185,865 46,466 46,466
Cancelled for liquidation -
Probex Technologies, L.P. - issued Mar 1994 (9,860,000) --
Issued for liquidation of Probex Technologies, L.P.
- to partners of L.P. 7,610,692 --
Subscribed from conversion of warrant/
new stock offer Sep 1997-$0.25
Per share 1,682,218 398,554 398,554
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
9
<PAGE> 12
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Deficit
Common Stock Accumulated
-------------------------------------- Deferred During Total
Shares/Units Shares/Units Stock Development Stockholders'
Issued Subscribed Amount Expense Stage Equity
------------ ------------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Subscribed from conversion of 12%
Jun'96 Notes - Sep. 1997
- no cash and basis is recent stock offerings 100,625 25,156 25,156
Subscribed from conversion of 12% Notes Payable-
Apr 1996 -$0.25 per share
- no cash and basis is recent stock offerings 56,009 14,002 14,002
Subscribed from conversion of loan from officer -
Sep 1997 -$0.25 per share
- no cash and basis is recent stock offerings 53,389 13,347 13,347
Subscribed from conversion of 10%
Note - Mar 1996 -$0.25 per share
Issued Sep 1997 - no cash and basis is recent stock
offerings 23,104 5,777 5,776
Net loss for the twelve months ended September 30, 1997 (1,293,542) (1,293,542)
------------ ------------ ----------- ---------- ----------- ----------
BALANCE AT SEPTEMBER 30, 1997 21,619,017 1,915,344 $ 3,780,709 $ (64,583) $(3,299,896) $ 416,230
============ ============ =========== ========== =========== ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
10
<PAGE> 13
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
------------ ------------ ---------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 - CONTINUED 21,619,017 1,915,344 3,780,709
Issued for stock that was subscribed - Sep'97, issued
Oct 1997 - no cash as the cash was received previously 1,915,344 (1,915,344)
Issuedfor stock that was subscribed - Sep'97, issued Oct
1997 - no cash as the cash was received previously 12,001
Issued for consulting services - Jul. 1997 - $0.25 per
share - no cash and basis is recent private stock sales 410,130 102,533
Issued for employee services - Dec. 1997 - $0.25 per share
- no cash and basis is recent private stock sales 151,667 37,917
Issued from private stock sale - $0.25 per share - Issued
Jul-Sep'97 327,786 81,947
Subscribed from private stock sale - Dec'97-$0.25 per share 179,952 44,988
---------- ----------
SUB-TOTAL - BALANCE AT DECEMBER 31, 1997 24,435,945 179,952
========== ==========
REVERSE 2 FOR 1 STOCK SPLIT - DECEMBER 1997 / 2 / 2
---------- ---------- ---------
BALANCE AT DECEMBER 31, 1997 12,218,042 89,976 4,048,094
Issued for correction of error - Jan.1998 - post-split
- no cash as the cash was received previously 89,976 (89,976)
Issued from private stock sale - $0.50 per share - Issued
Jan-Mar'98 300,746 154,988
Subscribed from private stock sale - Mar'98-$0.50 per share 93,000 46,500
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
-------- ------------ -------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 - CONTINUED (64,583) $ (3,299,896) $ 416,230
Issued for stock that was subscribed - Sep'97, issued
Oct 1997 - no cash as the cash was received previously --
Issuedfor stock that was subscribed - Sep'97, issued Oct
1997 - no cash as the cash was received previously --
Issued for consulting services - Jul. 1997 - $0.25 per
share - no cash and basis is recent private stock sales 102,533
Issued for employee services - Dec. 1997 - $0.25 per share
- no cash and basis is recent private stock sales 37,917
Issued from private stock sale - $0.25 per share - Issued
Jul-Sep'97 81,947
Subscribed from private stock sale - Dec'97-$0.25 per share 44,988
SUB-TOTAL - BALANCE AT DECEMBER 31, 1997
REVERSE 2 FOR 1 STOCK SPLIT - DECEMBER 1997
------- ------------ --------
BALANCE AT DECEMBER 31, 1997 (64,583) (3,299,896) 683,614
Issued for correction of error - Jan.1998 - post-split
- no cash as the cash was received previously --
Issued from private stock sale - $0.50 per share - Issued
Jan-Mar'98 154,988
Subscribed from private stock sale - Mar'98-$0.50 per share 46,500
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
11
<PAGE> 14
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
------------ ------------ ----------
Issued for stock that was subscribed - Mar 1998, issued Apr 1998
- no cash as the cash was received previously 93,000 (93,000)
Issued from private stock sale - $0.50 per share - Issued Apr-May '98 620,251 310,126
Issued for conversion of 12% Notes Pay-Apr'96 - $0.50 per share
Issued Apr 1998 - basis is recent stock offerings 208,976 104,488
Issued for correction of error - Mar'98 - shares issued at $0.65
instead of $0.50 - no cash as the cash was received previously 9,230
Issued for consulting services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 161,895 68,448
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 162,975 81,488
Issued for employee services - Jun.1998 - $0.50 per share
- no cash and basis is recent stock offerings - vested over 3 yrs 25,002 12,501
Issued from private stock sale - $0.50 per share - Issued Aug 1998 22,000 11,000
Issued for exercise of employee options - Aug'98 - $0.50 per share 52,200 26,100
Issued for loan incentive - Aug. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 50,000 25,000
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 245,411 122,706
Issued for term of anti-dilutive agreement -Sep'98 - $0.80 per share
- no cash and basis is estimated market value 670,709 536,567
Amortization of Deferred Stock Expense
Net loss for the twelve months ended September 30, 1998
---------- ------- ----------
BALANCE AT SEPTEMBER 30, 1998 14,930,413 -- $5,548,004
---------- ------- ----------
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
--------- ----------- -------------
<S> <C> <C> <C>
Issued for stock that was subscribed - Mar 1998, issued Apr 1998
- no cash as the cash was received previously --
Issued from private stock sale - $0.50 per share - Issued Apr-May '98 310,126
Issued for conversion of 12% Notes Pay-Apr'96 - $0.50 per share
Issued Apr 1998 - basis is recent stock offerings 104,488
Issued for correction of error - Mar'98 - shares issued at $0.65
instead of $0.50 - no cash as the cash was received previously --
Issued for consulting services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 68,448
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 81,488
Issued for employee services - Jun.1998 - $0.50 per share
- no cash and basis is recent stock offerings - vested over 3 yrs (10,417) 2,083
Issued from private stock sale - $0.50 per share - Issued Aug 1998 11,000
Issued for exercise of employee options - Aug'98 - $0.50 per share 26,100
Issued for loan incentive - Aug. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 25,000
Issued for employee services - Jun. 1998 - $0.50 per share
- no cash and basis is recent private stock sales 122,706
Issued for term of anti-dilutive agreement -Sep'98 - $0.80 per share
- no cash and basis is estimated market value 536,567
Amortization of Deferred Stock Expense 51,042 51,042
Net loss for the twelve months ended September 30, 1998 (2,157,474) (2,157,474)
--------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1998 $ (23,958) $(5,457,371) $ 66,674
--------- ----------- -----------
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
12
<PAGE> 15
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------------------------------- -----------------------
Shares/Units Shares/Units Shares/Units
Issued Subscribed Amount Subscribed Amount
------------ ------------ ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Issued from private stock sale - Oct-Dec 1998 - $0.50 per share 259,800 129,900
Issued from private stock sale - Jan.- Apr. 1999 - $0.50 per
share 2,728,331 1,364,166
Amortization of Deferred Stock Expense
Issued for employee services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 63,100 31,550
Issued for consulting services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 30,000 65,000
Issued for employee services - Jul - Sep. 1999 - $0.50 per share 334,500 117,250
Issued from private sale - Sep 1999 - $.425 per share 585,885 249,000
Issued from exercise of warrants - Aug. 1999 - $0.75 per share 1,420,800 1,065,600
Private sale to Directors & Officers - Aug. 1999 - $0.425 per
share 590,588 251,000
Common Stock offering costs (175,609)
Issued from private stock sale - Sep. 1999 - $10.00 per share 190,000 1,900,000
Preferred Stock offering costs (291,773)
Preferred Stock dividend accrual
Net loss for the twelve months ended Sep 30, 1999
---------- --------- ---------- ------- ----------
BALANCE AT SEPTEMBER 30, 1999 18,932,029 2,011,388 $8,645,860 190,000 $1,608,227
========== ========= ========== ======= ==========
<CAPTION>
Deficit
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
-------- ----------- ------------
<S> <C> <C> <C>
Issued from private stock sale - Oct-Dec 1998 - $0.50 per share 129,900
Issued from private stock sale - Jan.- Apr. 1999 - $0.50 per
share 1,364,166
Amortization of Deferred Stock Expense 18,749 18,749
Issued for employee services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 31,550
Issued for consulting services - Mar. 1999 - $0.50 per share
- no cash and basis is recent private stock sales 65,000
Issued for employee services - Jul - Sep. 1999 - $0.50 per share 117,250
Issued from private sale - Sep 1999 - $.425 per share 249,000
Issued from exercise of warrants - Aug. 1999 - $0.75 per share 1,065,600
Private sale to Directors & Officers - Aug. 1999 - $0.425 per
share 251,000
Common Stock offering costs (175,609)
Issued from private stock sale - Sep. 1999 - $10.00 per share 1,900,000
Preferred Stock offering costs (291,773)
Preferred Stock dividend accrual (17,123) (17,123)
Net loss for the twelve months ended Sep 30, 1999 (2,415,027) (2,415,027)
------- ---------- -----------
BALANCE AT SEPTEMBER 30, 1999 $(5,209) (7,889,521) $ 2,359,358
======= ========== ===========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
13
<PAGE> 16
PROBEX CORP
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Common Stock Preferred Stock Deficit
------------------------------------ ---------------------- Accumulated
Deferred During Total
Shares/Units Shares/Units Shares/Units Stock Development Stockholders'
Issued Subscribed Amount Subscribed Amount Expense Stage Equity
------------ ------------ -------- ------------ -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issued for stock that was
subscribed - Aug 1999,
issued Oct-Dec 1999
- no cash as the cash
was received previously 1,420,800 (1,420,800) --
Issued for stock that was
subscribed - Aug 1999,
issued Oct 1999
- no cash as the cash
was received previously 590,589 (590,588) --
Issued from exercise of
warrants - Dec 1999 at
$0.75 per share 20,000 15,000 15,000
Issued for consulting
services - Dec 1999 -
$0.01 per share 55,000 550 550
Issued for correction
of error - Jan-Apr 1999
shares issued at $0.50
instead of $0.425
- no cash as the cash
was received previously 7,059 --
Amortization of Deferred
Stock Expense 1,042 1,042
Issued from private stock
sale - Oct-Dec 1999
- $10.00 per share 345,000 3,450,000 3,450,000
Preferred Stock offering
costs - Oct-Dec 1999 (398,657) (398,657)
Preferred Stock dividend
accrual - Dec 1999 (82,789) (82,789)
Net loss for the three
months ended Dec 31, 1999 (768,034) (768,034)
---------- ---------- ---------- -------- ---------- ------- ---------- ----------
BALANCE AT DECEMBER 31, 1999 21,025,477 -- $8,661,410 535,000 $4,659,570 $(4,167) (8,740,343) $4,576,470
========== ========== ========== ======== ========== ======= ========== ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
14
<PAGE> 17
PROBEX CORP
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock Equity
-------------------------------- ------------------------------- Accumulated Total
Shares/ Shares/ Shares/ Shares/ Deferred During Stock-
Units Units Units Units Stock Development Treasury holders'
Issued Subscribed Amount Issued Subscribed Amount Expense Stage Stock Equity
---------- ----------- --------- -------- ----------- --------- --------- ------------ --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1999 21,025,477 -- 8,661,410 -- 535,000 4,659,570 (4,167) (8,740,343) -- 4,576,470
Issued from private
stock sale - Jan
2000 - $2.70 per
share 240,750 650,025 650,025
Issued for stock
that was subscribed
on or before Dec
1999 and then
issued Jan - Mar
2000 - cash received
previously 529,000 (529,000) --
Issued from exercise
of various warrants
- Jan - Mar 2000
- at $0.20 to $3.00
per share 40,000 282,381 672,681 672,681
Issued for consulting
services - Mar
2000 - $1.875 per
share 2,667 1,073 7,013 7,013
Receipt of Probex
stock from
Dissolution of
Probex
Technologies
- Jan 2000 at
$0.01 per share (627) (627)
Amortization of
Deferred Stock
Expense -
Jan - Mar 2000 1,042 1,042
Common Stock
offering costs
- Jan - Mar 2000 (49,530) (49,530)
Preferred Stock
offering costs
- Jan - Mar 2000 (25,158) (25,158)
Preferred Stock
dividend accrual
- Mar 2000 (132,014) (132,015)
Preferred Stock
dividend paid out
in Common Stock
- Mar 2000
- at $1.50 per
share 52,300 402 79,053 79,053
Net loss for the
three months
ended Mar 31,
2000 (1,041,152) (1,041,152)
---------- ------- ----------- ------- -------- ---------- ------- ----------- ----- ----------
BALANCE AT MARCH
31, 2000 21,120,444 524,606 $10,020,652 529,000 6,000 $4,634,412 $(3,125) $(9,913,509) $(627) $4,737,802
========== ======= =========== ======= ======== ========== ======= =========== ===== ==========
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
15
<PAGE> 18
PROBEX CORP.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
(INCEPTION) TO
SIX MONTHS ENDED MARCH 31, MARCH 31,
2000 1999 2000
----------- ------------ -------------
<S> <C> <C> <C>
CASH USED BY OPERATING ACTIVITIES
Net Loss $ (1,809,188) $ (980,391) $ (9,681,583)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation expense 83,259 15,140 153,758
Depreciation expense charged to research and development 25,915 52,743 319,535
Non-cash items in research and development expense -- 196,497 196,497
Non-cash items in other income (627) (627)
Loss on sale of equipment -- -- 155,378
Loss on sale of land -- -- 47,109
Interest expense - not paid 55,723 46,900 224,902
Stock compensation expense 2,084 48,216 442,251
Stock services expense 7,563 15,000 431,726
Stock financing expense -- -- 720,321
Loss on disposition of vehicle -- -- 3,419
Decrease (increase) in receivables (22,864) 4,751 (31,572)
(Increase) in prepaid expense (43,795) -- (57,482)
------------ ------------ ------------
(Decrease) increase in accounts payable and accrued expenses 87,980 (101,941) 817,007
------------ ------------ ------------
Net Cash Used By Operating Activities (1,613,950) (703,085) (6,259,361)
CASH USED BY INVESTING ACTIVITIES
Purchase of property and equipment (1,019,454) (264,730) (2,601,477)
Cost of patent registration (80,466) -- (95,616)
Purchase of land -- -- (178,111)
Proceeds from sale of equipment -- -- 45,000
Proceeds from sale of land -- -- 115,232
------------ ------------ ------------
Net Cash Used By Investing Activities (1,099,920) (264,730) (2,714,972)
------------ ------------ ------------
CASH PROVIDED BY FINANCING ACTIVITIES
(Decrease) increase in capital lease obligation (5,281) 24,781
Proceeds from preferred stock 3,450,000 5,350,000
Restricted cash from preferred stock subscribed - not issued 190,142 --
Proceeds from common stock 1,337,706 943,266 7,604,239
Proceeds from long-term note - purchase of land -- 140,000
Repayment of long-term note - purchase of land -- (125,872)
Proceeds from issuance of notes payable - 12% -- 250,000
Repayment of notes payable - 12% -- (189,532)
Proceeds from issuance of convertible notes - 12% -- 692,500
Proceeds from issuance of convertible notes - 10% -- 85,000
Proceeds from loan from officer -- 25,000
Repayment of loan from officer -- (13,346)
Proceeds from issuance of promissory note - 15% -- 450,000 750,000
Preferred stock offering costs (423,815) (715,588)
Common stock offering costs (49,530) (118,550) (477,669)
Proceeds from installment note payable -- -- 19,829
Repayment of installment note payable -- -- (1,602)
------------ ------------ ------------
Net Cash Provided By Financing Activities 4,499,222 1,274,716 13,417,740
------------ ------------ ------------
NET INCREASE IN CASH 1,785,352 306,901 4,443,407
CASH, BEGINNING OF PERIOD 2,658,055 12,590 --
------------ ------------ ------------
CASH, END OF PERIOD $ 4,443,407 $ 319,491 $ 4,443,407
============ ============ ============
</TABLE>
See accompanying notes to unaudited interim consolidated financial statements.
16
<PAGE> 19
PROBEX CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
NOTE A NATURE OF BUSINESS
- --------------------------------------------------------------------------------
The Company owns proprietary technology whose primary application is for the
purification, recycling, and upgrading of used lubricating oils. The Company has
generated no significant revenue to date and was in the development stage
through March 31,2000.
NOTE B SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
CONSOLIDATION - The accompanying consolidated financial statements include the
accounts of PROBEX CORP. (the "Company"), formerly Conquest Ventures, Inc., and
its wholly owned subsidiaries - Quadrex Corporation and Apollo Oil Company.
Significant inter-company transactions and balances have been eliminated in
consolidation.
PROPERTY AND EQUIPMENT AND DEPRECIATION METHODS - Fixed assets greater than
$1,000 are recorded at cost and depreciated over their estimated useful lives,
which range from three to five years, using the straight-line method. Equipment
leased under capital leases is amortized over the life of the respective lease.
INTANGIBLE ASSETS - Patents are being amortized on a straight-line basis over 17
years.
RESTRICTED CASH - At March 31, 2000, the Company had no restricted cash
classified as a non-current asset versus $190,142 at September 30, 1999. This
amount represented 10% of the cumulative convertible preferred stock offering
proceeds (plus accrued interest) held in a separate interest bearing escrow
account and were not available to the Company until certain incorporation
documents were amended to reflect stockholder approval of certain amendments.
These amendments were approved on December 30, 1999 and the cash transferred to
the Company in January 2000.
OFFERING COSTS - The offering costs incurred by the Company in connection with
private placement offerings have been offset against the proceeds.
RESEARCH AND DEVELOPMENT - Research and development costs are charged to expense
when incurred.
DIVIDENDS - Dividends payable in accrued expenses have been offset against the
deficit accumulated during development stage.
COMPENSATED ABSENCES - Employees are entitled to certain paid holidays, vacation
and sick time. Because it is impractical to accrue reasonable estimated
liability, the Company records an expense when employees are paid.
ACCOUNTING ESTIMATES - When preparing financial statements in conformity with
generally accepted accounting principles, management must make estimates based
on future events
17
<PAGE> 20
which affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities as of the date of the financial statements,
and revenues and expenses during the reporting period. Actual results could
differ from these estimates.
ACCUMULATED OTHER COMPREHENSIVE INCOME - As of the date of these Consolidated
Financial Statements, the Company has no components of other comprehensive
income as defined by Statement of Financial Accounting Standards No. 130.
NET LOSS PER COMMON SHARE - The Company has a complex capital structure that
requires a dual presentation of basic and diluted earnings per share ("EPS") on
the face of the income statement. The net loss per common share ("basic") is
computed by dividing the net loss for the period by the weighted average number
of shares outstanding during the period. The net loss per common share-assuming
dilution ("diluted") reflects the potential dilution that could occur if
securities (warrants and convertible debt for the Company) were exercised or
converted into common stock.
The following table summarizes the numerator and denominator elements of the
basic EPS computations.
<TABLE>
<CAPTION>
3 MONTH PERIOD ENDING MAR 31, 6 MONTH PERIOD ENDING MAR 31,
----------------------------- -----------------------------
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
LOSS (NUMERATOR) $ 1,041,152 $ 459,342 $ 1,809,188 $ 980,391
SHARES (DENOMINATOR) 21,120,444 15,280,513 20,716,828 15,067,530
LOSS PER SHARE $ 0.05 $ 0.03 $ 0.09 $ 0.07
</TABLE>
The Company's outstanding warrants, options and convertible preferred stock were
anti-dilutive for the three-month and six-month periods ending March 31, 2000
and 1999.
NOTE C STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
On September 30, 1993, the stockholders approved a 200-for-1 reverse stock split
and restatement of the number of shares authorized to 75,000,000. On January 17,
1994 the stockholders approved another reverse stock split that reduced the
number of shares of outstanding common stock to 601,648.
In January 1994, the Company commenced a private placement of up to 1,850,000
units at $.92 per unit, each unit consisting of one share of common stock, a
one-half "A" warrant and a one-half "B" warrant. The "A" warrants were
exercisable until November 15, 1996 to purchase one share of common stock at
$1.50 per share. The "B" warrants were exercisable until February 15, 1996 to
purchase one share of common stock at $3.00 per share. None of the Class A or
Class B warrants related to this offering were ever exercised.
From March to September 30, 1994, the Company sold 1,129,891 units in a private
placement and received net cash proceeds of $978,786.
In March 1994, the Company issued 9,950,000 shares of common stock to Probex
Technologies, L.P., a Texas limited partnership ("Limited Partnership") a
majority of which is
18
<PAGE> 21
owned by certain officers and directors of the Company, in exchange for an
exclusive license to use, in Canada and the United States for defined
applications, a technology antecedent to that on which the planned operations of
the Company are based. No value was attributed to the license/technology
acquisition because of the license/technologies indeterminable value. On June
30, 1996, this technology and license was transferred to a former director of
the Company, subject to the Company's retention of all rights in used
lubricating oil processing applications. Simultaneously, certain officers of the
Company purchased 90,000 shares of the common stock from the Limited
Partnership. After this transaction, the Limited Partnership owned 9,860,000
shares of the Company's common stock.
On June 30, 1995, the Company purchased 28% ownership in the assets and
liabilities of the Limited Partnership. The Limited Partnership intends to
utilize its best efforts to liquidate the Limited Partnership. As the initial
step in this process, the Limited Partnership's stock certificate representing
9,860,000 common shares of the Company was cancelled in September 1997.
8,860,000 common shares were distributed to the partners of the partnership (of
which the majority are either officers or directors of the Company) with
1,000,000 common shares being retained by the Limited Partnership to secure
approximately $180,000 of outstanding liabilities on the Limited Partnership's
books. In December 1997, 151,560 common shares were utilized to extend loan
terms and convert certain loans and 424,220 common shares were surrendered as a
result of the Company's reverse stock split (see discussion later). In September
1998, 100,000 common shares were utilized to pay certain liabilities. As of
September 30, 1999, the Limited Partnership owned 324,220 common shares and had
approximately $70,000 of outstanding liabilities.
From October to November 1999, the Limited Partnership sold 50,912 shares of
Common Stock at prices ranging from $0.95 to $1.70 per share resulting in
$64,336 of gross proceeds. The proceeds were utilized to liquidate all of the
outstanding liabilities of the Limited Partnership and the remainder was held in
reserve for distribution to the Limited Partnership partners. The Limited
partnership was closed down 12-31-99 and the remaining shares of common stock
and remaining cash were distributed. Probex Corp.'s share of this liquidation
will be 62,690 shares common stock and $10,306 cash. The company is currently
holding these shares of common stock as treasury stock.
In July 1995, the Company issued 300,000 shares of common stock as fees for two
of its outside directors.
In August 1995, the Company commenced a private placement offering of up to 350
units at $1,000 per unit, each unit consisting of $1,000 in principal amount of
12% Convertible Notes and 1,000 Class C warrants for the purpose of funding the
pilot phase of its initial production facility. The Notes bore interest at 12%
per annum commencing on the date of issuance and matured 180 days thereafter.
Each $1.00 of indebtedness evidenced by the Notes was convertible, at the option
of the holder thereof, into one share of common stock of the Company at any time
prior to the maturity thereof. Each Class C warrant entitled the holder thereof
to purchase one share of Common Stock at $1.50 per share and unless called for
redemption, was exercisable at any time within 910 days after issuance, or
through February 1998. In March 1996, the Company offered a restructuring of the
terms of this offering, which is discussed below. In October 1995, the Company
completed the 350-unit 1995 private placement offering plus a 5-unit
over-subscription. With the completion of the offering, the Company realized net
cash proceeds of $327,000 after paying a financial advisory fee of $28,000.
19
<PAGE> 22
In September 1995, the Company issued 46,995 shares of common stock to a
consultant for financial advisory services. Additionally, this consultant
received one-half of an "A" warrant exercisable until November 15, 1996, to
purchase one share of common stock at $1.50 per share and one-half of a "B"
warrant exercisable until February 15, 1996 to purchase one share of common
stock at $3.00 per share. Accordingly, the Company issued this consultant 23,498
"A" warrants and 23,497 "B" warrants. None of the Class A or Class B warrants
related to this offering were ever exercised.
In October 1995, the Company issued 550,000 shares of common stock to two
employees, subject to a repurchase right by the Company at $.01 per share if the
employees were to leave the Company before three years.
In October 1995, the Company issued 28,000 shares of common stock to a
consultant for financial advisory services.
In November 1995, the Company issued 5,000 shares of common stock to a
consultant for services performed.
In February 1996, the Company issued 500,000 shares of common stock to three
officers as compensation in the form of stock in lieu of cash payments. The
compensation was for performance recognition bonuses.
In March 1996, the Company offered a restructuring of the terms of the August
1995 private placement offering in that if the note holders would convert their
12% loan into Common Stock of the Company, the conversion rate would be reduced
from $1.00 per share to $0.75 per share. Additionally, the Company offered a
Class G warrant, exercisable through March 1998 to purchase one share of Common
Stock at $0.75 per share for each dollar of principal and accrued interest that
was converted into Common Stock. The previous warrant exercisable at $1.50 per
share was unaffected by this offer. By June 30, 1996, all of the investors had
agreed to the proposal and returned notifications to the Company. However, the
issuance of Common Stock for one investor (5 units) had not occurred as of
September 30, 1996, and the Company recorded the transaction as Common Stock
Subscribed in the Stockholder Equity section of the Financial Statements. The
Transfer Agent subsequently issued these shares to the investor in April 1997.
The Company then offered all warrant and debt holders the opportunity to convert
their holdings at $0.25 per share as noted below. Therefore, 35,000 of the
355,000 Class C warrants at $1.50 per share were converted in June 1997 at $0.25
per share and another 25,000 were converted at $0.25 per share in September
1997. 7,067 of the 501,737 Class G warrants at $0.75 per share were converted in
June 1997 at $0.25 per share and another 35,334 were converted at $0.25 per
share in September 1997. Additionally, 230,000 of the Class C warrants were
retired in June 1997 and replaced with identical Class L warrants that expired
in April 1999. Additionally, 325,067 of the Class G warrants were retired in
June 1997 and replaced with identical Class M warrants, which expired in March
1999.
In March and April of 1996, the Company's Transfer Agent issued 70,667 shares of
common stock as the result of an investors conversion of 12% Convertible Notes.
However, management believed that the Transfer Agent issued these shares in
error as the same number of shares had been issued in May 1996. The Company
communicated their position and evidence to support their conclusion to the
Transfer Agent; whereupon, the shares were cancelled in July 1997.
20
<PAGE> 23
In March 1996, the Company issued 11,950 shares of common stock to an
independent contractor for programming services performed.
In April 1996, the Company issued 50,000 shares of common stock to a vendor for
an extension of terms of payment. Subsequently, the vendor forgave the payable.
In April 1996, the Company issued 6,627 shares to an employee as compensation in
the form of stock in lieu of cash payments. The compensation was for performance
recognition bonuses.
In April 1996, the Company issued 107,500 Class H warrants to an officer of the
Company as recognition for services rendered to the Company. The warrants are
exercisable at $0.50 per share for five years or through April 2001. The Company
has no redemption rights and none of the warrants had been exercised as of
December 31, 1999.
In April 1996, the Company issued 7,500 Class H warrants to a third party for a
short term $7,500 loan. The warrants are exercisable at $0.50 per share for five
years or through April 2001. The Company has no redemption rights and none of
the warrants had been exercised as of December 31, 1999.
In April 1996, the Company issued 210,000 Class H warrants to a consultant for
financial advisory services. The warrants are exercisable at $0.50 per share for
five years or through April 2001. The Company has no redemption rights and none
of the warrants had been exercised as of December 31, 1999.
In May 1996, the Company issued 9,333 shares of common stock to the placement
agent as compensation for its services.
In May 1996, the Company issued 14,000 shares of common stock to an independent
contractor for graphics professional services.
In June 1996, the Company awarded a stock grant of 75,000 shares of Common Stock
to an employee which vests over a three-year period, subject to continued
employment with the Company. In addition, due to cash flow difficulties
encountered by the Company in early 1997, this same employee was not paid for
certain work. The employee agreed to keep working without pay in exchange for
immediate vesting of the employee's grant of Common Stock. The employee has
since left the Company and was paid for all hours worked. The Company issued
75,000 shares of common stock to this individual in December 1996.
In October and December 1996, the Company issued a total of 66,947 shares of
Common Stock to five consultants as compensation for services performed.
In December 1996, the Company issued a total of 579,720 shares of Common Stock
as fees for four of its directors.
In December 1996, the Company issued 50,000 shares of Common Stock to an
employee as compensation in lieu of cash payments.
In January 1997, the Company issued a total of 14,171 shares of Common Stock to
four consultants as compensation for services performed.
21
<PAGE> 24
From January through March 1997, the Company sold 470,000 shares of Common Stock
at $0.25 per share, resulting in $117,500 of cash proceeds.
In January 1997, the Company issued 600,000 shares to an employee for services
rendered. 200,000 of these shares vested immediately and were released to the
employee. The remaining 400,000 shares are being held by the Company and will
vest to the employee over a two-year period. The Company recorded these 400,000
shares of stock issued as Deferred Stock Expense as a reduction in the
Stockholder's Equity section of the Consolidated Balance Sheet. As of September
30, 1999, all shares had vested and the company recorded compensation expense at
$0.25 per share with a corresponding reduction of the Deferred Stock Expense on
the Balance Sheet.
In February 1997, the Company issued warrants to an officer of the Company to
purchase 150,000 shares of the Company's common Stock at $0.10 per share. The
warrants expire in April 2001 and none of the warrants had been exercised as of
December 31, 1999.
In February 1997, the Company issued 506,813 shares of Common Stock to three
investors holding loans with the Company. 6,813 of the shares were for an
extension of the maturity date of a note payable with one of the investors. The
remaining 500,000 shares were calculated to equalize for the difference in
conversion prices between each investor's $1.50 per share offering and the
Company's $0.25 per share offering and for the Company's inability to effect
timely repayment of the principal and interest on the note payable due - See
Indebtedness Footnote.
In early 1997, the Company had short-term working capital requirements and
offered all warrant holders the opportunity to exercise any or all of their
warrants into common stock at a conversion price of $0.25 per share. From
January to September 1997, the Company issued 2,295,067 shares of Common Stock
at $0.25 per share under this program resulting in approximately $574,000 of
cash proceeds. The Company has also received future commitments of approximately
$300,000. Additionally, the Company offered all debt holders the opportunity to
convert any or all of their debt into common stock at a conversion price of
$0.25 per share. As a result, the Company retired approximately $500,000 in
outstanding debt.
From April through June 1997, the Company issued 197,564 shares for an extension
of the terms of the $150,000 Note Payable issued in April 1996 - See
Indebtedness Footnote.
From April through June 1997, the Company issued 553,000 shares of Common Stock
to seven consultants as compensation for services rendered at $0.25 per share.
In May 1997, the Company issued 724,702 shares of Common Stock at $0.25 per
share for the conversion of $162,500 of the 12% Notes Payable issued in June
1996 - see Indebtedness Footnote.
In May 1997, the Company issued 52,183 shares of Common Stock at $0.25 per share
to two employees as compensation for services rendered.
In May 1997, the Company issued 304,545 shares of Common Stock at $0.11 per
share for the conversion of the $30,000 10% Convertible Note from March 1996.
In May 1997, the Company sold approximately 1,220,000 shares of Common Stock at
$0.11 cents per share resulting in approximately $130,000 of cash proceeds.
22
<PAGE> 25
In May 1997, the Company issued 1,908,631 shares of Common Stock at $0.11 per
share to three officers for deferred and unpaid compensation - See Commitments
and Contingencies Footnote.
In July 1997, the Company issued 52,500 shares of Common Stock at $0.25 per
share to four consultants as compensation for services rendered.
From July to September 1997, the Company sold 1,193,000 shares of Common Stock
at $0.25 per share resulting in approximately $298,000 of cash proceeds.
In September 1997, the Company issued 538,300 shares of Common Stock to two
investors (269,150 each) for the conversion of 12% Convertible Notes and accrued
interest - see Indebtedness Footnote.
In September 1997, the Company issued 185,865 shares of Common Stock to
investors for the conversion of the $150,000 12% Notes Payable and accrued
interest - see Indebtedness Footnote.
As of September 30, 1997, 1,915,344 shares of Common Stock were subscribed but
not issued by the Company's Transfer Agent. The Transfer Agent issued these
shares in October 1997.
From October to December 1997, the Company sold 327,786 shares of Common Stock
at $0.25 per share resulting in approximately $82,000 of cash proceeds.
From October to December 1997, the Company issued 410,130 shares of Common Stock
at $0.25 per share to three consultants as compensation for services rendered.
From October to December 1997, the Company issued 151,667 shares of Common Stock
at $0.25 per share to two employees as compensation for services rendered.
In December 1997, the Company's Board of Director's approved the restructuring
of the equity shares (or any equity equivalents) of the Company in the form of a
reverse split of the current ("old") shares of the Company, such that one new
share was issued for every two old shares (or any equity equivalents)
outstanding.
In January 1998, the Company issued 179,952 shares of Common Stock to an
investor at $0.25 per share, which were subscribed but not issued by the
Company's Transfer Agent as of December 31, 1997. The Company determined that an
incorrect number of shares were issued on a pre-split basis and should have only
been 89,976 shares of Common Stock at $0.50 per share on a post-split basis. The
Transfer Agent retired the 179,952 share certificate and issued a new
certificate in the amount of 89,976 shares.
In March 1998, the Company sold 269,976 shares of Common Stock at $0.50 per
share resulting in approximately $135,000 of cash proceeds.
In March 1998, the Company sold 40,770 shares of Common Stock at $0.65 per share
resulting in $26,500 of cash proceeds. Subsequently, the Company determined that
the sales price should have been at $0.50 per share instead of $0.65 per share,
or an additional 12,230 shares. The Transfer Agent issued these shares in April
1998.
23
<PAGE> 26
As of March 31, 1998, 93,000 shares of Common Stock representing $46,500 of cash
proceeds at $0.50 per share were subscribed but not issued by the Company's
Transfer Agent. The Transfer Agent issued these shares in April 1998.
From April to June 1998, the Company sold 620,251 shares of Common Stock at
$0.50 per share resulting in approximately $310,126 of cash proceeds.
In June 1998, the Company issued 208,976 shares of Common Stock at $0.50 per
share for the conversion of the remaining $100,000 plus accrued interest of 12%
Notes Payable issued in June 1996 - see Indebtedness Footnote.
From April to June 1998, the Company issued 161,895 shares of Common Stock at
$0.50 per share to six consultants as compensation for services rendered.
From April to June 1998, the Company issued 187,977 shares of Common Stock at
$0.50 per share to five employees as special performance bonuses. However,
25,000 of these shares were held by the Company to be distributed in accordance
with a vesting period as further discussed in the Commitments and Contingencies
Footnote. The Company has recorded these 25,000 shares of stock issued as
Deferred Stock Expense as a reduction in the Stockholder's Equity section of the
Consolidated Balance Sheet. As of March 31, 2000, the employee had vested in
18,750 of the 25,000 shares and this was recorded by the Company as Stock
Compensation Expense at $0.50 per share with a corresponding reduction of the
Deferred Stock Expense in Stockholders' equity.
In July 1998, the Board of Directors granted 50,000 shares to an employee and
100,000 shares to two directors as compensation for services as related to the
third party funding agreement discussed further in Commitments and
Contingencies.
In August 1998, the Company issued 240,111 shares of Common Stock at $0.50 per
share to three officers for deferred and unpaid compensation. Additionally, the
Company issued 5,300 shares of Common Stock at $0.50 per share to an employee
for unpaid compensation - See Commitments and Contingencies Footnote.
In December 1998, the Company initiated a private placement offering of up to
$250,000 at $0.70 per share. As a result of a subsequent private placement
offering (see discussion below), the terms of this offering were retroactively
revised in January 1999 to provide the investors for each $0.50 invested, one
share of common stock and one warrant exercisable at $0.75 per share. This
private placement offering was terminated in January 1999 with a total of
$129,900 gross proceeds received by the Company and 259,800 shares of Common
Stock issued.
In February 1999, the Company initiated a private placement offering to existing
and new investors of up to $700,000 at $0.50 per share. Under the terms of this
offering, for each $0.50 invested, the investor receives one share of common
stock and one Class Q warrant exercisable at $0.75 per share. The offering was
over subscribed and the Company agreed to accept the additional subscriptions.
This private placement offering was terminated in April 1999 with a total of
$1,364,166 gross proceeds received by the Company and 2,988,131 shares of Common
Stock issued.
In March 1999, the Company issued 30,000 shares of Common Stock at $0.50 per
share to two consultants (of which one is a director of the Company) as
compensation for services rendered.
24
<PAGE> 27
In March 1999, the Company issued 63,100 shares of Common Stock at $0.50 per
share to five employees as compensation for services rendered.
Effective July 1999, the Company exercised its right to call the 2,988,131
outstanding Class Q warrants issued in the private placement offering discussed
above. Pursuant to the call, warrant holders had a period of thirty days in
which to exercise their warrants. The warrant call was terminated in August 1999
with a total of $1,080,600 gross proceeds received by the Company ($1,065,600 as
of the date of these Consolidated Financial Statements and $15,000 subsequently)
and 1,420,800 shares of Common Stock was issued.
As a result of the above private placement offerings, the Company paid $252,960
of placement fees that have been recorded as offering costs and offset against
the Common Stock proceeds in the Consolidated Financial Statements. In addition,
as of March 31, 2000, the Company has paid $1,528 in warrant redemptions related
to Class Q warrants.
In June 1999, the Company initiated an exclusive offering to directors and
officers of the Company of up to $500,000 at $0.425 per share ($0.50 adjusted
for non-payment of agent commission - there is no broker for the offering).
Under the terms of this offering, for each $0.425 invested, the investor
received one share of common stock, one warrant exercisable for two years at
$1.00 per share and one 0.10 warrant for each $4.25 invested that is exercisable
for five years at $0.55 per share. This offering was completed in July 1999
resulting in $500,000 gross proceeds received by the Company and 1,176,471
shares of Common Stock issued. Additionally, 1,176,471 of $1.00 warrants and
117,647 of $0.55 warrants were issued as a result of the offering.
On July 21, 1999, the Board of Directors approved a series of Preferred Stock,
which currently consists of up to 1,000,000 shares of Preferred Stock (such
amount may from time to time be increased or decreased by the Board of
Directors), designated as Series A Preferred Stock (the "Series A Preferred
Stock"). The Series A Preferred Stock, with respect to rights on liquidation,
winding up and dissolution, ranks senior to all classes and series of Common
Stock and may rank senior to other classes of Preferred Stock. The Series A
Preferred Stock has a liquidation preference of $10.00 per share plus accrued
and unpaid dividends, that is prior to the liquidation preference of the Common
Stock. The Series A Preferred Stock is entitled to receive semi-annual dividends
at the rate of $1.00 per annum payable either in cash or shares of Common Stock,
at the option of the Company. The holders of Series A Preferred Stock are not
entitled to vote, except for certain limited matters and to the extent required
by law. Each share of Series A Preferred Stock is convertible at any time into
5.33333 shares of Common Stock and shall be automatically converted, without
further action on the part of the Company or the holder thereof, into 5.33333
fully paid and nonassessable shares of Common Stock on the date following any
thirty-day trading period in which the average daily closing price exceeds
$5.625 per share. The Company will not issue any fractional shares of Common
Stock.
The offering was terminated in December 1999 with a total of $5,350,000 of gross
proceeds and 535,000 shares of Preferred Stock were subscribed and not issued.
Additionally, $372,922 of the above gross proceeds were being held in a separate
interest bearing account and were not available for use by the Company until
certain incorporation documents were approved by the Company's stockholder's -
These amendments were approved on December 30, 1999 and the cash was transferred
to the Company in January 2000.
25
<PAGE> 28
As a result of the above Preferred Stock private placement offering, the Company
has paid or accrued $715,588 of expenses as of March 31, 2000 ($615,600 of
placement fees and $99,988 of legal fees) and these have been recorded as
offering costs and offset against the Preferred Stock proceeds in the
Consolidated Financial Statements.
In January 2000, the Company sold 240,750 shares of Common Stock at $2.70 per
share resulting in $650,025 of cash proceeds. As result of this sale, the
Company paid $39,002 of placement fees and has been recorded as offering costs
and offset against the Common Stock proceeds in the Consolidated Financial
Statements. Under the terms of this offering, for each share of common stock
sold, the placement agent received .15 warrant that is exercisable for five
years at $2.70 per share.
From January to March 2000, $672,681 of proceeds were received from the exercise
of various warrants, with exercise prices ranging from $0.20 to $3.00 per share.
As result of these warrant exercises, the Company paid $9,000 of placement fees
and it was recorded as offering costs and offset against the Common Stock
proceeds in the Consolidated Financial Statements.
On February 1, 2000, the Company filed a Form 10-SB/A, pursuant to Section 12(b)
of the Securities Exchange Act of 1934, as amended, which was subsequently
declared effective by the Securities and Exchange Commission on February 2,
2000. Additionally, on February 3, 2000, the Company's common stock began
trading on the American Stock Exchange under the symbol "PRB".
In March 2000, the Company issued and/or subscribed 3,740 shares of Common Stock
at $1.875 per share to one consultant as compensation for services rendered.
In March 2000, the Company issued and/or subscribed 52,702 shares of Common
Stock at $1.50 per share to Preferred Stock owners in lieu of cash dividends.
The Company is in constructive receipt of 62,690 shares of its own common stock
from the dissolution and liquidation of the Limited Partnership discussed
earlier in this section. These shares have been recorded as Treasury stock at
$0.01 per share.
NOTE D INCOME TAX
- --------------------------------------------------------------------------------
All tax returns have been filed through September 30, 1999. The net operating
loss carryforward is approximately $6,800,000 which expires by 2014. No deferred
tax asset has been recognized since management believes that it is not likely to
be realized.
NOTE E COMMITMENTS AND CONTINGENCIES
- --------------------------------------------------------------------------------
At certain times during the year the Company's demand deposits held in banks
exceeded the federally insured limit of $100,000 per account.
26
<PAGE> 29
In November 1995, the Company received a promissory note of approximately
$11,000 from an employee for advances made in 1995 to the employee for medical
expenses incurred because of an automobile accident. The employee was expected
to pay the note back to the Company in March 1996 from insurance proceeds.
However, the insurance settlement was delayed and during 1996 the Company made
additional advances to the employee and set up a payroll deduction plan for
repayments. Additionally, the employee has on occasion generated certain
business for the Company and the Board of Directors has formally agreed to apply
twenty (20) percent of the earned revenues generated by the employee toward
repayment of the loan. In November 1996, the insurance proceeds were received
but were less than expected to pay off the loan. The note is secured by common
stock owned by the employee in the Company and payments against the note are
being deducted from each paycheck to the employee. In December 1999, two other
employees were advanced a combined total of $16,000 for travel advance to be
applied against future expense reports, of which $6,000 was returned as of March
31, 2000. Additionally, in December 1999, an officer of the company was advanced
$5,000 secured by a promissory note and common stock of the Company.
At December 31, 1999, the Company has accrued $10,000 representing deferred
compensation for the period July 1, 1998 to August 31, 1998 for the three
officers discussed previously in Stockholders Equity. Effective September 1,
1998, the three officers are now being paid the full amount of their
compensation. In February 2000, the Board of Directors approved payment this
deferred compensation, and subsequently, it was paid out in March 2000.
In February 1998, the Company moved to a new office space and signed a
three-year lease agreement. Monthly lease payments of $2,938 are due from June
1998 through May 2001.
On June 30, 1998, the Company and a third party entered an agreement whereby the
third party will loan up to $1,500,000 for working capital purposes. Subject to
certain conditions, the Company may draw $150,000 under the agreement every
thirty (30) days. Interest accrues at 15% annually and all amounts drawn under
the loan agreement mature on June 30, 2000. At March 31, 2000, $750,000 had been
drawn by the Company under this agreement and is included as a current liability
in the Consolidated Balance Sheet - see Indebtedness Footnote. However, earlier
repayment could be required pursuant to the loan agreement. In exchange for the
loan, the Company has granted a ten-year warrant to purchase shares of common
stock of the Company at $0.01 per share equal to 10% of the number of shares of
common stock outstanding on a fully diluted basis, subject to certain
adjustments. At March 31, 2000, the fully diluted number of shares that would be
utilized to determine how many warrants would be available to the third party is
31,217,237.
On June 30, 1998, the Company adopted a Restricted Stock and Stock Option Plan
for certain employees to purchase common stock of the Company at $0.50 per
share. As of June 30, 1998, options to purchase 152,200 shares of common stock
of the Company were granted to five employees (of which 100,000 were to an
officer of the Company). As of September 30, 1998, 52,200 of these options were
exercised and the remaining 100,000 options were terminated effective June 30,
1999. In July 1998, options to purchase 150,000 shares of common stock of the
Company were granted to two officers of the Company. In August 1998, options to
purchase 50,000 shares of common stock of the Company were granted to each
director of the Company. None of these director options had been exercised and
were terminated effective June 30, 1999.
27
<PAGE> 30
Effective June 30, 1999, the Company approved a plan to issue 2,750,000 stock
options for employees of the Company. The terms of the options are an exercise
price of $0.50 per share and are generally exercisable after the Company meets
five equally weighted goals over a maximum ten-year vesting period. As of March
31, 2000, all except 2,000 of these options had been granted but none had been
exercised. The Company has adopted APB 25 to account for this stock-based
compensation plan. In light of the plan being variable, the Company has
recognized no expense in these Consolidated Financial Statements.
In June 1999, the Company secured from The Port Authority of Columbiana County
in Wellsville, Ohio, a twelve-month option agreement in the amount of $1,350,000
to purchase a 22-acre site for its first domestic facility. The Company has paid
$5,000 for the option agreement. Additionally, the site and other surrounding
property will be improved by construction of an adjacent highway interchange
primarily using Federal Funds. The Federal Highway Administration has determined
that no transfers of title to such land to private industry may take place prior
to completion of the highway interchange that is projected to occur in 2001.
Should the Company exercise the option to purchase the land, then an interim
lease agreement will be in effect until the Seller certifies in writing that the
highway interchange is complete. Rental payments under the interim lease will be
$20,000 per month and payments in total shall be credited against the purchase
price.
The Company was committed to issue up to 125,000 shares of common stock to an
employee, subject to a vesting period and meeting certain prescribed goals as
determined by management. As of March 31, 2000, 27,475 of these shares had been
issued to the employee, but it is not expected that additional shares will be
issued pursuant to this agreement.
The following table summarizes activity and warrants outstanding for the quarter
ending March 31, 2000.
<TABLE>
<CAPTION>
CLASS O/S 12-31-99 GRANTED LAPSED EXERCISED O/S 3-31-00
- ------------- ------------ ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C>
F 91,750 6,250 85,500
H 162,506 3,750 158,756
K 75,000 75,000
N 453,864 (39,432) 414,432
P 208,481 34,715 173,766
Q 0 0
Qa 272,833 272,833
R 1,176,475 33,382 1,143,093
Ra 117,645 4,284 113,361
S 550,000 40,000 510,000
T 200,000 200,000
U 120,000 120,000
V 428,000 13,000 441,000
W 0 75,000 75,000
X 0 200,000 200,000 0
Y 0 36,113 36,113
- ------------ ----------- --------- ------ --------- -----------
TOTAL 3,856,554 284,681 0 322,381 3,818,854
============ =========== ========= ====== ========= ===========
</TABLE>
28
<PAGE> 31
The Company has committed to issue 25,000 shares of common stock to an employee,
subject to a three-year vesting period. As of June 30, 1998, all of the 25,000
shares were issued by the Transfer Agent and held by the Company. Of this
amount, 18,750 has been earned and 16,667 issued to the employee. The remaining
8,333 are being held by the Company and will be distributed to the employee
every six months in accordance with the above vesting period. See further
discussion in Stockholders Equity.
In September 1999, the Company's current Chairman of The Board of Directors
additionally assumed the responsibilities of Chief Executive Officer and
President. In recognition of these new responsibilities, the Board of Directors
granted 250,000 warrants to purchase Common Stock of the Company at $1.00 per
share for a five-year period, subject to certain vesting requirements.
In October 1999, the Company negotiated a final settlement of an outstanding
obligation for legal services. The original amount of the obligation was
$110,000 and the Company reached an agreement to pay $20,000 in full settlement
of the obligation and has recorded the resulting settlement of approximately
$90,000 as reduction of stock issuance costs.
One third party individual has been promised a warrant to purchase 10,000 shares
at $0.50 per share, contingent upon Probex using the HSB SPI for their part in
strategic introductions.
A Company employee has been promised a warrant to purchase 240,000 at $1.875,
contingent upon Probex signing certain agreements with a third party company.
NOTE F INDEBTEDNESS
- --------------------------------------------------------------------------------
In October 1995, the Company offered and accepted $50,000 from an individual
investor. The terms of the investment were 50 units at $1,000 per unit, each
unit consisting of $1,000 in principal amount of 10% Convertible Notes and 1,000
Class D warrants. The Notes bear interest at 10% per annum commencing on their
date of issuance and maturing 270 days thereafter. Each $1.00 of indebtedness
evidenced by the Notes was convertible, at the option of the holder thereof,
into one share of common stock of the Company at any time prior to the maturity
thereof. Each Class D warrant entitled the holder thereof to purchase one share
of Common Stock at $1.50 per share and unless called for redemption, was
exercisable at any time within 910 days after issuance or through May 1998. The
investor, at its option, may redeem and exchange the investment for any new
security issued by the Company prior to repayment of the indebtedness. In August
1996, the investor exchanged this instrument for a new 12% Convertible Note
which bears interest at 12% per annum commencing on the date of issuance and
maturing on January 26, 1997. In January 1997, the Convertible Note and accrued
interest were due but the Company was unable to pay the investor. In exchange
for an extension of the Convertible Note, the Company agreed to issue 250,000
shares to the investor which was calculated to equalize for the difference in
conversion prices between the two offerings and for the Company's inability to
effect timely repayment of the principal and interest. The investor agreed to
extend the maturity date of the Convertible Note and in June 1997, the
outstanding principal and interest were converted into 269,150 shares at $0.25
per share - See Stockholders Equity Footnote. The Class D warrant was retired in
August 1997.
29
<PAGE> 32
In October 1995, the Company purchased land in anticipation of the construction
of a plant facility for the processing and purification of used lubricating
oils. The purchase price was $165,000 for which the Company paid $25,000 cash
and exercised a $140,000 promissory note. The promissory note was for a 5-year
period and required monthly payments of $2,839 to be made by the Company. In
June 1996, the Company listed the above land for sale with a broker and a sale
was consummated in April 1997.
At September 30, 1996, the Company wrote down certain equipment to a net
realizable value of $55,000. Sale proceeds of $45,000 were realized along with a
$7,000 credit from a vendor. As a result, the Company recorded a loss of $3,000
from the sale of the equipment. The land and improvements were valued at
historical cost of $178,111 with an outstanding mortgage payable of $108,578.
The Company sold the property for $145,000, received cash proceeds of $22,424
and recorded a $47,109 loss.
In March 1996, the Company offered and accepted $5,000 from an individual
investor. The terms of the investment were 5 units at $1,000 per unit, each unit
consisting of $1,000 in principal amount of 10% Convertible Notes and 1,000
Class J warrants. The Notes bore interest at 10% per annum commencing on their
date of issuance and matured 360 days thereafter. The indebtedness evidenced by
the Notes was convertible, at the option of the holder thereof, into shares of
common stock of the Company at a conversion rate of $0.75 of indebtedness per
share of Common Stock, at any time prior to the maturity thereof. Each Class J
warrant entitled the holder thereof to purchase one share of Common Stock at
$1.50 per share and unless called for redemption, was exercisable at any time
within two years after issuance or through March 1998. The investor, at its
option, may redeem and exchange the investment for any new security issued by
the Company prior to repayment of the indebtedness. In March 1997, the
Convertible Note and accrued interest came due but the Company was unable to pay
the investor. The Company was in the process of a new $0.25 per share offer for
current warrant and debt holders (see Stockholders' Equity Footnote). As a
result, the investor agreed to extend the maturity date of the Convertible Note
and in September 1997, the outstanding principal and accrued interest were
converted into 23,104 shares at $0.25 per share.
In March 1996, the Company offered and accepted $30,000 from an investor. The
terms of the investment were 30 units at $1,000 per unit, each unit consisting
of $1,000 in principal amount of 10% Convertible Notes and 1,000 Class E
warrants. The Notes bore interest at 10% per annum commencing on their date of
issuance and matured 360 days thereafter. The indebtedness evidenced by the
Notes was convertible, at the option of the holder thereof, into shares of
common stock of the Company at a conversion rate of $0.75 of indebtedness per
share of Common Stock, at any time prior to the maturity thereof. Each Class E
warrant entitled the holder thereof to purchase one share of Common Stock at
$3.00 per share and unless called for redemption, was exercisable at any time
within two years after issuance or through March 1998. The investor, at its
option, could redeem and exchange the investment for any new security issued by
the Company prior to repayment of the indebtedness. In March 1997, the
Convertible Note and accrued interest came due but the Company was unable to pay
the investor. The Company was in the process of a new $0.25 per share offer for
existing warrant and debt holders - see Stockholders' Equity Footnote. As a
result, the investor agreed to extend the maturity date of the Convertible Note
and in May 1997, the outstanding principal and accrued interest were converted
into 304,545 shares at $0.25 per share.
30
<PAGE> 33
In April 1996, the Company completed an agreement with nine investors (of which
one was an officer of the Company) and received $150,000 of cash proceeds. The
agreement provided for the issuance of nine-month promissory notes at 12%
interest, secured by property, plant and equipment, inventories and
rights/title/interest of the proprietary process technology of the Company. The
notes were due and payable not later than the end of January 1997. Additionally,
each of the note holders/stockholders received 1.25 Class "F" warrants to
purchase common stock at $1.00 per share for each dollar of indebtedness for
five years through April 2001. In January 1997, these notes and accrued interest
came due but the Company was unable to retire this debt. In exchange for the
consideration discussed below, the noteholders/stockholders agreed to extend the
maturity date to May 31, 1997 or earlier if the Company consummated the planned
sale of equipment and land.
In exchange for the extension of the maturity date, the Company issued 197,564
shares to the note holders/stockholders, representing 1.25 shares for each
dollar of principal and accrued interest outstanding as of January 1997.
Additionally, the Company committed to each note holder/stockholder, an
anti-dilutive provision which distributed additional shares to the note
holder/stockholder so as to keep their percent of holdings in the Company
constant from the date of their investment until that date that the earlier of
(1) the Company achieved $100,000 of monthly revenues for six consecutive months
or (2) the effective date of a firm commitment public offering which will raise
$3,000,000 for the Company occurs.
In May 1998, the Company offered to each of the noteholders/stockholders that
were party to the anti-dilutive agreement (see Stockholders' Equity Footnote) to
eliminate that provision. Each noteholder/stockholder was given the choice
either to receive common stock (on a pro-rata basis) of the Company based on a
value of $0.80 per share or five-year warrants to purchase common stock (on a
pro-rata basis) of the Company at $0.20 per share. Effective June 30, 1998, all
of the noteholders/stockholders accepted the offer and as a result of the
acceptance, the Company issued 670,709 shares of common stock and 208,449
warrants. Accordingly, the anti-dilution agreement was terminated.
In April 1997, as a result of cash proceeds received from the sale of equipment
and land, the Company partially repaid approximately $64,000 of the then
outstanding principal and interest leaving a balance due of approximately
$104,000. In September 1997, note holders/stockholders representing
approximately $60,000 of the remaining outstanding balance converted into shares
of common stock at $0.25 per share. The remaining note holders/stockholders
representing approximately $44,000 were paid in cash.
31
<PAGE> 34
In June 1996, the Company offered and accepted $50,000 from an investor. The
terms of the investment were 50 units at $1,000 per unit, each unit consisting
of $1,000 in principal amount of 12% Convertible Notes and a security interest
in the property, plant and equipment, inventories and rights/title/interest of
the proprietary process technology of the Company. The Note bore interest at 12%
per annum commencing on the date of issuance and matured 180 days thereafter.
The indebtedness evidenced by the Notes was convertible, at the option of the
holder thereof, into shares of common stock of the Company at a conversion rate
of $0.75 of indebtedness per share of Common Stock, at any time prior to the
maturity thereof. The investor, at its option, could redeem and exchange the
investment for any new security issued by the Company prior to repayment of the
indebtedness. In January 1997, the Convertible Note and accrued interest came
due but the Company was unable to pay the investor. In exchange for extension of
the Convertible Note, the Company agreed to issue 250,000 shares to the investor
which was calculated to equalize for the difference in conversion prices between
the two offerings and to compensate for the Company's inability to effect timely
repayment of the principal and accrued interest. The investor agreed to extend
the maturity date of the Convertible Note and in July 1997, the outstanding
principal and interest were converted into 269,150 shares at $0.25 per share.
In June 1996, the Company commenced a private placement offering of up to 20
units at $25,000 per unit ($500,000), each unit consisting of $25,000 in
principal amount of 12% unsecured Convertible Notes and 20,000 Class I warrants
for the purpose of working capital and the retirement of certain liabilities
related to equipment and development costs that had been previously incurred by
the Company. The Notes bore interest at 12% per annum (payable semiannually)
commencing on their date of issuance and matured 360 days thereafter. The
indebtedness evidenced by the Notes was convertible, at the option of the holder
thereof, into shares of common stock of the Company at a conversion rate of
$0.75 of indebtedness per share of Common Stock, at any time prior to the
maturity. Each Class I warrant entitled the holder thereof to purchase one share
of Common Stock at $2.50 per share and unless called for redemption, was
exercisable at any time within 910 days after issuance or through October 1998.
The offering period was extended to and terminated on October 31, 1996, at which
time 11.5 of the 20 available units had been sold for total proceeds of
$287,500. In 1997, the Company was in the process of a new $0.25 per share
offering and offered all warrant and debt holders the opportunity to convert
their warrant or debt at $0.25 per share. As a result, $187,500 of the $287,500
Convertible Notes plus accrued interest was converted into common stock at $0.25
per share. Additionally, these same investors who converted their Notes Payable
also exercised their warrant options to purchase shares of common stock at the
new $0.25 per share price.
In June 1998, the Company offered the remaining four investors holding $100,000
(plus accrued interest) of Convertible Notes ($287,500 issued less $187,500
converted) the option to convert the indebtedness and accrued interest into
common stock at $0.50 per share. As a result, all of the $100,000 of principal
and accrued interest for three of the investors was converted into 208,976
shares of common stock. The fourth investor chose to have the accrued interest
paid in cash by the Company.
In July 1998, the Company offered and accepted $100,000 from two investors. The
terms of the investment were a 12% per annum secured note due September 15,
1998. In exchange for the funds, the Company granted 50,000 shares of common
stock to the investors. In September 1998, the note and accrued interest of
$1,118 was paid back to the investors from the proceeds of a working capital
loan discussed below.
32
<PAGE> 35
In September 1998, the Company was funded $300,000 under the third party working
capital agreement discussed previously in Commitments and Contingencies.
$101,118 of the funds were utilized to pay off the investors loan and accrued
interest discussed above, $27,367 to pay legal expenses associated with the
loan, $30,000 to pay a closing fee to the third party and the remaining funds
were utilized by the Company for working capital purposes. From October to
December 1998, the Company was funded an additional $450,000 under the agreement
and has recorded the $750,000 outstanding balance at December 31, 1999 as a
current liability (due June 2000) in the Consolidated Financial Statements.
Additionally, the Company has recorded $137,466 of accrued interest on the loan
as of December 31, 1999 in the Consolidated Financial Statements.
NOTE G LEASES
- --------------------------------------------------------------------------------
Included in property and equipment in the accompanying Consolidated Financial
Statements are the following assets held under capital leases:
<TABLE>
<CAPTION>
Mar 31, Mar 31,
2000 1999
---------- ----------
<S> <C> <C>
Lab and research equipment $ 43,159 $ 11,898
Less accumulated amortization 8,927 2,379
Assets under capital leases, net $ 34,232 $ 9,519
</TABLE>
NOTE H LIQUIDITY AND CAPITAL RESOURCES
- --------------------------------------------------------------------------------
The Company is in the development stage and has incurred an accumulated deficit
of approximately $9,681,583 since inception. The Company has been able to
structure short term liquidity financing through private placement offerings.
However, there can be no assurance that the Company may not experience liquidity
problems or obtain sufficient funding on a timely basis.
NOTE I SUBSEQUENT EVENTS
- --------------------------------------------------------------------------------
On April 14, 2000, the Company announced that Charles M. Rampacek was elected to
the Board of Directors. Mr.Rampacek has been the president and chief executive
officer of Lyondell-Citgo Refining, LP since 1996.
On April 24, 2000, the Company announced a non-binding Letter of Intent to
purchase an undisclosed (actual name can not be disclosed at this time) waste
oil collection company. The Company is performing due diligence and no
definitive agreement has been structured as of the date of this Form 10-QSB
filing. The Company is anticipating a definitive agreement by end of the third
fiscal quarter, and a fiscal fourth quarter closing.
On May 1, 2000, the Company had acquired Petroleum Products, Inc and
Intercoastal Trading Company, Inc. for an undisclosed combination of cash,
shares of the Company's common stock, and note payable. Both companies are waste
oil collectors and will provide future feedstock for Probex re-refining plants.
33
<PAGE> 36
NOTE J RECLASSIFICATION
- --------------------------------------------------------------------------------
Certain prior period items in these Consolidated Financial Statements have been
reclassified to conform with current presentation.
NOTE K SUPPLEMENTAL DISCLOSURE - STATEMENT OF CASH FLOWS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
---------------------------
Mar 31,2000 Mar 31,1999
------------ ------------
<S> <C> <C>
Interest paid $ 916 $ 1,496
Income taxes paid -- --
NON CASH ACTIVITES:
Stock issued for services 7,563 15,000
Stock issued for compensation 48,216
Stock issued for preferred stock dividend 79,053 --
Accrued dividend payable 214,801 --
Accrued interest payable 55,723 --
Deferred stock amortization 2,084 16,666
Other Income - no proceeds (treasury stock) 627 --
Interest on 15% promissory note 49,000
Write off of Property and Equipment 196,497
</TABLE>
NOTE L MARKET PRICE OF COMPANY'S COMMON STOCK
- --------------------------------------------------------------------------------
In June 1996, the Company started quotation of its Common Stock on the NASDAQ
Electronic Bulletin Board under the symbol "PRB". However, there was no active
market for the Common Stock and the Company's listing was suspended. In January
1998, the Company's market maker made a re-application to the NASDAQ and the
re-listing was approved. Shares of the Company's Common Stock traded inactively
on the NASD over-the-counter bulletin board under the symbol "PRBX". As of
February 3, 2000 the Company's Common Stock was approved for listing and
commenced trading on the American Stock Exchange under the symbol "PRB". At the
same time, the Company's Common Stock ceased trading on the NASD
over-the-counter bulletin board.
Through March 31, 2000, the volume of trading in the Company's common stock has
been relatively small, and none of the shares of common stock issued to date
have been registered under the Securities Act or any of the securities laws or
regulations of any state or other jurisdiction.
34
<PAGE> 37
The range of high and low bids for the Company's common stock for the last eight
quarters are:
<TABLE>
<CAPTION>
For the Quarter Ended: High Low
---- ---
<S> <C> <C>
March 31, 2000 (from February 3, 2000) 5.250 3.500
</TABLE>
<TABLE>
<CAPTION>
Bid Ask
---------------- ----------------
For the Quarter Ended: High Low High Low
- --------------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
March 31 (through Feb. 2, 2000) 4.8125 2.1875 5 2.28125
December 31, 1999 2.6875 1.71875 2.8125 1.8125
September 30, 1999 1.6875 1.40625 1.875 1.50
June 30, 1999 1.75 1.25 1.9375 1.375
March 31, 1999 1.75 .5625 2 .6875
December 31, 1998 .75 .25 1.3125 .75
September 30, 1998 2 .375 2.375 1
June 30, 1998 2.125 1.375 2.50 1.875
</TABLE>
The information since February 3, 2000 is based on the high and low sales price
as reported on the American Stock Exchange. The high and low bid information for
the periods prior to February 3, 2000 was obtained from National Quotation
Bureau, Inc. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
35
<PAGE> 38
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
References in this document to "us", "we", "it" ,"our" or "the Company" refer to
Probex Corp.
GENERAL
Probex is a development stage energy technology company that has begun
commercialization of its proprietary re-refining technology (ProTerra(TM)). The
primary application of ProTerra is for the purification, recycling, and
upgrading of used lubricating oils. The Company has utilized the majority of its
resources since inception on research and development of ProTerra(TM).
Probex was formed as a Colorado corporation in 1988 under the name Conquest
Ventures, Inc. It engaged in an unrelated line of business that had been
discontinued by 1994, when the Company acquired certain technology rights from
Probex Technologies, L.P. In connection with the 1994 acquisition, the Company
changed its name to Probex Corp. and focused its subsequent activities on
research and development of the acquired technology which lead to the Company's
present line of business. The Company has developed a proprietary re-refining
process for used lubricating oils which the Company believes provides major
performance advantages over all known re-refining technologies. The Company's
technology has been validated through extensive pilot testing and results have
been validated by a number of independent and reputable testing laboratories as
well as by leading technical experts in the refining and base oil processing
industries. The Company has attracted and retained strong, experienced persons
in management functions with a depth of expertise in commercializing new
technologies, managing early stage companies, and in the waste oil and base oil
industries.
Our objective is to meet the market need for new outlets for a material portion
of the estimated 5.3 billion gallons of available waste oil worldwide, as well
as to supply premium base oils that will comply with the new motor oil standards
expected to be implemented in the United States in late 2000 and thereafter
around the world.
The Company's principal business address is 1467 LeMay, Suite 111, Carrollton,
Texas 75007. Our Internet site can be accessed at www.probex.com. The Company's
fiscal year end is September 30. Currently, the Company has 24 employees, of
which 23 are full-time employees, located at the administrative offices in
Carrollton, Texas. Additionally, the Company has consulting agreements with two
entities providing services on a part-time basis.
The Company has not been subject to any bankruptcy, receivership or similar
proceeding.
STRATEGIC ALLIANCES
The company has a number of strategic relationships which we believe are of
material benefit and significance with respect to the implementation of our
corporate goals. Our principal strategic relationships are with the following
companies.
36
<PAGE> 39
HSB GROUP, INC. (HSB:NYSE)
The Company has attracted a strategic corporate sponsor in Hartford Steam Boiler
Inspection & Insurance Company, a wholly-owned subsidiary of HSB Group, Inc.
(HSB) and a world leader in petroleum and processing industry equipment
maintenance insurance. The Company has received a letter of intent from the
Hartford Steam Boiler Inspection & Insurance Company to issue a binding
quotation for Systems Performance Insurance (SPI) for the Company's core
proprietary technology. SPI is a custom form of "efficacy insurance" that
facilitates the financing of projects that present technological risk. It
protects the interests of lenders and financial institutions from default in
repayment of senior debt due to under-performance or non-performance that
results from deficiencies in design, materials, technology or construction. In
the event of such under-performance or project failure, the Hartford Steam
Boiler Inspection & Insurance Company will make debt service payments in direct
proportion to the shortfall, less a deductible. HSB Group, Inc., the parent
company of The Hartford Steam Boiler Inspection and Insurance Company, is a
global provider of specialty insurance products, engineering services, and
management consulting. The Hartford Steam Boiler Inspection & Insurance Company
was founded in 1866 to provide loss prevention service and insurance to
businesses, industries and institutions. A separate wholly-owned subsidiary of
HSB, HSB Engineering Finance Corp., has made a substantial direct convertible
loan to the Company. The parties recently have agreed in principle to convert
the amount of principal of this loan in its entirety into direct common stock
ownership in the Company. Completion of the loan conversion is anticipated to
occur in mid 2000, subject to final documentation.
ENVIRONMENTAL RESOURCES MANAGEMENT
Principals of Environmental Resources Management, Inc. ("ERM"), (a $280 million
revenue environmental consulting firm), have invested directly in the Company
and the Company has retained ERM to perform its permitting work for the initial
production plant in Wellsville, Ohio.
BECHTEL CORP.
On February 29, 2000, the Company entered into a Memorandum of Understanding
with Bechtel Corp. ("Bechtel") for entering into negotiations with respect to a
strategic alliance under which the Company will engage Bechtel for the
engineering, procurement, and construction of the Company's plants on a
worldwide basis. The Company has entered into an agreement to license MP
Refining Technology owned by Bechtel to enhance the Company's own proprietary
technology (ProTerra(TM)). In addition, on March 27, 2000, Bechtel made a
$600,000 investment in the Company by exercising a warrant to purchase 200,000
shares of Probex common stock. The warrant, which had a two-year expiration, was
issued by Probex on February 28, 2000, in consideration for Bechtel agreeing to
defer up to $1 million of license and engineering payments for Probex's first
operating plant in Wellsville, OH.
WELLSVILLE PROJECT
We are presently engaged in development of our first production facility,
located in Wellsville, Ohio, which will convert waste lubricating oils into
premium base oils, fuel oil and asphalt flux or modifier.
In June 1999, the Company entered into a $1,350,000 twelve-month purchase option
agreement for the first production site in Wellsville, Ohio and is currently
undertaking site planning and permitting. This 22-acre site is optimally located
on the Ohio River in the center of large supply and product markets, and
includes a barge dock, significant tankage, a rail spur,
37
<PAGE> 40
and rail and truck loading and unloading racks. Phase I and Phase II
environmental studies have been or are being performed and the Wellsville, Ohio
site is currently being readied for development.
Probex has completed all material research and development activities related to
ProTerra, and we expect to complete a Design and Critical Specifications Package
(DCSP) by mid-2000. The DCSP will summarize Probex's experience and knowledge
developed over the past five years, including pilot plant trials, process
simulations, and research and industry experience. Among the items included in
the DCSP will be a detailed description of the battery limits process, offsites
and utilities, process flow diagrams, piping and instrumentation diagrams, mass
balances, equipment design notes, information management and process control
systems, site description and layout, and company standards.
Probex is in negotiations with Bechtel, a global engineer/constructor firm, for
a turnkey engineering/procurement/construction (EPC) alliance and anticipates
obtaining agreement with Bechtel for its engineering work at some point in the
future. This EPC agreement will include contracts encompassing industry-standard
design, material, and workmanship warranties as well as appropriate and
necessary credit-support commitments.
We anticipate operating this initial plant facility under operations and
maintenance (O&M) contracts. The exact details and responsibilities of the O&M
contractor have yet to be determined. However, Probex envisions that the O&M
contractor would be responsible for the operation and maintenance for the entire
facility, including battery limit plant operations, material transfers, and
storage and maintenance (scheduled and unscheduled). Probex will secure
feedstock, market the products, and oversee facility operations and finances.
The Company is in negotiations with various debt and equity partners to provide
the financing for the initial facility and that financing will be used to fund
capital costs, working capital, construction period interest, and financing
expenses and fees. With regard to technical risk coverage for the senior project
lender, we intend to match any SPI Policy which may be issued by the Hartford
Steam Boiler Inspection & Insurance Company with cost and schedule guarantees
from the selected EPC firm, which is presently expected to be Bechtel. Finally,
Probex is in the process of securing the product off-take letters of intent and
contracts necessary to provide the revenue streams to support projected debt
service requirements.
With respect to project equity, HSB Engineering Finance Corp. has expressed an
interest in providing up to $10 million of project equity and/or investments
subordinated to senior debt, once senior debt financing is committed, if this
type of investment is required. The debt and equity capital requirements for the
initial plant are substantial, and there can be no assurances that Probex
ultimately will obtain the capital required to construct its plant as projected.
CURRENT QUARTER COMPANY UPDATES
On February 1, 2000, the Company filed a Form 10-SB/A, pursuant to Section 12(b)
of the Securities Exchange Act of 1934, as amended, which was subsequently
declared effective by the Securities and Exchange Commission on February 2,
2000. Additionally, on February 3, 2000, the Company's common stock began
trading on the American Stock Exchange under the symbol "PRB".
38
<PAGE> 41
As discussed above in the Strategic Alliances section, on February 29, 2000, the
Company entered into the Memorandum of Understanding with Bechtel for entering
into negotiations with respect to a strategic alliance under which the Company
will engage Bechtel for the engineering, procurement, and construction of the
Company's plants on a worldwide basis. In addition, on March 27, 2000, Bechtel
made a $600,000 investment in the company by exercising a warrant to purchase
200,000 shares of Probex common stock. The warrant, which had a two-year
expiration, was issued by Probex on February 28, 2000, in consideration for
Bechtel agreeing to defer up to $1 million of license and engineering payments
for Probex's first operating plant in Wellsville, OH.
The Company continues to develop its strategy to acquire waste oil collection
companies to ensure waste oil feedstock is available for future Company waste
oil re-refining plants. As described in the Note I, Subsequent Events in the
Notes to Consolidated Financial Statements, the Company had acquired Petroleum
Products, Inc and Intercoastal Trading Company, Inc. on May 1, 2000. On April
24, 2000, the Company entered into a non-binding Letter of Intention to purchase
another undisclosed waste oil collection company.
39
<PAGE> 42
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- --------------------------------------------------------------------------------
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
- --------------------------------------------------------------------------------
During the three months ended March 31, 2000, we issued the securities listed
below:
In February, the Company sold 240,750 shares of common stock to one investor for
the total amount of $650,025.00. In connection with such sale, the Company
issued warrants to APS Financial Corporation to purchase 36,113 shares of common
stock at an exercise price of $2.70 and expiring on December 15, 2004. APS
Financial Corporation received the warrants for its services in connection with
such placement.
In February, the Company issued warrants to purchase 75,000 shares of common
stock at an exercise price of $1.00 per share pursuant to a previously
outstanding contractual obligation entered into with a consultant in October
1999 for consulting services to be provided to the Company.
In February, the Company issued warrants to purchase 200,000 shares of common
stock at an exercise price of $3.00 per share to Bechtel Corporation in
connection with certain agreements entered into between the Company and Bechtel
Corporation. On March 27, Bechtel Corporation exercised the warrants with
respect to all 200,000 shares.
In March, the Company issued to a director an aggregate of 40,000 shares of
common stock pursuant to the exercise of previously outstanding warrants. The
exercise price of such warrants was $0.50 per share of common stock.
In March, in connection with the Company's previously completed private
placement of its 10% Cumulative Convertible Preferred Stock, Series A, par value
of $0.01 ("Series A Preferred Stock"), as previously reported in the Company's
Form 10-QSB for the quarter ended December 31, 1999, the Company issued an
additional warrant to purchase 13,000 shares of common stock to one of the
placement agents in such private placement. The warrants were of the same class
and had the same terms as those previously issued in connection with the Series
A Preferred Stock placement.
In March, the Company issued 2,667 shares of common stock at a price of $1.875
per share to a consultant for services provided to the Company.
In March, the Company declared and paid a dividend on its Series A Preferred
Stock from date of investment deposited thru December 15, 1999, in the form of
shares of common stock of the Company. Pursuant to the terms of the Series A
Preferred Stock, dividends are payable, at the Company's option, in shares of
common stock at a deemed value of $1.50 per share. The
40
<PAGE> 43
dividend payment on the Series A Preferred Stock was $79,053, resulting in the
issuance of an aggregate of 52,702 shares of common stock.
With respect to the issuance of common stock as a dividend to the holders Series
A Preferred Stock , we relied on Section 2(a)(3) of the Securities Act of 1933,
as amended, as a basis for an exemption from registration of the securities
issued, as the dividend was not an event of sale. With respect to each of the
other foregoing transactions, we relied on Section 4(2) of the Securities Act of
1933, as amended, as a basis for an exemption from registration of the
securities issued, as none of the transactions involved any public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
- --------------------------------------------------------------------------------
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- --------------------------------------------------------------------------------
None
ITEM 5. OTHER INFORMATION
- --------------------------------------------------------------------------------
For information relating to certain other transactions by the Company through
March 31, 2000, see "Management's Discussion and Analysis of Financial
Conditions and Results of Operations" in Item 2 of Part I of this Quarterly
Report on Form 10-QSB. Such information is incorporated herein by reference.
ITEM 6. EXHIBITS
- --------------------------------------------------------------------------------
a) EXHIBITS
4.3.15 Form of Class "W" Warrants, at $1.00 per share expiring October 5,
2001.
4.3.16 Warrant to purchase up to 200,000 shares of Common Stock of the Company
granted to Bechtel Corporation at $3.00 per share expiring on February
28, 2002.
4.3.17 Form of Class "Y" Warrants, at $2.70 per share expiring December 15,
2004.
10.18 Memorandum of Understanding between Bechtel Corporation and the
Company, effective as of January 1, 2000. [Confidential Treatment
Requested. Confidential parts of this document have been redacted and
have been separately filed with the Commission.]
27.1 Financial Data Schedule
41
<PAGE> 44
b) REPORTS ON FORM 8-K
A current report on Form 8-K was filed by the Company on February 17, 2000. This
filing reported under Item 4 that on February 14, 2000, the Board of Directors
of the Company approved the engagement of Ernst & Young LLP as its independent
auditors for the fiscal year of 2000 to replace the firm of M.C. Hunter &
Associates as its independent auditors, effective February 14, 2000.
42
<PAGE> 45
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
PROBEX CORP.
(Registrant)
Date: May 15, 2000 By: /s/ THOMAS G. PLASKETT
-----------------------------------
Thomas G. Plaskett, President and
Chief Executive Officer
Date: May 15, 2000 By: /s/ BRUCE A. HALL
-----------------------------------
Bruce A. Hall, Vice President and
Chief Financial Officer
Date: May 15, 2000 By: /s/ JOHN N. BROBJORG
-----------------------------------
John N. Brobjorg, Corporate
Controller and Chief Accounting
Officer
43
<PAGE> 46
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.3.15 Form of Class "W" Warrants, at $1.00 per share expiring October 5,
2001.
4.3.16 Warrant to purchase up to 200,000 shares of Common Stock of the Company
granted to Bechtel Corporation at $3.00 per share expiring on February
28, 2002.
4.3.17 Form of Class "Y" Warrants, at $2.70 per share expiring December 15,
2004.
10.18 Memorandum of Understanding between Bechtel Corporation and the
Company, effective as of January 1, 2000. [Confidential Treatment
Requested. Confidential parts of this document have been redacted and
have been separately filed with the Commission.]
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4.3.15
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933, AS AMENDED, IN
RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN SECTIONS 3 AND 4 OF
SUCH ACT AND/OR REGULATIONS D PROMULGATED THEREUNDER; OR (B) ANY STATE
SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
SECURITIES MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SECURITIES LAWS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION OR ITS REPRESENTATIVES THAT
SUCH SALE OR TRANSFER WOULD NOT VIOLATE APPLICABLE SECURITIES LAWS OR
REGULATIONS.
- --------------------------------------------------------------------------------
WARRANT NO. 1 TO PURCHASE
SHARES OF COMMON STOCK
(NO PAR VALUE)
CLASS "W" WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
PROBEX CORP.
(A COLORADO CORPORATION)
PURCHASE PRICE PER SHARE: $1.875
EXPIRATION DATE: 5:00 P.M., DALLAS, TEXAS TIME, ON OCTOBER 5, 2001
THIS CERTIFIES that, for value received,
is the registered owner and is entitled, subject to the terms and conditions of
this Warrant, until the Expiration Date, to purchase the number of shares set
forth above of the Common Stock, no par value (the "Common Stock"), of Probex
Corp. (the "Corporation") from the Corporation at the purchase price set forth
above. The number of shares of Common Stock which may be received upon the
exercise of the Warrants and the price to be paid for each share of Common Stock
are subject to adjustment from time to time as hereinafter set forth.
1. EXERCISE OF WARRANTS. Subject to the provisions hereof, this Warrant may be
exercised in whole or in part until the Expiration Date, by delivery of this
Warrant to the Corporation with the exercise form duly executed and payment of
the purchase price (in cash or by certified or bank cashier's check made payable
to the order of the Corporation) for each share purchased.
2. CORPORATION'S COVENANTS AS TO COMMON STOCK. Shares deliverable on the
exercise of this Warrant shall, at delivery, be fully paid and non-assessable,
free from taxes, liens, and charges with respect to their purchase. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants.
3. METHOD OF EXERCISE; FRACTIONAL SHARES. The purchase rights represented by
this Warrant are exercisable at the option of the registered owner in whole at
any time, or in part, from time to time, within the period above specified,
provided, however, that purchase rights are not exercisable with respect to a
<PAGE> 2
Class "W" Warrant No. 1
Page 2
fraction of a share of Common Stock. In lieu of issuing a fraction of a share
remaining after exercise of this Warrant as to all full shares covered hereby,
the Corporation shall either (1) pay therefor cash equal to the same fraction of
the then current Warrant purchase price per share or, at its option, (2) issue
scrip for the fraction, in registered or bearer form approved by the board of
directors of the Corporation, which shall entitle the holder to receive a
certificate for a full share of Common Stock on surrender of scrip aggregating a
full share. Scrip may become void after a reasonable period (but not less than
six months after the expiration date of this Warrant) determined by the board of
directors and specified in the scrip. In case of the exercise of this Warrant
for less than all the shares purchasable, the Corporation shall cancel the
Warrant and execute and deliver a new Warrant of like tenor and date for the
balance of the shares purchasable.
4. ADJUSTMENT OF SHARES PURCHASABLE. The number of shares purchasable hereunder
and the purchase price per share are subject to adjustment from time to time as
specified in this Warrant.
5. REDEMPTION. The Corporation has no redemption rights pursuant to this
Warrant.
6. LIMITED RIGHTS OF OWNER. This Warrant does not entitle the owner to any
voting rights or other rights as a shareholder of the Corporation, or to any
other rights whatsoever except the rights herein expressed. No dividends are
payable or will accrue on this Warrant or the shares purchasable hereunder
until, and except to the extent that, this Warrant is exercised.
7. EXCHANGE FOR OTHER DENOMINATIONS. This Warrant is exchangeable, on its
surrender by the registered owner to the Corporation, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder in denominations designated by the registered owner
at the time of surrender.
8. TRANSFER. Except as otherwise above provided, this Warrant is transferable
only on the books of the Corporation by the registered owner in person or by
attorney, on surrender of this Warrant, properly endorsed. However, because this
Warrant has not been registered under the Securities Act of 1933, as amended,
and applicable state securities laws, this Warrant may not be sold or
transferred in the absence of an effective registration of it under such Act and
all other applicable securities laws or an opinion of counsel acceptable to the
Corporation or its representatives that such sale or transfer would not violate
applicable securities laws or regulations. Any Common Stock purchased upon
exercise of this Warrant shall also be subject to the same restrictions on
transfer and will contain the same transfer legend found on the face of this
Warrant.
9. RECOGNITION OF REGISTERED OWNER. Prior to due presentment for registration of
transfer of this Warrant, the Corporation may treat the registered owner as the
person exclusively entitled to receive notices and otherwise to exercise rights
hereunder.
10. EFFECT OF STOCK SPLIT, ETC. If the Corporation, by stock dividend, split,
reverse split, reclassification or shares, or otherwise, changes as a whole the
outstanding Common Stock into a different number or class of shares, then:
(1) the number and class of shares so changed shall, for the purposes
of this Warrant, replace the shares outstanding immediately prior to the change;
and
(2) the Warrant purchase price in effect, and the number of shares
purchasable under this Warrant, immediately prior to the date upon which the
change becomes effective, shall be proportionately adjusted (the price to the
nearest cent). Irrespective of any adjustment or change in the Warrant purchase
price or the number of shares purchasable under this or any other Warrant of
like tenor, the Warrants theretofore and thereafter issued may continue to
express the Warrant purchase
<PAGE> 3
Class "W" Warrant No. 1
Page 3
price per share and the number of shares purchasable as were expressed in the
Warrants when initially issued.
11. EFFECT OF MERGER, ETC. If the Corporation consolidates with or merges into
another corporation, the registered owner shall thereafter be entitled on
exercise to purchase, with respect to each share of Common Stock purchasable
hereunder immediately before the consolidation or merger becomes effective, the
securities or other consideration to which a holder or one share or Common Stock
is entitled in the consolidation or merger to assure that all the provisions or
this Warrant shall thereafter be applicable, as nearly as reasonable may be, to
any securities or other consideration so deliverable on exercise of this
Warrant. The Corporation shall not consolidate or merge unless, prior to
consummation, the successor corporation (if other than the Corporation) assumes
the obligations of this section 11 by written instrument executed and mailed to
the registered owner at the address of the owner on the books of the
Corporation. A sale or lease of all or substantially all the assets of the
Corporation for a consideration (apart from the assumption of obligations)
consisting primarily or securities is a consolidation or merger for the
foregoing purposes.
12. NOTICE OF ADJUSTMENT. On the happening of an event requiring an adjustment
of the Warrant purchase price or shares purchasable hereunder, the Corporation
shall forthwith give written notice to the registered owner stating the adjusted
Warrant purchase price and the adjusted number and kind of securities or other
property purchasable hereunder resulting from the event and setting forth in
reasonable detail the method of calculation and the facts upon which the
calculation is based. The board of directors of the Corporation, acting in good
faith, shall determine the calculation.
13. NOTICE AND EFFECT OF DISSOLUTION, ETC. In case a voluntary or involuntary
dissolution, liquidation, or winding up of the Corporation (other than in
connection with a consolidation or merger covered by Section 11 above) is at any
time proposed, the Corporation shall give at least 10 days' written notice to
the registered owner prior to the record date as of which holders of Common
Stock will be entitled to receive distributions as a result of the proposed
transaction. Such notice shall contain: (1) the date on which the transaction is
to take place; (2) the record date as of which holders of Common Stock will be
entitled to receive distributions as a result of the transaction; (3) a brief
description of the transaction; (4) a brief description of the distributions to
be made to holders of Common Stock as a result of the transaction; and (5) an
estimate of the fair value of the distributions. On the date of the transaction,
if it actually occurs, this Warrant and all rights hereunder shall terminate.
14. METHOD OF GIVING NOTICE; EXTENT REQUIRED. Notices shall be given by first
class mail, postage prepaid, addressed to the registered owner at the address of
the owner appearing in the records of the Corporation. No notice to warrant
holders is required except as specified in Sections 12 and 13.
15. ACCESS TO INFORMATION. The Company will provide an opportunity to any
registered owner of this Warrant to ask questions of management of the Company
and to obtain information to the extent the Company has the same in its
possession prior to any exercise of the owner's rights to purchase Common Stock
under this Warrant. Requests for information and any other questions concerning
the business and affairs of the Company should be directed to any officer of the
Company at its main offices.
<PAGE> 4
Class "W" Warrant No. 1
Page 4
Witness the seal of the Corporation and the signatures of its
authorized officers.
Date______________________(Seal) PROBEX CORP.
ATTEST:
- ----------------------------------- -----------------------------------
Thomas G. Plaskett Bruce A. Hall
Chief Executive Officer & President Chief Financial Officer & Secretary
<PAGE> 5
Class "W" Warrant No. 1
Page 5
TRANSFER FORM
For value received, the undersigned hereby sells, assigns, and
transfers to
Name
------------------------------------
Address
---------------------------------
this Warrant and irrevocable appoints ___________________ attorney (with full
power of substitution) to transfer this Warrant on the books of the Corporation.
Date:
- -----------------------------------------
-----------------------------------------------
(Please sign exactly as name appears on Warrant)
Taxpayer ID No.
-------------------------------
In the presence of Signature guaranteed by
- ----------------------------- ------------------------------------------------
<PAGE> 6
Class "W" Warrant No. 1
Page 6
EXERCISE FORM
The undersigned hereby: (1) irrevocably subscribes for ________________
shares of your Common Stock pursuant to this Warrant, and encloses payment of
$____________________ therefor; (2) requests that a certificate for the shares
be issued in the name of the undersigned and delivered to the undersigned at the
address below; and (3) if such number of shares is not all of the shares
purchasable hereunder, that a new Warrant of like tenor for the balance of the
remaining shares purchasable hereunder be issued in the name of the undersigned
and delivered to the undersigned at the address below.
Date:
- ----------------------------
------------------------------------------------
(Please sign exactly as name appears on Warrant)
Address:
----------------------------------------
----------------------------------------
Taxpayer ID No.
---------------------------------
<PAGE> 1
EXHIBIT 4.3.16
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THEY MAY NOT BE
SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933, OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SUCH ACT.
WARRANT TO PURCHASE COMMON STOCK
OF
PROBEX CORP.
VOID AFTER FEBRUARY 28, 2002
This Warrant is issued to Bechtel Corporation, or its registered
assigns ("Holder") by Probex Corp., a Colorado corporation (the "Company"), on
February 28, 2000 (the "Warrant Issue Date"). This Warrant is issued in
conjunction with the Wellsville License Agreement (the "License Agreement"), the
Wellsville Plant Process Engineering and Technical Services Agreement (the
"TSA") and the Solvent Finishing Unit Technical Services Agreement (the
"SFUTSA"), each between Holder and the Company. In consideration of the Holder
executing the License Agreement, the TSA, and the SFUTSA and agreeing to defer
the first license fee payment of $273,300 under the License Agreement and 25% of
each invoice under the TSA and the SFUTSA through the earlier of financial close
on the first plant or December 29,2000, up to a maximum of $1,000,000, and in
consideration of the mutual covenants and agreements contained herein, the
Company and the Holder agree as follows:
1. Purchase of Shares. Subject to the terms and conditions hereinafter set
forth, the Holder is entitled, upon surrender of this Warrant at the principal
office of the Company (or at such other place as the Company shall notify the
holder hereof in writing), to purchase from the Company from time to time up to
two hundred thousand (200,000) fully paid and nonassessable shares of Common
Stock of the Company, as constituted on the Warrant Issue Date (the "Common
Stock"). The number of shares of Common Stock issuable pursuant to this Section
1 (the "Shares") shall be subject to adjustment pursuant to Section 7 hereof.
2. Exercise Price. The purchase price for the Shares shall be $3.00 per share,
as adjusted from time to time pursuant to Section 7 hereof (the "Exercise
Price").
3. Exercise Period. This Warrant shall be exercisable, in whole or in part, at
any time within two years after the date hereof. Notwithstanding the term of
this Warrant fixed pursuant to the preceding sentence, the right to purchase
Common Stock as granted herein shall expire, if
<PAGE> 2
not previously exercised, immediately upon the closing of a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person, provided that Holder would
have realized in such merger, consolidation or sale a value for its shares, if
it had exercised this Warrant, equal to or greater than three (3) times the
Exercise Price for such shares (the "Threshold") in connection therewith (the
"Termination Event"). The Threshold shall be adjusted in tandem with each
adjustment in the Exercise Price hereunder. In the event of a proposed
transaction of the kind described above, the Company shall notify the holder of
this Warrant at least fifteen (15) days prior to the consummation of such
Termination Event. If such closing does not take place, the Company shall
promptly notify the Holder that the proposed Termination Event has been
terminated and the Holder may rescind any exercise of this Warrant which
occurred after the Company first notified the Holder of the Termination Event.
In the event of such recission, this Warrant will continue to be exercisable on
the same terms and conditions contained herein.
4. Method of Exercise. While this Warrant remains outstanding and exercisable in
accordance with Section 3 above, the Holder may exercise, in whole or in part
from time to time, the purchase rights evidenced hereby. Such exercise shall be
effected by:
(a) the surrender of this Warrant, together with a duly executed copy of the
form of Notice of Exercise attached hereto, to the Secretary of the Company at
its principal offices; and
(b) the payment to the Company of an amount equal to the aggregate Exercise
Price for the number of Shares being purchased, which may be paid by cash,
cashier's check, or wire transfer of immediately available funds, or by the
surrender of promissory notes or other instruments representing indebtedness of
the Company to the Holder.
5. Certificates for Shares. Upon the exercise of the purchase rights evidenced
by this Warrant, one or more certificates for the number of Shares so purchased
shall be issued in the name of the Holder (or as the Holder may direct) as soon
as practicable thereafter (with appropriate restrictive legends, if applicable),
and in any event within ten (10) days of the delivery of the Notice of Election.
6. Representations and Warranties. The Company hereby represents and warrants to
Holder as follows:
(a) Corporate Power. The Company has all requisite legal and corporate power to
execute and deliver this Warrant, to issue the Shares and to carry out and
perform its obligations under the terms of this Warrant.
(b) Authorization. All corporate action on the part of the Company, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Warrant by the Company, the authorization, sale,
issuance and delivery of the Shares and the performance of all of the Company's
obligations under this Warrant has been taken. This Warrant, when executed and
delivered by the Company, shall constitute a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. The Shares
issuable upon exercise of this Warrant have been duly and validly reserved and,
when
<PAGE> 3
issued in compliance with the provisions of this Warrant, will be validly issued
and will be fully paid and nonassessable and will have the rights, preferences
and privileges described in the Company's Articles of Incorporation, as amended.
The Shares, when issued upon exercise of this Warrant, will be free of any liens
or encumbrances other than those created by or imposed upon the holders thereof
through no action of the Company; provided, however, that the Shares may be
subject to restrictions on transfer under state and/or federal securities laws.
The Common Stock is not subject to any preemptive rights.
7. Adjustment of Exercise Price and Number of Shares. The number of and kind of
securities purchasable upon exercise of this Warrant and the Exercise Price
shall be subject to adjustment from time to time as follows:
(a) Subdivisions, Combinations and Other Issuances. If the Company shall at any
time prior to the expiration of this Warrant subdivide its Common Stock, by
split-up or otherwise, or issue additional shares of its Common Stock as a
dividend with respect to any shares of its Common Stock, the number of Shares
issuable on the exercise of this Warrant shall forthwith be proportionately
increased in the case of a subdivision or stock dividend, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the Exercise Price, but the aggregate Exercise Price payable for the
total number of Shares purchasable under this Warrant (as adjusted) shall remain
the same. Any adjustment under this Section 7(a) shall become effective at the
close of business on the date the subdivision or combination becomes effective,
or as of the record date of such dividend, or in the event that no record date
is fixed, upon the making of such dividend.
(b) Reclassification, Reorganization and Consolidation. In case of any
reclassification, capital reorganization, or change in the Common Stock of the
Company (other than as a result of a subdivision, combination, or stock dividend
provided for in Section 7(a) above), then, as a condition of such
reclassification, reorganization, or change, lawful provision shall be made, and
duly executed documents evidencing the same from the Company or its successor
shall be delivered to the Holder, so that the Holder shall have the right at any
time prior to the expiration of this Warrant to purchase, at a total price equal
to that payable upon the exercise of this Warrant, the kind and amount of shares
of stock and other securities and property receivable in connection with such
reclassification, reorganization, or change by a holder of the same number of
shares of Common Stock as were purchasable by the Holder immediately prior to
such reclassification, reorganization, or change. In any such case, appropriate
provisions shall be made with respect to the rights and interest of the Holder
so that the provisions hereof shall thereafter be applicable with respect to any
shares of stock or other securities and property deliverable upon exercise
hereof, and appropriate adjustments shall be made to the Exercise Price payable
hereunder, provided the aggregate Exercise Price shall remain the same.
(c) Adjustment for Capital Reorganization, Merger or Consolidation. In case of
any capital reorganization of the capital stock of the Company (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), or any merger or consolidation of the Company with or into
another corporation, whether or not the Company is the surviving corporation, or
the sale of all or substantially all of the assets of the Company other than a
Termination Event as defined in Section 3 hereof, then, and in each such case,
as a part of such reorganization, merger, consolidation, sale or transfer,
lawful provision shall be made so that the
<PAGE> 4
Holder of this Warrant shall thereafter be entitled to receive upon exercise of
this Warrant, during the period specified herein and upon payment of the
Exercise Price then in effect, the number of shares of stock or other securities
or property of the successor corporation resulting from such reorganization,
merger, consolidation, sale or transfer that the Holder would have been entitled
to if this Warrant had been exercised immediately before such reorganization,
merger, consolidation, sale or transfer, all subject to further adjustment as
provided in this Section 7. The foregoing provisions of this Section 7(c) shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation that are
at the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the Holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in good
faith by the Company's Board of Directors) shall be made in the application of
the provisions of this Warrant with respect to the rights and interests of the
Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event to the greatest extent possible.
(d) Notice of Adjustment. When any adjustment is required to be made in the
number or kind of shares purchasable upon exercise of this Warrant, or in the
Exercise Price, the Company shall promptly notify the holder of such event and
(i) of the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of this Warrant and (ii) the Exercise Price
after such adjustment.
8. Registration Rights.
(a) Form S-3 Registration. After the date the Company qualifies for the use of
Form S-3, if the Company determines to file a registration statement on Form S-3
or any successor form for the resale of shares of Common Stock for the account
of any selling shareholders, and any Shares are then held by Holders and are not
then included in an effective registration statement, the Company shall promptly
give written notice of such proposed registration to all such Holders and shall
offer such Holders the right to request inclusion of the Shares issued or
issuable upon the exercise of this Warrant. Each Holder shall have thirty (30)
days from the receipt of such notice to deliver to the Company a written request
specifying the number of Shares such Holder intends to sell and the Holder's
intended method of disposition. The Company will use its best efforts to
register under the Securities Act on Form S-3 or any successor form, for public
sale in accordance with the method of disposition specified in such notice, the
number of Shares specified in such notice.
(b) Piggyback Registration.
(i) Each time that the Company proposes for any reason to register any
of its Common Stock under the Securities Act in connection with the proposed
offer and sale of its Common Stock for money either for its own account or on
behalf of any other security holder ("Proposed Registration"), other than
pursuant to a registration statement on Form S-4, S-8 or any successor thereto,
the Company shall promptly give written notice of such Proposed Registration to
all Holders and shall offer such Holders the right to request inclusion of the
Shares issued or issuable upon the exercise of this Warrant in the Proposed
Registration.
<PAGE> 5
(ii) Each Holder shall have thirty (30) days from the receipt of such
notice to deliver to the Company a written request specifying the number of
Shares such Holder intends to sell and the Holder's intended method of
disposition.
(iii) In the event that the Proposed Registration by the Company is, in
whole or in part, an underwritten public offering, the Company shall so advise
the Holders as part of the written notice given pursuant to Section 8(b)(i), and
any request under Section 8(b)(ii) must specify that the shares of Common Stock
be included in the underwriting on the same terms and conditions as the shares
of Common Stock, if any, otherwise being sold through underwriters under such
registration.
(iv) Upon receipt of a written request pursuant to Section 8(b)(ii),
the Company shall promptly use its best efforts to cause all such Shares held by
the Holders to be registered under the Securities Act (and included in any
related qualifications under blue sky laws or other compliance), to the extent
required to permit sale or disposition as set forth in the Proposed
Registration.
(v) In the event that the offering is to be an underwritten offering,
the Holders proposing to distribute their Shares through such underwritten
offering agree to enter into an underwriting agreement with the underwriter or
underwriters selected for such underwriting by the Company.
(vi) Notwithstanding the foregoing, if in its good faith judgment, the
managing underwriter determines and advises in writing that the inclusion of all
Shares issued or issuable with respect to this Warrant proposed to be included
in the underwritten public offering, together with any other issued and
outstanding shares of Common Stock proposed to be included therein by holders,
other than the Holders (such other shares hereinafter collectively referred to
as the "Other Shares"), would interfere with the successful marketing of such
securities, then the number of such shares to be included in such underwritten
public offering shall be reduced, first from the Other Shares (except only those
Other Shares that have the benefit of any priority rights granted to holders of
certain Other Shares prior to the date of this Warrant), on a pro-rata basis,
based upon the number of Other Shares held by each holder thereof, and only
thereafter, from the number of Shares held by the Holders, on a pro-rata basis;
provided that, in connection with any such public offering, if the managing
underwriter reasonably and in good faith recommends, which recommendation and
supporting reasoning shall be delivered in writing to the stockholders, that no
amount of Other Shares, and Shares held by Holders should be included in the
underwritten public offering, then the Company shall not be required to include
any such shares in such public offering.
9. No Fractional Shares or Scrip. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant, but in lieu
of such fractional shares the Company shall make a cash payment therefor on the
basis of the Exercise Price then in effect.
10. No Stockholder Rights. Prior to exercise of this Warrant, the Holder shall
not be entitled to any rights of a stockholder with respect to the Shares,
including (without limitation) the right to vote such Shares, receive dividends
or other distributions thereon, exercise preemptive rights or be notified of
stockholder meetings, and such holder shall not be entitled to any notice or
other
<PAGE> 6
communication concerning the business or affairs of the Company. However,
nothing in this Section 10 shall limit the right of the Holder to be provided
the Notices required under this Warrant or the Master Agreement.
11. Transfers of Warrant. Subject to compliance with applicable federal and
state securities laws, this Warrant and all rights hereunder are transferable in
whole or in part by the Holder to any person or entity upon written notice to
the Company. The transfer shall be recorded on the books of the Company upon the
surrender of this Warrant, properly endorsed, to the Company at its principal
offices, and the payment to the Company of all transfer taxes and other
governmental charges imposed on such transfer. In the event of a partial
transfer, the Company shall issue to the holders one or more appropriate new
warrants.
12. Successors and Assigns. The terms and provisions of this Warrant, the
License Agreement and the TSA shall inure to the benefit of, and be binding
upon, the Company and the Holders hereof and their respective successors and
assigns.
13. Amendments and Waivers. Any term of this Warrant may be amended and the
observance of any term of this Warrant may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the Holder.
14. Reservation of Stock. The Company will at all times reserve and keep
available, solely for the issuance and delivery upon the exercise of this
Warrant, such shares of Common Stock and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
15. Notices. All notices required under this Warrant and shall be deemed to have
been given or made for all purposes (i) upon personal delivery, (ii) upon
confirmation receipt that the communication was successfully sent to the
applicable number if sent by facsimile; (iii) one day after being sent, when
sent by professional overnight courier service, or (iv) five days after posting
when sent by registered or certified mail. Notices to the Company shall be sent
to the principal office of the Company (or at such other place as the Company
shall notify the Holder hereof in writing). Notices to the Holder shall be sent
to the address of the Holder on the books of the Company (or at such other place
as the Holder shall notify the Company hereof in writing).
16. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to
the Company of the loss, theft, destruction or mutilation of this Warrant and
(in the case of loss, theft or destruction) upon delivery of an indemnity
agreement in an amount reasonably satisfactory to the Company, or (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
issue, in lieu thereof, a new Warrant of like tenor.
17. Attorneys' Fees. If any action of law or equity is necessary to enforce or
interpret the terms of this Warrant, the prevailing party shall be entitled to
its reasonable attorneys' fees, costs and disbursements in addition to any other
relief to which it may be entitled.
<PAGE> 7
18. Captions. The section and subsection headings of this Warrant are inserted
for convenience only and shall not constitute a part of this Warrant in
construing or interpreting any provision hereof.
19. Governing Law. This Warrant shall be governed by the laws of the State of
Colorado.
IN WITNESS WHEREOF, Probex Corp. caused this Warrant to be executed by
an officer thereunto duly authorized.
PROBEX CORP.
By: /s/ [ILLEGIBLE]
----------------------------------
Name
Title
ACCEPTED AND AGREED by the undersigned who caused this
Warrant to be executed by an officer thereunto duly authorized to evidence its
receipt hereof and its acknowledgment of its agreements set forth in the
Preamble to this Warrant.
BECHTEL CORPORATION
By: /s/ THOMAS NARDI
----------------------------------
Name Thomas Nardi
Title Principal Vice President
<PAGE> 8
NOTICE OF EXERCISE
To: PROBEX CORP.
The undersigned hereby elects to purchase ___________________
shares of Common Stock of Probex Corp., pursuant to the terms of the attached
Warrant and payment of the Exercise Price per share required under such Warrant
accompanies this notice.
The undersigned hereby represents and warrants that the
undersigned is acquiring such shares for its own account for investment purposes
only, and not for resale or with a view to distribution of such shares or any
part thereof.
WARRANT HOLDER:
By:
-------------------------------------
[NAME]
Address:
-------------------------------------
-------------------------------------
Date:
--------------------
Name in which shares should be registered:
- -----------------------------------------
<PAGE> 1
EXHIBIT 4.3.17
- --------------------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933, AS AMENDED, IN
RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN SECTIONS 3 AND 4 OF
SUCH ACT AND/OR REGULATIONS D PROMULGATED THEREUNDER; OR (B) ANY STATE
SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
SECURITIES MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SECURITIES LAWS OR AN
OPINION OF COUNSEL ACCEPTABLE TO THE CORPORATION OR ITS REPRESENTATIVES THAT
SUCH SALE OR TRANSFER WOULD NOT VIOLATE APPLICABLE SECURITIES LAWS OR
REGULATIONS.
- --------------------------------------------------------------------------------
WARRANT NO. _____ TO PURCHASE _______
SHARES OF COMMON STOCK
(NO PAR VALUE)
CLASS "Y" WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
PROBEX CORP.
(A COLORADO CORPORATION)
PURCHASE PRICE PER SHARE: $2.70
EXPIRATION DATE: 5:00 P.M., DALLAS, TEXAS TIME, ON FEBRUARY 1, 2004
THIS CERTIFIES that, for value received,
-----------------------------------
is the registered owner and is entitled, subject to the terms and conditions of
this Warrant, until the Expiration Date, to purchase the number of shares set
forth above of the Common Stock, no par value (the "Common Stock"), of Probex
Corp. (the "Corporation") from the Corporation at the purchase price set forth
above. The number of shares of Common Stock which may be received upon the
exercise of the Warrants and the price to be paid for each share of Common Stock
are subject to adjustment from time to time as hereinafter set forth.
1. EXERCISE OF WARRANTS. Subject to the provisions hereof, this Warrant may be
exercised in whole or in part until the Expiration Date, by delivery of this
Warrant to the Corporation with the exercise form duly executed and payment of
the purchase price (in cash or by certified or bank cashier's check made payable
to the order of the Corporation) for each share purchased.
2. CORPORATION'S COVENANTS AS TO COMMON STOCK. Shares deliverable on the
exercise of this Warrant shall, at delivery, be fully paid and non-assessable,
free from taxes, liens, and charges with respect to their purchase. The
Corporation shall at all times reserve and hold available sufficient shares of
Common Stock to satisfy all conversion and purchase rights of outstanding
convertible securities, options and warrants.
3. METHOD OF EXERCISE; FRACTIONAL SHARES. The purchase rights represented by
this Warrant are exercisable at the option of the registered owner in whole at
any time, or in part, from time to time, within the period above specified,
provided, however, that purchase rights are not exercisable with respect to a
<PAGE> 2
Class "Y" Warrant No.
Page 2
fraction of a share of Common Stock. In lieu of issuing a fraction of a share
remaining after exercise of this Warrant as to all full shares covered hereby,
the Corporation shall either (1) pay therefor cash equal to the same fraction of
the then current Warrant purchase price per share or, at its option, (2) issue
scrip for the fraction, in registered or bearer form approved by the board of
directors of the Corporation, which shall entitle the holder to receive a
certificate for a full share of Common Stock on surrender of scrip aggregating a
full share. Scrip may become void after a reasonable period (but not less than
six months after the expiration date of this Warrant) determined by the board of
directors and specified in the scrip. In case of the exercise of this Warrant
for less than all the shares purchasable, the Corporation shall cancel the
Warrant and execute and deliver a new Warrant of like tenor and date for the
balance of the shares purchasable.
4. ADJUSTMENT OF SHARES PURCHASABLE. The number of shares purchasable hereunder
and the purchase price per share are subject to adjustment from time to time as
specified in this Warrant.
5. REDEMPTION. The Corporation has no redemption rights pursuant to this
Warrant.
6. LIMITED RIGHTS OF OWNER. This Warrant does not entitle the owner to any
voting rights or other rights as a shareholder of the Corporation, or to any
other rights whatsoever except the rights herein expressed. No dividends are
payable or will accrue on this Warrant or the shares purchasable hereunder
until, and except to the extent that, this Warrant is exercised.
7. EXCHANGE FOR OTHER DENOMINATIONS. This Warrant is exchangeable, on its
surrender by the registered owner to the Corporation, for new Warrants of like
tenor and date representing in the aggregate the right to purchase the number of
shares purchasable hereunder in denominations designated by the registered owner
at the time of surrender.
8. TRANSFER. Except as otherwise above provided, this Warrant is transferable
only on the books of the Corporation by the registered owner in person or by
attorney, on surrender of this Warrant, properly endorsed. However, because this
Warrant has not been registered under the Securities Act of 1933, as amended,
and applicable state securities laws, this Warrant may not be sold or
transferred in the absence of an effective registration of it under such Act and
all other applicable securities laws or an opinion of counsel acceptable to the
Corporation or its representatives that such sale or transfer would not violate
applicable securities laws or regulations. Any Common Stock purchased upon
exercise of this Warrant shall also be subject to the same restrictions on
transfer and will contain the same transfer legend found on the face of this
Warrant.
9. RECOGNITION OF REGISTERED OWNER. Prior to due presentment for registration of
transfer of this Warrant, the Corporation may treat the registered owner as the
person exclusively entitled to receive notices and otherwise to exercise rights
hereunder.
10. EFFECT OF STOCK SPLIT, ETC. If the Corporation, by stock dividend, split,
reverse split, reclassification or shares, or otherwise, changes as a whole the
outstanding Common Stock into a different number or class of shares, then:
(1) the number and class of shares so changed shall, for the purposes
of this Warrant, replace the shares outstanding immediately prior to the change;
and
(2) the Warrant purchase price in effect, and the number of shares
purchasable under this Warrant, immediately prior to the date upon which the
change becomes effective, shall be proportionately adjusted (the price to the
nearest cent). Irrespective of any adjustment or change in the Warrant purchase
price or the number of shares purchasable under this or any other Warrant of
like tenor, the Warrants theretofore and thereafter issued may continue to
express the Warrant purchase
<PAGE> 3
Class "Y" Warrant No.
Page 3
price per share and the number of shares purchasable as were expressed in the
Warrants when initially issued.
11. EFFECT OF MERGER, ETC. If the Corporation consolidates with or merges into
another corporation, the registered owner shall thereafter be entitled on
exercise to purchase, with respect to each share of Common Stock purchasable
hereunder immediately before the consolidation or merger becomes effective, the
securities or other consideration to which a holder or one share or Common Stock
is entitled in the consolidation or merger to assure that all the provisions or
this Warrant shall thereafter be applicable, as nearly as reasonable may be, to
any securities or other consideration so deliverable on exercise of this
Warrant. The Corporation shall not consolidate or merge unless, prior to
consummation, the successor corporation (if other than the Corporation) assumes
the obligations of this section 11 by written instrument executed and mailed to
the registered owner at the address of the owner on the books of the
Corporation. A sale or lease of all or substantially all the assets of the
Corporation for a consideration (apart from the assumption of obligations)
consisting primarily or securities is a consolidation or merger for the
foregoing purposes.
12. NOTICE OF ADJUSTMENT. On the happening of an event requiring an adjustment
of the Warrant purchase price or shares purchasable hereunder, the Corporation
shall forthwith give written notice to the registered owner stating the adjusted
Warrant purchase price and the adjusted number and kind of securities or other
property purchasable hereunder resulting from the event and setting forth in
reasonable detail the method of calculation and the facts upon which the
calculation is based. The board of directors of the Corporation, acting in good
faith, shall determine the calculation.
13. NOTICE AND EFFECT OF DISSOLUTION, ETC. In case a voluntary or involuntary
dissolution, liquidation, or winding up of the Corporation (other than in
connection with a consolidation or merger covered by Section 11 above) is at any
time proposed, the Corporation shall give at least 10 days' written notice to
the registered owner prior to the record date as of which holders of Common
Stock will be entitled to receive distributions as a result of the proposed
transaction. Such notice shall contain: (1) the date on which the transaction is
to take place; (2) the record date as of which holders of Common Stock will be
entitled to receive distributions as a result of the transaction; (3) a brief
description of the transaction; (4) a brief description of the distributions to
be made to holders of Common Stock as a result of the transaction; and (5) an
estimate of the fair value of the distributions. On the date of the transaction,
if it actually occurs, this Warrant and all rights hereunder shall terminate.
14. METHOD OF GIVING NOTICE; EXTENT REQUIRED. Notices shall be given by first
class mail, postage prepaid, addressed to the registered owner at the address of
the owner appearing in the records of the Corporation. No notice to warrant
holders is required except as specified in Sections 12 and 13.
15. ACCESS TO INFORMATION. The Company will provide an opportunity to any
registered owner of this Warrant to ask questions of management of the Company
and to obtain information to the extent the Company has the same in its
possession prior to any exercise of the owner's rights to purchase Common Stock
under this Warrant. Requests for information and any other questions concerning
the business and affairs of the Company should be directed to any officer of the
Company at its main offices.
<PAGE> 4
Class "Y" Warrant No.
Page 4
Witness the seal of the Corporation and the signatures of its
authorized officers.
Date______________________(Seal) PROBEX CORP.
ATTEST:
- ----------------------------------- -----------------------------------
Thomas G. Plaskett Bruce A. Hall
Chief Executive Officer & President Chief Financial Officer & Secretary
<PAGE> 5
Class "Y" Warrant No.
Page 5
TRANSFER FORM
For value received, the undersigned hereby sells, assigns, and
transfers to
Name
-----------------------------------
Address
--------------------------------
this Warrant and irrevocable appoints _____________________ attorney (with full
power of substitution) to transfer this Warrant on the books of the Corporation.
Date:
- -----------------------------------------
------------------------------------------------
(Please sign exactly as name appears on Warrant)
Taxpayer ID No.
---------------------------------
In the presence of Signature guaranteed by
- ----------------------------- ------------------------------------------------
<PAGE> 6
Class "Y" Warrant No.
Page 6
EXERCISE FORM
The undersigned hereby: (1) irrevocably subscribes for ________________
shares of your Common Stock pursuant to this Warrant, and encloses payment of
$____________________ therefor; (2) requests that a certificate for the shares
be issued in the name of the undersigned and delivered to the undersigned at the
address below; and (3) if such number of shares is not all of the shares
purchasable hereunder, that a new Warrant of like tenor for the balance of the
remaining shares purchasable hereunder be issued in the name of the undersigned
and delivered to the undersigned at the address below.
Date:
- ----------------------------
-----------------------------------------------
(Please sign exactly as name appears on Warrant)
Address:
---------------------------------------
---------------------------------------
Taxpayer ID No.
--------------------------------
<PAGE> 1
Confidential Treatment Requested. Confidential Portions of this document have
been redacted and have been separately filed with the Commission.
EXHIBIT 10.18
MEMORANDUM OF UNDERSTANDING
This MEMORANDUM OF UNDERSTANDING is entered into effective as of January 1, 2000
by and between PROBEX CORP. ("Probex") and BECHTEL CORPORATION ("Bechtel").
WHEREAS, Probex has developed ProTerra(TM), a proprietary process for
manufacturing premium base lubricating oil from used oil, and Bechtel's
proprietary MP Refining(SM) technology is a good complement to the finishing
stage of ProTerra(TM); and
WHEREAS, to capitalize on their respective complementary resources and
capabilities, Probex wishes to obtain Bechtel's assistance in the development,
financing, engineering, design, procurement, construction, and operation
worldwide of used oil re-refining facilities based on ProTerra(TM) and enhanced
by MP Refining(SM); and
WHEREAS, to that end Probex and Bechtel have effective as of the date hereof
entered into master agreements under which Bechtel shall license the MP
Refining(SM) process to Probex and perform process engineering and other
front-end engineering services for Probex;
NOW, THEREFORE, for the mutual promises and consideration contained herein,
Probex and Bechtel hereby further agree as follows:
1. Designated Engineer/Constructor: Probex and Bechtel shall in good faith use
their best efforts to complete and execute contractual arrangements whereby
Bechtel is designated Probex's engineer constructor for all Probex facilities
worldwide for which Probex has the right to designate an engineer constructor
2. Turnkey Engineering, Procurement and Construction Contract: Probex and
Bechtel shall in good faith use their best efforts to complete and execute by
[Confidential material redacted and filed separately with the Commission.] a
master turnkey EPC contract and the contract release for the first Probex
facility with performance guarantees and credit support elements that are
consistent with and incorporate the business points contained in the term sheet
that is Attachment A hereto.
3. Operations and Maintenance Agreement: Bechtel shall inform Probex by April,
2000 whether Bechtel intends to enter into good faith negotiations on a mutually
satisfactory master operations and maintenance agreement for the first Probex
facility, and for subsequent facilities as appropriate.
4. Marketing Assistance: Bechtel will provide marketing assistance to Probex in
identifying and developing opportunities for commercial application of
ProTerra(TM). Compensation for marketing assistance by Bechtel will be included
in the pricing provisions of the master EPC agreement.
5. Press Release: Probex and Bechtel shall jointly issue immediately upon the
execution of this Memorandum of Understanding the press release which is
Attachment
1
<PAGE> 2
B hereto. Bechtel will have the right to timely review and approve any press
release which mentions Bechtel.
6. Termination: This Memorandum of Understanding shall terminate and be of no
further force should the parties not be able to reach agreement on EPC contracts
by [Confidential material redacted and filed separately with the Commission.]
unless the parties extend this target date by mutual agreement.
7. Disclosures: In the event Probex is required to disclose this MOU, contracts,
or any work products to the SEC, Probex and Bechtel will consult and agree in
advance on which sections will be redacted and filed separately with the SEC.
It is agreed that any work product prepared by Bechtel shall not be disclosed in
connection with any public securities offering without Bechtel's prior written
consent. Any such work product shall only be disclosed to sophisticated
investors with prior notification to Bechtel and with an appropriate disclaimer
putting such investors on notice of the requirement to perform their own due
diligence prior to making any investment. Extracts of such work product which
attribute the extracted information to Bechtel will only be disclosed to third
parties after prior notification to Bechtel and after these third parties have
entered into appropriate confidentiality agreements with Probex and a
contractual relationship with Probex pursuant to which such third parties are
required to have access to such excerpts in connection with the performance of
their duties to Probex. Otherwise, such extracts of such work product will not
be disclosed to third parties without Bechtel's prior review.
Work product is defined as all information and documents produced by Bechtel
pursuant to its contractual obligations to Probex.
IN WITNESS WHEREOF, Probex and Bechtel have entered into this Memorandum of
Understanding effective as of the date first set forth hereinabove.
PROBEX CORP. BECHTEL CORPORATION
By: /s/ THOMAS G. PLASKETT By: /s/ THOMAS NARDI
-------------------------- ---------------------------------
Thomas G. Plaskett Thomas Nardi
Chairman and CEO Principal Vice President
2
<PAGE> 3
Attachment A
Probex Corp. Lube Oil Manufacturing Initiative
MASTER TURNKEY ENGINEERING, PROCUREMENT,
CONSTRUCTION, STARTUP AND COMMISSIONING CONTRACT
Term Sheet
1. The Contract shall apply to all Probex Corp. used lubricating oil re-refining
facilities worldwide for which Probex or an affiliated or subsidiary entity has
the right to designate the engineer/constructor ("the Probex Facilities"). One
master EPC contract will be prepared giving general terms and conditions and
formulas for compensation. Individual facilities will be contracted through
numbered releases to the master contract which describe the site specific scope,
compensation, and deviations from the master contract terms and conditions.
2. The definitive form and content of the master contract shall facilitate
Probex's ability to secure non-recourse debt and/or other financing for the
Probex Facilities, and the master contract and its first release shall contain
such terms and conditions as are reasonable, appropriate, and customary in that
context. If necessary for credit support purposes, Bechtel will enter into
individual EPC Contracts for each Probex Facility with Probex or one of Probex's
affiliates.
3. The Probex Facilities shall be based upon ProTerra(TM), Probex's proprietary
technology, which has discrete pretreatment, distillation and finishing stages,
as complemented by Bechtel Corporation's proprietary MP Refining(SM) solvent
extraction finishing process where applicable.
4. Bechtel's services shall include but not be limited to the design,
engineering, procurement, construction, commissioning, start up, and performance
testing of the Probex Facilities (all of which in totality shall be referred to
hereinafter as "the Services"), commencing with a facility or facilities to be
designated by Probex. The Services shall include any and all engineering and
other technical and ancillary services performed under any preceding contracts
by Bechtel for Probex directly or indirectly for each Probex Facility.
5. To the maximum extent feasible commensurate with the degree of steady work
load on Probex facilities, Bechtel shall manage the resources, including
personnel, that it dedicates to the performance of the Services on a
programmatic basis to maximize the efficiencies and cost savings to Probex
associated with a multi-facility program. [Confidential material redacted and
filed separately with the Commission.]
1
<PAGE> 4
6. Bechtel shall perform the Services for each Facility in accordance with
detailed design criteria, specifications, and engineering drawings defining the
physical scope and required performance characteristics of each Facility,
including but not limited to electrical, hydraulic, and mechanical systems and
utilities, as prepared by Bechtel and approved by Probex.
7. The nature and scope of Bechtel's startup services shall be mutually agreed
to by Probex and Bechtel.
8. Approved lists of major equipment vendors and subcontractors will be included
in the Master EPC contract. The approved lists of vendors and subcontractors can
be modified by mutual consent of Probex and Bechtel, as appropriate, in each
contract release.
9. Bechtel may be authorized to purchase as Probex's agent tangible equipment
and material for incorporation into the Facility if necessary and appropriate to
avoid double taxation. [Confidential material redacted and filed separately with
the Commission.]
10. Probex shall pay Bechtel a lump sum turnkey price (or, if the parties agree,
a not-to-exceed price) for the performance of the Services associated with each
Facility, which fixed price will be determined by open-book discussions for
estimating costs. Payment of the fixed price shall be made in installments in
concert with Bechtel's progress in performing the Services and expenses incurred
associated with each Facility. Such fixed price for each Facility shall only be
adjusted in response to changes in the scope of the Services and/or the Facility
ordered by Probex, for changed conditions from those described in the scoping
documents included in a contract release, or for force majeure events as agreed
between the parties.
11. Probex, HSB, and Probex's lenders and their representatives, including
potentially a consulting engineer, shall have reasonable access to Bechtel's
engineering facilities and each Facility site for the purpose of inspecting and
monitoring Bechtel's performance of the Services associated with each Facility
and the multi-plant program as a whole.
12. Probex and Bechtel shall each be responsible for securing and paying for
licenses and permits associated with their respective roles and
responsibilities.
13. Probex shall provide, arrange for, or provide Bechtel access to the
necessary utilities, including electrical energy, and sufficient used oil
feedstock for the commissioning and startup of each Probex Facility.
14. Bechtel shall conduct the performance testing of such facility in
conjunction with Probex in accordance with agreed upon test criteria, procedures
and duration.
2
<PAGE> 5
15. Bechtel shall guarantee to Probex the Date of Mechanical Completion of each
Probex Facility, which dates shall be adjusted, if at all, only in accordance
with agreed-upon industry standard practices such as changes requested by
Probex, changed conditions, and/or force majeure events. The definition of
Mechanical Completion shall be included in the master EPC contract. In the event
that Bechtel fails to achieve Mechanical Completion of a Facility by the
agreed-upon date, Bechtel shall pay to Probex liquidated damages, the
calculation of which will be based upon a formula to be mutually agreed to by
Probex and Bechtel, and included in the master EPC contract (unless explicitly
superceded in the associated contract release). Such liquidated damages shall be
Probex's exclusive remedy for delay and are intended to be at a level sufficient
to meet lender requirements.
16. Bechtel shall guarantee its performance of the Services (as covered in any
Technical Services or EPC contracts) in accordance with accepted professional
engineering, procurement, and construction standards, and therefore guarantee
the physical, mechanical, and structural performance of each Probex Facility.
Bechtel shall correct at its cost any deficiencies in the Services for each
Probex Facility upon notice from Probex within an agreed-to warranty period,
subject to a total liability cap to be included in the master EPC contract and
the associated contract release.
17. Bechtel shall guarantee to Probex that the MP Refining Unit portion of each
Facility shall perform in accordance with agreed-to Performance Standards as
confirmed by the performance testing referenced above. In the event that such MP
Refining(SM) Unit fails to meet the Performance Standards by an agreed-upon
date, Bechtel shall pay to Probex liquidated damages, the calculation of which
will be based upon a formula to be mutually agreed to by Probex and Bechtel, and
included in the Master EPC Contract (unless explicitly superceded in the
associated contract release). Such liquidated damages shall be Probex's
exclusive remedy for performance shortfall and are intended to be at a level
sufficient to meet lender requirements.
18. The terms and conditions of the Master EPC Contract and contract releases,
and in particular those associated directly and indirectly with the performance
of the initial Probex Facilities, are intended to be [Confidential material
redacted and filed separately with the Commission.] complementary to the HSB
system performance insurance ("SPI") being provided to support the project
financing of at least the initial Probex Facilities, such that the Contract and
the SPI provide Probex's lenders with sufficient security and protection
regarding the performance of at least those initial Probex facilities.
19. If and when appropriate, following the successful financing, installation
and operation of the initial Probex Facilities, in place of the HSB SPI
referenced in Section 18, above, and the MP Refining performance guarantee as
specified in Section 17, above, Bechtel will consider providing performance
guarantees for the totality of the ProTerra/MP Refining process as appropriate
and necessary to support the project financing of subsequent Probex Facilities.
3
<PAGE> 6
20. The final acceptance of each Probex Facility by Probex and HSB shall occur
following Bechtel's completion of all punch list items for each such Probex
Facility.
21. Except in the case of willful misconduct, Bechtel's total liability to
Probex for all causes, except for the re-performance of deficient engineering
services, shall be limited to a mutually agreed to maximum total liability cap .
Schedule and performance liquidated damages and all warranty work other than
re-performance of deficient engineering, will be sub-capped under the total
liability cap in amounts to be mutually agreed. Other than schedule and
performance liquidated damages and any specific indemnities negotiated and
agreed to by both parties, each party shall release the other, its
subcontractors and suppliers from liability for consequential damages, howsoever
arising, and whether in contract, tort or otherwise.
22. Probex and its insurance broker and Bechtel shall agree upon insurance
arrangements and coverages, and other risk management devices, for the
multi-plant program as a whole and for each Facility that support the project
financing of those Facilities. If Bechtel is required to assume risk of loss
during construction then Bechtel will furnish appropriate Builders Risk
insurance.
23. Probex and Bechtel shall be bound by appropriate bi-lateral confidentiality
obligations with regard to the existence of the Contract, the progress that the
parties are making thereunder, and specific confidential information transferred
from each party to the other.
24. The ownership of work product shall be as outlined in the Solvent Finishing
Unit Technical Services Agreement and the Wellsville Plant Process Engineering
and Technical Services Agreement to be signed contemporaneously with the
execution of the EPC MOU.
4
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 4,443,407
<SECURITIES> 0
<RECEIVABLES> 31,572
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,532,461
<PP&E> 2,136,139
<DEPRECIATION> 432,577
<TOTAL-ASSETS> 6,333,677
<CURRENT-LIABILITIES> 1,580,794
<BONDS> 0
0
4,634,412<F1>
<COMMON> 10,020,652
<OTHER-SE> (9,917,261)<F2>
<TOTAL-LIABILITY-AND-EQUITY> 6,333,677
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 28,786
<INCOME-PRETAX> (1,041,152)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,082,349)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,041,152)
<EPS-BASIC> (0.05)
<EPS-DILUTED> (0.05)
<FN>
<F1>AS OF 03-31-00, THERE ARE 535,000 SHARES OF CUMULATIVE CONVERTIBLE PREFERRED
STOCK, RECORDED AT $4,634,412, NET OF OFFERING COSTS.
<F2>INCLUDES ($3,125) OF DEFERRED STOCK EXPENSE, ($9,913,509) OF DEFICIT
ACCUMULATED DURING DEVELOPMENT STAGE, AND ($627) TREASURY STOCK.
</FN>
</TABLE>
