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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10/A-SB
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12 (b)
OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
Probex Corp.
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(Name of Small Business Issuer in its Charter)
Colorado 33-0294243
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(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
1467 LeMay, Suite 111, Carrollton, Texas 75007
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(Address of Principal Executive Offices) (Zip Code)
(972) 466-1555
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(Registrants Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12 (b) of the Act:
Title of Each Class Name of Each Exchange On Which
To Be So Registered Each Class Is To Be Registered
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Common Stock, no par value American Stock Exchange
Securities to be registered pursuant to Section 12 (g) of the Act:
None
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(Title of Class)
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(Title of Class)
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PART I
References in this document to "us", "we", "our", "the Company" or "Probex"
refer to Probex Corp.
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
General
Probex is a development stage lubricating oil technology company that
is in the early stages of commercializing 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 used the
majority of its resources since inception on the research and development of
ProTerra.
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 this acquisition, the Company
changed its name to Probex Corp. The acquired technology, which related to the
upgrading of heavy crude oil, became a platform for research and development
into the Company's present line of business. In 1995, the Company engaged in its
current line of business, and over the subsequent four years, the Company has
developed a proprietary re-refining process of used lubricating base oil which
we believe provides major performance advantages over known re-refining
technologies. We developed our technology through extensive pilot testing and
the 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 believes it has attracted strong,
experienced persons with a depth of expertise in commercializing new
technologies, managing early stage companies, and operating in the waste oil and
base oil industries.
We are presently engaged in the engineering design of our first
production facility, which will convert waste oil largely into premium base
oils. In June 1999, the Company entered into a $1,350,000 twelve-month purchase
option agreement for the first production site and is currently completing site
planning and permitting. This 22-acre site is in the city of Wellsville, Ohio
and is optimally located on the Ohio River in the center of large supply and
product markets, and includes a barge dock, significant tankage and a rail spur.
Our objective is to address the market's need for new outlets for 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 mid-2001.
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 22 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.
Strategic Partners
The Company has a number of strategic relationships which we believe
are of material benefit and significance with respect to implementation of our
corporate goals. 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"
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that facilitates the financing of projects that present technological risk. It
protects the interests of lenders and financial institutions from default in
repayment of long-term debt. SPI transfers the technological risk of
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. (NYSE-HSB), 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 and Insurance Company was founded in 1866 to
provide loss prevention service and insurance to businesses, industries and
institutions. Additionally, a separate wholly-owned subsidiary of HSB Group,
Inc., HSB-Engineering Finance Corporation, has made a subordinated loan to the
Company.
In addition, principals of Environmental Resources Management, Inc.
(ERM) have invested directly in the Company, and we have retained ERM to perform
permitting work for the initial production plant in Wellsville, Ohio. See
"Management's Plan of Operation." Seven long established regional gatherers of
waste oil have executed letters of intent or made formal proposals to supply the
Company's plants. The Company is actively discussing an engineering,
procurement, construction, startup, operations, maintenance contracts for the
Company's plants with several preeminent international engineering firms. The
Company has retained Project Development Associates, LLC (PDA) to provide
project development management services. Jeffrey F. Lee, PDA Managing Principal,
was formerly lead counsel for a $1 billion-plus Bechtel Corporation operating
division, a senior development manager with Bechtel Enterprises, Inc., and
President and CEO of United Recycling, Inc. David Millman, PDA Principal, is a
former partner with ERM and a practicing professional engineer. These strategic
relationships, and others currently in development, are anticipated to
contribute materially to the rapid implementation of the Company's technology,
both on a domestic and an international basis.
Waste Oil Opportunity
Consumer and industrial lubricating oils, such as motor oils, are
comprised of base lube oil and a "package" of additives. The additives are
tailored to improve the operating characteristics of base lube oil in its
specific market application. During use, many of the additives are substantively
degraded, depleted, or contaminated, whereas the underlying base lube oil, one
of the most valuable petroleum products, remains largely unaffected. An
inexpensive process for precisely separating and recovering the valuable base
oil component of waste oil for reuse has been sought for decades.
Based on a study from the U.S. Department of Energy and the 1997 Report
from the National Petrochemical & Refiners Association Report on U.S.
Lubricating Oil Sales, approximately 1.3 billion gallons per year of used waste
oil are generated by automobiles, light trucks, and industrial engines and
machinery in the United States. About 430 million gallons annually are either
consumed at the point of generation (as in gas station space heaters) or not
recovered, and presumably a substantial portion of that amount is not properly
disposed of. Of the approximately 900 million gallons per year that are
collected, 142 million gallons are re-refined, and the balance is burned as low
grade fuel. Thus only 16% of the total amount of collected waste oil, and 11% of
the total amount of waste oil, is re-refined.
Worldwide, an estimated 5.3 billion gallons per year of waste oils are
generated. Collection and re-refining efforts are hindered by the lack of a cost
effective and environmentally sound technology that can provide a consistent and
valuable outlet for the waste oil. Otherwise, waste oil is exposed to the
pricing volatility associated with fuel market outlets and increasing regulatory
restrictions on air emissions from burner fuels.
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Current Waste Oil Re-Refining Technologies and Companies
An inexpensive process for precisely separating and recovering the
valuable base oil component of waste oil for reuse has been sought for decades.
In principle, highly sophisticated separation units utilized by the refining or
petrochemical-processing industries could be employed to effect this separation
with great precision. However, while employing this type of equipment, a thick
black sludge is created as the waste oil is heated. The black sludge results in
rapid fouling within the processing equipment and effectively aborts the
process.
To address the fouling problem, existing commercial re-refineries have
been forced to employ relatively ineffective and maintenance-intensive
separation equipment, such as wiped or thin film evaporators, which are designed
to resist fouling rather than provide effective separation. This, in turn, has
necessitated additional processing equipment and additional costs to rectify
the shortcomings of the separation process in the wiped or thin film
evaporators. Such re-refineries at best merely restore the base oil contained
within the used oil back to its original quality, rather than upgrade this to a
higher quality base oil.
New Motor Oil Standard
Passenger Car Motor Oils (PCMO) are licensed under a certification
system that is administered by the American Petroleum Institute (API).
API-licensed motor oils comprise the highest quality motor oils and represent
virtually all of the motor oils that are consumed in North America. API-licensed
lubricants are required by automotive manufacturers for use in cars and light
trucks in order to maintain adequate protection of the vehicle engine during use
and to preserve full coverage under most manufacturer engine warranties.
Periodically, a consortium of American and Japanese automobile and
engine manufacturers, who are members of the International Lubricant
Standardization and Approval Committee (ILSAC), review and revise standards for
licensed motor oils. The current standards, entitled GF-2, have been in effect
since November 1995. The revisions periodically set forth by ILSAC effectively
increase the performance standards for API-licensed lubricating oils that are
used in the engines of lighter transportation vehicles, such as cars and light
trucks. Improvements in fuel economy, reduced emissions, improved lubrication
under widely divergent temperature conditions, and suitability of motor oils to
new engine designs all factor into new industry standards set forth by ILSAC.
Moreover, there is a trend toward converging the domestic and international
standards into a common international standard, and other markets, such as
Europe, have standards that are even more demanding than the ILSAC/API
standards. The latest upgrade, ILSAC GF-3, is in final review and it is
presently anticipated that these new industry wide automotive engine oil
performance standards will become effective in mid-2001. Advance information
released by ILSAC about these standards has indicated that improved fuel
economy, reduced emissions, and reduced oil consumption will be significant
requirements of the new GF-3 standard.
Prior upgrades in ILSAC motor oil performance standards have been
largely addressable through improved lubricant additive performance, without
major performance improvements in the base oil component of the motor oil. In
contrast, the new GF-3 standards, in addition to requiring additive formulation
improvements, will require the use of significantly higher performance base oils
for the common viscosity grades. Twenty-five current North American base oil
manufacturing plants appear to meet the current GF-2 standards. GF-3 is expected
to drastically reduce this number. In management's opinion, there are, at most,
seven plants in North America that are currently capable of producing, or have
announced or appear likely to begin production of, GF-3 compliant base oils for
the 5W-30, 10W-30 and 10W-40 viscosity grades. Thus, the number of GF-3
compliant lighter viscosity base oil production plants is anticipated to
decrease from twenty-five to approximately seven.
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We anticipate producing a GF-3 compliant base oil and are positioning
the Company's premium base oil product to meet the demands of independent buyers
by mid-2001, concurrent with the anticipated completion of the Company's first
plant. Preliminary indications from industry sources are that GF-3 compliant
base oil pricing in the lighter viscosity grades will be significantly above
current prices of base oil that do not meet GF-3 specifications.
Supply and Product Markets
Supply Market
The waste oil collection industry in the U.S. is fragmented. The
largest and only national gatherer, Safety Kleen Corporation, collects
approximately 33% of all available waste oil. A number of mid-size regional
companies and hundreds of small local gatherers collect the balance of the
available waste oils. The Company intends to secure its waste oil collection
requirements by contracting, purchasing, or joint venturing with waste oil
gatherers to provide them a more stable and economically attractive waste oil
outlet. The Company has letters of intent or formal proposals for waste oil
supply in excess of 5,000 bpd from seven gathering companies, and the Company
believes the resulting agreements, if consummated, would meet the committed
supply requirement of its initial plant and a second plant to be developed. The
Company's goal is to develop additional supply arrangements for use in
subsequent plants.
Product Market
The Company's proprietary re-refining technology separates waste oil
into three valuable products: (i) a high quality base lubricating oil suitable
for reuse in formulated lubricants, (ii) a fuel oil similar to an off- road or
marine diesel, and (iii) an asphalt flux or modifier. The established markets
for such re-refined products are large. Each Probex facility is expected to
supply less than 1.5% of U.S. base oil demand and less than 0.1% of U.S. fuel
oil and asphalt demand. See "Technology and Products."
Technology and Products
Consumer and industrial lubricating oils, such as motor oils, are
comprised of base lube oil and a "package" of additives. Additives are carefully
selected to improve the performance characteristics of the base lube oil in
specific market applications. During use, additives are substantively degraded,
depleted, or contaminated, while the underlying base lube oil, one of the most
valuable petroleum products, remains largely unaffected. Consequently, there is
an opportunity to recover the largely unaffected base oil portion. We believe
ProTerra will substantially improve the economics of waste oil re-refining by
enabling the re-refining of waste oils into premium quality base oils at much
lower costs than has been possible. At the same time, unlike any other
commercial re-refining process, rather than just restoring the original base
oil, ProTerra will enhance it beyond original performance standards, according
to independent laboratory testing.
ProTerra is a logical extension of conventional crude oil refining
techniques that employs a unique set of operating parameters. ProTerra will
enable us to construct and operate re-refining plants utilizing conventional,
off-the-shelf, process equipment capable of achieving significant performance
improvements over current re-refining facility configurations.
ProTerra employs a relatively straightforward technique that, in the
initial processing stage, virtually eliminates waste oil's propensity to foul.
This key attribute allows us to apply proprietary adaptations of sophisticated,
yet conventional, distillation and separations technologies that before now
could not be effectively employed in processing waste oils. These technologies,
in parallel applications, employ commonly used refining and petrochemical
equipment and operate under conditions that are well understood, highly
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predictable, and robust. Furthermore, they have cost-effective operations. Most
importantly, the distillation and separations processes are so effective that
they actually enhance the base oil product well beyond its original quality by
correcting certain shortcomings in its original manufacture. These results are
based on pilot plant testing and there can be no assurances that the same
results will be achieved on a commercial production scale.
Products
ProTerra separates waste oil into three valuable products, trademarked
under the names ProLube(TM), ProPower(TM), and ProBind(TM) as described below:
ProLube
The primary product created by ProTerra is ProLube, a premium quality
base lube oil, which in the typical domestic plant configuration will be
manufactured in two or three viscosity grades. As has been confirmed by both
independent laboratories and prospective purchasers, ProTerra actually enhances
the quality of the underlying base lube oil contained in the waste oil.
The Company has provided samples of its base lube oils produced in its
pilot facility using ProTerra to Infineum (a joint venture of Shell and Exxon
chemical companies) and Lubrizol. Each additive company has confirmed both the
physical and chemical performance characteristics of ProLube base lube oil.
Specifically, ProLube has exhibited strong Noack performance (a test for
volatility at high temperatures), as well as positive low temperature and
oxidative stability properties, and therefore is expected to fare well in the
formulation of premium quality motor oil lubricants.
The Company's entry into the base oil markets, which represent
approximately 80% of the Company's projected revenues, may be timely. As
discussed above under "New Motor Oil Standard", Upgraded, Significantly Tighter
motor oil lubricant standards (called GF-3) are expected to take effect in
mid-2001, as the Company's initial plant is expected to be completed. In
management's opinion, the number of base oil suppliers which are expected to
meet the new GF-3 standards may decline from the current twenty-five plants down
to a maximum of seven plants for the 10W-30 and 5W-30 viscosity grades of motor
oil recommended for most new cars. Because of GF-3, most independent motor oil
formulators (which include a number of major companies such as Castrol and
Valvoline) will be required to secure new base oil suppliers in order to
continue to manufacture the full range of viscosity grade compliant motor oil
products. The Company plans to produce GF-3 compliant base oils and, if able to
do so, we would be optimally positioned to meet the new upgraded base oil
requirements for independent motor oil formulators. The Company anticipates that
it can moderately discount pricing for its GF-3 compliant base lube oils and
still achieve strong profit margins and returns on capital.
Independent lubricant formulators in North America collectively
purchase over 700 million gallons per year, which is enough to support over 20
plants of the size the Company anticipates building domestically. Based on
discussions with firms in the industry, we believe that there is a strong desire
to maintain multiple base oil supply sources. Thus, the Company could provide a
strategically valuable source of supply for these independent formulators.
The Company intends to sell a large portion of the base lube oil
production from its initial facilities on a contract basis and is in discussions
with large and mid-size lubricant marketers, certain of which could purchase
base oil volumes supporting each Probex facility. The Company has also received
strong indications of interest in contractual supply arrangements for its fuel
oil and its asphalt flux from a number of large users. The Company intends to
market the non-contractual portions of its products on the spot market in order
to maximize total revenues.
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ProPower
ProPower fuel oil produced by ProTerra is expected to be a high
quality, light distillate similar to diesel fuel or home heating oil. The sulfur
content of ProPower precludes its use in very low sulfur over-the-road diesel
applications, but it is expected to be highly attractive as an off-road diesel,
chiefly because of a cetane index typically above 50. It also may be employed as
a relatively low-sulfur, low-ash, clean-burning light burner fuel. ProTerra also
produces certain secondary fuel products of lower quality; the bulk of those
secondary fuel by-products is expected to be used to fuel plant operations, with
the remainder (less than 5% of plant feed) directed to burner or blending
markets at somewhat lower values than ProPower will realize.
ProBind
The final product produced by ProTerra is ProBind, an asphalt flux, or
modifier, which is comprised primarily of the concentrated additives inherent
within used oil and therefore has numerous valuable performance enhancing
properties. Asphalt products often require specialty chemicals that enhance
high-temperature performance by promoting thickening at higher temperatures by
increasing elasticity at lower temperatures. Probex believes that ProBind will
be positioned against certain specialty chemical asphalt modifiers which are
currently priced higher than projected values, once testing and in-use
applications corroborate the higher value properties of ProBind.
Intellectual Property
Probex's intellectual property protection strategy is twofold. The
first element of the strategy is patent protection. Probex has filed for and
hopes to secure the broadest possible patent protection for the core elements of
its technology in as many major world markets as possible where patents are
recognized and enforced. Probex recently received a notice of allowance from the
United States Patent Office on all 42 pending claims on its primary patent
application, which relates to the de-fouling pretreatment portion of ProTerra.
The second element of Probex's strategy is the protection of its trade
secrets. Probex's patent applications were filed in 1997 and early 1998 before
the major portion of Probex's pilot testing program. Accordingly, essentially
all of the process condition optimizations developed through pilot testing have
not been disclosed under Probex's patent filings. Probex presently intends to
maintain this information as a closely protected trade secret, thereby providing
a significant measure of intellectual property protection even in markets where
patents are effectively unenforceable.
Probex has filed trademark applications on Purifine (TM), Purafine
(TM), Purefine (TM) and Profine (TM), all of which are pending, and claims
common law trademark protection on ProTerra, ProLube, ProPower and ProBind.
Competition
Safety Kleen is the largest domestic re-refiner of used lubricating
oil into base lubricating oil, and therefore a prospective competitor of the
Company; although, we believe Safety Kleen is not currently capable of producing
GF-3 compliant base lube oils for the 10W-30 or 5W-30 viscosity grades. Using a
non-proprietary thin or wiped film process at a large facility in East Chicago,
Indiana, Safety Kleen currently re-refines 85 million gallons of used oil each
year into GF-2 and generic quality base lubricating oil, fuel and asphalt
byproducts. Evergreen Oil Inc. employs a similar technology at a much smaller 12
million gallon per year re-refinery in Northern California. Other competing
technologies include the thermal deasphalting process of IFP/Viscolube, a joint
technology venture of the Institut Francais du Petrole and Viscolube/Italiana
S.p.A., Universal Oil Products' HyLube direct contact hydrogenation, Kinetic
Technology Incorporated's process, and Interline Resources Corporation's propane
extraction system.
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Utilizing its proprietary "Trailblazer" process, Texaco Corporation's
Marrero, Louisiana facility is currently re-refining approximately 45 million
gallons per year of used lubricating oil into various products including marine
diesel fuel, but not base lubricating oil. Therefore, we do not consider Texaco
to be a direct competitor.
Probex is a development stage company that has never generated revenues
from its current operations. While ProTerra has been validated by independent
and reputable testing laboratories, there can be no assurances that the Company
will be successful in entering the oil re-refining industry or generating
revenue. In addition, there are no assurances that the Company will be able to
secure equity and/or debt financing as needed to continue operations. Finally,
even if the Company completes its first plant and begins actual production, it
will be in a business that is highly competitive. Our competition includes
companies which are significantly larger and more established and as a result,
have better access to financing options.
Environmental/Governmental Consents
The Company's business operations are subject to certain federal, state
and local requirements which regulate health, safety, environment, zoning and
land-use. In September 1992, the Environmental Protection Agency enacted
regulations that govern the management of used oils. Although used oil directed
for recycling is not classified as a hazardous waste under federal law, certain
states do regulate used oil as hazardous wastes, which may affect the Company.
Operating and other permits are generally required for the Company's facilities,
including the planned plant in Wellsville. These permits, once issued, will be
subject to revocation, modification and renewal. Many of the environmental laws
and regulations applicable to the Company provide for substantial fines and
criminal sanctions for violations. It is possible that future developments, such
as stricter environmental laws, regulations or enforcement policies thereunder,
could affect the handling, manufacture, use, emission or disposal of substances
or pollutants at and in the Company plants. Moreover, some risk of environmental
costs and liabilities is inherent in particular operations and products of the
Company, as it is with other companies engaged in similar businesses. There can
be no assurance that material costs and liabilities will not be incurred. The
Company expects that, due to increasingly stringent environmental regulations
arising from current and future requirements of law, it may have significant
capital requirements for environmental projects in the future.
Reports to Security Holders
You may read and copy any materials that the Company files with the
SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington,
D.C. 20549. You may obtain information on the operation of the Public Reference
Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site
(http://www.sec.gov) that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with the SEC.
Additionally, our Internet site can be accessed at www.probex.com.
ITEM 2. MANAGEMENT'S PLAN OF OPERATION
Since Probex is a development stage company and has not had revenues
from operations from inception, we are providing below our plan of operation for
the next 12 months.
Facility Implementation, Operation, and Financing
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
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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 a global engineer/constructor partner
for a turnkey engineering/procurement/construction (EPC) alliance and
anticipates a preliminary agreement to be completed in the near future. This EPC
agreement will include contracts encompassing industry-standard design,
material, and workmanship warranties as well as appropriate and necessary
credit-support commitments. As mentioned previously, Probex secured from The
Port Authority of Columbiana County in Wellsville, Ohio a 12-month option
agreement to purchase a site for its first domestic facility. 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, 1.4 million gallons of tankage, a rail spur,
and truck and rail loading and unloading racks. Phase I and Phase II
environmental studies have been performed and the Wellsville, Ohio site is
currently ready for development.
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.
In support of the plant financing, and as outlined previously, Probex
has in place letters of intent for sufficient used oil feedstock to support its
first domestic facility. With regard to technical risk coverage, we intend to
match any SPI Policy which may be issued by the Hartford Steam Boiler Inspection
& Insurance Company to cost, schedule, and performance guarantees from the
selected EPC firm. Finally, Probex is in the process of securing the product
offtake 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. In addition, several firms
are currently performing due diligence related to making direct equity
investments in Probex. The Company recently completed and oversubscribed a $5
million private placement offering of Series A Preferred Stock by $0.4 million.
The private placement combined with Probex's current cash position, ability to
further access the public and private markets, the prospective HSB Engineering
Finance Corp. investment, as well as other prospective financing sources,
provides reasonable assurance as to Probex's ability to meet its initial plant
equity requirements. The 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.
Additionally, the Company believes that joint ventures and licensing
are the preferred commercialization options for ProTerra in many markets outside
the United States. Probex has been invited to participate in facility expansion
programs in Europe and India. Probex believes that additional opportunities for
Probex facilities will develop, either on a joint venture or licensing basis, in
South America, Asia, Australia, and the Middle East. In addition, Probex has met
with the management team of a major European conglomerate which is actively
interested in employing ProTerra in at least one facility to be constructed in
Europe, although such discussions are at the preliminary stages and there can be
no assurance that any agreements will be finalized at this time.
The Company expects to add employees as needed during the next 12
months. In addition, the Company anticipates that the initial plant will be
operated by O&M personnel who likely will not be employees of the Company.
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ITEM 3. DESCRIPTION OF PROPERTY
The Company is leasing its principal business space located at 1467
LeMay, Suite 111, Carrollton, Texas 75007. The term of the lease is three years
expiring in May 2001.
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 a $5,000 good faith deposit 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 government 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.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners
The following table sets forth the number of shares of the Company's
common stock owned by each person who, as of November 24, 1999, was known by the
Company to own beneficially more than five percent (5%) of its common stock.
In general, a person is deemed to be a "beneficial owner" of a security
if that person has or shares the power to vote or direct the voting of such
security, or the power to dispose of or to direct the disposition of such
security. A person is also deemed to be a beneficial owner of any securities to
which the person has the right to acquire beneficial ownership within sixty (60)
days.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
Name and Amount And
Address Of Nature Of
Title Of Beneficial Beneficial Percent Of
Class Owner Owner Class*
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common HSB Engineering Finance Corp. 2,587,288 (1) 11.0%
One State Street
Hartford, CT 06102
Common CEDE & Co. 2,084,420 10.0%
P.O. Box 222
Bowling Green Station
New York, NY 10041
Common James W. McCourt 1,967,694 (2) 9.2%
P.O. Box 280
Cookeville, TX 75558
Common Thomas G. Murray 1,918,956 (3) 9.0%
Senior Vice President
1467 LeMay, Suite 111
Carrollton, TX 75007
Common Alex D. Daspit 1,833,447 (4) 8.7%
Senior Vice President
1467 LeMay, Suite 111
Carrollton, TX 75007
- --------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
Notes:
* Based on 20,925,477 shares of common stock outstanding as of November
24, 1999.
1. Represents warrants to purchase stock at $0.01 per share through June 30,
2008.
2. Includes 466,364 shares acquirable pursuant to the exercise of warrants.
3. Includes 324,220 shares owned by Probex Technologies, LP (not affiliated
with the Company) for which Mr. Murray is an approximate 28% partner and
acts as managing member of its general partner. Mr. Murray disclaims
beneficial ownership of these shares. Excludes 490,000 shares acquirable
pursuant to the exercise of stock options that have not vested and includes
85,410 shares acquirable pursuant to the exercise of warrants.
4. Includes 85,000 shares acquirable pursuant to the exercise of warrants and
100,000 shares acquirable pursuant to the exercise of fully vested
stock options. Excludes 300,000 shares acquirable pursuant to the exercise
of stock options that have not vested.
Security Ownership of Management
The following sets forth the number of shares of the Company's common
stock beneficially owned by (1) the individual directors of the Company, (2) the
"named executive officers" (as defined in Item 6) of the Company and (3) all
officers and directors of the Company as a group as of November 24, 1999.
No officers or directors own shares of the Series A Preferred Stock.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name and Address Amount And
Address Of Nature Of
Title Of Beneficial Beneficial Percent Of
Class Owner Title Owner Class*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Thomas G. Plaskett Chairman, CEO & President 353,750 (1) 1.7%
1467 LeNay, Suite 111
Carrollton, TX 75007
Common K. Bruce Jones Director 852,309 (2) 4.0%
88 S. Bishop Road
Santa Rosa Beach, FL 32459
Common Anthony J. Maselli Director 60,000 (3) 0.3%
109 North Road
Harwinton, CT 06791
Common Nicholas W. Hollingshad Advisory Director 832,400 (4) 3.8%
3204 Long Prairie Road, Suite C
Flower Mound, TX 75022
Common William A. Searles Advisory Director 295,600 (5) 1.4%
179 Hartshorne Rd.
Locust, NJ 07760
Common Thomas G. Murray Senior Vice President, 1,918,956 (6) 9.0%
1467 LeMay, Suite 111 Director
Carrollton, TX 75007
Common Alex D. Daspit Senior Vice President, 1,833,447 (7) 8.7%
1467 LeMay, Suite 111 Director
Carrollton, TX 75007
Common All Officers and Directors as a Group 10,263,862 (8) 39.5%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
Notes
* Based on 20,925,477 shares of common stock outstanding as of November 24,
1999.
1. Includes 185,000 shares acquirable pursuant to the exercise of warrants.
Excludes 165,000 shares acquirable pursuant to the exercise of warrants
that have not vested.
2. Includes 445,207 shares owned by CPM Partners, L.L.C. for which Mr. Jones
exercises voting control. Mr. Jones disclaims beneficial ownership of these
shares. Also includes 154,471 shares acquirable pursuant to the exercise of
warrants. Excludes 40,000 shares acquirable pursuant to the exercise of
warrants that have not vested.
3. All of these shares are acquirable pursuant to exercise of warrants.
Excludes 40,000 shares acquirable pursuant to the exercise of warrants that
have not vested.
4. Includes 832,400 shares owned by Probex Southwest Partnership LP for which
Mr. Hollingshad exercises voting control. Mr. Hollingshad disclaims
beneficial ownership of these shares.
5. All of these shares are acquirable pursuant to the exercise of warrants.
6. Includes 324,220 shares owned by Probex Technologies, LP for which Mr.
Murray is an approximate 28% partner and acts as managing member of its
general partner. Mr. Murray disclaims beneficial ownership of these shares.
Also includes 85,410 shares acquirable pursuant to the exercise of warrants
and excludes 490,000 shares acquirable pursuant to the exercise of stock
options that have not vested.
7. Includes 85,000 shares acquirable pursuant to the exercise of warrants and
100,000 shares acquirable pursuant to the exercise of fully vested stock
options. Excludes 300,000 shares acquirable pursuant to the exercise of
stock options that have not vested.
8. Represents 12 persons and includes 2,045,000 shares acquirable pursuant to
the exercise of options, 1,507,608 shares acquirable pursuant to the
exercise of warrants, and 1,601,827 shares for which the officer or
director exercises voting rights but disclaims beneficial ownership.
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
The Directors and Executive Officers of the Company, their ages and
present positions held in the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position Held
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas G. Plaskett 56 Chairman of the Board, President &
Chief Executive Officer
K. Bruce Jones 58 Director
Anthony J. Maselli 37 Director
Nicholas W. Hollingshad 45 Advisory Director
William A. Searles 56 Advisory Director
Thomas G. Murray 41 Senior Vice President - Strategic
Planning & Industry Affairs, Director
Alex D. Daspit 45 Senior Vice President - Business
Planning & Product Development, Director
Martin R. MacDonald 37 Senior Vice President - Operations
Bruce A. Hall 43 Chief Financial Officer
- -----------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 13
The Company's directors will serve in such capacity until the next
annual meeting of the Company's shareholders and until their successors have
been elected and qualified. The officers of the Company serve at the discretion
of the Company's directors.
Thomas G. Plaskett (age 56) has been a director of the Company since
June 1994 and President and Chief Executive Officer since September 1999. Since
1994, Mr. Plaskett has been a business consultant primarily in the merchant
bank/private investor arena working with several emerging technology companies.
Mr. Plaskett has broad-based experience at senior levels of major corporations,
having served as a Director, Interim CEO and President, and then Chairman of the
Board of Greyhound Bus Lines until March 1999. Prior to 1994, he was Chairman
and CEO of Pan Am Corporation and President and CEO of Continental Airlines. He
has been a director of Tandy Corp. since 1986 and a director of Smart and Final
Inc. since 1994. From 1992 to 1996, Mr. Plaskett was a director of Neostar
Retail Group, Inc. (formerly Babbage's, Inc.) and served as Chairman of Neostar
from September 1996 to December 1996. Neostar filed a petition for insolvency
under Federal bankruptcy laws in September 1996.
K. Bruce Jones (age 58) has been a director of the Company since May
1994. Mr. Jones is the founder and managing principal of K. Bruce Jones and
Associates, an investment management firm since June 1993. He has extensive
experience in the operation and financial management of emerging growth
companies. In addition, Mr. Jones has portfolio management and/or consulting
experience with C&S National Bank (later Invesco Capital Management), the
William O'Neill Company, Merrill Lynch Capital Markets, and Gateway Investment
Advisors. Currently, Mr. Jones serves on the boards of Clifton Mining Company,
Solomon Technologies, and Showcase Leather Holdings, Inc.
Anthony J. Maselli (age 37) has been a director of the Company since
June 1998 in conjunction with his company's investment in Probex. Mr. Maselli is
the Founder and Managing Director of HSB Engineering Finance Corporation, and a
Vice President of Hartford Steam Boiler Inspection & Insurance Company,
Technology Risks department. He has been with HSB since 1995. Prior to joining
HSB, Mr. Maselli worked for United American Energy Corporation from 1994 to 1995
and for Consolidated Edison Company of New York from 1984 to 1994. Mr. Maselli
has experience in technology assessment, project evaluation and all aspects of
project development, including project finance. He has been the key individual
in the development of several large industrial projects, including independent
power projects, manufacturing facilities and private corporation development.
Nicholas W. Hollingshad (age 45) has been an Advisory Director of the
Company since April 1999 in conjunction with an investment by him and certain
other principals of ERM in Probex. Mr. Hollingshad has been a principal of
Environmental Resources Management, an international industrial environmental
firm since 1991. He is also a manager of Falcon Capital Management, LLC.
Previously, he was a chemical engineer with Exxon and is a professional engineer
with over fifteen years experience in industrial environmental engineering and
eight years in chemical process engineering.
William A. Searles (age 56) has been an Advisory Director of the
Company since 1999. Mr. Searles has been associated with American Physicians
Services Group, Inc. since 1989 as a director and since 1995 as Chairman of APS
Investment Services, Inc. He is has been a director of a private company,
Uncommon Care, Inc. since 1998 and a director of a public company, Prime Medical
Services, Inc. since 1989. Previous to 1989, he spent 25 years in various
positions with Wall Street investment banking firms, including the last 9 years
as a limited partner with Bear Stearns.
Thomas G. Murray (age 41) has been the Senior Vice President of
Strategic Planning & Industry Affairs since September 1999. He served as Chief
Executive Officer of the Company since joining the predecessor of
13
<PAGE> 14
Probex in July 1993 and has also been a Director of the Company since that time.
Mr. Murray was the Chief Executive Officer of InteCorp, an early-stage company
engaged in developing wireless pipeline monitoring systems.
Alex D. Daspit (age 45) has been the Senior Vice President of Business
Planning & Product Development since September 1999. He served as President of
the Company since September 1997. Mr. Daspit joined Probex in March 1994 in
conjunction with an investment in the Company, and has also been a Director
since that time. From 1986 to 1989, Mr. Daspit served as Senior Vice President
of Corporate Strategy for International Telecharge Inc. (ITI), and was
instrumental in ITI's growth from roughly $200,000 to in excess of $200 million
in annual revenues during his three-year tenure. Prior to joining ITI, he
independently developed and subsequently licensed to the entire U.S. welding
industry the pioneering inverter power supply for arc welding.
Martin R. MacDonald (age 37) has been the Senior Vice President of
Operations since September 1999 and served as a Vice President of the Company
since joining Probex in 1995. He is a professional engineer experienced at all
levels of chemical processing system design, development, and management.
Previously, Mr. MacDonald was a Senior Engineer at Ferguson Industries from 1994
to 1995. At Ferguson, he managed project implementation of chemical processing
systems and plants, including conception, procurement, plant fabrication,
assembly, and final commissioning. Mr. MacDonald has conceived, engineered, and
commissioned new technologies such as the first high pressure ammonia injection
water treatment system, a high velocity galvanizing system, and a low emissions
ammonium polyphosphate production system, all of which are currently in
commercial use.
Bruce A. Hall (age 43) has been the Chief Financial Officer of the
Company since September 1999 and served as Controller since joining Probex in
May 1999. Mr. Hall has served in numerous financial and operating positions with
companies in the hi-tech, manufacturing and real estate industries. Mr. Hall has
been Chief Financial Officer of two companies, including Aslan Real Estate, Ltd.
from January 1996 to May 1999 and Harris Adacom Systems, Inc. from 1993 to 1994
and has been the controller of international operations for Recognition
Equipment, Inc. from 1986 to 1991 and Harris Adacom, Inc. 1992 to 1993.
Additionally, Mr. Hall was a principal of the Capital Funding and Consulting
Group, L.C. from 1994 to 1996 and a senior auditor with Arthur Young & Co from
1983 to 1986. Mr. Hall holds both CPA and CMA certifications.
Significant Employees
D. Yale Sage (age 45) has been the Vice President of Financial Planning
and Development since September 1999 and served as Chief Financial Officer from
March 1999 through September 1999. Mr. Sage was the President and Chief
Executive Officer of Claridge Capital Corporation from 1997 to March 1999, a
private investment and financial services company providing investment banking
services to corporate clients. He was President and Chief Operating Officer of
Seaboard Management Corporation from 1991 to 1997, a venture capital and
investment banking company, managing funds totaling over $50 million. Over the
past ten years, Mr. Sage has served in numerous financial and operating
positions with companies in the manufacturing, financial service and
entertainment industries. Previous to 1991, Mr. Sage has been Chief Financial
Officer of six companies, including Global Plastics, L.L.C., Gateway
International Development Corporation, and Groco Specialty Chemicals and
Coatings. Mr. Sage has been controller of The Vault Company and Federal Support
Corporation. Mr. Sage's prior business background includes Arthur Anderson &
Company and The First
14
<PAGE> 15
National Bank of Dallas.
John E. Fahey (age 59) has been the Vice President of Industry Sales &
Marketing for the Company since joining Probex in March 1999. Mr. Fahey is the
former Regional Sales Manager - Base Oil Sales, and Sales and Marketing Manager
of U.S. Government Sales, for Safety Kleen Oil Recovery Company, and was
employed with them for 8 years from 1990 to March 1999. He is responsible for
the Company's market analysis and positioning of Probex's base lubricating oils
with certain prospective purchasers. Mr. Fahey is a former President of the
Independent Lubricant Manufacturers Association (ILMA), which includes companies
purchasing approximately 25% of all U.S. base oil production.
Phil D. Pierce (age 58) has been the Vice President of Sales and Supply
for the Company since joining Probex in April 1999. From January 1993 to
February 1995, Mr. Pierce was Vice President of Sales & Operations for ProCycle
Oil & Metals in Dallas. From February 1995 to June 1996, he was Vice President &
General Manager for United Recycling, Inc. in Dallas. From July 1996 through
February 1999, he was General Manager of McPherson Oil & Environmental Energy in
Birmingham, Alabama. Mr. Pierce is responsible for base lubricating oil sales
for national and international accounts and waste oil supply arrangements.
Previously, Mr. Pierce was President and majority stockholder of Delta Petroleum
Products, Inc. (Delta), from 1972 to 1991, a major distributor of lubricants
and was responsible for all aspects of the business including sales, operations,
and administration. Mr. Pierce has served on national distribution councils
including Exxon, Shell, Citgo and other major companies.
Ronald Michael Falconer (age 55) has been the Director of Plant
Development of the Company since joining Probex in June 1999. Mr. Falconer has
concentrated on hydrocarbon processing plants and equipment throughout his
33-year engineering career. He has experience with all engineering disciplines
in the process plant environment relating to project development, implementation
of operational start-ups and process production. From July 1998 to June 1999, he
was an independent engineering consultant. From August 1997 to June 1998, he was
Vice President of Production Operations for Evergreen Oil, Inc. in Newport
Beach, California. From August 1996 to August 1997, he was General Manager of
Production for Evergreen Environmental Services in the United Kingdom. From
September 1994 to August 1996, he was Assistant Deputy General Manager of
Production for Wiraswasta Gemilang in Indonesia and from March 1991 to September
1994, he was President of Evergreen Oil in Northern California. Previous to
March 1991, positions include: Division President, Site Manager & Engineer;
Mohawk Lubricants Ltd., Site Engineer & Division General Manager; Gulf Oil. Past
accomplishments include the completion of a Canada wide project for community
noise reduction by all refineries, application of the first DCS control system
in a Canadian refinery, development of the world's first direct distillation and
hydro-finishing continuous re-refining process, and completion of the White Oil
R&D project in Wales. Mr. Falconer is a Registered Chartered Member of the
Institution of Mechanical Engineers in the United Kingdom, and he is a
Registered Professional Engineer in Ontario and British Columbia, Canada, and is
a former President of the Re-Refiners Association of Canada.
Philip E. Keown (age 57) has been the Director of Engineering for the
Company since joining Probex in July 1999. From October 1998 to June 1999, Mr.
Keown provided Probex engineering consulting services through his company, CES
(Comprehensive Energy Services, Inc.), for which he was a principal since May
1995. From December 1985 to May 1995, Mr. Keown was the Fuels Contracting
Manager with General Electric, Industrial & Power Systems. Mr. Keown is a
Registered Professional Engineer in Texas and has published several
petrochemical related papers.
John N. Brobjorg (age 42) has been the Corporate Controller of the
Company since January 2000 and has served as the Accounting Manager since
joining the Company in October 1999. Mr. Brobjorg has served in numerous
financial positions with companies in the hi-tech, manufacturing, and clinical
laboratory industries. Mr. Brobjorg has been a Finance and/or Accounting Manager
of several companies, including Praxair Inc from May 1996 to October 1999,
Corning Clinical Laboratories from February 1992 to April 1996, Convex Computer
Corporation from March 1985 to November 1990, and Amsoil, Inc from November 1982
to March 1985. Additionally, Mr. Brobjorg was the Controller for Logic Process
Corporation from February 1991 to February 1992. Mr. Brobjorg holds a CMA
certification and a Senior Accounting Certificate from the University of
Minnesota at Minneapolis.
15
<PAGE> 16
There are no family relationships among the Company's directors and
officers, nor are there any arrangements or understandings between any of the
directors or officers of the Company or any other person pursuant to which any
director or officer was or is to be selected as an director or officer.
ITEM 6. EXECUTIVE COMPENSATION
General
No officer of the Company received compensation in excess of $100,000
or any cash bonus payment during the fiscal years ended September 30, 1997,
1998, or 1999. Compensation does not include minor business related and other
expenses paid by the Company and such amounts in the aggregate do not exceed
$10,000. The Company's Chief Executive Officer since October 1999, Thomas G.
Plaskett has never been paid any cash compensation (salary or bonus), but has
instead been paid in the form of non-cash compensation as described below. The
Company's former Chief Executive Officer from inception to September 1999,
Thomas G. Murray was paid compensation of $71,686 including $45,000 of cash and
$26,686 of non-cash, $82,795 including $46,667 of cash and $36,128 of non-cash,
and $91,876 including $64,876 of cash and $27,000 of non-cash for the fiscal
years ended September 30, 1997, 1998 and 1999, respectively. Messrs. Plaskett
and Murray are referred to as the "named executive officers."
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation
Awards
- --------------------------------------------------------------------------------------------------------------
Securities
Name Fiscal Restricted Underlying
And Year Stock Options/
Principal Ended Salary Bonus Award(s) SARs
Position 9/30 ($) ($) ($) (#)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
THOMAS G. PLASKETT
Chairman/CEO/President 1999 -- -- -- 350,000 (9)
Chairman of the Board 1998 -- -- -- --
Chairman of the Board 1997 -- 1,950 (3) -- --
THOMAS G. MURRAY
CEO & Senior VP 1999 64,876 (6) 27,000 (7) -- 490,000 (8)
CEO 1998 66,667 (4) 16,128 (5) -- --
CEO 1997 70,000 (1) 1,686 (2) -- --
</TABLE>
Notes:
Effective March 1, 1995, Mr. Murray was to be paid a total salary of
$70,000. However, due to cash flow constraints, the Board of Directors approved
an actual cash salary to be paid of $45,000 with the $25,000 remainder deferred.
Effective May 31, 1997, the Board of Directors approved the conversion of Mr.
Murray's cumulative deferred and unpaid salary for the period March 1, 1995 to
May 31, 1997 in the amount of $78,813 into common stock of the Company at $0.11
per share. The price per share was representative of recent private placement
offerings and Mr. Murray was issued 716,478 shares of common stock in June 1997.
The Company recorded the deferred salary as salaries and wages for the proper
accounting period in the Consolidated Financial Statements.
Effective June 30, 1998, the Board of Directors approved the conversion
of Mr. Murray's cumulative deferred and unpaid salary for the period June 1,
1997 to June 30, 1998 in the amount of $27,083 into common stock of the Company.
Additionally, the Board of Directors recognized the significant contribution Mr.
Murray made during the fiscal year ending September 30, 1998 and approved an
issuance of 32,257 shares of common stock of the Company as a performance bonus.
Both of these items were valued at $0.50 per share and as a result, Mr. Murray
was issued a total of 86,423 shares of common stock in July 1998. The Company
16
<PAGE> 17
recorded the deferred salary as salaries and wages and the performance bonus as
stock compensation expense for the proper accounting period in the Consolidated
Financial Statements.
Effective July 1, 1998, Mr. Murray was to be paid a total salary of
$65,000. However, due to cash flow constraints, the increase did not start until
September 1, 1998 and Mr. Murray was paid at the previously approved $45,000
annual amount. The Company has recorded the difference of $3,333 as an accrued
liability at September 30, 1999 and will propose to the Board that the amount be
paid in cash. The Company recorded the deferred salary as salaries and wages for
the proper accounting period in the Consolidated Financial Statements.
Effective June 4, 1999, the Board of Directors recognized the
significant contribution Mr. Murray made during the fiscal year ending September
30, 1999 and approved an issuance of 54,000 shares of common stock of the
Company as a performance bonus. The Company has recorded the issuance at a value
of $0.50 per share and recorded an amount of $27,000 as stock compensation
expense for the proper accounting period in the Consolidated Financial
Statements.
(1) The Salary amount for 1997 represents the following:
<TABLE>
<S> <C>
o $45,000 Cash compensation
o $25,000 Deferred salary for the period October 1, 1996 to September
30, 1997 paid in shares of common stock.
-------
$70,000
=======
</TABLE>
(2) The Bonus amount for 1997 represents the following:
<TABLE>
<S> <C>
$ 1,686 Directors fees paid in stock as discussed in (8) below
=======
</TABLE>
(3) The Bonus amount for 1997 represents the following:
<TABLE>
<S> <C>
$ 1,950 Directors fees paid in stock as discussed in (8) below
=======
</TABLE>
(4) The Salary amount for 1998 represents the following:
<TABLE>
<S> <C>
o $46,667 Cash compensation
o $16,667 Deferred salary for the period October 1, 1997 to June 30,
1998 paid in shares of common stock.
o 3,333 Deferred salary for the period July 1, 1998 to August 31,
1998 paid in shares of common stock.
-------
$66,667
=======
</TABLE>
(5) The Bonus amount for 1998 represents the following:
<TABLE>
<S> <C>
$16,128 Performance bonus during fiscal 1998 paid in shares of common stock.
=======
</TABLE>
(6) The Salary amount for 1999 represents the following:
<TABLE>
<S> <C>
$64,876 Cash compensation
=======
</TABLE>
(7) The Bonus amount for 1999 represents the following:
<TABLE>
<S> <C>
$27,000 Performance bonus during fiscal 1999 paid in shares of common stock.
=======
</TABLE>
(8) In June 1999, the Board of Directors approved and the Company adopted
the 1998 Omnibus Stock and Incentive Plan for certain employees to purchase
common stock of the Company at $0.50 per share. Effective June 30, 1999, the
Company approved a plan to issue 2,750,000 stock options for employees of the
Company. The option price is $0.50 per share and each share is generally
exercisable after meeting five equally weighted goals over a maximum ten-year
vesting period. As of September 30, 1999, all of these options had been granted
but none had been vested or exercised. Mr. Murray was granted 490,000 options
under this plan.
17
<PAGE> 18
(9) In October 1999, Mr. Plaskett assumed the additional responsibilities
of Chief Executive Officer and President of the Company in addition to his
continuing role as Chairman of the Board. Mr. Plaskett is not paid any cash
compensation for these roles, however, he was granted 250,000 warrants to
purchase common stock of the Company at $1.00 per share for a five-year period.
50% of this award, or 125,000 warrants, vested immediately upon issuance and the
remaining 50%, or 125,000 warrants, will vest in the future in accordance with
the Company achieving certain milestones. Additionally, in August 1999, the
Board of Directors approved an issuance of 100,000 warrants to each outside
(non-employee) director to purchase common stock of the Company at $0.50 per
share for a five-year period. Mr. Plaskett received 100,000 warrants of which
40,000 vested immediately and the remaining 60,000 will vest subject to the
Company achieving certain performance milestones.
Options/SAR Grants Table
<TABLE>
<CAPTION>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
(INDIVIDUAL GRANTS)
---------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total
Name Underlying Options/SAR's Exercise
And Options/SAR's Granted To or Base
Principal Granted Employees in Price
Position (#) Fiscal Year ($/SH) Expiration Date
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas G. Plaskett, Chairman,
CEO & President 100,000 (1) Directors Fees $0.50 8/28/2004
N/A
Thomas G. Plaskett, Chairman,
CEO & President 250,000 (2) 8% $1.00 9/30/2004
Thomas G. Murray, Former CEO,
Sr. VP 490,000 (3) 16% $0.50 6/30/2008
----------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Represents five-year warrants granted to purchase common stock of the
Company as consideration for director's services. 100,000 warrants were
granted in total but only 40,000 have vested, and the remaining 60,000
will vest in the future in accordance with the Company achieving
certain performance milestones.
(2) Represents warrants granted to purchase common stock of the Company as
consideration for assuming the responsibilities of CEO and President in
October 1999. 250,000 warrants were granted in total but only 125,000
have vested, and the remaining 125,000 will vest in the future in
accordance with the Company achieving certain performance milestones.
(3) Mr. Murray was granted 490,000 options under the Company's
1998 Omnibus Stock and Incentive Plan. The option price is $0.50 per
share and each share is generally exercisable after meeting five
equally weighted goals over a maximum ten-year vesting period. As of
September 30, 1999, none of these options had been vested.
Aggregated Options/SAR Exercises in Last Fiscal Year
And Fiscal Year End Option/SAR Values
18
<PAGE> 19
<TABLE>
<CAPTION>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
- ------------------------------------------------------------------------------------------------------
Number Of
Securities Value Of Unexercised
Underlying In-The Money
Unexercised Options/SAR's at
Name Shares Options/SAR's 9/30/99 ($)
And Acquired on Value at 9/30/99 (#) Exercisable/
Principal Exercise Realized Exercisable/ Unexercisable
Position ($) ($) Unexercisable
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Thomas G. Plaskett, Chairman, -- -- 40,000 (1)/ $ 148,080 (4)/
CEO & President 60,000 (1) $ 98,720 (4)
Thomas G. Plaskett, Chairman, -- -- 125,000 (2)/ $ 308,500 (4)/
CEO & President 125,000 (2) $ 308,500 (4)
Thomas G. Murray, Former CEO, -- -- -- (3)/ $ -- (4)/
Sr. VP 490,000 (3) $1,209,320 (4)
- ------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
(1) Represents five-year warrants granted to purchase common stock of the
Company as consideration for director's services. 100,000 warrants were
granted in total, of which 40,000 vested and the remaining 60,000 will
vest in the future in accordance with the Company achieving certain
performance milestones.
(2) Represents warrants granted to purchase common stock of the Company as
consideration for assuming the responsibilities of CEO and President in
October 1999. 250,000 warrants were granted in total, of which 125,000
vested and the remaining 125,000 will vest in the future in accordance
with the Company achieving certain performance milestones.
(3) Mr. Murray was granted 490,000 options under the Company's 1998 Omnibus
Stock and Incentive Plan. The option price is $0.50 per share and
each share is generally exercisable after meeting five equally weighted
goals over a maximum ten-year vesting period. As of September 30, 1999,
none of these options had been vested.
(4) Value based upon a price per share of $2.468 on November 24, 1999.
Compensation of Directors
The Company does not pay the Board of Directors fees for
attendance or similar remuneration. However, in December 1996, the
Company issued 579,720 shares of common stock to four directors (of
which two are officers) in recognition of services performed. Thomas G.
Plaskett, K. Bruce Jones and Alex D. Daspit were each issued 150,000
shares and Thomas G. Murray was issued 129,720 shares. The shares were
valued at $0.013 per share based upon an average book value calculation
of the Company at that time.
Additionally, in August 1999, the Board of Directors approved
an issuance of 100,000 warrants to each outside (non employee) director
to purchase common stock of the Company at $0.50 per share for a
five-year period ending August 2004, 60,000 of which are subject to
achievement of certain performance conditions. Thomas G. Plaskett, K.
Bruce Jones and Anthony J. Maselli were each issued 100,000 warrants.
The Company reimburses directors for any out-of-pocket
expenses incurred by them in conjunction with the business.
Employment Contracts and Termination of Employment, and Change-in-Control
Arrangements See "Certain Relationships and Related Transactions."
19
<PAGE> 20
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Anthony J. Maselli, a director of the Company since June 1998, is the
Founder and Managing Director of HSB Engineering Finance Corporation (HSB
Engineering) and a Vice President of the Technology Risks Department of Hartford
Steam Boiler Inspection & Insurance Company. Mr. Maselli has been with HSB
Engineering since 1995. On June 30, 1998, the Company and HSB Engineering, a
wholly-owned subsidiary of Hartford Steam Boiler Inspection & Insurance Company,
entered into an agreement whereby HSB Engineering will loan up to $1,500,000 for
working capital purposes. At September 30, 1999, $750,000 had been drawn by the
Company under this agreement and has been recorded as a current liability (due
June 30, 2000) in the Consolidated Financial Statements. 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. The Company also granted HSB
Engineering certain rights for as long as the indebtedness is outstanding,
including:
o HSB Engineering can appoint one or more members of the
Company's Board of Directors as long as they hold securities
exercisable or convertible into at least 5% of the Company's
common stock.
o The Company may not participate in any significant transaction
without the approval of HSB Engineering. These significant
transactions include mergers, asset sales, changes in the
Company's authorized stock, amendments to the Company's bylaws
and articles of incorporation, liquidation and dissolution,
the commencement of bankruptcy or insolvency proceedings.
Additionally, HSB Engineering has the right to approve the
execution of certain material contracts, including certain
compensation and employment contracts and contracts
aggregating an amount of $100,000 or greater.
As a requirement of the loan, two of the Company's executive officers,
Thomas G. Murray and Martin R. MacDonald executed employment contracts with the
Company effective June 30, 1998 and expiring June 30, 2000. The terms of the
agreements include:
o A minimum base salary of $5,000 a month plus standard and
customary plans offered by the Company (incentive plans,
insurance, vacations, reimbursement of expenses)
o Termination for cause, without cause and for good reason.
o Non-solicitation agreement prohibiting inducement of employees
to leave the Company or any interference with employees or the
Company for a four (4) year period after leaving the Company.
o Covenant not to compete for a four (4) year period after
leaving the Company.
Nicholas W. Hollingshad, an advisory Director of the Company since
April 1999, is a principal of Environmental Resources Management (ERM), an
international industrial environmental firm. The Company has engaged ERM to
provide environmental due diligence and permitting service in connection with
the development of the Company's initial plant in Wellsville, Ohio. Pursuant to
such engagement, the Company has paid ERM an aggregate of $33,000 and
expects to pay in excess of $400,000 during the current fiscal year.
William A. Searles, an advisory Director of the Company since November
1999, is the Chairman of APS Investment Services, Inc. The Company engaged APS
Financial Corporation, an affiliate of APS Investment Services, Inc., to serve
as the placement agent for the Company's private placement of Series A
Preferred Stock. As a result of such engagement, the Company paid APS Financial
Corporation a total of $588,500 in cash commissions and will issue to APS
Financial Corporation five-year warrants to purchase a total of 402,000 shares
of common stock at a purchase price of $1.875 per share.
ITEM 8. DESCRIPTION OF SECURITIES
GENERAL
The Company is a Colorado corporation and its affairs are governed by
the Amended and Restated Articles of Incorporation and the Bylaws of the Company
and the Colorado Business Corporation Act (CBCA). The following description of
the Company's capital stock is qualified in all respects by the Articles and the
Bylaws, copies of which have been filed as exhibits to the registration
statement.
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, no par value (Common Stock), and 10,000,000 shares of
preferred stock, no par value (Preferred Stock).
20
<PAGE> 21
COMMON STOCK
As of November 24, 1999, the Company had outstanding 20,925,477 shares
of its Common Stock held by 444 holders of record of its Common Stock. In
addition, the Company had reserved for issuance an additional 10,948,099 shares
of Common Stock issuable upon the exercise of outstanding options and warrants
or upon the conversion of outstanding shares of Series A Preferred Stock.
Holders of Common Stock do not have cumulative voting rights and are entitled to
one vote per share on all matters on which the holders of Common Stock are
entitled to vote. The Common Stock is not entitled to preemptive rights and is
not subject to redemption (including sinking fund provisions) or conversion.
Upon liquidation, dissolution or winding-up of the Company, the assets (if any)
legally available for distribution to shareholders are distributable ratably
among the holders of Common Stock after payment of all debts and liabilities of
the Company and the liquidation preferences of any outstanding classes or series
of Preferred Stock. All outstanding shares of Common Stock are validly issued,
fully paid and nonassessable. The rights, preferences and privileges of holders
of Common Stock will be subject to the preferential rights of any outstanding
classes or series of Preferred Stock that the Company may issue in the future.
PREFERRED STOCK
The Board of Directors may, without further action of the shareholders
of the Company, issue shares of Preferred Stock in one or more series and fix or
alter the rights and preferences thereof, including the voting rights,
redemption provisions, dividend rights, dividend rates, liquidation preferences,
conversion rights and any other rights, preferences, privileges and restrictions
of any wholly unissued series of Preferred Stock. The rights of holders of
Common Stock will be subject to, and may be adversely affected by, the rights of
holders of any Preferred Stock.
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 10% Cumulative Convertible 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.
As of December 15, 1999, the Company had 535,000 outstanding shares of
its Series A Preferred Stock held of record by 44 holders.
REGISTRATION RIGHTS
Holders of the Series A Preferred Stock have certain rights to have
shares of Common Stock issued upon conversion of the Series A Preferred Stock
registered under the Securities Act pursuant to the terms of agreements between
such holders and the Company. Also, holders of Warrants F, H, K and N have
certain rights to have shares of Common Stock registered under the Securities
Act pursuant to the terms of the agreements between such holders and the
Company. For both the holders of the Series A Preferred Stock and the holders of
Warrants F, H, K and N, if at any time the Company proposes to file a
registration statement for purposes of effecting a public offering of securities
of the Company, the Company must notify the holders of such proposed offering,
and upon their request, the Company must use its best efforts to register all
shares of Common Stock owned by the holders. In such instances, the Company is
responsible for the expenses related to the registration of such shares.
21
<PAGE> 22
Pursuant to the terms of that certain Investor Rights Agreement between
the Company and HSB, dated as of June 30, 1998, holders of shares of Common
Stock have certain rights to have such shares registered under the Securities
Act. Specifically, the holders have the right to demand that the Company use its
best efforts to register all their shares of Common Stock after a firm
commitment underwritten public offering pursuant to a registration statement to
be filed with the SEC. The Company shall only be obligated to effect two
registrations on demand. Additionally, if at any time the Company proposes to
register its securities under the Securities Act, the Company must notify the
holders of such proposed offering, and upon their request, the Company must use
its best efforts to register all shares of Common Stock owned by such holders.
In such instances, the Company is responsible for the expenses related to the
registration of such shares.
In the event that less than all the shares of Common Stock entitled to
registration rights can be included in a registration statement, priority will
be granted first to the holders under the Investor Rights Agreement, second to
the holders of the Series A Preferred Stock and third to the remaining holders
on a pro rata basis.
22
<PAGE> 23
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON
EQUITY AND OTHER SHAREHOLDER MATTERS.
Principal Market or Markets
Shares of the Company's Common Stock presently trade inactively on the
NASD over-the-counter bulletin board under the symbol "PRBX". The range of high
and low bid and ask for the Company's Common Stock for the last eight quarters
are as follows:
<TABLE>
<CAPTION>
Bid Ask
--- ---
For the Quarter Ended: High Low High Low
- ---------------------- ------ ------- ------ -----
<S> <C> <C> <C> <C>
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
March 31, 1998 2.50 1 3 2
December 31, 1997 .125 .125 None None
</TABLE>
The high and low bid and ask information was obtained from National Quotation
Bureau, L.L.C. Over-the-counter market quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, and may not represent actual
transactions.
The Company has made an application to list the Common Stock on the
American Stock Exchange under the symbol "PRB", which application has been
preliminarily approved. The Company expects that its Common Stock will begin
trading on the American Stock Exchange on or about February 3, 2000. The
Transfer Agent and Registrar for the Common Stock is Transfer Online.
Holders of Common Stock
As of November 24, 1999, the Company had 444 shareholders of
record of its Common Stock.
Dividends
Holders of shares of Common Stock are entitled to receive dividends in
cash, property or shares of the Company, as and when declared by the Board of
Directors, to the extent and in the manner permitted by law. During the last two
fiscal years, the Company did not pay dividends on its Common Stock. The Company
does not anticipate paying dividends on its Common Stock at this time. Holders
of shares of Series A Preferred Stock are entitled to dividends as described in
Description of Securities.
23
<PAGE> 24
ITEM 2. LEGAL PROCEEDINGS.
The Company is not involved in any material pending legal proceeding.
The Company has received a letter from a former employer of a current employee
alleging violations of certain non-compete provisions in the employee's
employment contract with the former employer. The Company believes such claims
are without merit and intends to vigorously contest any claims asserted by the
former employer.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following chart sets forth unregistered sales of securities by the
Company during the preceding three years, as follows:
<TABLE>
<CAPTION>
SECURITY ISSUED DATE ISSUED ISSUED TO CONSIDERATION EXEMPTION
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
<S> <C> <C> <C> <C>
14,171 shares of Common January 1997 Four consultants Consulting services (1)
Stock
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
470,000 shares of January - March Investors $0.25/share for a total of (1)
Common Stock 1997 $117,500 gross cash proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
600,000 shares January 1997 Employee Services rendered (1)
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
Warrants for 150,000 February 1997 Officer of the $0.10/share (1)
shares of Common Stock Warrants expire Company
in 2001, to date
none have been
exercised.
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
506,813 shares of February 1997 Three investors (i) Extension of maturity (1)
Common Stock date of a note payable to
one of the investors;
(ii) An equalization of
the difference in
conversion prices between
each investor's
$1.50/share offering and
the Company's $0.25/share
offering; and (iii) The
Company's inability to
effect timely repayment
of the principal and
interest on the note due
and payable
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
</TABLE>
24
<PAGE> 25
<TABLE>
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
<S> <C> <C> <C> <C>
2,295,067 shares of January 1997 All warrant holders $0.25/share for a total of (1)
Common Stock $574,000 gross cash proceeds
and future commitments of
approximately $300,000
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
197,564 shares of April - June 1997 Nine investors, Extension of terms of a (1)
Common Stock one of which was $150,000 promissory note
an officer issued in April 1996
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
553,000 shares of April - June 1997 Seven consultants $0.25/share for consulting (1)
Common Stock services
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
724,702 shares of May 1997 Investors $0.25/share for the conversion (1)
Common Stock of $162,500 of 12% convertible
notes issued in June 1996
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
52,183 shares of Common May 1997 Two Employees $0.25/share for services (1)
Stock
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
304,545 shares of May 1997 Investor $0.11/share exchange for (1)
Common Stock conversion of the $30,000 10%
convertible note issued in
March 1996
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
1,220,000 shares of May 1997 Investors $0.11/per share for a total of (1)
Common Stock $130,000 cash proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
1,908,631 shares of May 1997 Three officers $0.11/share for deferred and (1)
Common Stock unpaid compensation
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
52,500 shares of Common July 1997 Four consultants $0.25/share for consulting (1)
Stock services
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
1,193,000 shares of July - September Investors $0.25/share for a total of (1)
Common Stock 1997 $298,000 cash proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
538,300 shares of September 1997 Two investors Conversion of 12% convertible (1)
Common Stock notes and accrued interest
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
185,865 shares of September 1997 Investors Conversion of $150,000 12% (1)
Common Stock promissory notes plus accrued
interest
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
1,915,344 shares of October 1997 Subscribed but not (1)
Common Stock issued in
September 1997
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
327,786 shares of October - Investors $0.25/share for a total of (1)
Common Stock December 1997 $82,000 cash proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
410,130 shares of October - Three consultants $0.25/share for consulting (1)
Common Stock December 1997 services
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
</TABLE>
25
<PAGE> 26
<TABLE>
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
<S> <C> <C> <C> <C>
151,667 shares of October - Two employees $0.25/share for services (1)
Common Stock December 1997
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
179,952 shares of January 1998 Investor $0.25/share; retired (1)
Common Stock certificate and reissued new
certificate for 89,976
shares(2)
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
269,976 shares of March 1998 Investors $0.50/share for a total of (1)
Common Stock approximately $135,000 cash
proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
40,770 shares of Common March 1998 Investors $0.65/share for a total of (1)
Stock $26,500 cash proceeds; 12,230
additional shares issued April
1998(3)
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
93,000 shares of Common April 1998 Investors $0.50/share representing (1)
Stock $46,500 cash proceeds;
subscribed but not issued by
the transfer agent in March
1998
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
620,251 shares of April - June 1998 Investors $0.50/share for a total of (1)
Common Stock $310,126 cash proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
208,976 shares of June 1998 Investors $0.50/share in exchange for (1)
Common Stock conversion of remaining
$100,000, plus accrued
interest of the 12% notes
issued June 1996
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
161,895 shares of April - June 1998 Six consultants $0.50/share for consulting (1)
Common Stock services
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
187,977 shares of April - June 1998 Five employees $0.50/share as special (1)
Common Stock performance bonuses
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
50,000 shares July 1998 Employee Services (1)
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
100,000 shares July 1998 Two Directors Services (1)
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
240,111 shares of August 1998 Three officers $0.50/share for deferred and (1)
Common Stock unpaid compensation
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
5,300 shares of Common August 1998 Employee $0.50/share for unpaid (1)
Stock compensation
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
</TABLE>
26
<PAGE> 27
<TABLE>
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
<S> <C> <C> <C> <C>
259,800 shares of January 1999 Investors One share of Common Stock and (1)
Common Stock one warrant exercisable at
$0.75/share for each $0.50
invested for a total of
$129,900 gross proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
2,988,131 shares of February - April Investors One share of Common Stock (5)
Common Stock 1999 ($0.50) and one warrant
exercisable at $0.75/share for
each $0.50 invested, for a
total of $1,364,166 gross
proceeds(4)
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
30,000 shares of Common March 1999 Two $0.50/share for consulting (1)
Stock consultants services
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
63,100 shares of Common March 1999 Five Employees $0.50/share for services (1)
Stock
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
1,176,471 shares of June - July 1999 Directors and One share of Common Stock and (1)
Common Stock; Officers one warrant exercisable for 2
1,176,471 of $1.00 years at $1.00/share and one
warrants and 117,647 of $0.10 warrant for each $0.425
$0.55 warrants were invested that is exercisable
issued as a result for 5 years at $0.55/share for
a total of $500,000 gross
proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
1,440,800 shares of August 1999 Warrant Holders Call of Class Q Warrants for a (1)
Common Stock total of $1,080,600 gross
proceeds
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
535,000 shares of July 1999 New Investors; Up to $5,000,000 of Series A (1)
Series A Preferred Stock subscribed but not Preferred Stock at
issued $10.00/share for a total of
$5.4 million
- ------------------------- ------------------- -------------------- -------------------------------- -----------------
</TABLE>
Notes:
(1) Securities were issued in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act as transactions not
constituting a public offering of securities.
(2) The 179,952 shares were subscribed but not issued by the Company's transfer
agent on December 31, 1997. The Company determined that the shares were issued
incorrectly on a pre-split basis and should have 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.
(3) The Company determined that the investment should have been at $0.50 per
share instead of $0.65 per share, thus an additional 12,230 shares were issued
in April 1998.
(4) The offering was over-subscribed and the Company agreed to accept the
additional subscriptions.
(5) Securities were issued in reliance upon the exemption from registration in
connection with the sales of securities contained in Section 506 of Regulation D
promulgated under the Securities Act.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Amended and Restated Articles of Incorporation of the Company
provide that to the fullest extent permitted by applicable law, a director of
the Company will not be liable to the Company or its shareholders for monetary
damages for an act or omission in the director's capacity as a director.
The Colorado Business Corporation Act (CBCA) permits the
indemnification of directors, employees, officers and agents of Colorado
corporations. The Company's Articles and Bylaws provide that the Company shall
indemnify any person to the fullest extent permitted by law. Under the CBCA, an
officer or director may be indemnified if he acted in good faith and reasonably
believed that his conduct: (i) was in the best interests of the Company and if
he acted in his official capacity or (ii) was not opposed to the best interests
of the Company in all other cases. In addition, the indemnitee may not have
reasonable cause to believe that his conduct was unlawful in the case of a
criminal proceeding. In any case, the indemnitee may not have been found liable
to the Company for improperly receiving a personal benefit or for willful or
intentional misconduct in the
27
<PAGE> 28
performance of his duty to the Company. The Company (i) must indemnify an
officer or director for reasonable expenses if he is successful, (ii) may
indemnify an officer or director for such reasonable expenses unless he was
found liable for willful or intentional misconduct in the performance of his
duty to the Company, and (iii) may advance reasonable defense expenses if the
officer or director undertakes to reimburse the Company if he is later found not
to satisfy the standard for indemnification expenses.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is, therefore, unenforceable.
28
<PAGE> 29
PROBEX CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
<PAGE> 30
[M.C. HUNTER & ASSOCIATES, CPAS AND CONSULTANTS LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
PROBEX CORPORATION AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheet of PROBEX
CORPORATION AND SUBSIDIARIES (a development stage company) as of September 30,
1999 and 1998, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the years then ended and for the
period from April 1, 1988 (inception of operations) to September 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
PROBEX CORPORATION AND SUBSIDIARIES (a development stage company) as of
September 30, 1999 and 1998, and the results of their operations and their
cash flows for the years then ended and for the period from April 1, 1988
(inception of operations) to September 30, 1999, in conformity with generally
accepted accounting principles.
/s/ M.C. HUNTER & ASSOCIATES
December 10, 1999
<PAGE> 31
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
----------- -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash in banks $ 2,658,055 $ 12,590
Employee receivable 8,708 15,362
Prepaid expense 13,687 --
----------- -----------
Total Current Assets 2,680,450 27,952
----------- -----------
PROPERTY AND EQUIPMENT
Lab and research equipment 892,850 666,843
Leasehold Improvements 66,489 59,374
Other 157,346 116,074
----------- -----------
1,116,685 842,291
Accumulated depreciation and amortization (324,301) (194,796)
----------- -----------
Total Property and Equipment 792,384 647,495
----------- -----------
INTANGIBLE ASSETS - PATENTS 15,150 --
RESTRICTED CASH 190,142 --
OTHER ASSETS 2,937 3,737
----------- -----------
Total Assets $ 3,681,063 $ 679,184
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and Independent Auditor's Report
F-1
<PAGE> 32
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 1998
----------- -----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable, trade $ 285,784 $ 279,307
Payroll taxes withheld 1,980 5,302
Promissory note 750,000 --
Current portion of obligations under capital leases 9,701 --
Other current liabilities 1,848 499
Accrued expenses 252,032 27,400
----------- -----------
Total Current Liabilities 1,301,345 312,508
----------- -----------
LONG-TERM LIABILITIES
Promissory note -- 300,000
Obligations under capital leases 20,361 --
----------- -----------
Total Long-Term Liabilities 20,361 300,000
----------- -----------
Total Liabilities 1,321,706 612,508
=========== ===========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series A 10% Cumulative Convertible Preferred Stock, no par
value, authorized 10,000,000 shares, subscribed but not issued
190,000 at Sep. 30, 1999 and None at Sep. 30, 1998 1,608,227 --
Common Stock, no par value, authorized 37,500,000
shares, issued and outstanding - 18,932,029 at
Sep. 30, 1999 and 14,930,413 at Sep. 30, 1998 7,329,260 5,548,004
Common Stock, subscribed but not issued -
2,011,388 at Sep. 30, 1999 and None at Sep. 30, 1998 1,316,600 --
Deferred Stock Expense (5,209) (23,958)
Deficit Accumulated During Development Stage (7,889,521) (5,457,371)
----------- -----------
Total Stockholders' Equity 2,359,357 66,675
----------- -----------
Total Liabilities and Stockholders' Equity $ 3,681,063 $ 679,184
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and Independent Auditor's Report
F-2
<PAGE> 33
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
TWELVE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPT. 30,
1999 1998 1997 1999
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Revenue $ -- -- -- $ 86,729
COST OF REVENUE -- -- -- 173,493
----------- ----------- ----------- -----------
GROSS LOSS -- -- -- (86,764)
Operating Expenses
Salaries and wages 298,703 203,019 160,778 1,018,038
Research and development 1,202,864 521,427 311,693 2,662,094
Stock compensation expense 167,550 172,530 100,087 453,903
Stock services expense 65,000 170,980 163,324 410,427
Consulting fees -- 60,835 33,746 136,684
Legal fees 62,687 77,864 465 319,036
Directors fees -- -- 594 591
Accounting fees 30,909 49,129 23,369 145,726
Insurance 66,510 48,905 33,878 222,867
Payroll taxes 24,590 13,153 9,844 72,945
Travel and entertainment 136,939 64,101 45,231 340,169
Telephone 39,529 37,739 28,938 158,582
Vehicle expenses 1,611 457 -- 6,009
Office supplies 53,421 11,961 16,457 128,234
Rent 41,716 26,302 13,825 118,777
Depreciation 36,344 20,343 4,615 64,315
Marketing services 2,517 2,032 32,000 58,477
Stock transfer fees 4,541 5,487 4,201 15,468
Utilities 13,928 5,987 4,591 38,690
Miscellaneous 68,865 88,294 32,586 301,566
----------- ----------- ----------- -----------
Loss from Operations 2,318,224 1,580,546 1,020,220 6,759,360
----------- ----------- ----------- -----------
OTHER INCOME AND EXPENSE
Stock financing expense -- (561,567) (158,754) (720,321)
Loss on sale of land -- -- (47,109) (47,109)
Loss on sale of property and equipment -- -- (3,000) (158,797)
Interest expense (107,820) (11,959) (72,335) (197,883)
Miscellaneous income (expense) 11,017 (3,401) 7,876 11,075
----------- ----------- ----------- -----------
Total Other Income and Expense (96,803) (576,927) (273,322) (1,113,035)
----------- ----------- ----------- -----------
NET LOSS $ 2,415,027 $ 2,157,474 $ 1,293,542 $ 7,872,395
=========== =========== =========== ===========
NET LOSS PER SHARE $ 0.15 $ 0.17 $ 0.07
=========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and Independent Auditor's Report
F-3
<PAGE> 34
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
Common Stock Accumulated
----------------------------------- During Total
Shares/Units Shares/Units Development Stockholders'
Issued Subscribed Amount Stage Equity
----------- ------------ -------- ----------- ------------
<S> <C> <C> <C> <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 27,500,000 3,667 3,667
Shares issued September 1988 - $.001 per share 10,000,000 10,000 10,000
Shares/Units subscribed but not paid or issued:
Units subscribed August 1988 - $.000133 per share 7,500,000 1,000 1,000
Shares subscribed September 1988 - $.001 per share 2,000,000 2,000 2,000
----------- ---------- ------- --------- ---------
BALANCE AT SEPTEMBER 30, 1988 37,500,000 9,500,000 $16,667 $ (14) $ 16,653
----------- ---------- ------- --------- ---------
</TABLE>
See Notes to Consolidated Financial Statements and Independent Accountants'
Auditor's Report
F-4
<PAGE> 35
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
Common Stock Accumulated
----------------------------------- During Total
Shares/Units Shares/Units Development Stockholders'
Issued Subscribed Amount Stage Equity
----------- -------------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1988 - CONTINUED 37,500,000 9,500,000 $ 16,667 $ (14) $ 16,653
Net loss for the year ended September 30, 1989 -- -- (5,707) (5,707)
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 30,000,000 300,000 300,000
Stock offering costs from public offering -- (58,440) -- (58,440)
----------- ---------- -------- --------- --------
BALANCE AT SEPTEMBER 30, 1989 77,000,000 -- $258,227 $ (5,721) $ 252,506
----------- ---------- -------- --------- --------
Net loss for the year ended September 30, 1990 -- -- (253,512) (253,512)
Shares Issued / Sold:
Issued for acquisition of subsidiary - December
1989 308,000,000 --
Sold for divestiture of subsidiary - September
1990 (308,000,000) --
----------- ---------- -------- --------- --------
BALANCE AT SEPTEMBER 30, 1990 77,000,000 -- $258,227 $(259,233) $ (1,006)
----------- ---------- -------- --------- --------
</TABLE>
See Notes to Consolidated Financial Statements and Independent Accountants'
Auditor's Report
F-5
<PAGE> 36
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
Common Stock Accumulated
------------------------------------ During Total
Shares/Units Shares/Units Development Stockholders'
Issued Subscribed Amount Stage Equity
------------ ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1990 - CONTINUED 77,000,000 -- $ 258,227 $ (259,233) $ (1,006)
Activity for the year ended September 30, 1991 -- -- -- --
------------ ---------- --------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1991 77,000,000 -- $ 258,227 $ (259,233) $ (1,006)
------------ ---------- --------- ----------- ------------
Net loss for the year ended September 30, 1992 -- -- (848) (848)
------------ ---------- --------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1992 77,000,000 -- $ 258,227 $ (260,081) $ (1,854)
------------ ---------- --------- ----------- ------------
Net income for the year ended September 30, 1993 -- -- 889 889
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) -- -- --
------------ ---------- --------- ----------- ------------
BALANCE AT SEPTEMBER 30, 1993 1,925,000 -- $ 266,227 $ (259,192) $ 7,035
------------ ---------- --------- ----------- ------------
</TABLE>
See Notes to Consolidated Financial Statements and
Independent Accountants' Auditor's Report
F-6
<PAGE> 37
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
Common Stock Accumulated
---------------------------------------- During Total
Shares/Units Shares/Units Development Stockholders'
Issued Subscribed Amount Stage Equity
------------- ------------ ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1993 - CONTINUED 1,925,000 -- $ 266,227 $ (259,192) $ 7,035
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)
---------- ---------- ----------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1994 11,681,539 -- $ 1,171,314 $ (661,089) $ 510,225
---------- ---------- ----------- ----------- -----------
</TABLE>
See Notes to Consolidated Financial Statements and
Independent Accountants' Auditor's Report
F-7
<PAGE> 38
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
Common Stock Accumulated
-------------------------------------- During Total
Shares/Units Shares/Units Development Stockholders'
Issued Subscribed Amount Stage Equity
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1994 - CONTINUED 11,681,539 - $ 1,171,314 $ (661,089) $ 510,225
Shares Issued:
Issued for directors fees - July 1995 - $0.033 per share 300,000 9,900 9,900
- no cash and basis is average book value
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 - (22,000) - (22,000)
-1995
Net loss for the year ended September 30, 1995 - - (413,655) (413,655)
---------------------------------------------------------------
BALANCE AT SEPTEMBER 30, 1995 12,028,534 - $ 1,155,130 $(1,074,744) $ 80,386
===============================================================
</TABLE>
See Notes to Consolidated Financial Statements and Independent Accountants'
Auditor's Report
F-8
<PAGE> 39
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Equity
Common Stock Accumulated
------------------------------------ During Total
Shares/Units Shares/Units Development Stockholders'
Issued Subscribed Amount Stage Equity
------------ ---------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1995 - CONTINUED 12,028,534 -- $1,155,130 $(1,074,744) $ 80,386
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
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 ind. 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)
---------- ------- ---------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1996 13,816,921 7,067 $1,520,640 $(2,006,354) $ (485,715)
========== ======= ========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and Independent Accountants'
Auditor's Report
F-9
<PAGE> 40
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
-----------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
-----------------------------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 - CONTINUED 13,816,921 7,067 $1,520,640
Shares Issued:
Issued for employee services - Dec. 1996 - $0.013 per share
- no cash and basis is average book value 125,000 1,625
Issued for directors services - Dec. 1996 - $0.013 per share
- no cash and basis is average book value 579,720 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
Issued for consulting services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 14,171 3,543
Units issued from conversion of warrants/new offer - $0.25 per share
Issued Jan-Mar 1997 470,000 117,500
Issued for employee services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 200,000 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
Issued for loan extension - Feb. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 6,813 1,703
Issued for loan extension - Feb. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 500,000 107,660
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
----------------------------------
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 16,186,639 190,000 $ 1,958,577
==================================
</TABLE>
<TABLE>
<CAPTION>
Equity
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
---------------------------------------
<S> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1996 - CONTINUED $ - $(2,006,354) $(485,715)
Shares Issued:
Issued for employee services - Dec. 1996 - $0.013 per share
- no cash and basis is average book value 1,625
Issued for directors services - Dec. 1996 - $0.013 per share
- no cash and basis is average book value 7,536
Issued for consulting services - Oct. '96/Dec. '96 - $0.013 per share
- no cash and basis is average book value 870
Issued for consulting services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 3,543
Units issued from conversion of warrants/new offer - $0.25 per share
Issued Jan-Mar 1997 117,500
Issued for employee services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 50,000
Issued for employee services - Jan. 1997 - $0.25 per share
- no cash and basis is recent stock offerings - vested over 2 yrs (64,583) 35,417
Issued for loan extension - Feb. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 1,703
Issued for loan extension - Feb. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 107,660
Issued for stock that was subscribed - Apr 1997 - from Mar 1996
- no cash as the cash was received previously -
Subscribed from conversion of warrant/new stock offer - Apr. 1997 47,500
-----------------------------------
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 $ (64,583) $(2,006,354) $(112,361)
===================================
</TABLE>
See Notes to Consolidated Financial Statements and Independent Accountants'
Auditor's Report
F-10
<PAGE> 41
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
------------------------------------------------
<S> <C> <C> <C>
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 16,186,639 190,000 $ 1,958,577
Issued from conversion of warrants/new offer - $0.25 per share
Issued Apr-Jun 1997 632,067 159,018
Issued for loan extension - 12% Notes Payable - $0.25 per share
Issued Apr-Jun 1997 197,564 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
Issued for conversion of 12% Jun. '96 Notes-May 1997-$0.25 per share 724,702 180,175
- no cash and basis is recent stock offerings
Issued for employee services - May 1997 - $0.25 per share
- no cash and basis is recent stock offerings 52,183 13,046
Issued for conversion of 10% Mar. '96 Note-May 1997-$0.11 per share 304,545 33,499
Issued May 1997 - basis is agreed upon price
Issued for stock offering - $0.11 per share
Issued May 1997 - basis is agreed upon price 1,219,996 130,000
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
Stock offering costs - (5,251)
------------------------------------------------
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 21,779,327 190,000 $ 2,858,373
================================================
<CAPTION>
Equity
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity (Equity)
-------------------------------------------------
<S> <C> <C> <C>
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 $ (64,583) $ (2,006,354) $ (112,361)
Issued from conversion of warrants/new offer - $0.25 per share
Issued Apr-Jun 1997 - 159,018
Issued for loan extension - 12% Notes Payable - $0.25 per share
Issued Apr-Jun 1997 49,391
Issued for consulting services - Apr.-Jun. 1997 - $0.25 per share
- no cash and basis is recent stock offerings 138,250
Issued for conversion of 12% Jun. '96 Notes-May 1997-$0.25 per share 180,175
- no cash and basis is recent stock offerings
Issued for employee services - May 1997 - $0.25 per share
- no cash and basis is recent stock offerings 13,046
Issued for conversion of 10% Mar. '96 Note-May 1997-$0.11 per share 33,499
Issued May 1997 - basis is agreed upon price
Issued for stock offering - $0.11 per share
Issued May 1997 - basis is agreed upon price - 130,000
Issued for conversion-deferred compensation for three officers
- $0.11 per unit - no cash and basis is recent stock offerings 201,668
Stock offering costs - (5,251)
--------------------------------------------
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 $ (64,583) $ (2,006,354) $ 787,435
============================================
</TABLE>
See Notes to Consolidated Financial Statements and
Independent Accountants' Auditor's Report
F-11
<PAGE> 42
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------------
Shares/Units Shares/Units
Issued Subscribed Amount
------------ ------------ ----------
<S> <C> <C> <C>
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 21,779,327 190,000 $ 2,858,373
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
Issued from conversion of warrants/new offer - $0.25 per share - Issued Jul-Sep 1997 1,193,000 298,250
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
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
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
Subscribed from conversion of 12% Jun '96 Notes - Sep. 1997
- no cash and basis is recent stock offerings 100,625 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
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
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 5,776
Net loss for the twelve months ended September 30, 1997 --
---------- --------- -----------
BALANCE AT SEPTEMBER 30, 1997 21,619,017 1,915,344 $ 3,780,710
========== ========= ===========
<CAPTION>
Equity
Accumulated
Deferred During Total
Stock Development Stockholders'
Expense Stage Equity
--------- ------------ ------------
<S> <C> <C> <C>
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1997 $ (64,583) $(2,006,354) $ 787,435
Issued for stock that was subscribed - Jul 1997 - from Jun 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 stock offerings 13,125
Issued from conversion of warrants/new offer - $0.25 per share - Issued Jul-Sep 1997 298,250
Cancelled that were issued by Transfer Agent in Error - Mar. / Apr. 1996 --
Issued for conversion of 12% Jul / Aug. '96 Note-Sep 1997-$0.20 per share
Issued Sep 1997 - basis is agreed upon price 107,660
Issued for conversion of 12% Notes Payable-Apr 1996 - $0.25 per share
Issued Sep 1997 - basis is recent stock offerings 46,466
Cancelled for liquidation - Probex Technologies, L.P. - issued Mar 1994 --
Issued for liquidation of Probex Technologies, L.P. - to partners of L.P. --
Subscribed from conversion of warrant/new stock offer - Sep. 1997-$0.25 per share 398,554
Subscribed from conversion of 12% Jun '96 Notes - Sep. 1997
- no cash and basis is recent stock offerings 25,156
Subscribed from conversion of 12% Notes Payable-Apr 1996 -$0.25 per share
- no cash and basis is recent stock offerings 14,002
Subscribed from conversion of loan from officer - Sep 1997 -$0.25 per share
- no cash and basis is recent stock offerings 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 5,776
Net loss for the twelve months ended September 30, 1997 (1,293,542) (1,293,542)
--------- ----------- -----------
BALANCE AT SEPTEMBER 30, 1997 $ (64,583) $(3,299,897) $ 416,230
========= =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and
Independent Accountants' Auditor's Report
F-12
<PAGE> 43
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
---------------------------------------- Deferred
Shares/Units Shares/Units Stock
Issued Subscribed Amount Expense
------------ ------------ ----------- ---------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 - CONTINUED 21,619,017 1,915,344 $ 3,780,710 $ (64,583)
Issued for stock that was subscribed - Sep 1997, issued Oct 1997
- no cash as the cash was received previously 1,915,344 (1,915,344)
Issued for stock that was subscribed - Sep 1997, 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 1997 327,786 81,947
Subscribed from private stock sale - Dec. 1997-$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 (64,583)
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 1998 300,746 154,988
Subscribed from private stock sale - Mar. 1998-$0.50 per share -- 93,000 46,500
----------- -------- ----------- ----------
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1998 12,608,764 93,000 $ 4,249,582 $ (64,583)
=========== ======== =========== ==========
<CAPTION>
Equity
Accumulated
During Total
Development Stockholders'
Stage Equity
------------ -------------
<S> <C> <C>
BALANCE AT SEPTEMBER 30, 1997 - CONTINUED $ (3,299,897) $ 416,230
Issued for stock that was subscribed - Sep 1997, issued Oct 1997
- no cash as the cash was received previously --
Issued for stock that was subscribed - Sep 1997, 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 1997 -- 81,947
Subscribed from private stock sale - Dec. 1997-$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 (3,299,897) 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 1998 -- 154,988
Subscribed from private stock sale - Mar. 1998-$0.50 per share 46,500
------------ ---------
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1998 $ (3,299,897) $ 885,102
============ =========
</TABLE>
See Notes to Consolidated Financial Statements and
Independent Accountants' Auditor's Report
F-13
<PAGE> 44
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------------------- Deferred
Shares/Units Shares/Units Stock
Issued Subscribed Amount Expense
------------ ------------ --------- --------
<S> <C> <C> <C> <C>
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1998 12,608,764 93,000 $4,249,582 $(64,583)
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 1998 620,251 310,126
Issued for conversion of 12% Notes Payable-Apr 1996 - $0.50 per share
Issued Apr 1998 - basis is recent stock offerings 208,976 104,488
Issued for correction of error - Mar.1998 - 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 (10,417)
Issued from private stock sale - $0.50 per share - Issued Aug 1998 22,000 11,000
Issued for exercise of employee options - Aug.1998 - $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 termination of anti-dilutive agreement - Sep.1998 - $0.80 per
share - no cash and basis is estimated market value 670,709 536,567
Amortization of Deferred Stock Expense -- 51,042
Net loss for the twelve months ended September 30, 1998 --
------------ ------- ---------- --------
BALANCE AT SEPTEMBER 30,1998 14,930,413 -- $5,548,004 $(23,958)
============ ======= ========== ========
<CAPTION>
Accumulated
During Total
Development Stockholders'
Stage Equity
----------- -------------
<S> <C> <C>
SUB-TOTAL - BALANCE AT SEPTEMBER 30, 1998 $(3,299,897) $ 885,102
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 1998 -- 310,126
Issued for conversion of 12% Notes Payable-Apr 1996 - $0.50 per share
Issued Apr 1998 - basis is recent stock offerings 104,488
Issued for correction of error - Mar.1998 - 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 2,083
Issued from private stock sale - $0.50 per share - Issued Aug 1998 -- 11,000
Issued for exercise of employee options - Aug.1998 - $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 termination of anti-dilutive agreement - Sep.1998 - $0.80 per
share - no cash and basis is estimated market value 536,567
Amortization of Deferred Stock Expense 51,042
Net loss for the twelve months ended September 30, 1998 (2,157,474) (2,157,474)
----------- -----------
BALANCE AT SEPTEMBER 30,1998 $(5,457,371) $ 66,674
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and Independent
Accountants' Auditor's Report
F-14
<PAGE> 45
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock Preferred Stock
Shares/Units Shares/Units Shares/Units
Issued Subscribed Amount Subscribed
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998 - CONTINUED 14,930,413 -- $ 5,548,004
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
Preferred Stock offering costs
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
========== ========= =========== =======
<CAPTION>
Equity
Accumulated
Deferred During Total
Preferred Stock Stock Development Stockholders'
Amount Expense Stage Equity
-------------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
BALANCE AT SEPTEMBER 30, 1998 - CONTINUED $ $ (23,958) $(5,457,371) $ 66,674
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 1,900,000
Preferred Stock offering costs (291,773) (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 $ 1,608,227 $ (5,209) $(7,889,521) $ 2,359,358
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and Independent
Accountants' Auditor's Report
F-15
<PAGE> 46
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 1, 1988
TWELVE MONTHS ENDED (INCEPTION) TO
SEPTEMBER 30, SEPT. 30,
CASH USED BY OPERATING ACTIVITIES 1999 1998 1997 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Loss $(2,415,027) $(2,157,474) $(1,293,542) $(7,872,398)
Adjustments to reconcile net loss to cash
used by operating activities:
Depreciation expense 36,344 20,343 4,615 70,499
Depreciation expense charged to research and development 126,795 83,090 30,911 293,620
Non-cash items in research and development expense 196,497 -- -- 196,497
Loss on sale of equipment -- -- 3,000 155,378
Loss on sale of land -- -- 47,109 47,109
Interest expense - not paid 104,088 10,088 33,703 169,179
Stock compensation expense 167,550 172,530 100,087 440,167
Stock services expense 65,000 170,980 163,324 424,163
Stock financing expense -- 561,567 158,754 720,321
Loss on disposition of vehicle -- -- 3,419
Decrease (increase) in employee receivable 6,654 9,338 (3,613) (8,708)
Decrease (increase) in prepaid expense (13,687) 940 -- (13,687)
Increase (decrease) in payroll taxes withheld (3,322) 5,090 (155) 1,980
Increase in other assets 801 (2,938) -- (2,938)
Increase in other current liabilities 1,349 500 -- 1,849
Increase in accounts payable and accrued expenses 109,895 275,290 58,011 728,138
----------- ----------- ----------- -----------
Net Cash Used By Operating Activities (1,617,063) (850,655) (697,795) (4,645,411)
----------- ----------- ----------- -----------
CASH USED BY INVESTING ACTIVITIES
Purchase of property and equipment (504,525) (580,100) (111,172) (1,381,822)
Cost of patent registration (15,150) -- -- (15,150)
Purchase of land -- -- -- (178,111)
Purchase of equipment -- -- -- (200,201)
Proceeds from sale of equipment -- -- 45,000 45,000
Proceeds from sale of land -- -- 22,424 115,232
----------- ----------- ----------- -----------
Net Cash Used By Investing Activities (519,675) (580,100) (43,748) (1,615,052)
----------- ----------- ----------- -----------
CASH PROVIDED BY FINANCING ACTIVITIES
Increase in capital lease obligation 30,062 30,062
Proceeds from preferred stock subscribed - not issued 1,900,000 -- -- 1,900,000
Restricted cash from preferred stock subscribed - not issued (190,142) (190,142)
Issuance of common stock 1,743,064 670,049 752,112 4,529,492
Proceeds from common stock subscribed - not issued 1,316,600 -- 398,555 1,715,155
Proceeds from long-term note - purchase of land -- -- -- 140,000
Repayment of long-term note - purchase of land -- -- (11,392) (125,872)
Proceeds from issuance of notes payable - 12% -- 100,000 -- 250,000
Repayment of notes payable - 12% -- (100,000) (89,532) (189,532)
Proceeds from issuance of convertible notes - 12% -- -- 37,500 692,500
Proceeds from issuance of convertible notes - 10% -- -- -- 85,000
Proceeds from loan from officer -- -- 25,000 25,000
Repayment of loan from officer -- -- (13,346) (13,346)
Proceeds from issuance of promissory note - 15% 450,000 300,000 -- 750,000
Preferred stock offering costs (291,773) -- -- (291,773)
Common stock offering costs (175,609) -- (1,250) (406,253)
Proceeds from installment note payable -- -- 50,000 19,829
Repayment of installment note payable -- -- -- (1,603)
----------- ----------- ----------- -----------
Net Cash Provided By Financing Activities 4,782,202 970,048 1,147,647 8,918,517
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 2,645,465 (460,706) 406,104 2,658,055
----------- ----------- ----------- -----------
CASH, BEGINNING OF PERIOD 12,590 473,296 67,191 --
----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 2,658,055 $ 12,590 $ 473,296 $ 2,658,055
=========== =========== =========== ===========
</TABLE>
See Notes to Consolidated Financial Statements and
Independent Accountants' Auditor's Report
F-16
<PAGE> 47
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
1. 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 September 30, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION - The accompanying consolidated financial statements include the
accounts of PROBEX CORPORATION, (the "Company"), formerly Conquest Ventures,
Inc., and its wholly owned subsidiaries - Quadrex Corporation and Apollo Oil
Company. Significant intercompany 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. No patent amortization has been recorded by the Company as of the
date of these Consolidated Financial Statements.
RESTRICTED CASH - At September 30, 1999, the Company had $190,142 of restricted
cash, classified as a non-current asset. This amount represents 10% of the
cumulative convertible preferred stock offering proceeds (plus accrued
interest) held in a separate interest bearing escrow account and not available
to the Company until certain incorporation documents are amended to reflect
stockholder approval of certain amendments.
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.
F-17
<PAGE> 48
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING ESTIMATES - When preparing financial statements in conformity with
generally accepted accounting principles, management must make estimates based
on future events 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.
FOR THE TWELVE MONTH PERIOD ENDING SEPTEMBER 30
<TABLE>
<CAPTION>
1999 1998 1997
----------- ---------- -----------
<S> <C> <C> <C>
LOSS (NUMERATOR) $2,415,027 $2,157,474 $1,293,542
SHARES (DENOMINATOR) 16,207,446 12,846,804 18,479,171
LOSS PER SHARE $0.15 $0.17 $0.07
</TABLE>
The Company's outstanding warrants, options and convertible preferred stock
were anti-dilutive for the twelve-month periods ending September 30, 1999,
1998, and 1997.
F-18
<PAGE> 49
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. 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 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 owns 324,220 common shares
and has approximately $70,000 of outstanding liabilities - see Subsequent
Events Footnote.
F-19
<PAGE> 50
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
It is anticipated that these outstanding liabilities will be resolved by
November 30, 1999 through the sale of a portion of the remaining common shares
held by the Limited Partnership. Then, any remaining shares of common stock
owned by the Limited Partnership will be distributed to the partners in
liquidation. See Subsequent Events Footnote.
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.
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.
F-20
<PAGE> 51
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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.
F-21
<PAGE> 52
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
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 September 30, 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 September 30, 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 September 30, 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.
F-22
<PAGE> 53
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
In June 1996, the Company started quotation of its Common Stock on the NASDAQ
Electronic Bulletin Board under the symbol "PRBX". 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. As of September 30, 1999, the stock was trading at
$1.687 per share. The market is thin (few buyers or sellers), 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.
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.
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
September 30, 1999.
F-23
<PAGE> 54
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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.
F-24
<PAGE> 55
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
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.
F-25
<PAGE> 56
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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 September 30, 1999, the employee had
vested in all of the 25,000 shares and 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.
F-26
<PAGE> 57
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
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. 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 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.
F-27
<PAGE> 58
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
3. STOCKHOLDERS' EQUITY (CONTINUED)
In July 1999, the Company initiated a private placement offering to new
investors of up to $5,000,000 of 10% Cumulative Convertible Preferred Stock,
Series A at $10.00 per share. Each Preferred Share is convertible at the option
of the holder into 5.33333 shares of Common Stock of the Company or a $1.875
conversion price per Common Share. Each Preferred Share is entitled to receive
semi-annual dividends at the rate of $1.00 per annum payable either in cash or
in Common Stock, at the option of the Company. If the Common Stock option is
chosen, the Common Stock will be issued at a value of $1.50 per share.
As of September 30, 1999, the Company had received $1,900,000 of gross proceeds
and 190,000 shares of Preferred Stock were subscribed and not issued.
Additionally, $190,000 of the above gross proceeds (10%) is being held in a
separate interest bearing account and not available for use by the Company
until certain incorporation documents were approved by the Company's
stockholder's - See Subsequent Events Footnote.
As a result of the above Preferred Stock private placement offering, the
Company has paid $291,000 of expenses as of September 30, 1999 ($209,000 of
placement fees and $83,000 of legal fees) and these have been recorded as
offering costs and offset against the Preferred Stock proceeds in the
Consolidated Financial Statements.
4. INCOME TAX
All tax returns have been filed through September 30, 1998. The net operating
loss carryforward is approximately $4,500,000 which expires by 2013. No
deferred tax asset has been recognized since management believes that it is not
likely to be realized.
5. 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.
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.
F-28
<PAGE> 59
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At September 30, 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 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 September
30, 1999, $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 September 30, 1999, the
fully diluted number of shares that would be utilized to determine how many
warrants would be available to the third party is 30,794,731.
At 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.
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
September 30, 1999, 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.
F-29
<PAGE> 60
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 September 30, 1999, 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 year
ending September 30, 1999.
<TABLE>
<CAPTION>
CLASS O/S 9-30-98 GRANTED LAPSED EXERCISED O/S 9-30-99
----- ----------- ----------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
F 91,750 91,750
H 162,506 162,506
I 43,962 43,962 -
K 75,000 75,000
L 115,000 115,000 -
M 162,534 162,534 -
N 453,864 453,864
P 208,481 208,481
Q - 2,988,131 1,547,331 1,420,800 20,000
Qa - 272,833 272,833
R 100,000 100,000 -
R - 1,176,471 1,176,471
Ra - 117,647 117,647
S - 550,000 550,000
T - 200,000 200,000
U - 120,000 120,000
V 152,000 152,000
-
----- --------- --------- --------- --------- ---------
TOTAL 1,413,097 5,577,082 1,968,827 1,420,800 3,600,552
===== ========= ========= ========= ========= =========
</TABLE>
F-30
<PAGE> 61
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
5. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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, 4,167 has been earned and issued to the employee. The remaining
20,833 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.
6. 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.
F-31
<PAGE> 62
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
5. INDEBTEDNESS (CONTINUED)
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.
F-32
<PAGE> 63
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
6. INDEBTEDNESS (CONTINUED)
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.
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.
F-33
<PAGE> 64
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
6. INDEBTEDNESS (CONTINUED)
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.
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.
F-34
<PAGE> 65
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
6. INDEBTEDNESS (CONTINUED)
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.
F-35
<PAGE> 66
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
6. INDEBTEDNESS (CONTINUED)
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
September 30, 1999 as a current liability (due June 2000) in the Consolidated
Financial Statements. Additionally, the Company has recorded $109,688 of
accrued interest on the loan as of September 30, 1999 in the Consolidated
Financial Statements.
7. LEASES
Included in property and equipment in the accompanying Consolidated Financial
Statements are the following assets held under capital leases:
<TABLE>
<CAPTION>
Sept. 30, Sept. 30,
1999 1998
--------- ---------
<S> <C> <C>
Lab and research equipment $43,159 $11,898
Less accumulated amortization 3,569 1,190
------- -------
Assets under capital leases, net 39,590 10,708
</TABLE>
The lab and research equipment for the above capital leases has unexpired terms
of two to three years. The Company also leases office equipment and its
operating facility under operating leases with unexpired terms ranging from one
to three years. Rental expense for operating leases amounted to $41,716,
$26,302 and $13,825 for 1999, 1998 and 1997 respectively.
F-36
<PAGE> 67
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
7. LEASES (CONTINUED)
At September 30, 1999, minimum lease payments under leases expiring subsequent
to September 30, 1999 are:
<TABLE>
<CAPTION>
Capital Operating
Year ended September 30: Leases Leases
- ------------------------ ------- ---------
<S> <C> <C>
2000 $12,899 $ 62,742
2001 12,438 39,410
2002 10,324 4,953
------- --------
Total minimum lease payments 35,661 $107,105
--------
Less amount representing interest (5,599)
-------
Present value of net minimum lease payments $30,062
-------
</TABLE>
8. LIQUIDITY AND CAPITAL RESOURCES
The Company is in the development stage and has incurred an accumulated deficit
of approximately $7,890,000 since inception. The Company has approximately
$1,301,000 of current liabilities against approximately $2,680,000 of current
assets, of which the majority is in cash. Of the current liabilities,
approximately $286,000 is accounts payable, $750,000 is a current promissory
note due June 2000 and approximately $252,000 is accrued liabilities. The
Company has been able to structure short term liquidity financing through
private placement offerings for the immediate future. As related to longer term
financing, the Company has reached an agreement with a third party to provide
up to $1,500,000 of funds (of which $750,000 has been funded) subject to
certain terms and conditions - See Commitments and Contingencies Footnote.
However, there can be no assurance that the Company may not experience
liquidity problems or obtain sufficient funding on a timely basis.
F-37
<PAGE> 68
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
9. SUBSEQUENT EVENTS
In July 1999, the Company initiated a private placement offering to new
investors of up to $5,000,000 of 10% Cumulative Convertible Preferred Stock,
Series A at $10.00 per share. Each Preferred Share is convertible at the option
of the holder into 5.33333 shares of Common Stock of the Company or a $1.875
conversion price per Common Share. Each Preferred Share is entitled to receive
semi-annual dividends at the rate of $1.00 per annum payable either in cash or
in Common Stock, at the option of the Company. If the Common Stock option is
chosen, the Common Stock would be issued at a value of $1.50 per share. The
Company has extended the offering through December 15, 1999 and as of the date
of these Consolidated Financial Statements, the Company had received $4,425,000
of gross proceeds and 442,500 shares of Preferred Stock were subscribed but not
issued. Additionally, $442,500 of the above gross proceeds (10%) is being held
in a separate interest bearing account and not available for use by the Company
until certain incorporation documents were approved by the Company's
stockholder's, expected to occur by December 31, 1999.
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.
As of September 30, 1999, the Limited Partnership owning 324,220 common shares
had approximately $70,000 of outstanding liabilities. From October to November
1999, the Limited Partnership sold 55,912 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 is being held in reserve for
distribution to the Limited Partnership partners. As of the date of these
Consolidated Financial Statements, the Limited Partnership owns 268,308 common
shares and has no obligations. The Limited Partnership is in the process of
being closed down and the remaining shares of common stock will be distributed
to the partners.
10. RECLASSIFICATION
Certain prior period items in these Consolidated Financial Statements have been
reclassified to conform with current presentation.
F-38
<PAGE> 69
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
11. SUPPLEMENTAL DISCLOSURE - STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Twelve Months Ended
-------------------
Sep. 30,1999 Sep. 30,1998
------------ ------------
<S> <C> <C>
Interest paid $ 1,496 $ 1,871
Income taxes paid $ -- $ --
NON CASH ACTIVITIES:
Stock issued for services $ 65,000 $170,980
Stock issued for compensation 167,550 172,530
Stock issued for financing -- 561,567
Accrued dividend payable 17,123 --
Accrued interest payable 106,188 3,500
Deferred stock amortization 18,749 10,417
Interest on 12% notes converted to stock -- 4,488
Interest on 15% promissory note -- 3,500
Conversion of 12% notes to common stock -- 100,000
Conversion of accrued payroll to stock -- 122,706
Negotiated settlement on legal fees 89,923 --
</TABLE>
F-39
<PAGE> 70
PROBEX CORPORATION AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THE TWELVE MONTHS ENDED SEPTEMBER 30, 1999
12. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial information for the
years ended September 30, 1999 and September 30, 1998.
(In dollars, except per share data)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Fiscal 1999
Quarter ended Dec. 31 Mar. 31 Jun. 30 Sep. 30
- ---------------------------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Total Revenues $ -- $ -- $ -- $ --
Gross Margin -- -- -- --
Operating Loss 506,064 430,575 516,226 865,359
Net Loss 521,049 459,342 544,663 889,973
Net Loss Per Share $ .03 $ .03 $ .03 $ .06
- ---------------------------- ---------- ---------- ---------- ----------
- --------------------------------------------------------------------------------
Fiscal 1998
Quarter ended Dec. 31 Mar. 31 Jun. 30 Sep. 30
- ---------------------------- ---------- ---------- ---------- ----------
Total Revenues $ -- $ -- $ -- $ --
Gross Margin -- -- -- --
Operating Loss 414,578 251,699 407,845 462,407
Net Loss 414,762 252,423 411,731 1,054,898
Net Loss Per Share $ .04 $ .02 $ .03 $ .08
- ---------------------------- ---------- ---------- ---------- ----------
</TABLE>
F-40
<PAGE> 71
PART III
ITEM 1. INDEX TO EXHIBITS.
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1* Amended and Restated Articles of Incorporation, as filed with
the Colorado Secretary of State on December 30, 1999.
3.2 Bylaws of the Company, as amended to date.
4.1* Form of Common Stock Certificate.
4.2* Form of 10% Cumulative Convertible Preferred Stock, Series A
Certificate.
4.3.1 Form of Class "F" Warrants, at $1.00 per share, post-split,
expiring April 26, 2001.
4.3.2 Form of Class "H" Warrants, at $1.00 per share, post-split,
expiring April 26, 2001.
4.3.3 Form of Class "K" Warrants, at $0.20 per share, post-split,
expiring April 26, 2001.
4.3.4 Form of Class "N" Warrants, at $1.00 per share expiring, from
August 15, 2002 to June 08, 2003.
4.3.5* Warrant to Purchase 10% of the then outstanding Common Stock
of the Company granted to HSB Engineering Finance Corporation
at $0.01 per share, effective June 30, 1998, and expiring on
June 30, 2008.
4.3.6 Form of Class "P" Warrants, at $0.20 per share expiring
September 2, 2003.
4.3.7 Form of Class "Q" Warrants, at $0.75 per share, exercised but
unissued.
4.3.8 Form of Class "Q-a" Warrants, at $0.55 per share expiring
April 16, 2004.
4.3.9 Form of Class "R" Warrants, at $1.00 per share expiring June
4, 2001.
4.3.10 Form of Class "R-a" Warrants, at $0.55 per share expiring June
4, 2004.
4.3.11 Form of Class "S" Warrant at $0.50 to $1.00 per share expiring
from August 28, 2002 to October 28, 2004.
4.3.12* Form of Class "T" Warrants, at $0.50 per share.
4.3.13* Form of Class "U" Warrants, at $0.50 per share expiring
January 31, 2004.
</TABLE>
29
<PAGE> 72
<TABLE>
<S> <C>
10.1 1998 Omnibus Stock and Incentive Plan for the Company,
effective June 30, 1998.
10.2 Consulting Agreement between Grove Capital Corporation, a
Georgia corporation, and the Company, dated as of December 16,
1997.
10.3 Convertible Loan, Warrant and Security Agreement between HSB
Engineering Finance Corporation, Inc., a Delaware corporation,
and the Company, dated as of June 30, 1998.
10.4 Investors Rights Agreement between HSB Engineering Finance
Corporation, Inc., a Delaware corporation, and the Company,
dated as of June 30, 1998.
10.5 Employment Agreement between Martin MacDonald, a Texas
resident, and the Company, dated as of June 30, 1998.
10.6 Employment Agreement between Thomas Murray, a Texas resident,
and the Company, dated as of June 30, 1998.
10.7 Form of Invention Assignment and Confidentiality Agreement.
10.8 Project Development Advisory Agreement between Project
Development Associates, LLC., a Minnesota limited liability
company, and the Company, dated as of December 1, 1998.
10.9 Financial Advisory Fee Agreement between Silver Lake
Industries, Inc., a Texas corporation, Brycap Investments,
Inc., a Texas corporation, and the Company, dated as of March
29, 1999.
10.10 Financial Consulting Services Agreement between Travis Morgan
Securities, Inc. and the Company, dated as of April 16, 1999.
10.11 Option to Purchase or Lease Agreement between Columbia County
Port Authority, a body corporate and politic, and the Company,
dated as of June 1999.
10.12 Financial Consulting Services Agreement between National
Capital Merchant Group, Ltd., a Bahamian corporation, and the
Company, dated as of June 7, 1999.
10.13 Financial Advisory Fee Agreement between William M. Noble Jr.,
a Texas resident, and the Company, dated as of June 28, 1999.
10.14 Placement Agent Agreement between APS Financial Corporation, a
Colorado corporation, and the Company, dated as of July 21,
1999.
10.15 Financial Advisory Fee Agreement between APS Financial
Corporation, a Colorado corporation, and the Company, dated as
of August 6, 1999.
</TABLE>
30
<PAGE> 73
<TABLE>
<S> <C>
10.16 Financial Advisory Fee Agreement between Michael D. Billings,
a Texas resident, Henry F. Coffeen, a Texas resident, and the
Company, dated as of May 7, 1999 (previously filed as Exhibit
10.17 to the Form 10-SB registration statement).
10.17* Fee Agreement between Enventures Capital, LLC, a Massachusetts
company, and the Company, dated as of January 17, 2000.
27.1 Financial Data Schedule.
</TABLE>
* Filed herewith. All other exhibits previously filed.
ITEM 2. DESCRIPTION OF EXHIBITS.
See "Item 1. Index to Exhibits."
31
<PAGE> 74
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Probex Corp.
(Registrant)
Date: January 31, 2000 By: /s/ BRUCE A. HALL
---------------------------------------
Bruce A. Hall, Chief Financial Officer
32
<PAGE> 75
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3.1* Amended and Restated Articles of Incorporation, as filed with
the Colorado Secretary of State on December 30, 1999.
3.2 Bylaws of the Company, as amended to date.
4.1* Form of Common Stock Certificate.
4.2* Form of 10% Cumulative Convertible Preferred Stock, Series A
Certificate.
4.3.1 Form of Class "F" Warrants, at $1.00 per share, post-split,
expiring April 26, 2001.
4.3.2 Form of Class "H" Warrants, at $1.00 per share, post-split,
expiring April 26, 2001.
4.3.3 Form of Class "K" Warrants, at $0.20 per share, post-split,
expiring April 26, 2001.
4.3.4 Form of Class "N" Warrants, at $1.00 per share expiring, from
August 15, 2002 to June 08, 2003.
4.3.5* Warrant to Purchase 10% of the then outstanding Common Stock
of the Company granted to HSB Engineering Finance Corporation
at $0.01 per share, effective June 30, 1998, and expiring on
June 30, 2008.
4.3.6 Form of Class "P" Warrants, at $0.20 per share expiring
September 2, 2003.
4.3.7 Form of Class "Q" Warrants, at $0.75 per share, exercised but
unissued.
4.3.8 Form of Class "Q-a" Warrants, at $0.55 per share expiring
April 16, 2004.
4.3.9 Form of Class "R" Warrants, at $1.00 per share expiring June
4, 2001.
4.3.10 Form of Class "R-a" Warrants, at $0.55 per share expiring June
4, 2004.
4.3.11 Form of Class "S" Warrant at $0.50 to $1.00 per share expiring
from August 28, 2002 to October 28, 2004.
4.3.12* Form of Class "T" Warrants, at $0.50 per share.
4.3.13* Form of Class "U" Warrants, at $0.50 per share expiring
January 31, 2004.
</TABLE>
<PAGE> 76
<TABLE>
<S> <C>
10.1 1998 Omnibus Stock and Incentive Plan for the Company,
effective June 30, 1998.
10.2 Consulting Agreement between Grove Capital Corporation, a
Georgia corporation, and the Company, dated as of December 16,
1997.
10.3 Convertible Loan, Warrant and Security Agreement between HSB
Engineering Finance Corporation, Inc., a Delaware corporation,
and the Company, dated as of June 30, 1998.
10.4 Investors Rights Agreement between HSB Engineering Finance
Corporation, Inc., a Delaware corporation, and the Company,
dated as of June 30, 1998.
10.5 Employment Agreement between Martin MacDonald, a Texas
resident, and the Company, dated as of June 30, 1998.
10.6 Employment Agreement between Thomas Murray, a Texas resident,
and the Company, dated as of June 30, 1998.
10.7 Form of Invention Assignment and Confidentiality Agreement.
10.8 Project Development Advisory Agreement between Project
Development Associates, LLC., a Minnesota limited liability
company, and the Company, dated as of December 1, 1998.
10.9 Financial Advisory Fee Agreement between Silver Lake
Industries, Inc., a Texas corporation, Brycap Investments,
Inc., a Texas corporation, and the Company, dated as of March
29, 1999.
10.10 Financial Consulting Services Agreement between Travis Morgan
Securities, Inc. and the Company, dated as of April 16, 1999.
10.11 Option to Purchase or Lease Agreement between Columbia County
Port Authority, a body corporate and politic, and the Company,
dated as of June 1999.
10.12 Financial Consulting Services Agreement between National
Capital Merchant Group, Ltd., a Bahamian corporation, and the
Company, dated as of June 7, 1999.
10.13 Financial Advisory Fee Agreement between William M. Noble Jr.,
a Texas resident, and the Company, dated as of June 28, 1999.
10.14 Placement Agent Agreement between APS Financial Corporation, a
Colorado corporation, and the Company, dated as of July 21,
1999.
10.15 Financial Advisory Fee Agreement between APS Financial
Corporation, a Colorado corporation, and the Company, dated as
of August 6, 1999.
</TABLE>
<PAGE> 77
10.16 Financial Advisory Fee Agreement between Michael D. Billings,
a Texas resident, Henry F. Coffeen, a Texas resident, and the
Company, dated as of May 7, 1999 (previously filed as Exhibit
10.17 to the Form 10-SB registration statement).
10.17* Fee Agreement between Enventures Capital, LLC, a Massachusetts
company, and the Company, dated as of January 17, 2000.
27.1 Financial Data Schedule.
* Filed herewith. All other exhibits previously filed.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
[STAMP]
ARTICLES OF INCORPORATION
OF PROBEX CORP.
Probex Corp., a Colorado corporation (the "Corporation"), having its
principal office at 1467 LeMay, Suite 111, Carrollton, Texas 75007, hereby
certifies to the Secretary of State of Colorado that:
WHEREFORE, the undersigned Corporation desires to amend and restate its
Articles of Incorporation as currently in effect and adopts the following
Amended and Restated Articles of Incorporation pursuant to the provisions of the
Colorado Business Corporation Act:
FIRST: The name of the Corporation is Probex Corp.
SECOND: The following provisions set forth in these Amended and
Restated Articles of Incorporation, attached hereto, correctly set forth the
provisions of the Articles of Incorporation, as amended, of the Corporation.
THIRD: The Amended and Restated Articles of Incorporation, attached
hereto, were adopted by the Board of Directors on October 28, 1999, and the
Shareholders of the Corporation in the manner prescribed by the Colorado
Business Corporation Act on December 30, 1999, and supersede the original
Articles of Incorporation and all amendments thereto.
FOURTH: The number of votes cast for the amendments contained in these
Amended and Restated Articles of Incorporation by each voting group entitled to
vote separately on the amendments was sufficient for approval by that voting
group.
1
<PAGE> 2
IN WITNESS WHEREOF, the undersigned has executed these Amended and
Restated Articles of Incorporation this 30th day of December, 1999.
PROBEX CORP.
By: /s/ BRUCE HALL
------------------------------------
Name: Bruce Hall
----------------------------------
Title: Chief Financial Officer
---------------------------------
ATTEST:
By: /s/ ALEX D. DASPIT
----------------------------------
Name: Alex D. Daspit
--------------------------------
Title: Senior Vice President
-------------------------------
2
<PAGE> 3
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF PROBEX CORP.
ARTICLE I
NAME
The name of the Corporation shall be: Probex Corp.
ARTICLE II
PERIOD OF DURATION
The Corporation shall exist in perpetuity, from and after the date of
filing these Articles of Incorporation with the Secretary of State of the State
of Colorado unless dissolved according to law.
ARTICLE III
PURPOSES AND POWERS
A. Purposes. Except as restricted by these Articles of Incorporation,
the Corporation is organized for the purpose of transacting all lawful business
for which corporations may be incorporated pursuant to the Colorado Business
Corporation Act.
B. General Powers. Except as restricted by these Articles of
Incorporation, the Corporation shall have and may exercise all powers and rights
which a corporation may exercise legally pursuant to the Colorado Business
Corporation Act.
C. Issuance of Shares. The Board of Directors of the Corporation may
divide and issue any class of stock of the Corporation in series pursuant to a
resolution properly filed with the Secretary of State of the State of Colorado.
1
<PAGE> 4
ARTICLE IV
CAPITAL STOCK
A. Authorized Shares. The aggregate number of shares which this
Corporation shall have authority to issue is Fifty Million (50,000,000) shares
of no par value each, which shares shall be designated "Common Stock"; and Ten
Million (10,000,000) shares of no par value each, which shares shall be
designated "Preferred Stock" and which may be issued in one or more series at
the discretion of the Board of Directors. In establishing a series the Board of
Directors shall give to it a distinctive designation so as to distinguish it
from the shares of all other series and classes, shall fix the number of shares
in such series, and the preferences, rights and restrictions thereof. All shares
of any one series shall be alike in every particular except as otherwise
provided by these Articles of Incorporation or the Colorado Business Corporation
Act.
B. Common Stock. The following is a description of Common Stock that
the Corporation shall have authority to issue, including the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and terms and conditions of redemption thereof to the
extent applicable thereto:
1. Dividend Rights. Dividends in cash, property or shares of
the Corporation may be paid upon the Common Stock, as and when declared by the
Board of Directors, to the extent and in the manner permitted by law, except
that no Common Stock dividend shall be paid for any year unless the holders of
Preferred Stock, if any, shall receive the maximum allowable Preferred Stock
dividend for such year.
2. Voting Rights. Each outstanding share of Common Stock shall
be entitled to one vote and each fractional share of Common Stock shall be
entitled to a corresponding fractional vote on each matter submitted to a vote
of shareholders. A majority of the shares of Common Stock entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. Except as otherwise provided by these Articles of Incorporation or
the
2
<PAGE> 5
Colorado Business Corporation Act, if a quorum is present, the affirmative vote
of a majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders. When, with respect to
any action to be taken by shareholders of this Corporation, the laws of Colorado
require the vote or concurrence of the holders of two-thirds of the outstanding
shares, of the shares entitled to vote thereon, or of any class or series, such
action may be taken by the vote or concurrence of a majority of such shares or
class or series thereof. Cumulative voting shall not be allowed in the election
of directors of this Corporation.
3. Rights Upon Liquidation. Subject to the rights of any
series of Preferred Stock created pursuant to the further provisions of this
Section B of this Article IV and subject to the terms of Article IV hereto, in
the event of any voluntary or involuntary liquidation, dissolution or winding up
of, or any distribution of the assets of, the Corporation, each holder of shares
of Common Stock shall be entitled to receive, ratably with each other holder of
shares of Common Stock, that portion of the assets of the Corporation available
for distribution to the holders of its Common Stock.
C. Preferred Stock. The following is a description of the Preferred
Stock that the Corporation shall have authority to issue, including the
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption thereof to the extent applicable thereto:
Subject to the provisions of this Article IV, the Board of Directors of
the Corporation is hereby authorized and empowered to classify or reclassify, in
one or more series, any of the unissued shares of the Preferred Stock of the
Corporation by establishing the number of shares of such series and by setting,
changing or eliminating any of the preferences, conversion or other rights,
voting powers, restrictions, limitations as to the dividends, qualifications, or
terms and condition of redemption of such shares, all of which shall be set
forth in articles of amendment executed, acknowledged, filed and recorded in
the manner required by the Colorado Business
3
<PAGE> 6
Corporation Act ("Articles of Amendment"), and as may be permitted by the
Colorado Business Corporation Act.
1. Designation and Amount; No Fractional Shares. There shall
be a series of Preferred Stock designated as "Series A 10% Cumulative
Convertible Preferred Stock" (the "Series A Preferred Stock") and the authorized
number of shares constituting such series shall be One Million (1,000,000). The
Series A Preferred Stock shall be issuable in whole shares only.
2. Dividends.
(a) Holders of shares of Series A Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors, or a duly authorized committee thereof, out of funds of the
Corporation legally available for payment of dividends, cumulative cash
dividends at the rate of 10.0% per annum per share on the initial liquidation
preference of $10.00 per share (equivalent to $1.00 per annum per share of
Series A Preferred Stock). Dividends on the Series A Preferred Stock shall be
payable semi-annually in arrears to holders of record as they appear in the
records of the Corporation at the close of business on March 31 and September 30
of each year, and shall be paid on May 1 and November 1 of each year thereafter
(each a "Dividend Payment Date"), commencing on May 1, 2000; provided, however,
that an initial dividend payment shall be due and payable on the date of the
final closing of the initial sale of the Series A Preferred Stock ("Closing
Date") for the period from the date of original issuance of such Series A
Preferred Stock. If any date on which dividends would otherwise be payable is a
Saturday, Sunday or a day on which banking institutions in the States of
Colorado or Texas are authorized or obligated by law or executive order to
close, then the dividends otherwise payable on such date shall instead be
payable on the next succeeding business day.
(b) Dividends on shares of the Series A Preferred
Stock shall be fully cumulative and shall accumulate (whether or not earned or
declared and whether or not the Corporation has funds legally available for the
payment of dividends), on a daily basis, without
4
<PAGE> 7
interest, from the previous Dividend Payment Date, except that the first
dividend due and payable on May 1, 2000 shall accrue, without interest,
commencing on the Closing Date. Accumulated and unpaid dividends shall not bear
interest.
(c) Any dividend payments made with respect to the
Series A Preferred Stock shall be made in cash; provided, however, that the
Corporation may, at the election of the Board of Directors, subject to and in
accordance with the provisions herein, duly authorize and issue fully paid and
nonassessable shares of its Common Stock, no par value ("Dividend Shares") at
the deemed value of $1.50 per Dividend Share, in lieu of the payment in cash of
all or any portion of the dividend otherwise payable on any Dividend Payment
Date. If the Corporation elects to issue Dividend Shares in lieu of the payment
in cash of all or any portion of the dividend otherwise payable on any Dividend
Payment Date, (1) the Corporation shall give notice of such election to the
holders of shares of Series A Preferred Stock not less than 7 nor more than 60
days prior to such Dividend Payment Date; (2) the Corporation shall execute,
issue and deliver on such Dividend Payment Date to each holder of record on the
related record date, a stock certificate dated such Dividend Payment Date
representing such number of Dividend Shares as equals the quotient of such
portion of the dividend payable to such holder and $1.50; and (3) the due
issuance of such Dividend Shares shall constitute full payment of such portion
of dividend; provided, however, that, in lieu of the issuance of any fractional
Dividend Shares, the Corporation shall, in its sole discretion, either (x) pay,
on such Dividend Payment Date, to each holder of shares of Series A Preferred
Stock who would otherwise be entitled to a fractional Dividend Share as a
dividend on the aggregate number of shares of Series A Preferred Stock held by
such holder on the related record date, an amount in cash equal to the product
of such fraction and $1.50 or (y) round up such fractional Dividend and issue
one additional full Dividend Share to such holder.
5
<PAGE> 8
(d) No dividends may be declared or paid or set apart
for payment on any stock of the Corporation ranking on a parity with the Series
A Preferred Stock with respect to the payment of dividends unless there shall
also be or have been declared and paid or set apart for payment on the Series A
Preferred Stock dividends for all dividend payment periods of the Series A
Preferred Stock ending on or before the dividend payment date of such parity
stock, ratably in proportion to the respective amounts of dividends (x)
accumulated and unpaid or payable on such parity stock, on the one hand, and (y)
accumulated and unpaid through the dividend payment period or periods of the
Series A Preferred Stock next preceding such dividend payment date, on the other
hand.
(e) Except as set forth in the preceding paragraph,
unless full cumulative dividends on the Series A Preferred Stock have been paid
through the most recently completed semi-annual dividend period for the Series A
Preferred Stock, no dividends (other than in Common Stock of the Corporation)
may be paid or declared and set apart for payment or other distribution made
upon the Common Stock or on any other stock of the Corporation ranking junior to
or on a parity with the Series A Preferred Stock as to dividends, nor may any
Common Stock or any other stock of the Corporation ranking junior to or on a
parity with the Series A Preferred Stock as to dividends be redeemed, purchased
or otherwise acquired for any consideration (or any payment be made to or
available for a sinking fund for the redemption of any shares of such stock;
provided, however, that any moneys previously deposited in any sinking fund with
respect to any such stock in compliance with the provisions of such sinking fund
may thereafter be applied to the purchase or redemption of such stock in
accordance with the terms of such sinking fund, regardless of whether at the
time of such application full cumulative dividends upon shares of the Series A
Preferred Stock outstanding to the most recent Dividend Payment Date shall have
been paid or declared and set apart for payment) by the Corporation; provided
that any such junior or parity stock or Common Stock may be converted
6
<PAGE> 9
into or exchanged for stock of the Corporation ranking junior to the Series A
Preferred Stock as to dividends.
3. Liquidation.
(a) On any liquidation, dissolution or winding up of
the Corporation, the shares of Series A Preferred Stock shall be entitled to
receive payment of $10.00 per share, and shall be entitled to receive payment of
all dividends (whether or not earned or declared) accrued and accumulated and
unpaid on the shares of Series A Preferred Stock to the date of payment, and no
more. Such payment shall be made before any distribution of assets is made to
holders of shares of Common Stock or any other class or series of stock of the
Corporation that ranks junior to the Series A Preferred Stock as to rights to
distributions upon liquidation, dissolution or winding up. The holders of the
Series A Preferred Stock shall not be entitled to receive the preferential
amounts until the liquidation preference of any other stock of the Corporation
ranking senior to the Series A Preferred Stock as to rights to distributions
upon liquidation, dissolution or winding up shall have been paid (or a sum set
aside therefor sufficient to provide for payment) in full.
(b) On any liquidation, dissolution or winding up of
the Corporation, no amounts may be paid or set apart for payment on any stock of
the Corporation ranking on a parity with the Series A Preferred Stock as to
rights to distributions upon liquidation, dissolution or winding up unless there
shall also be or have been set aside for payment on the Series A Preferred Stock
an amount equal to all dividends (whether or not earned or declared) accrued and
accumulated and unpaid on the shares of Series A Preferred Stock to the date of
payment, ratably in proportion to the respective amounts (x) to be paid or set
apart for payment on such parity stock, on the one hand, and (y) to be paid or
set apart for payment on the Series A Preferred Stock, on the other hand.
7
<PAGE> 10
(c) If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation, or proceeds thereof,
distributable among the holders of shares of Series A Preferred Stock and any
stock ranking on a parity with the Series A Preferred Stock as to rights to
distributions on liquidation, dissolution or winding up of the Corporation are
insufficient to pay in full the payments to which such stock would be entitled,
then such assets, or the proceeds thereof, shall be distributable among such
holders ratably in accordance with the respective amounts that would be payable
on such shares if all amounts payable thereon were paid in full.
(d) For the purposes hereof, neither a consolidation
nor a merger of the Corporation with or into any other entity, nor a merger of
any one or more other entities with or into the Corporation, nor a sale, lease,
exchange or transfer of all or substantially all of the Corporation's assets
shall be considered a liquidation, dissolution or winding up of the Corporation.
4. Conversion.
(a) The shares of Series A Preferred Stock shall be
convertible into shares of Common Stock at a conversion ratio of 5.33333 shares
of Common Stock for each share of Series A Preferred Stock. Fractional shares of
Common Stock will not be issued and in lieu thereof, the Corporation will pay to
each holder of Series A Preferred Stock who would otherwise be entitled to a
fractional share of Common Stock upon such conversion, an amount in cash equal
to the product of such fraction and $1.875.
(b) The Series A Preferred Stock shall automatically
be converted after any thirty (30) day period in which the average Current
Market Price of the Common Stock exceeds $5.625 per share. For purposes hereof,
the "Current Market Price" shall mean for each trading day, if the Common Stock
is traded on a securities exchange or the Nasdaq National Market, the closing
price of the Common Stock on such exchange or market, or if not traded on a
8
<PAGE> 11
securities exchange, or if a closing price otherwise is not available, then the
average of the bid and ask prices. Fractional shares of Common Stock will not be
issued and in lieu thereof, the Corporation will pay to each holder of Series A
Preferred Stock who would otherwise be entitled to a fractional share of Common
Stock upon such conversion, an amount in cash equal to the product of such
fraction and $1.875.
(c) In the event of a conversion, the outstanding
shares of Series A Preferred Stock shall be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Corporation or its transfer
agent; and provided that the Corporation shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless and until the certificates evidencing such shares of Series A
Preferred Stock are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation shall
as soon as practicable after such delivery, or after such agreement and
indemnification, issue and deliver at such office to such holder of Series A
Preferred Stock, a certificate or certificates for the number of shares of
Common Stock to which it, he or she shall be entitled as aforesaid. Such
conversion shall be deemed to have been made simultaneously upon the occurrence
of the event leading to such automatic conversion, and the person or persons
entitled to receive the shares of Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such shares
of Common Stock on such date.
(d) In case any shares of Series A Preferred Stock
shall be converted, the shares so converted shall (upon compliance with any
applicable provisions of the laws of the State of Colorado) have the status of
authorized and unissued shares of the class of Preferred
9
<PAGE> 12
Stock undesignated as to series and may be redesignated and reissued as part of
any series of Preferred Stock.
(e) The Corporation will not avoid or seek to avoid
the observance or performance of any of the terms to be observed or performed
hereunder by the Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
action as may be necessary or appropriate in order to protect the conversion
rights of the holders of Series A Preferred Stock against impairment.
(f) The Corporation shall at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the shares of Series A Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of Series A
Preferred Stock. If at any time the number of authorized but unissued shares of
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of Series A Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose.
5. Voting Rights.
(a) The Series A Preferred Stock generally will not
have voting rights, except as set forth below and to the extent required by law.
(b) So long as any share of Series A Preferred Stock
are outstanding, the approval of a majority of the outstanding shares of Series
A Preferred Stock and any parity stock similarly affected, voting together as a
single class, is required in order to (i) amend the Articles of Incorporation to
affect materially and adversely the rights, preferences or voting power of the
holders of the Series A Preferred Stock and such parity stock or (ii) amend the
Articles of Incorporation to authorize, reclassify, create or increase the
authorized amount of any
10
<PAGE> 13
class of stock having rights senior to the Series A Preferred Stock and such
parity stock with respect to the payment of dividends or amounts upon the
liquidation, dissolution or winding up or conversion rights of the Corporation.
Notwithstanding the foregoing, the Corporation may increase the authorized
number of shares of Preferred Stock and may create additional classes of parity
stock and junior stock, increase the authorized number of shares of parity stock
and junior stock and issue additional series of parity stock and junior stock,
all without the consent of any holder of Series A Preferred Stock.
6. Redemption.
(a) The shares of Series A Preferred Stock shall not
be redeemable prior to September 30, 2004. On or after such date the
Corporation, at its option, may redeem the shares of Series A Preferred Stock,
in whole or in part, out of funds legally available therefor, at any time or
from time to time, subject to the notice provisions and provisions for partial
redemption described below, beginning on September 30, 2004 at $10.00 per share
plus, in each case, an amount equal to all dividends (whether or not earned or
declared) accrued and accumulated and unpaid to the date fixed for redemption,
without interest (the "Redemption Price").
(b) If full cumulative dividends on the Series A
Preferred Stock have not been paid or set apart for payment with respect to all
prior dividend periods, the Series A Preferred Stock may not be redeemed in part
and the Corporation may not purchase or acquire any shares of the Series A
Preferred Stock otherwise than pursuant to a purchase or exchange offer made on
the same terms to all holders of the Series A Preferred Stock. If fewer than all
the outstanding shares of Series A Preferred Stock are to be redeemed, the
number of shares to be redeemed shall be determined by the Board of Directors
and the shares to be redeemed shall be selected by lot or pro rata or by any
other means determined by the Board of Directors in its sole discretion to be
equitable.
11
<PAGE> 14
(c) If the Corporation redeems shares of Series A
Preferred Stock, written notice of the redemption shall be given by first class
mail, postage prepaid, mailed not less than 30 days nor more than 60 days prior
to the redemption date, to each holder of record of the shares to be redeemed at
the holder's address as the same appears on the stock books of the Corporation
and notice shall also be given by publication during the same period prior to
the redemption date in a newspaper of national circulation; provided, however,
that no failure to give such notice nor any defect therein shall affect the
validity of the proceedings for the redemption of any shares of Series A
Preferred Stock to be redeemed except as to a holder to whom the Corporation has
failed to mail the notice or except as to a holder whose notice was defective.
Each notice shall state: (i) the redemption date; (ii) the number of shares of
Series A Preferred Stock to be redeemed and, if less than all the shares held by
such holder are to be redeemed from the holder, the number of shares to be
redeemed from the holder; (iii) the Redemption Price; (iv) the place or places
where certificates for shares are to be surrendered for payment of the
Redemption Price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date (unless the Corporation shall default in
providing funds for the payment of the Redemption Price of the shares called for
redemption at the time and place specified in such notice).
(d) If a notice of redemption has been given and if,
on or before the date fixed for redemption, the funds necessary for redemption
have been set aside by the Corporation, separate and apart from its other funds,
in trust for the pro rata benefit of the holders of the shares of Series A
Preferred Stock called for redemption, then, notwithstanding that any
certificates for such shares have not been surrendered for cancellation, on the
redemption date dividends shall cease to accrue on the shares to be redeemed,
and at the close of business on the redemption date the holders of those shares
shall cease to be stockholders with respect to those shares and shall have no
interest in or claims against the Corporation by virtue
12
<PAGE> 15
thereof and shall have no voting or other rights with respect to those shares,
except the right to receive the moneys payable upon surrender (and endorsement,
if required by the Corporation) of their certificates, and the shares evidenced
thereby shall no longer be outstanding. The Corporation's obligation to provide
funds for the payment of the Redemption Price (including any accumulated and
unpaid dividends to the redemption date) of the shares called for redemption
shall be deemed fulfilled if, on or before a redemption date, the Corporation
shall deposit, with a bank or trust company, or an affiliate of a bank or trust
company, having a capital and surplus of at least $50,000,000, such funds
sufficient to pay the Redemption Price (including any accumulated and unpaid
dividends to the redemption date) of the shares called for redemption, in trust
for the account of the holders of the shares to be redeemed (and so as to be and
continue to be available therefor), with irrevocable instructions and authority
to such bank or trust company that such funds be delivered upon redemption of
the shares of Series A Preferred Stock called for redemption.
(e) Subject to applicable escheat laws, any moneys so
set aside by the Corporation and unclaimed at the end of two years from the
redemption date shall revert to the general funds of the Corporation, after
which the holders of the shares called for redemption shall look only to the
general funds of the Corporation for the payment of the amounts payable upon
redemption. Any interest accrued on funds deposited shall be paid to the
Corporation from time to time.
(f) Shares of Series A Preferred Stock that have been
issued and reacquired in any manner, including shares purchased or redeemed,
shall (upon compliance with any applicable provisions of the laws of the State
of Colorado) have the status of authorized and unissued shares of the class of
Preferred Stock undesignated as to series and may be redesignated and reissued
as part of any series of the Preferred Stock.
13
<PAGE> 16
7. Rank. Any stock of any class or classes or series of the
Corporation shall be deemed to rank:
(a) prior to shares of the Series A Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up, or both,
if the holders of stock of the class or classes or series are entitled by the
terms thereof to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of shares of the Series A Preferred Stock;
(b) on a parity with shares of the Series A Preferred
Stock, either as to dividends or upon liquidation, dissolution or winding up, or
both, whether or not the dividend rates, dividend payment dates, or redemption
or liquidation prices per share thereof are different from those of the Series A
Preferred Stock, if the holders of stock of the class or classes or series are
entitled by the terms thereof to the receipt of dividends or of amounts
distributed upon liquidation, dissolution or winding up, as the case may be, in
proportion to their respective dividend rates or liquidation prices, without
preference or priority of one over the other as between the holders of the stock
and the holders of shares of Series A Preferred Stock; and
(c) junior to shares of the Series A Preferred Stock,
either as to dividends or upon liquidation, dissolution or winding up, or both,
if the class or classes or series is Common Stock or if the holders of the
Series A Preferred Stock are entitled to the receipt of dividends or of amounts
distributable upon liquidation, dissolution or winding up, as the case may be,
in preference or priority to the holders of stock of such class or classes or
series.
8. Headings. The headings of the various subdivisions hereof
are for convenience of reference only and shall not affect the interpretation of
any of the provisions hereof.
9. Severability of Provisions. If any powers, preferences and
relative, participating, optional and other special rights of the Series A
Preferred Stock and qualifications,
14
<PAGE> 17
limitations and restrictions thereof set forth in this certificate are invalid,
unlawful or incapable of being enforced by reason of any rule of law or public
policy, all other powers, preferences and relative, participating, optional and
other special rights of Series A Preferred Stock and qualifications, limitations
and restrictions thereof set forth herein which can be given effect without the
invalid, unlawful or unenforceable powers, preferences and relative,
participating, optional and other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof shall, nevertheless, remain
in full force and effect, and no powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof set forth herein shall be
deemed dependent upon any other such powers, preferences and relative,
participating, optional or other special rights of Series A Preferred Stock and
qualifications, limitations and restrictions thereof unless so expressed herein.
D. Issuance of Stock. The Board of Directors is hereby
authorized and empowered to authorize the issuance by the Corporation from time
to time of shares of any class of capital stock of the Corporation, whether now
or hereafter authorized, or securities convertible into shares of capital stock
of any class or classes, whether now or hereafter authorized, for such
consideration and on such terms and conditions as may be deemed advisable by the
Board of Directors and without any action by the stockholders.
ARTICLE V
DENIAL OF PREEMPTIVE RIGHTS
No holder of any shares of the Corporation, whether now or hereafter
authorized, shall have any preemptive or preferential right to acquire any
shares or securities of the Corporation, including shares or securities held in
the treasury of the Corporation.
15
<PAGE> 18
ARTICLE VI
TRANSACTIONS WITH INTERESTED DIRECTORS
No contract or other transaction between the Corporation and one or
more of its directors or any other corporation, firm, association, or entity in
which one or more of its directors are directors or officers or are financially
interested shall be either void or voidable solely because of such relationship
or interest or solely because such directors are present at the meeting of the
Board of Directors or a committee thereof which authorizes, approves, or
ratifies such contract or transaction or solely because their votes are counted
for such purpose if:
(a) The fact of such relationship or interest is disclosed or
known to the Board of Directors or committee which authorizes, approves, or
ratifies the contract or transaction by a vote or consent sufficient for the
purpose without counting the votes or consents of such interested directors; or
(b) The fact of such relationship or interest is disclosed or
known to the shareholders entitled to vote and they authorize, approve, or
ratify such contract or transaction by vote or written consent; or
(c) The contract or transaction is fair and reasonable to the
corporation. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board of Directors or a committee
thereof which authorizes, approves, or ratifies such contract or transaction.
ARTICLE VII
CORPORATE OPPORTUNITY
The officers, directors and other members of management of this
Corporation shall be subject to the doctrine of "corporate opportunities" only
insofar as it applies to business
16
<PAGE> 19
opportunities in which this Corporation has expressed an interest as determined
from time to time by this Corporation's Board of Directors as evidenced by
resolutions appearing in the Corporation's minutes. Once such areas of interest
are delineated, all such business opportunities within such areas of interest
which come to the attention of the officers, directors, and other members of
management of this Corporation shall be disclosed promptly to this Corporation
and made available to it. The Board of Directors may reject any business
opportunity presented to it and thereafter any officer, director or other member
of management may avail himself of such opportunity. Until such time as this
Corporation, through its Board of Directors, has designated an area of interest,
the officers, directors and other members of management of this Corporation
shall be free to engage in such areas of interest on their own and this doctrine
shall not limit the rights of any officer, director or other member of
management of this Corporation to continue a business existing prior to the time
that such area of interest is designated by the Corporation. This provision
shall not be construed to release any employee of this Corporation (other than
an officer, director or member of management) from any duties which he may have
to this Corporation.
ARTICLE VIII
INDEMNIFICATION
The Corporation may indemnify any director, officer, employee,
fiduciary, or agent of the Corporation to the full extent permitted by the
Colorado Business Corporation Act as in effect at the time of the conduct by
such person.
17
<PAGE> 20
ARTICLE IX
AMENDMENTS
The Corporation reserves the right to amend its Amended and Restated
Articles of Incorporation from time to time in accordance with the Colorado
Business Corporation Act.
ARTICLE X
ADOPTION AND AMENDMENT OF BYLAWS
The initial Bylaws of the Corporation shall be adopted by its Board of
Directors. Subject to repeal or change by action of the shareholders, the power
to alter, amend or repeal the Bylaws or adopt new Bylaws shall be vested in the
Board of Directors. The Bylaws may contain any provisions for the regulation and
management of the affairs of the Corporation not inconsistent with law or these
Articles of Incorporation.
ARTICLE XI
REGISTERED OFFICE AND REGISTERED AGENT
The address of the registered office of the Corporation is 1560
Broadway, Denver, Colorado 80202, and the name of the registered agent at such
address is Corporation Service Company. Either the registered office or the
registered agent may be changed in the manner permitted by law.
ARTICLE XII
BOARD OF DIRECTORS
The number of directors of the Corporation shall be fixed by the Bylaws
of the corporation, with the provision that there need be only as many directors
as there are
18
<PAGE> 21
shareholders in the event that the outstanding shares are held of record by
fewer than three shareholders.
ARTICLE XIII
LIMITATION OF LIABILITY OF
DIRECTORS TO CORPORATION AND SHAREHOLDERS
No director shall be liable to the Corporation or any shareholder for
monetary damages for breach of fiduciary duty as a director, except for any
matter in respect of which such director (a) shall be liable under the Colorado
Business Corporation Act or any amendment thereto or successor provision
thereto; (b) shall have breached the director's duty of loyalty to the
Corporation or its shareholders; (c) shall have not acted in good faith or, in
failing to act, shall not have acted in good faith; (d) shall have acted or
failed to act in a manner involving intentional misconduct or a knowing
violation of law; or (e) shall have derived an improper personal benefit.
Neither the amendment nor repeal of this Article, nor the adoption of any
provision in the Articles of Incorporation inconsistent with this Article, shall
eliminate or reduce the effect of this Article in respect of any matter
occurring prior to such amendment, repeal or adoption of an inconsistent
provision. This Article shall apply to the full extent now permitted by Colorado
law or as may be permitted in the future by changes or enactments in Colorado
law.
ARTICLE XIV
PRINCIPAL OFFICE OF CORPORATION
The address of the Corporation's principal office is 1467 LeMay, Suite
111, Carrollton, Texas 75007.
19
<PAGE> 1
EXHIBIT 4.1
<TABLE>
<S> <C> <C>
---------------- ----------------
Number [PROBEX LOGO] Shares
---------------- ----------------
This certificate is transferable in
Portland, OR and New York, NY
PROBEX CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
CUSIP 742670 20 1
THIS CERTIFIES that
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, NO PAR VALUE PER SHARE, OF
PROBEX CORP.
transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned by
the Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized
officers.
/s/ THOMAS G. PLASKETT [PROBEX CORP. SEAL] /s/ BRUCE A. HALL
PRESIDENT AND CHIEF EXECUTIVE OFFICER SECRETARY
Registered and Countersigned:
TRANSFER ONLINE
227 SW Pine St., Suite 300, Portland, OR 97204
by
--------------------------------------------------
Authorized Officer
</TABLE>
<PAGE> 2
[PROBEX CORP. LOGO]
<TABLE>
<S> <C>
The Corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Such requests shall be made to the Corporation's Secretary at the
principal office of the Corporation.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS
A CONDITION TO THE ISSUANCE OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ________________ Custodian ______________
TEN ENT -- as tenants by the entireties (Cust.) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________________________
in common (State)
UNIF TRF MIN ACT -- ___________ Custodian (until age ______),
(Cust.)
_________________ under Uniform Transfers
(Minor)
to Minors Act ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------------------
of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
DATED
---------------------------------
X
-----------------------------------------------------------------------
Signature(s) Guaranteed
X
-----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
By -----------------------------------------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
</TABLE>
<PAGE> 1
EXHIBIT 4.2
- --------------------------------------------------------------------------------
PROBEX CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF COLORADO
AUTHORIZED 1,000,000 SHARES OF
10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A
NO PAR VALUE PER SHARE, $10.00 LIQUIDATION PREFERENCE PER SHARE
THIS CERTIFIES that
is the owner of
SHARES OF THE 10% CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES A OF
- ----------------------------------PROBEX CORP.----------------------------------
transferable only on the books of the Corporation by the holder hereof in person
or by attorney upon surrender of this certificate properly endorsed.
In WITNESS whereof, the said corporation has caused this certificate to
be signed by its duly authorized officers and its corporate seal to be hereunto
affixed this day of , A.D., 2000
/s/ THOMAS G. PLASKETT /s/ BRUCE A. HALL
- ------------------------- [SEAL] ---------------------
PRESIDENT SECRETARY
Registered and Countersigned:
TRANSFER ONLINE
227 SW Pine St. Suite 300, Portland, OR 97204
by
--------------------
Authorized Officer
NOT VALID UNLESS COUNTERSIGNED BY TRANSFER AGENT
- --------------------------------------------------------------------------------
<PAGE> 2
PROBEX CORP.
<TABLE>
<S> <C>
A full statement of the rights, preferences, privileges and restrictions granted to or imposed upon the respective classes and
series of shares authorized to be issued and upon the holders thereof is set forth in the articles of incorporation of the
Corporation, as amended and supplemented, on file in the office of the Secretary of State of Colorado. A copy of the statement of
rights, preferences, privileges and restrictions may be obtained upon request and without charge from the Corporation at its
principal executive office.
Each share of the 10% Cumulative Convertible Preferred Stock, Series A is convertible into 5.33333 shares of common stock
subject to adjustment.
The following abbreviations, when used in the description on the face of this certificate, shall be construed as though they
were written out in full according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- ________________ Custodian ______________
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act _____________________________________
in common (State)
UNIF TRF MIN ACT -- ___________ Custodian (until age ______),
(Cust)
_________________ under Uniform Transfers
to Minors Act ___________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________________________________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------
- -------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Shares
- -----------------------------------------------------------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby irrevocably constitute and appoint
Attorney
- ---------------------------------------------------------------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises.
Dated
---------------------------------
X
-----------------------------------------------------------------------
X
-----------------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE
NAME(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
--------------------------------------------------------
By
----------------------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO
S.E.C. RULE 17Ad-15.
ELECTION TO CONVERT
(To be executed upon conversion)
The undersigned hereby irrevocably elects to convert __________ shares of 10% Cumulative Convertible Preferred Stock, Series A
represented by the within Certificate into _______ shares of Common Stock.
Please issue a certificate or certificates for such shares of Common Stock, in name of, and pay any cash for an fractional
share to:
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
Name
-----------------------------------------------------------------------------------------------------------------------------
Address
--------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------------
Signature Guarantee Signature
-------------------------------------------------------
NOTE: THE ABOVE SIGNATURE SHOULD CORRESPOND EXACTLY
- ------------------------------------------------------------ WITH THE NAME ON THE FACE OF THIS CERTIFICATE OR WITH
THE NAME OF ASSIGNEE APPEARING IN THE ASSIGNMENT
FORM ABOVE.
</TABLE>
<PAGE> 1
EXHIBIT 4.3.5
WARRANT
THE WARRANT EVIDENCED OR CONSTITUTED HEREBY, AND ALL SHARES OF COMMON STOCK
ISSUABLE HEREUNDER, HAVE BEEN AND WILL BE ISSUED WITHOUT REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("THE ACT") AND MAY NOT BE SOLD, OFFERED FOR
SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED WITHOUT REGISTRATION UNDER THE ACT
UNLESS EITHER (i) THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED IN CONNECTION WITH SUCH DISPOSITION OR (ii) THE
SALE OF SUCH SECURITIES IS MADE PURSUANT TO SECURITIES AND EXCHANGE COMMISSION
RULE 144.
WARRANT TO PURCHASE COMMON STOCK OF PROBEX CORPORATION
(Subject to Adjustment)
NO. O
THIS CERTIFIES THAT, for value received, HSB Engineering Finance
Corporation, or its permitted registered assigns ("HOLDER"), is entitled,
subject to the terms and conditions of this Warrant, at any time or from time to
time after June 30, 1998 (the "EFFECTIVE DATE"), and before 5:00 p.m. Central
Time on June 30, 2008 (the "EXPIRATION DATE"), to purchase from Probex
Corporation, a Colorado corporation (the "COMPANY"), _________ shares of Common
Stock of the Company at a price per share of $0.01 (the "PURCHASE PRICE"). Both
the number of shares of Common Stock purchasable upon exercise of this Warrant
and the Purchase Price are subject to adjustment and change as provided herein.
This Warrant is issued pursuant to the Convertible Loan, Warrant and Security
Agreement, dated June 30, 1998 (the "LOAN AGREEMENT"), between the Company and
Holder.
1. CERTAIN DEFINITIONS. As used in this Warrant the following terms shall have
the following respective meanings:
"Actively Traded" shall mean attainment of an average of 37,500 or more
shares per business day arm's length trading volume of Common Stock over a
period of twenty (20) trading days as reported by the over-the-counter or other
established quotation agencies.
"Fair Market Value" of a share of Common Stock as of a particular date
shall mean:
(a) If traded on a securities exchange or the Nasdaq National
Market, the Fair Market Value shall be deemed to be the average of the closing
prices of the Common Stock of the Company on such exchange or market over the 5
business days ending immediately prior to the applicable date of valuation;
<PAGE> 2
(b) If Actively Traded over-the-counter, the Fair Market Value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending immediately prior to the applicable date of valuation; and
(c) If not Actively Traded over-the-counter or traded on a
securities exchange or the Nasdaq National Market, the Fair Market Value shall
be the value thereof, as agreed upon by the Company and the Holder; provided,
however, that if the Company and the Holder cannot agree on such value, such
value shall be determined by an independent valuation firm experienced in
valuing businesses such as the Company and jointly selected in good faith by the
Company and the Holder. Fees and expenses of the valuation firm shall be paid
for by the Company.
"Fully-Diluted" shall mean after giving effect to the exercise or
conversion, as applicable, of all outstanding options, warrants, and other
securities convertible or exchangeable for Common Stock.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"Public Offering" shall mean after the date hereof any firm commitment
underwritten public offering of the Company's Common Stock pursuant to a
registration statement filed with the Securities and Exchange Commission.
"Registered Holder" shall mean any Holder in whose name this Warrant is
registered upon the books and records maintained by the Company.
"Warrant" as used herein, shall include this Warrant and any warrant
delivered in substitution or exchange therefor as provided herein.
"Warrant Shares" shall mean the shares of Common Stock to be issuable
upon exercise of this Warrant (or any shares of stock or other securities at the
time issuable upon exercise of this Warrant).
"Common Stock" shall mean the Common Stock of the Company and any other
securities at any time receivable or issuable upon exercise of this Warrant.
2. EXERCISE OF WARRANT
2.1. Payment. Subject to compliance with the terms and conditions of
this Warrant and applicable securities laws, this Warrant may be exercised, in
whole or in part at any time or from time to time, on or before the Expiration
Date by the delivery (including, without limitation, delivery by facsimile) of
the form of Notice of Exercise attached hereto as Exhibit 1 (the "NOTICE OF
EXERCISE"), duly executed by the Holder, at the principal office of the Company,
and as soon as practicable after such date, surrendering
(a) this Warrant at the principal office of the Company, and
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WARRANT
<PAGE> 3
(b) payment, (i) in cash (by check) or by wire transfer, (ii)
by cancellation by the Holder of indebtedness of the Company to the Holder; or
(iii) by a combination of (i) and (ii), of an amount equal to the product
obtained by multiplying the number of shares of Common Stock being purchased
upon such exercise by the then effective Purchase Price (the "EXERCISE AMOUNT"),
except that if Holder is subject to HSR Act Restrictions (as defined in Section
2.4 below), the Exercise Amount shall be paid to the Company within five (5)
business days of the termination of all HSR Act Restrictions.
2.2. Net Issue Exercise. In lieu of the payment methods set forth in
Section 2.1(b) above, the Holder may elect to exchange all or some of the
Warrant for shares of Common Stock equal to the value of the amount of the
Warrant being exchanged on the date of exchange. If Holder elects to exchange
this Warrant as provided in this Section 2.2, Holder shall tender to the Company
the Warrant for the amount being exchanged, along with written notice of
Holder's election to exchange some or all of the Warrant, and the Company shall
issue to Holder the number of shares of the Common Stock computed using the
following formula:
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date
of such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such
calculation).
All references herein to an "exercise" of the Warrant shall
include an exchange pursuant to this Section 2.2. Upon receipt of a written
notice of the Company's intention to raise capital by selling shares of Common
Stock in a Public Offering (the "PUBLIC OFFERING NOTICE"), which notice shall be
delivered to Holder at least forty-five (45) but not more than ninety (90) days
before the anticipated date of the filing with the Securities and Exchange
Commission of the registration statement associated with the Public Offering,
the Holder shall promptly notify the Company whether or not the Holder will
exercise this Warrant pursuant to this Section 2.2 prior to consummation of the
Public Offering. Notwithstanding whether or not a Public Offering Notice has
been delivered to Holder or any other provision of this Warrant to the contrary,
if Holder decides to exercise this Warrant while a registration statement is on
file with the Securities and Exchange Commission (the "SEC") in connection with
the Public Offering, this Warrant shall be deemed exercised on the consummation
of the Public Offering and the Fair Market Value of a share of Common Stock will
be the price at which one share of Common Stock was sold to the public in the
Public Offering. If Holder has elected to exercise this Warrant pursuant to this
Section 2.2 while a registration statement is on file with the Securities and
Exchange Commission in connection with a Public Offering and the Public Offering
is not consummated, then Holder's exercise of this Warrant shall not be
effective unless Holder confirms in writing Holder's intention to go forward
with the exercise of this Warrant.
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WARRANT
<PAGE> 4
2.3. "Easy Sale" Exercise. In lieu of the payment methods set forth in
Section 2.1(b) above, when permitted by law and applicable regulations
(including Nasdaq and NASD rules), the Holder may pay the Purchase Price through
a "same day sale" commitment from the Holder (and if applicable a broker-dealer
that is a member of the National Association of Securities Dealers (a "NASD
DEALER")), whereby the Holder irrevocably elects to exercise this Warrant and to
sell a portion of the Shares so purchased to pay for the Purchase Price and the
Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case
of the NASD Dealer, upon receipt) of such Shares to forward the Purchase Price
directly to the Company.
2.4. Stock Certificates; Fractional Shares. As soon as practicable on
or after such date, the Company shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
whole shares of Common Stock issuable upon such exercise, together with cash in
lieu of any fraction of a share equal to such fraction of the current Fair
Market Value of one whole share of Common Stock as of the date of exercise of
this Warrant. No fractional shares or scrip representing fractional shares shall
be issued upon an exercise of this Warrant.
2.5. HSR Act. The Company hereby acknowledges that exercise of this
Warrant by Holder may subject the Company and/or the Holder to the filing
requirements of the HSR Act and that Holder may be prevented from exercising
this Warrant until the expiration or early termination of all waiting periods
imposed by the HSR Act ("HSR ACT RESTRICTIONS"). If on or before the Expiration
Date Holder has sent the Notice of Exercise to Company and Holder has not been
able to complete the exercise of this Warrant prior to the Expiration Date
because of HSR Act Restrictions, the Holder shall be entitled to complete the
process of exercising this Warrant in accordance with the procedures contained
herein notwithstanding the fact that completion of the exercise of this Warrant
would take place after the Expiration Date or the completion of the Public
Offering.
2.6. Partial Exercise; Effective Date of Exercise. In case of any
partial exercise of this Warrant, the Company shall cancel this Warrant upon
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares of Common Stock purchasable hereunder. This
Warrant shall be deemed to have been exercised immediately prior to the close of
business on the date of its surrender for exercise as provided above. However,
if Holder is subject to HSR Act filing requirements this Warrant shall be deemed
to have been exercised on the date immediately following the date of the
expiration of all HSR Act Restrictions. The person entitled to receive the
shares of Common Stock issuable upon exercise of this Warrant shall be treated
for all purposes as the holder of record of such shares as of the close of
business on the date the Holder is deemed to have exercised this Warrant.
3. VALID ISSUANCE: TAXES. All shares of Common Stock issued upon the exercise of
this Warrant shall be validly issued, fully paid and non-assessable, and the
Company shall pay all taxes and other governmental charges that may be imposed
in respect of the issue or delivery thereof. The Company shall not be required
to pay any tax or other charge imposed in connection with any transfer involved
in the issuance of any certificate for shares of Common Stock in any name other
than that of the Registered Holder of this Warrant, and in such case the Company
shall not be required to issue or deliver any stock certificate or security
until such tax
-4-
WARRANT
<PAGE> 5
or other charge has been paid, or it has been established to the Company's
reasonable satisfaction that no tax or other charge is due.
4. ADJUSTMENT OF PURCHASE PRICE AND NUMBER OF SHARES. The number of shares of
Common Stock issuable upon exercise of this Warrant (or any shares of stock or
other securities or property receivable or issuable upon exercise of this
Warrant) and the Purchase Price are subject to adjustment upon occurrence of the
following events:
4.1. Adjustment for Stock Splits, Stock Subdivisions or Combinations of
Shares. The Purchase Price of this Warrant shall be proportionally decreased and
the number of Warrant Shares shall be proportionally increased to reflect any
stock split or subdivision of the Company's Common Stock. The Purchase Price of
this Warrant shall be proportionally increased and the number of Warrant Shares
shall be proportionally decreased to reflect any combination of the Company's
Common Stock.
4.2. Adjustment for Dividends or Distributions of Stock or Other
Securities or Property. In case the Company shall make or issue, or shall fix a
record date for the determination of eligible holders entitled to receive, a
dividend or other distribution with respect to the Common Stock (or any shares
of stock or other securities at the time issuable upon exercise of the Warrant)
payable in (a) securities of the Company or (b) assets (excluding cash dividends
paid or payable solely out of funds legally available therefor), then, in each
such case, the Holder of this Warrant on exercise hereof at any time after the
consummation, effective date or record date of such dividend or other
distribution, shall receive, in addition to the shares of Common Stock (or such
other stock or securities) issuable on such exercise prior to such date, and
without the payment of additional consideration therefor, the securities or such
other assets of the Company to which such Holder would have been entitled upon
such date if such Holder had exercised this Warrant on the date hereof and had
thereafter, during the period from the date hereof to and including the date of
such exercise, retained such shares and/or all other additional stock available
by it as aforesaid during such period giving effect to all adjustments called
for by this Section 4.
4.3. Reclassification. If the Company, by reclassification of
securities or otherwise, shall change any of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as the result of such change with respect to the securities that
were subject to the purchase rights under this Warrant immediately prior to such
reclassification or other change and the Purchase Price therefore shall be
appropriately adjusted, all subject to further adjustment as provided in this
Section 4. No adjustment shall be made pursuant to this Section 4.3 upon any
conversion or redemption of the Common Stock which is the subject of Section
4.5.
4.4. 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, or the sale of all or substantially all the
assets of the Company 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
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WARRANT
<PAGE> 6
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
Purchase 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 a holder of the shares deliverable
upon exercise of this Warrant would have been entitled to receive in such
reorganization, consolidation, merger, sale or transfer 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 4. The
foregoing provisions of this Section 4.4 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, as near as reasonably may be, in relation to any shares or other property
deliverable after that event upon exercise of this Warrant.
4.5. Conversion of Common Stock. In case all or any portion of the
authorized and outstanding shares of Common Stock of the Company are redeemed or
converted or reclassified into other securities or property pursuant to the
Company's Articles of Incorporation or otherwise, or the Common Stock otherwise
ceases to exist, then, in such case, the Holder of this Warrant, upon exercise
hereof at any time after the date on which the Common Stock is so redeemed or
converted, reclassified or ceases to exist (the "TERMINATION DATE"), shall
receive, in lieu of the number of shares of Common Stock that would have been
issuable upon such exercise immediately prior to the Termination Date, the
securities or property that would have been received if this Warrant had been
exercised in full and the Common Stock received thereupon had been
simultaneously converted immediately prior to the Termination Date, all subject
to further adjustment as provided in this Warrant. Additionally, the Purchase
Price shall be immediately adjusted to equal the quotient obtained by dividing
(x) the aggregate Purchase Price of the maximum number of shares of Common Stock
for which this Warrant was exercisable immediately prior to the Termination Date
by (y) the number of shares of Common Stock of the Company for which this
Warrant is exercisable immediately after the Termination Date, all subject to
further adjustment as provided herein.
4.6. Adjustment for Issuance of Additional Shares of Common Stock.
Until consummation of a Public Offering, upon issuance by the Company of (1)
Common Stock, (2) any right, option or warrant to acquire Common Stock, (3) any
other stock convertible into Common Stock, or (4) any obligation or any share of
stock convertible into or exchangeable for Common Stock (including the
Additional Conversion Shares but excluding any Conversion Shares issued pursuant
to Section 5.7.6 of the Loan Agreement and any Warrant Shares adjusted pursuant
to this Section) (in the case of (2), (3) and (4), collectively, "Common Stock
Equivalents"), the number of Warrant Shares shall be adjusted as follows:
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WARRANT
<PAGE> 7
(a) if (i) Common Stock is issued and the consideration
received is (x) other than cash (including personal checks) or other immediately
available funds, or (y) cash (including personal checks) or other immediately
available funds in an amount less than $1.00 per share, or (ii) Common Stock
Equivalents are issued and the exercise, conversion or exchange price per share
of Common Stock is less than $1.00 per share of Common Stock, then the number of
Warrant Shares shall be increased by the following amount:
<TABLE>
<S> <C>
Number of Shares of Number of Warrant Shares Outstanding Prior to Issuance
Common Stock Issued or x
Issuable Upon Exercise of -------------------------------------------------------
Common Stock Equivalents -
Number of Shares of Common Stock Outstanding
(Fully-Diluted) Prior to Issuance
</TABLE>
(b) if (i) Common Stock is issued and the consideration
received is (x) cash (including personal checks) or other immediately available
funds in an amount equal to or greater than $1.00 per share but less than $1.50
per share, or (ii) Common Stock Equivalents are issued and the exercise,
conversion or exchange price per share of Common Stock is equal to or greater
than $1.00 per share but less than $1.50 per share of Common Stock, then the
number of Warrant Shares shall be increased by the following amount:
<TABLE>
<S> <C>
Number of Shares of Number of Warrant Shares Outstanding Prior to Issuance
Common Stock Issued or x x 0.50
Issuable Upon Exercise of ------------------------------------------------------- 0
Common Stock Equivalents Number of Shares of Common Stock Outstanding
(Fully-Diluted) Prior to Issuance
</TABLE>
5. CERTIFICATE AS TO ADJUSTMENTS. In each case of any adjustment in the Purchase
Price, or number or type of shares issuable upon exercise of this Warrant, the
Chief Financial Officer or Controller of the Company shall compute such
adjustment in accordance with the terms of this Warrant and prepare a
certificate setting forth such adjustment and showing in detail the facts upon
which such adjustment is based, including a statement of the adjusted Purchase
Price. The Company shall promptly send (by facsimile and by either first class
mail, postage prepaid or overnight delivery) a copy of each such certificate to
the Holder.
6. LOSS OR MUTILATION. Upon receipt of evidence reasonably satisfactory to the
Company of the ownership of and the loss, theft, destruction or mutilation of
this Warrant, and of indemnity reasonably satisfactory to it, and (in the case
of mutilation) upon surrender and cancellation of this Warrant, the Company will
execute and deliver in lieu thereof a new Warrant of like tenor as the lost,
stolen, destroyed or mutilated Warrant.
7. RESERVATION OF COMMON STOCK. The Company hereby covenants that at all times
there shall be reserved for issuance and delivery upon exercise of this Warrant
such number of shares of Common Stock or other shares of capital stock of the
Company as are from time to time issuable upon exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Articles of
Incorporation to provide sufficient reserves of shares of Common Stock issuable
upon exercise of this Warrant (and shares of its Common Stock for issuance on
conversion of such Common Stock). All such shares shall be duly authorized, and
when issued upon such exercise, shall be validly issued, fully paid and
non-assessable, free and
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WARRANT
<PAGE> 8
clear of all liens, security interests, charges and other encumbrances or
restrictions on sale and free and clear of all preemptive rights, except
encumbrances or restrictions arising under federal or state securities laws.
Issuance of this Warrant shall constitute full authority to the Company's
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for shares of Common Stock and
Common Stock upon the exercise of this Warrant.
8. TRANSFER AND EXCHANGE. Subject to the terms and conditions of this Warrant
and compliance with all applicable securities laws, this Warrant and all rights
hereunder may be transferred in whole or in part, on the books of the Company
maintained for such purpose at the principal office of the Company referred to
above, to any Registered Holder parent, subsidiary or affiliate, by the
Registered Holder hereof in person, or by duly authorized attorney, upon
surrender of this Warrant properly endorsed and upon payment of any necessary
transfer tax or other governmental charge imposed upon such transfer. Upon any
permitted partial transfer, the Company will issue and deliver to the Registered
Holder a new Warrant or Warrants with respect to the shares of Common Stock not
so transferred. Each taker and holder of this Warrant, by taking or holding the
same, consents and agrees that when this Warrant shall have been so endorsed,
the person in possession of this Warrant may be treated by the Company, and all
other persons dealing with this Warrant, as the absolute owner hereof for any
purpose and as the person entitled to exercise the rights represented hereby,
any notice to the contrary notwithstanding; provided, however that until a
transfer of this Warrant is duly registered on the books of the Company, the
Company may treat the Registered Holder hereof as the owner for all purposes.
9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that,
absent an effective registration statement filed with the SEC under the
Securities Act of 1933, as amended (the "1933 ACT"), covering the disposition or
sale of this Warrant or the Common Stock issued or issuable upon exercise hereof
or the Common Stock issuable upon conversion thereof, as the case may be, and
registration or qualification under applicable state securities laws, such
Holder will not sell, transfer, pledge, or hypothecate any or all such Warrants
or Common Stock, as the case may be, unless either (i) the Company has received
an opinion of counsel, in form and substance reasonably satisfactory to the
Company, to the effect that such registration is not required in connection with
such disposition or (ii) the sale of such securities is made pursuant to SEC
Rule 144.
10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the holder
hereby represents, warrants and covenants that any shares of stock purchased
upon exercise of this Warrant or acquired upon conversion thereof shall be
acquired for investment only and not with a view to, or for sale in connection
with, any distribution thereof; that the Holder has had such opportunity as such
Holder has deemed adequate to obtain from representatives of the Company such
information as is necessary to permit the Holder to evaluate the merits and
risks of its investment in the company; that the Holder is able to bear the
economic risk of holding such shares as may be acquired pursuant to the exercise
of this Warrant for an indefinite period; that the Holder understands that the
shares of stock acquired pursuant to the exercise of this Warrant or acquired
upon conversion thereof will not be registered under the 1933 Act (unless
otherwise required pursuant to exercise by the Holder of the registration
rights,
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WARRANT
<PAGE> 9
if any, previously granted to the registered Holder) and will be "restricted
securities" within the meaning of Rule 144 under the 1933 Act and that the
exemption from registration under Rule 144 will not be available for at least
one year from the date of exercise of this Warrant, subject to any special
treatment by the SEC for exercise of this Warrant pursuant to Section 2.2, and
even then will not be available unless a public market then exists for the
stock, adequate information concerning the Company is then available to the
public, and other terms and conditions of Rule 144 are complied with; and that
all stock certificates representing shares of stock issued to the Holder upon
exercise of this Warrant or upon conversion of such shares may have affixed
thereto a legend substantially in the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES
LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT
AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS,
PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE
AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS
INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
11. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS. This Warrant shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Company. In
the absence of affirmative action by such Holder to purchase Common Stock by
exercise of this Warrant, no provisions of this Warrant, and no enumeration
herein of the rights or privileges of the Holder hereof shall cause such Holder
hereof to be a stockholder of the Company for any purpose.
12. REGISTRATION RIGHTS. All shares of Common Stock issuable upon exercise of
this Warrant shall be "REGISTRABLE SECURITIES" or such other definition of
securities entitled to registration rights pursuant to the Investor Rights
Agreement, dated as of the date hereof, between the Company and Holder, and are
entitled, subject to the terms and conditions of that agreement, to all
registration rights granted to holders of Registrable Securities thereunder.
13. NOTICES. All notices and other communications from the Company to the Holder
shall be given in accordance with the Loan Agreement.
14. HEADINGS. The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.
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WARRANT
<PAGE> 10
15. LAW GOVERNING. This Warrant shall be construed and enforced in accordance
with, and governed by, the laws of the State of Connecticut.
16. NO IMPAIRMENT. The Company will not, by amendment of its Articles of
Incorporation or bylaws, or through reorganization, consolidation, merger,
dissolution, issue or sale of securities, sale of assets or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holder of this
Warrant against impairment. Without limiting the generality of the foregoing,
the Company (a) will not increase the par value of any shares of stock issuable
upon the exercise of this Warrant above the amount payable therefor upon such
exercise, and (b) will take all such action as may be necessary or appropriate
in order that the Company may validly and legally issue fully paid and
non-assessable shares of Common Stock upon exercise of this Warrant.
17. NOTICES OF RECORD DATE. In case:
17.1. the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant), for the purpose of entitling them to receive any dividend or
other distribution, or any right to subscribe for or purchase any shares of
stock of any class or any other securities or to receive any other right; or
17.2. of any consolidation or merger of the Company with or into
another corporation, any capital reorganization of the Company, any
reclassification of the Capital Stock of the Company, or any conveyance of all
or substantially all of the assets of the Company to another corporation in
which holders of the Company's stock are to receive stock, securities or
property of another corporation; or
17.3. of any voluntary dissolution, liquidation or winding-up of the
Company; or
17.4. of any redemption or conversion of all outstanding Common Stock;
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any is
to be fixed, as of which the holders of record of Common Stock or (such stock or
securities as at the time are receivable upon the exercise of this Warrant),
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities), for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be delivered at least
thirty (30) days prior to the date therein specified.
18. SEVERABILITY. If any term, provision, covenant or restriction of this
Warrant is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the
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<PAGE> 11
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
19. COUNTERPARTS. For the convenience of the parties, any number of counterparts
of this Warrant may be executed by the parties hereto and each such executed
counterpart shall be, and shall be deemed to be, an original instrument.
20. NO INCONSISTENT AGREEMENTS. The Company will not on or after the date of
this Warrant enter into any agreement with respect to its securities which is
inconsistent with the rights granted to the Holders of this Warrant or otherwise
conflicts with the provisions hereof. The rights granted to the Holders
hereunder do not in any way conflict with and are not inconsistent with the
rights granted to holders of the Company's securities under any other
agreements, except rights that have been waived.
21. SATURDAYS, SUNDAYS AND HOLIDAYS. If the Expiration Date falls on a Saturday,
Sunday or legal holiday, the Expiration Date shall automatically be extended
until 5:00 p.m. the next business day.
22. BINDING EFFECT. Pursuant to Section 14.17 of the Loan Agreement, this
Warrant shall not be binding upon either party until the Company successfully
conducts an Acceptance Test on crankcase used oil, as defined in and pursuant to
the Loan Agreement.
[SIGNATURES ON NEXT PAGE]
-11-
WARRANT
<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Warrant as of
the Effective Date.
HSB ENGINEERING FINANCE CORPORATION,
A DELAWARE CORPORATION
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
PROBEX CORPORATION,
A COLORADO CORPORATION
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
By:
----------------------------------
Name:
---------------------------
Title:
--------------------------
-12-
WARRANT
<PAGE> 13
EXHIBIT 1
NOTICE OF EXERCISE
(To be executed upon exercise of Warrant)
PROBEX CORPORATION WARRANT NO. ___
The undersigned hereby irrevocably elects to exercise the right of purchase
represented by the within Warrant Certificate for, and to purchase thereunder,
the securities of Probex Corporation, as provided for therein, and (check the
applicable box):
o Tenders herewith payment of the exercise price in full in the form of
cash or a certified or official bank check in same-day funds in the
amount of $____________ for _________ such securities.
o Elects the Net Issue Exercise option pursuant to Section 2.2 of the
Warrant, and accordingly requests delivery of a net of ______________
of such securities, according to the following calculation:
X = Y (A-B) ( ) = (____) [(_____) - (_____)]
------- ---------------------------
A (_____)
Where X = the number of shares of Common Stock to be issued to
Holder.
Y = the number of shares of Common Stock purchasable under the
amount of the Warrant being exchanged (as adjusted to the date
of such calculation).
A = the Fair Market Value of one share of the Company's Common
Stock.
B = Purchase Price (as adjusted to the date of such
calculation).
o Elects the Easy Sale Exercise option pursuant to Section 2.3 of the
Warrant, and accordingly requests delivery of a net of ______________
of such securities.
Please issue a certificate or certificates for such securities in the name of,
and pay any cash for any fractional share to (please print name, address and
social security number):
Name:
----------------------------------------
Address:
----------------------------------------
Signature:
----------------------------------------
Note: The above signature should correspond exactly with the name on the first
page of this Warrant Certificate or with the name of the assignee appearing in
the assignment form below.
If said number of shares shall not be all the shares purchasable under the
within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher whole number of shares.
<PAGE> 14
EXHIBIT 2
ASSIGNMENT
(To be executed only upon assignment of Warrant WARRANT NO. ___
Certificate)
For value received, hereby sells, assigns and transfers unto
________________________ the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ____________________________ attorney, to transfer said Warrant
Certificate on the books of the within-named Company with respect to the number
of Warrants set forth below, with full power of substitution in the premises:
<TABLE>
<CAPTION>
====================================================================================================================
<S> <C> <C>
NAME(S) OF ASSIGNEE(S) ADDRESS # OF WARRANTS
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
====================================================================================================================
</TABLE>
And if said number of Warrants shall not be all the Warrants represented by the
Warrant Certificate, a new Warrant Certificate is to be issued in the name of
said undersigned for the balance remaining of the Warrants registered by said
Warrant Certificate.
Dated: 19
---------------------------------------------------------
Signature:
---------------------------------------------------------
Notice: The signature to the foregoing Assignment must correspond to the name as
written upon the face of this security in every particular, without alteration
or any change whatsoever; signature(s) must be guaranteed by an eligible
guarantor institution (banks, stock brokers, savings and loan associations and
credit unions with membership in an approved signature guarantee medallion
program) pursuant to Securities and Exchange Commission Rule 17Ad-15.
<PAGE> 1
EXHIBIT 4.3.12
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 "T" WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
PROBEX CORP.
(A COLORADO CORPORATION)
PURCHASE PRICE PER SHARE: $0.50
EXPIRATION DATE: 5:00 P.M., DALLAS, TEXAS TIME, ON
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 "T" 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 "T" 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 "T" 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
Chief Executive Officer & President
<PAGE> 5
Class "T" 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 "T" 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 4.3.13
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 "U" WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
PROBEX CORP.
(A COLORADO CORPORATION)
PURCHASE PRICE PER SHARE: $0.50
EXPIRATION DATE: 5:00 P.M., DALLAS, TEXAS TIME, ON JANUARY 31ST, 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 "U" 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
<PAGE> 3
Class "U" Warrant No. 1
Page 3
tenor, the Warrants theretofore and thereafter issued may continue to express
the Warrant purchase 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 "U" 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
Chief Executive Officer & President
<PAGE> 5
Class "U" 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 "U" 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 10.17
FEE AGREEMENT
This Agreement entered into by and between Enventures Capital, LLC, a
Massachusetts company, (hereinafter referred to as "ECAP") and Probex Corp.,
(hereinafter referred to as "Probex"). ECAP and Probex are referred to
collectively as the "Parties."
In consideration of the mutual covenants of this Agreement and other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
1. Probex hereby grants ECAP the right to procure funding from Provident
Financial ("Investor") for a period of 180 days following the date of
this Agreement. In the event Probex accepts any funding offered
from the above mentioned Investor during said time period and enters
into a funding agreement and funds are disbursed from the Investor
to Probex, Probex agrees to pay ECAP, at the closing, a fee of three
percent (3%) of the amount of funding provided by the Investor,
payable in cash, and options to purchase Probex common stock at a
strike price of 10% under the moving thirty (30) day exchange closing
price as of the date of this agreement by the dollar equivalent of
three percent (3%) of the funding. Parties agree that Probex will pay
no further fees (either to ECAP or Investor) beyond those outlined
above for funding from Investor.
2. Probex will provide ECAP with all necessary information and material
as necessary for procuring such funding.
3. Each of the parties hereto acknowledges the proprietary nature and
value of their respective business information and contacts. Each
party represents, warrants and covenants that neither Party nor such
Party's affiliates, employees, agents and representatives shall
disclose to any other party or use for any purpose, other than as
contemplated hereunder, any confidential or proprietary information in
any form provided by or obtained from the other Party relating to its
business, including, without limitation, its financial models,
business plans, projects, customers, contacts and technical or
financial information. All material provided to ECAP by Probex shall
remain the property of Probex and shall be returned to Probex upon
request.
4. ECAP shall be held harmless for the actions of a potential Investor
that threatens, or results in, damages or injury to Probex.
5. This Agreement shall bind and inure to the benefit of the heirs,
executors, successors and assigns of the Parties hereto.
IN WITNESS WHEREOF, the Parties have executed this Agreement this 17th day
of January, 2000.
Enventures Capital, LLC: Probex Corp.
/s/ ROBERT FOXEN /s/ BRUCE A. HALL
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Robert J. Foxen Bruce A. Hall, Chief Financial Officer
/s/ ROBERT FOXEN /s/ BRUCE A. HALL
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Signature Signature
