SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
for the fiscal year ended July 31, 1996
[ ] Transition Report Under Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from ________________ __, ____
to ___________________ __, ____
Commission File Number: 33-27625
ECOLOGY PURE AIR INTERNATIONAL, INC.
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(Name of small business issuer in its charter)
Delaware 76-0265439
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
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(Address of Principal Executive Offices)
Issuer's telephone number: (800) 661-9774
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the past 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No____
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-B is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
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Registrant's revenues for the fiscal year ended July 31, 1996: $4,986,239.
The aggregate market value of the voting stock held by non-affiliates of
the Registrant, as of December 5, 1996, was approximately $18,667. See Footnote
(1) below.
APPLICABLE ONLY TO CORPORATE REGISTRANTS
The number of shares outstanding of the Registrant's sole class of Common
Stock as of December 5, 1996 was 44,366,896 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
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(1) No public trading market for the Registrant's Common Stock has
developed as of December 5, 1996 and the most recent private sale of
the Registrant's Common Stock occurred more than 60 days prior to the
date of this Report. Accordingly, the par value of the Registrant's
Common Stock at the nominal price of $.001 per share has been utilized
to determine market value for the purposes identified above.
Furthermore, the information provided shall in no way be construed as
an admission that any person whose holdings are excluded from the
figure is not an affiliate or that any person whose holdings are
included is an affiliate and any such admission is hereby disclaimed.
The information provided is included solely for recordkeeping purposes
of the Securities and Exchange Commission.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
General
The Company was incorporated as "Owl Investment Corp." on December 8,
1988 under the laws of the State of Delaware. The Company changed its name to
Mark Four Resources, Inc. on September 14, 1989. The Company was formed for the
purpose of implementing an initial public distribution of its stock, which
occurred on April 18, 1989, and acquiring operating businesses thereafter. From
its inception in 1988 through November, 1995, with the exception of a short-term
venture that was discontinued in 1993, the Company engaged in no active business
operations other than to attempt to identify business acquisitions that would
capitalize on its status as a public company. Through a series of transactions
in November 1995, the Company secured the worldwide manufacturing and marketing
rights (exclusive of Canada) to the technologies and products relating to the
Combustion Efficiency Management Catalyst (the "C.E.M. Catalyst") - a
pre-combustion device intended for the purpose of reducing the emission of
pollutants in automobiles, motorcycles, lawn mowers and other vehicles and
machinery. The Company also entered into a Plan of Arrangement to acquire the
company that has the Canadian marketing rights to the C.E.M. Catalyst. These
transactions and the Plan of Arrangement, although it remains subject to
completion, shall hereafter be referred to as the "Acquisition Transactions."
In conjunction with a recapitalization of its Common Stock, on June 18,
1996, the Company changed its name to "Ecology Pure Air International, Inc." to
better reflect the nature of its business operations. The recapitalization
consisted of an increase in the number of shares authorized for issuance from 35
million to 100 million and a 1 for 3 reverse split of all outstanding shares as
of June 18, 1996. Information in this Report relating to shares of the Company's
Common Stock has been adjusted, as appropriate, to give effect to the stock
split.
Description of the Acquisition Transactions
Prior to November 1995, the manufacturing and marketing rights to the
C.E.M. Catalyst technologies and products were segregated and owned by three
difference companies. The purpose of the Acquisition Transactions that occurred
in November 1995 was to consolidate these various rights into one holding
company.
The first component of the consolidation was completed on November 17, 1995
when the Company acquired all of the world wide marketing rights (exclusive of
Canada) to the C.E.M. Catalyst in exchange for 3 million shares of Series A
Convertible Voting Preferred Stock (the "Preferred Shares") and Common Stock
Purchase Warrants (the "Warrants") to acquire 6 million shares of Common Stock.
These rights were acquired from a group of eleven individuals (the "EPA
Founders") who had in turn acquired such rights from Rotello Technology and
Marketing, Inc. ("Rotello"), the original developer of these technologies. In
this transaction, the Company also agreed to pay Rotello a 3.5% royalty on all
future sales of the C.E.M. Catalyst.
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The Preferred Shares were each convertible into ten (10) shares of Common
Stock and were subsequently converted by the EPA Founders into an aggregate of
30 million shares of Common Stock during the first quarter of fiscal 1997. The
Warrants are exercisable at $10.00 per share on or before September 30, 1997.
The second component of the consolidation was also completed on November
17, 1995 when the Company acquired the manufacturing rights to the C.E.M.
Catalyst by acquiring all of the outstanding capital stock of E.P.A.
Manufacturing, Inc., an Indiana company ("EPA Manufacturing") from Teodosio
Pangia and Gianni D'Alessandro, two of the EPA Founders. These rights and the
shares of EPA Manufacturing were acquired in exchange for 200,000 shares of the
Company's Common Stock.
The Acquisition Transactions resulted in a change of management and share
control of the Company. The EPA Founders received 30,000,000 shares of Common
Stock (including Preferred Shares converted to Common Stock) and 6,000,000
Warrants that (assuming the exercise of such Warrants) reflect 71.5% of the
outstanding Common Stock of the Company. In addition, the Company issued to a
group of five (5) investment banking consultants who were instrumental in
arranging the Acquisition Transactions (collectively referred to as the
"Consultants"), an aggregate of 4 million shares of Common Stock, 600,000
Preferred Shares (that have subsequently been converted into 6 million shares of
Common Stock) and Warrants to purchase 2 million shares, which were subsequently
surrendered to the Company in exchange for certain registration rights. See
"ITEM 5 - MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS."
The third component of the consolidation involved the planned acquisition
of the Canadian marketing rights from EPA Enterprises Inc. ("Enterprises"), a
British Columbia corporation whose shares were publicly traded on the Vancouver
Stock Exchange through March 1995. Pursuant to a Plan of Arrangement dated
November 17, 1995, the Company agreed to acquire all of the outstanding shares
of Enterprises in exchange for 4,137,224 shares of the Company's Common Stock
and Warrants to acquire 4,137,224 shares.
Completion of the transactions contemplated within the Plan of
Arrangement was subject to: (i) approval of the shareholders of Enterprises
(which was secured on February 23, 1996); and (ii) approval of the British
Columbia Supreme Court as to the fairness of the entire transaction (which was
secured on July 24, 1996). Subsequently, an appeal was filed by one minority
shareholder of Enterprises (the record owner of 1,000 of approximately 9.3
million shares outstanding). Effectiveness of the Plan of Arrangement has been
delayed until management may either assess the impact, or otherwise dispose of,
the outstanding appeal.
Description of Company Technology and Product
The C.E.M. Catalyst is a canister-type device that is installed in the fuel
line of an internal combustion engine. The device houses a proprietary
combination of certain alloys, pellets and other catalytic materials (the
"Catalysts") that are intended to cause a series of chemical reactions
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that would result in the alteration of the molecular composition of fuel as
it passes through the canister. The raw materials used to manufacture the
canister and which form the base components of the Catalysts are available in
abundant supply.
The C.E.M. Catalyst has been or will be adapted to a variety of shapes and
sizes so that it can be installed in a number of combustion engine powered
vehicles, including automobiles, motorcycles, lawn mowers and tractors and other
farm equipment.
Laboratory and other testing performed by or on behalf of the Company
generally indicate that through these chemical reactions, the C.E.M. Catalyst
offers the possibility of achieving a greater level of combustion and reduced
levels of hydrocarbon, nitrogen oxide and carbon monoxide emissions.
The development of the C.E.M. Catalyst evolved out of certain fuel
treatment systems that were developed during World War II in order to enable the
operation of British Hawker Hurricane aircraft on low grade, low octane fuel.
The low octane gasoline was run over raw metals which caused a change in the
chemical composition of the gasoline. Thus, permitting the operation of these
aircraft with gasoline which, prior to such treatment, would have otherwise
rendered the aircraft inoperable.
Since 1993, laboratory and field testing have been undertaken in order to
verify the chemical and operative properties of the C.E.M. Catalyst and to
secure validation thereof from certain regulatory agencies.
o In June 1995, tests completed by the Instituto Nacional de Ecologia of
Mexico, Mexico's government regulated environmental testing laboratory,
indicated that utilization of the C.E.M. Catalyst produced a 89% reduction in
hydrocarbon emissions, a 10% reduction in nitrogen oxide emissions and a 21%
reduction in carbon monoxide emissions.
o Tests undertaken from April 1993 to May 1995 by California Environmental
Engineering ("CEE"), an independent laboratory approved for testing by the
California Air Resources Board ("CARB") indicated reductions in hydrocarbon
emissions ranging from 5.5% to 48.2%, reductions in nitrogen oxide emissions
ranging from 3.7% to 40.4% and reductions in carbon monoxide emissions from
23.5% to 58.4%. In conjunction with these findings, Enterprises was able to
secure the issuance of CARB Executive Order D-337 permitting marketing of the
C.E.M. Catalyst in California for all 1993 and older model year gasoline and
diesel powered vehicles.
o Following the issuance of Executive Order D-337, the Company sought to
secure a formal order of accreditation from CARB that the C.E.M. Catalyst
satisfied the clean air standards required for California motor vehicles. The
Company and CEE were not, however able to timely satisfy certain of the
protocols associated with this level of testing and CARB deemed the application
process "abandoned" without finding.
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o Tests undertaken by Petronas Research and Scientific Services ("Petronas"),
a vehicle emission testing laboratory of the National Petroleum Corporation of
Malaysia, indicated a reduction in emission levels following the use of the
C.E.M. Catalyst.
o Other laboratory and field tests performed by and on behalf of the Company
indicates that use of the C.E.M. Catalyst reduces the level of hydrocarbon,
nitrogen oxide and carbon monoxide emissions.
Although management is confident that laboratory and field testing have
successfully evidenced the emission reducing properties of the C.E.M. Catalyst,
further testing is being undertaken primarily to determine its suitability for
commercial application and to secure validation of its properties from certain
governmental and regulatory agencies. Wide scale commercialization of the C.E.M.
Catalyst may not be realized until its emission reducing properties have been
validated by certain governmental and regulatory agencies.
Intellectual Property Information
The Company received patent protection (patent #5,524,594) on June 11, 1996
for the canister device which is connected to the fuel line, and includes an
inlet and outlet separated by an internal chamber, which houses the Catalysts.
The patent protection on the canister device, which does not include the
composition of the Catalysts, will expire on June 11, 2013.
The Company's technologies rely upon the design and function of a canister
type configuration that houses the proprietary Catalysts. The composition of the
Catalysts is proprietary to the Company and is protected by trade secrets.
The Company has achieved trademark protection in Canada for certain of the
marks it employs in connection with the C.E.M. Catalyst and has pending
applications for others in Canada and the United States.
Sales and Marketing
Having achieved substantial development of the technical and mechanical
aspects of the C.E.M. Catalyst, management believes that the critical element in
achieving commercial application thereof is to successfully implement the
Company's strategic sales and marketing objectives. These sales and marketing
objectives will initially focus on the Company's efforts to secure strategic
marketing and sales alliances with domestic and foreign corporations, as well as
the negotiation of sales and installation arrangements with chains of automobile
parts and service retailers.
Management anticipates that certain levels of sales may be achieved through
purchasing by environmentally aware consumers and corporations that voluntarily
seek to achieve reductions in automobile emissions. The major sales and
marketing objectives of the Company, however, are to secure validation of the
operative properties of the C.E.M. Catalyst from a domestic or foreign
regulatory agency, which would in turn certify that the C.E.M. Catalyst
satisfied certain levels of stringent automobile emissions standards. The C.E.M.
Catalyst would then be strategically suited
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to achieve significant market penetration to the extent that such stringent
automobile emissions standards were adopted or suggested by select regulatory
agencies.
Because of the more severe air pollution problems in the southern
California region, in January 1994 Enterprises attempted to secure a formal
order of accreditation from CARB that the C.E.M. Catalyst satisfied the clean
air standards required for California motor vehicles. The Company and CEE were
not, however, able to timely satisfy certain of the protocols associated with
this level of testing and CARB deemed the application process "abandoned"
without finding.
Because of the significant pollution problems overseas, management has
focused its initial marketing efforts in Southeast Asia, particularly in
Malaysia. The Company's Malaysian marketing efforts will are being implemented
by Tunku Mudzaffar bin Tunku Mustapha, a member of the Company's Board of
Directors, as well as Chairman of Malaysian Canadian Development Corporation and
Chairman of the Automobile Association of Malaysia. He will endeavor to
establish to the satisfaction of regulatory agencies in Malaysia that the C.E.M.
Catalyst reduces emissions to a level that complies with local regulations. By
doing so, it is management's intention to negotiate agreements with Malaysian
automobile service companies relating to the sale and installation of C.E.M.
Catalysts.
In North America, the Company is presently in discussions with certain
automobile parts and service retail chains to establish agreements pursuant to
which such retail chains would sell and install the C.E.M. Catalyst in
automobiles presently in the market.
Notwithstanding the continued technical refinements and further positive
test results which appear to validate the chemical and other properties of the
C.E.M. Catalyst, to date, neither the Company nor Enterprises have been able to
achieve any commercial sales of the C.E.M. Catalyst.
Although the Company has an exclusive sales agency agreement with Tunku
Mudzaffar bin Tunku Mustapha for sales in Malaysia, Indonesia, Philippines,
Thailand and Brunei, except for a sales agreement with Malaysia Canada
Development Corporation executed on August 18, 1996, the Company has no sales
agreements with any prospective customers at this time and only minimal
inventories of product available for sale. The ability of the Company to
implement its sales and marketing strategy will be largely dependent upon the
Company's ability to secure the validation of the C.E.M. Catalyst from certain
regulatory and governmental agencies and to generate sufficient capital from
either operations or from financing transactions so as to enable the Company to
maintain operations as a going concern. See "ITEM 6 - MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATIONS."
Competition
Although it is aware of other precombustion emission control products
and devices presently marketed by competitors, the Company believes that these
products and devices have not achieved validation for significant emission
reduction in stringent laboratory testing. The Company is aware that there are
numerous entities which are larger than the Company and which are well
established in markets relating to the manufacture of internal combustion
engines and vehicles which may present competition to the Company in the form of
other emission control devices and
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technologies. These competitors presently have, and will continue to have,
substantially greater financial, marketing and personnel resources than the
Company. To the extent that these competitors are pursuing or intend to pursue
research and development in precombustion emissions controls, substantial
competition with the Company could arise.
The Company may also face competition from the implementation by regulatory
agencies of the use of electric vehicles. However, although prototypes exist,
the use of electric vehicles is currently not mandatory and, additionally, the
California Air Resources Board has delayed the implementation of a mandatory
program for the operation of certain electric vehicles until after the year
2003.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company leases a 10,000 square foot building in Elkhart, Indiana which
is used to process the Catalysts and manufacture the C.E.M. Catalyst. As demand
for the product justifies, automated manufacturing systems, and quality control
and testing equipment will be purchased and an on-site laboratory will be
established within this facility. The lease expires August 1998 and is at the
rate of $2,500 per month.
The Company's principal executive offices are located at 45 Rockefeller
Plaza, Suite 2000, New York, New York 10111 and Trump Parc TRC, 106 Central Park
South, Suite 19A, New York, New York 10111. The Company currently leases these
offices for a one-year term expiring during 1996 at an aggregate cost of
approximately $11,000 per month. In addition, to support the administrative
functions of the Company, it also leases office space in Toronto, Canada on a
month-to-month basis at a cost of approximately $2,400 per month. However, this
office space will be vacated by December 31, 1996 and a new lease arrangement at
a different location in Toronto, Canada will commence on January 1, 1997 with
monthly rental payments of approximately $5,700.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not subject to any material legal proceedings, however,
Enterprises is presently the subject of legal proceedings in connection with
completion of the Plan of Arrangement (See "ITEM 1 - DESCRIPTION OF BUSINESS -
Description of the Acquisition Transactions.") and certain of the Company
directors and officers have been named in a third party claim brought by two
former directors of Enterprises in connection with certain allegations regarding
an alleged forged CARB accreditation letter. See "ITEM 9 - DIRECTORS, EXECUTIVE
OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE
EXCHANGE ACT - Material Legal Proceedings involving certain Directors and
Officers."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the Company's Security Holders
during the period covered by this Report.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is currently no public trading market for the Company's Common Stock.
Management of the Company is currently undertaking the steps necessary to permit
listing of its Common Stock on the OTC Bulletin Board which would, if achieved,
permit members firms of the NASD to enter, update and display proprietary
quotations in individual securities on a real time basis. There can be no
assurances listing on the OTC Bulletin Board will occur, or if it occurs,
whether a regular trading market for the Company's Common Stock will develop.
The Company's Common Stock is presently not eligible for inclusion within
The NASDAQ Stock Market by virtue of, among other things, the absence of trading
in the Company's Common Stock and the level of stockholders' equity reflected
within the Company's financial statements for the year ended July 31, 1996, made
a part of this Report. It is the Company's intention to apply for inclusion of
its securities within The NASDAQ Stock Market if and when all relevant listing
criteria are satisfied, as to which there can be no assurances.
As of the date of this Report, the Company had outstanding 44,366,896
shares of Common Stock. Of these shares, 413,274 are considered "free-trading"
since either: (i) they were issued in the original distribution transaction that
was covered by a Prospectus dated April 18, 1989; or (ii) they are freely
saleable under Rule 144(k) promulgated under the Act since they are held by
non-affiliates and were originally issued more than three (3) years prior to the
date of this Report.
30,200,000 of the shares were issued to the EPA Founders as of November 17,
1995 and are being treated as "restricted securities" issued pursuant to Rule
144 under the Act. In the future these shares may be sold without registration
upon compliance with Rule 144. A person (including a group of persons whose
shares are aggregated) who has satisfied a two year holding period for
restricted securities, including an affiliate of the Company, may sell an amount
of restricted securities up to one percent (1%) of the Company's outstanding
Common Stock in each three (3) month period thereafter. Resales on this basis
can commence on November 17, 1997. Persons who are not affiliated with the
Company and who have owned restricted securities for at least three (3) years
are not subject to the one percent (1%) limitation. Resales by affiliates retain
the one percent (1%) limitation, notwithstanding their period of ownership.
25,700,000 of these shares are presently held by affiliates.
2,200,000 of the shares were issued on March 26, 1996 in a private
placement transaction to "Non-U.S. persons" pursuant to the terms of Regulation
S, promulgated under the Act. These shares, following a one (1) year restricted
period established within Regulation S, may be publicly resold as early as March
26, 1997.
10,000,000 of the shares were issued on November 17, 1995 to the
Consultants pursuant to the exemption under Regulation S. Although the
appropriate restricted period for these shares lapsed on November 17, 1996, the
Consultants have entered into an Agreement with the
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Company, whereby they have agreed to certain restrictions on resale. The
Agreement provides that for the period commencing November 22, 1996 and ending
May 31, 1997, the Consultants may not dispose of any of their shares in the open
market or in a public transaction. For the period commencing June 1, 1997 and
ending May 31, 1998, each of the Consultants may only dispose of an amount equal
to 50,000 shares per month. After May 31, 1998 there are no restrictions on
resale. In consideration for agreeing to enter into this Agreement, the Company
has agreed to use its best efforts to file a registration statement by no later
than March 31, 1997 for the purpose of registering for resale the shares held by
the Consultants.
400,000 and 266,667 of the shares were issued pursuant to the exemption
under Regulation S on November 17, 1995 and January 2, 1996, respectively, upon
conversion of $824,990 of indebtedness of the Company owed to a third party. The
restricted period for the 400,000 shares lapsed on November 17, 1996, and these
shares are currently freely tradable and the restricted period on the 266,667
shares will lapse on January 2, 1997.
The remaining 886,955 shares were issued on November 1, 1995 for services
rendered and in exchange for advances received during the period from November
1990 to November 1994. Of these, 791,363 shares were issued to "Non-U.S.
persons" and otherwise pursuant to the exemption under Regulation S. The
remaining 95,592 shares are deemed restricted securities under Rule 144 with the
relevant holding period commencing November 1, 1995. Although the "restricted
period" for the 791,363 shares issued pursuant to Regulation S lapsed on
November 1, 1996, all of these shares, plus additional 107,667 shares (of the
413,274 shares) for an aggregate of 899,030 shares are subject to certain
restrictions on disposition pursuant to a Lock-Up Agreement with the Company,
whereby the holders of the 899,030 shares have agreed not to dispose of these
shares in an open market or public transaction until March 31, 1997. For the
period commencing April 1, 1997 until January 31, 1998, the holders of these
shares may only dispose of five percent (5%) of their individual holdings per
month. After January 31, 1998 there are no restrictions on disposition.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS.
The following information should be read in conjunction with the
Consolidated Financial Statements and Notes thereto of the Company included in
this Report.
Background
The Company was initially incorporated on December 8, 1988 for the purpose
of implementing an initial public distribution of its stock, which occurred on
April 18, 1989, and thereafter to identify and acquire strategic operating
businesses that would capitalize on its status as a public company. From its
inception in 1988 through November 1995, with the exception of a short-term
venture that was discontinued in 1993, the Company engaged in no active business
operations other than to attempt to identify strategic acquisitions.
Through the Acquisition Transactions that occurred on November 17, 1995,
the Company: (i) secured the worldwide manufacturing and marketing rights
(exclusive of Canada) to
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the technologies and products relating to the C.E.M. Catalyst; and (ii)
entered into a Plan of Arrangement to acquire the stock of Enterprises which
owned the Canadian marketing rights to the C.E.M. Catalyst.
The Acquisition Transaction resulted in a change of management and share
control of the Company whereby following the transactions, the Founders
controlled approximately 75% of the outstanding stock of the Company.
Accordingly, for financial reporting purposes the Acquisition Transactions have
been accounted for as a reverse acquisition of the Company by the Founders and
the transfer of the C.E.M. Catalyst technologies and rights have been reflected
as a capital transaction with the technology transfer recorded at a nominal
carrying value. Given the relationship between certain of the Founders and
Manufacturing, the assets, liabilities, capital stock, deficits, revenues and
expenses of Manufacturing, have been combined on a retroactive basis with those
of the Company, in a manner similar to that of a pooling of interests.
Results of Operations
During the fiscal year ended July 31, 1996, the Company incurred a net loss
of approximately $2.8 million. Since during this period the Company remained a
development stage company that realized no revenues, the losses consisted of the
Company's operating expenses, which were primarily attributable to wages and
benefits ($837,033); travel and promotion ($769,010); research and development
($337,680); rental ($219,704); accounting and legal ($171,628); and consulting
fees ($162,863).
Compared to its net losses of $816,103 for the fiscal year ended July 31,
1995 and $1,085,974 for the fiscal year ended July 31, 1994, the loss for the
fiscal year ended July 31, 1996 reflects an increase of $2 million and $1.8
million, respectively.
The increase in losses during the fiscal year ended July 31, 1996 reflects
increases in a broad category of expenses, such as, wages and benefits, travel
and promotion, rental, accounting and legal and consulting fees; in conjunction
with a significant decrease in research and development expenses. Research and
development, which had consumed expenses of $738,775 and $420,255 for the fiscal
years ended July 31, 1995 and July 31, 1994, decreased to $337,680 for the
fiscal year ended July 31, 1996. As testing continues to validate the emission
reducing properties of the C.E.M. Catalyst, the Company continues to experience
a shift in its operating expenses with a reduction in research and development
and significant increases associated with the Company's marketing and sales
program and administrative efforts associated with completion of the Acquisition
Transactions and compliance with the reporting and other requirements associated
with operation after November 17, 1995 as a public company.
During the fiscal year ended July 31, 1996, the Company remained in the
development stage and management's efforts were devoted toward the
organizational and other issues associated with, among other things, completion
of the Acquisition Transactions; a broad-based restructuring of management and
personnel responsibilities associated with the Company's new strategic plan of
operations; and developing a coordinated plan for financing the Company's
development and marketing and sales efforts.
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Based upon anticipated sales and marketing plans, management does not
expect that its level of operating expenses will decrease within the near term,
pending the availability of adequate funding. Although management expects that
revenues will be realized during fiscal 1997, it is unlikely that revenues will
be realized during this period in an amount sufficient to offset operating
expenses. Thus, losses will continue for the foreseeable future.
Liquidity and Capital Resources
Through July 31, 1996, the Company's principal source of operating capital
has been provided in the form of advances in the aggregate amount of
approximately $1 million from Enterprises, net proceeds of $824,990 from the
issuance of convertible debt and $4.8 million from the private placement of
Common Stock during March 1996.
At July 31, 1996, the Company had working capital of $374,723, an increase
of approximately $2.3 million from the working capital deficit of $1,969,497 at
July 31, 1995. This increase resulted primarily from the amount by which the
proceeds from the March 1996 private placement exceeded losses incurred during
the year, and is not expected to necessarily indicate a trend toward increasing
working capital in similar percentages. The Company remains in the development
stage and have not yet generated any revenues from operations. Until the Company
can generate material revenues from its operations, management expects that its
working capital balances will decrease significantly on a monthly basis.
In the absence of revenues, operating expenses will for the foreseeable
future remain a significant draw upon the Company's liquidity and capital
resources. For the fiscal year ended July 31, 1996, operating expenses were
principally consumed by variable expenses such as professional fees, business
development, utility costs and travel and promotion. Rental expenses are
expected to remain between $15,000 and $20,000 per month for the short term. The
Company's only long term commitments requiring the use of significant capital
resources involves the employment of its executive officers. The Company has
entered into long term employment agreements with its Chairman and Chief
Executive Officer and its President and Chief Operating Officer. Each of these
contracts requires the payment of approximately $350,000 per annum through
December 1, 2000. In addition, the Company has entered into a long term
employment agreement with its Chief Financial Officer requiring the payment of
approximately $250,000 per annum until December 1, 2000, and certain consultant
agreements which require varying payments based upon the degree of services
performed by the consultant.
In addition to its long term commitments, the Company will also be required
to expend substantial resources within the next year to more fully develop its
manufacturing facilities, expand its base of inventories, parts and equipment,
continue and expand the scope of its laboratory and field testing, develop and
conduct further research and development projects, employ additional scientific
personnel and implement a sales and marketing program through, among other
things, the development of targeted advertising and marketing programs and the
hiring of sales and marketing personnel. Management estimates that, in the
aggregate, it may be required to expend between $15,000,000 to $45,000,000,
pending the availability of adequate capital resources, in order to accomplish
these objectives.
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The Company's strategic plan of operation for the next twelve months and
thereafter is to: (i) conduct sufficient additional testing necessary to
evidence validation of the properties of the C.E.M. Catalyst to certain
regulatory agencies and for certain strategic potential customers; (ii) identify
and establish customer relationships within the retrofit market on a global
basis; in particular, (a) develop distribution and servicing arrangements within
North American chains of automobile parts and service retailers and (b) develop
strategic alliances in foreign markets, particularly Southeast Asia, with
companies and/or governmental entities relating to the sale of the C.E.M.
Catalyst on a wholesale basis; (iii) identify and establish customer
relationships with manufacturers of internal combustion engine powered vehicles
and/or machinery, including automobiles, motorcycles, lawn mowers and tractors,
among others; (iv) develop consumer awareness by promoting the favorable
environmental effects resulting from use of the C.E.M. Catalyst; (v) through
lobbying and consumer awareness programs, encourage the adoption of policies by
domestic and foreign governmental units which would require or provide
incentives for the use of emission controlling devices; and (vi) explore the
adaptation of the C.E.M. Catalyst technology to other uses, particularly in the
fuel refining process.
Although management is confident that laboratory and field testing
performed, evidence the emission reducing properties of the C.E.M. Catalyst, to
date, neither the Company nor Enterprises have been able to generate any
material revenues from operations. Furthermore, even though sales may commence
during fiscal 1997, it is unlikely that such sales will produce sufficient
revenues to offset the Company's operating expenses or materially lengthen the
time in which the Company may continue operations as a going concern.
Based upon its historical and projected operating expenses of approximately
$300,000 per month, taking into account available cash reserves as of July 31,
1996, without the infusion of additional capital or the recognition of material
sales revenues in the short term, it is unlikely that the Company can continue
operations as a going concern after the first quarter of calendar 1997. Thus,
the continued operations of the Company are wholly dependent upon its ability to
general material sales revenues or derive substantial proceeds from financing
activities.
The Company's primary plan for generating the funds that it will require
during the twelve months following the date of this Report is through revenues
derived from operations, from proceeds derived from the exercise of existing
warrants or options, and from proceeds derived through the private placement of
debt or equity financing. The Company presently has options outstanding to
purchase 6,525,000 shares of Common Stock of the Company at an exercise price of
$5.00 per share. Additionally the Company has 7,500,000 warrants outstanding to
purchase shares of Common Stock of the Company. Of these warrants, 6,000,000
have an exercise price of $10.00 and 1,500,000 have an exercise price of $6.00.
These options and warrants were issued in connection with certain employment and
consultant agreements, investment banking arrangements and the Acquisition
Transactions.
The report of the Company's independent accountants contains an uncertainty
explanatory paragraph as to the Company's ability to continue as a going
concern. The Company's long term viability and growth will depend upon the
successful commercialization of its technologies and C.E.M. Catalyst as to which
there can be no assurances.
13
<PAGE>
Effects of Inflation
Inflationary pressures may have an effect on the Company's internal
operations and on its overall business. The Company's operating costs are
subject to general economic and inflationary pressures. While operating costs
have increased during the past years, the Company does not believe that its
operations have been significantly affected by inflation. The Company's business
is subject to risk of inflation.
ITEM 7. FINANCIAL STATEMENTS.
Financial Statements of the Company for the years ended July 31, 1996 and
1995 may be found at pages F-1 through F-15.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On April 26, 1996, the Board of Directors of the Company authorized the
selection and engagement of Ernst & Young, certified public accountants, as its
independent auditors, effective immediately. On April 29, 1996, the Company
dismissed Coopers & Lybrand, certified public accountants, as the Company's
independent auditors, effective immediately.
The prior reports of Coopers & Lybrand on the financial statements of the
Company for the past two years: (i) have not contained any adverse opinion or
disclaimer of opinion; and (ii) were not qualified as to uncertainty, audit
scope or accounting principles.
During the Company's two fiscal years ended July 31, 1994 and 1995 and the
subsequent interim period through to April 29,1996, there existed no
disagreements between the Company's management and Coopers & Lybrand as to any
matters relative to accounting principles and practices, financial statement
disclosure or auditing scope and procedure and there were no "reportable
events," as that term is described in Item 304(a)(1)(iv) of Regulation S-B
promulgated under the Securities Act of 1933, as amended.
The Company filed with the Securities and Exchange Commission a letter from
its former accountant confirming the statements made within the Form 8-K
reflecting the change in accountants.
14
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
Name Age Position
- ---- --- --------
Teodosio V. Pangia 38 Chairman and Chief
Executive Officer
Gianni D'Alessandro 39 Director, President and
Chief Operating Officer
Paul Douglas Mazza 45 Director, General Counsel
and Chief Financial
Officer
Tunku Mudzaffar bin Tunku Mustapha 56 Director
John Howard 47 Director
Stephen O'Farrell 58 Director
The following is a summary of the business experience of the Company's
directors and executive officers during the past five years and their
directorships, if any, with companies with a class of securities registered with
the Securities and Exchange Commission:
Teodosio V. Pangia
Mr. Pangia has been the Chairman and Chief Executive Officer of the Company
since November 17, 1995. Mr. Pangia has also been the Chairman and Chief
Executive Officer of Enterprises from 1992 to the present and the President of
EPA Manufacturing from 1992 to the present. Mr. Pangia has been the President
and sole stockholder of Dallas North Group Inc. ("Dallas North") from 1991 to
the present. Dallas North is in the business of breeding, raising and selling
Arabian show horses. Prior to his involvement with Enterprises, EPA
Manufacturing and Dallas North, Mr. Pangia worked as an independent financial
planner from 1984 to 1992, and in The General Sales Division of London Life
Insurance from 1981 to 1983. Mr. Pangia obtained a Bachelor of Arts in
Administrative and Commercial Studies from the University of Western Ontario in
1981.
Gianni D'Alessandro
Mr. D'Alessandro has been the President of the Company since November 17,
1995. He has also been the Chairman and Chief Executive Officer of EPA
Manufacturing since 1992. Mr. D'Alessandro was graduated from Danbury College in
Connecticut, following business studies at the University of Connecticut. While
in college, he also studied and developed an interest in chemistry. For most of
the past eight years Mr. D'Alessandro has devoted his full time efforts and
capital resources to developing the technology underlying the C.E.M. Catalyst
into a marketable product and adapting the C.E.M. Catalyst to use in a variety
of vehicles.
15
Paul Douglas Mazza
Mr. Mazza has been the Chief Financial Officer, General Counsel and a
director of the Company since November 17, 1995. He is also an officer and
director of Enterprises. Mr. Mazza is a senior partner in the law firm of
Turkstra, Mazza, Shinehoft, Mihailovich and Associates in Toronto, Ontario,
Canada, with a client base of many national and multi-national corporations in
such business sectors as banking and financial institutions, including trust
companies, credit unions, insurance companies, manufacturing, health care, real
estate development, and service industries of many kinds. As a member of the
Company's Executive Management Committee, Mr. Mazza will monitor all financial
matters and the legal aspects of the development and performance of services and
customer and vendor relationships.
Mr. Mazza graduated from McMaster University in Hamilton, Ontario, Canada
with a Bachelor of Science, and from the University of Windsor with a Bachelor
of Laws. He has held leadership positions in a number of professional
organizations, including the Canadian Bar Association, of which he was a
Director and member of the Executive Committee and the Ontario Law Reform
Commission Advisory Committee, of which he was a Board member. He has lectured
extensively in Ontario with respect to mortgage rights and remedies and real
property law for the Law Society of Upper Canada and the Canadian Bar
Association.
Tunku Mudzaffar bin Tunku Mustapha Director
Tunku Mustapha has been a director of the Company since January 19, 1996
and also acts as a consultant in the operation of the Company. See "ITEM 12 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.". He is a member of the royal
family of Malaysia, Chairman of Malaysian Canadian Development Corporation, and
the Chairman of the Automobile Association of Malaysia. Tunku Mustapha graduated
from the College of Aeronautical and Automobile Engineering in London in 1965.
Upon his return to Malaysia, he worked for Malaysia's largest bus company, in
various positions, including Works Manager and Deputy General Manager until his
resignation in 1976. Upon his resignation he became self-employed in various
business and consulting endeavors.
John Howard Director
Mr. Howard has been a director of the Company since December 1995. He is
also a director of Enterprises. Mr. Howard is currently the proprietor of
Vineland Estates Winery Limited, a winery located in Vineland, Ontario.
Formerly, Mr. Howard was the Executive Vice President, North American Director
of Canon U.S.A., Inc., the Regional Vice-President, Eastern Region of O.E.
Canada Inc., the Vice-President of Sales and Marketing of O.E. Hamilton and held
various management positions at Xerox of Canada, Inc. Mr. Howard graduated from
the University of Western Ontario, London Ontario with a Bachelor of Arts in
French and Fine Art. Mr. Howard has participated in a number of memberships,
including member of the Board of Trustees of Brock University, Director of the
Development Committee of Niagara College and member of Board of Directors of
Dentsu-Cadence Advertising, Inc.
16
<PAGE>
Stephen T. O'Farrell Director
Mr. O'Farrell has been a director of the Company since April 12, 1996 and
also acts as a consultant in the operation of the Company. See "ITEM 12 -
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS." Mr. O'Farrell is a chemical
engineer who has been involved in worldwide petroleum marketing for 32 years.
Until his retirement in 1995, he served as Vice President for Texaco responsible
for Manufacturing and Marketing operations in 51 countries throughout Latin
America, South America, the Caribbean, West Africa and Canada. Mr. O'Farrell
served in varying positions of increasing responsibility throughout his career
with Texaco, including Vice President, Public Affairs and Vice President,
Marketing in Canada. Mr. O'Farrell is currently Chairman and Director of The
Wireless Group, Toronto, Canada and President and Director of Performance
Solutions Group of Boca Raton, Florida. Mr. O'Farrell graduated from St. Francis
Xavier University with a degree in English in 1957 and from McGill University
with a Bachelors of Science in Engineering in 1959, and a degree in Business
Administration in 1969.
Directors are elected to serve until the next Annual Meeting of
Stockholders and until their successors have been elected and have qualified,
unless removed earlier in accordance with the bylaws of the Company. Officers
are appointed to serve until the Meeting of the Board of Directors following the
next Annual Meeting of Stockholders and until their successors have been elected
and have qualified, unless terminated earlier in accordance with the bylaws of
the Company.
Compliance with Section 16(a) Of the Securities Exchange Act
Not Applicable.
Material Legal Proceedings involving certain Directors and Officers
From 1993 through May 1995, Enterprises was conducting testing on the
C.E.M. Catalyst for use in its application to secure a formal order of
accreditation from CARB that the C.E.M. Catalyst satisfied the clean air
standards of California. Enterprises and CEE were unable to timely satisfy all
of the CARB protocols and the application process was deemed "abandoned" by CARB
in May 1995.
In conjunction with this application, during April 1995 Enterprises
discovered that two directors had presented a document that purported to be a
forged CARB approval letter to a third party with whom Enterprises was
negotiating for marketing and distribution rights in the United Kingdom. Upon
this discovery, management of Enterprises secured the resignation of these
directors from all positions with the Company and thereafter filed an action in
the Ontario courts (General Division) against the two former directors seeking
to recover monetary damages (as a result of an alleged breach of fiduciary
duties) incurred as a result of the alleged forgery. In responsive pleadings,
the former directors alleged that the forged letter of accreditation had been
provided to them by certain representatives of Enterprises. In addition, the
former directors have instituted a third party claim against certain
individuals, including Mr. D'Alessandro and the
17
<PAGE>
directors and management of Enterprises, including Messrs. Pangia, Mazza
and John Howard, each directors of the Company, seeking to recover monetary
damages.
Enterprises became aware during August 1995 that the British Columbia
Securities Commission was investigating the allegations of the various parties
to the legal actions. On March 26, 1996, Enterprises was advised that this
investigation had been concluded, and to the knowledge of Enterprises, with no
finding against Enterprises or its management.
ITEM 10. EXECUTIVE COMPENSATION.
The following table discloses, individual compensation information relating
to the Company's Chief Executive Officer and the other named executive officers
of the Company for the year ended July 31, 1996. The Chief Executive Officer and
other named executive officers of the Company were not affiliated with the
Company prior to November 1995. Accordingly, there is no information available
for the fiscal years ended July 31, 1995 and 1994.
18
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Compensation(1) Long Term Compensation
- -----------------------------------------------------------------------------------------------------------------------
Securities
Salary Bonus Restricted Stock Underlying
Name and Position Year ($) ($) Award(s)(2) Options/SARs (#)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Teodosio V. Pangia 1996 $233,335 $0 $375 2,500,000
Chairman and Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------------------
Gianni D'Alessandro 1996 $233,335 $0 $0 2,500,000
President
- -----------------------------------------------------------------------------------------------------------------------
Paul Douglas Mazza 1996 $166,657 $0 $0 1,000,000
General Counsel and Chief Financial
Officer
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon the fiscal year ended July 31, 1996.
(2) The value of the Restricted Stock Award is based upon the par value of the
Company's Common Stock at the nominal value of $.001 par value.
- ----------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
OPTIONS/SAR GRANTS IN LAST FISCAL YEAR
- -----------------------------------------------------------------------------------------------------------------------
INDIVIDUAL GRANTS
- -----------------------------------------------------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARs EXERCISE
UNDERLYING GRANTED TO OR
OPTION/SARs EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#)[1] FISCAL YEAR ($/Share) DATE
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Teodosio V. Pangia 2,500,000 40% $5.00 November 17, 2000
Chairman and Chief Executive Officer
- -----------------------------------------------------------------------------------------------------------------------
Gianni D'Alessandro 2,500,000 40% $5.00 November 17, 2000
President
- -----------------------------------------------------------------------------------------------------------------------
Paul Douglas Mazza 1,000,000 16% $5.00 November 17, 2000
General Counsel and Chief Financial
Officer
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents Stock Options granted pursuant to their respective employment
agreements with the Company, which are immediately exercisable.
- ------------------------------------
19
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
AGGREGATED OPTIONS/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES
- -----------------------------------------------------------------------------------------------------------------------
Number of Securities Value
Underlying of Unexercised
Shares Unexercised Options/SARs In-the-Money
Acquired Value Realized at FY-End (#) Options/SARs
Name on ($) Exercisable/Unexercisable(1) at FY-End($)
Exercise(#) Exercisable/Unexercisable(1)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Teodosio V. Pangia 0 $0 2,500,000/0 $0/$0
Chairman and CEO
- -----------------------------------------------------------------------------------------------------------------------
Gianni D'Alessandro 0 $0 2,500,000/0 $0/$0
President
- -----------------------------------------------------------------------------------------------------------------------
Paul Douglas Mazza 0 $0 1,000,000/0 $0/$0
General Counsel and CFO
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The values of the options is the par value of the Company's Common Stock at
the nominal value of $.001 per share. As a result of the exercise price of
the options significantly exceeding the value of the underlying Common
Stock, the value of the unexercised options has been determined to be $0.
The Company has no retirement, pension or profit-sharing plans covering its
officers and directors and does not contemplate implementing any such plans at
this time. Although the Company has no formal bonus arrangements, bonuses may be
granted at the discretion of the Board of Directors.
- ------------------------------
Employment Agreements
In conjunction with the Acquisition Transaction, the Company entered into
employment agreements with Messrs. Pangia, D'Alessandro and Mazza pursuant to
which they were employed in the respective capacities as Chief Executive
Officer, President and General Counsel/Chief Financial Officer, through December
1, 2000 at annual salaries of $350,000, $350,000 and $250,000, respectively.
Each of these employment agreements may only be terminated for cause and upon
sixty (60) days written notice and are subject to restrictions upon competition
for the term of employment plus twelve (12) months thereafter.
Pursuant to their employment agreement, each of Messrs. Pangia and
D'Alessandro were granted options to purchase 2,500,000 shares of Common Stock
of the Company through November 17, 2000 at an exercise price of $5.00. In
addition, in his employment agreement with the Company, Mr. Pangia has been
granted 375,000 shares of Common Stock of the Company.
Directors Fees
Members of the Board of Directors of the Company do not receive any
remuneration for their participation as directors, however, certain directors
receive remuneration for their services as officers or consultants of the
Company. See "ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
20
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth, as of December 5, 1996, information with
respect to the securities holdings of all persons which the Company, pursuant to
filings with the Securities and Exchange Commission, has reason to believe may
be deemed the beneficial owners of more than 5% of the Company's outstanding
Common Stock. Also set forth in the table is the beneficial ownership of all
shares of the Company's outstanding stock, as of such date, of all officers and
directors, individually and as a group.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Shares Owned
Beneficially and of Percentage of Outstanding
Name Record(1) Shares(1)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Teodosio V. Pangia(2) 15,575,000 31.7%
- ----------------------------------------------------------------------------------------------------------
Gianni D'Alessandro(3) 15,200,000 31.0
- ----------------------------------------------------------------------------------------------------------
Paul Douglas Mazza(4) 4,600,000 10.0
- ----------------------------------------------------------------------------------------------------------
John Howard(5) 1,800,000 4.0
- ----------------------------------------------------------------------------------------------------------
Stephen O'Farrell(6) 200,000 *
- ----------------------------------------------------------------------------------------------------------
Tunku Mudzaffar bin Tunku Mustapha - *
- ----------------------------------------------------------------------------------------------------------
All officers and directors
of the Company as a group 37,425,000 76.7%
- ----------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------
*Represents less than 1%
(1) Except as otherwise indicated, includes total number of shares outstanding
and the number of shares which each person has the right to acquire, within
60 days through the exercise of options, warrants or debentures, pursuant
to Item 403 of Regulation S-B and Rule 13d-3(d)(1), promulgated under the
1934 Act. Also reflects 44,366,896 shares of the Company's Common Stock
outstanding as of November 25, 1996.
(2) Includes Warrants to acquire 2,100,000 Common Shares and 375,000 Shares and
Options to acquire 2,500,000 Shares under Mr. Pangia's Employment
Agreement.
(3) Includes Warrants to acquire 2,100,000 Common Shares and Options to acquire
2,500,000 Shares under Mr. D'Alessandro's Employment Agreement.
(4) Includes Warrants to acquire 600,000 Common Shares and Options to acquire
1,000,000 Shares under Mr. Mazza's Employment Agreement.
(5) Includes Warrants to acquire 300,000 Common Shares.
(6) Includes Options to acquire 200,000 Shares under Mr. O'Farrell's Consulting
Agreement, of which, Options to acquire 150,000 Shares are performance
related.
- ----------------
21
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
1. On November 17, 1995, the Company agreed to acquire the rights to
manufacture, sell and distribute the C.E.M. Catalyst in Canada pursuant to an
Arrangement Agreement, which provides for the acquisition of all the outstanding
shares of capital stock of E.P.A. Enterprises, Inc., a British Columbia
corporation in exchange for 4,137,224 shares of Common Stock and Warrants to
acquire 4,137,224 shares of Common Stock. Messrs. Pangia and Mazza are
directors, officers and shareholders of Enterprises and may receive 110,910 and
57,900 shares of Common stock, respectively, and 110,910 and 57,900 Warrants to
acquire shares of Common Stock, respectively, as a result of their status as
shareholders of Enterprises in connection with the exchange transaction above.
See "ITEM 1 - DESCRIPTION OF BUSINESS - Description of Acquisition
Transactions."
2. The Company has entered into a Sales Agreement with the Malaysia Canada
Development Corporation dated August 18, 1996 regarding the supply and purchase
of the C.E.M. Catalyst. Tunku Mudzaffar Bin Tunku Mustapha is a director of the
Company and is also the Chairman of the Malaysia Canada Development Corporation.
3. The Company has entered into a Letter of Understanding dated August 10,
1996 with Tunku Mudzaffar Bin Tunku Mustapha, a director of the Company,
appointing Tunku Mudzaffar as exclusive sales agent for all the products
manufactured and distributed by the Company for the territories of Malaysia,
Thailand, Indonesia, Philippines and Brunei.
4. Each of Tunku Mudzaffar bin Tunku Mustapha and Stephen O'Farrell,
directors of the Company, receive $5,000 per month as consultants in the
operation of the Company. Additionally, Messrs. Pangia, D'Alessandro and Mazza
each receive compensation under their respective employment agreements with the
Company. See "ITEM 10. EXECUTIVE COMPENSATION - Employment Agreements."
22
<PAGE>
ITEM 13. FINANCIAL STATEMENTS AND EXHIBITS AND REPORT ON FORM 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements filed as part of this Report:
Page
----
Report of Independent Auditors.......................................F-1
Consolidated Balance Sheets as of
July 31, 1996 and July 31, 1995 .....................................F-2
Consolidated Statements of Loss for the Years
Ended July 31, 1996, 1995 and 1994...................................F-3
Consolidated Statements of Shareholders'
Equity (Deficit) for the Years Ended
July 31, 1996, 1995 and 1994.........................................F-4
Consolidated Statements of Cash Flows for
the Years Ended July 31, 1996, 1995
and 1994.............................................................F-5
Notes to Consolidated Financial Statements...........................F-6
(b) The following Exhibits are filed as part of this Report:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Exhibit No. Description Method of Filing
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Arrangement Agreement dated November 17, 1995 Incorporated by reference to Exhibit F of the
Company's Form 8-K dated November 17, 1995
("Form 8-K")
- ------------------------------------------------------------------------------------------------------------------
2.2 Stock Purchase Agreement dated Incorporated by reference to Exhibit G of the
November 17, 1996 Company's Form 8-K
- ------------------------------------------------------------------------------------------------------------------
2.3 Assignment of International Sales, license and Incorporated by reference to Exhibit E of the
Service Agreement by and among Ecology Pure Company's Form 8-K
Air International, Inc. and the Founders
- ------------------------------------------------------------------------------------------------------------------
3.1 Certificate of Incorporation of the Company Filed herewith
- ------------------------------------------------------------------------------------------------------------------
3.2 Certificate of Amendment to Certificate of Filed herewith
Incorporation
- ------------------------------------------------------------------------------------------------------------------
3.3 Certificate of Amendment to Certificate of Filed herewith
Incorporation of the Company, dated June 18,
1996
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Exhibit No. Description Method of Filing
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
3.4 By-Laws of the Company Filed herewith
- ------------------------------------------------------------------------------------------------------------------
4.1 Copy of Specimen Stock Certificate Filed herewith
- ------------------------------------------------------------------------------------------------------------------
4.2 Form of Warrant Incorporated by reference to Exhibit I of the
Company's Form 8-K
- ------------------------------------------------------------------------------------------------------------------
10.1 Form of Agreement between the Company and Filed herewith
each of the Consultants
- ------------------------------------------------------------------------------------------------------------------
10.2 Lock-Up Agreement between the Company and Filed herewith
certain individuals
- ------------------------------------------------------------------------------------------------------------------
10.3 Employment Agreement between the Company and Filed herewith
Teodosio Pangia
- ------------------------------------------------------------------------------------------------------------------
10.4 Employment Agreement between the Company and Filed herewith
Gianni D'Alessandro
- ------------------------------------------------------------------------------------------------------------------
10.5 Employment Agreement between the Company and Filed herewith
Paul Mazza
- ------------------------------------------------------------------------------------------------------------------
11 Statement regarding computation of earnings Incorporated from within the Financial Statements
per share
- ------------------------------------------------------------------------------------------------------------------
16 Letter on change in certifying accountant Incorporated by reference to Exhibit 16 of the
Company's Form 8-K/A dated April 26, 1996 and
filed on May 17, 1996
- ------------------------------------------------------------------------------------------------------------------
21 Subsidiaries of the Company Filed herewith
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(c) Reports on Form 8-K.
None.
24
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements of filing on Form 10-KSB, and has duly caused this Form 10-KSB
to be signed on its behalf by the undersigned, thereunto duly authorized on the
3rd day of December, 1996.
ECOLOGY PURE AIR INTERNATIONAL, INC.
BY: /s/ Teodosio V. Pangia
-----------------------------------
Teodosio V. Pangia
Chief Executive Officer
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Form 10-KSB has been signed by the following persons in the capacity and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Teodosio Pangia
- ---------------------------------- Chairman and CEO
Teodosio V. Pangia December 3, 1996
/s/ Gianni D'Alessandro
- ---------------------------------- Director and
Gianni D'Alessandro President December 3, 1996
/s/ Paul Douglas Mazza
- ---------------------------------- Director, General
Paul Douglas Mazza Counsel and CFO December 3, 1996
/s/ Tunku Mudzaffar bin Tunku Mustapha
- -------------------------------------- Director
Tunku Mudzaffar bin Tunku Mustapha December 3, 1996
/s/ John Howard
- ---------------------------------- Director
John Howard December 3, 1996
/s/ Stephen O'Farrell
- ---------------------------------- Director
Stephen O'Farrell December 3, 1996
</TABLE>
================================================================================
REPORT OF INDEPENDENT AUDITORS
================================================================================
To the Shareholders and Board of Directors
Ecology Pure Air International, Inc.
We have audited the consolidated balance sheets of Ecology Pure Air
International, Inc. and subsidiaries as of July 31, 1996 and 1995 and the
related consolidated statements of loss, shareholders' equity (deficit) and cash
flows for each of the three years ended July 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosure in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Ecology Pure Air
International, Inc. and subsidiaries at July 31, 1996 and 1995 and the results
of their operations and its cash flows for each of the three years in the period
ended July 31, 1996, in conformity with accounting principles generally accepted
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As more fully described in note 1, the
Company has incurred recurring losses and will require additional financing in
order to develop its technologies and achieve future profitable operations.
There is substantial doubt about the Company's ability to continue as a going
concern. The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
Toronto, Canada, /s/ Ernst & Young
September 17, 1996. Chartered Accountants
[LOGO]==========================================================================
<PAGE>
================================================================================
Ecology Pure Air International, Inc.
Incorporated under the laws of the state of Delaware
CONSOLIDATED BALANCE SHEETS
================================================================================
As at July 31
1996 1995
$ $
- --------------------------------------------------------------------------------
[in U.S. dollars]
ASSETS
Current
Cash and cash equivalents 2,341,449 8,044
Prepaid expenses 89,830 --
- --------------------------------------------------------------------------------
2,431,279 8,044
- --------------------------------------------------------------------------------
Deferred charges 100,000 --
Fixed assets [note 4] 92,792 59,079
- --------------------------------------------------------------------------------
2,624,071 67,123
- --------------------------------------------------------------------------------
LIABILITIES, CAPITAL STOCK AND DEFICIT
Current
Accounts payable 378,888 356,990
Employee related liabilities 316,410 12,564
Due to related parties [note 5] 1,361,258 1,607,987
- --------------------------------------------------------------------------------
Total current liabilities 2,056,556 1,977,541
- --------------------------------------------------------------------------------
Contingencies and commitments [notes 1, 2 and 7]
Capital stock and deficit
Common shares, $.001 par value, 100,000,000 shares
authorized [35,000,000 in 1995]; 14,741,667 and
1,500,000 shares issued and outstanding at July
31, 1996 and July 31, 1995, respectively [note 6] 26,825 4,500
Preferred shares, Series A convertible preferred
voting shares, $.001 par value, 5,000,000 shares
authorized; 3,000,000 and nil issued and
outstanding at July 31, 1996 and July 31, 1995,
respectively [note 6] 3,000 --
Contributed surplus 5,632,618 319,250
Subscription receivable -- (8,000)
Deficit (5,094,928) (2,226,168)
- --------------------------------------------------------------------------------
Total capital stock and deficit 567,515 (1,910,418)
- --------------------------------------------------------------------------------
2,624,071 67,123
================================================================================
See accompanying notes
On behalf of the Board:
/s/ /s/
----------------------- -----------------------
Director Director
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
CONSOLIDATED STATEMENTS OF LOSS
================================================================================
Years ended July 31
1996 1995 1994
$ $ $
- --------------------------------------------------------------------------------
[in U.S. dollars]
EXPENSES
Accounting and legal 171,628 69,198 4,990
Automotive 47,385 19,654 25,513
Consulting fees 162,863 87,564 --
Depreciation 14,734 3,039 900
Insurance 19,035 13,680 624
Interest and bank charges 45,869 56 538
Marketing expenses 95,615 -- --
Office and miscellaneous 82,531 1,078 29,675
Rent 219,704 35,148 55,078
Research and development 337,680 420,255 738,775
Telephone 65,673 529 16,955
Travel and promotion 769,010 106,059 30,123
Wages and benefits 837,033 59,843 182,803
- --------------------------------------------------------------------------------
Loss for year 2,868,760 816,103 1,085,974
================================================================================
Loss per share 0.08 0.03 0.04
================================================================================
Weighted average number of common
shares and share equivalents 35,821,528 30,995,343 30,995,343
================================================================================
See accompanying notes
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
================================================================================
As at July 31
<TABLE>
<CAPTION>
Common shares Preferred shares Contributed Subscription
--------------------- ---------------------- surplus receivable Deficit
# $ # $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------------------
[in U.S. dollars]
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 31, 1993 995,343 2,986 -- -- 70,614 -- (324,091)
Loss for the year -- -- -- -- -- -- (1,085,974)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1994 995,343 2,986 -- -- 70,614 -- (1,410,065)
Issued on conversion of shareholder
loans 504,657 1,514 -- -- 248,636 (8,000) --
Loss for the year -- -- -- -- -- -- (816,103)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1995 1,500,000 4,500 -- -- 319,250 (8,000) (2,226,168)
Issued on acquisition of Rotello
Technology [note 2a] -- -- 3,000,000 3,000 (3,000) -- --
Issued to consultants for acquisition
services [note 2c] 4,000,000 12,000 600,000 600 -- -- --
Issued to Main Square Ltd. on conversion
of promissory note payable [note 2d] 666,667 2,000 -- -- 498,000 -- --
Issued to shareholders of Manufacturing
[note 2b] 375,000 1,125 -- -- -- -- --
Issued for cash on private placement
[note 6] 2,200,000 6,600 -- -- 4,818,368 -- --
Conversion of Series A preferred shares
[note 6] 6,000,000 600 (600,000) (600) -- -- --
Cash received for common shares
subscription -- -- -- -- -- 8,000 --
Loss for the year -- -- -- -- -- -- (2,868,760)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at July 31, 1996 14,741,667 26,825 3,000,000 3,000 5,632,618 -- (5,094,928)
====================================================================================================================================
</TABLE>
Total
$
- -------------------------------------------------------------
[in U.S. dollars]
Balance at July 31, 1993 (250,491)
Loss for the year (1,085,974)
- -------------------------------------------------------------
Balance at July 31, 1994 (1,336,465)
Issued on conversion of shareholder
loans 242,150
Loss for the year (816,103)
- -------------------------------------------------------------
Balance at July 31, 1995 (1,910,418)
Issued on acquisition of Rotello
Technology [note 2a] --
Issued to consultants for acquisition
services [note 2c] 12,600
Issued to Main Square Ltd. on conversion
of promissory note payable [note 2d] 500,000
Issued to shareholders of Manufacturing
[note 2b] 1,125
Issued for cash on private placement
[note 6] 4,824,968
Conversion of Series A preferred shares
[note 6] --
Cash received for common shares
subscription 8,000
Loss for the year (2,868,760)
- -------------------------------------------------------------
Balance at July 31, 1996 567,515
=============================================================
See accompanying notes
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
Years ended July 31
1996 1995 1994
$ $ $
- --------------------------------------------------------------------------------
[in U.S. dollars]
OPERATING ACTIVITIES
Loss for year (2,868,760) (816,103) (1,085,974)
Add items which do not involve cash
Depreciation 14,734 3,039 900
Shares issued for services 13,725 -- --
Changes in components of operating working
capital providing (utilizing) cash
Increase in prepaid expenses (89,830) -- --
Increase (decrease) in accounts payable 21,898 172,519 (2,111)
Increase in employee related liabilities 303,846 12,564 --
- --------------------------------------------------------------------------------
Cash used in operating activities (2,604,387) (627,981) (1,087,185)
- --------------------------------------------------------------------------------
INVESTING ACTIVITIES
Additions to fixed assets (48,447) (28,221) (34,797)
- --------------------------------------------------------------------------------
FINANCING ACTIVITIES
Issuance of common stock 4,824,968 250,150 100
Issue of notes payable 824,990 -- --
Increase (decrease) of share subscription
receivable 8,000 (8,000) --
Payment of financing fee (100,000) -- --
Advances from related parties 50,000 650,631 1,206,104
Repayments to related parties (621,719) (228,650) (84,166)
- --------------------------------------------------------------------------------
Cash provided by financing activities 4,986,239 664,131 1,122,038
- --------------------------------------------------------------------------------
Increase in cash during the year 2,333,405 7,929 56
Cash and cash equivalents, beginning of year 8,044 115 59
- --------------------------------------------------------------------------------
Cash and cash equivalents, end of year 2,341,449 8,044 115
================================================================================
See accompanying notes
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Ecology Pure Air International, Inc. ["EPA"] [formerly known as Mark Four
Resources, Inc.] was incorporated on December 8, 1988 under the laws of the
state of Delaware. The Company was formed for the purpose of implementing an
initial public distribution of its stock, which occurred on April 18, 1989, and
acquiring operating businesses thereafter. From its inception in 1988 through
November 1995, with the exception of a short term venture that was discontinued
in 1993, the Company engaged in no active business operations other than to
attempt to identify business acquisitions that would capitalize on its status as
a public company.
Through a series of transactions on November 17, 1995 [the "Acquisition
Transactions"], control of EPA was transferred to a group of individuals and the
Company secured the worldwide rights [exclusive of Canada] to manufacture, sell
and distribute the Combustion Efficiency Management Catalyst [the "C.E.M.
Catalyst"], a pre-combustion device intended for the purpose of reducing the
emission of pollutants in automobiles, motorcycles, lawn mowers and other
vehicles and machinery.
The Acquisition Transactions consisted of the following:
[a] EPA acquired the worldwide rights [excluding Canada] to market, sell and
distribute the C.E.M. Catalyst from a group of 11 individuals [such group,
which includes members of EPA's current management, to be collectively
referred to therein as the "Founders"], who had in turn acquired such
rights from Rotello Technology and Marketing, Inc. ["Rotello"], the
original developer of the technologies.
As consideration for these rights, EPA issued to the Founders a controlling
percentage of the outstanding capital stock of EPA and agreed to pay
royalties to Rotello.
[b] EPA acquired the worldwide manufacturing rights [except Canada] to the
C.E.M. Catalyst from E.P.A. Manufacturing, Inc. ["Manufacturing"] [formerly
known as Ecology Pure Air International, Inc.]. Manufacturing owned the
worldwide right to manufacture the C.E.M. Catalyst [except Canada]. Certain
of the Founders owned 100% of Manufacturing.
[c] EPA agreed to acquire the rights to manufacture, market, sell and
distribute the C.E.M. Catalyst in Canada by agreeing to acquire all of the
outstanding capital stock of E.P.A. Enterprises, Inc. ["Enterprises"].
Certain of the Founders are stockholders, directors and officers of
Enterprises. This transaction has not yet been completed or included in
these financial statements [see note 2].
1
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
The transaction exchanging the C.E.M. Catalyst technology rights for control of
EPA has been accounted for as a reverse take-over of EPA by the Founders.
Therefore, the transfer of the C.E.M. Catalyst and related rights and
technologies has been reflected in these consolidated financial statements as a
capital transaction with the technology transfer recorded at its carrying value
of nil prior to the Acquisition Transactions.
Each of Rotello, Enterprises and Manufacturing have participated directly in the
development of the Technology, with Enterprises and Manufacturing also
contributing financial support through a series of advances and loans to
Rotello.
Given the relationship between certain of the Founders and Manufacturing, the
assets, liabilities and equity of Manufacturing have been combined on a
retroactive basis with EPA using their carrying values, in a manner similar to a
pooling of interests. All assets, liabilities, capital stock, deficit, revenues
and expenses for periods prior to November 17, 1995, represent the consolidated
assets, liabilities, capital stock, deficit, revenues and expenses of EPA and
Manufacturing as if the companies had been combined at all times during the
periods presented.
Although management is confident that initial testing has successfully evidenced
the chemical and operative properties of the C.E.M. Catalyst, and its
suitability for commercial application, further laboratory and field testing is
being undertaken by the Company in order to secure validation from certain
regulatory agencies.
EPA will continue the development of the C.E.M. catalyst and other technologies.
No revenues have been earned to date from technologies under development. EPA's
ability to realize the carrying value of its assets and discharge its
liabilities is dependent on successfully bringing its new technologies to the
market and achieving future profitable operations, the outcome of which cannot
be predicted at this time. It will be necessary for EPA to obtain additional
financing in the coming year, in order to fund the continuing development of its
technologies.
2. THE TRANSACTIONS
During the year ended July 31, 1996, the Company completed the following
Transactions:
[a] Rotello sold the exclusive worldwide rights [excluding Canada] to market,
sell and manufacture the Technology to a group of individuals [the"
Founders]" for debt consideration plus an annual royalty of 3.5% of the net
worldwide sales of products manufactured under the agreement.
2
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
The Founders then assigned the rights and royalty obligation of the above
agreement to EPA in exchange for 3,000,000 preferred shares and 6,000,000
warrants to purchase common shares. Each preferred share is convertible
into 10 common shares and has voting rights equal to ten common shares
["Preferred Shares"]. Each warrant entitles the holder to acquire one
common share of the Company at a price of $10 on or prior to September 30,
1997 ["Warrants"].
[b] Concurrently, the Company exchanged 200,000 common shares of EPA for all of
the 100 outstanding shares of Manufacturing held by certain of the
Founders. In conjunction with the purchase, EPA entered into employment
contracts with the Manufacturing shareholders which provided for the
issuance of 375,000 common shares and options to purchase 5,000,000 common
shares at $5 per share on or before November 17, 2000.
[c] As consideration for consulting services rendered in connection with the
above transactions, EPA issued 4,000,000 common shares, 600,000 Preferred
Shares and 2,000,000 Warrants to certain consultants. These consulting
services and the compensation arrangements with certain of the Founders
have been recorded as compensation expense at the par value of EPA shares.
[d] EPA received $824,990 of advances under 6% convertible promissory notes
payable to Main Square Ltd. Notes payable totaling $500,000 were converted
into 666,667 common shares of EPA, representing a non-cash financing
activity. The balance of the advances due to Main Square Ltd. are
convertible into common shares at $2.75 per share.
In addition, the Company has entered into an agreement to purchase all of the
outstanding shares of Enterprises and its wholly-owned subsidiaries, Trendset
Worldwide Engineering Corp. and Ecology Pure Air Systems, Inc. in exchange for
4,137,224 common shares and 4,137,224 Warrants of EPA, which agreement was
subject to regulatory approval.
The acquisition of Enterprises and its wholly-owned subsidiaries received
approval of the shareholders of Enterprises on February 23, 1996. The British
Columbia Supreme Court approved the fairness of the transaction. Subsequent to
the Court approval, an appeal was filed by one minority shareholder. Although
the court order permits the acquisition to occur, the Company has temporarily
elected to delay completing the transaction pending the disposition of the
outstanding appeal.
3
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements have been prepared by management in
accordance with accounting principles generally accepted in the United States.
The preparation of financial statements in conformity with such principles
requires management to make estimates and assumptions that affect the reported
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and
expenses during the reporting periods. Actual results could differ from those
estimates.
Principles of consolidation
These consolidated financial statements include the accounts of the Company and
its subsidiary. All intercompany accounts and transactions have been eliminated
in consolidation.
Cash and cash equivalents
Cash equivalents are recorded at cost which approximates market value and
include only short-term highly liquid investments with maturities at the date
purchased of less than three months. At July 31, 1996, cash and cash equivalents
include $1,834,324 of Government of Canada Treasury Bills.
Deferred charges
Deferred charges comprise amounts paid in connection with financing initiatives
to be pursued by the Company in fiscal 1996 and 1997. These costs will be
deducted from the proceeds of an equity offering, or amortized over the term of
related debt financing, if the financing is successful. In the event the
financing is unsuccessful, these costs will be charged to income in fiscal 1997.
Fixed assets
Fixed assets are carried at their original cost less accumulated depreciation.
Gains or losses on the disposal of fixed assets are included in income and the
cost and related accumulated depreciation of the asset is removed from the
accounts. Depreciation is calculated on the declining balance basis at rates
estimated to amortize the cost of the asset over its estimated useful life as
follows:
Plant equipment 30%
Office furniture and equipment 20%
Computer equipment 30%
Vehicles 30%
Leasehold improvements Life of the lease
4
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
One-half the normal rate of depreciation is taken in the year of acquisition.
Repairs and maintenance are charged to operations in the period incurred.
Foreign exchange
Assets and liabilities in foreign currencies are translated into U.S. dollars at
rates of exchange prevailing at the fiscal year-end and any gains or losses are
reflected in income. Revenues and expenses are translated at rates prevailing at
the time of the transaction.
Income taxes
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under this
method, the Company provides deferred and prepaid taxes for temporary
differences in the recognition of income and expenses for financial reporting
and tax accounting purposes.
Leases
Leases are recorded as capital or operating leases. Any lease where
substantially all of the benefits and risks related to the ownership of the
leased asset is transferred to the lessee, as defined by SFAS No. 13,
"Accounting for Leases" is accounted for as if the asset was acquired and as if
the obligation were assumed as of the date of lease. All other leases are
recorded as operating leases and payments are expenses as they become due.
Loss per share
The loss per share is computed based upon the weighted average number of common
shares and dilutive share equivalents outstanding. Share equivalents are not
included in the per share calculations where the effect of their inclusion would
be antidilutive. Share equivalent comprise options, warrants, convertible notes
payable, and preferred shares. For the comparative periods presented, the
weighted average number of common shares and share equivalents include the
number of shares issued pursuant to certain of the Transactions.
Research and development
Research and development costs are expensed as incurred, including costs
incurred in the manufacturing of prototype and testing inventory.
5
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
Stock options
The Company records compensation expense relating to stock based compensation in
accordance with APB Opinion 25 and related interpretations.
4. FIXED ASSETS
1996 1995
$ $
- --------------------------------------------------------------------------------
Cost
Plant equipment 2,350 2,350
Office furniture and equipment 49,898 31,228
Computer equipment 20,632 2,525
Vehicles 11,670 --
Leasehold improvements 26,915 26,915
- --------------------------------------------------------------------------------
111,465 63,018
- --------------------------------------------------------------------------------
Accumulated depreciation
Plant equipment 952 353
Office furniture and equipment 8,899 579
Computer equipment 4,456 1,404
Vehicles 1,751 --
Leasehold improvements 2,615 1,603
- --------------------------------------------------------------------------------
18,673 3,939
- --------------------------------------------------------------------------------
92,792 59,079
================================================================================
5. RELATED PARTY BALANCES
Related party balances outstanding at July 31 are as follows:
1996 1995
$ $
- --------------------------------------------------------------------------------
Ecology Pure Air Systems, Inc. 997,499 1,382,105
Advances to directors and shareholders (23,471) --
Advances from directors and shareholders 62,240 225,882
Demand note payable to shareholders 324,990 --
- --------------------------------------------------------------------------------
1,361,258 1,607,987
================================================================================
6
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
The non-interest bearing advance is payable on demand to Ecology Pure Air
Systems, Inc., [a wholly-owned subsidiary of Enterprises]. The Company and
Enterprises have directors in common. Advances to and from directors and
shareholders are non-interest bearing and due on demand.
The demand note payable of $324,990 bears interest at 6%, and is convertible
into common shares of EPA at $2.75 per share, and has no fixed terms of
repayment.
6. CAPITAL STOCK
In June 1996, the Company effected a 3 for 1 reverse stock split of the common
shares. The number and per share amounts in these financial statements are on a
post reverse stock split basis for all periods presented.
The Company's Series A convertible, non-redeemable preferred voting shares, par
value $.001, are each convertible into 10 common shares, and each entitles the
holder to voting rights equivalent to 10 common shares. Holders of shares of
Series A preferred shares shall participate ratably with holders of the
Company's common shares in the declaration and payment of any dividends or other
distributions with each share of the Series A preferred share accounting for 10
shares of the Company's common shares. Holders of the shares of Series A
preferred shares do not have a liquidation preference, but shall participate
ratably with the holders of the Company's common shares, in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company.
On March 26, 1996, the Company completed a private placement of 2,200,000 common
shares at $2.75 per share for proceeds of $5,500,000 [$4,824,968 net of issue
costs]. Commissions paid include 10% of gross proceeds plus 200,000 common
shares.
As at July 31, 1996, the Company has the following options and warrants
outstanding:
Number of Exercise Expiry
common shares price date
$
- --------------------------------------------------------------------------------
Warrants issued to Founders 6,000,000 10.00 September 30, 1997
Warrants issued to consultants 2,000,000 10.00 September 30, 1997
Options issued to Manufacturing
shareholders 5,000,000 5.00 November 17, 2000
Options issued to employees 1,150,000 5.00 November 17, 2000
Options issued to consultants 225,000 up to 10.00 --
Options issued pursuant to
financing agreement 150,000 up to 5.00 September 15, 1999
7
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
Options granted to consultants have vesting dates commencing October 1, 1996
through February 28, 1998.
The options to purchase 150,000 common shares at up to $5.00 per share and a
non-refundable deposit of $100,000 were paid in connection with retaining a
financial advisor to assist in the Company's efforts to obtain additional
financing.
7. COMMITMENTS
The obligation under the operating lease for the building [exclusive of taxes
and insurance], is as follows:
$
- --------------------------------------------------------------------------------
1997 30,000
1998 30,000
1999 2,500
The Company is also committed to an annual royalty of 3.5% of the net worldwide
sales of products manufactured under the agreement with Rotello, and is
committed to complete authorized capital projects of $231,000 over the next
year. The Company is also committed to exchange shares with Enterprises as
described in note 2.
8
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
8. INCOME TAXES
Deferred income taxes reflect lost carryforwards and the tax effects of
temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and those amounts used for income tax purposes.
Significant components of the Company's deferred taxes as of July 31 are as
follows:
1996 1995
$ $
- --------------------------------------------------------------------------------
Deferred tax assets
Loss carryforwards 1,920,000 892,000
Valuation allowance for deferred tax assets (1,920,000) (892,000)
- --------------------------------------------------------------------------------
-- --
================================================================================
A valuation allowance of 100% has been recorded to offset non-current deferred
tax assets due to the uncertainty of realizing the benefit of these assets. The
company and its subsidiary had approximately $4,800,000 of net operating losses
which expire in varying amounts through the years 2004 to 2011, respectively.
9
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<PAGE>
================================================================================
Ecology Pure Air International, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
July 31, 1996 and 1995 [all amounts in U.S. dollars]
9. SUBSEQUENT EVENTS
[a] On September 3, 1996 the remaining 3,000,000 Series A convertible preferred
voting shares were converted into 30,000,000 common shares.
[b] On August 16, 1996, the Company has contracted for investment banking
services for an 18-month period commencing August 16, 1996. As
consideration for services to be provided, the Company has granted warrants
to purchase a total of 1,500,000 common shares at $6.00 per share. These
warrants shall vest as follows:
[i] 500,000 upon completion of due diligence;
[ii] 500,000 on February 16, 1997; and
[iii] 500,000 on August 16, 1997.
The agreement may be terminated by either party upon providing 30 days
written notice. In the event of termination of the agreement, any warrants
which have not vested shall no longer be eligible to vest.
The warrants and/or underlying shares may be sold at any time after two
years and for a total period of seven years following August 16, 1996 or
upon filing of a registration statement for the underlying shares.
10
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CERTIFICATE OF INCORPORATION
OF
OWL INVESTMENT CORP.
ARTICLE I
NAME
The name of the Corporation is Owl Investment Corp.
ARTICLE II
DURATION
The Corporation is to have perpetual existence.
ARTICLE III
REGISTERED OFFICE AND AGENT
The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE IV
PURPOSES
The nature of the business, or objects or purposes to be transacted,
promoted or carried on are:
To engage in any lawful activity for which corporations may be
organized under the General Corporation Law of Delaware, including, but
not limited to, manufacturing, purchasing or otherwise acquiring,
investing in, owning, mortgaging, pledging, selling, assigning and
transferring or otherwise disposing of, trading, dealing in and dealing
with goods, wares and merchandise and personal property of every class
and description.
To hold, purchase and convey real and personal estate and to mortgage
or lease any such real and personal estate with its franchises and to
take the same by devise or bequest.
To acquire, and pay for in cash, stock or bonds of this Corporation or
otherwise, the goodwill, rights, assets and property, and to undertake
or assume the whole or any part of the obligations or liabilities of
any person, firm, association or corporation.
To acquire, hold, use, sell, assign, lease, grant license in respect
of, mortgage, or otherwise dispose of letters patent of the United
States or any foreign country, patent rights, licenses and privileges,
inventions, improvements and processes, copyrights, trademarks and
trade names, relating to or useful in connection with any business in
this Corporation.
To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge,
or otherwise dispose of the shares of the capital stock or of any
bonds, securities or evidences of the indebtedness created by any other
corporation or corporations of this state, or any other state or
government, and while owner of such stock, bonds, securities or
evidences of indebtedness, to exercise all the rights, powers and
privileges of ownership, including the right to vote, if any.
To borrow money and contract debts when necessary for the transaction
of its business, or for the exercise of its corporate rights,
privileges or franchises, or for any other lawful purpose of its
incorporation; to issue bonds, promissory notes, bills of exchange,
debentures and other obligations and evidences of indebtedness, payable
at specified time or times, or payable upon the happening of a
specified event or events, whether secured by mortgage, pledge, or
otherwise, or unsecured, for money borrowed, or in payment for property
purchased, or acquired, or for any other lawful objects.
To purchase, hold, sell and transfer shares of its own capital stock,
and use therefor its capital, capital surplus, surplus or other
property or funds; provided it shall not use its funds or property for
the purchase of its own shares of capital stock when such use would
cause any impairment of its capital; and provided further, that shares
of its own capital stock belonging to it shall not be voted upon,
directly or indirectly, nor counted as outstanding, for the purpose of
computing any stockholders' quorum or vote.
To conduct business, have one or more offices, and hold, purchase,
mortgage and convey real and personal property in this state, and in
any of the several states, territories, possessions and dependencies of
the United States, the District of Columbia, and in any foreign
countries.
To do all and everything necessary and proper for the accomplishment of
the objects hereinbefore enumerated or necessary or incidental to the
protection and benefit of the Corporation, and, in general, to carry on
any lawful business necessary or incidental to the attainment of the
objects of the Corporation, whether or not such business is similar in
nature to the objects hereinbefore set forth.
The objects and purposes specified in the foregoing clauses shall,
except where otherwise expressed, be in nowise limited or restricted by
reference to, or inference from, the terms of any other clause in this
Certificate of Incorporation, but the objects and purposes specified in
each of the foregoing clauses of this article shall be regarded as
independent businesses and purposes.
2
<PAGE>
ARTICLE V
AUTHORIZED CAPITAL STOCK
The amount of the total authorized capital stock of the Corporation is
Forty Thousand ($40,000) Dollars consisting of Thirty Five Million (35,000,000)
shares of common stock of the par value of one thousandth of one ($.001) Dollar
each and Five Million (5,000,000) shares of Preferred Stock of the par value of
one thousandth of one ($.001) Dollar each.
The designations and the powers, preferences and rights, and the
qualifications, limitations or restrictions thereof, of the Preferred Stock
shall be as follows:
1. The Board of Directors is expressly authorized at any time, and
from time to time, to provide for the issuance of shares of
Preferred Stock in one or more series, with such voting powers,
full or limited, number of votes per share, or without voting
powers, and with such designations, preferences and relative,
participating, optional or other special rights, and
qualifications, limitations or restrictions thereof, as shall be
stated and expressed in the resolution or resolutions providing
for the issue thereof adopted by the Board of Directors, and as
are not stated and expressed in this Certificate of Incorporation,
or any amendment thereto, including (but without limiting the
generality of the foregoing) the following:
(a) the designation of and number of shares constituting such
series;
(b) the dividend rate of such series, the conditions and dates
upon which such dividends shall be payable, the preference or
relation which such dividends shall bear, to the dividends
payable on any other class or classes or of any other series
of capital stock, and whether such dividends shall be
cumulative or non-cumulative;
(c) whether the shares of such series shall be subject to
redemption by the Corporation, and, if made subject to such
redemption, the times, prices and other terms and conditions
of such redemption;
(d) the terms and amount of any sinking fund provided for the
purchase or redemption of the shares of such series;
(e) whether or not the shares of such series shall be convertible
into or exchangeable for shares of any other class or classes
or of any other series of any class or classes of capital
stock of this Corporation, and, if provision be made for
conversion or exchange, the times, prices, adjustments, and
other terms and conditions of such conversion or exchange;
(f) the extent, if any, to which the holders of the shares of such
series shall be entitled to vote as a class or otherwise with
respect to the election of the directors or otherwise;
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(g) the restrictions, if any, on the issue or reissue of any
additional Preferred Stock; and
(h) the rights of the holders of the shares of such series upon
the dissolution or, or upon the distribution of assets of, the
Corporation.
2. Except as otherwise required by law and except for such voting
powers with respect to the election of directors or other matters
as may be stated in the resolutions of the Board of Directors
creating any series of Preferred Stock, the holders of any such
series shall have no voting power whatsoever.
No stockholder, as such, of the Corporation shall have any pre-emptive
or preferential right or entitlement to purchase, subscribed for, or acquire any
shares of capital stock of the Corporation or any security convertible into
shares of capital stock of the Corporation hereafter issued.
ARTICLE VI
DIRECTORS
The name and mailing address of the persons who are to serve as a
director until the first annual meeting of the stockholders or until their
successor is elected and qualified, is as follows:
Name Mailing Address
A. W. Dugan 1212 Main Street, Suite 1400
Houston, Texas 77002
Jacques N. York 1212 Main Street, Suite 1400
Houston, Texas 77002
Paul V. Morris 1212 Main Street, Suite 1400
Houston, Texas 77002
ARTICLE VII
NO ASSESSABLE STOCK
The capital stock, after the amount of the subscription price or par
value has been paid in, shall not be subject to assessment to pay the debts of
the Corporation.
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ARTICLE VIII
INCORPORATORS
The name and post office address of the incorporator signing the
Certificate of Incorporation is as follows:
Name Post Office Address
Robert L. Sonfield, Jr., Esq. Sonfield & Sonfield
1333 West Loop South
Houston, Texas 77027
ARTICLE IX
POWERS OF DIRECTORS
In furtherance, and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
Subject to the By-Laws, if any, adopted by the stockholders, to make,
alter or amend the By-Laws of the Corporation.
To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgage and liens
upon the real and personal property of this Corporation.
By resolution passed by a majority of the whole board, to designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation, which, to the extent provided in the resolution or in the
By-Laws of the Corporation, shall have and may exercise the powers of the Board
of Directors in the management of the business and affairs of the Corporation,
and may authorize the seal of the Corporation to be affixed to all papers which
may require it. Such committee or committees shall have such name and names as
may be stated in the By-Laws of the Corporation or as may be determined from
time to time by resolution adopted by the Board of Directors.
When and as authorized by the affirmative vote of stockholders holding
stock entitling them to exercise at least a majority of the voting power given
at a stockholders' meeting called for that purpose, or when authorized by the
written consent of the holders of at least a majority of the voting stock issued
and outstanding, the Board of Directors shall have power and authority at any
meeting to sell, lease or exchange all of the property and assets of the
Corporation, including its goodwill and its corporation franchises, upon such
terms and conditions as its Board of Directors deem expedient and for the best
interests of the Corporation.
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ARTICLE X
MEETINGS
Meetings of stockholders may be held outside the State of Delaware, if
the By-Laws so provide. The books of the Corporation may be kept (subject to any
provision contained in the statutes) outside the State of Delaware at such place
or places as may be designated from time to time by the Board of Directors or in
the By-Laws of the Corporation.
ARTICLE XI
LIABILITY INSURANCE
1. This Corporation may purchase and maintain insurance or make other
financial arrangements on behalf of any person who is or was a
director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise for any liability
asserted against him and liability and expenses incurred by him in
his capacity as a director, officer, employee or agent, or arising
out of his status as such, whether or not the Corporation has the
authority to indemnity him against such liability and expenses.
2. The other financial arrangements made by the Corporation pursuant
to subsection 1 of this Article XI may include the following:
(a) The creation of a trust fund.
(b) The establishment of a program of self-insurance.
(c) The securing of its obligation of indemnification by granting
a security interest or other lien on any assets of the
Corporation.
(d) The establishment of a letter of credit, guaranty or surety.
3. Any insurance or other financial arrangements made on behalf of a
person pursuant to this Article XIII may be provided by the
Corporation or any other persons, approved by the Board of
Directors, even if all or part of the other person's stock or
other securities is owned by the Corporation.
4. In the absence of fraud:
(a) The decision of the Board of Directors as to the propriety of
the terms and conditions of any insurance or other financial
arrangement made pursuant to this Article XI may be provided
by the Corporation or any other person approved by the Board
of Directors, even if all or part of the other person's stock
or other securities is owned by the Corporation.
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(b) The insurance or other financial arrangement;
(1) Is not void or voidable; and
(2) Does not subject any director approving it to personal
liability for his action, even if a director approving the
insurance or other financial arrangement is a beneficiary
of the insurance or other financial arrangement.
ARTICLE XII
LIMITATION OF PERSONAL LIABILITY
No director of the Corporation shall be personally liable to the
Corporation or any stockholder of the Corporation for monetary damages for
breach of fiduciary duty as a director, except for any matter in respect of
which such director shall be liable under Section 174 of Title 8 of the Delaware
Code (relating to the Delaware General Corporation Law) or any amendment thereto
or successor provisions thereto; nor shall any director of the Corporation be
liable by reason that, in addition to any and all other requirements for such
liability he (i) shall have breached his duty of loyalty to the Corporation or
its stockholders, (ii) shall not have acted in good faith or, in failing to act,
shall not have acted in good faith, (iii) shall have acted in a manner involving
intentional misconduct or a knowing violation of law, or (iv) shall have derived
an improper personal benefit. Neither the amendment nor repeal of this Article
XII, nor the adoption of any provision of the certificate of incorporation of
the Corporation inconsistent with this Article XII, shall eliminate or reduce
the effect of this Article XII in respect of any act or failure to act, or any
cause of action, suit or claim that, but for this Article XII would accrue or
arise prior to any amendment, repeal or adoption of such an inconsistent
provision.
ARTICLE XIII
INDEMNIFICATION OF DIRECTORS
1. This Corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative, except an action by or in the
right of the Corporation, by reason of the fact that he is or was
a director, officer, employee or agent of the Corporation, or is
or was serving at the request of the Corporation as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprises, against expenses,
including attorney's fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection
with the action, suit or proceeding if he acted in good faith and
in a manner which he reasonably believed to be in or not opposed
to the best interests of the Corporation, and with respect to any
criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement,
7
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conviction, or upon a plea of nolo contendere or its equivalent,
does not, of itself, create a presumption that the person did not
act in good faith and in a manner which he reasonably believed to
be in or not opposed to the best interests of the Corporation, and
that, with respect to any criminal action or proceeding, he had
reasonable cause to believe that his conduct was unlawful.
2. This Corporation may also indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
against expenses, including amounts paid in settlement and
attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if
he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Corporation.
Indemnification may not be made for any claim, issue or matter as
to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be
liable to the Corporation or for amounts paid in settlement to the
Corporation, unless and only to the extent that the court in which
the action or suit was brought or other court of competent
jurisdiction determines upon application that in view of all the
circumstances of the case the person is fairly and reasonably
entitled to indemnify for such expenses as the court deems proper.
3. To the extent that a director, officer, employee or agent of this
Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
subsections 1 and 2 of this Article XIII, or in defense of any
claim, issue or matter therein, he must be indemnified by the
Corporation against expenses, including attorney's fees, actually
and reasonably incurred by him in connection with the defense.
4. Any indemnification under subsections 1 and 2 of this Article
XIII, unless ordered by a court or advanced pursuant to subsection
5 of this Article XIII, must be made by the Corporation only as
authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is
proper in the circumstances. The determination must be made:
(a) By the stockholders;
(b) By the Board of Directors by majority vote of a quorum
consisting of directors who were not parties to the act, suit
or proceeding;
8
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(c) If a majority vote of a quorum consisting of directors who
were not parties to the act, suit or proceeding so orders, by
independent legal counsel in a written opinion; or
(d) If a quorum consisting of directors who were not parties to
the act, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion.
5. The expenses of officers and directors incurred in defending a
civil or criminal action, suit or proceeding must be paid by the
Corporation as they are incurred and in advance of the final
disposition of the action, suit or proceeding, upon receipt of an
undertaking by or on behalf of the director or officer to repay
the amount if it is ultimately determined by a court of competent
jurisdiction that he is not entitled to be indemnified by the
Corporation. The provisions of this subsection do not affect any
rights to advancement of expenses to which corporate personnel
other than directors or officers may be entitled under any
contract or otherwise by law.
6. The indemnification and advancement of expenses authorized in or
ordered by a court pursuant to any provisions of this Article
XIII:
(a) Does not exclude any other rights to which a person seeking
indemnification or advancement of expenses may be entitled
under the Certificate or Articles of Incorporation or any
By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, for either an action in his official
capacity or an action in another capacity which holding his
office, except that indemnification, unless ordered by a court
pursuant to subsection 2 of this Article XIII or for the
advancement of expenses made pursuant to subsection 5 of this
Article XIII, may not be made to or on behalf of any director
or officer if a final adjudication establishes that his acts
or omissions involved intention misconduct, fraud or a knowing
violation of the law and was material to the cause of action.
(b) Continues for a person who has ceased to be a director,
officer, employee or agent and inures to the benefit of the
heirs, executors and administrators of such a person.
7. For purposes of this Article XIII, references to "the Corporation"
shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand
in the same position under the provisions of this Article XIII
with respect to the resulting or surviving corporation as he would
9
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have with respect to such constituent corporation if its separate
existence had continued.
8. For purposes of this Article XIII, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving at
the request of the Corporation" shall include any service as a
director, officer, employee or agent of the Corporation which
imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in
good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of a employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation" as referred to
in this Article XIII.
ARTICLE XIV
AMENDMENTS
This Corporation reserves the right to amend, alter, change or repeal
any provision contained in the Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, or by the Certificate of Incorporation, and
all rights conferred upon stockholders herein are granted subject to this
reservation.
I, THE UNDERSIGNED, being the incorporated hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of
Delaware, do make and file this Certificate of Incorporation, hereby declaring
and certifying that the facts herein stated are true, and accordingly have
hereunto set my hand this 2nd day of December, 1988.
---------------------------------
Robert L. Sonfield, Jr.
10
<PAGE>
CERTIFICATE OF AMENDMENT
OF
OWL INVESTMENT CORP.
Owl Investment Corp., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST:
That the Board of Directors of Owl Investment Corp. duly adopted
resolutions declaring the necessity of amending the Certificate of Incorporation
of the Corporation; and that said amendment was authorized by the written
consent of a majority of the issued and outstanding voting shares of the
Corporation in lieu of a special meeting of the shareholders. The resolution
setting forth the proposed amendment is as follows:
RESOLVED: that the Certificate of Incorporation be amended by changing
Articled I thereof so that, as amended, said Article shall be and read as
follows:
ARTICLE I
The name of the Corporation is Mark Four Resources Inc.
SECOND:
That the Board of Directors, duly adopted a resolution acknowledging
receipt of written consent of the owner of a majority of the issued and
outstanding shares of the Corporation which were obtained in lieu of a special
meeting of Shareholders in accordance of Section 228 of the General Corporation
Law of the State of Delaware. Said consent by the necessary number of shares as
required by statute approved the amendment.
THIRD:
That said amendment was duly adopted in accordance with the provisions
of Section 242 of the General Corporation Law of the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, said Owl Investment Corp. has caused this
certificate to be signed by David Shaw, its President and attested by its
Corporate Secretary, as of this 14th day of September 1989.
OWL INVESTMENT CORP.
By:_________________________________
David Shaw, President
ATTEST:
By:______________________________
Corporate Secretary
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MARK FOUR RESOURCES INC.
Mark Four Resources Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That by written consents of the Board of Directors of Mark Four
Resources Inc. (the "Corporation"), in lieu of a special meeting, resolutions
were duly adopted setting forth proposed amendments to the Certificate of
Incorporation of the Corporation; and that said amendments were authorized by
the written consent of the majority of the issued and outstanding voting shares
of the Corporation in lieu of a special meeting of the stockholders. The
resolutions setting forth the proposed amendments generally read as follows:
RESOLVED, that the Board of Directors of this Corporation deem it advisable
and in the best interest of the Corporation to change the name of the
Corporation to "Ecology Pure Air International, Inc.", therefore, Article 1 of
the Certificate of Incorporation of the Corporation, as amended, shall read as
follows:
ARTICLE 1
The name of the Corporation is Ecology Pure Air International, Inc.
RESOLVED, that the Board of Directors of this Corporation deem it advisable
and in the best interest of the Corporation to increase the authorized common
stock from 35,000,000 to 100,000,000, therefore, the first paragraph of Article
5 of the Certificate of Incorporation of the Corporation, as amended, shall read
as follows:
The amount of the total authorized capital stock of the Corporation is One
Hundred Five Thousand ($105,000) Dollars consisting of One Hundred Million
(100,000,000) shares of common stock of the par value of one thousandth of one
($.001) dollar each and five million (5,000,000) shares of preferred stock of
the par value of one thousandth of one ($.001) dollar each.
The remaining terms and provisions of Article 5 shall remain unchanged.
RESOLVED, that in connection with the restructuring of the capitalization
of the Corporation, the Corporation shall effect a 3 for 1 reverse stock split.
Therefore, on the effective date of this Amendment, each share of the issued and
outstanding common stock of the
<PAGE>
Corporation shall be and hereby is changed without further action into one-third
of a share of common stock of the Corporation provided that if such change
results in a fractional share then the Corporation shall issue such additional
fraction of a share as is necessary to increase the fractional share to a full
share.
SECOND: That the Board of Directors, duly adopted a resolution
acknowledging receipt of written consent of the owner of a majority of the
issued and outstanding shares of the Corporation which were obtained in lieu of
a special meeting of Stockholders in accordance with Section 228 of the General
Corporation Law of the State of Delaware, said consent by the necessary number
of shares as required by statute approved the amendment.
THIRD: Prompt written notice of the adoption of the amendments herein
certified has been given to the Stockholders who have not consented in writing
thereto, as provided in Section 228 of the General Corporation Law of the State
of Delaware.
FOURTH: That said amendments were duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, said Mark Four Resources Inc. has caused this
Certificate to be signed by Gianni D'Alessandro, its President, and attested by
its corporate Secretary, as of this 5th day of June, 1996.
Attest: MARK FOUR RESOURCES INC.
By:______________________________ By:______________________________
Corporate Secretary Gianni D'Alessandro
2
BY-LAWS
OF
OWL INVESTMENT CORP
<PAGE>
TABLE OF CONTENTS
1. ARTICLE I: OFFICES........................................................1
1.1 Principal Office.......................................................1
1.2 Other Offices......................................................... 1
1.3 Registered Office......................................................1
2. ARTICLE II: SHAREHOLDERS..................................................1
2.1 Place of Meetings......................................................1
2.2 Notice of Meetings.....................................................1
2.3 Annual Meeting.........................................................2
2.4 Special Meetings.......................................................2
2.5 Closing Transfer Books or Fixing Record Date...........................3
2.6 Voting Lists...........................................................4
2.7 Voting Power of Shares.................................................4
2.8 The Voting of Shares in General........................................4
2.9 The Voting of Shares by Certain Holders................................5
2.10 The Voting of Shares by Proxy.........................................6
2.11 Establishment of a Quorum.............................................6
2.12 Effect of a Quorum....................................................6
2.13 Appointment of Inspectors.............................................7
2.14 Duties and Powers of Inspectors.......................................7
2.15 Conduct of Business...................................................7
2.16 Action Without a Meeting..............................................8
<PAGE>
3. ARTICLE III: THE BOARD OF DIRECTORS.......................................8
3.1 General Powers.........................................................8
3.2 Number.................................................................9
3.3 Tenure.................................................................9
3.4 Qualifications.........................................................9
3.5 Removal................................................................9
3.6 Resignation............................................................9
3.7 Vacancies.............................................................10
3.8 Quorum................................................................10
3.9 Action................................................................10
3.10 Annual Meeting of the Board..........................................10
3.11 Regular Meetings of the Board........................................10
3.12 Special Meetings of the Board........................................10
3.13 Telephone Meetings of the Board......................................11
3.14 Notice of Special Meeting of the Board...............................11
3.15 Statement of Purpose Not Required....................................11
3.16 Effect of Attendance.................................................11
3.17 Presumption of Assent................................................11
3.18 Evidence of Dissent..................................................12
3.19 Consent in Lieu of Meeting...........................................12
3.20 Compensation of Directors............................................12
3.21 Indemnification Provisions...........................................13
<PAGE>
4. ARTICLE IV: COMMITTEES OF THE BOARD......................................13
4.1 Committees of Directors...............................................13
4.2 Limitation of Authority...............................................13
4.3 Other Committees......................................................14
4.4 Term of Office........................................................14
4.5 Chairman..............................................................14
4.6 Vacancies.............................................................14
4.7 Quorum................................................................15
4.8 Rules.................................................................15
4.9 Minutes...............................................................15
4.10 Continuing Responsibilities..........................................15
5. ARTICLE V: OFFICER TITLES AND TENURES....................................15
5.1 Titles and Number of Officers.........................................15
5.2 Election..............................................................15
5.3 Tenure................................................................16
5.4 Resignation...........................................................16
5.5 Removal...............................................................16
5.6 Vacancies.............................................................16
6. ARTICLE VI: THE POWERS AND DUTIES OF OFFICERS............................16
6.1 In General............................................................16
6.2 The President.........................................................16
6.3 The Executive Vice President..........................................17
6.4 The Vice President....................................................17
6.5 The Secretary.........................................................17
6.6 The Treasurer.........................................................19
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6.7 Absence or Disability of Officers.....................................19
6.8 Salaries and Other Compensation.......................................19
7. ARTICLE VII: CERTIFICATES FOR SHARES.....................................19
7.1 Form..................................................................19
7.2 Issuance of Shares....................................................20
7.3 Procedures Upon Issuance..............................................20
7.4 Rights and Limitations of Rights......................................21
7.5 Subscriptions for Stock...............................................22
7.6 Ownership of Shares...................................................22
7.7 Transfer of Shares....................................................22
7.8 Lost Certificates.....................................................22
7.9 Transfer Agents and Registrars........................................23
7.10 Facsimile Signatures.................................................23
8. ARTICLE VIII: CORPORATION INSTRUMENTS AND ACTIONS........................23
8.1 Contracts and Other Agreements........................................23
8.2 Loans and Evidence of Indebtedness....................................24
8.3 Checks, Drafts, or Orders.............................................24
8.4 Deposits..............................................................24
8.5 Voting of Securities Held by the Corporation..........................24
8.6 Sale or Transfer of Securities Held by the Corporation................24
9. ARTICLE IX: DIVIDENDS....................................................25
9.1 Declaration...........................................................25
9.2 Reserves..............................................................25
<PAGE>
10. ARTICLE X: AMENDMENTS...................................................25
10.1 Amendment by the Board of Directors..................................25
10.2 Action by Shareholders...............................................25
10.3 No Amendment.........................................................25
11. ARTICLE XI: SUNDRY PROVISIONS...........................................26
11.1 Action by Written Consent............................................26
11.2 Informal Meetings and Action.........................................26
11.3 Waiver of Notice.....................................................26
11.4 Management by Shareholders...........................................26
11.5 Corporate Seal.......................................................27
11.6 Reports to Stockholders..............................................27
11.7 Inspection of Corporate Records......................................27
11.8 Inspection of Articles of Incorporation and By-Laws..................27
11.9 Fiscal Year..........................................................28
11.10 Construction and Definition.........................................28
11.11 Captions............................................................28
<PAGE>
1. ARTICLE I: OFFICES
1.1 Principal Office.
The principal office of the Corporation shall be located in the City
of Houston, County of Harris, State of Texas. The Board of Directors shall
have the power and discretion to change from time to time the location of
the principal office of the Corporation.
1.2 Other Offices.
The Corporation may also have and maintain such other offices at such
places within or without the State of Texas as the Board of Directors may
designate or as the business of the Corporation may require from time to
time.
1.3 Registered Office.
The registered office of the Corporation required by the General
Corporation Law of Delaware to be maintained in the State of Delaware shall
be located in 1209 Orange Street, in the City of Wilmington, State of
Delaware, and may be, but need not be, identical with the principal office
of the Corporation's registered agent in the State of Delaware. Further,
the registered office or the registered agent, or both, of the Corporation
required by law to be maintained in the State of Delaware may be changed at
any time and from time to time by appropriate resolution or resolutions of
the Board of Directors, and upon the filing of the statements then required
by law.
2. ARTICLE II: SHAREHOLDERS
2.1 Place of Meetings
All Meetings of Shareholders, both regular of special, may be held at
any place, within or without the State of Texas, as shall be designed in
the notice or waiver of notice of the Meeting. If no designation is so
made, Meetings of Shareholders shall be held at the principal office of the
Corporation.
2.2 Notice of Meetings.
Unless a different manner of giving notice is prescribed by statute, a
written or printed notice (signed by the President or a Vice President and
the Secretary or an Assistant Secretary or such other persons as the Board
of Directors shall designate) specifying the place, day, and hour of the
Meeting, and, in the case of a Special Meeting, the general purpose or
purposes for which the Meeting is called, shall be delivered not less than
ten (10) nor more than sixty (60) days before the date of the Meeting,
either personally or by mail, or at the direction of the President, the
Secretary, or the officer or the person or persons calling the Meeting, to
each Shareholder of record entitled to vote at such meeting. Personal
delivery of any such notice to any officer of a corporation or association,
or to any member of a partnership shall constitute delivery to such
<PAGE>
corporation, association or partnership. In the event of the transfer of
stock after delivery or mailing of any such notice and prior to the date
fixed for the holding of the Meeting it shall not be necessary to deliver
to or mail notice thereof to the transferees.
If mailed, such notice shall be deemed to be delivered and the time of
notice shall begin to run from the date upon which such notice is deposited
in the United States mail with postage thereon prepaid, addressed to the
Shareholder at his address as it appears on the stock transfer books (or
other records) of the Corporation or at such other address as may have
theretofore been given by Shareholder to the Corporation for the purpose of
receiving notice.
2.3 Annual Meeting.
The Annual Meeting of Shareholders shall be held on such date and time
as the Board of Directors shall set each year, however, such date shall not
be more than 120 days following each fiscal year of the Corporation for the
purpose of electing Directors and for the transaction of such other
business as may come before the Meeting.
Annual Meetings shall be held at the principal executive office of the
Corporation or at such other place within or without the State of Texas as
may be determined by the Board of Directors and designated in the notice of
the Meeting.
If the day fixed for the Annual Meeting shall be a legal holiday, such
Meeting shall be held on the business day next succeeding.
If the election of Directors shall not be held on the day designated
herein for any Annual Meeting of the Shareholders, or at any adjournment
thereof, the Board of Directors shall cause the election to be held as soon
thereafter as reasonably convenient at a Special Meeting of the
Shareholders called for the purpose of holding such election and for the
transaction of such other business as may properly come before the Meeting.
In the event the Board of Directors fails to call a Special Meeting
within twelve (12) months after the date prescribed for the Annual Meeting,
any Shareholder may call such a Meeting and, at such a Meeting, the
Shareholders may elect Directors and transact all other business properly
brought before the Meeting.
2.4 Special Meetings.
Special Meetings of the Shareholders, for any purpose or purposes,
unless otherwise prescribed by law or by the Articles of Incorporation, may
be called by the Chairman of the Board, the Board of Directors or the
President and shall be called at the request in writing of the holders of
not less than a majority of all of the shares entitled to vote at the
Meeting specifying the purpose or purposes for which such Meeting is to be
called. The Secretary of the Corporation, upon receipt of a written request
of any person or persons entitled to call a Special Meeting, shall inform
the Board of Directors as to such call, and the Board shall fix a time and
place of the Meeting. If the Board fails to fix a time and place, the
Meeting shall be held at the principal executive office of the
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Corporation at a time fixed by the Secretary. Business transacted at all
Special Meetings shall be confined to the purpose or purposes stated in the
call.
2.5 Closing Transfer Books or Fixing Record Date.
For the purposes of determining
(i) Shareholders entitled to notice of or to vote at any Meeting of
Shareholders or any adjournment thereof or to express consent in
writing to corporate action without a meeting, or
(ii) Shareholders entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise
any rights in respect of any change, conversion or exchange of
stock, or
(iii) in order to make a determination of Shareholders for any other
proper purpose,
the Board of Directors of the Corporation may fix, in advance, a record
date, which shall not be more than sixty (60) or less than ten (10) days
before the date of such Meeting, nor more than sixty (60) days prior to any
other action and may provide that the share transfer books shall be closed
for a stated period but not to exceed, in any case, sixty (60) days.
If the share transfer books shall be closed for the purpose of
determining Shareholders entitled to notice of or to vote at a Meeting of
Shareholders, such books shall be closed for at least ten (10) days
immediately preceding such Meeting during which period no transfer of stock
shall be made on the books of the Corporation.
In lieu of closing the share transfer books, the Board of Directors
(in the absence of any applicable By-Law or By-Laws of the Corporation) may
fix in advance at a date as the record date for any such determination of
Shareholders, such date in any case to be not more than sixty (60) days
and, in the case of a Meeting of Shareholders, not less than ten (10) days
prior to the date on which the particular action, requiring such
determination of Shareholders, is to be taken. Only shareholders of record
on the record date shall be entitled to notice of, or to vote at such
Meeting or to be deemed Shareholders for any other purpose of the
Corporation for which such record date was established.
If the share transfer books are not closed and no record date is fixed
(i) The record date for determining Shareholders entitled to notice
of or to vote at a Meeting of Shareholders shall be at the close
of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the
day next preceding the day on which the Meeting is held;
(ii) The record date for determining Shareholders entitled to express
consent to corporate action in writing without a Meeting, when no
prior action by the
<PAGE>
Board of Directors is necessary, shall be the day on which the
first written consent is expressed; and,
(iii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution or resolutions relating
thereto.
When determination of Shareholders entitled to notice of or to vote at
any Meeting of Shareholders has been made as provided in this Section, such
determination shall apply to any adjournment thereof except where
(i) the determination has been made through the closing of the share
transfer books and the stated period of closing has expired and,
(ii) the Board of Directors has fixed a new record date for the
adjourned Meeting.
2.6 Voting Lists.
The officer or agent having charge of the share ledger or transfer
books for shares of the Corporation shall prepare and make, at least ten
(10) days before each Meeting of Shareholders, a complete list of
Shareholders entitled to vote at such Meeting, or any adjournment thereof,
arranged in alphabetical order, with the address of and the number of
shares held by each such Shareholder, which list for a period of ten (10)
days prior to such Meeting shall be kept on file at the registered office
of the Corporation and shall be subject to inspection by any such
Shareholder for any purpose germane to the Meeting at any time during usual
business hours. Such list shall also be produced and kept open at the time
and place of the Meeting and shall be subject to the inspection of any
Shareholder at any time during the whole time of the Meeting. The original
share transfer book shall be prima facie evidence as to the identity of
Shareholders entitled to examine such list or transfer books or to vote at
any Meeting of Shareholders.
2.7 Voting Power of Shares.
Except as otherwise provided by law, the Articles of Incorporation or
these By-Laws, each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote of Shareholders. No
shareholder may cumulative his votes.
2.8 The Voting of Shares in General.
Each Shareholder, subject to the contrary or limiting provision of
law, the Articles of Incorporation or these By-Laws, shall have, possess
and be entitled to exercise one (1) vote for each share having voting
rights registered in his, her or its name on the books of the Corporation
at the time of the closing of the share transfer books (or at the record
date) for such Meeting.
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Voting upon any matter properly brought before a Meeting may be, but
need not be, by ballot.
2.9 The Voting of Shares by Certain Holders.
Shares of capital stock of this Corporation standing in the name of or
held by
(i) another corporation, domestic or foreign, may be voted by such
officer, agent or proxy as the by-laws of such corporation may
prescribe, or, in the absence of such provision, as the Board of
Directors of such corporation may determine,
(ii) a deceased person, a minor, ward, or an incompetent person, may
be voted by his administrator, executor, court-appointed guardian
or conservator, either in person or by proxy without a transfer
of such shares into the name of such administrator, executor,
court-appointed guardian or conservator,
(iii) a Trustee may be voted by him, either in person or by proxy, but
no Trustee shall be entitled to vote shares held by him without
transfer of such shares into the name of such Trustee,
(iv) a Receiver may be voted by such Receiver, and shares held by or
under the control of a Receiver may be voted by such receiver
without the transfer into his name if authority to do so be
contained in an appropriate order of the court by which such
Receiver was appointed,
(v) a pledgee of shares shall be entitled to vote such shares only
from and after the date upon which any such pledged shares have
been transferred in the books of the Corporation into the name of
the pledgee,
(vi) Shares of the Corporation's own stock
a) belonging to the Corporation (whether or not held by it in
the Treasury of the Corporation),
b) held or controlled by the Corporation in a fiduciary
capacity,
c) owned, held or controlled by another corporation, the
majority of the voting stock of which is owned or controlled
by this Corporation,
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shall be voted, subject to the provisions of Section 8.05 of
Article VIII herein below, by the President of the
Corporation or his designee at any Meeting and shall be
counted or considered in determining the total number of
shares outstanding at the time any such determination is
being made.
2.10 The Voting of Shares by Proxy.
At all Meetings of Shareholders, a Shareholder entitled to vote
thereof may vote by proxy executed in writing by the Shareholder or by his
duly authorized attorney-in-fact. Such proxy shall be filed with the
Secretary of the Corporation before or at the time of the Meeting. No proxy
shall be valid for more than eleven (11) months following the date of its
execution, unless otherwise provided in the proxy or unless coupled with an
interest. Each proxy shall be revocable unless expressly provided therein
to be irrevocable or unless otherwise made irrevocable by law. Revocable
proxies may be so revoked by attendance in person of the principal at a
Meeting, by an instrument in writing revoking any such proxy signed by the
Shareholder or a duly authorized attorney-in-fact or by a duly executed
proxy bearing a later date duly filed with the Secretary of the
Corporation.
In the event that any such instrument of proxy shall designate two or
more persons to act as proxies, a majority of such persons present at the
Meeting, or, if only one such designated proxy is present at the Meeting,
that one person (unless the instrument of proxy shall otherwise provide)
shall have all of the powers conferred by such instrument upon all persons
so designated therein.
2.11 Establishment of a Quorum.
Unless otherwise provided by law or the Articles of Incorporation, a
majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at Meeting of
Shareholders. If less than a majority of the outstanding shares is
represented at a Meeting, a majority of the shares so represented may
adjourn the meeting from time to time without further notice. At any such
adjourned Meeting at which a quorum shall be present or represented, any
business may be transacted at the Meeting as originally noticed.
The Shareholders at a duly organized Meeting may continue to transact
business until adjournment, notwithstanding the withdrawal from such
Meeting of the holders of a sufficient number of shares so as to leave
Shareholders remaining in attendance at such Meeting less than a quorum.
2.12 Effect of a Quorum.
When a quorum is present or represented at any Meeting , then the vote
of holders of a majority of the shares entitled to vote, present in person
or represented by proxy, shall decide any matter submitted to such Meeting,
unless the matter is one upon which by law
<PAGE>
or by express provision of the Articles of Incorporation or of these
By-Laws, the vote of a greater number (or a vote by classes) is required,
in which case the vote of such greater number (or the vote by classes)
shall govern and control the decision of such matter.
2.13 Appointment of Inspectors.
The Board of Directors, in advance of any meeting of Shareholders, may
(but shall not be required to do so), appoint three Inspectors of Election.
If no such appointment is made in advance, or if any appointed person
refuses or fails to serve, the Chairman of the Meeting may appoint such
Inspectors or appoint a replacement for any Inspector refusing or failing
to serve.
2.14 Duties and Powers of Inspectors.
Inspectors of Election shall determine the
(i) number of shares outstanding;
(ii) voting power of each share;
(iii) shares represented at the Meeting;
(iv) existence of a quorum;
(v) authenticity, validity and effects of proxies;
(vi) receive votes, ballots, assents and consents;
(vii) hear and determine all challenges and questions in any way
arising in connection with a vote;
(viii) count and tabulate all votes, assents and consents;
(ix) determine and announce results; and
(x) do all other acts as may be requisite or desirable in the
proper conduct of elections with fairness to all Shareholders.
2.15 Conduct of Business.
The conduct and order of business at all Annual and Special Meetings
of Shareholders shall, to the extent practicable, be as follows:
(i) Call to order.
(ii) Presentation of proof of the due calling and the giving of
notice of the Meeting.
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(iii) Presentation and examination of proxies.
(iv) Ascertainment and announcement of presence of quorum.
(v) Approval or waiver of approval of minutes.
(vi) Report of officers.
(vii) Nomination of Directors.
(viii) Receiving motions and resolutions.
(ix) Discussion of election of Directors, motions and resolutions.
(x) Vote on Directors, motions and resolutions.
(xi) Any unfinished business.
(xii) Any new business.
(xiii) Receipt of report of Inspectors on results of election and vote
on motions and resolutions.
(xiv) Adjournment.
In all matters pertaining to conduct of the Shareholders' Meetings,
including each orderly adjournment thereof, the procedures set forth in
Robert's Rules of Order shall be followed. Legal counsel to the
Corporation, or such other person as is specified in notice of the Meeting,
shall act as parliamentarian.
2.16 Action Without a Meeting.
Any action of the Corporation, except the election of Directors, upon
which a vote of Shareholders is required or permitted may be taken without
a Meeting or without a vote of Shareholders upon, subject to and with the
written consent of Shareholders having not less than a majority of the
shares entitled to vote at a Meeting; provided, that in no case shall the
written consent by holders having less than the minimum percent of the vote
required by statute for the proposed action be sufficient for any such
purpose; and, further provided, that prompt notice be given to all
Shareholders of the result of the vote authorizing the taking of corporate
action without a Meeting.
3. ARTICLE III: THE BOARD OF DIRECTORS
3.1 General Powers.
The policies, business and affairs of the Corporation shall be
managed, controlled and directed by its Board of Directors. In addition to
the powers and authorities expressly conferred upon it by these By-Laws,
the Board of Directors may exercise all such powers
<PAGE>
of the Corporation and do all such lawful acts and things as are not by law
or by the Articles of Incorporation or by these By-Laws directed or
required to be exercised or done by the Shareholders.
3.2 Number.
The number of Directors of the Corporation shall be not less than
three (3) or more than nine (9). The number of Directors may be increased
or decreased by resolution adopted by a majority of the Board of Directors
or the Shareholders; provided, however, that no decrease in the number of
Directors hall have the effect of shortening the term of any incumbent
Director.
3.3 Tenure.
Directors of the Corporation shall be elected at the Annual Meeting of
the Shareholders, or at a Meeting held in lieu thereof as provided in
Article II, Section 2.03 above. Each director shall hold office until the
next Annual Meeting of Shareholders and until his successor shall have been
elected and qualified.
3.4 Qualifications.
Directors need not be residents of the State of Delaware or
Shareholders of the Corporation.
3.5 Removal.
A Director may be removed at any time, with or without cause, by a
vote of the holders of a majority of the shares then entitled to vote at an
election of Directors or by the unanimous consent and action of the
Shareholders.
New directors may be elected by the Shareholders for the unexpired
terms of Directors removed from office at the same meetings at which such
removals are voted. If the Shareholders fail to elect persons to fill the
unexpired terms of removed Directors, such terms shall be considered
vacancies to be filed by the remaining Directors as provided in Section
3.07 of this Article III.
3.6 Resignation.
Any Director may resign at any time by giving written notice to the
President or Secretary of the Corporation. Such resignation shall take
effect at the time specified therein and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective. In any event, if the Board has not acted upon any tendered
resignation within ten (10) days from the date presented, any such tendered
resignation shall be deemed acceptable.
<PAGE>
3.7 Vacancies.
Any vacancy occurring in the Board of Directors may be filled by the
appointment of a successor by a majority of the remaining Directors
although less than a quorum of the full Board. A Director appointed to fill
a vacancy shall be appointed for the unexpired term of his predecessor in
office. Any directorship to be filled by reason of any increase in the
number of Directors shall be filled by election at an Annual Meeting or at
a Special Meeting of Shareholders called for that purpose.
3.8 Quorum.
A majority of the number of Directors then constituting the whole
Board as established pursuant to the authority granted in Section 3.2 of
this Article III, shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors. If less than such majority is
present at a Meeting, a majority of the Directors present may adjourn the
Meeting from time to time without further notice; provided, however, that
if the Meeting is adjourned for more than twenty-four (24) hours, notice of
any adjournment to another time or place shall be given prior to the time
fixed for the reconvening of the adjourned Meeting to the Directors who
were not present at the time of adjournment.
3.9 Action.
The action, enactment or act of the majority of the Directors present
at a Meeting at which a quorum is present shall be the act of the Board of
Directors, unless the act of a greater number is required by law, the
Articles of Incorporation, or these By-Laws.
3.10 Annual Meeting of the Board.
The regular Annual Meeting of the Board of Directors shall be held
without notice other than this By-Law immediately following, and at the
same location as, the Annual Meeting of Shareholders.
3.11 Regular Meetings of the Board.
The Board of Directors may establish and provide, by resolution, the
time and place (either within or without the State of Delaware) for the
holding of regular Meetings of the Board in addition to the Annual Meeting
of the Board without notice other than the particulars set out in any such
resolution or resolutions.
3.12 Special Meetings of the Board.
Special Meetings of the Board of Directors may be called by or at the
request of the Chairman of the Board, if any, the President, or upon the
written request (addressed to the President and to the Secretary) of two or
more of the Directors. The person or persons so authorized to call a
Special Meeting of the Board of Directors may fix any
<PAGE>
place, either within or without the State of Delaware, as the place for
holding any such Special Meeting of the Board of Directors called by him or
them, as the case may be.
3.13 Telephone Meetings of the Board.
Pursuant to the relevant provisions of law and whenever the best
interests of the Corporation may be deemed to be served thereby, the
Directors may confer and meet by telephone either by way of a conference
call or seriatim provided each Director shall participate (or shall waive
such participation) in any such telephone meeting.
3.14 Notice of Special Meeting of the Board.
Any Special Meeting of the Board of Directors shall be held only upon
not less than three (3) days prior written notice (or twenty-four (24)
hours' notice delivered personally or by telephone or telegraph) of such
Meeting specifying the date, location and hour of the Meeting delivered to
each Director. Any such written notice may be so delivered either
(i) by hand;
(ii) by deposit in the United States mail, postage prepaid, addressed
to the addressee at his or her most recent business address as
furnished to the Corporation; or
(iii) by telegram similarly addressed.
Notices given by mail shall be deemed delivered when deposited in the
United States mail and notices given by telegram shall be deemed delivered
when the text of the telegram is delivered to the telegraph company.
3.15 Statement of Purpose Not Required.
Neither the business to be transacted at, nor the purpose of any
Regular or Special Meeting of the Board of Directors need be specified in
the notice (or waiver of notice) of such Meeting.
3.16 Effect of Attendance.
The attendance of a Director at a Meeting shall constitute a waiver of
notice of such Meeting, except where a Director attends a Meeting for the
express purpose of objecting to the transaction of any business because the
Meeting is not lawfully called or convened.
3.17 Presumption of Assent.
Subject to the provisions of Section 3.16 of this Article III, a
Director of the Corporation who is present at a Meeting of the Board of
Directors at which action on any
<PAGE>
corporate matter is taken shall be presumed to have assented to the action
or actions taken unless dissent to any such action or actions be evidenced
as provided in said Section 3.18 herein immediately below.
3.18 Evidence of Dissent.
Attendance of a Director at a Meeting of the Board will not be
presumed to evidence such Director's assent to any act or actions taken at
such Meeting provided such Director's (or Directors') dissent to any one or
more act or action of the Board is clearly evidenced by
(i) appropriate entry or notation of dissent in the minutes of the
Meeting; or
(ii) a written dissent to such act or actions shall be filed with the
person acting as the secretary of the Meeting before the
adjournment thereof; or
(iii) a written dissent to such act or actions is sent by such
Director or Directors by registered or certified mail to the
Secretary of the Corporation within the first two business days
immediately following adjournment of the Meeting.
Such right of dissent shall not be available to or apply to a Director who
voted in favor of such act or actions of the Board of Directors.
3.19 Consent in Lieu of Meeting.
Unless otherwise restricted by the Articles of Incorporation or by
these By-Laws, any action required or permitted to be taken at any Meeting
of the Board of Directors or any Committee thereof may be taken without a
Meeting if a majority of the members of the Board of Directors or Committee
thereof, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of the proceedings of the Board of
Directors or of such Committee. Such actions become effective upon the
receipt of a number of signatures equal to a majority of the Directors or
of the members of such Committee, as the case may be, unless a greater or
lesser number is otherwise provided for, or required by, law or in the
resolution or resolutions evidencing or authorizing the action or actions
taken.
3.20 Compensation of Directors.
Directors, by and pursuant to appropriate resolution or resolutions of
the Board of Directors, may be paid.
(i) their respective out-of-pocket expenditures reasonably incurred
in connection with attendance at any Meeting;
(ii) a fixed sum of money for attendance at any Meeting;
<PAGE>
(iii) a stated salary as a Director.
Members of Special or Standing Committees of the Board of Directors may be
allowed and paid like compensation for attendance at Committee Meetings.
No such compensation or payment shall preclude any Director from serving
the Corporation in any such other capacity and receiving compensation
therefor.
3.21 Indemnification Provisions.
The Corporation shall indemnify all persons who have served or may
serve at any time as Officers or Directors of the Corporation, and their
respective heirs, executors, administrators, successors, and assigns, from
and against any and all loss and expense, including amounts paid in
settlement before or after suit is commenced, and reasonable attorneys'
fees, actually and necessarily incurred as a result of any claim, demand,
action, proceeding, or judgment that may be asserted against any such
persons, or in which any such persons are made parties by reason of their
being or having been Officers or Directors of the Corporation. The right to
indemnification herein generally described shall be subject to the approval
of a majority of disinterested Directors and is further subject to the
provisions of the Articles of Incorporation, particularly Articles XI and
XII thereof.
4. ARTICLE IV: COMMITTEES OF THE BOARD
4.1 Committees of Directors.
The Board of Directors, by resolution adopted by a majority of the
Directors then in office and constituting the whole Board, may designate
and appoint one or more Committees, each of which shall consist of two or
more Directors, which Committees, to the extent provided in such
resolution, shall exercise the power and authority of the Board of
Directors in the management of the Corporation. The Board of Directors
shall have the power at any time to fill vacancies in, to change the size
or membership of, and to discharge any such Committee.
4.2 Limitation of Authority.
No committee of the Board of Directors shall have the power or
authority of the full Board of Directors in reference to, or in respect of,
(i) amending the Articles of Incorporation;
(ii) amending, altering or repealing the By-Laws;
(iii) declaration of a dividend or the issuance of any shares of
capital stock of the Corporation;
<PAGE>
(iv) electing, appointing, or removing any member of any such
Committee or any Director or officer of the Corporation;
(v) adopting a plan of merger or adopting a plan of consolidation
with another corporation;
(vi) authorizing the sale, lease or exchange of all or substantially
all of the property or assets of the Corporation;
(vii) authorizing the voluntary dissolution of the Corporation or
revoking proceedings therefor;
(viii) adopting a plan for the distribution of the assets of the
Corporation; or
(ix) amending, altering, or repealing any resolution of the Board of
Directors which by its terms provides that it shall not be
amended, altered, or repealed by any such Committee.
4.3 Other Committees.
Other committees not having and exercising the authority of the Board
of Directors in the management of the Corporation may be designated by a
resolution adopted by a majority of the Directors present at a Meeting at
which a quorum is present. Except as otherwise provided in such resolution,
the President of the Corporation shall appoint the members thereof. Any
member or members thereof may be removed by the person or persons
authorized to appoint such member or members whenever in the judgment of
the person or persons making the original appointment, the best interests
of the Corporation would be served by such removal.
4.4 Term of Office.
Each member of a Committee shall continue as such until the next
Annual Meeting of the Board of Directors of the Corporation and until his
successor is appointed, unless the Committee shall be sooner terminated, or
unless such member be removed from such Committee, or unless such member
shall cease to qualify as a member thereof.
4.5 Chairman.
One of each Committee shall be appointed chairman by the person or
persons authorized to appoint the members thereof.
4.6 Vacancies.
Vacancies in the membership of any Committee may be filled by
appointments made in the same manner as provided in the case of the
original appointments.
<PAGE>
4.7 Quorum.
Unless otherwise provided in the resolution of the Board of Directors
designating a Committee, a majority of the whole Committee shall constitute
a quorum and the act of a majority of the members present at a meeting of
which a quorum is present shall be the act of the Committee.
4.8 Rules.
Each committee may adopt rules for its own government not inconsistent
with these By-Laws or with rules adopted by the Board of Directors.
4.9 Minutes.
Each such Committee shall keep a written record of its proceedings and
shall submit such record to the whole Board at each Regular Meeting of the
Board, and at such other times as may be requested by the Board. However,
failure to submit such record, or failure of the Board to approve any
action indicated therein shall not invalidate such action to the extent it
has been carried out by the Corporation prior to the time the record
thereof was or should have been submitted to the Board as provided herein.
4.10 Continuing Responsibilities.
The designation, appointment and functioning of any such Committee or
Committees and the delegation thereto of authority and power shall not
operate to relieve the Board of Directors, or any individual Director, of
any responsibility imposed on it or him by law.
5. ARTICLE V: OFFICER TITLES AND TENURES
5.1 Titles and Number of Officers.
The principal Officers of the Corporation shall be a President, a Vice
President, a Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors.
Such other Officers, Assistant Officers and agents as may be deemed
necessary or desirable may be elected or appointed at any time by the Board
of Directors (or by the President subject to ratification of any such act
or acts by the Board of Directors at the next occurring Meeting thereof).
Any two or more offices may be held by the same person; provided, however,
that no person holding two or more offices shall act in, or execute any
instrument, in the capacity of more than one office.
5.2 Election.
The Officers of the Corporation to serve during the ensuing year shall
be elected at the Annual Meeting of the Board of Directors provided for in
Section 3.10 of Article III herein above.
<PAGE>
5.3 Tenure.
Each Officer and Assistant Officer shall be elected to serve until the
next Annual Meeting of the Board of Directors or until his successor shall
have been duly elected and shall have been qualified.
5.4 Resignation.
Any Officer or Assistant Officer may resign at any time by giving
written notice thereof to the Board of Directors or to the President or to
the Secretary of the Corporation. Any such resignation shall take effect at
the time specified therein and unless otherwise specified therein the
acceptance of such resignation shall not be necessary to make it effective.
5.5 Removal.
Any Officer, Assistant Officer or agent elected or appointed by the
Board of Directors may be removed by a majority vote of the Board of
Directors whenever in its judgment the best interests of the Corporation
would be served thereby, but such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Any officer or agent
appointed in accordance with the provisions of Section 5.01 of this Article
V may also be removed, either for or without cause, by any officer upon
whom such power for removal shall have been conferred by the Board of
Directors.
5.6 Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the Board of Directors (or
the President subject to ratification by the Board) for the unexpired
portion of the related term at any time.
6. ARTICLE VI: THE POWERS AND DUTIES OF OFFICERS
6.1 In General.
Each Officer and Assistant Officer of the Corporation shall have such
powers and duties as are commonly incident to his or her respective office
subject, of course, to the provisions of these By-Laws and the respective
powers and duties specifically set forth herein and such powers and duties
as the Board of Directors may, from time to time, delineate, designate or
assign.
6.2 The President.
The President shall be the Chief Executive Officer of the Corporation.
As such, he shall control and supervise the conduct of all of the business
and affairs of the Corporation and, in general, shall perform all such
duties and possess all such powers and authorities as are normally incident
to the office of the President.
The President shall see to it that all policies, orders and
resolutions of the Board of Directors are implemented, executed and carried
out; subject, however, to the power and right of the Board of Directors to
delegate and assign specific powers to any other Officer or Officers of the
Corporation (except such as may be by statute conferred exclusively on the
President).
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The President shall preside at all Meetings of the Board of Directors
and of the Shareholders at which he is present. He shall be an ex-officio
member of all Standing or Special Committees.
The President shall execute, together with the Secretary (or any other
proper Officer of the Corporation thereunto duly authorized by the Board of
Directors) any deeds, mortgages, bonds, leases, contracts, certificates for
shares of the Corporation, or other instruments signing and execution shall
be expressly delegated by the Board of Directors or by these By-Laws to
some other Officer or agent of the Corporation, or shall be required by law
to be otherwise signed or executed. In those instances, if any, wherein the
other party or parties to any such instrument request or require the
affixing of the seal of the Corporation, he, when authorized by the Board
of Directors, may affix the seal of the Corporation to any instrument
requiring the same, and the seal when so affixed shall be attested by the
signature of either the Secretary or an Assistant Secretary.
6.3 The Executive Vice President.
The Executive Vice President, if any, shall perform such duties as may
be assigned from time to time by the President, the Board of Directors or
the Executive Committee, if any, of the Board of Directors. The Executive
Vice President may sign deposits, checks, contracts, and agreements,
settlements, leases, notes, mortgages, or claims of behalf of the
Corporation, and such other documents as the President, the Board of
Directors or the Executive Committee may direct.
6.4 The Vice President.
A Vice President shall perform such duties and exercise such authority
as from time to time may be assigned to him by the President or by the
Board of Directors.
In the absence of the President or in the event of the death,
inability or refusal to act of the President, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the
order designated at the time of their election, or in the absence of any
designation, then in the order of their election) shall perform the duties
of the President, and when so acting, shall have all the powers of, and be
subject to all the restrictions upon, the President.
6.5 The Secretary.
The Secretary shall attend all Meetings of the Board of Directors and
all Meetings of the Shareholders and shall record all votes and the minutes
of all proceedings and shall perform like duties for the Standing
Committees when required. He shall give or cause to
<PAGE>
be given notice of all Meetings of the Shareholders and all Meetings of the
Board of Directors and shall perform such other duties as may be prescribed
by the President or by the Board.
Specifically, the Secretary shall:
(i) ___________________________________________________________
books provided for the purpose;
(ii) ___________________________________________________________
of these By-Laws and as required by law;
(iii) receive (and when appropriate give receipts for) moneys and other
___________________________________________________________
(iv) have general charge of the stock transfer books of the Corporation
___________________________________________________________;
(v) ___________________________________________________________
the manner in which and the time when such stock was paid for, the
names alphabetically arranged and ______________________________
___________________________________________________________
(vi) ___________________________________________________________
___________________________________________________________
________________________________________such request is
not properly authorized;
(vii) ___________________________________________________________
_______________________; the financial condition of the
Corporation and exhibit his books, records and accounts
to the _______________;
(viii) ___________________________________________________________
________________ for the faithful performance of the duties of
his office and for the restoration to the Corporation, in case
of his death,
_______________________________________________________ and such
other duties as from time to time may be assigned to him by
the President or the Board of Directors;
(ix) _______________________ incident to the office of Treasurer and
such other duties as from time to time may be of
the Secretary ___________ _________________
<PAGE>
In the absence of the ____________________________________ all
Meetings of the Board and Shareholders shall be recorded by such person as
shall be designated by the President or ________________________________
6.6 The Treasurer.
________________________ Secretary or Secretaries, when authorized by
the Board of Directors, may sign with the President or a Vice President
certificates for shares of the Corporation the issuance __________________
_____________________________________________ the Corporation. Accordingly,
he shall________________________________________
The Assistant Treasurer of Treasurers shall, if required by the Board
of Directors, give bonds or the __________________________________________
_______________________________________________________ sureties as the
Board ____________ Corporation.
The Assistant Secretaries and Assistant Treasurers, in general, shall
perform such duties as shall be assigned to them by the Secretary or the
Treasurer, respectively, or by the President or the Board of Directors.
6.7 Absence or Disability of Officers.
In the case of the absence or disability of any Officer of the
Corporation and of any person hereby authorized to act in his place during
his absence or disability, the Board of Directors may by resolution
delegate the powers and duties of such Officer to any other Officer, or to
any Director, or to any other person whom it may select.
6.8 Salaries and Other Compensation.
The Salaries of the Officers and Assistant Officers of the Corporation
shall be fixed from time to time by the Board of Directors and no Officer
shall be prevented from receiving such salary or other compensation by
reason of the fact that he is also a Director of the Corporation.
The Corporation may enter into employment contracts, compensation
arrangements, insurance programs, stock option programs, incentive
programs, retirement programs and other agreements with such Officers,
consultants and employees of the Company as the Board of Directors, in its
sole discretion, shall determine to be in the best interest of the
Corporation.
7. ARTICLE VII: CERTIFICATES FOR SHARES
7.1 Form.
The certificates evidencing ownership of shares of any class of
capital stock in the Corporation shall be in such form, set forth such
provisions and bear such restrictive or informative legends as shall be
determined, in each case, by the Board of Directors or as required by
applicable law, rule or regulation.
<PAGE>
7.2 Issuance of Shares.
Certificates evidencing ownership of authorized but unissued shares in
the Corporation may be issued time to time only pursuant to a resolution of
resolutions of the Board of Directors authorizing and directing such
issuance. Each such resolution or resolutions shall specify the
(i) number,
(ii) class,
(iii) name or names in which any such shares are to be issued and,
(iv) the respective fair value of the consideration actually received
(or to be received) by the Corporation against the issuance of
any such shares.
As provided by the laws of the State of Delaware, such
consideration may consist of money paid or to be paid, labor done or
to be done, or personal or real property or interests in either or
both, all upon such terms and subject to such conditions as the Board
of Directors in its discretion shall or may determine.
7.3 Procedures Upon Issuance.
All certificates for shares, upon issuance thereof, shall be
consecutively numbered (or otherwise clearly and unambiguously identified)
and immediately entered and recorded in the stock transfer books of the
Corporation.
Each such newly issued Certificate shall
(i) be signed by the President or Vice President and by the Secretary
or an Assistant Secretary;
(ii) exhibit the holder's name and the number of shares, the ownership
of which is evidenced by such certificate;
(iii) set out the date of issuance; and
(iv) be sealed with the seal of the Corporation or a facsimile
thereof.
The Corporation may, from time to time, appoint a transfer agent or
transfer agents and a registrar or registrars who shall perform their
respective duties related to the issuance and transfer of certificates
under the supervision of the Secretary of the Corporation.
<PAGE>
7.4 Rights and Limitations of Rights.
Each certificate evidencing ownership of shares of capital stock of
the Corporation shall also indicate to the extent required by law (or the
rules of any exchange upon which such shares may be listed) the following
(i) The designation of any class or series of which such shares are a
part;
(ii) That the shares are without par value if that is a fact;
(iii) Any rights of redemption and the redemption price;
(iv) Any rights of conversion, and the essential terms and period for
conversion;
(v) Any restrictions on transfer or on the voting power of such
shares;
(vi) That the shares are assessable, if that is the fact;
(vii) That assessments to which the shares are subject are collectible
by personal action, if that is the fact;
(viii) The relative rights, preferences, privileges, and restrictions,
when the shares of the Corporation are classified or any class
has two or more series, granted to or imposed on the respective
classes or series of shares and the holders thereof, as
established by the Articles of Incorporation or by any
certificates of determination of preferences, set forth in the
resolution or resolutions of the Board of Directors establishing
any such class or series as well as the number of shares
constituting each such class or series and the designation
thereof; or a summary of such preferences, privileges, and
restrictions with reference to the provisions of the Articles of
Incorporation or certificates of determination of preferences
establishing the same; or specifying the office or agency of the
Corporation from which Shareholders may obtain without charge a
copy of a statement of such designations, privileges, preferences
and relative, participating, optional or other special rights of
the various classes of stock (or series thereof) and the
qualifications, limitations or restrictions of such rights, or
other rights and restrictions as set forth in such summary;
(ix) Any right of the Board of Directors to fix the dividend rights,
dividend rate, conversion rights, voting rights, rights in terms
of redemption, including sinking fund provisions, the redemption
price or prices, or the liquidation preferences of any wholly
unissued class or of any wholly unissued series of any class of
shares, or the number of shares constituting any unissued series
of any class of shares, or designation of such series, or all or
any of them; and,
<PAGE>
(x) For any certificates issued for shares prior to the full payment
therefor, the amount remaining unpaid, the terms of payments to
become due, and any restrictions on the transfer of such partly
paid shares on the books of the Corporation.
7.5 Subscriptions for Stock.
Unless otherwise provided for in the related subscription agreement,
subscriptions for shares shall be paid in full at such time, or in such
installments and at such times as shall be determined by the Board of
Directors. Any call made by the Board of Directors for payment on
subscription shall be uniform as to all shares of the same class or as to
all shares of the same series. In case of default in the payment of any
installment or no such payment of any installment or call when such payment
is due, the Corporation may proceed to collect the amount due in the same
manner as any debt due the Corporation.
7.6 Ownership of Shares.
The Corporation shall be entitled to, and may, deem and treat the
person in whose name any share or shares are held of record as the holding
in fact thereof for all purposes and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not the Corporation
shall have express or other notice of any such claim, except as otherwise
provided by law.
7.7 Transfer of Shares.
Upon surrender to the Corporation (or to the transfer agent of the
Corporation) of a certificate for shares duly endorsed or accompanied by
proper evidence of succession, assignment or authority to transfer, it
shall be the duty of the Corporation to issue a new certificate or
certificates to the person entitled thereto, cancel the old certificate,
and record the transaction upon its books.
All certificates surrendered to the Corporation (or its transfer
agent) for transfer shall be canceled and no new certificate or
certificates shall be issued until the former certificate or certificates
for a like number of shares shall have been surrendered and canceled
(except as herein below provided in Section 7.8 of this Article VII with
respect to lost, stolen, mutilated or destroyed certificates).
7.8 Lost Certificates.
The Board of Directors, in its discretion, may direct a new
certificate or certificates to be issued in place of any certificate or
certificates therefore issued by the Corporation alleged to have been lost,
stolen, mutilated or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be, as the case may be,
lost, stolen, mutilated or destroyed.
<PAGE>
When authorizing such issue of a new certificate or certificates, the
Board of Directors, in its discretion, and as a condition precedent to the
issuance thereof, may require the owner of such lost, stolen, mutilated or
destroyed certificates or his legal representative to advertise the same in
such manner as it shall require or to give the Corporation a bond with
surety and in form satisfactory to the Corporation (which bond shall also
name the Corporation's transfer agents and registrars, if any, as obligees)
in such sum as it may direct as indemnity against any claim that may be
made against the Corporation or other obligees with respect to the
certificate alleged to have been lost, stolen, mutilated or destroyed, or
to both advertise and also give such bond.
7.9 Transfer Agents and Registrars.
The Board of Directors may from time to time appoint one or more
transfer agents and one or more registrars with respect to the certificates
representing shares of stock of the Corporation, and may require all such
certificates to bear the signature of either or both of such agents. The
Board of Directors may from time to time define the respective duties of
such transfer agents and registrars. No certificate evidencing the
ownership of capital stock of the Corporation shall be valid until
countersigned by a transfer agent, if at the date appearing thereon the
Corporation had a transfer agent for such stock, and until registered by a
registrar, if at such date the Corporation had a registrar for such stock.
7.10 Facsimile Signatures.
If the Corporation shall have at any time a transfer agent or agents
or a registrar or registrars (or both) for the issuance and transfer of the
certificates for shares of its stock, then the signature of the Officers or
Assistant Officers of the Corporation required upon such certificates may
be facsimile signatures.
In case any Officer or Officers who shall have signed or whose
facsimile signature or signatures shall have been used on any such
certificate or certificates shall cease to be such Officer or Officers of
the Corporation, whether because of death, resignation or otherwise, before
said certificate or certificates shall have been issued, such certificate
may nevertheless be issued by the Corporation with the same effect as
though the person or persons who signed such certificates or whose
facsimile signature or signatures shall have been used thereon had been
such Officer or Officers at the date of issuance of any such certificate or
certificates.
8. ARTICLE VIII: CORPORATION INSTRUMENTS AND ACTIONS
8.1 Contracts and Other Agreements.
The Board of Directors may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute and deliver any instrument in
the name of and on behalf of the Corporation, and such authority may be
general or confined to specific instances. The President and Executive Vice
President (if any) shall have general authority to execute contracts,
loans, mortgages, liens, leases, checks and deposits in the ordinary
<PAGE>
course of business unless otherwise provided by a resolution of the Board
of Directors or the Executive Committee (if any) or these By-Laws.
8.2 Loans and Evidence of Indebtedness.
No loans shall be contracted on behalf of the Corporation and no
evidences of indebtedness shall be issued in its name and no property of
the Corporation shall be mortgaged, pledged, hypothecated or transferred as
security for the payment of any loan, advance, indebtedness or liability of
the Corporation unless authorized by a resolution of the Board of
Directors. Such authority may be general or confined to specific instances.
8.3 Checks, Drafts, or Orders.
All checks, drafts, acceptances, notes or other orders for the payment
of money by or to the Corporation and all notes and other evidence of
indebtedness issued in the name of the Corporation shall be signed by such
Officer or Officers or agent or agents of the Corporation, and in such
manner, as shall be determined by resolution of the Board of Directors.
Such authority may be general or may be confined to specific instances.
8.4 Deposits.
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation in such banks, trusts
companies, or other depositories as the Board of Directors may select or as
from time to time be selected by any Officer or agent authorized to do so
by the Board of Directors.
8.5 Voting of Securities Held by the Corporation.
Unless otherwise ordered by the Board of Directors, the President of
the Corporation shall have the authority to vote, represent, and exercise
on behalf of the Corporation all rights incidental to any and all shares of
any other corporation standing in the name of the Corporation. Such
authority may be exercised by the designated Officers in person or by
proxy.
8.6 Sale or Transfer of Securities Held by the Corporation.
Sales, transfers, endorsements, and assignment of shares of stocks,
bonds, and other securities owned by or standing in the name of the
Corporation and the execution and delivery on behalf of the Corporation of
any and all instruments in writing incident to any such sale, transfer,
endorsement, or assignment, shall be effected by the President and
Secretary, or by any Officer or agent thereunto authorized by the Board of
Directors.
<PAGE>
9. ARTICLE IX: DIVIDENDS
9.1 Declaration.
The Board of Directors may, from time to time at any Annual, Regular
or Special Meeting of the Board, declare, and the Corporation may pay, a
dividend or dividends on its outstanding shares in cash, property or shares
of the Corporation in the manner and upon the terms and conditions
prescribed by the Board of Directors all to the extent permitted by, and
subject to the provisions of, the laws of the State of Delaware and the
Articles of Incorporation of the Corporation.
9.2 Reserves.
Before payment of any dividend there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the
Directors from time to time in their absolute discretion think proper as a
reserve fund to meet contingencies or for equalizing dividends or for
repairing or maintaining any property of the Corporation, or for such other
purpose as the Directors shall think conducive to the interest of the
Corporation, and the Directors may abolish any such reserve in the manner
in which it was created.
10. ARTICLE X: AMENDMENTS
10.1 Amendment by the Board of Directors.
These By-Laws may be altered, amended or repealed, in whole or in
part, and a new By-Law or By-Laws may be adopted, by the affirmative vote
of a majority of the members of the Board of Directors except that no
By-Law adopted or amended by the Shareholders shall be altered or repealed
by the Board of Directors.
10.2 Action by Shareholders.
Any By-Law or By-Laws altered, amended, repealed or adopted by the
Board of Directors may thereafter be altered, amended or repealed, in whole
or in part, and new or additional By-Law or By-Laws may be adopted by the
affirmative vote of the holders of a majority of the shares outstanding and
entitled to vote thereon.
10.3 No Amendment.
No amendment, modification, alteration or repeal of the provisions of
this Article X shall be made or accomplished except by the Shareholders of
the Corporation.
<PAGE>
11. ARTICLE XI: SUNDRY PROVISIONS
11.1 Action by Written Consent.
Any action required to be taken or which may be taken at a Meeting of
the Shareholders, Directors or members of a Committee, may be taken without
a meeting if a consent in writing setting forth the action so taken shall
be signed by all of the Shareholders, Directors, or members of the
Committee, as the case may be, entitled to vote with respect to the subject
matter thereof, and such consent shall have the same force and effect as a
unanimous vote of the Shareholders, Directors, or members of the Committee,
as the case may be, at a meeting of said body.
11.2 Informal Meetings and Action.
Whenever all parties entitled to vote at any Meeting, whether of
Directors or Shareholders, consent, either by a writing on the records of
the Meeting or filed with the Secretary, or by presence at such Meeting and
oral consent entered on the minutes, or by taking part in the deliberations
at such Meeting without objection, the actions and proceedings at and of
such Meeting shall be as valid as if had at a Meeting regularly called and
noticed, and at such Meeting any business may be transacted which is not
excepted from the written consent or to the consideration of which no
objection for want of notice is made at the time, and if any Meeting be
irregular for want of notice or of such consent, provided a quorum was
present at such Meeting, the proceedings of said Meeting may be ratified
and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote
at such Meetings; and such consent or approval of Shareholders may be by
proxy or attorney, but all such proxies and powers of attorney must be in
writing.
11.3 Waiver of Notice.
Each and any notice otherwise required to be given pursuant to any
provision of these By-Laws or applicable statute, may be waived by the
person or person entitled thereto by the executive of a written waiver of
such notice signed by such person or persons either before or after the
date and hour of the related assemblage or proceeding and thereafter
forthwith delivered to the Secretary of the Corporation. Execution and
delivery of such a written waiver shall be, and shall be deemed to be,
equivalent to any required notice.
Neither the business to be transacted at, nor the purposes of, any
Regular or Special Meeting of the Board of Directors, Shareholders or any
Committee, need be specified in the waiver of notice of such meeting.
11.4 Management by Shareholders.
If the Articles of Incorporation of the Corporation shall at any time
hereafter be amended to provide (in accordance with then applicable law)
that the business and affairs of the Corporation shall be managed by the
Shareholders of the Corporation shall be
<PAGE>
deemed the Directors of the Corporation for purposes of applying any
provision of these By-Laws or applicable statute.
11.5 Corporate Seal.
The Corporation shall have a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the Corporation, the year
and State of its incorporation and the words "Corporate Seal, Delaware."
The seal may be used by causing it or a facsimile thereof to be impressed
or affixed or in any other manner reproduced. The corporate seal may be
altered by order of the Board of Directors at any time.
11.6 Reports to Stockholders.
The Board of Directors shall send an annual report to the Shareholders
of the Corporation, not later than ninety (90) days after the close of the
fiscal year of the Corporation. The annual report shall include a balance
sheet as of the close of the fiscal year of the Corporation and an income
statement and statement of changes in financial position for such fiscal
year. The financial statements shall be prepared from and in accordance
with the books of the Corporation, in conformity with generally accepted
accounting principles applied on a consistent basis, and shall be certified
by an independent certified public accountant.
11.7 Inspection of Corporate Records.
The Corporation shall keep correct and complete books and records of
account and shall also keep minutes of all Meetings of Shareholders and
Directors. Additionally, a record shall be kept at the principal executive
office of the Corporation, giving the names and addresses of all
Shareholders, and the number and class or classes of shares held by each.
Any person who has been the holder of a record of shares for at least six
(6) months or who is the holder of the record of at least five percent (5%)
of the outstanding voting shares of the Corporation shall have the right to
examine a copy, in person or by agent or attorney, at any reasonable time
or times, for any proper purpose, the books and records of account of the
Corporation, the minutes, and the record of the Shareholders. On the
written request of any Shareholder, the Corporation shall mail to such
Shareholder within ninety (90) days after receipt of such request, a
balance sheet as of the close of its latest fiscal year and a profit and
loss statement for such fiscal year. If such request is received by the
Corporation before such financial statements are available for its latest
fiscal year, the Corporation shall mail such financial statements within
ninety (90) days after they become available, but in any event within
ninety (90) days after the close of its latest fiscal year.
11.8 Inspection of Articles of Incorporation and By-Laws.
The original or a copy of the Articles of Incorporation and the
By-Laws of the Corporation, as amended or otherwise altered to date, and
certified by the Secretary of the
<PAGE>
Corporation, shall at all times be kept at the principal executive office
of the Corporation. Such Articles and By-Laws shall be open to inspection
by all Shareholders of record at all reasonable times during the business
hours of the Corporation.
11.9 Fiscal Year.
The fiscal year of the Corporation shall begin on the 1st day of June
in each year and end of the 31st day of May in each year.
11.10 Construction and Definition.
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions contained in the General Corporation Law
of Delaware shall govern and control the construction, meaning and
interpretation of these By-Laws. Without limiting the foregoing, the
masculine gender includes the feminine and neuter; the singular number
includes the plural, and the plural number includes the singular; "shall"
is mandatory and "may" is permissive; and "person" includes a corporation,
partnership, trust or other legal entity as well as a natural person.
11.11 Captions.
The Table of Contents and the titles or captions of Articles, Sections
or paragraphs contained in the By-Laws are inserted and utilized only as a
matter of convenience and for ease of reference, are not a part of these
By-Laws and in no way are intended to, or do, define, interpret, limit,
extend or describe the scope of any provision hereof.
Adopted this 13th day of December, 1988.
__________________________
Secretary
NUMBER SHARES
EP
ECOLOGY PURE AIR INTERNATIONAL, INC.
SEE REVERSE FOR
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
COMMON STOCK CUSIP 27889A 10 6
THIS CERTIFIES THAT:
is owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK $.001 PAR VALUE EACH OF
ECOLOGY PURE AIR INTERNATIONAL, INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate duly endorsed or
assigned. This certificate and the shares represented hereby are subject to the
laws of the State of Delaware, and to the Certificate of Incorporation and
Bylaws of the Corporation, as now or hereafter amended. This certificate is not
valid until countersigned by the Transfer Agent.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
COUNTERSIGNED:
DATED: STOCKTRANS, INC.
7 EAST LANCASTER AVE., ARDMORE, PA 19003
TRANSFER AGENT
BY:
[SEAL] AUTHORIZED SIGNATURE
PRESIDENT AND SECRETARY
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
<PAGE>
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 accord-
ing 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
in common 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 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 __________________________________________________
______________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME
AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE CORPORATION WILL FURNISH TO ANY STOCKHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND
LIMITATIONS OF THE SHARES OF EACH CLASS AND SERIES AUTHORIZED TO BE ISSUED, SO
FAR AS THE SAME HAVE BEEN DETERMINED, AND OF THE AUTHORITY, IF ANY, OF THE
BOARD TO DIVIDE THE SHARES INTO CLASSES OR SERIES AND TO DETERMINE AND CHANGE
THE RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS OF ANY CLASS OR SERIES. SUCH
REQUEST MAY BE MADE TO THE SECRETARY OF THE CORPORATION OR TO THE TRANSFER
AGENT NAMED ON THIS CERTIFICATE.
________________________________________________________________________________
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR
OTHER RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE
MEDALLION PROGRAM.
________________________________________________________________________________
<PAGE>
AGREEMENT
This Agreement is dated as of ____________________, 1996, by and among
ECOLOGY PURE AIR INTERNATIONAL, INC., a Delaware corporation (the "Company") and
the undersigned holder of securities of the Company (the "Holder").
W I T N E S S E T H:
WHEREAS, on November 17, 1995, through a series of transactions, the
Company secured the worldwide manufacturing and marketing rights (exclusive of
Canada) to the technologies and products relating to the Combustion Efficiency
Management Catalyst ("C.E.M. Catalyst") and the Company entered into a Plan of
Arrangement to acquire the company that has the Canadian marketing rights to the
C.E.M. Catalyst (collectively, the transactions and the Plan of Arrangement,
although it remains subject to completion, shall be hereinafter referred to as
the "Acquisition Transactions");
WHEREAS, the Holder was instrumental in arranging and assisting the Company
in the Acquisition Transactions and in connection therewith, has received and is
entitled to receive certain shares of the Company's Common Stock ("Restricted
Stock") upon exercise of the Common Stock Purchase Warrants ("Warrants");
WHEREAS, in consideration for the return of the Warrants to the Company,
the Company has agreed to use its best efforts to register for resale the shares
of Restricted Stock as set forth herein; and
WHEREAS, in connection with the registration of the Restricted Stock the
Holder has agreed to certain "lock-up" provisions as set froth below in
connection with the resale of the Restricted Stock, as set forth herein.
NOW, THEREFORE, the parties hereto agree as follows:
1. DEFINITIONS.
(a) "Agreement" shall mean this Agreement between the Company and the
Holder.
(b) "Company" shall mean Ecology Pure Air International, Inc.
(c) "Holder" shall mean the Holder of Warrants who has received or has
the right to receive, shares of the Company's Common Stock directly and upon
exercise of the Warrants.
(d) "Restricted Stock" shall mean the Common Stock of the Company that
has been or may be issued to the Holder directly or upon exercise of the
Warrants.
<PAGE>
(e) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar or successor federal statute, and the rules and
regulations of the SEC thereunder, all as the same shall be in effect at any
relevant time.
(f) "SEC" shall mean the United States Securities and Exchange
Commission.
2. MANDATORY REGISTRATION RIGHTS.
(a) During the first quarter of calendar year 1997, but in no event
later than March 31, 1997, the Company agrees to use its best efforts to file a
registration statement with the SEC for the purpose of registering for resale
the Restricted Stock. Resale of the Restricted Stock, however, shall be subject
to the limitations set forth in Paragraph 3 below.
(b) The Company's obligation in Subparagraph 2(a) above shall extend
only to the inclusion of the shares of Restricted Stock in a registration
statement, and not as to the determination of the manner of disposition. Nothing
contained within this Agreement shall be deemed to be an assurance as to the
liquidity of the Restricted Stock.
3. LOCK-UP OF RESTRICTED STOCK.
(a) Without the prior written consent of the Company, the Holder
hereby agrees that it will not in an open market or public transaction, directly
or indirectly, offer, sell, offer to sell, contract to sell, pledge, grant any
option to purchase or otherwise sell or dispose (or announce any offer, sale,
offer of sale, contract of sale, pledge, grant of any option to purchase or
other sale or disposition) (collectively, "Dispose") of any shares of Restricted
Stock for a period commencing upon the execution of this Agreement and ending
May 31, 1997 thereafter ("Lock-Up Period").
(b) For the period commencing June 1, 1997 and ending May 31, 1998
("Disposal Period"), the Holder shall be allowed to Dispose of such shares of
Restricted Stock in an amount equal to 50,000 shares for each of the succeeding
months during the Disposal Period. For purposes of disposition, the shares of
Restricted Stock the Holder is allowed to Dispose of shall accumulate during the
Disposal Period, such that, should less than the maximum number of Restricted
Stock be sold during any month during the Disposal Period, the unsold permitted
number of Restricted Stock will carry forward to the next succeeding month
during the Disposal Period. Additionally, if the registration statement filed
pursuant to Paragraph 2 has not been declared effective upon commencement of the
Disposal Period, then Holder's rights to Dispose of the Restricted Stock during
the Disposal Period shall accumulate until such time as the registration
Statement is declared effective by the SEC.
(c) Upon the termination of the Disposal Period, Holder shall have no
restrictions upon disposition of any shares of Restricted Stock then held by
Holder that are registered in the registration statement filed pursuant to
Paragraph 2 herein.
(d) If the Holder conveys the Restricted Stock to another party, i.e
in a private transaction(s), then Holder shall require the acquiror of the
conveyed shares in said private
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transaction(s) to adhere to the provisions and terms of this Agreement as if
such acquiror were an original party to this Agreement.
4. RETURN OF WARRANTS.
In consideration for the registration rights granted pursuant to
Paragraph 2 herein, Holder hereby agreed to waive any and all rights to, and
return to the Company, the Warrants received in connection with the Acquisition
Transactions. Holder shall execute any and all documentation as may be required
by the Company to evidence the return of such Warrants to the Company.
5. INDEMNIFICATION.
The Company has agreed to indemnify and hold harmless each Holder from
and against any and all losses, claims, damages and liabilities caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement or prospectus relating to the Restricted Stock, except
insofar as such losses, claims, damages or liabilities are caused by any such
untrue statement or are otherwise based upon information furnished to the
Company by such Holder or on such Holder's behalf for use therein; provided,
however, that the foregoing indemnity agreement with respect to such prospectus
shall not inure to the benefit of such Holder from whom the person asserting any
such loss, claim, damage or liability purchased the Restricted Stock if it is
determined that it was the responsibility of such Holder to provide such person
with a current copy of the prospectus and such current copy of the prospectus
would have cured the defect giving rise to such loss, claim, damage or
liability.
6. REGISTRATION PROCEDURES.
If and whenever the Company effects the registration of any of the
Restricted Stock pursuant to Paragraph 2 under the Securities Act, the Company
will use its best efforts to:
(a) Prepare and file with the SEC a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for the period of the distribution
contemplated thereby or as required under the Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for the period
specified in Subparagraph 6(a) above and as necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
Restricted Stock covered by such registration statement in accordance with the
sellers' intended method of disposition set forth in such registration statement
for such period.
(c) Furnish to each seller and to each underwriter such number of
copies of the registration statement and the prospectus included therein
(including each preliminary prospectus), as such persons may reasonably request
in order to facilitate the public sale or other disposition of the Restricted
Stock covered by such registration statement.
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(d) Use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or blue sky laws of
such jurisdictions as the sellers, or, in the case of an underwritten public
offering, the managing underwriter shall reasonably request; provided, however,
that the Company shall not for any such purpose be required to qualify generally
to transact business as a foreign corporation in any jurisdiction where it is
not so qualified or to consent to general service of process in any such
jurisdiction.
(e) Immediately notify each seller under such registration statement
and each underwriter, at any time when a prospectus relating thereto is required
to be delivered under the Securities Act, of the happening of any event as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required or necessary to be stated therein in order to make the
statements contained therein not misleading in light of the circumstances then
existing.
(f) Make available for inspection by each seller, any underwriter
participating in any disposition pursuant to such registration statement, and
any attorney, accountant or other agent retained by any such seller or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
(g) For purposes of Subparagraphs 6(a) and 6(b) above, the period of
distribution of Restricted Stock shall be deemed to extend for nine months (120
days in the case of registration on Form S-3) or such earlier date as (A) in an
underwritten public offering, each underwriter has completed the distribution of
all securities purchased by it; and (B) in any other registration, all shares of
Restricted Stock covered thereby shall have been sold.
(h) If the Common Stock of the Company is listed on any securities
exchange or automated quotation system, the Company shall list (with the listing
application being made at the time of the filing of such registration statement
or as soon thereafter as is reasonably practicable) the Restricted Stock covered
by such registration statement on such exchange or automated quotation system.
7. EXPENSES.
(a) For the purposes of this Paragraph 7, the term "Registration
Expenses" shall mean: all expenses incurred by the Company in complying with
Paragraph 2 of this Agreement, including, without limitation, all registration
and filing fees, printing expenses, fees and disbursements of counsel and
independent public accountants for the Company (other than the expenses of any
special audit as described below), fees of the National Association of
Securities Dealers, Inc. ("NASD"), fees and expenses of listing shares of
Restricted Stock on any securities exchange or automated quotation system on
which the Company's shares are listed and fees of transfer agents and
registrars. The term "Selling Expenses" shall mean: all underwriting discounts
and selling commissions applicable to the sale of Restricted Stock, and all
accountable or non-accountable expenses paid to any underwriter in respect of
the sale of Restricted Stock.
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(b) Except as otherwise provided herein, the Company will pay all
Registration Expenses in connection with the registration statement filed
pursuant to Paragraph 2 of this Agreement. All Selling Expenses in connection
with any registration statement filed pursuant to Paragraph 2 of this Agreement
shall be borne by the participating sellers in proportion to the number of
shares sold by each, or by such persons other than the Company (except to the
extent the Company shall be a seller) as they may agree.
8. OBLIGATIONS OF HOLDER.
(a) In connection with each registration hereunder, each selling
Holder will furnish to the Company in writing such information with respect to
such seller and the securities held by such seller, and the proposed
distribution by them as shall be reasonably requested by the Company in order to
assure compliance with federal and applicable state securities laws, as a
condition precedent to including such seller's Restricted Stock in the
registration statement. Each selling Holder also shall agree to promptly notify
the Company of any changes in such information included in the registration
statement or prospectus as a result of which there is an untrue statement of
material fact or an omission to state any material fact required or necessary to
be stated therein in order to make the statements contained therein not
misleading in light of the circumstances then existing.
(b) In connection with each registration pursuant to Paragraph 2 of
this Agreement, the Holders included therein will not effect sales thereof until
notified by the Company of the effectiveness of the registration statement, and
thereafter will suspend such sales after receipt of telegraphic or written
notice from the Company to suspend sales to permit the Company to correct or
update a registration statement or prospectus. At the end of any period during
which the Company is obligated to keep a registration statement current, the
Holders included in said registration statement shall discontinue sales of
shares pursuant to such registration statement upon receipt of notice from the
Company of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and such Holders shall notify the
Company of the number of shares registered which remain unsold immediately upon
receipt of such notice from the Company.
9. MISCELLANEOUS PROVISIONS.
(a) Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to that
state's conflict of laws provisions.
(b) Counterparts. This Agreement may be signed in counterparts, each
of which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
(c) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
without the written consent of the Company and the Holders.
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(d) Notices. All communications under this Agreement shall be
sufficiently given if delivered by hand or by overnight courier or mailed by
registered or certified mail, postage prepaid, addressed,
(i) if to the Company, to:
Ecology Pure Air International, Inc.
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
Attention: Teodosio Pangia
with a copy to:
Stephen M. Cohen, Esquire
Buchanan Ingersoll Professional Corporation
1200 Two Logan Square
18th and Arch Streets
Philadelphia, PA 19103
or, in the case of the Holders, at such address as each such Holder shall have
furnished in writing to the Company; or at such other address as any of the
parties shall have furnished in writing to the other parties hereto.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Entire Agreement; Survival; Termination. This Agreement is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement supersedes all prior agreements and
understandings of any kind between the parties with respect to such subject
matter, including any and all prior Registration Rights Agreements.
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IN WITNESS WHEREOF, intending to be legally bound hereby, the parties have
executed this Agreement as of the date first written above.
ECOLOGY PURE AIR INTERNATIONAL, INC.
By:_____________________________________
Teodosio Pangia
Chief Executive Officer
HOLDER
By:_____________________________________
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LOCK-UP AGREEMENT
WHEREAS, EPA International, Inc. (formerly "Ecology Pure Air International,
Inc.") (hereinafter "EPA") or its principals (collectively, "Acquirors") have
entered into an Agreement to acquire sufficient common shares to secure absolute
control of Ecology Pure Air International, Inc. (formerly "Mark Four Resources,
Inc.") (hereinafter "Mark Four") and the Acquirors want to insure that the
common shares retained by the former control persons of Mark Four and their
assignee (former insiders of Mark Four, hereinafter collectively known as
"Seller") are not excessively and precipitously offered for sale in the public
market which could adversely affect the price of said common shares; and
WHEREAS, in conjunction with the change of control of Mark Four, the
Sellers agreed to certain limitations and restrictions on the disposition of the
shares of Common Stock beneficially owned by Sellers as of the date of the
change in control as set forth below.
NOW, THEREFORE, the parties hereto agree as follows:
All of the signatories to this Lock-Up Agreement as Sellers, agree to
refrain from selling their common shares in the open market in a manner
inconsistent with the provisions of this Agreement, or if they convey their
shares to another party, i.e. in a private transaction(s) to require the
Acquiror of these common shares in said private transaction(s) to adhere to
these restrictions as if they were a party to this Lock-Up Agreement in
accordance with the provisions enumerated immediately below;
Without the prior written consent of the Company, each of the signatories
hereby agree that it will not in an open market or public transaction, directly
or indirectly, offer, sell, offer to sell, pledge, grant any option to purchase
or otherwise sell or dispose (or commence any offer, sale, offer of sale,
contract of sale, pledge, grant any option to purchase or other sale or
disposition) (collectively, "Dispose") of any shares of Common Stock for the
period commencing upon the date that the shares of Common Stock trade on the
Over-The-Counter Market Electronic Bulletin Board and ending on the earlier of
the 90th day thereafter or March 31, 1997 ("Lock-Up Period").
For the period commencing upon the termination of the Lock-Up Period and
ending on January 31, 1998 (the "Disposal Period"), the Seller shall be allowed
to Dispose of such shares of Common Stock during each 30 day period during the
Disposal Period in an amount up to five (5%) percent of the shares beneficially
owned by the Seller as of November 17, 1995. For purposes of disposition, the
shares of Common Stock the Seller is allowed to Dispose of shall accumulate
during the Disposal Period, such that should less than the maximum number of
shares of Common Stock be sold in any particular 30 day period during the
Disposal Period, then the unsold permitted number of shares of Common Stock will
carry forward to the next period.
Upon termination of the Disposal Period, Seller shall have no restrictions
upon disposition of any shares of Common Stock then held by Seller, as to the
shares of Common Stock to which this Lock-Up Agreement pertains.
<PAGE>
In connection with this Agreement, each of the undersigned represents and
warrants to Mark Four that:
(i) the undersigned is not a U.S. person, as such term is defined in
Regulation S ("Regulation S") as promulgated by the Securities and Exchange
Commission, under the Securities Act of 1933, as amended (the "Act");
(ii) the undersigned has held the shares to which this Agreement
pertains for a period of one year; and
(iii) the undersigned owns the shares to which this Agreement pertains
for its own account for investment only and not with a view to resale or
distribution and not on behalf of any U.S. person.
In consideration for the execution of this Agreement, Mark Four agrees to
remove the restrictive legends currently on the shares of Common Stock to which
this Agreement pertains, and to replace said restrictive legends with a legend
reflecting the existence of the terms and provisions of this Agreement.
Additionally, Mark Four hereby agrees to pay such fees and expenses incurred by
its transfer agent in connection with the release of the shares from the terms
and provisions of this Agreement and the subsequent distribution of share
certificates reflecting said releases to each of the undersigned. Mark Four
shall only be responsible for those fees and expenses of its transfer agent
associated with each of the five (5%) percent releases of each of the
undersigned.
This Agreement may be executed in counterparts, each of which shall be an
original, with the same effect as if the signatures thereto and hereto were upon
the same instrument. In the event this Agreement is not duly executed by all of
the Sellers, then in such an event, the terms hereof shall be enforceable
against only those Sellers executing this Agreement.
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<PAGE>
Agreed to as of this ______ day of _________________, 1996.
By:_____________________________ _______________________________
Michael Doran Shares beneficially owned
By:_____________________________ _______________________________
Marie McGorman Shares beneficially owned
By:_____________________________ _______________________________
David Dolson Shares beneficially owned
By:_____________________________ _______________________________
Tille Investments Limited Shares beneficially owned
Accepted by and on behalf of Mark Four
By:___________________________________
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made, entered into and
executed as of this 1st day of December, 1995, between Mark Four Resources,
Inc., a Delaware corporation (the "Company"), and Teodosio Pangia, an individual
currently resident in the Province of Ontario ("Executive").
WHEREAS, the Company considers it essential and in the best interest of
its stockholders to foster the continuous employment of key management personnel
or to hire additional personnel and desires to retain the services of Executive
on the terms and conditions provided in this Agreement;
AND WHEREAS, Executive desires to render services to the Company on the
terms and conditions provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. Employment
1.1 Employment and Duties. The Company hereby agrees to employ
Executive for the Term (as hereinafter defined) as Chairman and Chief Executive
Officer subject to the direction of the Board of Directors of the Company (the
"Board") and, in connection therewith, to perform such duties as he shall
reasonably be directed by the Board to perform. In performing such duties
hereunder, Executive shall comply with the policies and procedures as adopted
from time to time by the Board, shall give the Company the benefit of his
special knowledge, skills, contacts and business experience, shall be just and
faithful in the performance of his duties and in carrying out his
responsibilities and shall devote all of his duties and responsibilities
hereunder; provided, however, that Executive may, with the approval of the
Board, from time to time, serve, or continue to serve, on the Board of Directors
of, and hold any other offices or positions in, companies or organizations,
which, in the Board's judgment, will not present any conflict of interest with
the Company or any of its affiliates or divisions, or adversely affect the
performance of Executive's duties pursuant to this Agreement. Executive hereby
accepts such employment and agrees to render such services.
1.2 Location. The principal location for performance of Executive's
services hereunder shall be in Canada and the United States, subject to
reasonable travel requirements during the course of such performance. The
Company will provide accommodations for the Executive during his stay in New
York and pay for the Executive's reasonable travel and incidental expenses.
2. Employment Term
<PAGE>
2.1 Term. The Term of the Executive's employment hereunder (the "Term")
shall commence on the date hereof and shall end on the fifth anniversary hereof
(the "Initial Term"), unless sooner terminated as provided herein; provided,
however that the Term shall be extended and this Agreement shall be
automatically renewed for successive five year periods unless: (i) this
Agreement is terminated as otherwise provided herein; or (ii) Executive provides
written notice to the Company of his desire not to extend this Agreement at
least sixty (60) days prior to the expiration date of the Term of this Agreement
pursuant to this Section 2.1. Notwithstanding any other provision to the
contrary, if the Company does not renew this Employment Agreement after the
Initial Term, the Employee shall be entitled to receive as severance a minimum
of U.S. $997,500 or such greater amount as may be required by law.
3. Compensation and Benefits
3.1 Cash Compensation
(a) Base Salary. During the first year of the Term, the Company
shall pay Executive an aggregate base salary at an annualized rate of U.S.
$350,000, payable in such equal installments as may be customary for executive
officers employed by the Company (but not less frequently than monthly) or as
may otherwise be agreed to between the Company and Executive, in arrears ("Base
Salary"). The Base Salary for each year shall be prorated according to the
number of days in such year during which this Agreement is in effect. For each
annual period after the first year of the date of this Employment Agreement, the
Base Salary shall be adjusted by the Compensation Committee of the Board by a
minimum increase of U.S. $50,000 for each year thereafter or such other amount
as the Company and the Executive may agree upon.
(b) Bonuses. During the Initial Term, Executive will be eligible to
receive a cash bonus ("Bonus"), which will be determined by the Board.
(c) Stock Options. Simultaneously with the execution and delivery
of this Agreement by the Company and Executive, the Company and Executive shall
enter into an Option Agreement, attached hereto as Exhibit A pursuant to which
Executive shall have the option to purchase 7,500,000 shares of Common Stock of
the Company at the purchase price of U.S. $1.667 per share, such number of
shares and price per share to be subject to adjustment as set forth in the
Option Agreement.
(d) Stock. Upon the execution and delivery of this Agreement by the
Company and Executive, the Company shall deliver to Executive, as additional
consideration for entering into this Agreement, 1,125,000 shares of Common Stock
of the Company,such number of shares to be subject to adjustment as set forth in
Section 3.1(e) hereof.
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(e) Adjustment of Number of Shares. In the case the Company shall
(i) pay a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock, (ii) subdivide or classify its outstanding Common Stock
into a greater number of shares, or (iii) combine or reclassify its outstanding
Common Stock into a smaller number of shares, the Executive's stock delivered
pursuant to this Employment Agreement shall be proportionally adjusted so that
the Executive after such event shall be entitled to receive the aggregate number
and kind of Shares which he owned and is entitled to receive upon such dividend,
subdivision, combination or reclassification. For example, if the Company
declares a 1 for 3 reverse stock split, the 1,125,000 Shares which Executive is
entitled to hereunder shall be adjusted so that immediately after such event
Executive would be entitled to 375,000 Shares. Such adjustment shall be made
successively whenever any event listed above shall occur.
3.2 Participation in Benefit Plans. The payments provided in Section 3
hereof are in addition to any benefits to which Executive may be, or may become,
entitled under any benefit plan or program of the Company for which key
executives are or shall become eligible, including, without limitation, pension,
401(k), health, life and disability insurance and stock benefits and/or plans.
Further, Executive shall be eligible to receive during the period of his
employment under this Agreement, all benefits and emoluments for which key
executives are eligible under every such plan or program to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
3.3 Vacation. Executive shall be entitled to 20 working days of
compensated vacation in each fiscal year, to be taken at times which do not
unreasonably interfere with the performance of Executive's duties hereunder. Any
unused vacation time from any fiscal year shall be subject to accumulation or
forfeiture in accordance with Company policy as in effect from time to time.
3.4 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, including all of the Executive's
travel, hotel, meal and other incidental expenses during the Executive's travel
on behalf of the Company. Executive shall keep detailed and accurate records of
expenses incurred in connection with the performance of his duties hereunder and
reimbursement therefor shall be in accordance with policies and procedures to be
established from time to time by the Board.
3.5 Automobile. The Company at its expense will provide Executive with
exclusive use of an automobile, equipped with a mobile telephone, and the
Company will pay all operating and ownership expenses attendant thereto,
including, without
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<PAGE>
limitation, insurance, gasoline, telephone, maintenance and repairs.
3.6 Director and Officer Liability Insurance. The Corporation shall pay
the cost of maintaining director and officer liability insurance coverage for
the services rendered by the Executive hereunder during the term hereof.
3.7 Key Man Insurance. The Corporation shall pay the cost of
maintaining key man insurance coverage for the services rendered by the
Executive hereunder during the term hereof.
3.8 Indemnification. The Company agrees to indemnify and hold harmless,
to the extent permitted under Delaware law, the Executive from and against all
losses, claims, damages, liabilities, actions or demands in connection with the
Executive's service as director and/or officer hereunder during the term hereof.
4. Termination
4.1 General. In addition to the right by the Executive to terminate
this Agreement pursuant to Section 2 hereof, the Company or the Executive shall
have the right to terminate the employment of Executive as set forth in this
Section 4.
4.2 Termination for Cause. In addition to any other remedies which the
Company may have at law or in equity, the Board may terminate Executive's
employment under this Agreement by giving Executive written notice of such
termination upon or at any time following the occurrence of any of the following
events, and each such termination shall constitute a termination for "cause",
provided, however, that Executive has first been given written notice of the
facts or circumstances constituting the determination of "cause" and a
reasonable opportunity (in no event less than 30 days) to cure, rectify or
reverse such facts or circumstances and Executive shall have failed to do so:
(i) any act or failure to act (or series or
combination thereof) by Executive done with the
intent to harm in any material respect the
interests of the Company or any affiliate
thereof;
(ii) the commission by Executive of a felony;
(iii) the perpetration by Executive of a dishonest act
or common law fraud against the Company or any
affiliate thereof; or
(iv) a grossly negligent act or failure to act (or
series or combination thereof) by Executive
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<PAGE>
detrimental in any material respect to the
interests of the Company or any affiliate
thereof; or
(v) the continued refusal to follow the directives
of the Board which are consistent with
Executive's duties and responsibilities
identified in Section 1.1 hereof.
Upon the early termination of Executive's employment under this
Agreement by the Company for "cause", the Company shall pay to Executive (i) an
amount equal to Executive's Base Salary accrued through the effective date of
termination at the rate in effect at the time notice of termination is given,
payable at the time such payment is due; (ii) the sum of U.S. $997,500.00; and
(iii) at the time such payments are due, all other amounts to which Executive is
entitled hereunder (including expense reimbursement amounts to which Executive
is entitled hereunder or amounts under any benefit plan of the Company, but
expressly excluding any Bonus (or portion thereof) in respect of the fiscal year
in which this Agreement is so terminated or any fiscal year of the Company
thereafter), and, upon payment of such amounts, the Company shall have no
further obligation to Executive under this Agreement.
4.3 Incapacity of Executive. Subject to applicable law, if Executive
shall become ill or be injured or otherwise become incapacitated such that, in
the good faith judgment of the Board, he cannot fully carry out and perform his
duties hereunder, and such incapacity shall continue for a period of 45
consecutive days, the Board may, at any time thereafter, by giving Executive
20-days' prior written notice, fully and finally terminate his employment under
this Agreement. Termination under this Section 4.3 shall be effective as of the
date provided in such notice, which date shall not be fewer than 365 days after
such notice is delivered to Executive or his representative, and the Company
shall pay Executive his Base Salary accrued to the effective date of termination
at the rate in effect at the time of such notice, payable at the time such
payment is due. Upon payment of (i) such accrued Base Salary; and (ii) all other
amounts to which Executive may be entitled hereunder including, without
limitation, (A) any Bonus to which the Executive would have been entitled
pursuant to Section 3.1(b) hereof (prorated for the period up to the effective
date of termination), (B) any expense reimbursement amounts accrued to the
effective date of termination, (C) a minimum sum of U.S. $997,500.00, and (D)
any amounts under any other benefit plan of the Company, in each case at the
time such payments are due, the Company shall have no further obligation to
Executive under this Agreement.
4.4 Death of Executive. This Agreement shall automatically terminate
upon the death of Executive. Upon the early termination of this Agreement as a
result of death, the Company shall pay
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Executive's estate: (i) an amount equal to Executive's Base Salary accrued
through the effective date of termination at the rate in effect at the effective
date of termination, payable at the time such payment is due; and (ii) all other
amounts to which Executive is entitled hereunder, including, without limitation,
(A) any Bonus to which the Executive would have been entitled pursuant to
Section 3.1(b) hereof (prorated for the period up to the effective date of
termination), (B) any expense reimbursement amounts accrued to the effective
date of termination, (C) a minimum sum of U.S. $997,500.00, and (D) any amounts
under any other benefit plan of the Company, in each case at the time such
payments are due, and the Company shall have no further obligation to Executive
under this Agreement.
4.5 Termination by Executive. Executive may, with or without cause,
terminate his employment under this Agreement by giving the Company at least 60
days' prior written notice of such termination (which may be waived by the
Company), and after the effective date of such termination, the Company shall
have no further obligation to Executive under this Agreement.
4.6 Termination by Executive for Good Reason. Executive may terminate
his employment under this Agreement for "good reason" (as hereinafter defined)
at any time within 6 months of the date of a "change in control" (as hereinafter
defined) of the Company. For purposes of this Agreement, "good reason" shall
mean, unless Executive shall have consented in writing thereto, any of the
following:
(i) A reduction in Executive's title, duties,
responsibilities or status, as compared to such
title, duties, responsibilities or status
immediately prior to the change in control or as
the same may be increased after the change in
control;
(ii) The assignment to Executive of duties
inconsistent with Executive's office on the date
of the change in control or as the same may be
increased after the change in control;
(iii) A reduction by the Company in Executive's Base
Salary or other benefits, including stock
options, as in effect immediately prior to the
change in control or as the same may be
increased after the change in control;
(iv) A requirement that Executive relocate anywhere
not acceptable to Executive or the imposition on
Executive of business travel obligations
substantially greater than those contemplated
under this Agreement;
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(v) The failure by the Company to continue in effect
any compensation or benefit plan or program in
which Executive is participating at the time of
the change in control (or plans providing
Executive with substantially similar benefits),
or the taking of any action by the Company which
would adversely affect Executive's participation
in or materially reduce his benefits under any
of such plans or deprive him of any material
fringe benefit enjoyed by him at the time of the
change in control;
(vi) The adoption or pursuit by the Company or the
Board of one or more policies or practices
which, in the opinion of Executive, are contrary
to the ethics, traditions, policies or practices
of the Company as in effect immediately prior to
the change in control; or
(vii) The material breach by the Company of its
agreements or obligations under this Agreement;
or
(viii) A change in the majority of the Board of the
Company or in its executives or senior officers.
Upon such termination by Executive of his employment for "good reason"
following a change in control of the Company, the Company shall pay to
executive: (i) an amount equal to Executive's Base Salary payable for the
remainder of the Term at the time such payments are due at the rate in effect on
the date of termination; and (ii) all other amounts to which Executive is
entitled, including (A) any Bonus to which Executive would have been entitled
for the remainder of the Term pursuant to Section 3.1(b) hereof, (B) any expense
reimbursement amounts accrued to the effective date of termination, and (C) any
amounts under any other benefit plan of the Company, in each case at the time
such payments are due; and (iii) within ten days after the date of termination
an amount equal to 2.85 times Executive's annual Base Salary in effect at the
date of termination. Moreover, for three years following the date of
termination, the Company shall continue to provide Executive with all fringe
benefits (other than payment of mobile telephone and gasoline expense) he was
receiving as of the date of termination, including, without limitation, all
health, life and disability insurance and automobile benefits he was receiving
immediately prior to the date of termination.
For purposes of this Agreement, a "change in control" shall mean a
change in control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A, as in effect on the date hereof,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act");
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provided, however that, without limitation, such a change in control shall be
deemed to have occurred if (A) any "Person" (as such term is used in
(section)13(d) and (section)14(d) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities; (B) there occurs a contested proxy solicitation of the
Company's shareholders that results in the contesting party obtaining the
ability to vote securities representing 10% or more of the combined voting power
of the Company's then outstanding securities; (C) there occurs a sale, exchange,
transfer or other disposition of substantially all of the assets of the Company
to another entity, except to an entity controlled directly or indirectly by the
Company, or a merger, consolidation or other reorganization of the Company in
which the Company is not the surviving entity, or a plan of liquidation or
dissolution of the Company other than pursuant to bankruptcy or insolvency laws
is adopted; or (D) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Company shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period. Notwithstanding the foregoing, a
"change in control" shall not be deemed to have occurred for purposes of this
Agreement (i) in the event of a sale, exchange, transfer or other disposition of
substantially all of the assets of the Company to, or a merger, consolidation or
other reorganization involving the Company and Executive, alone or with other
officers of the Company, or any entity in which Executive (alone or with other
officers) has, directly or indirectly, at least a 5% equity or ownership
interest or (ii) in a transaction otherwise commonly referred to as a
"management leveraged buy-out."
Clauses (A) and (B) in the preceding paragraph to the contrary
notwithstanding, the Board may, by resolution adopted by at least two-thirds of
the directors who were in office at the date a change in control occurred,
declare that a change in control described in clause (A) or (B) has become
ineffective for purposes of this Agreement if all of the following conditions
then exist: (i) the declaration is made prior to the death, disability or
termination of employment of Executive and within 120 days of the change in
control; and (ii) no Person is the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's outstanding securities or has the ability or power to vote
securities representing 10% or more of the combined voting power of the
Company's then outstanding securities. If such a declaration shall be properly
made, no benefits shall be payable hereunder as a result of such prior but now
ineffective change in control, but benefits shall remain payable and this
Agreement shall remain
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enforceable as a result of any other change in control unless it is
similarly declared to be ineffective.
5. Employment Covenants
5.1 Covenant Not to Compete. Executive recognizes and acknowledges that
the Company is placing its confidence and trust in Executive. Executive,
therefore, covenants and agrees that during the applicable Non-Compete Period
(as defined below) Executive shall not, either directly or indirectly, without
the prior written consent of the Board:
A. Engage in or carry on any business or in any way
become associated with any business which is
similar to or is in competition with the Business
of the Company (as such term is used and defined
herein). As used in this Section 5, the term
"Business of the Company" shall include all
business activities in which the Company is now
engaged, including but not limited to, emission
control devices for use with internal combustion
engines and shall further include any business in
which the Company is engaged at any time during the
Term;
B. Solicit the business of any person or entity, on
behalf of himself or any other person or entity,
which is or has been at any time during the term of
this Agreement a customer or supplier of the
Company including, but not limited to, former or
present customers or suppliers with whom Executive
has had personal contact during, or by reason of,
his relationship with the Company;
C. Be or become an employee, agent, consultant,
representative, director or officer of, or be
otherwise in any manner associated with, any person,
firm, corporation, association or other entity which
is engaged in or is carrying on any business which is
similar to or in competition with the Business of the
Company;
D. Solicit for employment or employ any person
employed by the Company at any time during the
12-month period immediately preceding such
solicitation or employment; or
E. Be or become a shareholder, joint venturer, owner
(in whole or in part), partner, or be or become
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associated with or have any proprietary or financial
interest in or of any firm, corporation, association
or other entity which is engaged in or is carrying on
any business which is similar to or in competition
with the Business of the Company. Notwithstanding the
preceding sentence above, passive equity investments
by Executive of $25,000 or less in any entity or
affiliated group of any entity which is engaged in or
is carrying on any business which is similar to or in
competition with the Business of the Company shall
not be deemed to violate this Section 5.1.
Executive hereby recognizes and acknowledges that the existing Business
of the Company extends throughout Canada and the United States of America, and
therefore agrees that the covenants not to compete contained in this Section 5.1
shall be applicable in and throughout such states, as well as throughout such
additional areas or states in which the Company may be (or has prepared written
plans to be) doing business as of the date of termination of Executive's
employment. Executive further warrants and represents that, because of his
varied skill and abilities, he does not need to compete with the Business of the
Company and that this Agreement will not prevent him from earning a livelihood
and acknowledges that the restrictions contained in this Section 5.1 constitute
reasonable protections for the Company.
As used in this Section 5.1, "Applicable Non-Compete Period"
shall mean:
(i) unless and until the Executive's employment under this
Agreement is terminated prior to the scheduled end of the Term, the period
beginning on the date hereof and ending on the date which is 365 days after the
scheduled end of the Term (as such Term may be extended from time to time
pursuant to Section 2.1 hereof);
(ii) if the Executive's employment under this Agreement is
terminated pursuant to Section 4.2 hereof or Section 4.3 hereof or for any other
reason (other than as set forth in clause (iii) below), the period beginning on
the date hereof and ending on the date which is 365 days after the scheduled end
of the Term (as such Term may be extended from time to time pursuant to Section
2.1 hereof);
(iii) if the Executive's employment under this Agreement is
terminated without "cause", the period beginning on the date hereof and ending
on the date of the scheduled end of the Term (as such Term may be extended from
time to time pursuant to Section 2.1 hereof);
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(iv) if on or prior to the date of the scheduled end of the Term
(as such Term may be extended from time to time pursuant to Section 2.1 hereof),
the Executive rejects an offer by the Company to extend this Agreement pursuant
to Section 2.1 hereof on reasonable terms, the period beginning on the date
hereof and ending on the date which is 365 days after the scheduled end of the
Term (as such Term may be extended from time to time pursuant to Section 2.1
hereof); and
(v) if the Company elects not to extend this Agreement pursuant to
Section 2.1 hereof, the period beginning on the date hereof and ending on the
date of the scheduled end of the Term (as such Term may be extended from time to
time pursuant to Section 2.1 hereof).
5.2 Trade Secrets and Confidential Information. Executive recognizes
and acknowledges that certain information including, without limitation,
information pertaining to the financial condition of the Company, its systems,
methods of doing business, agreements with customers or suppliers or other
aspects of the Business of the Company or which is sufficiently secret to derive
economic value from not being disclosed ("Confidential Information") may be made
available or otherwise come into the possession of Executive by reason of his
employment with the Company. Accordingly, Executive agrees that he will not
(either during or after the term of his employment with the Company) disclose
any Confidential Information to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever or make use to his personal
advantage or to the advantage of any third party, of any Confidential
Information, without the prior written consent of the Board. Executive shall,
upon termination of employment, return to the Company all documents which
reflect Confidential Information (including copies thereof). Notwithstanding
anything heretofore stated in this Section 5.2, Executive's obligations under
this Section 5.2 shall not, after termination of Executive's employment with the
Company, apply to information which has become generally available to the public
without any action or omission of Executive (except that any Confidential
Information which is disclosed to any third party by an employee or
representative of the Company who is not authorized to make such disclosure
shall be deemed to remain confidential and protectable by Executive under this
Section 5.2).
5.3 Records. All files, records, memoranda and other documents
regarding former, existing or prospective customers of the Company or relating
in any manner whatsoever to Confidential Information or the Business of the
Company (collectively, "Records"), whether prepared by Executive or otherwise
coming into his possession, shall be the exclusive property of the Company. All
Records shall be immediately placed in the physical possession of the Company
upon the termination of Executive's employment with the Company, or at any other
time specified by the Board. The
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retention and use by Executive of duplicates in any form of Records is
prohibited after the termination of Executive's employment with the Company.
5.4 Breach. Executive hereby recognizes and acknowledges that
irreparable injury or damage shall result to the Company in the event of a
breach or threatened breach by Executive of any of the terms of provisions of
this Section 5, and Executive therefore agrees that the Company shall be
entitled to an injunction restraining Executive from engaging in any activity
constituting such breach or threatened breach. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to the Company at law or in equity for such breach or threatened breach,
including but not limited to, the recovery of damages from Executive and, if
Executive is an employee of the Company, the termination of his employment with
the Company in accordance with the terms and provisions of this Agreement.
5.5 Survival. Notwithstanding the termination of the employment of
Executive or the termination of this Agreement, the provisions of this Section 5
shall survive and be binding upon Executive unless a written agreement which
specifically refers to the termination of the obligations and covenants of this
Section 5 is executed by the Company.
6. Miscellaneous
6.1 Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing, via facsimile
transmission or by mail, registered or certified, postage prepaid with return
receipt requested. Notices shall be addressed to the parties as follows:
If to the Company: Mark Four Resources, Inc.
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
If to the Executive: Teodosio Pangia
120 Promenade Circle, Suite 705
Thornhill, Ontario L4J 1Y9
Canada
Any party may change his or its address by written notice in accordance
with this Section 6.1. Notices delivered personally shall be deemed communicated
as of actual receipt; notices sent via facsimile transmission shall be deemed
communicated as of receipt by the sender of written confirmation of transmission
thereof; mailed notices shall be deemed communicated as of three days after
proper mailing.
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6.2 Inclusion of Entire Agreement Herein. This Agreement supersedes any
and all other prior or contemporaneous agreements, either oral or in writing,
between the parties hereto with respect to the subject matter hereof and
contains all of the covenants and agreements between the parties with respect to
employment of Executive by the Company.
6.3 Law Governing Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
6.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of any other term or provision of this
Agreement, and a waiver at any time of any term or provision of this Agreement
shall not be construed as a waiver at any subsequent time of the same term or
provision.
6.5 Amendments. Except as otherwise provided in Section 6.6 hereof, no
amendment or modification of this Agreement shall be deemed effective unless and
until executed in writing by each party hereto.
6.6 Severability and Limitation. All agreements and covenants contained
herein are severable and in the event any of them shall be held to be invalid by
any competent court, this Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein. Should any court or other
legally constituted authority determine that for any such agreement or covenant
to be effective that it must be modified to limit its duration or scope, the
parties hereto shall consider such agreement or covenant to be amended or
modified with respect to duration and/or scope so as to comply with the orders
of any such court or other legally constituted authority, and as to all other
portions of such agreement or covenants they shall remain in full force and
effect as originally written.
6.7 Headings. All headings set forth in this Agreement are intended for
convenience only and shall not control or affect the meaning, construction or
effect of this Agreement or of any of the provisions hereof.
6.8 Assignment. The Company shall have the right to assign this
Agreement and to delegate all of its rights, duties and obligations hereunder to
any entity which controls the Company, which the Company controls or which may
be the result of the merger, consolidation, acquisition or reorganization of the
Company and another entity. Executive agrees that this Agreement is personal to
him and his rights and interests hereunder may not be assigned, nor may his
obligations and duties hereunder be delegated (except as to delegation in the
normal course of operation of the Company), and any attempted assignment or
delegation in violation of this provision shall be void.
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6.9 Arbitration. All controversies which may arise between the parties
hereto including, but not limited to, those arising out of or related to this
Agreement shall be determined by binding arbitration applying the laws of the
State of Delaware as set forth in Section 6.3 hereof. Any arbitration pursuant
to this Agreement shall be conducted in New York, New York before the American
Arbitration Association in accordance with its arbitration rules. The
arbitration shall be final and binding upon all the parties (so long as the
award was not procured by corruption, fraud or undue means) and the arbitrator's
award shall not be required to include factual findings or legal reasoning.
Nothing in this Section 6.9 will prevent either party from resorting to judicial
proceedings if interim injunctive relief under the laws of the State of Delaware
from a court is necessary to prevent serious and irreparable injury to one of
the parties.
6.10 Counterparts. This Agreement may be executed via facsimile
transmission signature and in counterparts, each of which shall be deemed to be
an original but all of which together will constitute one and the same
instrument.
6.11 Board of Director Determinations. All matters to be determined by
the Board pursuant to the terms of this Agreement shall be determined by the
members of the Board without the vote of Executive, if he is then a member of
the Board.
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IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Employment Agreement as of the day and year first
above written.
MARK FOUR RESOURCES, INC.
By: /s/ Gianni D'Alessandro
--------------------------------
Name: Gianni D'Alessandro
Title: Chief Financial Officer
By: /s/ Teodosio Pangia
--------------------------------
Name: Teodosio Pangia
Title: Chief Executive Officer
I/we have authority to bind the Corporation
EXECUTIVE
/s/ Teodosio Pangia
------------------------------------
Teodosio Pangia
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made, entered into and
executed as of this 1st day of December, 1995, between Mark Four Resources,
Inc., a Delaware corporation (the "Company"), and Gianni D'Alessandro, an
individual currently resident in the United States ("Executive").
WHEREAS, the Company considers it essential and in the best interest of
its stockholders to foster the continuous employment of key management personnel
or to hire additional personnel and desires to retain the services of Executive
on the terms and conditions provided in this Agreement;
AND WHEREAS, Executive desires to render services to the Company on the
terms and conditions provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. Employment
1.1 Employment and Duties. The Company hereby agrees to employ
Executive for the Term (as hereinafter defined) as President and Chief Operating
Officer subject to the direction of the Board of Directors of the Company (the
"Board") and, in connection therewith, to perform such duties as he shall
reasonably be directed by the Board to perform. In performing such duties
hereunder, Executive shall comply with the policies and procedures as adopted
from time to time by the Board, shall give the Company the benefit of his
special knowledge, skills, contacts and business experience, shall be just and
faithful in the performance of his duties and in carrying out his
responsibilities and shall devote all of his duties and responsibilities
hereunder; provided, however, that Executive may, with the approval of the
Board, from time to time, serve, or continue to serve, on the Board of Directors
of, and hold any other offices or positions in, companies or organizations,
which, in the Board's judgment, will not present any conflict of interest with
the Company or any of its affiliates or divisions, or adversely affect the
performance of Executive's duties pursuant to this Agreement. Executive hereby
accepts such employment and agrees to render such services.
1.2 Location. The principal location for performance of Executive's
services hereunder shall be in the United States and Canada, subject to
reasonable travel requirements during the course of such performance. The
Company will provide accommodations for the Executive during his stay in New
York and pay for the Executive's reasonable travel and incidental expenses.
2. Employment Term
<PAGE>
2.1 Term. The Term of the Executive's employment hereunder (the "Term")
shall commence on the date hereof and shall end on the fifth anniversary hereof
(the "Initial Term"), unless sooner terminated as provided herein; provided,
however that the Term shall be extended and this Agreement shall be
automatically renewed for successive five year periods unless: (i) this
Agreement is terminated as otherwise provided herein; or (ii) Executive provides
written notice to the Company of his desire not to extend this Agreement at
least sixty (60) days prior to the expiration date of the Term of this Agreement
pursuant to this Section 2.1. Notwithstanding any other provision to the
contrary, if the Company does not renew this Employment Agreement after the
Initial Term, the Employee shall be entitled to receive as severance a minimum
of U.S. $997,500 or such greater amount as may be required by law.
3. Compensation and Benefits
3.1 Cash Compensation
(a) Base Salary. During the first year of the Term, the Company
shall pay Executive an aggregate base salary at an annualized rate of U.S.
$350,000, payable in such equal installments as may be customary for executive
officers employed by the Company (but not less frequently than monthly) or as
may otherwise be agreed to between the Company and Executive, in arrears ("Base
Salary"). The Base Salary for each year shall be prorated according to the
number of days in such year during which this Agreement is in effect. For each
annual period after the first year of the date of this Employment Agreement, the
Base Salary shall be adjusted by the Compensation Committee of the Board by a
minimum increase of U.S. $50,000 for each year thereafter or such other amount
as the Company and the Executive may agree upon.
(b) Bonuses. During the Initial Term, Executive will be eligible to
receive a cash bonus ("Bonus"), which will be determined by the Board.
(c) Stock Options. Simultaneously with the execution and delivery
of this Agreement by the Company and Executive, the Company and Executive shall
enter into an Option Agreement, attached hereto as Exhibit A pursuant to which
Executive shall have the option to purchase 7,500,000 shares of Common Stock of
the Company at the purchase price of U.S. $1.667 per share, such number of
shares and price per share to be subject to adjustment as set forth in the
Option Agreement.
3.2 Participation in Benefit Plans. The payments provided in Section 3
hereof are in addition to any benefits to which Executive may be, or may become,
entitled under any benefit plan or program of the Company for which key
executives are or shall become eligible, including, without limitation, pension,
401(k), health, life and disability insurance and stock benefits and/or plans.
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Further, Executive shall be eligible to receive during the period of his
employment under this Agreement, all benefits and emoluments for which key
executives are eligible under every such plan or program to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
3.3 Vacation. Executive shall be entitled to 20 working days of
compensated vacation in each fiscal year, to be taken at times which do not
unreasonably interfere with the performance of Executive's duties hereunder. Any
unused vacation time from any fiscal year shall be subject to accumulation or
forfeiture in accordance with Company policy as in effect from time to time.
3.4 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, including all of the Executive's
travel, hotel, meal and other incidental expenses during the Executive's travel
on behalf of the Company. Executive shall keep detailed and accurate records of
expenses incurred in connection with the performance of his duties hereunder and
reimbursement therefor shall be in accordance with policies and procedures to be
established from time to time by the Board.
3.5 Automobile. The Company at its expense will provide Executive with
exclusive use of an automobile, equipped with a mobile telephone, and the
Company will pay all operating and ownership expenses attendant thereto,
including, without limitation, insurance, gasoline, telephone, maintenance and
repairs.
3.6 Director and Officer Liability Insurance. The Corporation shall pay
the cost of maintaining director and officer liability insurance coverage for
the services rendered by the Executive hereunder during the term hereof.
3.7 Key Man Insurance. The Corporation shall pay the cost of
maintaining key man insurance coverage for the services rendered by the
Executive hereunder during the term hereof.
3.8 Indemnification. The Company agrees to indemnify and hold harmless,
to the extent permitted under Delaware law, the Executive from and against all
losses, claims, damages, liabilities, actions or demands in connection with the
Executive's service as director and/or officer hereunder during the term hereof.
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4. Termination
4.1 General. In addition to the right by the Executive to terminate
this Agreement pursuant to Section 2 hereof, the Company or the Executive shall
have the right to terminate the employment of Executive as set forth in this
Section 4.
4.2 Termination for Cause. In addition to any other remedies which the
Company may have at law or in equity, the Board may terminate Executive's
employment under this Agreement by giving Executive written notice of such
termination upon or at any time following the occurrence of any of the following
events, and each such termination shall constitute a termination for "cause",
provided, however, that Executive has first been given written notice of the
facts or circumstances constituting the determination of "cause" and a
reasonable opportunity (in no event less than 30 days) to cure, rectify or
reverse such facts or circumstances and Executive shall have failed to do so:
(i) any act or failure to act (or series or
combination thereof) by Executive done with the
intent to harm in any material respect the
interests of the Company or any affiliate
thereof;
(ii) the commission by Executive of a felony;
(iii) the perpetration by Executive of a dishonest act
or common law fraud against the Company or any
affiliate thereof; or
(iv) a grossly negligent act or failure to act (or
series or combination thereof) by Executive
detrimental in any material respect to the
interests of the Company or any affiliate
thereof; or
(v) the continued refusal to follow the directives
of the Board which are consistent with
Executive's duties and responsibilities
identified in Section 1.1 hereof.
Upon the early termination of Executive's employment under this
Agreement by the Company for "cause", the Company shall pay to Executive (i) an
amount equal to Executive's Base Salary accrued through the effective date of
termination at the rate in effect at the time notice of termination is given,
payable at the time such payment is due; (ii) the sum of U.S. $997,500.00; and
(iii) at the time such payments are due, all other amounts to which Executive is
entitled hereunder (including expense reimbursement amounts to which Executive
is entitled hereunder or amounts under any benefit plan of the Company, but
expressly excluding any Bonus (or portion
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thereof) in respect of the fiscal year in which this Agreement is so terminated
or any fiscal year of the Company thereafter), and, upon payment of such
amounts, the Company shall have no further obligation to Executive under this
Agreement.
4.3 Incapacity of Executive. Subject to applicable law, if Executive
shall become ill or be injured or otherwise become incapacitated such that, in
the good faith judgment of the Board, he cannot fully carry out and perform his
duties hereunder, and such incapacity shall continue for a period of 45
consecutive days, the Board may, at any time thereafter, by giving Executive
20-days' prior written notice, fully and finally terminate his employment under
this Agreement. Termination under this Section 4.3 shall be effective as of the
date provided in such notice, which date shall not be fewer than 365 days after
such notice is delivered to Executive or his representative, and the Company
shall pay Executive his Base Salary accrued to the effective date of termination
at the rate in effect at the time of such notice, payable at the time such
payment is due. Upon payment of (i) such accrued Base Salary; and (ii) all other
amounts to which Executive may be entitled hereunder including, without
limitation, (A) any Bonus to which the Executive would have been entitled
pursuant to Section 3.1(b) hereof (prorated for the period up to the effective
date of termination), (B) any expense reimbursement amounts accrued to the
effective date of termination, (C) a minimum sum of U.S. $997,500.00, and (D)
any amounts under any other benefit plan of the Company, in each case at the
time such payments are due, the Company shall have no further obligation to
Executive under this Agreement.
4.4 Death of Executive. This Agreement shall automatically terminate
upon the death of Executive. Upon the early termination of this Agreement as a
result of death, the Company shall pay Executive's estate: (i) an amount equal
to Executive's Base Salary accrued through the effective date of termination at
the rate in effect at the effective date of termination, payable at the time
such payment is due; and (ii) all other amounts to which Executive is entitled
hereunder, including, without limitation, (A) any Bonus to which the Executive
would have been entitled pursuant to Section 3.1(b) hereof (prorated for the
period up to the effective date of termination), (B) any expense reimbursement
amounts accrued to the effective date of termination, (C) a minimum sum of U.S.
$997,500.00, and (D) any amounts under any other benefit plan of the Company, in
each case at the time such payments are due, and the Company shall have no
further obligation to Executive under this Agreement.
4.5 Termination by Executive. Executive may, with or without cause,
terminate his employment under this Agreement by giving the Company at least 60
days' prior written notice of such termination (which may be waived by the
Company), and after the effective date
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of such termination, the Company shall have no further obligation to Executive
under this Agreement.
4.6 Termination by Executive for Good Reason. Executive may terminate
his employment under this Agreement for "good reason" (as hereinafter defined)
at any time within 6 months of the date of a "change in control" (as hereinafter
defined) of the Company. For purposes of this Agreement, "good reason" shall
mean, unless Executive shall have consented in writing thereto, any of the
following:
(i) A reduction in Executive's title, duties,
responsibilities or status, as compared to such
title, duties, responsibilities or status
immediately prior to the change in control or as
the same may be increased after the change in
control;
(ii) The assignment to Executive of duties
inconsistent with Executive's office on the date
of the change in control or as the same may be
increased after the change in control;
(iii) A reduction by the Company in Executive's Base
Salary or other benefits, including stock
options, as in effect immediately prior to the
change in control or as the same may be
increased after the change in control;
(iv) A requirement that Executive relocate anywhere
not acceptable to Executive or the imposition on
Executive of business travel obligations
substantially greater than those contemplated
under this Agreement;
(v) The failure by the Company to continue in effect
any compensation or benefit plan or program in
which Executive is participating at the time of
the change in control (or plans providing
Executive with substantially similar benefits),
or the taking of any action by the Company which
would adversely affect Executive's participation
in or materially reduce his benefits under any
of such plans or deprive him of any material
fringe benefit enjoyed by him at the time of the
change in control;
(vi) The adoption or pursuit by the Company or the
Board of one or more policies or practices
which, in the opinion of Executive, are contrary
to the ethics, traditions, policies or practices
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of the Company as in effect immediately prior to
the change in control; or
(vii) The material breach by the Company of its
agreements or obligations under this Agreement;
or
(viii) A change in the majority of the Board of the
Company or in its executives or senior officers.
Upon such termination by Executive of his employment for "good reason"
following a change in control of the Company, the Company shall pay to
executive: (i) an amount equal to Executive's Base Salary payable for the
remainder of the Term at the time such payments are due at the rate in effect on
the date of termination; and (ii) all other amounts to which Executive is
entitled, including (A) any Bonus to which Executive would have been entitled
for the remainder of the Term pursuant to Section 3.1(b) hereof, (B) any expense
reimbursement amounts accrued to the effective date of termination, and (C) any
amounts under any other benefit plan of the Company, in each case at the time
such payments are due; and (iii) within ten days after the date of termination
an amount equal to 2.85 times Executive's annual Base Salary in effect at the
date of termination. Moreover, for three years following the date of
termination, the Company shall continue to provide Executive with all fringe
benefits (other than payment of mobile telephone and gasoline expense) he was
receiving as of the date of termination, including, without limitation, all
health, life and disability insurance and automobile benefits he was receiving
immediately prior to the date of termination.
For purposes of this Agreement, a "change in control" shall mean a
change in control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A, as in effect on the date hereof,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); provided, however that, without limitation, such a change in control
shall be deemed to have occurred if (A) any "Person" (as such term is used in
(section)13(d) and (section)14(d) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities; (B) there occurs a contested proxy solicitation of the
Company's shareholders that results in the contesting party obtaining the
ability to vote securities representing 10% or more of the combined voting power
of the Company's then outstanding securities; (C) there occurs a sale, exchange,
transfer or other disposition of substantially all of the assets of the Company
to another entity, except to an entity controlled directly or indirectly by the
Company, or a merger, consolidation or other reorganization of the Company in
which the Company is not the surviving entity, or a plan of liquidation or
dissolution of the Company other than pursuant to bankruptcy or
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insolvency laws is adopted; or (D) during any period of two consecutive years,
individuals who at the beginning of such period constituted the Board cease for
any reason to constitute at least a majority thereof unless the election, or the
nomination for election by the Company shareholders, of each new director was
approved by a vote of at least two-thirds of the directors then still in office
who were directors at the beginning of the period. Notwithstanding the
foregoing, a "change in control" shall not be deemed to have occurred for
purposes of this Agreement (i) in the event of a sale, exchange, transfer or
other disposition of substantially all of the assets of the Company to, or a
merger, consolidation or other reorganization involving the Company and
Executive, alone or with other officers of the Company, or any entity in which
Executive (alone or with other officers) has, directly or indirectly, at least a
5% equity or ownership interest or (ii) in a transaction otherwise commonly
referred to as a "management leveraged buy-out".
Clauses (A) and (B) in the preceding paragraph to the contrary
notwithstanding, the Board may, by resolution adopted by at least two-thirds of
the directors who were in office at the date a change in control occurred,
declare that a change in control described in clause (A) or (B) has become
ineffective for purposes of this Agreement if all of the following conditions
then exist: (i) the declaration is made prior to the death, disability or
termination of employment of Executive and within 120 days of the change in
control; and (ii) no Person is the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's outstanding securities or has the ability or power to vote
securities representing 10% or more of the combined voting power of the
Company's then outstanding securities. If such a declaration shall be properly
made, no benefits shall be payable hereunder as a result of such prior but now
ineffective change in control, but benefits shall remain payable and this
Agreement shall remain enforceable as a result of any other change in control
unless it is similarly declared to be ineffective.
5. Employment Covenants
5.1 Covenant Not to Compete. Executive recognizes and acknowledges that
the Company is placing its confidence and trust in Executive. Executive,
therefore, covenants and agrees that during the applicable Non-Compete Period
(as defined below) Executive shall not, either directly or indirectly, without
the prior written consent of the Board:
A. Engage in or carry on any business or in any way
become associated with any business which is
similar to or is in competition with the Business
of the Company (as such term is used and defined
herein). As used in this Section 5, the term
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"Business of the Company" shall include all business
activities in which the Company is now engaged,
including but not limited to, emission control
devices for use with internal combustion engines and
shall further include any business in which the
Company is engaged at any time during the Term;
B. Solicit the business of any person or entity, on
behalf of himself or any other person or entity,
which is or has been at any time during the term of
this Agreement a customer or supplier of the
Company including, but not limited to, former or
present customers or suppliers with whom Executive
has had personal contact during, or by reason of,
his relationship with the Company;
C. Be or become an employee, agent, consultant,
representative, director or officer of, or be
otherwise in any manner associated with, any person,
firm, corporation, association or other entity which
is engaged in or is carrying on any business which is
similar to or in competition with the Business of the
Company;
D. Solicit for employment or employ any person
employed by the Company at any time during the 12-
month period immediately preceding such
solicitation or employment; or
E. Be or become a shareholder, joint venturer, owner
(in whole or in part), partner, or be or become
associated with or have any proprietary or
financial interest in or of any firm, corporation,
association or other entity which is engaged in or
is carrying on any business which is similar to or
in competition with the Business of the Company.
Notwithstanding the preceding sentence above,
passive equity investments by Executive of $25,000
or less in any entity or affiliated group of any
entity which is engaged in or is carrying on any
business which is similar to or in competition with
the Business of the Company shall not be deemed to
violate this Section 5.1.
Executive hereby recognizes and acknowledges that the existing Business
of the Company extends throughout Canada and the United States of America, and
therefore agrees that the covenants not to compete contained in this Section 5.1
shall be applicable in and throughout such states, as well as throughout such
additional areas or states in which the Company may be (or has prepared written
plans to be) doing business as of the date of termination of
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Executive's employment. Executive further warrants and represents that, because
of his varied skill and abilities, he does not need to compete with the Business
of the Company and that this Agreement will not prevent him from earning a
livelihood and acknowledges that the restrictions contained in this Section 5.1
constitute reasonable protections for the Company.
As used in this Section 5.1, "Applicable Non-Compete Period" shall
mean:
(i) unless and until the Executive's employment
under this Agreement is terminated prior to the scheduled end of the Term,
the period beginning on the date hereof and ending on the date which is 365 days
after the scheduled end of the Term (as such Term may be extended from time to
time pursuant to Section 2.1 hereof);
(ii) if the Executive's employment under this
Agreement is terminated pursuant to Section 4.2 hereof or Section 4.3 hereof or
for any other reason (other than as set forth in clause (iii) below), the period
beginning on the date hereof and ending on the date which is 365 days after the
scheduled end of the Term (as such Term may be extended from time to time
pursuant to Section 2.1 hereof);
(iii) if the Executive's employment under this
Agreement is terminated without "cause", the period beginning on the date hereof
and ending on the date of the scheduled end of the Term (as such Term may be
extended from time to time pursuant to Section 2.1 hereof);
(iv) if on or prior to the date of the scheduled end
of the Term (as such Term may be extended from time to time pursuant to Section
2.1 hereof), the Executive rejects an offer by the Company to extend this
Agreement pursuant to Section 2.1 hereof on reasonable terms, the period
beginning on the date hereof and ending on the date which is 365 days after the
scheduled end of the Term (as such Term may be extended from time to time
pursuant to Section 2.1 hereof); and
(v) if the Company elects not to extend this
Agreement pursuant to Section 2.1 hereof, the period beginning on the date
hereof and ending on the date of the scheduled end of the Term (as such Term may
be extended from time to time pursuant to Section 2.1 hereof).
5.2 Trade Secrets and Confidential Information. Executive recognizes
and acknowledges that certain information including, without limitation,
information pertaining to the financial condition of the Company, its systems,
methods of doing business, agreements with customers or suppliers or other
aspects of the Business of the Company or which is sufficiently secret to derive
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economic value from not being disclosed ("Confidential Information") may be made
available or otherwise come into the possession of Executive by reason of his
employment with the Company. Accordingly, Executive agrees that he will not
(either during or after the term of his employment with the Company) disclose
any Confidential Information to any person, firm, corporation, association or
other entity for any reason or purpose whatsoever or make use to his personal
advantage or to the advantage of any third party, of any Confidential
Information, without the prior written consent of the Board. Executive shall,
upon termination of employment, return to the Company all documents which
reflect Confidential Information (including copies thereof). Notwithstanding
anything heretofore stated in this Section 5.2, Executive's obligations under
this Section 5.2 shall not, after termination of Executive's employment with the
Company, apply to information which has become generally available to the public
without any action or omission of Executive (except that any Confidential
Information which is disclosed to any third party by an employee or
representative of the Company who is not authorized to make such disclosure
shall be deemed to remain confidential and protectable by Executive under this
Section 5.2).
5.3 Records. All files, records, memoranda and other documents
regarding former, existing or prospective customers of the Company or relating
in any manner whatsoever to Confidential Information or the Business of the
Company (collectively, "Records"), whether prepared by Executive or otherwise
coming into his possession, shall be the exclusive property of the Company. All
Records shall be immediately placed in the physical possession of the Company
upon the termination of Executive's employment with the Company, or at any other
time specified by the Board. The retention and use by Executive of duplicates in
any form of Records is prohibited after the termination of Executive's
employment with the Company.
5.4 Breach. Executive hereby recognizes and acknowledges that
irreparable injury or damage shall result to the Company in the event of a
breach or threatened breach by Executive of any of the terms of provisions of
this Section 5, and Executive therefore agrees that the Company shall be
entitled to an injunction restraining Executive from engaging in any activity
constituting such breach or threatened breach. Nothing contained herein shall be
construed as prohibiting the Company from pursuing any other remedies available
to the Company at law or in equity for such breach or threatened breach,
including but not limited to, the recovery of damages from Executive and, if
Executive is an employee of the Company, the termination of his employment with
the Company in accordance with the terms and provisions of this Agreement.
5.5 Survival. Notwithstanding the termination of the employment of
Executive or the termination of this Agreement, the provisions of this Section 5
shall survive and be binding upon
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Executive unless a written agreement which specifically refers to the
termination of the obligations and covenants of this Section 5 is executed by
the Company.
6. Miscellaneous
6.1 Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing, via facsimile
transmission or by mail, registered or certified, postage prepaid with return
receipt requested. Notices shall be addressed to the parties as follows:
If to the Company: Mark Four Resources, Inc.
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
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If to the Executive: Gianni D'Alessandro
C/O Paul Mazza
Turkstra Mazza Shinehoft
Mihailovich
15 Bold Street
Hamilton, Ontario, L8P 1T3
Canada
Any party may change his or its address by written notice in accordance
with this Section 6.1. Notices delivered personally shall be deemed communicated
as of actual receipt; notices sent via facsimile transmission shall be deemed
communicated as of receipt by the sender of written confirmation of transmission
thereof; mailed notices shall be deemed communicated as of three days after
proper mailing.
6.2 Inclusion of Entire Agreement Herein. This Agreement supersedes any
and all other prior or contemporaneous agreements, either oral or in writing,
between the parties hereto with respect to the subject matter hereof and
contains all of the covenants and agreements between the parties with respect to
employment of Executive by the Company.
6.3 Law Governing Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
6.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of any other term or provision of this
Agreement, and a waiver at any time of any term or provision of this Agreement
shall not be construed as a waiver at any subsequent time of the same term or
provision.
6.5 Amendments. Except as otherwise provided in Section 6.6 hereof, no
amendment or modification of this Agreement shall be deemed effective unless and
until executed in writing by each party hereto.
6.6 Severability and Limitation. All agreements and covenants contained
herein are severable and in the event any of them shall be held to be invalid by
any competent court, this Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein. Should any court or other
legally constituted authority determine that for any such agreement or covenant
to be effective that it must be modified to limit its duration or scope, the
parties hereto shall consider such agreement or covenant to be amended or
modified with respect to duration and/or scope so as to comply with the orders
of any such court or other legally constituted authority, and as to all other
portions of such agreement or covenants they shall remain in full force and
effect as originally written.
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6.7 Headings. All headings set forth in this Agreement are intended for
convenience only and shall not control or affect the meaning, construction or
effect of this Agreement or of any of the provisions hereof.
6.8 Assignment. The Company shall have the right to assign this
Agreement and to delegate all of its rights, duties and obligations hereunder to
any entity which controls the Company, which the Company controls or which may
be the result of the merger, consolidation, acquisition or reorganization of the
Company and another entity. Executive agrees that this Agreement is personal to
him and his rights and interests hereunder may not be assigned, nor may his
obligations and duties hereunder be delegated (except as to delegation in the
normal course of operation of the Company), and any attempted assignment or
delegation in violation of this provision shall be void.
6.9 Arbitration. All controversies which may arise between the parties
hereto including, but not limited to, those arising out of or related to this
Agreement shall be determined by binding arbitration applying the laws of the
State of Delaware as set forth in Section 6.3 hereof. Any arbitration pursuant
to this Agreement shall be conducted in New York, New York before the American
Arbitration Association in accordance with its arbitration rules. The
arbitration shall be final and binding upon all the parties (so long as the
award was not procured by corruption, fraud or undue means) and the arbitrator's
award shall not be required to include factual findings or legal reasoning.
Nothing in this Section 6.9 will prevent either party from resorting to judicial
proceedings if interim injunctive relief under the laws of the State of Delaware
from a court is necessary to prevent serious and irreparable injury to one of
the parties.
6.10 Counterparts. This Agreement may be executed via facsimile
transmission signature and in counterparts, each of which shall be deemed to be
an original but all of which together will constitute one and the same
instrument.
6.11 Board of Director Determinations. All matters to be determined by
the Board pursuant to the terms of this Agreement shall be determined by the
members of the Board without the vote of Executive, if he is then a member of
the Board.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Employment Agreement as of the day and year first
above written.
MARK FOUR RESOURCES, INC.
By:________________________________
Name:
Title:
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EXECUTIVE
/s/ Gianni D'Alessandro
----------------------------------
Gianni D'Alessandro
15
EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT (this "Agreement") is made, entered into and
executed as of this 1st day of December, 1995, between Mark Four Resources,
Inc., a Delaware corporation (the "Company"), and Paul Mazza, an individual
currently resident in the Province of Ontario ("Executive").
WHEREAS, the Company considers it essential and in the best interest of its
stockholders to foster the continuous employment of key management personnel or
to hire additional personnel and desires to retain the services of Executive on
the terms and conditions provided in this Agreement;
AND WHEREAS, Executive desires to render services to the Company on the
terms and conditions provided in this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements herein contained, the Company and Executive hereby
agree as follows:
1. Employment
1.1 Employment and Duties. The Company hereby agrees to employ Executive
for the Term (as hereinafter defined) as Chief Financial Officer subject to the
direction of the Board of Directors of the Company (the "Board") and, in
connection therewith, to perform such duties as he shall reasonably be directed
by the Board to perform. In performing such duties hereunder, Executive shall
comply with the policies and procedures as adopted from time to time by the
Board, shall give the Company the benefit of his special knowledge, skills,
contacts and business experience, shall be just and faithful in the performance
of his duties and in carrying out his responsibilities and shall devote all of
his duties and responsibilities hereunder; provided, however, that Executive
may, with the approval of the Board, from time to time, serve, or continue to
serve, on the Board of Directors of, and hold any other offices or positions in,
companies or organizations, or law firms, which, in the Board's judgment, will
not present any conflict of interest with the Company or any of its affiliates
or divisions, or adversely affect the performance of Executive's duties pursuant
to this Agreement. Executive hereby accepts such employment and agrees to render
such services.
1.2 Location. The principal location for performance of Executive's
services hereunder shall be in the United States and Canada, subject to
reasonable travel requirements during the course of such performance. The
Company will provide accommodations for the Executive during his stay in New
York and pay for the Executive's reasonable travel and incidental expenses.
<PAGE>
2. Employment Term
2.1 Term. The Term of the Executive's employment hereunder (the "Term")
shall commence on the date hereof and shall end on the fifth anniversary hereof
(the "Initial Term"), unless sooner terminated as provided herein; provided,
however that the Term shall be extended and this Agreement shall be
automatically renewed for successive five year periods unless: (i) this
Agreement is terminated as otherwise provided herein; or (ii) Executive provides
written notice to the Company of his desire not to extend this Agreement at
least sixty (60) days prior to the expiration date of the Term of this Agreement
pursuant to this Section 2.1. Notwithstanding any other provision to the
contrary, if the Company does not renew this Employment Agreement after the
Initial Term, the Employee shall be entitled to receive as severance a minimum
of U.S. $712,500 or such greater amount as may be required by law.
3. Compensation and Benefits
3.1 Cash Compensation
(a) Base Salary. During the first year of the Term, the Company shall pay
Executive an aggregate base salary at an annualized rate of U.S. $250,000,
payable in such equal installments as may be customary for executive officers
employed by the Company (but not less frequently than monthly) or as may
otherwise be agreed to between the Company and Executive, in arrears ("Base
Salary"). The Base Salary for each year shall be prorated according to the
number of days in such year during which this Agreement is in effect. For each
annual period after the first year of the date of this Employment Agreement, the
Base Salary shall be adjusted by the Compensation Committee of the Board by a
minimum increase of U.S. $50,000 for each year thereafter or such other amount
as the Company and the Executive may agree upon.
(b) Bonuses. During the Initial Term, Executive will be eligible to receive
a cash bonus ("Bonus"), which will be determined by the Board.
(c) Stock Options. Simultaneously with the execution and delivery of this
Agreement by the Company and Executive, the Company and Executive shall enter
into an Option Agreement, attached hereto as Exhibit A pursuant to which
Executive shall have the option to purchase 3,000,000 shares of Common Stock of
the Company at the purchase price of U.S. $1.667 per share, such number of
shares and price per share to be subject to adjustment as set forth in the
Option Agreement.
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3.2 Participation in Benefit Plans. The payments provided in Section 3
hereof are in addition to any benefits to which Executive may be, or may become,
entitled under any benefit plan or program of the Company for which key
executives are or shall become eligible, including, without limitation, pension,
401(k), health, life and disability insurance and stock benefits and/or plans.
Further, Executive shall be eligible to receive during the period of his
employment under this Agreement, all benefits and emoluments for which key
executives are eligible under every such plan or program to the extent
permissible under the general terms and provisions of such plans or programs and
in accordance with the provisions thereof.
3.3 Vacation. Executive shall be entitled to 20 working days of compensated
vacation in each fiscal year, to be taken at times which do not unreasonably
interfere with the performance of Executive's duties hereunder. Any unused
vacation time from any fiscal year shall be subject to accumulation or
forfeiture in accordance with Company policy as in effect from time to time.
3.4 Expenses. The Company will pay or reimburse Executive for all
reasonable and necessary out-of-pocket expenses incurred by him in the
performance of his duties under this Agreement, including all of the Executive's
travel, hotel, meal and other incidental expenses during the Executive's travel
on behalf of the Company. Executive shall keep detailed and accurate records of
expenses incurred in connection with the performance of his duties hereunder and
reimbursement therefor shall be in accordance with policies and procedures to be
established from time to time by the Board.
3.5 Automobile. The Company at its expense will provide Executive with
exclusive use of an automobile, equipped with a mobile telephone, and the
Company will pay all operating and ownership expenses attendant thereto,
including, without limitation, insurance, gasoline, telephone, maintenance and
repairs.
3.6 Director and Officer Liability Insurance. The Corporation shall pay the
cost of maintaining director and officer liability insurance coverage for the
services rendered by the Executive hereunder during the term hereof.
3.7 Key Man Insurance. The Corporation shall pay the cost of maintaining
key man insurance coverage for the services rendered by the Executive hereunder
during the term hereof.
3.8 Indemnification. The Company agrees to indemnify and hold harmless, to
the extent permitted under Delaware law, the
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Executive from and against all losses, claims, damages, liabilities, actions or
demands in connection with the Executive's service as director and/or officer
hereunder during the term hereof.
4. Termination
4.1 General. In addition to the right by the Executive to terminate this
Agreement pursuant to Section 2 hereof, the Company or the Executive shall have
the right to terminate the employment of Executive as set forth in this Section
4.
4.2 Termination for Cause. In addition to any other remedies which the
Company may have at law or in equity, the Board may terminate Executive's
employment under this Agreement by giving Executive written notice of such
termination upon or at any time following the occurrence of any of the following
events, and each such termination shall constitute a termination for "cause",
provided, however, that Executive has first been given written notice of the
facts or circumstances constituting the determination of "cause" and a
reasonable opportunity (in no event less than 30 days) to cure, rectify or
reverse such facts or circumstances and Executive shall have failed to do so:
(i) any act or failure to act (or series or
combination thereof) by Executive done with the
intent to harm in any material respect the
interests of the Company or any affiliate
thereof;
(ii) the commission by Executive of a felony;
(iii) the perpetration by Executive of a dishonest act
or common law fraud against the Company or any
affiliate thereof; or
(iv) a grossly negligent act or failure to act (or
series or combination thereof) by Executive
detrimental in any material respect to the
interests of the Company or any affiliate
thereof; or
(v) the continued refusal to follow the directives
of the Board which are consistent with
Executive's duties and responsibilities
identified in Section 1.1 hereof.
Upon the early termination of Executive's employment under this Agreement
by the Company for "cause", the Company shall pay to
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Executive (i) an amount equal to Executive's Base Salary accrued through the
effective date of termination at the rate in effect at the time notice of
termination is given, payable at the time such payment is due; (ii) the sum of
U.S. $712,500.00; and (iii) at the time such payments are due, all other amounts
to which Executive is entitled hereunder (including expense reimbursement
amounts to which Executive is entitled hereunder or amounts under any benefit
plan of the Company, but expressly excluding any Bonus (or portion thereof) in
respect of the fiscal year in which this Agreement is so terminated or any
fiscal year of the Company thereafter), and, upon payment of such amounts, the
Company shall have no further obligation to Executive under this Agreement.
4.3 Incapacity of Executive. Subject to applicable law, if Executive shall
become ill or be injured or otherwise become incapacitated such that, in the
good faith judgment of the Board, he cannot fully carry out and perform his
duties hereunder, and such incapacity shall continue for a period of 45
consecutive days, the Board may, at any time thereafter, by giving Executive
20-days' prior written notice, fully and finally terminate his employment under
this Agreement. Termination under this Section 4.3 shall be effective as of the
date provided in such notice, which date shall not be fewer than 365 days after
such notice is delivered to Executive or his representative, and the Company
shall pay Executive his Base Salary accrued to the effective date of termination
at the rate in effect at the time of such notice, payable at the time such
payment is due. Upon payment of (i) such accrued Base Salary; and (ii) all other
amounts to which Executive may be entitled hereunder including, without
limitation, (A) any Bonus to which the Executive would have been entitled
pursuant to Section 3.1(b) hereof (prorated for the period up to the effective
date of termination), (B) any expense reimbursement amounts accrued to the
effective date of termination, (C) a minimum sum of U.S. $712,500.00, and (D)
any amounts under any other benefit plan of the Company, in each case at the
time such payments are due, the Company shall have no further obligation to
Executive under this Agreement.
4.4 Death of Executive. This Agreement shall automatically terminate upon
the death of Executive. Upon the early termination of this Agreement as a result
of death, the Company shall pay Executive's estate: (i) an amount equal to
Executive's Base Salary accrued through the effective date of termination at the
rate in effect at the effective date of termination, payable at the time such
payment is due; and (ii) all other amounts to which Executive is entitled
hereunder, including, without limitation, (A) any Bonus to which the Executive
would have been entitled pursuant to Section 3.1(b) hereof (prorated for the
period up to the effective date of termination), (B) any expense reimbursement
amounts accrued to the
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effective date of termination, (C) a minimum sum of U.S. $712,500.00, and (D)
any amounts under any other benefit plan of the Company, in each case at the
time such payments are due, and the Company shall have no further obligation to
Executive under this Agreement.
4.5 Termination by Executive. Executive may, with or without cause,
terminate his employment under this Agreement by giving the Company at least 60
days' prior written notice of such termination (which may be waived by the
Company), and after the effective date of such termination, the Company shall
have no further obligation to Executive under this Agreement.
4.6 Termination by Executive for Good Reason. Executive may terminate his
employment under this Agreement for "good reason" (as hereinafter defined) at
any time within 6 months of the date of a "change in control" (as hereinafter
defined) of the Company. For purposes of this Agreement, "good reason" shall
mean, unless Executive shall have consented in writing thereto, any of the
following:
(i) A reduction in Executive's title, duties,
responsibilities or status, as compared to such
title, duties, responsibilities or status
immediately prior to the change in control or as
the same may be increased after the change in
control;
(ii) The assignment to Executive of duties
inconsistent with Executive's office on the date
of the change in control or as the same may be
increased after the change in control;
(iii) A reduction by the Company in Executive's Base
Salary or other benefits, including stock
options, as in effect immediately prior to the
change in control or as the same may be
increased after the change in control;
(iv) A requirement that Executive relocate anywhere
not acceptable to Executive or the imposition on
Executive of business travel obligations
substantially greater than those contemplated
under this Agreement;
(v) The failure by the Company to continue in effect
any compensation or benefit plan or program in
which Executive is participating at the time of
the change in control (or plans providing
6
<PAGE>
Executive with substantially similar benefits),
or the taking of any action by the Company which
would adversely affect Executive's participation
in or materially reduce his benefits under any
of such plans or deprive him of any material
fringe benefit enjoyed by him at the time of the
change in control;
(vi) The adoption or pursuit by the Company or the
Board of one or more policies or practices
which, in the opinion of Executive, are contrary
to the ethics, traditions, policies or practices
of the Company as in effect immediately prior to
the change in control; or
(vii) The material breach by the Company of its
agreements or obligations under this Agreement;
or
(viii) A change in the majority of the Board of the
Company or in its executives or senior officers.
Upon such termination by Executive of his employment for "good reason"
following a change in control of the Company, the Company shall pay to
executive: (i) an amount equal to Executive's Base Salary payable for the
remainder of the Term at the time such payments are due at the rate in effect on
the date of termination; and (ii) all other amounts to which Executive is
entitled, including (A) any Bonus to which Executive would have been entitled
for the remainder of the Term pursuant to Section 3.1(b) hereof, (B) any expense
reimbursement amounts accrued to the effective date of termination, and (C) any
amounts under any other benefit plan of the Company, in each case at the time
such payments are due; and (iii) within ten days after the date of termination
an amount equal to 2.85 times Executive's annual Base Salary in effect at the
date of termination. Moreover, for three years following the date of
termination, the Company shall continue to provide Executive with all fringe
benefits (other than payment of mobile telephone and gasoline expense) he was
receiving as of the date of termination, including, without limitation, all
health, life and disability insurance and automobile benefits he was receiving
immediately prior to the date of termination.
For purposes of this Agreement, a "change in control" shall mean a
change in control of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A of Regulation 14A, as in effect on the date hereof,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"); provided, however that, without limitation, such a change in
7
<PAGE>
control shall be deemed to have occurred if (A) any "Person" (as such term is
used in (section)13(d) and (section)14(d) of the Exchange Act) is or becomes the
beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding securities; (B) there occurs a contested proxy solicitation of the
Company's shareholders that results in the contesting party obtaining the
ability to vote securities representing 10% or more of the combined voting power
of the Company's then outstanding securities; (C) there occurs a sale, exchange,
transfer or other disposition of substantially all of the assets of the Company
to another entity, except to an entity controlled directly or indirectly by the
Company, or a merger, consolidation or other reorganization of the Company in
which the Company is not the surviving entity, or a plan of liquidation or
dissolution of the Company other than pursuant to bankruptcy or insolvency laws
is adopted; or (D) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board cease for any reason to
constitute at least a majority thereof unless the election, or the nomination
for election by the Company shareholders, of each new director was approved by a
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of the period. Notwithstanding the foregoing, a
"change in control" shall not be deemed to have occurred for purposes of this
Agreement (i) in the event of a sale, exchange, transfer or other disposition of
substantially all of the assets of the Company to, or a merger, consolidation or
other reorganization involving the Company and Executive, alone or with other
officers of the Company, or any entity in which Executive (alone or with other
officers) has, directly or indirectly, at least a 5% equity or ownership
interest or (ii) in a transaction otherwise commonly referred to as a
"management leveraged buy-out".
Clauses (A) and (B) in the preceding paragraph to the contrary
notwithstanding, the Board may, by resolution adopted by at least two-thirds of
the directors who were in office at the date a change in control occurred,
declare that a change in control described in clause (A) or (B) has become
ineffective for purposes of this Agreement if all of the following conditions
then exist: (i) the declaration is made prior to the death, disability or
termination of employment of Executive and within 120 days of the change in
control; and (ii) no Person is the beneficial owner, directly or indirectly, of
securities of the Company representing 10% or more of the combined voting power
of the Company's outstanding securities or has the ability or power to vote
securities representing 10% or more of the combined voting power of the
Company's then outstanding securities. If such a declaration shall be properly
made, no benefits shall be payable hereunder as a result of such prior but now
ineffective change in control, but
8
<PAGE>
benefits shall remain payable and this Agreement shall remain enforceable as a
result of any other change in control unless it is similarly declared to be
ineffective.
5. Employment Covenants
5.1 Covenant Not to Compete. Executive recognizes and acknowledges that the
Company is placing its confidence and trust in Executive. Executive, therefore,
covenants and agrees that during the applicable Non-Compete Period (as defined
below) Executive shall not, either directly or indirectly, without the prior
written consent of the Board:
A. Engage in or carry on any business or in any way
become associated with any business which is
similar to or is in competition with the Business
of the Company (as such term is used and defined
herein). As used in this Section 5, the term
"Business of the Company" shall include all
business activities in which the Company is now
engaged, including but not limited to, emission
control devices for use with internal combustion
engines and shall further include any business in
which the Company is engaged at any time during the
Term;
B. Solicit the business of any person or entity, on
behalf of himself or any other person or entity,
which is or has been at any time during the term of
this Agreement a customer or supplier of the
Company including, but not limited to, former or
present customers or suppliers with whom Executive
has had personal contact during, or by reason of,
his relationship with the Company;
C. Be or become an employee, agent, consultant,
representative, director or officer of, or be
otherwise in any manner associated with, any person,
firm, corporation, association or other entity which
is engaged in or is carrying on any business which is
similar to or in competition with the Business of the
Company;
D. Solicit for employment or employ any person
employed by the Company at any time during the 12-
month period immediately preceding such
solicitation or employment; or
9
<PAGE>
E. Be or become a shareholder, joint venturer, owner
(in whole or in part), partner, or be or become
associated with or have any proprietary or
financial interest in or of any firm, corporation,
association or other entity which is engaged in or
is carrying on any business which is similar to or
in competition with the Business of the Company.
Notwithstanding the preceding sentence above,
passive equity investments by Executive of $25,000
or less in any entity or affiliated group of any
entity which is engaged in or is carrying on any
business which is similar to or in competition with
the Business of the Company shall not be deemed to
violate this Section 5.1.
Executive hereby recognizes and acknowledges that the existing Business of
the Company extends throughout Canada and the United States of America, and
therefore agrees that the covenants not to compete contained in this Section 5.1
shall be applicable in and throughout such states, as well as throughout such
additional areas or states in which the Company may be (or has prepared written
plans to be) doing business as of the date of termination of Executive's
employment. Executive further warrants and represents that, because of his
varied skill and abilities, he does not need to compete with the Business of the
Company and that this Agreement will not prevent him from earning a livelihood
and acknowledges that the restrictions contained in this Section 5.1 constitute
reasonable protections for the Company.
As used in this Section 5.1, "Applicable Non-Compete Period" shall mean:
(i) unless and until the Executive's employment
under this Agreement is terminated prior to the scheduled end of the Term,
the period beginning on the date hereof and ending on the date which is 365 days
after the scheduled end of the Term (as such Term may be extended from time to
time pursuant to Section 2.1 hereof);
(ii) if the Executive's employment under this
Agreement is terminated pursuant to Section 4.2 hereof or Section 4.3 hereof or
for any other reason (other than as set forth in clause (iii) below), the period
beginning on the date hereof and ending on the date which is 365 days after the
scheduled end of the Term (as such Term may be extended from time to time
pursuant to Section 2.1 hereof);
(iii) if the Executive's employment under this
Agreement is terminated without "cause", the period beginning on
10
<PAGE>
the date hereof and ending on the date of the scheduled end of the Term (as such
Term may be extended from time to time pursuant to Section 2.1 hereof);
(iv) if on or prior to the date of the scheduled end
of the Term (as such Term may be extended from time to time pursuant to Section
2.1 hereof), the Executive rejects an offer by the Company to extend this
Agreement pursuant to Section 2.1 hereof on reasonable terms, the period
beginning on the date hereof and ending on the date which is 365 days after the
scheduled end of the Term (as such Term may be extended from time to time
pursuant to Section 2.1 hereof); and
(v) if the Company elects not to extend this
Agreement pursuant to Section 2.1 hereof, the period beginning on the date
hereof and ending on the date of the scheduled end of the Term (as such Term may
be extended from time to time pursuant to Section 2.1 hereof).
5.2 Trade Secrets and Confidential Information. Executive recognizes and
acknowledges that certain information including, without limitation, information
pertaining to the financial condition of the Company, its systems, methods of
doing business, agreements with customers or suppliers or other aspects of the
Business of the Company or which is sufficiently secret to derive economic value
from not being disclosed ("Confidential Information") may be made available or
otherwise come into the possession of Executive by reason of his employment with
the Company. Accordingly, Executive agrees that he will not (either during or
after the term of his employment with the Company) disclose any Confidential
Information to any person, firm, corporation, association or other entity for
any reason or purpose whatsoever or make use to his personal advantage or to the
advantage of any third party, of any Confidential Information, without the prior
written consent of the Board. Executive shall, upon termination of employment,
return to the Company all documents which reflect Confidential Information
(including copies thereof). Notwithstanding anything heretofore stated in this
Section 5.2, Executive's obligations under this Section 5.2 shall not, after
termination of Executive's employment with the Company, apply to information
which has become generally available to the public without any action or
omission of Executive (except that any Confidential Information which is
disclosed to any third party by an employee or representative of the Company who
is not authorized to make such disclosure shall be deemed to remain confidential
and protectable by Executive under this Section 5.2).
5.3 Records. All files, records, memoranda and other documents regarding
former, existing or prospective customers of
11
<PAGE>
the Company or relating in any manner whatsoever to Confidential Information or
the Business of the Company (collectively, "Records"), whether prepared by
Executive or otherwise coming into his possession, shall be the exclusive
property of the Company. All Records shall be immediately placed in the physical
possession of the Company upon the termination of Executive's employment with
the Company, or at any other time specified by the Board. The retention and use
by Executive of duplicates in any form of Records is prohibited after the
termination of Executive's employment with the Company.
5.4 Breach. Executive hereby recognizes and acknowledges that irreparable
injury or damage shall result to the Company in the event of a breach or
threatened breach by Executive of any of the terms of provisions of this Section
5, and Executive therefore agrees that the Company shall be entitled to an
injunction restraining Executive from engaging in any activity constituting such
breach or threatened breach. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to the
Company at law or in equity for such breach or threatened breach, including but
not limited to, the recovery of damages from Executive and, if Executive is an
employee of the Company, the termination of his employment with the Company in
accordance with the terms and provisions of this Agreement.
5.5 Survival. Notwithstanding the termination of the employment of
Executive or the termination of this Agreement, the provisions of this Section 5
shall survive and be binding upon Executive unless a written agreement which
specifically refers to the termination of the obligations and covenants of this
Section 5 is executed by the Company.
6. Miscellaneous
6.1 Notices. Any notices to be given hereunder by either party to the other
may be effected either by personal delivery in writing, via facsimile
transmission or by mail, registered or certified, postage prepaid with return
receipt requested. Notices shall be addressed to the parties as follows:
If to the Company: Mark Four Resources, Inc.
45 Rockefeller Plaza
Suite 2000
New York, NY 10111
If to the Executive: Paul Mazza
#2 Chilton Place
Hamilton, Ontario, L8P 3G7
Canada
12
<PAGE>
Any party may change his or its address by written notice in accordance
with this Section 6.1. Notices delivered personally shall be deemed communicated
as of actual receipt; notices sent via facsimile transmission shall be deemed
communicated as of receipt by the sender of written confirmation of transmission
thereof; mailed notices shall be deemed communicated as of three days after
proper mailing.
6.2 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all other prior or contemporaneous agreements, either oral or in writing,
between the parties hereto with respect to the subject matter hereof and
contains all of the covenants and agreements between the parties with respect to
employment of Executive by the Company.
6.3 Law Governing Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware.
6.4 Waivers. No waiver at any time of any term or provision of this
Agreement shall be construed as a waiver of any other term or provision of this
Agreement, and a waiver at any time of any term or provision of this Agreement
shall not be construed as a waiver at any subsequent time of the same term or
provision.
6.5 Amendments. Except as otherwise provided in Section 6.6 hereof, no
amendment or modification of this Agreement shall be deemed effective unless and
until executed in writing by each party hereto.
6.6 Severability and Limitation. All agreements and covenants contained
herein are severable and in the event any of them shall be held to be invalid by
any competent court, this Agreement shall be interpreted as if such invalid
agreements or covenants were not contained herein. Should any court or other
legally constituted authority determine that for any such agreement or covenant
to be effective that it must be modified to limit its duration or scope, the
parties hereto shall consider such agreement or covenant to be amended or
modified with respect to duration and/or scope so as to comply with the orders
of any such court or other legally constituted authority, and as to all other
portions of such agreement or covenants they shall remain in full force and
effect as originally written.
6.7 Headings. All headings set forth in this Agreement are intended for
convenience only and shall not control or affect the meaning, construction or
effect of this Agreement or of any of the provisions hereof.
13
<PAGE>
6.8 Assignment. The Company shall have the right to assign this Agreement
and to delegate all of its rights, duties and obligations hereunder to any
entity which controls the Company, which the Company controls or which may be
the result of the merger, consolidation, acquisition or reorganization of the
Company and another entity. Executive agrees that this Agreement is personal to
him and his rights and interests hereunder may not be assigned, nor may his
obligations and duties hereunder be delegated (except as to delegation in the
normal course of operation of the Company), and any attempted assignment or
delegation in violation of this provision shall be void.
6.9 Arbitration. All controversies which may arise between the parties
hereto including, but not limited to, those arising out of or related to this
Agreement shall be determined by binding arbitration applying the laws of the
State of Delaware as set forth in Section 6.3 hereof. Any arbitration pursuant
to this Agreement shall be conducted in New York, New York before the American
Arbitration Association in accordance with its arbitration rules. The
arbitration shall be final and binding upon all the parties (so long as the
award was not procured by corruption, fraud or undue means) and the arbitrator's
award shall not be required to include factual findings or legal reasoning.
Nothing in this Section 6.9 will prevent either party from resorting to judicial
proceedings if interim injunctive relief under the laws of the State of Delaware
from a court is necessary to prevent serious and irreparable injury to one of
the parties.
6.10 Counterparts. This Agreement may be executed via facsimile
transmission signature and in counterparts, each of which shall be deemed to be
an original but all of which together will constitute one and the same
instrument.
6.11 Board of Director Determinations. All matters to be determined by the
Board pursuant to the terms of this Agreement shall be determined by the members
of the Board without the vote of Executive, if he is then a member of the Board.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have executed this Employment Agreement as of the day and year first
above written.
MARK FOUR RESOURCES, INC.
By: /s/ Gianni D'Alessandro
--------------------------------
Name: Gianni D'Alessandro
Title: Chief Financial Officer
By: /s/ Teodosio Pangia
--------------------------------
Name: Teodosio Pangia
Title: Chief Executive Officer
I/we have authority to bind the Corporation
EXECUTIVE
/s/ Paul D. Mazza
---------------------------------
Paul D. Mazza
15
SUBSIDIARIES
1. E.P.A. Manufacturing, Inc.
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