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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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AIRTECH INTERNATIONAL GROUP, INC.
(Exact name of Registrant as specified in its charter)
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<S> <C> <C>
WYOMING 3564 98-0120805
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification Number)
incorporation or organization) Classification Code Number)
</TABLE>
15400 KNOLL TRAIL, SUITE 200, DALLAS, TEXAS 75248
(972) 960-9400
(Address and telephone number of Registrant's principal executive offices)
JAMES R. HALTER
CHIEF FINANCIAL OFFICER AND GENERAL COUNSEL
AIRTECH INTERNATIONAL GROUP, INC.
15400 KNOLL TRAIL, SUITE 200
DALLAS, TEXAS 75248
(972) 960-9400
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COPIES TO:
JOHN G. REBENSDORF, ESQ.
6116 N. CENTRAL EXPRESSWAY
SUITE 1313
DALLAS, TEXAS 75206
(214) 696-9388
(Name, address and telephone number of agent for service)
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement in light of market
conditions and other factors.
------------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(2) UNIT OFFERING PRICE FEE(3)
<S> <C> <C> <C> <C>
Warrants to Purchase Common Stock........... 500,000 $1.41 $705,000 $187
Common Stock, $0.05 Par Value(1)............ 5,905,405 $1.41 $8,326,621 $2,199
</TABLE>
(1) Includes 500,000 shares of Common Stock which may be issued upon exercise of
Common Stock Warrants and 5,905,405 shares which may be issued upon
conversion of the Company's 6% Convertible Debentures (the "Debentures") or
in payment of interest on the Debentures by the Company.
(2) Also includes an indeterminate number of shares of Common Stock which may be
issued with respect to such shares by way of a stock dividend, stock split,
stock combination, recapitalization, merger, consolidation or otherwise.
(3) The registration fee has been calculated in accordance with Rule 457(c)
under the Securities Act of 1933, as amended, based upon the average of the
closing bid and asked prices for the Registrant's Common Stock as reported
on the OTC Electronic Bulletin Board on May 8, 2000.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THIS REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED MAY , 2000
INFORMATION CONTAINED IN THIS PROSPECTUS IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION ON FORM SB-2. THESE SECURITIES MAY NOT BE
SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
STATE.
<PAGE>
500,000 WARRANTS
5,905,405 COMMON SHARES
AIRTECH INTERNATIONAL GROUP, INC.
---------------
Our Common Shares are traded on the over-the-counter Electronic Bulletin
Board under the symbol "AIRG." There is no public market for the Warrants and we
do not intend to list the Warrants on any exchange.
This Prospectus relates to:
- the offer and sale from time to time of up to 500,000 Warrants to purchase
shares of our Common Stock (the "Warrants");
- the offer and sale from time to time of up to 500,000 shares of our Common
Stock issuable upon exercise of the Warrants;
- the offer and sale from time to time of up to 5,905,405 shares of our
Common Stock issuable upon conversion of up to $5,000,000 in principal
amount of our 6% Convertible Debentures Due 2002 (the "Debentures").
We recently sold to PK Investors LLC, a Delaware limited liability company
("PKI"), $2,500,000 in principal amount of Debentures and 250,000 Warrants. In
addition, we issued to PKI a Conditional Warrant which entitles PKI to purchase
an additional $2,500,000 of Debentures and 250,000 Warrants. The Debentures,
Warrants and Conditional Warrant were sold and issued to PKI in a private
transaction exempt from registration under Section 4(2) of the Securities Act of
1933. We are registering the offer and sale of the Warrants and the Common Stock
pursuant to our contractual obligations with PKI under a Registration Rights
Agreement. The registration of the Warrants and Common Stock does not mean that
we will issue additional Warrants or any Common Stock to PKI, or that PKI will
offer or resell the Warrants or Common Stock.
We will receive no proceeds from the sale of our Warrants or Common Stock by
the Selling Stockholders identified in this Prospectus. We will, however,
receive proceeds from the sale of our Common Stock upon the exercise, if any, of
the Warrants.
You should read this Prospectus and any supplement carefully before you
invest in our Company. This Prospectus may not be used to make sales of our
Common Stock or Warrants unless accompanied by a prospectus supplement. PLEASE
PAY PARTICULAR ATTENTION TO THE "RISK FACTORS" APPEARING ON PAGE 4 OF THIS
PROSPECTUS.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is May , 2000.
<PAGE>
The following table of contents has been designed to help you find important
information contained in this Prospectus.
TABLE OF CONTENTS
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SECTION PAGE
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Prospectus Summary.......................................... 2
Risk Factors................................................ 4
Description of Securities Purchase Agreement................ 6
Plan of Distribution........................................ 8
Use of Proceeds............................................. 9
Information on Selling Stockholders......................... 9
The Company................................................. 10
Company Properties.......................................... 23
Litigation.................................................. 23
Management's Discussion and Analysis........................ 25
Directors, Executive Officers, Promoters and Control
Persons................................................... 30
Executive Compensation...................................... 32
Long Term Compensation Awards............................... 32
Security Ownership of Certain Beneficial Owners and
Management................................................ 35
Certain Relationships and Related Transactions.............. 36
Market for Registrant's Common Equity and Related
Stockholder Matters....................................... 36
Description of Securities................................... 37
Legal Matters............................................... 39
Experts..................................................... 39
Where To Find Additional Information........................ 40
Index to Combined Financial Information..................... F-1
</TABLE>
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A WARNING ABOUT FORWARD-LOOKING STATEMENTS
In addition to historical information, this Prospectus contains
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and information based on our current views of our
business and our assumptions concerning future events. The words or phrases
"will likely result," "are expected to," "will continue," "is anticipated,"
"believes," "estimates," "projects" or similar expressions are intended to
identify these forward-looking statements. These statements are subject to risks
and uncertainties that could cause our business and results of operations to
differ materially from those reflected in our forward-looking statements.
Forward-looking statements are not guarantees of future performance. Our
forward-looking statements are based on trends which we anticipate in our
industry and the effect on those trends of such factors as industry capacity,
product demand and pricing and the other matters referred to in the "Risk
Factors" section of this Prospectus. In addition, such forward-looking
statements are subject to the Company reversing the current negative trend in
our financial results. Accordingly, you are cautioned not to place undue
reliance on our forward-looking statements. We are not required to update any
forward-looking statements we make and we may not make any updates.
WHERE TO FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 in
connection with the securities offered under this Prospectus. As permitted by
SEC rules, this Prospectus does not contain all of the information contained in
the registration statement or in the exhibits to the registration statement.
For further information you may read and copy documents at the public
reference room of the SEC at 450 5(th) Street, N.W., Washington, D.C. 20549, and
at the regional offices of the SEC at 7 World Trade Center, Suite 1300, New York
10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The SEC charges a fee for copies. Copies of this
material should also be available through the Internet at the SEC EDGAR Archive,
the address of which is http://www.sec.gov.
No person is authorized by the Company to give any information or to make
any representations other than those contained in this Prospectus, and, if given
or made, you should not rely upon such information.
ii
<PAGE>
PROSPECTUS SUMMARY
This Prospectus summary highlights selected information from this Prospectus
and does not contain all of the information that may be important to you. For a
more complete description of this offering, you should read this entire
Prospectus as well as the additional documents we refer to above under the
heading "Where To Find Additional Information."
THE COMPANY
Our principal business is the development, manufacturing, distribution and
sale of air purification products for commercial and individual use. We have
developed several air purification products for use by restaurants, hotels,
schools, print shops, automobiles, health conscious individuals and approved
Medicare recipients. We market our air purification products through a
combination of franchises offered by Airsopure, Inc. and Airsopure International
Group, Inc., our wholly-owned subsidiaries, by direct sales efforts from our
principal offices and through a distribution network with heating, ventilation
and air conditioning companies. We have also licensed the distribution rights to
use our name and technology in the countries of Taiwan, the Philippines, Turkey
and Canada. Our strategy is to identify national and international market niches
which we believe are in need of air purification solutions and to exploit those
markets through franchising, direct sales, licensing and strategic alliances
with manufacturing representatives.
PRODUCTS AND MARKET
Our air purification products and technology can be applied to various
commercial, residential, and medical markets. We currently manufacture and
distribute a product line of ceiling-mounted purification units for commercial
applications such as hotels, restaurants, bars, offices, print shops and casinos
and portable residential purification units for individual use. We also
manufacture and distribute a purification unit for use in automobiles, trucks
and public transportation vehicles. The market for our products has grown based
upon the increased public awareness of indoor air contamination. The
Environmental Protection Agency has identified indoor air pollution as one of
the five most urgent environmental crises in the United States. Air
contamination encompasses bacteria, pollen, dust mites, smoke, plant spores,
dust, solvents, glues, formaldehyde, carbon monoxide and dioxide and various
viruses.
SUMMARY FINANCIAL AND OTHER DATA
We are providing the following summary financial information to aid you in
your analysis of the financial aspects of an investment in the Company. The
table sets forth summary historical financial data for the Company for the years
ended May 31, 1998 and 1999 and for the nine months ended February 29, 2000. We
believe that this presentation is informative to the reader.
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<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED
MAY 31, 1998 MAY 31, 1999 FEBRUARY 29, 2000
------------ ------------ -----------------
<S> <C> <C> <C>
ASSETS............................................... $4,243,700 $ 2,849,781 $ 5,655,892
REVENUES............................................. $1,126,499 $ 1,030,469 $ 779,474
NET LOSS............................................. $ (870,671) $(4,311,459) $(1,652,534)
LOSS PER SHARE....................................... $ (0.32) $ (0.41) $ (0.08)
</TABLE>
2
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SECURITIES PURCHASE AGREEMENT
On February 22, 2000, we entered into a securities purchase agreement with
PK Investors LLC ("PKI") to raise up to $5,000,000 through the sale to PKI of up
to $5,000,000 in principal amount of our 6% Convertible Debentures
("Debentures") and Warrants to purchase up to 500,000 shares of our Common Stock
("Warrants"). Upon execution of the securities purchase agreement, PKI purchased
$2,500,000 in principal amount of the Debentures with attached Warrants to
purchase 250,000 shares of Common Stock for a purchase price of $2,500,000.
Under the terms of the securities purchase agreement, we also issued to PKI a
Conditional Warrant to purchase the remaining $2,500,000 in principal amount of
Debentures and the remaining attached Warrants to purchase 250,000 shares of our
Common Stock. This Prospectus relates to the resale of our Warrants or Common
Stock by the selling stockholders identified in this Prospectus either in the
open market or pursuant to negotiated transactions.
3
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RISK FACTORS
LIMITED HISTORY OF OPERATIONS
We have only five years of operational history in our industry. Accordingly,
our operations are subject to all the risks inherent in the establishment of a
new business enterprise, such as access to capital, acceptance of our products
in the market and limited revenue from operations. The air purification industry
is relatively new to most businesses and individuals. There is no assurance that
our intended activities or plan of operation will be successful or result in
revenue or profit to the Company.
NEGATIVE CASH FLOW AND OPERATING LOSSES
We have incurred operating losses for our fiscal years ended May 31, 1998
and 1999, and expect to sustain additional operating losses in the future. Our
operating losses are attributable to the developing nature of our business and
have resulted primarily from:
- significant costs associated with the development of our products;
- marketing and distribution of our products;
- interest charges and expenses related to our previous debt and equity
financings; and
- minimal sales history of our recently developed products
SIGNIFICANT FUTURE CAPITAL REQUIREMENTS
The development of our business and the development, sale and delivery of
our products and services requires significant expenditures. A substantial
portion of these expenditures must be made before the Company realizes any
revenues. Certain of our expenditures, including marketing, sales and general
and administrative costs are expensed as they are incurred, while certain other
expenditures, including product design, network design and costs to obtain
regulatory approval, are deferred until the applicable network or product is
completed and operational. We will continue to incur significant expenditures in
connection with the construction, acquisition, development and expansion of our
products, services and customer base. Although we believe the net proceeds from
our recent debt and equity sales to PK Investors LLC are sufficient to implement
our plan of operation, we may require additional financing in the future. We
cannot assure you that any required additional financing will be available to
the Company or that any additional financing will not materially dilute the
ownership of our shareholders.
COMPETITION
Our business is becoming increasingly competitive. Competition has increased
with society's growing awareness of air quality problems and the related demand
for air purification technology. We believe competition will continue to
increase with the identification of markets, such as:
- the food and beverage industry where smoking problems among smoking and
non-smoking customers exist or local ordinances impose smoking
restrictions;
- the growth of cigar bars;
- the creation of smoking lounges in airports, office buildings, medical
buildings and other public buildings;
- other smoking and non-smoking environmental demands;
- air contamination within hospitals and other medical facilities;
- air contamination within office buildings and other public buildings and
facilities;
- air contamination within vehicle air conditioning systems; and
- air contamination within homes.
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As competition increases, we will compete with numerous companies which have
greater financial and technical resources than those available to the Company.
Our inferior competitive position could have a material adverse affect on the
technological development and marketability of our products and ultimately the
profitability of our Company.
COMPETITION DUE TO INCREASED TECHNOLOGICAL DEVELOPMENTS
Our air purification products could be rendered noncompetitive or obsolete
by future technological developments in our industry. We expect these
technological developments to significantly increase competition in our
industry. Many of the companies with which we compete and expect to compete have
greater capital resources and more significant research and development staffs
and marketing and distribution programs and facilities. Our ability to compete
effectively may be adversely affected by the ability of these competitors to
devote greater resources to technological developments and the sale and
marketing of their products than the Company. In addition, one or more of our
competitors may succeed or may have already succeeded in developing technologies
and products of which we are unaware and which may be more effective than the
air purification products we are currently developing or marketing.
APPROVAL OF THE MEDICARE MODEL 950 UNIT
In October 1999, we applied to the Medicare administration for a Medicare
reimbursement code number for our Medicare Model 950 air purification unit. The
reimbursement code number would allow Medicare recipients to receive
reimbursement for the cost of the Medicare Model 950. We have not yet received
approval of our Medicare application and there is no assurance that our
application will be approved by Medicare.
LIMITED PUBLIC MARKET FOR COMMON STOCK AND WARRANTS
Our Common Stock is traded on the Over The Counter Electronic Bulletin Board
under the symbol "AIRG." Currently, there are a limited number of market makers
for our Common Stock and there can be no assurance that a market for our shares
will continue with any consistency. There is no public market for our Warrants
and we cannot assure you that one will develop. We do not intend to list the
Warrants on any exchange.
DEPENDENCE ON KEY PERSONNEL
We believe our future success will depend to a significant extent upon our
ability to attract and retain skilled officers, managers and other personnel.
Competition for qualified personnel is intense, and there is no assurance that
we will be successful in attracting and retaining qualified, top-level
personnel. We do not maintain insurance on the lives of any of our officers or
key employees. Our future success largely depends on the continued services of
our officers and directors, and upon their ability to manage and conduct our
operations and implement our business plan. The loss of services of these
officers and directors could adversely affect our prospects for success.
FRANCHISING OPERATIONS
We are presently registered or authorized to offer franchises in 36 states
which accept a Uniform Franchise Offering Circular. We also intend to apply for
franchise registration in those states which require registration information in
addition to the Uniform Offering Circular. We recently received approval of our
franchise application from the State of California, an additional information
state. There is no assurance that we will be able to maintain or obtain
effective registration for our intended franchise program in these or future
states. Our franchise policy allows franchisees to operate under our trade name.
We believe this policy promotes name recognition for both our business and for
the independently owned franchise locations. This policy, however, also
increases the possibility that, should one of our franchisees
5
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engage in an activity that results in negative publicity concerning its
operations, this negative publicity could also affect the Company and our
ability to sell additional independently owned franchises.
NO DIVIDENDS AND NONE ANTICIPATED
The Company anticipates using the proceeds received from our debt and equity
sales to PK Investors LLC, and any future earnings to promote and increase our
business and for other working capital uses. We have not paid or declared any
dividends. Based upon our present financial status and our contemplated
financial requirements, we do not anticipate paying any dividends upon the
shares offered by this Prospectus for the foreseeable future. While we may
declare dividends at some time in the future, no assurance can be given as to
the timing of such declaration of dividends, if any.
DESCRIPTION OF SECURITIES PURCHASE AGREEMENT
AGREEMENT
On February 22, 2000, we entered into a securities purchase agreement with
PK Investors LLC ("PKI") to raise up to $5,000,000 through the sale to PKI of up
to $5,000,000 in principal amount of our 6% Convertible Debentures Due 2002 (the
"Debentures") with attached Warrants to purchase up to 500,000 shares of our
Common Stock (the "Warrants"). Upon execution of the securities purchase
agreement, PKI purchased $2,500,000 in principal amount of Debentures and
Warrants to purchase 250,000 shares of Common Stock for a purchase price of
$2,500,000. Under the terms of the securities purchase agreement, we also issued
to PKI a Conditional Warrant to purchase the remaining $2,500,000 in principal
amount of Debentures and the remaining attached Warrants to purchase 250,000
shares of our Common Stock for a purchase price of $2,500,000.
DESCRIPTION OF DEBENTURES
The Debentures purchased by PKI on February 22, 2000 have a maturity date of
February 22, 2002 at which time the principal amount and all accrued interest is
due and payable. No interest payments are due prior to maturity of the
Debentures. We may, at our option, pay the accrued interest at maturity by
issuing shares of our Common Stock to the Debenture holder at a price equal to
the conversion price of our Common Stock as described below. The Debentures are
convertible at any time at the option of the holder into shares of our Common
Stock. The conversion price of our Common Stock used in calculating the number
of shares issuable upon conversion (or in payment of interest on the Debentures)
is the lesser of (i) 110% of the average closing bid price of our Common Stock
for the five trading days prior to the date of initial payment and (ii) the
product obtained by multiplying 0.80 by the average of the three lowest closing
bid prices of our Common Stock during the thirty trading days prior to the date
we receive a conversion notice from a Debenture holder. In the event of a
"change of control" of the Company, the holders of the Debentures may require us
to redeem the Debentures at a redemption price equal to 125% of the aggregate
outstanding principal and accrued interest on the Debentures. A "change of
control" includes acquisition by an entity or group of more than 50% of our
voting stock, merger or consolidation, a change in a majority of our existing
Board of Directors or a sale of substantially all of our assets.
DESCRIPTION OF WARRANTS
The Warrants purchased by PKI on February 22, 2000 entitle PKI to purchase
250,000 shares of our Common Stock at an exercise price of $2.6124 per share.
The Warrants expire on February 22, 2005. The Warrants are subject to exercise
price adjustments upon the occurrence of certain events including stock
dividends, stock splits, mergers, reclassifications of stock or a
recapitalization of the Company. The exercise price of the Warrants is also
subject to reduction if we issue any rights, options or warrants to purchase
shares of our Common Stock at a price less than the market price of our shares
as quoted on the over-the-counter market. Also, if at any time, we declare a
distribution or dividend to the holders of our
6
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Common Stock in the form of cash, indebtedness, warrants, rights or other
securities, the holders of the Warrants will be entitled to receive the
distribution or dividend as if the holder had exercised the Warrant.
DESCRIPTION OF CONDITIONAL WARRANT
The Conditional Warrant issued to PKI on February 22, 2000 entitles PKI to
purchase up to an additional $2,500,000 in principal amount of Debentures and
additional Warrants to purchase 250,000 shares of our Common Stock. The
Conditional Warrant expires on December 22, 2000. The Conditional Warrant may be
exercised by PKI in whole or in part at any time prior to expiration. The terms
and conditions of the Debentures and Warrants issuable upon exercise of the
Conditional Warrant are the same as described above, except that the exercise
price of the Warrants is equal to 110% of the average closing bid price of our
Common Stock on the over-the-counter market for the five trading days prior to
the date of exercise of the Conditional Warrant.
MANDATORY EXERCISE OF CONDITIONAL WARRANT
We may require PKI to exercise the Conditional Warrant at any time upon the
expiration of 90 days after a registration statement relating to the Warrants
and Common Stock offered by this Prospectus is declared effective by the
Securities and Exchange Commission. Our ability to require exercise of the
Conditional Warrant expires on December 22, 2000 and is subject to the closing
bid price of our Common Stock on the date we require exercise being greater than
$2.6124 per share. We may not require mandatory exercise of the Conditional
Warrant if any of the following conditions exist:
- we have made a public announcement of a material corporate event which has
not been abandoned or terminated;
- our Common Stock is delisted or suspended from trading;
- we have amended our Articles of Incorporation since February 22, 2000;
- the closing bid price of our Common Stock is less than $2.00 per share;
- the trading volume of our Common Stock is less than 30,000 shares per day
during the 30 day period prior to our request for exercise of the
Conditional Warrant; or
- we have not reserved sufficient shares of our Common Stock required to be
issued upon exercise of the Warrants or conversion of the Debentures.
COVENANTS OF THE COMPANY
We may not, without the prior written consent of PKI, offer or sell any of
our securities for a period commencing on February 22, 2000 and expiring 270
days after a registration statement relating to the Warrants and Common Stock
offered by this Prospectus is declared effective by the Securities and Exchange
Commission, except as follows:
- securities issued for an aggregate of at least $15 million in connection
with a firm commitment, underwritten public offering;
- shares of Common Stock issued in connection with our acquisition of
another entity;
- shares of Common Stock issued to directors, officers, employees or
consultants which together with shares of Common Stock issuable upon the
exercise of any new options granted after February 22, 2000 do not exceed
750,000 shares;
- shares of Common Stock issued with respect to options outstanding as of
February 22, 2000 not to exceed 750,000 shares; and
7
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- shares of Common Stock in connection with a stock split, stock dividend or
similar recapitalization which affects the holders of all of our shares of
Common Stock.
LIMITATION ON STOCK OWNERSHIP
The securities purchase agreement provides that at no time may PKI, together
with its officers, directors and affiliates, maintain ownership of more than
4.9% of our outstanding Common Stock, unless PKI gives the Company at least 61
days prior notice of PKI's intent to exceed 4.9%.
REGISTRATION RIGHTS AGREEMENT
Simultaneously with the execution of the Securities Purchase Agreement, we
entered into a Registration Rights Agreement with PKI. The securities offered by
this Prospectus are in compliance with our obligations under the Registration
Rights Agreement. The holders of the Warrants and Debentures are also entitled
under the Registration Rights Agreement to certain "piggy-back" registration
rights if we file a registration statement relating to the sale of securities
for our own account. This means the holders of the Warrants and Debentures may
participate and sell shares in our public offering, except for shares registered
by us for issuance under our employee stock option plans or in a merger or
exchange in which our shares are issued in exchange for other securities.
PLAN OF DISTRIBUTION
The Selling Stockholders named in this Prospectus or pledgees, donees,
transferees or other successors-in-interest of a named Seller Stockholder are
free to offer and sell their Warrants and Common Stock at such times, in such
manner and at such prices as they may determine. The types of transactions in
which the Warrants or Common Stock are sold may include transactions in the
over-the-counter market (including block transactions), negotiated transactions,
the settlement of short sales of Common Stock, or a combination of such methods
of sale. The sales will be at market prices prevailing at the time of sale or at
negotiated prices. The transactions may or may not involve brokers or dealers.
The Selling Stockholders have advised us that they do not have any agreements,
understandings or arrangements with any underwriters or broker-dealers regarding
the sale of their securities.
The Selling Stockholders may effect transactions by selling Warrants or
Common Stock directly to purchasers or to or through broker-dealers, which may
act as agents or principals. Broker-dealers may receive compensation in the form
of discounts, concessions or commissions from the Selling Stockholders.
Broker-dealers may also receive compensation from the purchasers of Warrants or
Common Stock for whom such broker-dealers may act as agents or to whom they sell
as principal, or both. The compensation to a particular broker-dealer might be
in excess of customary commissions.
The Selling Stockholders and any broker-dealer that acts in connection with
the sale of Warrants or Common Stock may be deemed to be an "underwriter" within
the meaning of Section 2(11) of the Securities Act of 1933. Any commissions
received by broker-dealers and any profit on the resale of Warrants or Common
Stock sold by them while acting as a principal may be deemed to be underwriting
discounts or commissions. The Selling Stockholders may agree to indemnify any
agent or broker-dealer that participates in a transaction involving sales of
Warrants or Common Stock against certain liabilities.
Because the Selling Stockholders may be deemed "underwriters" within the
meaning of Section 2(11) of the Securities Act of 1933, the Selling Stockholders
will be subject to prospectus delivery requirements. We have informed the
Selling Stockholders that the anti-manipulation rules of the Securities and
Exchange Commission, including Regulation M promulgated under the Securities and
Exchange Act of 1934, may apply to sales by the Selling Stockholders in the
market and have provided the Selling Stockholders with a copy of such rules and
regulations.
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USE OF PROCEEDS
We are registering our Warrants and shares of Common Stock offered by this
Prospectus pursuant to our contractual obligation to PK Investors LLC. We will
not receive any of the proceeds from the sale of our Warrants or Common Stock by
the Selling Stockholders under this Prospectus. We will, however, receive
proceeds from the issuance of our Common Stock upon the exercise, if any, of our
Warrants.
INFORMATION ON SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders as of March 23, 2000. The Selling Stockholders are not an
affiliate of ours and have not had a material relationship with us during the
past three years. The Selling Stockholders are not affiliated with any
registered broker-dealers.
<TABLE>
<CAPTION>
APPROXIMATE
PERCENTAGE OF
COMMON
MAXIMUM NUMBER MAXIMUM STOCK TO BE
BENEFICIAL OWNERSHIP OF SHARES OF NUMBER OF OWNED AFTER
OF COMMON STOCK AS OF COMMON STOCK WARRANTS OFFERED OFFERING
NAME MARCH 23, 2000(2) OFFERED FOR SALE(2) FOR SALE(3) (2)(3)(4)
- ---- --------------------- ------------------- ---------------- -------------
<S> <C> <C> <C> <C>
PK Investors LLC(1)......... 5,905,405 5,905,405 500,000 22.5%
</TABLE>
- ------------------------
(1) As of March 23, 2000, PK Investors LLC ("PKI") held $2,500,000 in principal
amount of the Company's 6% Convertible Debentures (the "Debentures") and
Warrants to purchase 250,000 shares of the Company's Common Stock (the
"Warrants"). As of March 23, 2000, PKI also held a Conditional Warrant to
purchase an additional $2,500,000 in principal amount of Debentures and
additional Warrants to purchase 250,000 shares of Common Stock. The number
of Warrants and shares of Common Stock offered by the selling stockholders
assumes the full exercise of the Conditional Warrant by PKI and the issuance
to PKI of $5,000,000 in principal amount of Debentures and Warrants to
purchase 500,000 shares of Common Stock.
(2) Includes the maximum number of shares issuable upon conversion of the
Debentures and 500,000 shares issuable upon exercise of the Warrants
accompanying the Debentures. Also assumes the conversion of $5,000,000 in
principal amount of the Debentures to Common Stock and the exercise of all
of the Warrants accompanying the Debentures to purchase 500,000 shares of
Common Stock.
(3) Assumes the issuance of all of the Warrants accompanying the Debentures.
(4) Our securities purchase agreement with PKI provides that at no time may PKI,
together with its officers, directors and affiliates, maintain ownership of
more than 4.9% of our outstanding Common Stock, unless PKI gives the Company
at least 61 days prior notice of PKI's intent to exceed 4.9%.
9
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THE COMPANY
ORGANIZATION AND DEVELOPMENT
Airtech International Group, Inc. was incorporated in the State of Wyoming
on August 8, 1991 under the name Interactive Technologies Corporation, Inc.
("ITC"). Until May, 1998, ITC was principally engaged in developing and
producing interactive television and interactive media programming for
distribution through cable, broadcast, direct satellite television and the
Internet. ITC conducted this line of business through ownership of proprietary
software and a trademark known as Rebate TV. Rebate TV offered network viewers
rebates through an interactive program accessed by touch-tone phones. In
addition, ITC owned licensed rights obtained from the Federal Communications
Commission to operate an interactive video and data service system in the
Melbourne-Titusville, Florida metropolitan area. A second system owned by ITC
and located in the Charleston, South Carolina metropolitan area was sold in
1997.
On May 31, 1998, we acquired all of the outstanding shares of Common Stock
of Airtech International Corporation, a Texas corporation ("AIC"). AIC was
founded in 1994 as a distributor of air purification products for
Honeywell/Envirocaire. In January of 1996, AIC outgrew the distributorship
business and began manufacturing two of its own air purification products. The
total purchase price of $22,937,760.00 for the stock acquisition was paid
through the issuance of 10,500,000 shares of our Common Stock, 11,858,016 shares
of our Series "A" Convertible Preferred Stock and $9,000,000.00 in principal
amount of our convertible debentures. The shares of common stock and preferred
stock were each valued at $0.625 per share. We accounted for the stock
acquisition using the purchase method of accounting, with AIC deemed as the
purchaser for purposes of our consolidated financial statements.
On July 31, 1998, the 11,858,016 shares of Series "A" Convertible Stock and
the $9,000,000 of convertible debentures, including accrued interest, were
converted into 11,858,016 and 13,071,429 shares of our Common Stock,
respectively. After conversion, the total number of outstanding shares of our
Common Stock was approximately 50,000,000 shares. On October 5, 1998, our
shareholders approved a one for five reverse split of our Common Stock which
reduced the number of outstanding shares of Common Stock to approximately
10,000,000 shares and increased the par value of our Common Stock from $0.01 to
$0.05 per share. The reverse stock split was effective as of November 9, 1998.
In February 1998, we discontinued our original line of business relating to
television and interactive media programming, including our Rebate TV product.
We have adopted a plan to dispose of the proprietary software and trademark
rights relating to this line of business and certain FCC license rights. The
software, trademark and license rights are the only assets of these discontinued
lines of business. These assets have no carrying value on the financial
statements of the Company because the products were discontinued prior to the
acquisition of AIC. We discontinued these original lines of business to enable
us to concentrate on the development, manufacture, distribution and sale of the
air purification products offered by AIC and its subsidiaries. We are currently
marketing the remaining assets for sale with no firm commitments or agreements
in place.
Since the discontinuation of our original lines of business, the Company and
its wholly-owned subsidiaries, AIC, Airsopure, Inc. ("Airsopure"), and Airsopure
International Group, Inc. ("Airsopure International"), has been engaged in the
development, marketing and sale of air purification systems for commercial,
residential and automobile use. Airsopure was incorporated on March 5, 1997 in
the State of Texas to implement and operate a franchise program for the sale of
commercial building air purification products developed and manufactured by AIC.
Airsopure International was incorporated on January 5, 2000 in the State of
Nevada to implement and operate a franchise program to facilitate the opening of
consumer retail stores for the sale of our residential air purification
products.
On November 30, 1995, we also incorporated McClesky Sales and Service, Inc.
("MSS") in the State of Texas to integrate the distribution and sale of air
purification products by AIC with the heating, ventilation and air conditioning
("HVAC") service business. Effective May 31, 1999, we discontinued the
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operations of MSS based upon the incompatibility of the HVAC service business
with AIC's business of manufacturing and distributing high quality air
purification products. The cost to discontinue the operations of MSS were
minimal to the Company.
In January 1999, we formed Airsopure 999, L.P., a Texas limited partnership,
for the purpose of developing, marketing and distributing our Model S-999
automobile air purification system. Our wholly-owned subsidiary, Airsopure, is
the general partner of the limited partnership.
In October 1999, we applied to the Medicare administration for a Medicare
reimbursement code number for our Medicare Model 950. The reimbursement code
number would allow Medicare recipients to receive reimbursement for the cost of
the Medicare Model 950. Our Medicare application is pending. We have not yet
received approval for a specific reimbursement code number, although Medicare
has allowed us to invoice Medicare using a non-assigned code number. The
non-assigned code number does not guarantee Medicare reimbursement to Medicare
recipients.
In February 2000, we also opened one retail store in Dallas, Texas to
facilitate the sale of our home consumer line of products. This retail store is
also a prototype for future franchise retail stores offered by Airsopure
International.
On October 16, 1998, we changed our name from Interactive Technologies
Corporation to Airtech International Group, Inc. Our address is 15400 Knoll
Trail, Suite 200, Dallas, Texas 75248. Our telephone number is (972) 960-9400
and our web site can be accessed at www.airtechgroup.com. The web site of
Airsopure can be accessed at www.airsopure.com.
BUSINESS
We are engaged in the development, manufacturing, marketing and sale of
indoor air purification products for commercial and residential use. We also
manufacture and market an air purification system for use in automobiles. Our
strategy is to identify those markets which we believe are in need of solutions
to indoor air contamination problems. We propose to exploit these identified
markets through direct sales, franchising, licensing and strategic alliances
with manufacturing representatives.
Indoor air contamination exists in the form of particulates, gases or
viruses in the air we breathe, whether in an office building, retail or
commercial establishment or our homes. The public is generally aware of the
dangers of outside air pollution through "ozone alert days" which suggest
limited outdoor activities on those days. We believe, however, that the general
public is unaware that exposure to our immune systems of unseen indoor air
contaminants is normally six to seven times more hazardous than outside air.
These air contaminants encompass bacteria, pollen, dust mites, smoke, plant
spores, dust, solvents, glues, formaldehyde, carbon monoxide, carbon dioxide,
viruses, and also includes diseases such as tuberculosis, meningitis, and
hepatitis. Indoor air contaminants also include volatile organic compounds
("VOCs") which are a combination of two different but recognizable molecules
that when combined, become unstable and potentially fatal. Examples of VOCs are
benzene, styrene, arsenic and polychlorinated biphenyls.
For millions of people, exposure to indoor air contaminants means
experiencing headaches, watery eyes, dizziness, lethargy, digestive problems,
nausea, nose and throat irritation. Statistics indicate that many legitimate
employee absences are "respiratory related" and that such absences have a
profoundly negative impact on productivity and profits. Historically, the
methods of addressing and treating indoor air contamination were to open windows
and doors to bring "fresh air" into an area or to use technology such as ozone
generators or electro-static air "cleaners" to attempt to purify the existing
indoor air. We believe that these methods are ineffectual to handle the air
contamination problems which exist today. Although considered effective at the
time of conception, these cleaners we regard as obsolete in the current air
purification marketplace.
We manufacture and distribute a variety of products which provide an
inexpensive solution to air contamination problems and concerns. Our products
can be applied to various commercial and residential
11
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uses and are ideally suited for a variety of users that experience air
contamination problems, including office buildings, restaurants, bars, public
buildings, nursing homes, hospitals, schools, dental offices, waiting rooms,
homes, airplanes and vehicles. Our products substantially remove or destroy
microorganisms in the air, eliminate organic odors and break down VOCs into
harmless basic compounds.
FRANCHISE OPERATIONS
We believe the best method to penetrate the indoor air quality market is to
leverage the expertise of the Company with the energies and investment of a
franchise network. We see this as a means of producing revenues for cash flow
purposes from franchise fees, sales of products to the market and royalty fees
based upon the gross sales generated by the franchisee. We currently have 18
franchisees who sell our products in various parts of the United States. These
franchisees market and sell our commercial building products through franchise
agreements with Airtech, Inc., our wholly owned subsidiary.
During fiscal year 2000, we elected to market our commercial products
directly through the Company's existing distribution channels and discontinued
offering franchises through Airtech, Inc. We discontinued offering these
franchises and intend to pursue the marketing of our commercial products through
manufacturing representatives. We are also directing our franchise efforts and
resources to our new residential/retail franchise concept. To implement this new
concept, we formed Airtech International Group, Inc., as a wholly owned
subsidiary ("Airtech International"), to commence a franchise program for the
marketing and sale of our residential air purification units. Airtech
International is qualified to offer our franchises in 36 states which accept the
Uniform Offering Circular and the State of California which requires additional
registration information. These franchises are consumer oriented and utilize a
retail store outlet concept. We provide a five day Indoor Air Quality
Certification program for each approved franchisee. Our franchise program
provides each franchisee with a protected territory. We also coordinate an
advertising program with our franchisees to provide an unlimited number of leads
and future potential accounts to serve. The start-up costs for purchasing and
establishing a retail store franchise range from $90,000 to $100,000, which
includes a $25,000 franchise fee to the Company. The remainder of the costs are
estimates for the purchase of inventory, furniture and fixtures and minimum
required working capital. The Company is also entitled to receive a monthly
royalty fee equal to 5% of the gross sales generated by each franchisee for the
immediately preceding month. We believe the exposure the franchisee will bring
to our consumer residential products will enhance and expand the overall market
for our products. We commenced marketing the residential/retail franchises in
February 2000 and had not sold any franchises as of March 31, 2000.
INDUSTRY OVERVIEW
The Environmental Protection Agency ("EPA") has identified Indoor Air
Pollution ("IAP") as one of the five most urgent environmental concerns in the
United States. According to the EPA, poor air quality may affect one third to
one half of the commercial buildings in the United States. These affected
commercial buildings are referred to in the industry as "sick buildings" and
represent a potentially large market for our air purification systems. The term
"sick building" can also be applied to any commercial or private environment
where airborne matter poses a potential health hazard. The EPA asserts that the
average American spends roughly 90 percent of his or her time indoors (Consensus
1988; EPA 1988) and can be breathing air more seriously polluted than outdoor
air in even the largest and most industrialized cities. Government statistics
indicate that 10 to 25 million people working in 800,000 to 1.2 million
commercial buildings have developed respiratory symptoms related to IAP. These
statistics translate to a loss in business productivity that we believe could
approach $60 billion a year. People in "vulnerable categories" are particularly
sensitive to indoor air quality and IAP. These "vulnerable categories" include
many older individuals, those individuals who are susceptible to allergies,
asthma and other respiratory ailments, and young children. We estimate that more
than 30 percent of the U.S. population falls within these categories.
12
<PAGE>
The rising drug resistance within the U.S. population is also becoming a
major health issue. There are approximately 160 antibiotics available to fight
disease. Many of these antibiotics, however, are no longer effective on certain
virulent organisms, including tuberculosis and certain types of hospital-based
staphylococcus infections. Many viral and bacterial infections are airborne and
are primarily transmitted through the air. The first line of defense against
these diseases is prevention through improvement of indoor air quality.
Health experts have expressed special concern about people with asthma.
These people have very sensitive airways that react to various irritants in the
air which make breathing difficult. The number of people diagnosed with asthma
has significantly increased in recent years. Since 1970, the number of
asthmatics in the United States has increased 59 percent which represents
approximately 9.6 million people. There are approximately fifteen million
asthmatics in the United States. Asthmatics account for 500,000 hospitalizations
and $6.2 billion in health care costs annually. Asthma in children under 15
years of age has also increased 41 percent during the same period representing a
total of 2.6 million children. The number of deaths from asthma has increased 68
percent since 1979 (Source: Asthma and Allergy Foundation of America).
Bacteria, molds, pollen and viruses are types of biological contaminants.
These biological contaminants breed in stagnant water and accumulate in air
ducts, humidifiers, drain pans, and areas where water has condensed or collected
on ceiling tiles, carpeting or insulation. Insect, bird and dust mite droppings
can also be a source of biological contaminants. Physical symptoms related to
biological contamination include fatigue, cough, chest tightness, fever, chills,
head and muscle aches, and allergic responses such as mucous membrane irritation
and upper respiratory congestion. One indoor bacteria, Legionella, has caused
both Legionnaire's Disease and Pontiac Fever (Source: April 1991 Environmental
Protection Agency Report [Air and Radiation] Anr-445-W).
There is growing awareness of the health hazards of airborne microbes, also
referred to as bioaerosols. Bioaerosols are extremely small living organisms or
fragments of organisms suspended in the air. Dust mites, molds, fungi, spores,
pollen, bacteria, viruses, amoebas, fragments of plant materials, and human and
pet dander (skin which has been shed) are examples of bioaersols. Bioaersols are
capable of causing severe health problems. Some bioaersols, such as viruses and
bacteria, cause infections (like a cold or pneumonia) and others cause allergic
reactions. An allergic reaction occurs when a substance provokes formation of
antibodies in a susceptible person. Bioaerosols may cause allergic reactions on
the skin or in the respiratory tract. Rashes, hay fever, asthma (tightness in
the chest, difficulty in breathing), and runny noses are common allergic
reactions. Allergic reactions and infections may be serious and sometimes even
fatal.
Bioaerosols build up in closed indoor environments and are passed through an
entire building through central ventilation systems. The contamination of an
entire building through bioaerosols is commonly referred to as "Sick Building
Syndrome." Research scientists have not agreed on the scope of Sick Building
Syndrome. For example, researchers normally count bacteria cells as they grow
and become visible in petri dishes. But in September 1998, scientists for the
EPA and the University of Maryland published a paper claiming this traditional
method for counting bacteria cells produced serious undercounts because it
failed to account for live, aerosolized bacteria that cannot grow in petri
dishes. Using fluorescent dye to identify live bacteria, researchers found 100
to 1,000 times more bacteria than the petri dish method. Bioaerosols are found
in a variety of settings such as residences, office buildings, medical and
dental offices and hospitals, but cannot be seen without a magnifying glass or
microscope. Exposure to bioaerosols is much higher in most enclosed locations
where people congregate, such as schools, theaters, airplanes, restaurants and
shelters. Occurrences of Sick Building Syndrome have escalated largely because
of the increased demand for reduced operating costs in public buildings,
particularly ventilation systems. Construction of "tight" buildings which are
dependent on mechanical air circulation systems rather than windows has provided
for a considerable energy use reduction at the expense of indoor air quality.
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Current industry technology, ventilation and partial filtration has proven
ineffective in purifying indoor air and reducing IAP. Research has made it
evident that heating, ventilation and air-conditioning ("HVAC") systems and
airtight buildings are responsible to a large degree for Sick Building Syndrome.
The HVAC community and ASHRAE (American Society of Heating, Refrigeration and
Air Conditioning Engineers) are of the opinion that Volatile Organic Compounds
(VOCs) in the air are the major contributing factor to Sick Building Syndrome.
ASHRAE suggested that the use of higher ventilation rates utilizing fresh
outside air would dilute VOCs and alleviate the Sick Building Syndrome to a
great extent. In response to this suggestion and in an effort to improve air
quality, building operators have increased ventilation by bringing in more fresh
outside air. This process has resulted in increased building costs created by
having to heat or cool and dehumidify the outside air. The process is also
somewhat ineffective to the extent that polluted inside air is diluted with
polluted outside air.
PRODUCTS
Our product line consists of the following:
Series 12: The Series 12 is designed to fit into a 2 x 4-foot space of a
ceiling. When installed in a ceiling opening, 5.5 inches of the unit's
decorative ABS plastic lid protrudes from the ceiling. This unit filters
approximately 1200 cubic feet of air each minute removing particulates,
gases and odors. Markets for this unit include the food and beverage
industry, hospital and nursing homes, print shops, office buildings and
other industries with problems involving cigarette or cigar smoke, odors and
particulates larger than 0.3 microns. The retail price of the Series 12 is
$3,490.00. For the 18 months ended February 29, 2000, we have sold 295 of
these units to our franchisees and national accounts.
Series 14: The series 14 is designed to mount against a wall at the joining
point of the wall to the ceiling. The unit is approximately 36" x 14" x 14"
with the visible portion being 20 gauge sheet metal. The unit filters
approximately 400 cubic feet of air per minute. The market for this product
are those users having problems with any particulate, gas or odor found in
rooms under 400 square feet, such as hotel rooms, offices, classrooms,
patient rooms and small shops. Multiple units can be installed to
accommodate larger rooms. The retail price of the Series 14 is $990.00. For
the 18 months ended February 29, 2000, we have sold 60 of these units to our
franchisees and national accounts.
Series 18: The S-18 is a commercial unit which can service up to five
offices or rooms with inexpensive flex duct work. The unit is installed
above the ceiling and is out of view. The unit requires no HVAC
modifications and operates in a very quiet fashion. The retail price of the
Series 18 is $2,990.00. For the 18 months ended February 29, 2000, we have
sold 48 of these units to our franchisees.
Series 30: The Series 30 is in the design stage. The Series 30 is a
residential unit which is adaptable to existing dust work used in existing
heating, air conditioning and ventilation systems. We intend to incorporate
photocatalytic oxidation technology into the Series 30 and have no projected
market date.
Series 999: We developed the Series 999 as an automotive after market
product for mounting in the trunk of new and used cars. The unit was
designed to move 100 cubic feet of air per minute with complete air changes
in an automobile every 20 seconds. The retail price of the Series 999 is
$600. For the 18 months ended February 29, 2000, we have sold 645 of these
units. These sales were primarily to Airsopure 999, L.P. of which Airsopure,
Inc., the Company's wholly owned subsidiary, is the general partner.
Medicare Series 950: In October 1999, the Medicare Series 950 unit was
submitted to Medicare for approval and issuance of a Medical reimbursement
code number. The Medicare reimbursement code number would enable Medicare
recipients to receive reimbursement for the cost of the Medicare Series 950
unit. We have proposed to offer the Medicare Series 950 to Medicare
recipients for a retail price of $795. The product incorporates a highly
efficient filtration system which includes, antimicrobial pre-filter;
hospital grade 99.97% HEPA filter (for removal of particles); trisorbent
filter (for
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removal of gases); photocatalytic oxidation (which reduces VOCs); and an
ultra-violet bulb (which reduces bacteria). As of February 29, 2000, we have
not sold any Medicare Series 950 units to the Medicare market.
Consumer Series 950: This unit is similar to the Medicare Series 950 with
alterations for a larger array of filtration for contaminants. The estimated
retail price of the Consumer Series 950 is $1,295.00.
Down Draft Tables: The series 220 and 230 was designed for the nail manicure
industry and first introduced in January 1996. The units have largely been
discontinued by the Company with our remaining inventory of approximately 10
units available for a retail price of $2,000.00. We discontinued the down
draft table line based upon a decline in market demand which resulted in
production and marketing expenses exceeding proposed sales.
Replacement Filters: We manufacture our sorbent media filters by purchasing
pre-filter material in bulk and cutting the material in our production
facility to proper sizes to fit our units. The HEPA type filters are
out-sourced for production. The trisorbent filters are also outsourced for
manufacture, but assembled at our production facility. The life of the
filters required by our air purification units will vary on the type of unit
and the degree of contamination; however, we estimate that each unit sold
will require an average of one to two complete filter changes per year. The
filters required by our ceiling units have a retail price of $268 to $462
depending on uses. The automobile unit will require approximately $100 in
replacement filters per year and the portable residential units
approximately $150 per year.
PRODUCT DEVELOPMENT AND REDESIGN
We do not anticipate any major expenditures during fiscal year 2000 to
develop or redesign our existing products or our products in the developmental
stage. Instead, we intend to focus our available capital resources on the
marketing and distribution of the Company's current line of marketable air
purification products. We will, however, adapt or redesign our products to meet
changing customer demands or to respond to requests in the market for
made-to-order products. Our decision to redesign or develop a particular product
will be based upon whether estimated sales to respond to a particular product
need will be sufficient to offset estimated development or redesign costs. We
also intend to evaluate the inclusion of photocatalytic technology into both our
existing and developmental products for the purpose of increasing the air
purification efficiency of these products.
OPERATIONS
We currently maintain a warehouse production facility of approximately
10,000 square feet in Dallas, Texas. In this facility, the Series S-12, S-14,
and S-18 units have a current assembly capacity of 1000 units per month. We
believe our warehouse facility is adequate for our projected increase in
production and related personnel. The anticipated unit volume sales of the
Series 999 automobile unit and the Series 950 unit during fiscal years 2000 and
2001 caused management to select out-sourcing for production of these units.
We will incur design start up costs during fiscal years 2000 and 2001 on the
Series 950 unit. We will also incur costs in connection with the redesign of our
Series S-14 unit. The product cases for the Series 950 unit and the redesigned
S-14 unit utilize ABA plastic which requires injection molding. The engineering
and mold tooling costs for these products should be in the range of $500,000 for
the Series 950 and Series S-14. Once the engineering and mold tooling has been
completed, the Company plans to out-source the actual injection molding required
for these units.
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COMPETING PRODUCTS AND TECHNOLOGIES
The current air purification products and technologies available in the
market which compete with our products include the following:
- Activated carbon filters for use in heating, ventilation and air
conditioning units
- High Efficiency Particulate Air ("HEPA") filters
- Ozone generators
- Anti-microbial chemically treated filters
- High energy UV light
- Ionizers
- Electrostatic precipitators
- Media filtration
- Photocatalytic oxidation ("PCO") technology
- Various combinations of the above
Individually, none of these products or technologies has proved to be an
all-around effective air purification system. We believe a combination of
several of these products and technologies must be implemented to achieve
effective air purification. The individual ineffectiveness of these products is
the result of the following factors:
Activated carbon filters absorb a number of VOCs and large microorganisms
such as dust mite droppings, which stick to dust particles in the air, but do
not remove other microorganisms from the air. The efficiency rate declines over
time as the carbon filters retain pollutants. The process alone is non-
regenerating and the filters can be expensive to operate due to increased power
usage resulting from pressure drops. These pressure drops occur when filters are
full, thereby cutting the unit's capacity and ability to deliver air to remote
areas. We use activated carbon filters in our products in combination with other
air purification components.
HEPA technology reportedly removes up to 99.7% of 0.3-micron particles and
is the dominant technology used in portable room air cleaners over the past six
years. HEPA filters, however, are expensive to use in large applications such as
multi-floor office buildings. HEPA filters are ineffective in removing VOCs,
smaller than 0.3 micron microorganisms and some viruses. HEPA filters produce
pressure drops by installation within HVAC systems and, therefore, increase
maintenance and operating expenses. These increased expenses occur because the
HVAC system must work continuously to compensate for pressure drops. On its own,
HEPA technology does not have the ability to destroy bioaerosols or trap and
breakdown VOCs or organic odors. Our products use HEPA filtration combined with
other components of air purification.
Ozone generation is a type of air cleaner that uses a high-voltage
electrical charge to change oxygen to ozone. A number of companies market ozone
generators as indoor air cleaners. These ozone-producing units break down VOCs
because ozone is highly oxidizing. To achieve the high efficiency required, a
very high level of ozone has to be released into the air. Ozone itself, however,
is a respiratory irritant. OSHA has established a limit of workplace ozone
levels over an eight-hour day. The FDA has also set a limit for ozone levels of
electronic air cleaners. Consumer Reports tested several ozone air cleaners and
concluded that ozone generators have limited value in unoccupied spaces yet
ozone air cleaners cannot be used in places where people have to breathe. We do
not employ ozone in our products.
Anti-microbial chemically treated filters can serve as a pre-filter to the
more effective and expensive HEPA filter, capturing the larger particles
introduced to the product and thereby prolonging the life of the
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HEPA, which captures the very small particles. On its own, an anti-microbial
pre-filter can introduce additional contaminants into the air, such as VOCs,
toxins, endotoxins, and allergens from degrading microbial organisms trapped on
the anti-microbial filter. We use these filters in our products in combination
with other air purification components.
High energy UV light has proven to be effective in killing microbial life
but is ineffective in destroying VOCs. High energy or low wavelength UV light
can pose a danger to humans if exposed. "Single pass" efficiency is rather low
due to the lack of residency time in the cleansing chamber. We use safe UV light
in several of our products in combination with other air purification
components.
Air cleaners such as ionizers can be up to 90% efficient which means they
remove 90% of some types of pollutants. We are not aware of any medical evidence
which recommends the use of ionizers to improve air quality for people suffering
from asthma, allergies or upper respiratory problems. Most of these air cleaners
ionize the air and place electrical charges on particles but do not have any
charged collection plates. This means charged particles migrate through the air
and stick to the first surface they run into such as walls, furniture or lung
tissue. The charged particles remain on the surface until dislodged to re-enter
the air again. We do not use ionizers in our products.
Electrostatic methods have no effect on the destruction of VOCs nor are they
effective on small bioaerosols that are not attached to particulate matter. When
electrostatic methods trap bioaerosols, either the colonies will grow on the
collection plates or if the bacteria is incapable of growing because of the
rushing air past the surface, the bacteria will die, decompose and change to a
VOC (toxin or allergen) and reenter the air stream. Electrostatic methods have
no effect on reducing VOCs or organic odors. We do not use electrostatic methods
of air cleaning.
Charged media filters are made from a dielectric material stretched across a
frame. Applying a high electric voltage to the dielectric materials creates an
electrostatic field. However, these electrostatic fields are generally not
sufficiently strong to polarize most particles, severely reducing effectiveness.
We do not use charged media filters in our products.
Photocatalytic oxidation creates a reduction in most VOCs when passed
through a chamber which activates a chemical reaction between ultra violet light
waves and a titanium screen. The reaction is similar to the reaction which
occurs in automobile catalytic converters. We use photocatalytic oxidation in
our products in combination with other air purification components.
COMPETITION
Our business is becoming increasingly competitive. Competition has increased
with society's growing awareness of air quality problems and the related demand
for air purification technology. We compete in both the commercial and
residential markets for air purification products.
The major competition for our products and markets is the domestic
commercial and residential heating, ventilation and air conditioning ("HVAC")
market. The HVAC market is composed of a small number of large manufacturers.
The two market leaders are the Carrier division of United Technologies and Trane
Corp., a unit of American Standard. Carrier's sales were approximately $3.9
billion in 1999. Trane is second in the industry with approximately $7.3 million
in sales in 1999. Like Carrier, Trane competes in all segments of the HVAC
industry including commercial, residential, air conditioning, furnaces and heat
pumps. Our other competitors include the following companies:
Fedders, Inc. (NASDAQ:FJC) is a holding company which manufactures and sells
a full line of room air conditioners and dehumidifiers, principally for use in
U.S. residential markets. Annual sales for 1999 were $356 million. Fedders
completed a tender offer in August of 1999 to purchase the outstanding stock of
Trion, Inc.
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Trion Inc., a subsidiary of Fedders, Inc., has air purification operations
which consist of two principal segments: engineered products and consumer
products. The engineered products group designs, manufactures and sells
commercial indoor air quality and dust collection equipment. The consumer
products division manufactures and markets appliance air cleaners, including
both table top and free standing console units.
Environmental Elements designs equipment and supplies systems and services
to the air pollution industry and designs large scale systems to control gaseous
emissions. In addition, Environmental Elements designs electrostatic
precipitators, fabric filters and scrubbing systems.
Honeywell, Inc. (NYSE:HON) has both commercial and consumer divisions of air
filtration products with primary sales being from the consumer division. Sales
for these divisions during 1999 were $3.5 billion.
CECO Environmental Corp. (NASDAQ:CECE) has been in the air quality
technologies and services business for over 30 years. Annual sales for 1999 were
$40 million. CECO has expanded the applications for its technology to include
wastewater treatment. CECO, through its four subsidiaries, provides a wide
spectrum of air quality and wastewater treatment products and services. These
products and services include industrial air filters, high performance filter
fabrics, environmental maintenance, monitoring and management services, waste
water treatment and air quality improvement systems. CECO is a full-service
provider to the steel, aluminum, automotive, aerospace, semiconductor, chemical
and metalworking industries.
United Air Specialists ("UAS") was established in 1966 to provide commercial
and industrial environmental air cleaning solutions worldwide through a diverse
product offering dust collection systems, industrial fluid coating systems and
industrial oil cleaning equipment. The UAS product line includes the Smokeater,
an electromatic precipitator cleaner. Designed to meet the needs of each
customer, UAS equipment is backed by strong performance guarantees, technical
support and years of experience.
Competition in the commercial indoor air quality market is very specialized
with no one company offering a complete line of air filtration equipment.
Commercial companies tend to specialize in very distinct market segments. In
most major metropolitan areas of the United States, there are also various small
commercial air filtration suppliers. We believe none of these suppliers has a
product line competitive with our commercial units. In the consumer indoor air
quality market, many suppliers and manufacturers have a variety of air
filtration products, generally in the lower retail price range of approximately
$250 and with lower efficiencies than our products.
We are currently unaware of any company which manufactures or distributes a
highly efficient or trunk-mounted air purification unit for the automobile
comparable to our Series 999. We anticipate, however, that our proposed
penetration of the automobile market will generate significant interest with
competition coming from established automobile manufacturers.
We believe that the applications for our product lines will have broad
appeal, since the implementation costs of our products are small compared to the
costs benefits that typically accrue to the user. We also believe our
technological approach of combining several air purification components into a
single product is a superior method for removing and destroying pollutants in an
indoor air environment, including microorganisms such as tuberculosis, viruses,
fungi, bacteria, dust mites, VOCs and organic odors. Some of the advantages and
benefits of our products are as follows:
- Biological air contaminants are substantially destroyed and or removed
- The process cleans and purifies the air through multiple air changes
- The process is effective for microbes, endotoxins, toxins, allergens, and
VOCs
- No toxic chemicals are employed
- No ozone is generated or introduced into the air
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- The process works well at room temperature
- The energy needs are low in stand alone systems outside of HVAC systems.
- Self-cleaning process does not reintroduce toxic post process residue into
the air stream
- After initial purchase, the products are very economical to operate,
including the price of filter replacements
MARKETS
Our market research has identified the following markets which may benefit
from our products:
- Medical and specialty facilities such as hospitals, clinics, nursing
homes, laboratories, day care centers, and emergency rooms. These
facilities represent a large market for our products. In fact, any
facility where indoor air quality is critical to the safety and health of
the patients/customers is a potential market.
- The commercial and residential heating, ventilation and air conditioning
market is a market which generated approximately $9 billion in sales
during 1999 and which we believe will experience continued sales growth in
the future.
- The residential market consists of over 60 million homes with central
heating, ventilation and air conditioning systems occupied by individuals
with a need for better indoor air quality.
- The industrial air quality market is estimated to have sales which exceed
$12 billion. Increased local, state, and federal regulations are
continuing to require cleaner indoor industrial air quality.
- The transportation market includes automobiles, buses, railroads,
aircraft, and cruise ships which have a specific need for improved indoor
air quality.
- Approximately 75 million people suffer from upper respiratory discomfort
and allergic reactions due to poor indoor air quality at home and at work.
In addition, individuals in vulnerable categories are particularly sensitive
to indoor air quality. These vulnerable categories include older individuals in
nursing homes and hospitals, individuals who are susceptible to allergies,
asthma and other respiratory ailments, and young children. More than 30% of the
U.S. population falls within these vulnerable categories. Our technology
provides an inexpensive solution to many of the indoor air quality problems
which affect the daily lives of these individuals.
Heath conscious consumers are also becoming more particular about the air
quality in their environments. We believe this trend will lead to an increase in
demand for better air purification systems and that our combined technology
approach will outrank the solutions provided by other air purification systems
that use traditional single methods for indoor air purification.
BUSINESS PLAN AND MARKETING STRATEGY
Our business plan and marketing strategy, perhaps as much as any other
factor, will be the reason for increased growth in sales. Traditionally, air
purification systems are marketed and sold through a single distribution channel
comprised of HVAC contractors or repairmen. Our strategy is to approach the
market through multiple distribution channels. We have targeted several
distribution channels for direct exposure of our products to educate consumers
about the costs and solutions for indoor air contamination. We are also using a
multiple channel approach to market our product line which we believe will
separate us from our competition. We believe that this multiple channel approach
combined with the quality of our products
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will yield substantial sales growth for the next several years. For example, we
currently utilize the following distribution channels:
FRANCHISES. We currently have 18 franchisees who market and sell our
commercial building air purification products in various parts of the United
States. In February 2000, we commenced a franchise program for the marketing
and sale of our residential air purification products utilizing a retail
store outlet concept. We provide a five day Indoor Air Quality Certification
program for all of our approved franchisees. Our franchise program is a
unique combination business whereby each franchisee has a protected
territory. We also coordinate an advertising program with our franchisees to
provide an unlimited number of leads and future potential accounts to serve.
The start-up costs for purchasing and establishing a retail store franchise
range from $90,000 to $100,000, which includes a $25,000 franchise fee to
the Company. The remainder of the costs are estimates for the purchase of
inventory, furniture and fixtures and minimum required working capital. In
addition, the Company is entitled to receive a monthly royalty fee equal to
5% of the gross sales generated by the franchisee for the immediately
preceding month. We commenced marketing the residential/retail franchises in
February 2000 and had not sold any franchises as of March 31, 2000.
INTERNATIONAL LICENSES. We have licensed the distribution rights to our
name and technology in the countries of Taiwan, the Philippines, Turkey,
Canada and Spain. We intend to aggressively pursue additional international
distribution relationships during fiscal year 2000. All sales are made in
U.S. dollars, FOB Dallas. Our international licenses sell for a minimum of
$100,000 per country, depending on population.
MANUFACTURER'S REPRESENTATIVES. We estimate that there are approximately
260,000 HVAC contractors in the United States. This unconsolidated group of
professionals accounts for a significant amount of the current sales of air
purification and cleaning units. We intend to make our products available to
these representatives and recently employed an individual with expertise in
this market to coordinate this channel of distribution. Although we are in
final negotiations with several manufacturer's representatives, we have no
final agreements.
INTERNET SALES. Internet usage has increased over the last several years
and consumer purchasing will continue to grow in accordance with this usage.
Approximately 73% of website users search for information about products and
services and 7.4 million users have made at least one purchase over the
Internet. The demographics of website users also fit well with the our
products. Most website users are well educated and earn significantly more
income than the national average. Our websites are www.airsopure.com or
www.airtechgroup.com. Since June of 1999, these websites have been accessed
12,010 and 16,106 times, respectively. No sales have been directly
attributable to our websites. On these sites, visitors can educate
themselves about our products and order online. We intend to spend
additional funds to redesign and enlarge our websites in an effort to direct
more Internet traffic to our websites. Our proposed redesign will include
"hyper link" access to our products. Hyper link access will enable website
users to use generic words such as "air quality" or "air purification" for
immediate referral to our website. Our websites also provide quicker
advertising response times, direct feedback from customers and instantaneous
updating of information. We believe the keys to successful marketing on the
Internet will be exposure and association with other well-traveled websites,
security, a clean design, ease of use and product testimonials.
DIRECT SALES. We currently make direct sales through our corporate offices
to national accounts such as TGI Fridays, Bennigan's and Sullivans, in
addition to other local, regional and national accounts involved in the food
and beverage industry. We also intend to employ the direct sales approach to
school systems and government facilities.
RETAIL DISTRIBUTION. In February 2000, we opened our first company retail
outlet in Dallas, Texas to facilitate the retail sale of our home consumer
products. We intend to pursue the retail distribution of
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our products through additional company and franchise operated retail
outlets. The Company owned retail outlet also serves as a prototype store
for our retail franchise program.
We are also exploring the following additional distribution channels for our
products:
MEDICARE AND DURABLE MEDICAL EQUIPMENT ("DME") SUPPLIERS. Our research
indicates that physicians regularly recommend the use of portable air
filtration systems for patients suffering from chronic and acute episodes of
illness related to allergies, asthma and general upper respiratory distress,
many of whom are Medicare enrollees. In the absence of a Medicare
reimbursement code, Medicare patients are generally forced to incur the
expense of such technology on a non-reimbursable basis. These medical
conditions are frequently elevated from a chronic status to acute episodes
due to the inhaling by patients of various airborne contaminants.
In October 1999, the Company applied for the Medicare reimbursement code
number for our Medicare Model 950. We have not yet received approval for a
specific reimbursement code number to date, although Medicare has allowed us
to invoice Medicare using a non-assigned code number. The use of the
non-assigned code number does not guarantee Medicare reimbursement to
Medicare recipients. The Company intends to continue the pursuit of the
pending Medicare application by collecting and submitting additional
information recently required by Medicare. The date of a final decision on
our Medicare application cannot be determined at this time. The submission
of additional information will allow Medicare to take additional time to
evaluate our application. We cannot predict if, or when, Medicare will
approve the Medicare Model 950 for direct cost reimbursement. We believe,
however, that the time necessary to duplicate or invent the photocatalytic
oxidation technology included in the Medicare Model 950, to create and test
a prototype and to submit an application to Medicare gives the Company a
competitive lead time advantage over our competitors in this market.
The Medicare reimbursement code is awarded through a review process
conducted under the direction of the Health Care Financing Administration
and its agencies that include the Statistical Agency for Durable Medical
Equipment Regional Council and the Durable Medical Equipment Regional
Council. Once awarded a Medicare reimbursement code, Medicare patients
suffering from respiratory problems are able to secure through a variety of
DME providers, medical technology prescribed by their attending physicians
that will be paid for by Medicare or their insurance carrier of record. Our
research also indicates that third party payers such as managed care and
indemnity insurance plans will more readily reimburse patients for our
Medicare Model 950 unit after the product receives a Medicare code. We
estimate that approximately 31 million Medicare enrollees suffer from some
sort of upper-respiratory problem. Although the number of Medicare enrollees
has not changed significantly in the past three years, the Company believes
that the number of enrollees will increase significantly in the future with
the aging of the "baby boomers." These individuals represent the end-user
market for our Medicare Model 950 unit. We have also developed the Consumer
Series 950 unit which is similar to the Medicare Series 950 unit with
alterations for a larger array of filtration for contaminants.
We have identified a national distribution network composed of DME
distributors that have existing sales forces and marketing infrastructures.
Association with the DME distributors creates an immediate distribution
network for the Medicare Model 950 and the Consumer Series 950 units without
forcing the Company to incur the management challenges of creating and
maintaining our own sales force or recreating the existing client bases of
DME distributors. The DME distributors currently interact with physicians
providing other medical devices such as walkers, wheelchairs, hospital beds
and electronic monitoring devices. The Medicare Model 950 and the Consumer
Series 950 units will be a new product for DME distributors within an
industry where the introduction of new products is not common. If we do not
receive approval from Medicare of the Medicare Model 950, we intend to
continue our efforts to market the Consumer Series 950 through DME
distributors by pursuing
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insurance carriers and health care providers outside of the Medicare system.
We cannot predict or forecast the amount of any future sales which may be
generated from the Medicare Model 950 or the Consumer Series 950.
AUTOMOBILES AND PUBLIC TRANSPORTATION. Our research indicates that there
exists an increasing problem with abundant air contamination in automobiles
and public transportation vehicles across the United States. Our research
also indicates that not only is automobile air contamination immense and
growing, but also that no real technological solutions are being applied to
remove the harmful and irritating smells, gases and micro-particles that can
cause and exacerbate respiratory problems. The flowing of additional fresh
air from the outside not only is an impossibility during the winter and
summer months but is responsible in large part for a number of the
respiratory problems experienced by individuals. We have concluded that
solving these issues for the public could provide tremendous economic
rewards and higher auto resale values to a wide variety of customers, such
as car rental companies, automobile dealers and government vehicles. One of
the foremost complaints in the car rental industry, shared with that of both
the new and used car industry, are the odors associated either with new
material off-gassing or with fabrics and materials in the automobile cabin
that have absorbed pollutants like cigarette smoke for prolonged periods of
time.
Nearly 200 million vehicles are in use across the United States. Of these,
approximately 150 million are passenger vehicles. Approximately 2 million
cars in the United States are owned by the major car rental companies.
Approximately 3 million vehicles are government owned and used. Each year in
the United States, approximately 12 million new vehicles are sold by
automobile dealers. The majority of automobiles fall into the category of
used or more than one year old. The average American spends many hours per
day in his vehicle. This much exposure, when added to outside contaminants
such as road pitch, microscopic tire dust, allergens and hazardous gases and
odors, leaves many car drivers with recurring headaches, eye irritation,
nausea and even central nervous system problems. There are approximately
24,000 franchised new car dealers in the United States. Some auto makers,
such as Mercedes Benz and BMW, are experimenting with various air cleaning
systems. The Automotive Clean Air Council was formed upon public disclosure
of the results of research conducted by a leading educational institution
that air quality in many automobile air conditioners is poor due to
contamination with unhealthy fungi and spores. The first indication that a
problem exists is the odor detectable when the air conditioning unit or the
air circulation system is activated. It is important, however, to note that
the bacteria might be present without and before the odor is detected. This
condition is caused by buildup of mold and bacteria in the evaporator. These
fungi and spores can trigger allergic reactions and upper respiratory
problems for car passengers.
We believe that all of these vehicles represent potential installations for
our Series S-999. We propose to initially penetrate this multimillion dollar
market through agreements with nationwide auto after-market companies. Our
proposal is to wholesale our Series 999 automobile air purification unit for
inclusion with other after-market packages offered in the auto after-market
such as automobile customizing packages (custom pinstripping, gold
ornamentation and custom wheel coverings), fabric sealants and window tints.
We believe a very highly effective and affordable air purification device
like our Series S-999 will be widely accepted in the automobile
after-market. We are currently in preliminary negotiations with several
national auto after-market companies, but have no final commitments and
agreements. In addition, we are in the process of formulating a marketing
strategy to approach the rental car, government vehicle, and automobile
dealer markets.
GOVERNMENT REGULATION
We operate under the guidelines set forth by the Federal Trade Commission
("FTC") under an FTC Rule which became effective October 21, 1979. Under this
FTC Rule, we are required to issue a Uniform Franchise Offering Circular
("UFOC") to all potential purchasers of a franchise. The UFOC format is an
alternate format allowed instead of the more common FTC disclosure format. Our
current UFOC is
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compliant in 36 states. In addition to this format, fourteen states require
additional information to be contained within the UFOC for sales of new
franchises within their states. Although we intend to seek approval of our
franchise in other additional information states in the future, we do not have
any pending applications. We recently received approval from the State of
California to offer our franchises, one of the additional information states.
Any violations under the FTC Rule are considered unfair or deceptive acts or
practices within the meaning of Section 5 of the Federal Trade Commission Act.
In response to the FTC Rule requirements, we formed wholly-owned subsidiaries,
Airsopure, Inc., and Airsopure International Group, Inc., and registered each
entity as a franchisor. Each entity is in compliance with the FTC Rules
regarding its UFOC.
PERMITS, PATENTS, TRADEMARKS, LICENSES AND COPYRIGHTS
We do not own any patents or copyrights for our products or promotional
materials. We do, however, have a registered trademark for the name "Airsopure"
and the related service mark "The Essence of Clean Air." In addition, we have
common law trademark protection for certain of our other trade names and service
marks. We also intend to pursue copyrights for certain of our promotional and
franchise training materials. While we believe our products are currently a
unique implementation of filter and air purification components in the current
market, our products are susceptible to duplication by utilizing current
technology and components. Therefore, we do not believe any of our products are
ultimately patentable and do not intend to apply for patent protection.
SUPPLIERS
We purchase the supplies and materials used in our business from a number of
vendors. As of May 31, 1999, one of these vendors, Carlo Gavazzi, accounted for
42% of the balance owed, while the combination of four other vendors, Revcor,
Geotex, Matrix Metals and Glasfloss accounted for approximately 20%.
ESTIMATE OF RESEARCH AND DEVELOPMENT EXPENDITURES
During fiscal years ending May 31, 1999 and 1998, we incurred various
research and development expenditures of approximately $100,000 for each fiscal
year. These expenditures included salaries, materials, finished units, travel
and correspondence.
EMPLOYEES
As of March 31, 2000, we had 17 full-time employees.
FISCAL YEAR
Our fiscal year is from June 1 to May 31 of each year.
COMPANY PROPERTIES
We maintain our executive offices at 15400 Knoll Trail, Suite 200, Dallas,
Texas. We also maintain a warehouse facility located at 12561 Perimeter, Dallas,
Texas and, as of January 2000, a retail store located in Addison, Texas. These
facilities have a total of approximately 15,000 square feet and a total rental
cost for fiscal year 1999 of $86,794. The Company is committed to the facility
leases at these locations until May 31, 2002, May 15, 2003 and January 1, 2005,
respectively. We consider the Company's facilities sufficient for our present
and currently anticipated future operations and believe that these properties
are adequately covered by insurance.
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LITIGATION
On October 26, 1999, we were named as a defendant in a cause of action
styled CARLO GAVAZZI INC. V. AIRTECH INTERNATIONAL CORPORATION AND AIRTECH
INTERNATIONAL GROUP, INC., Cause No. 99-11101-D, County Court No. 4, Dallas
County, Texas. The complaint alleges damages for our failure to pay invoices for
goods shipped to us, goods not shipped to us and for raw materials. The
plaintiffs are seeking damages of approximately $1,600,000. We have answered the
complaint with affirmative defenses and denied all of the plaintiff's
allegations. In addition, we have filed a cross-claim against the plaintiffs for
damages of approximately $1,000,000. The case is in the early stages of
discovery. We intend to continue to vigorously defend against this cause of
action and to pursue our cross-claim. While the results of these claims cannot
be predicted with certainty, we believe that the final outcome of this
litigation is adequately reserved for in our consolidated financial statements
in the amount of $250,000.
In 1997, we were named as a defendant in a cause of action styled LLB
REALTY, L.P.C. V. INTERACTIVE TECHNOLOGIES CORP., Cause No. MER-L-1535-97, in
the Superior Court of New Jersey, Mercer County. The complaint alleges damages
relating to a lease agreement entered into by the Company for office facilities
in New Jersey. The Company never occupied the space based upon the plaintiff
(lessor) failing to finish-out the space pursuant to the Company's
specifications. The complaint alleges damages of approximately $607,000 for
remaining lease payments, finish-out costs and lost revenues. We have filed a
counterclaim seeking damages in the amount of $400,000 under a capital lease
obligation for equipment located in the New Jersey facility and contractually
precluded from being removed from the facilities by the plaintiff (lessor).
Although we are currently in negotiations for a favorable settlement relating to
the complaint, the outcome of these negotiations is uncertain. We have
established a reserve in our consolidated financial statements in the amount of
$200,000 in anticipation of a settlement.
On March 2, 2000, we were named as a defendant in a cause of action styled
H.A.A., INC. V. AIRTECH INTERNATIONAL GROUP, INC., Cause No. 00CV-1603 (KMW), in
the United States District Court for the Southern District of New York. The
plaintiff is seeking the specific performance of an alleged contract providing
for the sale by the Company to the plaintiff of 1,854,386 shares of our Common
Stock for a cash purchase price of $419,000. We intend to answer this complaint
by denying all of the plaintiff's allegations and to vigorously defend against
the plaintiff's claim for specific performance.
We have been named as a defendant in a number of routine lawsuits arising in
the ordinary course of our business. In some of these cases a judgment was
rendered against the Company. We have answered these routine causes of action
where appropriate, negotiated settlements where appropriate and agreed to a
payment schedule with respect to others. We have fully reserved for these claims
and causes of action in our consolidated financial statements in the aggregate
amount of $62,000.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
BACKGROUND AND GENERAL
Based upon a review of our Financial Statements for the year ended May 31,
1999 (the "Original Financial Statements") and the recommendations of the
Securities and Exchange Commission (the "SEC"), we restated our Original
Financial Statements for the year ended May 31, 1999 and the comparative period
ended May 31, 1998 (the "Restated Annual Statements"). The reason for the
restatement of our Original Financial Statements was to reflect our acquisition
of all of the outstanding shares of Common Stock of Airtech International
Corporation ("AIC") as a reverse merger as described below. We have also
restated our quarterly financial statements for the periods ended August 31,
1999 and November 30, 1999 (the "Restated Quarterly Statements") to reflect the
reverse merger treatment of our acquisition of AIC. The Restated Annual
Statements and the Restated Quarterly Statements are included with this
Prospectus.
On May 31, 1998, we acquired all of the outstanding shares of Common Stock
of AIC, which through its subsidiaries develops, manufactures and sells air
purification products for commercial and individual use. The total purchase
price of $22,937,760.00 for the stock acquisition was paid through the issuance
of 10,500,000 shares of our Common Stock, 11,858,016 shares of our Series "A"
Convertible Preferred Stock and $9,000,000.00 in principal amount of our
Convertible 10% Debentures. The shares of Common Stock and Preferred Stock were
valued at $0.625 per share. Our Original Financial Statements reflected the
combination of the Company and AIC as a merger using the purchase method of
accounting with the Company as the acquiring entity for legal and financial
accounting and reporting purposes. This treatment resulted in reflecting the
combination of the assets of the Company and the purchase of the goodwill and
intellectual properties of AIC at the appraised fair market value of $22,937,960
(the purchase price) with corresponding adjustments of shareholders' equity.
The Restated Annual Statements and Restated Quarterly Statements included
with this Prospectus also reflect the merger between the Company and AIC
utilizing the purchase method of accounting. The Restated Annual Statements and
Restated Quarterly Statements, however, reflect the combination of the Company
and AIC as a reverse merger with AIC as the acquiring entity for accounting and
reporting purposes and the Company as the surviving entity for legal purposes.
This reverse merger treatment follows the SEC recommendation and was required
because all of the convertible securities issued in the acquisition of AIC were
converted into shares of our Common Stock within two months following the
acquisition. As a result, we effectively issued shares of our Common Stock for
the outstanding shares of AIC, with the stockholders of AIC ultimately acquiring
control of the Company. For this reason, AIC is considered the acquiring entity
for purposes of the Restated Annual Statements and Restated Quarterly Statements
included with this Prospectus.
The reverse merger treatment required the Company to account for the
purchased assets of the Company for accounting purposes at fair market value as
opposed to appraised value. The result is a decrease of previously reported
assets in the Original Financial Statements of approximately $23,000,000 and a
decrease in net losses due to lower amortization costs, depreciation costs due
to lower cost basis of assets and a lower write-off of discontinued assets, all
of which were not capitalized in the Restated Annual Statements.
After conversion of our convertible securities issued in the acquisition of
AIC, the total number of outstanding shares of our Common Stock increased to
approximately 50,000,000 shares. On October 5, 1998, our shareholders approved a
one for five reverse stock split of our Common Stock which reduced the number of
outstanding shares of Common Stock to approximately 10,000,000 shares. The
reverse stock split was effective as of November 9, 1998. For purposes of our
consolidated financial statements included with this Prospectus and the
following discussion and analysis, shareholders' equity has been restated to
give pro forma recognition to the reverse stock split for the presented periods.
This means that all references in the consolidated financial statements and the
following discussion and analysis to number of
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shares, per share amounts, par values and stock option information are restated
to give effect to the reverse stock split.
After the acquisition of AIC, we discontinued our original line of business
relating to television and interactive media programming, including our Rebate
TV product. We discontinued these original lines of business to enable us to
concentrate on the development, manufacture, distribution, and sale of the air
purification products offered by AIC and its subsidiaries. Effective May 31,
1999, we also discontinued the operation of our wholly owned subsidiary,
McClesky Sales and Service, Inc. ("MSS"). MSS was originally formed to integrate
the distribution and sale of our air purification products with the heating,
ventilation and air conditioning ("HVAC") service business. We discontinued the
operation of MSS based upon the incompatibility of the HVAC service business
with our business of manufacturing and distributing high quality air
purification products. The cost to discontinue the operations of MSS were
minimal to the Company.
On February 22, 2000, we entered into a securities purchase agreement with
PK Investors LLC ("PKI") to raise up to $5,000,000 through the sale to PKI of up
to $5,000,000 in principal amount of our 6% Convertible Debentures Due 2002 (the
" 6% Debentures") with Warrants to purchase up to 500,000 shares of our Common
Stock (the "Warrants"). Upon execution of the securities purchase agreement, PKI
purchased $2,500,000 in principal amount of 6% Debentures and attached Warrants
to purchase 250,000 shares of Common Stock for a purchase price of $2,500,000.
Under the terms of the securities purchase agreement, we also issued to PKI a
Conditional Warrant to purchase the remaining $2,500,000 in principal amount of
6% Debentures and the remaining attached Warrants to purchase 250,000 shares of
our Common Stock for a purchase price of $2,500,000.
RESULTS OF OPERATIONS
YEAR ENDED MAY 31, 1999 COMPARED TO YEAR ENDED MAY 31, 1998
The Company's consolidated results of operations for the fiscal year ended
May 31, 1999 represent the first year of operations after the reverse merger
with AIC. As described above, the combination of Interactive Technologies
Corporation, Inc., our predecessor in name, and AIC was accounted for as a
reverse merger with AIC treated as the acquiring entity for financial reporting
purposes and the Company as the surviving legal entity. Therefore, the results
of operations are a comparison of our combined consolidated operations,
including AIC and its subsidiaries, for fiscal year 1999 to only the results of
operations of AIC and its subsidiaries for the fiscal year 1998. As a result of
the reverse merger with AIC, the Company is the surviving legal entity under the
name Airtech International Group, Inc.
REVENUES
Our consolidated total revenues decreased approximately $96,030.00 from
$1,126,499 in 1998 to $1,030,467 in 1999. This 8.5% decrease is comprised of the
following: product sales of the discontinued service line of our subsidiary
McCleskey Sales & Service, Inc. ("MSS") decreased $420,000 from $832,027 in 1998
to $412,027 in 1999 primarily due to the cessation of that business; and product
sales from our air purification products increased $179,963 in 1999 to $389,442.
The combined effect of these two components of our product sales resulted in a
$241,560 reduction in total sales. Franchise fees increased from the sale of 8
franchises in 1998 to 20 franchises in 1999, which accounted for the $144,500
increase in franchise fees in 1999 from the $84,500 in franchise fees for 1998.
As explained in Footnote 1, Summary of Significant Accounting Policies; Revenue
Recognition, of the Notes to Financial Statements, the Company has recorded
cumulative deferred franchise fee income of $400,000, as Current (portion) and
Notes Receivable for the year ended May 31, 1999. We discontinued the service
line of MSS due to sustained losses and low sales margins, limited geographical
service reach and our desire to focus exclusively on the air filtration and
purification business.
26
<PAGE>
COSTS AND EXPENSES
Cost of sales increased $95,542 or 17% to $664,356 for 1999 as compared to
$568,814 for 1998. This increase is due to two primary reasons. First, the
discontinuance of the MSS line of business, for which we recognized additional
close out expenses due to this discontinuance. The discontinuance resulted in
cost of sales for MSS of more than 100% of sales or $420,000 for 1999, compared
to 55% of sales or $465,000 for 1998. Second, the cost of sales for the
continuing operations increased from $103,814 or 50% of sales in 1998 to
$244,356 or 62% of sales for 1999. This increase in percentage cost of sales was
due to outsourcing the manufacturing at a higher cost of many components
previously manufactured by the Company, lower gross sales prices than
anticipated due to the Company's desire to increase market share, fewer sales
thus not fully utilizing the manufacturing facility and lower production runs
with consequential higher costs.
Salaries and wages increased $802,342 from $514,734 in 1998 to $1,317,076 in
1999. This increase is the result of many factors including higher commissions
on sales of our products, franchises, and financing activities of $873,000,
including incentive stock bonuses to key personnel. The combination of these
items represented approximately $300,000 of the increase in 1999 from 1998 in
salaries and wages. We also employed additional personnel in 1999 due to the
merger with AIC and the discontinued MSS division which accounted for $364,667
of the increase in salaries and wages in 1999. The increase is also due to an
additional $208,333 in accrued but unpaid wages to the President and Chief
Executive Officer in 1999 as compared to 1998. As explained below, the two
officers waived the wage payments under their respective employment agreements
during 1998. In January 1999, the Company's Board of Directors elected to accrue
the full amount of the wages in 1999. The total accrued for this period in
salaries and wages of $208,333 and in deferred officer wages of $791,667 totaled
$1,000,000 for 1999 compared to $0 in 1998. The deferred officer wages increased
from $0 in 1998 to $791,667 in 1999. The Company did not accrue the deferred
wages of the President and Chief Executive Officer in 1998 of $500,000 and for
the first six months of 1999 of $291,667. The Company did not pay these accrued
wages in cash in 1999. Instead, the Board of Directors of the Company issued
1,583,334 shares of restricted common stock as compensation for the 18 months of
deferred wages. The Company did not accrue the wages in 1998 because the
officers waived their right to be paid. The Board of Directors decided in
January 1999 to pay the wage previously waived by issuing restricted common
stock for that amount. In summary, the total increase in expenses for salaries
and wages of $802,342 and the increase in deferred officer wages of $791,667 in
aggregate totaling $1,594,009 is due primarily to the officer wage accruals of
$1,000,000.
Advertising costs decreased $34,358 to $42,082 for 1999. This is a 55%
decrease in costs. The Company measures advertising as a percentage of product
sales. The goal is an advertising cost of approximately 4% to 6% of product
sales. For 1998, the expense ratio was 36% and 11% for 1999. The percentages are
higher for 1998 due to start up advertising costs in 1998 and lower sales for
1999. This fluctuation is also due to the cash deficit the Company experienced
in 1999.
Depreciation and Amortization increased $26,191 for the year 1999 compared
to $103,743 for 1998. The increase is due to greater amortization of our
discontinued product lines offset by the decrease in depreciation of the
discontinued assets.
General and administrative expenses increased $951,195 for the year 1999
from $727,580 in 1998. This increase is due to the $250,000 increase from prior
years in legal contingencies. Also, this expense increased due to an additional
$300,000 in services of outside consultants, such as investment banking firms.
An increase in facilities expenses of $50,000 along withe a $400,000 write-off
of licensing fees of $50,000 resulted in the $951,195 increase in general and
administrative expenses.
Interest expense of $135,288 in 1999 is $129,429 higher than 1998 primarily
due to the $112,500 in interest expense for the two months that the 10%
Debentures issued in the reverse merger with AIC were outstanding which were not
outstanding in 1998.
27
<PAGE>
The Company also wrote off the asset investment in the discontinued
subsidiary, MSS, of $582,750 in 1999 as a loss on impairment of goodwill. There
was no comparable write-off in 1998.
The net result is that the loss per share of Common Stock (basic and
diluted) was ($0.32) for 1998 and ($0.41) for 1999. This is a 28% increase in
loss per share. The average number of shares of Common Stock increased over the
period such that the losses per share are not comparable. Overall the net loss
increased from ($870,671) in 1998 to a loss of ($4,311,459) in 1999.
CAPITAL EXPENDITURES
The Company does not have any large capital expenditures planned for fiscal
years 2000 or 2001. We are proposing a product design change to include an ABS
plastic design for two of our products which will require approximately $400,000
in capital expenditures. The final decision, however, to change the product
design will be based on estimated sales of the products which will enable the
Company to recover the capital expenditures within nine to twelve months. Any
minor capital expenditures will be met with cash on hand. In the event our
product sales increase beyond current manufacturing capacities, then additional
capital expenditures will be required to increase production capacity. We
anticipate, however, that any additional capital expenditures to increase
production capacity would not exceed $500,000 and would be offset by increased
product sales, since increased sales would create the need for additional
capital expenditures.
NINE MONTHS ENDED FEBRUARY 29, 2000 COMPARED TO NINE MONTHS ENDED FEBRUARY
28, 1999
Our consolidated revenues increased $19,888 to $779,474 for the nine months
ended February 29, 2000 compared to $759,586 for the prior nine month period.
Revenues include the sales of air purification products which increased $329,474
to $604,474 for the nine months compared to the prior period. The Company's
subsidiary, McCleskey Sales and Service, was discontinued by May 31, 1999,
therefore, the $400,000 of sales for this subsidiary for 1999 has no
corresponding revenue for 2000. Sale of franchises increased $90,000 over the
prior nine-month period. The sale of franchises decreased by five in number,
however, the sale of a single franchise for $100,000 made up for decreased
sales.
Cost of sales increased only $55,751 even though sales of product and
services increased $419,888. This increase is $80,000 higher due to a write-off
of obsolete inventory in the 1999 period, increasing cost of sales by $80,000.
The cost of sales for the nine months ended February 29, 2000 is 85% of product
sales. This higher cost percentage is due to the Company's continuing liquidity
problem which forced smaller production runs and higher costs for raw materials.
General and administrative expenses decreased $1,210,875 in comparing the
two nine month periods. This decrease is offset by the increase in salaries and
wages of $901,729 for an overall decrease in costs for both general and
administrative and wages of $309,146. The prior year's period reflected deferred
compensation costs of $600,000 that has no comparison in the current period. The
primary reason for this increase is the consulting fees of $350,000 paid in
connection with the recent $5,000,000 sale of our convertible debentures in
February, 2000.
Interest expense decreased $140,000 due to the conversion of debentures to
common stock in the first quarter of 1999 relating to the merger of AIC and ITC.
There is no comparable expense in the current nine-month period. The $2,500,000
sale in principal amount of convertible debentures was not consummated until
February 23, 2000 and therefore the interest accrual at February 29, 2000 is
minimal.
The results of operations for the nine months ended February 29, 2000
reflect a decrease in losses from $1,247,582 to a loss of $848,345. Product
sales show an increased trend discussed above, after removing the discontinued
operations sales in the service sector. The combined general and administrative
expenses and wages and salaries also decreased $299,170 as discussed above. The
consulting fees for the
28
<PAGE>
February 23, 2000 sale of convertible debentures and the prior period deferred
compensation accrual account for the difference in general and administrative
expense.
LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED MAY 31, 1999
For fiscal year 1998, we increased our cash position by $125,967. This
increase was due to cash adjustments to losses from operations of $870,671,
including, depreciation and amortization of $103,743, stock payments of $169,475
to employees and consultants, and a reduction in receivables of $18,866. These
cash adjustments were further offset by the cash received from our financing
activities totaling $620,630. For fiscal year 1999, this trend continued at a
high level. The loss from operations decreased cash by $84,036. This decrease
originated from the operational loss of $4,311,459 and was reduced by cash
adjustments, including, depreciation and amortization and impairment (write-off)
of goodwill added $1,123,684 back as non-cash expenses; our employees,
consultants and especially our vendors through the increase in payables and
accrued expenses increased cash by $2,305,000; the proceeds from financing
activities added an additional $873,139 in cash to the Company during fiscal
year 1999. In summary, the cash needs of the Company were met in fiscal years
1998 and 1999 by means other than operations. For fiscal year 2000, we are
seeking to reverse this trend because increasing payables and accrued expenses
have reduced the Company's purchasing capabilities to cash purchases. Decreases
in our cash also results in lower gross margins as the cost of reduced
production increases marginal costs. During fiscal year 2000, we intend to focus
on the production, marketing and sale of our existing line of air purification
products, including the pursuit of Medicare acceptance of our Medicare Model 950
Unit and increased promotion of our franchise program. For this reason, we have
temporarily postponed further significant expenditures during fiscal year 2000
on our products which are in the research and development stage.
As of February 29, 2000, the Company has increased cash from financing
activities by approximately $3,500,000. The Company also expects to sell 50 to
100 franchises to qualified entities and individuals during fiscal years 2000
and 2001. We expect these franchise sales to net the Company $25,000 per sale.
As of March 23, 2000, the Company has not sold a franchise, however, our sales
efforts are only one month in the process. Included in franchise sales is an
additional purchase of up to $25,000 in inventory per franchise. The Company
expects sales of its products to increase in fiscal years 2000 and 2001. For the
six months ended February 29, 2000, the sales of products were approximately
$631,867 compared to sales of products for the year ended May 31, 1999 of
$618,442. We expects to receive the additional $2,500,000 from the exercise of
the Conditional Warrant by PKI to purchase additional 6% Debentures and Warrants
in December 2000.
The Company expects to have sufficient funds necessary to finance the
manufacture, distribution and sale of our products with required advertising
support during fiscal year 2000. Our expectations are based upon our March 23,
2000 cash balance of $2,300,000, anticipated cash from franchising activities of
$1,875,000, the sale of an additional $2,500,000 in 6% Debentures and Warrants
to PKI, conversion of outstanding warrants to yield $1,300,000 and sales of
miscellaneous equities of $700,000 for a total of $8,675,000. As described
above, the Company does not have a large capital expenditures program planned
for fiscal years 2000 and 2001. Therefore, the forecasted increase in sales of
our products combined with the $8,675,000 in cash from sales of our equities
should be sufficient to offset any cash losses from operations.
LIQUIDITY AND CAPITAL RESOURCES FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000
The Company reflected a continued liquidity problem during the nine months
ended February 29, 2000. Purchases from our material vendors were predominantly
on a cash basis, however, our vendors did not force payment on past due bills.
The only means of liquidity available to the Company was increased use of
Company Common Stock as payments for services. The Company completed the first
of two transactions to bring the needed capital into the Company. This funding
in February 2000 of $2,500,000 increased the liquidity of the Company to meet
its cash needs for inventory and product sales. The
29
<PAGE>
additional funding contemplated in December, 2000 will be the amount needed for
our anticipated increased sales. If the cash proceeds from the sale of the
forecasted 75 franchises is realized, the net cash to the Company will be
$3,750,000. If the Warrants attached to the Debentures are exercised the cash
proceeds could be as high as $1,925,000. If the Company completes the
contemplated $1,000,000 in private placements of a debenture, the proceeds will
be used for inventory and general purposes. Therefore, the other than sale of
product cash income could aggregate $11,675,000. To date of March 30, 2000 a
total of $2,850,000 has been received.
YEAR 2000 COMPLIANCE
Prior to the end of calendar year 2000, we addressed the "Year 2000 Problem"
and expended $15,000 to upgrade our existing automated computer system. As a
result of these expenditures, we have determined that our automated computer
systems are now "Y2K Compliant." As of April 1, 2000, the Company has not
experienced any problems with our automated computer systems related to the
"Year 2000 Problem." Based upon this experience, we expect any future costs to
maintain "Y2K Compliance" to be minimal.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of our
directors and executive officers as of March 31, 2000. A summary of the
background and experience of each of these individuals immediately follows the
table.
The directors are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
C J Comu.................................. 39 Chairman
John Potter............................... 57 Director
R. John Harris............................ 49 Director
Dr. Andrew Welch, M.D..................... 55 Director
Robert Galvan............................. 52 Director
</TABLE>
The executive officer and other officers are:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- ------------------------------------------
<S> <C> <C>
C J Comu.................................. 39 Chief Executive Officer
John Potter............................... 57 President
Chief Financial Officer and General
James R. Halter........................... 50 Counsel
R. John Harris............................ 49 Chief Operating Officer
</TABLE>
C J COMU. Mr. Comu has served as CEO, chairman and a director of the
Company since May 1998. Mr. Comu was a co-founder, CEO and Chairman of Airtech
International Corporation, our wholly-owned subsidiary, since its formation in
1995. In January 1994, Mr. Comu co-founded Transworld Leasing Corporation with
Mr. John Potter, also a director and executive officer of the Company, which
provided financing and marketing expertise to the medical, computer and
corporate sector prior to the formation of Airtech International Corporation.
JOHN POTTER. Mr. Potter has served as President and a director of the
Company since February 1998. Mr. Potter was the co-founder, President and a
director of Airtech International Corporation, our wholly-owned subsidiary,
since its formation in 1995. In January 1994, Mr. Potter co-founded Transworld
Leasing Corporation with Mr. C J Comu, also a director and executive officer of
the Company, which provided financing and marketing expertise to the medical,
computer and corporate sector prior to the formation of
30
<PAGE>
Airtech International Corporation. Prior to beginning his business career, Mr.
Potter was an officer in the US Army.
JAMES R. HALTER. Mr. Halter has served as Chief Financial Officer and
General Counsel for the Company since October, 1999. Mr. Halter earned a Masters
in Business Administration from the State University of New York at Buffalo in
1977, and a Juris Doctorate from Case Western Reserve University in 1999. Mr.
Halter has been a Certified Public Accountant since 1975. From January 1990 to
October 1999, Mr. Halter owned his own tax and business consulting practice.
Concurrently, from September 1996 to January 1999, Mr. Halter attended and
received his juris doctor degree from Case Western Reserve University School of
Law in Cleveland, Ohio.
R. JOHN HARRIS. Mr. Harris has served as the Chief Operating Officer of the
Company since February 2000 and as a director since November 1999. Mr. Harris
served as Chief Administrative Officer of Integrated Concepts, Inc. from June
1998 to October 1999 and as Chief Executive Officer of PreventCo Inc. from June
1996 to May 1998. Mr. Harris also served as Vice President and Medical Director
of Airtech International Corporation from May 1994 to May 1996. Prior to 1994,
Mr. Harris spent twenty years in various senior management capacities, and as an
international consultant, in the field of acute medical/surgical hospital
administration for leading hospital management companies such as Hospital
Corporation of America and Hospital Management Professionals. Mr. Harris holds a
Bachelors of Science degree from Oregon State University and a Masters of
Hospital Administration from the University of Alabama.
DR. ANDREW WELCH, M.D. Dr. Welch has served as a director of the Company
since November 1999. From 1979 to the present, Dr. Welch has practiced
orthopedic surgery for the Southwest Orthopedic and Sports Medicine Clinic
located in Las Vegas, Nevada of which he is the president and owner.
ROBERT GALVAN. Mr. Galvan has served as a director of the Company since
November 1999. Since November 1999, Mr. Galvan has also served as the Associate
Dean of the University of North Texas Health Science College, Fort Worth, Texas.
From November 1998 to November 1999, Mr. Galvan served as the Director of Health
for the City of Fort Worth, Texas. Mr. Galvan also served as the Director of
Health and Community Development for the City of Plano, Texas from 1992 to
October 1998.
Directors receive no cash compensation for their services as directors. Our
policy is to reimburse non-employee directors for expenses actually incurred in
connection with attending meetings of the Board of Directors. Directors and
executive officers are also eligible for stock and option grants under our stock
option plans as determined by the Board of Directors.
31
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth the cash and other compensation paid by the
Company during the last three fiscal years to the Company's Chief Executive
Officer, President and other individuals who served as executive officers and
whose total compensation was $100,000 or more (each, a "Named Executive
Officer").
LONG TERM COMPENSATION AWARDS
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION AWARDS
ANNUAL COMPENSATION -----------------------
--------------------------------------- RESTRICTED SECURITIES
FISCAL OTHER ANNUAL STOCK UNDERLYING
NAME AND PRINCIPAL POSITION YEAR COMPENSATION(6) SALARY BONUS AWARDS OPTIONS
- --------------------------- -------- ---------------- --------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
C J Comu, CEO, Chairman.................... 1999 $ 46,875 $ 0 $ 0 $424,334 941,667(2)
1998(1) 0 0 0
1997(1) 297,072 0 0
John Potter, President..................... 1999 46,875 0 0 424,334 941,667(3)
1998(1) 0 0 0
1997(1) 294,178 0 0
Darrell R. Jolley, CFO..................... 1999 58,333 0 0 12,500 25,000(4)
Douglas S. Keane, President of Airsopure, 1999 77,500 0 0 12,500 25,000(5)
Inc...................................... 1998(1) 62,917 0 0
1997(1) 18,750 0 0
</TABLE>
- ------------------------------
(1) Disclosure is made of Named Executive Officers of the Company's subsidiary,
Airtech International Corporation, for fiscal years 1998 and 1997 for
positions substantially similar to positions held in employment by the
Company for fiscal year 1999.
(2) Mr. Comu received 791,667 shares of restricted Common Stock in fiscal year
1999 for deferred wages of $250,000 per year for the period from June 1,
1997 through December 31, 1998, the fair value of which shares was $395,834
on the date of grant, January 31, 1999. He received 150,000 shares of Common
Stock under an S-8 Registration Statement as additional compensation in
fiscal year 1999, the fair value of which was $28,500 at the date of grant,
December 31, 1998. All of these shares were fully vested on the date of
grant. None of the shares are entitled to dividends.
(3) Mr. Potter received 791,667 shares of restricted Common Stock in fiscal year
1999 for deferred wages of $250,000 for the period from June 1, 1997 through
December 31, 1998, the fair value of which shares was $395,834 on the date
of grant, January 31, 1999. He also received 150,000 shares of Common Stock
under an S-8 Registration Statement as additional compensation in fiscal
year 1999, the fair value of which was $28,500 at the date of grant,
December 31, 1998. All of these shares were fully vested on the date of
grant. None of the shares are entitled to dividends.
(4) Mr. Jolley received 25,000 shares of Common Stock under an S-8 Registration
Statement as additional compensation earned in fiscal year 1999, the fair
value of which was $12,500 at the date of grant, June 16, 1999.
(5) Mr. Keane received 25,000 shares of Common Stock under an S-8 Registration
Statement as additional compensation earned in fiscal year 1999, the fair
value of which was $12,500 at the date of grant, June 16, 1999.
(6) See terms of employment agreements for Mr. Comu and Mr. Potter under the
section titled "Employment Agreements."
The following table sets forth (a) the number of shares underlying options
granted to each named executive officer during fiscal year 1999, (b) the
percentage that the grant represents of the total number of
32
<PAGE>
options granted to all Company employees during fiscal year 1999, (c) the per
share exercise price of each option and (d) the expiration date of each option.
<TABLE>
<CAPTION>
% OF TOTAL OPTIONS /
NUMBER OF SECURITIES SAR'S GRANTED TO
UNDERLYING OPTIONS / EMPLOYEES EXERCISE PRICE EXPIRATION
NAME SAR'S GRANTED IN FISCAL YEAR ($/SHARE) DATE
- ---- -------------------- -------------------- -------------- -----------------
<S> <C> <C> <C> <C>
C J Comu.................. 150,000 21.9% $0.50 October 31, 2001
John Potter............... 150,000 21.9% $0.50 October 31, 2001
Darrell R. Jolley......... 135,000(1) 19.7% $0.60 October 31, 2008
Douglas S. Keane.......... 250,000(2) 36.5% $0.11 December 31, 2008
</TABLE>
- ------------------------
(1) Of the options granted to Mr. Jolley 45,000 vested on November 1, 1998. Mr.
Jolley is no longer employed by the Company and the remaining options lapsed
in September 1999.
(2) Of the options granted to Mr. Keane 100,000 vested on January 1, 1999. Mr.
Keane is no longer employed by the Company and the remaining options lapsed
in November 1999.
Set forth in the following table is information, with respect to each Named
Executive Officer, as to (a) the number of shares acquired during fiscal year
1999 upon each exercise of options granted to such individuals, (b) the
aggregate value realized upon each exercise (i.e. the difference between the
market value of the shares at exercise and their exercise price), (c) the total
number of unexercised options held on May 31, 1999, separately identified
between those exercisable and those not exercisable and (d) the aggregate value
of in-the-money, unexercised options held on May 31, 1999, separately identified
between those exercisable and those not exercisable.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF EXERCISED OPTIONS AT
ACQUIRED ON VALUE OPTIONS AT FISCAL YEAR-END FISCAL YEAR-END EXERCISABLE/
NAME EXERCISE RECEIVED EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
- ---- ----------- -------- -------------------------- -----------------------------
<S> <C> <C> <C> <C>
C J Comu................. -0- -0- 150,000 / 0 $ 0 / $0
John Potter.............. -0- -0- 150,000 / 0 $ 0 / $0
Darrell R. Jolley(2)..... -0- -0- 45,000 / 0 $ 0 / $0
Douglas S. Keane(2)...... -0- -0- 100,000 / 0 $11,000 / $0
</TABLE>
- ------------------------
(1) The value is calculated based on the aggregate amount of the excess of $0.39
(the closing sale price per share for the Common Stock on May 31, 1999) over
the relevant exercise price(s).
(2) Effective September 1999 and November 1999, respectively, Mr. Jolley and Mr.
Keane were no longer employed by the Company.
EMPLOYMENT AGREEMENTS
C J Comu and John Potter have ten (10) year employment contracts with the
Company for annual compensation of $250,000 each, terminating May 31, 2008.
Under the terms of these contracts and agreements between the Board of
Directors, Mr. Comu and Mr. Potter, these contracts will only be funded on a
cash basis at such time as the Company is in a financial position to pay the
salaries under these contracts. Unpaid compensation relating to these contracts,
dating from June 1, 1997 through December 31, 1998, was compensated to Mr. Comu
and Mr. Potter effective January 31, 1999 through the issue of 791,667 and
791,667 shares of restricted Common Stock, respectively. Effective January 15,
1999, Mr. Comu and Mr. Potter began receiving cash compensation under the
agreements at an annual rate of $125,000 each when cash was available. The
remainder of the amounts due each officer under their respective contracts will
be converted to restricted Common Stock during fiscal year 2000. Effective
June 1, 1999, Mr. Comu and Mr. Potter have further agreed with the Board of
Directors to reduce compensation to $125,000.
33
<PAGE>
COMPANY STOCK PLANS
EMPLOYEE STOCK PLANS. Our Board of Directors periodically establishes
employee stock grant plans ("Stock Plans") under which unrestricted shares of
our Common Stock are issued and granted to certain employees, management and
consultants for performance rewards or services rendered to the Company. The
terms and conditions of stock grants under the Stock Plans are within the sole
discretion of our Board of Directors. We do not have formal written plans and
all issuances of shares of Common Stock under the Stock Plans are made pursuant
to Registration Statements on Form S-8 filed by the Company from time to time
with the Securities and Exchange Commission.
On June 9, 1998, we filed a Form S-8 Registration Statement registering
160,000 shares of our Common Stock. Through July 30, 1998, we issued shares of
Common Stock to consultants and employees of 56,002 shares and 103,998 shares,
respectively. The shares of Common Stock issued were accounted for as consulting
services and employee wages. As of March 23, 2000, all of the shares registered
under the Form S-8 Registration Statement were issued under the Stock Plans.
On November 12, 1998, we filed a Form S-8 Registration Statement registering
800,000 shares of our Common Stock. Through July 30, 1999, we issued shares of
Common Stock to consultants and employees of 261,009 shares and 538,991 shares,
respectively. The shares of Common Stock issued were accounted for as consulting
services and employee wages. As of March 23, 2000, all of the shares registered
under the Form S-8 Registration Statement were issued under the Stock Plans.
On July 30, 1999, we filed a Form S-8 Registration Statement registering
900,000 shares of our Common Stock, all of which were issued as of March 23,
2000 under the Stock Plans. The shares of Common Stock were accounted for as
consulting services and employee wages.
2000 KEY EMPLOYEE OPTION PLAN. Effective May 31, 1999, the Board of
Directors adopted the Company's 2000 Key Employee Option Plan (the "2000 Option
Plan") in order to motivate our qualified employees to assist the Company in
retaining employees and to align the interest of key employees with those of our
shareholders. The 2000 Option Plan is authorized for key employees including the
Chief Executive Officer, President, Chief Financial Officer, Vice President
Franchising, Vice President Production, and Vice President Finance. The 2000
Option Plan provides for the grant of "incentive stock options" and
"non-qualified stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended. The approval authorized the issuance of a
maximum of 1,000,000 shares subject to the options, with a range of exercise
prices from $0.25 to $2.50 per share, vesting over a two to three year period
and expiring ten (10) years from the date of grant. The Board of Directors
expects to grant option agreements during fiscal year 2000 to the key employees
specifying the respective number of options, vesting periods, exercise prices
and incentives, if any. On November 11, 1999, we filed a Form S-8 Registration
Statement for 900,000 shares of our Common Stock issuable with respect to
options granted under the 2000 Option Plan. As of March 23, 2000, no options had
been granted under the 2000 Option Plan.
INDEMNIFICATION
Wyoming Corporation Law provides that indemnification of directors,
officers, employees and other agents of a corporation, and persons who serve at
its request as directors, officers, employees or other agents of another
corporation may be provided by the corporation. Our Certificate of Incorporation
includes provisions eliminating the personal liability of our directors for
monetary damages resulting from breaches of their fiduciary duty except,
pursuant to the limitations of the Wyoming Corporation Law, (i) for any breach
of their fiduciary duty except, pursuant to the limitations of our directors for
monetary damages resulting from breaches of their fiduciary duty of loyalty to
the Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law,
(iii) Wyoming Corporation law, or any amendatory or successor provisions
thereto, or (iv) with respect to any transaction from which the director derived
an improper personal benefit. Our By-Laws
34
<PAGE>
provide indemnification to directors, officers, employees and agents, including
against claims brought under state or Federal Securities laws, to the full
extent allowable under Wyoming law. We have also entered into indemnification
agreements with our directors and executive officer providing, among other
things, that we will provide defense cost against any such claim, subject to
reimbursement in certain events.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 23, 2000, certain information
concerning the beneficial ownership of each class of the Company's voting stock
held by (i) each beneficial owner of 5% or more of the Company's voting stock,
based on reports filed with the Securities and Exchange Commission and certain
other information; (ii) each of the Company's executive officers and (iii) all
executive officers and directors of the Company as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL PERCENT OF COMMON STOCK
NAME AND ADDRESS(1) OWNERSHIP OF COMMON STOCK(2) OWNERSHIP(3)
- ------------------- ---------------------------- -----------------------
<S> <C> <C>
C J Comu..................................... 1,768,864(4) 8.7%
John Potter.................................. 1,613,881(5) 7.9%
Robert Galvan................................ 100,000 *
James R. Halter.............................. 135,193 *
Dr. Andrew Welch, M.D........................ 243,382(6) 1.2%
R. John Harris............................... 100,000 *
Officers and Directors as a Group (6
persons)................................... 3,958,320(7) 19.4%
</TABLE>
- ------------------------
* Less than 1%
(1) Unless otherwise indicated, the address of each director, officer and
principal stockholder is c/o Airtech International Group, Inc., 15400 Knoll
Trail, Suite 200, Dallas, TX 75248.
(2) Unless otherwise indicated, the Company believes that all persons named in
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. A person is deemed to be the
beneficial owner of securities which may be acquired by such person within
60 days from the date on which beneficial ownership is to be determined upon
the exercise of options, warrants or convertible securities.
(3) Each beneficial owner's percentage ownership is determined by assuming that
stock options and warrants that are held by such person (but not those held
by any other person) and which are exercisable within 60 days from the date
on which beneficial ownership is to be determined have been exercised.
(4) Represents 1,368,864 shares of Common Stock owned directly. Also represents
150,000 shares owned pursuant to warrants to purchase shares of Common Stock
at $0.50 per share and 250,000 shares owned pursuant to options to purchase
shares of Common Stock at $0.25 per share, all of which are exercisable
within 60 days. Does not include 136,987 shares and 74,353 shares of Common
Stock owned by Mr. Comu's relatives, Sevim Comu and Cem Comu, respectively,
of which Mr. Comu disclaims beneficial ownership.
(5) Represents 1,213,881 shares of Common Stock owned directly. Also represents
150,000 shares owned pursuant to warrants to purchase shares of Common Stock
at $0.50 per share and 250,000 shares owned pursuant to options to purchase
shares of Common Stock at $0.25 per share, all of which are exercisable
within 60 days. Does not include 193,356 shares and 239,136 shares of Common
Stock owned by Mr. Potter's relatives, Susan Potter and John Garth Potter,
respectively, of which Mr. Potter disclaims beneficial ownership.
35
<PAGE>
(6) Represents 100,000 shares of Common Stock owned directly and 140,382 shares
owned by the Welch Family Partnership, L.P. of which Mr. Welch may be deemed
the beneficial owner.
(7) See notes 4, 5 and 6.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During fiscal 1999 and 1998, the Company's Chief Executive Officer and its
President advanced cash to the Company totaling $100,000 and $186,000,
respectively. The Company agreed to repay these advances as cash was available
or by issuing its common stock at various times as well as to pay 15% interest
on the outstanding balance. As of May 31, 1999 and 1998, the Company owed
$216,488 and $123,900, respectively, on advances from each officer, including
accrued interest.
Peter Kertes, a principal stockholder of the Company during fiscal year
1999, is the President of EquitNet.Com, a weekly investor newsletter. Mr. Kertes
provided the Company with a market research analysis of the Company's Common
Stock for which he was compensated $3,500 in cash and issued 17,500 shares of
Common Stock. We also signed an agreement with Mr. Kertes to provide investment
banking services to the Company. Mr Kertes was compensated by the issuance of
29,600 shares of our Common Stock. In March 2000, the agreement with Mr. Kertes
was renewed and extended to August 31, 2001. As of March 23, 2000, Mr. Kertes
owned 2.9% of our outstanding shares of Common Stock.
Dr. Andrew Welch, M.D., a director of the Company, is the managing partner
of Aircare, LLC, a franchisee of our wholly-owned subsidiary, Airsopure, Inc.,
for Las Vegas, Nevada. For the nine months ended February 29, 2000, Aircare, LLC
purchased from the Company $164,828 of our air purification products. As of
March 23, 2000, Aircare, LLC owes the Company $73,035 of this amount.
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our shares of Common Stock were traded on the National Association of
Securities Dealers Automated Quotation Systems (NASDAQ) SmallCapMarket under the
symbol "ITNL" until October 23, 1997. Following a rule change by NASDAQ for
qualifying for a SmallCapMarket listing it was determined that the Company was
no longer eligible for a listing. Since October 23, 1997, our shares of Common
Stock have been traded in the "over-the-counter" or "Bulletin Board" market. We
changed our symbol from "ITNL" to "AIRG" on November 30, 1998. High and low
sales prices for the quarters of fiscal year 1998 and 1999 were:
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C> <C>
Fiscal Year 2000
3rd Quarter................. $3.53 $0.60
2nd Quarter................. 0.90 0.25
1st Quarter................. 0.75 0.125
Fiscal Year 1999
4th Quarter................. $0.56 $0.12
3rd Quarter................. 1.03 0.14
2nd Quarter................. 1.50 0.47
1st Quarter................. 3.28 0.63
Fiscal Year 1998
4th Quarter................. $3.13 $1.09
3rd Quarter................. 3.13 1.25 Bulletin Board
2nd Quarter................. 5.16 1.25
1st Quarter................. 6.41 3.75 Small Cap Mkt
</TABLE>
36
<PAGE>
HOLDERS
As of March 20, 2000, there were approximately 1,214 holders of record of
the our Common Stock.
DIVIDENDS
We have paid no dividends on our shares of Common Stock and we have no
current intentions to pay dividends on our shares of Common Stock in the future.
Holders of our Series "M" Convertible Preferred Stock have a preferred dividend
right to receive quarterly dividend distributions equal to 4.57% of the gross
revenues generated from sales of our Series 950 unit until May 31, 2001. Except
for required dividend payments on the Series "M" Convertible Preferred Stock, we
intend to retain any future earnings for reinvestment in our business. As of
March 31, 2000, no dividends have been paid on the Series "M" Convertible
Preferred Stock. Any future determination to pay cash dividends will be at the
discretion of the Board of Directors and will be dependent upon our financial
condition, results of operations, capital requirements and other relevant
factors. As of January 1, 2000, we terminated our offering of Series "M"
Convertible Preferred Stock and do not intend to offer any additional shares in
the future.
DESCRIPTION OF SECURITIES
We have summarized below the material provisions of our Articles of
Incorporation, Bylaws and other instruments defining the rights of our
securities holders. Our summary may not contain all of the information that is
important to you. See "Where You Can Find More Information" for information
about how to obtain a copy of the documents we refer to in this section.
AUTHORIZED CAPITAL STOCK
Under our Articles of Incorporation, we are authorized to issue up to 70
million shares of stock consisting of the following:
- 50 million shares of Common Stock
- 20 million shares of Preferred Stock
COMMON STOCK
Shares of our Common Stock are not redeemable, do not have any conversion
rights and are not subject to call. Holders of shares of our Common Stock have
no preemptive, redemption, conversion or other subscription rights and are
entitled to one vote per share on any matter submitted to a vote of our
shareholders. Cumulative voting is prohibited in the election of directors. This
means that the holders of a majority of the outstanding shares of Common Stock,
voting for the election of directors, can elect all of the directors. In such
event, the holders of the remaining shares will not be able to elect any of our
directors. The holders of shares of Common Stock are entitled to receive
dividends, if any, as and when declared from time to time by the Board of
Directors of the Company, out of legally available funds, but subject to the
prior payment of dividends to the holders of any outstanding shares of Preferred
Stock. Subject to the rights of the holders of Preferred Stock, if any, upon
liquidation dissolution or winding up of the affairs of the Company, the holders
of shares of our Common Stock will be entitled to participate equally and
ratably, in proportion to the number of shares held, in the net assets of the
Company available for distribution to holders of all shares of Common Stock. The
shares of our Common Stock currently outstanding are validly issued, fully paid
and nonassessable.
PREFERRED STOCK
Our Articles of Incorporation authorize our Board of Directors to issue up
to 20,000,000 shares of Preferred Stock, $0.01 par value per share. The
Preferred Stock may be issued in one or more classes or series. Each class or
series will have the voting rights, designations, preferences and relative
rights as fixed
37
<PAGE>
by resolution of the Board of Directors, without the consent of our
shareholders. The Preferred Stock may rank senior to our Common Stock as to
dividend rights, liquidation preferences, or both. The Preferred Stock may also
have extraordinary or limited voting rights.
SERIES "M" CONVERTIBLE PREFERRED STOCK AND RELATED WARRANTS
We have 1,143,750 shares of Series "M" Convertible Preferred Stock ("Series
"M" Preferred") outstanding. Holders of Series "M" Preferred have the right to
convert their shares into shares of our Common Stock on a one-for-one basis at
any time. The Series "M" Preferred automatically converts to shares of our
Common Stock on December 31, 2001. The holders of Series "M" Preferred are
entitle to receive quarterly dividend distributions equal to 4.57% of the gross
revenues generated from the sales of our Series 950 unit until May 31, 2001. The
dividends are paid on or before the sixtieth day of each calendar quarter based
upon the gross revenues from our Model 950 air purification unit from the
previous quarter. The holders of Series "M" Preferred also have related Warrants
to purchase 993,750 shares of our Common Stock at and exercise price of $2.00
per share. The Warrants expire on May 31, 2000. As of January 1, 2000, we
terminated our offering of Series "M" Preferred and do not intend to offer any
additional shares in the future. As of March 31, 2000, no dividends have been
paid to the holders of Series "M" Preferred.
AIRSOPURE 999 LIMITED PARTNERSHIP INTERESTS
We have $430,000 of limited partnership interests outstanding in Airsopure
999, L.P. ("Airsopure LP"). Airsopure, Inc., our wholly-owned subsidiary
("Airsopure"), is the sole general partner of Airsopure LP. Under the limited
partnership agreement, the limited partners are entitled to receive 1.7% of the
gross revenues generated from sales of our Model S-999 automobile air
purification system with the remaining gross revenues paid to Airsopure. The
limited partners are entitled to receive distributions until December 31, 2003,
at which time 100% of gross revenues are paid to Airsopure. In addition,
Airsopure has guaranteed the limited partners a 150% return on their investment
by December 31, 2003. The guarantee, if payable, may be in the form shares of
our Common Stock.
12% CONVERTIBLE DEBENTURES DUE 2004
In January 2000, the Board of Directors authorized the issuance of up to
$5,000,000 of our 12% Convertible Debentures Due 2004 ("12% Debentures")
pursuant to a private placement memorandum. Since the original authorization, we
have elected to limit purchases of our 12% Debentures to a maximum of $1,000,000
in principal amount. At any time after one year from the date of issuance,
holders of our 12% Debentures are entitled to convert our 12% Debentures on a
dollar for dollar basis into shares of our Common Stock. Semi-annual interest
payments are due and payable on our 12% Debentures commencing September 1, 2000.
Each 12% Debenture in the principal amount of $25,000 includes a warrant to
purchase shares of our Common Stock at an exercise price of $2.00 per share. The
warrants expire two years from the date of issuance.
At our option, our 12% Debentures may be converted on a dollar for dollar
basis or paid in cash at face value on the maturity date. Prior to maturity, we
may with the consent of the holder of our 12%
38
<PAGE>
Debenture, redeem our 12% Debentures in cash at the following redemption prices
together with accrued interest to the date of redemption:
<TABLE>
<CAPTION>
IF REDEEMED ON OR AFTER SEPTEMBER 1
OF THE FOLLOWING YEARS: % OF PRINCIPAL AMOUNT
----------------------------------- ---------------------
<S> <C>
2000........................ 110%
2001........................ 108%
2002........................ 106%
2003........................ 104%
2004........................ 102%
</TABLE>
As of March 23, 2000, we had $350,000 in principal amount of our 12%
Debentures outstanding.
6% CONVERTIBLE DEBENTURES DUE 2002
On February 22, 2000, we sold $2,500,000 in principal amount of our 6%
Convertible Debentures Due 2002 (the "6% Debentures") to PK Investors LLC. The
6% Debentures have a maturity date of February 22, 2002 at which time the
principal amount and all accrued interest is due and payable. No interest
payments are due prior to maturity of the Debentures. We may, at our option, pay
the accrued interest at maturity by issuing shares of our Common Stock to the
Debenture holder at a price equal to the conversion price of our Common Stock as
described below. The Debentures are convertible at any time at the option of the
holder into shares of our Common Stock. The conversion price of our Common Stock
used in calculating the number of shares issuable upon conversion (or in payment
of interest on the Debentures) is the lesser of (i) 110% of the average closing
bid price of our Common Stock for the five trading days prior to the date of
initial payment and (ii) the product obtained by multiplying 0.80 by the average
of the three lowest closing bid prices of our Common Stock during the thirty
trading days prior to the date we receive a conversion notice from a Debenture
holder. In the event of a "change of control" of the Company, the holders of the
Debentures may require us to redeem the Debentures at a redemption price equal
to 125% of the aggregate outstanding principal and accrued interest on the
Debentures. A "change of control" includes acquisition by an entity or group of
more than 50% of our voting stock, merger or consolidation, a change in a
majority of our existing Board of Directors or a sale of substantially all of
our assets. The holders of our 6% Debentures also have attached Warrants to
purchase 250,000 shares of our Common Stock at an exercise price of $2.6124 per
share. The Warrants expire on February 22, 2005.
CONDITIONAL WARRANT
On February 22, 2000, we also issued to PK Investors LLC, a Conditional
Warrant to purchase up to an additional $2,500,000 in principal amount of our 6%
Debentures with related attached Warrants to purchase 250,000 shares of our
Common Stock. The Conditional Warrant expires on December 22, 2000.
LEGAL MATTERS
The validity of the issuance of the Warrants and Common Stock offered
pursuant to this Prospectus is being passed upon for the Company by John G.
Rebensdorf, P.C.
EXPERTS
The consolidated financial statements of the Company included in this
Prospectus and in the Registration Statement have been audited by Turner, Stone
and Company LLP, independent certified public accountants, to the extent and for
the periods set forth in their report appearing elsewhere in this Prospectus and
in the Registration Statement. The consolidate financial statements are included
in this Prospectus in reliance upon such report given upon the authority of
Turner, Stone and Company as experts in auditing and accounting.
39
<PAGE>
WHERE TO FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 in
connection with the securities offered under this Prospectus. As permitted by
SEC rules, this Prospectus does not contain all of the information contained in
the registration statement or in the exhibits to the registration statement. For
further information you may read and copy documents at the public reference room
of the SEC at 450 5(th) Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Please call the SEC at 1-800-SEC-0330 for further information on
the public reference rooms. The SEC charges a fee for copies. Copies of this
material should also be available through the Internet at the SEC EDGAR Archive,
the address of which is http://www.sec.gov.
No person is authorized by the Company to give any information or to make
any representations other than those contained in this Prospectus, and, if given
or made, you should not rely upon such information.
40
<PAGE>
INDEX TO COMBINED FINANCIAL INFORMATION
AIRTECH INTERNATIONAL GROUP, INC.
<TABLE>
<CAPTION>
ITEM PAGE
- ---- --------
<S> <C>
Report of Independent Certified Public Accountants.......... F-2
Consolidated Balance Sheets as of May 31, 1999 and 1998..... F-3
Consolidated Statements of Operations for the Years Ended
May 31, 1999 and 1998..................................... F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended May 31, 1999 and 1998......................... F-6
Consolidated Statements of Cash Flows for the Years Ended
May 31, 1999 and 1998..................................... F-7
Notes to Financial Statements for May 31, 1999 and 1998..... F-8
Consolidated Financial Statements for the Nine Months Ended
February 29, 2000 and February 28, 1999................... F-18
Consolidated Financial Statements for the Three Months Ended
August 31, 1999 and 1998.................................. F-23
Consolidated Financial Statements for the Six Months Ended
November 30, 1999 and 1998................................ F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors and Stockholders
Airtech International Group, Inc.
Dallas, Texas
We have audited the accompanying consolidated balance sheets of Airtech
International Group, Inc. and subsidiaries as of May 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' deficit and cash
flows for the years then ended. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 disclosures 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 consolidated financial position of
Airtech International Group, Inc. and subsidiaries as of May 31, 1999 and 1998,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ TURNER, STONE & COMPANY, LLP
Certified Public Accountants
September 10, 1999
F-2
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 61,808 $ 145,844
Trade and licensing fees receivables, net of allowance for
doubtful accounts of $20,000 and $0, respectively....... 173,951 172,137
Notes receivable, current portion......................... 143,750 66,667
Inventory................................................. 242,665 284,332
Prepaid expenses.......................................... -- 67,214
---------- ----------
Total current assets.................................. 622,174 736,194
PROPERTY AND EQUIPMENT--net of accumulated depreciation of
$119,634 and $206,734, respectively....................... 89,569 205,874
NOTES RECEIVABLE--net of current portion, net of allowance
for doubtful accounts of $0 and $0, respectively.......... 431,250 899,833
OTHER ASSETS
Goodwill, net of accumulated amortization of $35,810 and
$89,750, respectively................................... 143,243 779,302
Intellectual properties, net of accumulated amortization
of $38,060 and $0, respectively......................... 1,049,337 1,087,397
Prepaid royalties and other............................... 514,208 535,100
---------- ----------
Total other assets.................................... 1,706,788 2,401,799
---------- ----------
$2,849,781 $4,243,700
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MAY 31, 1999 AND 1998
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable, trade................................... $ 510,193 $ 136,955
Accrued payroll and other wages........................... 216,223 --
Accrued payroll taxes..................................... 85,546 --
Other accrued expenses.................................... 372,534 156,857
Advances payable to officers.............................. 216,488 186,000
Notes payable............................................. 277,185 340,540
----------- -----------
Total current liabilities............................. 1,678,169 820,352
LONG-TERM LIABILITIES
Deferred revenue.......................................... 400,000 400,000
Product marketing obligation.............................. 405,000 --
----------- -----------
Total long-term liabilities........................... 805,000 400,000
Total liabilities..................................... 2,483,169 1,220,352
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Preferred stock--5,000,000 shares authorized, $.005 par
value
Series A cumulative, convertible preferred, none and
11,868,016 shares issued and outstanding,
respectively; liquidation preference of $1 per
share................................................. -- --
Series M cumulative, convertible preferred, 1,143,750
and 1,029,750 shares issued and outstanding,
respectively; liquidation preference of $1 per share,
aggregating $ and $ resp 1,144 1,030
Common stock--$.05 par value, 50,000,000 shares
authorized, 13,207,532 and 10,059,923 shares issued and
outstanding, respectively............................... 660,376 502,996
Additional paid-in capital................................ 5,546,965 4,049,736
Retained deficit.......................................... (5,841,873) (1,530,414)
----------- -----------
Total stockholders' equity............................ 366,612 3,023,348
----------- -----------
$ 2,849,781 $ 4,243,700
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
REVENUES
Product sales............................................. $ 800,439 $1,041,999
Franchisee fees........................................... 229,000 84,500
Other revenues............................................ 1,030 --
----------- ----------
Total revenues.......................................... 1,030,469 1,126,499
COSTS AND EXPENSES
Salaries and wages........................................ 1,317,076 514,734
Deferred officer wages.................................... 791,667 --
Cost of sales............................................. 664,356 568,814
Advertising............................................... 42,082 76,440
Depreciation.............................................. 38,564 86,493
Amortization.............................................. 91,370 17,250
Loss on impairment of goodwill............................ 582,750 --
Other general & administrative expenses................... 1,678,775 727,580
----------- ----------
Total costs and expenses................................ 5,206,640 1,991,311
----------- ----------
LOSS FROM OPERATIONS........................................ (4,176,171) (864,812)
Interest expense............................................ (135,288) (5,859)
----------- ----------
LOSS BEFORE INCOME TAXES.................................... (4,311,459) (870,671)
Income tax benefit.......................................... -- --
----------- ----------
NET LOSS.................................................... $(4,311,459) $ (870,671)
=========== ==========
LOSS PER COMMON SHARE--BASIC................................ $ (0.41) $ (0.32)
=========== ==========
LOSS PER COMMON SHARE--DILUTED.............................. $ (0.41) $ (0.32)
=========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
COMMON STOCK PREF. SERIES M PREF. SERIES A
---------------------- --------------------- -------------------------- PAID-IN
DESCRIPTION SHARES $ SHARES $ SHARES $ CAPITAL
- ----------- ----------- -------- ---------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT 5/31/97................... 2,695,923 $134,796 0 $ -- 0 $ -- $ 3,789,477
Issuance of common stock for cash.... 120 6 -- -- -- -- 126,624
Issuance of common and preferred
stock in acquisition of AIC........ 2,100,000 105,000 -- -- 2,371,603 11,858,016 2,010,744
Adjustment of equity accounts to give
effect to reverse merger accounting
of acquisition..................... 5,263,880 263,194 1,029,750 1,030 (2,371,603) (11,856,016) (1,877,109)
Net loss during the year............. -- -- -- -- -- -- --
----------- -------- ---------- ------ ----------- ------------ -----------
BALANCE AT 5/31/98................... $10,059,923 $502,998 $1,029,750 $1,030 $ -- $ -- $ 4,049,736
Issuance of Series M preferred stock
in June, net of offering costs..... -- -- 114,000 114 -- -- 98,890
Convert Debentures to common in
July............................... -- -- -- --
Cancel shares in July................ (680,000) (34,000) -- -- -- -- 34,000
Issuance of common stock according to
S-8 registration in August......... 146,025 7,300 -- -- -- -- 213,067
Issuance of common stock according to
S-8 registration in November....... 524,000 26,200 -- -- -- -- 148,360
Issuance of common stock for cash in
November........................... 828,000 41,400 -- -- -- -- 234,600
Issuance of common stock on exercise
of warrants in December............ 46,250 2,313 -- -- -- -- 20,812
Issue common stock for deferred wages
to officers in January............. 1,563,334 79,167 -- -- -- -- 712,500
Issuance of common stock in May...... 700,000 35,000 -- -- -- -- 35,000
Net loss during the year............. -- -- -- -- -- -- --
----------- -------- ---------- ------ ----------- ------------ -----------
BALANCE AT 5/31/99................... 13,207,532 660,376 1,143,750 1,144 0 0 5,546,965
=========== ======== ========== ====== =========== ============ ===========
<CAPTION>
RETAINED
DESCRIPTION EARNINGS TOTAL
- ----------- ----------- ------------
<S> <C> <C>
BALANCE AT 5/31/97................... $ (659,743) $ 3,264,530
Issuance of common stock for cash.... -- 126,630
Issuance of common and preferred
stock in acquisition of AIC........ -- 13,973,760
Adjustment of equity accounts to give
effect to reverse merger accounting
of acquisition..................... -- (13,470,901)
Net loss during the year............. (870,671) (870,671)
----------- ------------
BALANCE AT 5/31/98................... $(1,530,414) $ 3,023,348
Issuance of Series M preferred stock
in June, net of offering costs..... -- 99,004
Convert Debentures to common in
July............................... --
Cancel shares in July................ -- --
Issuance of common stock according to
S-8 registration in August......... -- 220,367
Issuance of common stock according to
S-8 registration in November....... -- 174,560
Issuance of common stock for cash in
November........................... -- 276,000
Issuance of common stock on exercise
of warrants in December............ -- 23,125
Issue common stock for deferred wages
to officers in January............. -- 791,667
Issuance of common stock in May...... -- 70,000
Net loss during the year............. (4,311,459) (4,311,459)
----------- ------------
BALANCE AT 5/31/99................... (5,841,873) 366,612
=========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MAY 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss.................................................. $(4,311,459) $(870,671)
Adjustments to reconcile net income to cash
Depreciation and amortization........................... 129,934 103,743
Impairment of goodwill.................................. 582,750 --
Net (gain) loss on disposition of assets................ (51,672) --
Stock payments to employees and consults................ 1,129,593 169,475
Allowances and write offs............................... 411,000 --
Changes in operating assets and liabilities
Accounts receivable..................................... (21,814) (18,866)
Inventory............................................... 41,667 (422)
Prepaid expenses........................................ 67,214 (228,074)
Accounts payable........................................ 373,238 70,380
Accrued expenses........................................ 716,163 169,591
----------- ---------
Net cash used in operating activities................. (933,386) (604,844)
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of property and equipment..................... -- (11,369)
Disposals of fixed assets................................. 66,058 --
Expenditures for other assets............................. (89,837) --
Cash acquired in ITC acquisition.......................... -- 121,550
----------- ---------
Net cash used in investing activities................... (23,779) 110,181
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of preferred stock, net of offering
costs................................................... 99,004 --
Proceeds from issuance of common stock.................... 369,125 127,630
Receipts from product marketing obligation................ 405,000
Advances from ITC prior to acquisition.................... -- 493,000
----------- ---------
Net cash provided by financing activites................ 873,129 620,630
INCREASE (DECREASE) IN CASH................................. (84,036) 125,967
CASH, BEGINNING OF PERIOD................................... 145,844 19,877
----------- ---------
CASH, END OF PERIOD......................................... $ 61,808 $ 145,844
=========== =========
SUPPLEMENTAL CASH FLOWS DISCLOSURES
Interest paid............................................. $ 8,319 $ --
Income taxes paid......................................... $ -- $ --
Non-cash investing and financing activities:
Issuance of common stock, preferred stock and debentures
for purchase of ITC net assets, net of cash received... $ -- $ 324,806
Common stock issued in settlement of capital lease
obligation............................................. $ -- $ 218,750
Common stock issued in exchange for services............ $ 1,129,593 $ 169,475
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Airtech International Group, Inc. (the Company), (formerly Interactive
Technologies Corporation), was incorporated in the state of Wyoming on
August 8, 1991. The Company manufactures and sells a full line of air
purification products. The Company primarily markets, sells and distributes its
products through a network of franchisees.
On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation (AIC), which through its
subsidiaries manufacture and sell various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 10,500,000 of its common stock shares valued at $.625 per share, the
issuance of 11,858,016 of its Series A convertible preferred stock shares valued
at $.625 per share (Note 7) and the issuance of $9,000,000 of convertible
debentures (Note 5). However, because these convertible securities were
converted into common stock within two months following the acquisition, the
Company effectively issued common stock for the outstanding common stock of AIC
and the stockholders of AIC obtained control of the combined company. As a
result, AIC became the acquirer for financial reporting purposes.
Therefore, the transaction was accounted for using the purchase method of
accounting. Accordingly, the purchase price of the net assets acquired has been
allocated among the net assets based on their relative fair values with $179,053
of the purchase price allocated to goodwill. The acquired goodwill will be
amortized using the straight-line method over 5 years.
Results of operations of ITC are included in the accompanying consolidated
statements of operations beginning June 1, 1998. Results of operations on a pro
forma basis for the year ended May 31, 1998, assuming the acquisition had
occurred as of June 1, 1997, are as follows:
<TABLE>
<S> <C>
Revenues.................................................... $2,126,489
Net loss.................................................... $ (670,671)
</TABLE>
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc. and McCleskey
Sales and Service, Inc., each of which have fiscal year ends of May 31. All
material intercompany accounts and balances have been eliminated in the
consolidation.
IMPAIRMENT OF LONG-LIVED ASSETS
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to those assets to be held
and used, and long-lived assets and certain identifiable intangibles to be
disposed of. The Company periodically evaluates, using independent appraisals
and projected undiscounted cash flows, the carrying value of its long-lived
assets and certain identifiable intangibles to be held and used whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. In addition, long-lived assets and
F-8
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
identifiable intangibles to be disposed of are reported at the lower of carrying
value or fair value less cost to sell.
AMORTIZATION
Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded over a ten year term. For the years ended
May 31, 1999 and 1998, amortization expense totaled $38,060 and $0,
respectively.
Goodwill recorded in the acquisition of AIC, is being amortized using the
straight-line method over 5 years. For the years ended May 31, 1999 and 1998,
amortization expense totaled $35,810 and $0, respectively.
Goodwill relating to the Company's purchase of its McClesky Sales and
Services subsidiary in 1995 is being amortized over 40 years. In May 1999, this
operating segment was discontinued (Note 10) and the remaining unamortized
carrying value was charged to expense.
INVENTORIES
Inventories are carried at the lower of cost or net realizable value
(market) and include component parts used in the assembly of the Company's line
of air purification units and filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.
At May 31, inventories consisted of the following:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Finished goods.......................................... $200,506 $ 22,102
Component parts......................................... 42,159 262,230
-------- --------
$242,665 $284,332
======== ========
</TABLE>
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.
INTELLECTUAL PROPERTIES
Costs incurred by the Company in developing its products consisting
primarily of design, testing and completion of working prototypes, which are not
considered patentable, are capitalized and will be amortized over the estimated
useful life of the related patents once a unit has been placed in production.
F-9
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PRODUCT MARKETING OBLIGATION
Pursuant to Statement of Financial Accounting Standards ("SFAS") No. 68, the
Company has recorded funds raised in an arrangement to develop, produce and
market its Model S-999 as a product marketing obligation (Note 6).
REVENUE RECOGNITION
Revenues from the Company's operations are recognized at the time products
are shipped or services are provided. Revenues from franchise sales are
recognized at the time all material services relating to the sale of a franchise
have been performed by the Company and, in some instances, when the related
notes receivable have been collected. Revenues based on the collection of
franchise notes receivable are deferred until the time of collection.
ADVERTISING
Advertising dollars are invested in trade journals, trade shows, travel and
franchise networking. All amounts are expensed as incurred.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH FLOW
For purposes of the statement of cash flows, cash includes demand deposits
and time deposits with maturities of less than three months. None of the
Company's cash is restricted.
EARNINGS PER SHARE
Basic and diluted loss per share are based upon 10,583,635 and 2,716,198,
respectively, weighted average shares of common stock outstanding. No effect has
been given to the assumed conversion of convertible preferred stock and
convertible debentures and the assumed exercise of stock options and warrants as
the effect would be antidilutive.
STOCK SPLIT
On October 5, 1998, the shareholders authorized a one for five reverse split
of the Company's common stock. The reverse split was made effective November 9,
1998. Shareholders equity has been restated to give retroactive recognition to
the stock split for all periods presented, such that all references in the
financial statements to number of shares, per share amounts, par values and
stock option data for common shares have been restated. The shareholders also
approved an increase in the Company's authorized common shares to 50,000,000.
F-10
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. PREFERRED STOCK
CONVERTIBLE PREFERRED STOCK--SERIES A
In connection with the Company's acquisition of AIC (Note 1), the Company
established this equity class and authorized 15,000,000 shares. The shares have
a par value of $1.00, do not pay dividends and are convertible at the Company's
option at any time within 24 months after issuance for one share of the
Company's common stock for each five shares of preferred stock.
Effective July 31, 1998, the Company's Board of Directors voted to convert
the Series A Preferred Stock to Common Stock on the basis of one share of
Preferred to one share of Common, as per the merger agreement. To effect the
conversion of 11,858,016 of Series A preferred, the Company issued 2,371,603
shares of common stock. As described in Note 1, relating to the reverse merger
accounting recognition, the conversion of the preferred stock shares has been
recorded in the accompanying consolidated financial statements as occurring on
May 31, 1998, the date of acquisition.
CONVERTIBLE PREFERRED STOCK--SERIES M
During the year ended May 31, 1998, the Company authorized 5,000,000 shares
and established this equity class to raise production funds for the Company's
Model S-950, Medicare air filtration unit. The Series M preferred shareholders
participate by receiving up to 20%, if totally subscribed, of the collected
gross proceeds from the Company's sales of its Model S-950 over a two year
period. During the years ended May 31, 1999 and 1998, 114,000 and 1,029,750 of
these shares were issued for $1.00 cash, net of $14,996 and $188,383,
respectively, of offering costs. Prior to June 30, 1998, another 114,000 of
these shares were issued for cash, net of offering costs of $14,996. The shares
have a par value of $.001, do not pay dividends and are convertible at the
holder's option at any time within 36 months after issuance for one share of the
Company's common stock. In addition, attached to each share is one warrant to
purchase one share of common stock at a price of $0.25 per share exercisable
within two years after issuance. As of May 31, 1999, the Company had not sold
any S-950 units thus has made no payments under the participation plan.
3. NOTES RECEIVABLE
Notes receivable relate to AIC sales of geographic franchise licenses
(Note 1), bear interest at 6% to 8%, are payable in terms ranging from 12 to
36 months and secured by the area franchises. Credit is extended on evaluation
of the payee's financial condition and general credit information. Prior to
May 31, 1999, the Company did not enforce collection while it completed
development of its product line of air purification products.
At May 31, 1998, notes receivable are comprised of the following:
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Domestic franchise licenses........................... $ 300,000 $ 300,000
International franchise licenses...................... 275,000 666,500
--------- ---------
575,000 966,500
Less current portion.................................. (143,750) (66,667)
--------- ---------
$ 431,250 $ 899,833
========= =========
</TABLE>
F-11
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. NOTES PAYABLE
The Company's notes payable consist of loans from various corporations and
individuals provided for working capital purposes. The notes, which contain no
significant restrictions, bear interest at rates of 10.0% to 18.0%, are due
through May 1999 and are unsecured. At May 31, 1999, $277,183 of these notes
payable were in default.
5. CONVERTIBLE DEBENTURES
In connection with the Company's acquisition of AIC, the Company also issued
$9,000,000 of convertible debentures secured by the shares of AIC acquired. The
debentures bear interest at 10% payable annually on May 31 of each year, are due
on May 31, 2000 and are convertible at the Company's option at any time within
the two years into shares of the Company's common stock at a conversion price of
$.70. As of July 31, 1998, the Company's Board of Directors voted to convert the
debentures and $150,000 of related accrued interest into common stock. The
Company issued 2,614,286 common shares on conversion. As described in Note 1,
relating to the reverse merger accounting recognition, the conversion of the
convertible debentures has been recorded in the accompanying consolidated
financial statements as occurring on May 31, 1998, the date of acquisition.
6. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is currently obligated under a noncancellable operating lease
for its Dallas office facilities which expire in September 2000.
Minimum future rental payments required under the above operating lease is
as follows.
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- -------------------
<S> <C>
2000........................................................ $ 77,184
2001........................................................ 29,436
2002........................................................ 9,812
--------
$116,432
========
</TABLE>
During the years ended May 31, 1999 and 1998, rent expense totaled $80,670
and $6,776, respectively.
EMPLOYMENT AGREEMENTS
The Company is currently obligated under employment agreements with its
Chief Executive Officer and its President for annual compensation of $250,000
apiece and discretionary bonuses to be determined by the Company's board of
directors. The agreements expire in May 2008. Compensation under such agreements
was deferred during the period from June 1, 1997 through December 31, 1998. At
January 31, 1999, the Board of Directors authorized payment of the deferred
amount by issuing restricted common stock at $0.50 per share, issuing a combined
total of 1,583,334 shares. Starting in January 1999, these two executives began
receiving cash compensation at the rate of $125,000 apiece. The remainder of the
contracted amounts has been accrued as of May 31, 1999. Effective June 1, 1999,
these executives continued to receive cash compensation at the rate of $125,000
per year; however, based on agreements
F-12
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
reached with these executives, the Company is no longer accruing the difference
as such is considered to not be due until further notice.
During the year ended May 31, 1999, the Company received a claim from a
stockholder and former officer and director in the amount of $250,000 related to
past employment services. Discussions between the Company and this former
officer are in the early stages. The Company has not accrued any loss
contingency relating to this claim.
The Company's current compensation benefits do not provide any other
post-retirement or post-employment benefits.
S-999 LIMITED PARTNERSHIP
In January 1999, the Company formed a limited partnership, S-999 LP, to fund
production of the Company's new automobile, trunk mounted air filtration unit,
the Model S-999. Airsopure, Inc., a subsidiary of the Company, became the
general partner, and the limited partnership was authorized to sell up to
$5 million of partnership interests. The limited partners are entitled to up to
a maximum of 20% of the gross sales from the S-999 over a three year period.
Additionally, the Company guaranteed the limited partners a return of at most
150% of their investment at the end of the three year term by authorizing
conversion of their limited partnership interests into shares of the Company's
common stock. Through May 31, 1999, the LP raised $405,000 which amount is
recorded as product marketing obligation.
YEAR 2000 COMPUTER COMPLIANCE
The Company is currently using computer hardware and software that is not in
compliance with the year 2000 dating issues. However, new software and hardware
components have been ordered and the Company anticipates it will be in
compliance prior to December 31, 1999. During the year ended May 31, 1999, the
Company incurred approximately $15,000 of costs related to this effort.
Management does not believe any additional significant cost will be incurred and
the accompanying consolidated financial statements do not contain any reserve
for this contingency.
Because of the unprecedented nature of the year 2000 issue, its effects and
the success of related remediation efforts will not be fully determinable until
the year 2000 and thereafter. Management cannot assure that the Company is or
will be year 2000 ready, that the Company's remediation efforts will be
successful in whole or in part, or that parties with whom the Company does
business will be year 2000 ready.
7. LITIGATION
The Company is defendant, and it has filed counter claims, in a lawsuit
filed by the lessor of office space facilities in New Jersey (Note 6). The
Company never occupied the space due to the lessor's failures to finish out the
space to the Company's specifications. The lessor seeks to recover remaining
lease payments due under the lease of $606,913 and the Company seeks to recover
damages under a capital lease obligation (Note 6) for equipment located in the
New Jersey facilities and contractually precluded from being removed from the
facilities. Although the Company anticipates a favorable settlement of this
lawsuit the outcome of it is uncertain. A reserve for $200,000 has been
established in anticipation of settling this obligation.
F-13
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The Company used the accrual method of accounting for tax and financial
reporting purposes. At May 31, 1999 and 1998, the Company had net operating loss
carry forwards for financial and tax reporting purposes of approximately
$16,100,000 and $8,500,000, respectively. These carry forwards expire through
the year 2012, and are further subject to the provisions of Internal Revenue
Code Section 382.
Pursuant to Statement of Financial Accounting Standards No. 109, the Company
has recognized a $5,480,292 deferred tax asset attributable to the net operating
loss carryover, net of a $800,002 deferred tax liability related to amortization
timing differences, in the amount of $4,680,290 which have been fully offset by
a valuation allowances in the same amount, as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
Beginning balance.................................... $2,804,055 $2,267,331
Increase during period............................... 1,876,235 536,724
---------- ----------
Ending balance....................................... $4,680,290 $2,804,055
========== ==========
</TABLE>
A reconciliation of income tax expense at the statutory federal rate to
income tax expense at the Company's effective tax rate for the years ended
May 31, 1999 and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
<S> <C> <C>
Tax (expense) benefits computed at statutory federal
rate............................................... $ 1,465,896 $ 296,028
NOL carryover........................................ (1,465,896) (296,028)
----------- ---------
Income tax benefit................................... $ -- $ --
=========== =========
</TABLE>
9. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts and notes
receivable, trade payable.
CASH
The Company maintains its cash in bank deposit and other accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believes it is subject to any credit risks
involving its cash.
ACCOUNTS AND NOTES RECEIVABLE, TRADE
The Company accounts and notes receivable are unsecured and represent sales
not collected at the end of the year. Management believes these accounts and
notes receivable are fairly stated at estimated net realizable amounts.
10. DISCONTINUED OPERATING SEGMENT
In May 1999, the Company discontinued its McClesky Sales and Services (MSS)
operations which were being conducted through its wholly owned subsidiary by the
same name. The net assets of this operating segment, consisting primarily of
unamortized goodwill relating to the Company's purchase of MSS in 1995
(Note 1), approximated $527,000 and was charged against continuing operations.
F-14
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS
During the years ended May 31, 1999 and 1998, the Company issued various
stock options and warrants to employees and others and uses the intrinsic value
method of accounting for these stock options. Compensation cost for options
granted has not been recognized in the accompanying financial statements because
the amounts are not material. The options and warrants expire between
January 1999 and December 2008 and are exercisable at prices from $0.20 to
$22.50 per option or warrant. Exercise prices were set at or above the
underlying common stock's fair market value on the date of grant.
The following is a schedule of the activity relating to the Company's stock
options and warrants. Other than the 432,850 and 205,900 warrant identified
below as granted during the year ended May 31, 1999 and 1998, respectively
(Note 4), all other amounts relate to stock options the Company has issued.
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
WGT. AVE. WGT. AVE.
SHARES EXERCISE SHARES EXERCISE
(X1,000) PRICE (X1,000) PRICE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Options and warrants outstanding at
beginning of year....................... 480 $ 3.93 274 $5.20
Granted................................... 567 $ 0.61 206 $2.00
Exercised................................. (46) $ 2.00 0
Expired................................... (10) $10.00 0
--- ---
Options and warrants outstanding at end of
year.................................... 991 $ 2.06 480 $3.93
=== ===
Options and warrants exerciseable at end
of year................................. 901 $ 2.06 480 $3.93
=== ===
Weighted average fair value of options and
warrants granted during the year........ $ 0.60 $0.45
</TABLE>
The following table summarizes information about the Company's stock options
and warrants outstanding at May 31, 1999, all of which are exercisable.
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVE. WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES (X1,000) CONTRACTUAL LIFE EXERCISE PRICE
- --------------- ----------- ---------------- --------------
<S> <C> <C> <C>
$.20 - $.60 485 3.3 years $ .31
$2.00 - $2.50 243 1.1 years $ 2.12
$3.75 - $5.00 240 3.0 years $ 4.17
$10.00 - $22.50 23 1.6 years $15.62
</TABLE>
The following pro forma disclosures reflect the Company's net loss and net
loss per share amounts assuming the Company accounted for stock options granted
using the fair value method pursuant to Statement of Financial Accounting
Standards No. 123. The fair value of each option granted was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions: risk-free
F-15
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. STOCK OPTIONS AND WARRANTS (CONTINUED)
interest rate of 5.6%; no expected dividends; expected lives of 3 to 10 years;
and expected volatility of 220.51%.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
------------ ------------
<S> <C> <C>
Net loss............................................ $(4,364,880) $(883,812)
Net loss per share.................................. $ (0.41) $ (0.33)
</TABLE>
During the years ended May 31, 1999 and 1998, the Company also issued
1,583,334 and 58,912 common stock shares, respectively, in exchange for
services. These services were recorded at their fair value of $791,667 and
$169,475, respectively, and were charged to expense.
12. RELATED PARTIES
During the years ended May 31, 1999 and 1998, the Company's chief executive
officer and president made cash operating advances of $100,000 and $186,000 and
received repayments of $127,000 and $0, respectively. The advances are to be
repaid as cash is available or by the issuance of common stock. These advances
are unsecured but bear interest at 15% per annum. At May 31, 1999 and 1998,
advances payable to these officers totaled $216,488 and $186,000, respectively,
and included $57,488 and $0, respectively, of accrued interest.
13. LIQUIDITY ISSUES
The continued operating losses by the Company and its subsidiaries raise
concern about the Company's ability to generate profits from its operations.
Management is currently negotiating several large contracts for its air
filtration products, which will increase the Company's cash flow and its ability
to generate profits. The Company has completed its air purification product line
and is expanding its franchise network throughout the nation and
internationally. In addition, the Company is continuing efforts to raise
additional equity capital to provide liquidity until cash can be generated by
operations.
14. SEGMENT INFORMATION
During the year ended May 31, 1999, the Company conducted its operations
through two reportable segments, each of which was conducted through separate
subsidiaries. Those reportable segments were its manufacture and sale of air
purification products and franchises and its commercial and residential heating
and air conditioning services, which was terminated in May 1999.
F-16
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
The following table reflects certain information about the Company's
reportable operating segments for the year ended May 31, 1999. There are no
inter-segment revenue or expense transactions.
<TABLE>
<CAPTION>
AIR HVAC AIR HVAC
PRODUCTS SERVICES TOTAL PRODUCTS SERVICES TOTAL
----------- --------- ----------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................. $ 618,442 $ 412,027 $ 1,030,469 $ 293,979 $832,520 $1,126,499
Net operating loss....... $(4,153,265) $(158,194) $(4,311,459) $(862,670) $ (8,001) $ (870,671)
Interest expense......... $ 126,969 $ 8,319 $ 135,288 $ -- $ 5,859 $ 5,859
Depreciation and
amortization........... $ 107,637 $ 22,297 $ 129,934 $ 48,377 $ 55,366 $ 103,743
Consulting services, non
cash................... $ 309,854 $ -- $ 309,854 $ -- $ -- $ --
Expenditures for
long-lived assets...... $ -- $ -- $ -- $ 11,369 $ -- $ 11,369
Total long-lived assets,
net of accumulated
depreciation........... $ 89,569 $ -- $ 89,569 $ 148,956 $ 56,918 $ 205,874
</TABLE>
F-17
<PAGE>
PART 1
ITEM 1 Financial Statements
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $2,559,385 $ 1,905
Receivables
Trade accounts, net of allowance for doubtful accounts
of $20,000 and $30,080, respectively.................. 225,352 140,605
Other................................................... 204,524 --
Notes receivable--current portion......................... 75,000 --
Inventory................................................. 317,665 236,624
Prepaid expenses and other assets......................... -- 42,517
---------- ----------
Total current assets.................................. 3,381,926 421,651
PROPERTY AND EQUIPMENT--net of accumulated depreciation of
$149,123 and $265,338 respectively........................ 116,875 134,870
NOTES RECEIVABLE--net of current portion, net of allowance
for doubtful accounts of $0 and $0, respectively.......... 575,000 899,833
OTHER ASSETS
Goodwill, net of $84,763 and $107,750 of accumulated
amortization, respectively.............................. 94,291 153,243
Intellectual properties, net of $58,060 and $15,275 of
accumulated amortization, respectively.................. 968,112 1,027,397
Other..................................................... 519,688 535,169
---------- ----------
Total other assets.................................... 1,582,091 1,715,809
---------- ----------
Total Assets.......................................... $5,655,892 $3,172,163
========== ==========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-18
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable--current portion............................ $ 277,185 $ 66,748
Accounts payable, trade................................... 608,850 411,617
Advances from officers.................................... 216,488 48,900
Accrued payroll and payroll taxes......................... 323,692
Other accrued expenses.................................... 417,511 77,276
----------- -----------
Total current liabilities............................... 1,843,726 604,541
LONG-TERM LIABILITIES
Notes payable............................................. -- 277,185
Deferred revenue.......................................... 400,000 400,000
Product Marketing Obligation.............................. 405,000 --
Convertible Debenture..................................... 2,800,000 --
----------- -----------
Total long-term liabilities............................. 3,605,000 677,185
----------- -----------
Total liabilities....................................... 5,448,726 1,281,726
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Series M cumulative, convertible preferred, 1,143,750
shares issued and outstanding, liquidation preference of
$1.00 per share......................................... 1,143 1,144
Common stock--$.05 par value, 50,000,000 shares
authorized, 20,364,417 and 13,207,520 shares issued and
outstanding, respectively............................... 1,018,220 660,376
Additional paid-in capital................................ 6,682,210 5,160,792
Retained deficit.......................................... (7,494,407) (3,931,875)
----------- -----------
Total stockholders' equity.............................. 207,166 1,890,437
----------- -----------
Total Liabilities and Stockholders' Equity.............. $ 5,655,892 $ 3,172,163
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-19
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
REVENUES
Product sales............................................. $ 604,474 $ 759,586
Franchisee fees........................................... 175,000 --
----------- -----------
Total revenues.......................................... 779,474 759,586
COSTS AND EXPENSES
Salaries and wages........................................ 901,729 --
Cost of sales............................................. 515,127 459,376
Advertising............................................... 101,197 28,084
Depreciation and amortization............................. 127,421 45,850
Other general and administrative expense.................. 745,073 1,955,048
----------- -----------
Total costs and expenses................................ 2,390,547 2,488,358
----------- -----------
LOSS FROM OPERATIONS........................................ (1,611,073) (1,728,772)
Interest expense............................................ (41,461) (181,226)
----------- -----------
NET LOSS BEFORE INCOME TAXES................................ (1,652,534) (1,909,998)
Income taxes................................................ -- --
----------- -----------
NET LOSS.................................................... $(1,652,534) $(1,909,998)
=========== ===========
(LOSS) PER COMMON SHARE--BASIC.............................. $ (0.08) $ (0.15)
=========== ===========
(LOSS) PER COMMON SHARE--DILUTED............................ $ (0.08) $ (0.15)
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-20
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
2000 1999
---------- -----------
<S> <C> <C>
REVENUES
Product sales............................................. $ 186,136 $ 118,985
Franchisee fees........................................... 60,000 --
---------- -----------
Total revenues.......................................... 246,136 118,985
COSTS AND EXPENSES
Salaries and wages........................................ 516,591 119,996
Cost of sales............................................. 99,478 --
Advertising............................................... 51,002 --
Depreciation and amortization............................. 54,665 62,250
Other general and administrative expense.................. 368,560 1,184,321
---------- -----------
Total costs and expenses................................ 1,090,296 1,366,567
---------- -----------
LOSS FROM OPERATIONS........................................ (844,160) (1,247,582)
Interest expense............................................ (4,185) (10,409)
---------- -----------
NET LOSS BEFORE INCOME TAXES................................ (848,345) (1,257,991)
Income taxes................................................ -- --
---------- -----------
NET LOSS.................................................... $ (848,345) $(1,257,991)
========== ===========
LOSS PER COMMON SHARE--BASIC................................ $ (0.04) $ (0.10)
========== ===========
LOSS PER COMMON SHARE--DILUTED.............................. $ (0.04) $ (0.10)
========== ===========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-21
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
<TABLE>
<CAPTION>
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss.................................................... $(1,652,534) $(1,909,998)
Adjustments to reconcile net income to cash
Depreciation and amortization............................. 127,421 45,850
Stock payments to employees and consults.................. 486,189 268,403
Changes in operating assets and liabilities
Notes Receivable.......................................... (143,431) 66,667
Accounts receivable....................................... (51,401) 31,532
Inventory................................................. (75,000) 47,708
Accounts payable.......................................... 98,657 274,662
Accrued expenses.......................................... 88,823 (216,681)
Other Receivables......................................... (204,524) --
----------- -----------
Net cash used in operating activities................... (1,325,800) (1,391,857)
CASH FLOWS FORM INVESTING ACTIVITIES
Expenditures for other assets............................... (57,212) 25,154
----------- -----------
Net cash used in investing activities..................... (57,212) 25,154
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of convertible debentures............ 2,800,000 --
Proceeds from issuance of common stock...................... 1,080,589 1,222,764
----------- -----------
Net cash provided by financing activities................. 3,880,589 1,222,764
INCREASE (DECREASE) IN CASH................................. 2,497,577 (143,939)
CASH, BEGINNING OF PERIOD................................... 61,808 145,844
----------- -----------
CASH, END OF PERIOD......................................... $ 2,559,385 $ 1,905
=========== ===========
</TABLE>
The accompanying Notes are an integral part of the financial statements.
F-22
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Airtech International Group, Inc. (the Company), (formerly Interactive
Technologies Corporation,(ITC), was incorporated in the state of Wyoming on
August 8, 1991. As of May 31, 1998, in connection with the acquisition discussed
below, the Company manufactures and sells a full line of air purification
products.
On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation, which through its subsidiaries
manufacture and sell various air filtration and purification products. The total
purchase price of $22,937,760 was funded through the issuance of 10,500,000 of
its comon stock shares valued at $.625 per share, the issuance of 11,858,016 of
its Series A convertible preferred stock shares valued at $.625 per share and
the issuance of $9,000,000 of convertible debentures.
The transaction was accounted for using the purchase method of accounting
with AIC for accounting and reporting purposes the acquirer. Accordingly, the
purchase price of the net assets acquired from ITC has been allocated among the
net assets based on their relative fair value of zero.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc., Airsopure
International Group, Inc. and McCleskey Sales and Service, Inc.,(dormant) each
of which has a fiscal year end of May 31, and AIC's investment in Airsopure
999LP, a Texas Limited Partnership with a December year end. All material
intercompany accounts and balances have been eliminated in the consolidation.
AMORTIZATION
Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded ratably over a ten-year term. For the nine months
ended February 29, 2000 and 1999, amortization expense totaled $20,000 and
$15,275, respectively.
Goodwill recorded in the acquisition of ITC, is being amortized under the
straight-line method over 5 years. For the nine months ended February 29, 2000
and 1999, amortization expense totaled $48,953 and $18,000, respectively.
INVENTORIES
Inventories are carried at a lower of cost or net realizable value (market)
and include component parts used in the assembly of the Company's line of air
purification units and filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.
F-23
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line accelerated methods for financial and tax reporting purposes, respectively,
over estimated useful lives of five years.
REVENUE RECOGNITION
Revenues from the Company's operations are recognized at the time products
are shipped or services are provided. Revenue from franchise sales are
recognized at the time all material services relating to the sale of a franchise
have been performed by the Company.
MANAGEMENT ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH FLOW
For purposes of the statement of cash flows, cash includes demand deposits
and time deposits with maturates of less than three months. None of the
Company's cash is restricted.
EARNINGS PER SHARE
Basic and diluted loss per share are based upon 20,064,487 weighted average
over the nine month period shares of common stock outstanding. No effect has
been given to the assumed conversion of convertible preferred stock and
convertible debentures and the assumed exercise of stock options and warrants as
the effect would be antidilutive.
COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is currently obligated under a noncancellable operating lease
for its Dallas office facilities which expire in January 2002.
Minimum future rental payments required under the above operating lease is
as follows.
<TABLE>
<CAPTION>
YEAR ENDING MAY 31
- ------------------
<S> <C>
2000........................................................ $ 28,044
2001........................................................ 59,820
2002........................................................ 42,376
--------
$130,240
========
</TABLE>
F-24
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts and notes
receivable, trade payable.
CASH
The Company maintains its cash in bank deposit and other accounts, which, at
times, may exceed federally insured limits. The Company invests excess cash not
required for operations in US Treasury repurchase agreements in connection with
its cash management account with its primary bank. The Company has not
experienced any losses in such accounts, and does not believe it is subject to
any credit risks involving its cash.
ACCOUNTS AND NOTES RECEIVABLE, TRADE
The Company accounts and notes receivables are unsecured and represent sales
not collected to date. Management believes these accounts and notes receivables
are fairly stated at estimated net realizable amounts.
STOCK OPTIONS AND WARRANTS
Through the quarter ended February 29, 2000 and 1999, the Company has issued
various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock options. Compensation cost
for options granted has not been recognized in the accompanying financial
statements because the amounts are not material and its exercise price exceeded
the common stock fair market value at the date of option. The options and
warrants expire between January 1999 and December 2008 and are exercisable at
prices from $0.20 to $22.50 per option or warrant. Exercise prices were set at
or above the underlying common stock's fair market value on the date of grant.
RELATED PARTIES
For the nine months ended February 29, 2000, the Chief Executive Officer and
the President made cash advances of $20,000 and $20,000 respectively and
received repayments of $20,000 and $20,000, respectively. The advances are to be
paid as cash is available or by the issuance of common stock. These advances are
unsecured but bear interest at 15% per annum.
As of February 29, 2000 advances payable to these officers totaled $0 and
$0, respectively
F-25
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 AND 1998
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 20,106 $ 40,356
Receivables
Trade accounts, net of allowance for doubtful accounts
of $20,000 and $0, respectively....................... 292,139 245,925
Other................................................... 87,135 --
Notes receivable, current portion......................... 143,750 --
Inventory................................................. 242,665 293,727
Prepaid expenses.......................................... -- 118,884
---------- ----------
Total current assets................................ 785,795 698,892
PROPERTY AND EQUIPMENT--net of accumulated depreciation of
$128,876 and $219,758, respectively....................... 80,327 192,849
NOTES RECEIVABLE--net of current portion, net of allowance
for doubtful accounts of $0 and $0, respectively.......... 431,250 899,833
OTHER ASSETS
Goodwill, net of $44,763 and $93,750 of accumulated
amortization, respectively.............................. 134,291 759,302
Intellectual properties, net of $42,060 and $9,800 of
accumulated amortization, respectively.................. 1,023,112 1,087,397
Other..................................................... 515,208 531,772
---------- ----------
Total other assets.................................. 1,672,611 2,378,471
---------- ----------
$2,969,983 $4,170,045
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-26
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 1999 AND 1998
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable--current portion............................ 277,185 109,795
Accounts payable, trade................................... 704,209 392,475
Advances from officers.................................... 216,488 40,602
Accrued payroll and payroll taxes......................... 357,644
Other accrued expenses.................................... 373,622 100,245
----------- -----------
Total current liabilities........................... 1,929,148 643,117
----------- -----------
LONG-TERM LIABILITIES
Deferred revenue.......................................... 400,000 400,000
Product Marketing Obligation.............................. 405,000 --
----------- -----------
Total long-term liabilities......................... 805,000 400,000
----------- -----------
Total liabilities................................... 2,734,148 1,043,117
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Series M cumulative, convertible preferred stock,
1,143,750 and 1,143,750 shares issued and outstanding,
respectively; liquidation preference of $1.00 per
share................................................... 1,144 1,144
Common stock--$.05 par value, 50,000,000 shares
authorized, 14,654,332 and 10,219,920 shares issued and
outstanding, respectively............................... 732,716 510,996
Additional paid-in capital................................ 5,686,576 4,311,858
Retained deficit.......................................... (6,184,601) (1,697,070)
----------- -----------
Total stockholders' equity.......................... 235,835 3,126,928
----------- -----------
$ 2,969,983 $ 4,170,045
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-27
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
MONTHS ENDED AUGUST 31, 1999 AND 1998
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
REVENUES
Product sales............................................. $ 345,441 $ 452,365
Franchisee fees........................................... 15,000 20,000
--------- ---------
Total revenues.......................................... 360,441 472,365
COSTS AND EXPENSES
Salaries and wages........................................ 216,170
Cost of sales............................................. 322,549 261,876
Advertising............................................... 24,640
Depreciation and amortization............................. 53,421 19,444
Other.....................................................
Other general & administrative expenses................... 67,793 235,222
--------- ---------
Total costs and expenses................................ 684,573 516,542
--------- ---------
(LOSS) FROM OPERATIONS...................................... (324,132) (44,177)
Interest expense............................................ (18,596) (122,479)
--------- ---------
NET (LOSS) BEFORE INCOME TAXES.............................. (342,728) (166,656)
Income taxes................................................ -- --
--------- ---------
NET (LOSS).................................................. $(342,728) $(166,656)
========= =========
(LOSS) PER COMMON SHARE--BASIC.............................. $ (0.02) $ (0.02)
========= =========
(LOSS) PER COMMON SHARE--DILUTED............................ $ (0.02) $ (0.02)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-28
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWSS
FOR THE THREE MONTHS ENDED AUGUST 31, 1999 AND 1998
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Cash received from customers.............................. $ 146,244 $ 276,098
Cash paid to employees.................................... (102,251) (145,957)
Cash paid to suppliers.................................... (277,644) (301,066)
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES..................... (233,651) (170,925)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to Subsidiaries.................................. (132,395)
Proceeds from issuance of preferred stock, net offering
costs................................................... 112,500
Repayments of notes payable............................... (20,668)
Proceeds from issuance of common stock.................... 191,949 106,000
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES................. 191,949 65,437
--------- ---------
NET (DECREASE) IN CASH...................................... (41,702) (105,448)
CASH AT BEGINNING OF PERIOD................................. 61,808 145,844
--------- ---------
CASH AT THE END OF PERIOD................................... $ 20,106 $ 40,356
========= =========
NET LOSS FROM OPERATIONS.................................... (342,728) (166,654)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and Depreciation............................. 53,421 19,444
Common stock issued for services.......................... 270,122
(Increase) in accounts receivable......................... (205,323) (93,788)
(Increase) in prepaid expenses............................ (130,212)
Decrease in other assets.................................. 10,000
Increase accounts payable................................. 194,016 59,060
(Increase) in accrued expenses............................ 56,963 128,897
--------- ---------
TOTAL ADJUSTMENTS......................................... 109,077 (4,271)
--------- ---------
NET CASH USED IN OPERATING ACTIVTIES...................... $(233,651) $(170,925)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-29
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Airtech International Group, Inc. (the Company), (formerly Interactive
Technologies Corporation), was incorporated in the state of Wyoming on
August 8, 1991. The Company manufactures and sells a full line of air
purification products. The Company primarily markets, sells and distributes its
products through a network of franchisees.
On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation (AIC), which through its
subsidiaries manufacture and sell various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 10,500,000 of its common stock shares valued at $.625 per share, the
issuance of 11,858,016 of its Series A convertible preferred stock shares valued
at $.625 per share (Note 7) and the issuance of $9,000,000 of convertible
debentures (Note 5). However, because these convertible securities were
converted into common stock within two months following the acquisition, the
Company effectively issued common stock for the outstanding common stock of AIC
and the stockholders of AIC obtained control of the combined company. As a
result, AIC became the acquirer for financial reporting purposes.
The transaction was accounted for using the purchase method of accounting
with AIC for accounting and reporting purposes the acquirer.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc. and McCleskey
Sales and Service, Inc., each of which have a fiscal year end of May 31. All
material intercompany accounts and balances have been eliminated in the
consolidation.
AMORTIZATION
Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded over a ten year term. For the years ended
May 31, 1999 and 1998, amortization expense totaled $44,468 and $19,444,
respectively.
Goodwill recorded from the acquisition of AIC, is being amortized using the
straight-line method over 5 years. For the years ended May 31, 1999 and 1998,
amortization expense totaled $35,810 and $0, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.
REVENUE RECOGNITION
Revenues from the Company's operations are recognized at the time products
are shipped or services are provided. Revenues from franchise sales are
recognized at the time all material services relating to the
F-30
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
sale of a franchise have been performed by the Company and, in some instances,
when the related notes receivable have been collected. Revenues based on the
collection of franchise notes receivable are deferred until the time of
collection.
MANAGEMENT ESTIMATES
The preparation of financial statements is in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH FLOW
For purposes of the statement of cash flows, cash includes demand deposits
and time deposits with maturities of less than three months. None of the
Company's cash is restricted.
EARNINGS PER SHARE
Basic and diluted loss per share are based upon the weighted average shares
of common stock outstanding. No effect has been given to the assumed conversion
of convertible preferred stock and convertible debentures and the assumed
exercise of stock options and warrants as the effect would be antidilutive.
2. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is currently obligated under a noncancellable operating lease
for its Dallas office facilities which expire in September 2000.
Minimum future rental payments required under the above operating lease is
as follows.
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- -------------------
<S> <C>
2000........................................................ $ 77,184
2001........................................................ 29,436
2002........................................................ 9,812
--------
$116,432
========
</TABLE>
YEAR 2000 COMPUTER COMPLIANCE
The Company is currently using computer hardware and software that is in
compliance with the year 2000 dating issues. The Company is in compliance prior
to December 31, 1999. During the year ended May 31, 1999, the Company incurred
approximately $15,000 of costs related to this effort. Management does not
believe any additional significant cost will be incurred and the accompanying
consolidated financial statements do not contain any reserve for this
contingency.
F-31
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Based on the unprecedented nature of the year 2000 issue, its effects and
the success of related remediation efforts will not be fully determinable until
the year 2000 and thereafter. As of March 20, 2000 the company states that it
was in full compliance with the year 2000 issue. As of this date no problems
have occurred concerning this issue.
3. LITIGATION
RENTAL OPERATING LEASE
The Company is defendant, and it has filed counter claims, in a lawsuit
filed by the lessor of office space facilities in New Jersey (Note 6). The
Company never occupied the space due to the lessor's failure to finish out the
space to the Company's specifications. The lessor seeks to recover remaining
lease payments due under the lease of $606,913 and the Company seeks to recover
damages under a capital lease obligation (Note 6) for equipment located in the
New Jersey facilities and contractually precluded from being removed from the
facilities. Although the Company anticipates a favorable settlement of this
lawsuit the outcome of it is uncertain. A reserve for $200,000 has been
established in anticipation of settling this obligation.
4. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts and notes
receivable, trade payable.
CASH
The Company maintains its cash in bank deposit and other accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believes it is subject to any credit risks
involving its cash.
ACCOUNTS AND NOTES RECEIVABLE, TRADE
The Company accounts and notes receivable are unsecured and represent sales
not collected at the end of the year. Management believes these accounts and
notes receivable are fairly stated at estimated net realizable amounts.
ASSETS HELD FOR SALE
In February 1998, the Company formally discontinued its Rebate TV operations
and adopted a plan, not successful as of March 20, 2000, to dispose of the only
asset of this business segment, the proprietary software and trademark. The
Company also adopted a plan, not successful as of March 30, 2000, to dispose of
its FCC license rights, the only asset of its interactive video and data
services business segment, which were never operational. Management expects to
sell these assets by May 31, 2000. These assets have no carry value on the books
of the company.
5. STOCK OPTIONS AND WARRANTS
Through the quarter ended August 31, 1999 and 1998, the Company issued
various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock
F-32
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
options. Compensation cost for options granted has not been recognized in the
accompanying financial statements because the amounts are not material. The
options and warrants expire between January 1999 and December 2008 and are
exercisable at prices from $0.20 to $22.50 per option or warrant. Exercise
prices were set at or above the underlying common stock's fair market value on
the date of grant.
The following is a schedule of the activity relating to the Company's stock
options and warrants. Other than the 432,850 and 205,900 warrant identified
below as granted during the year ended May 31, 1999 and 1998, respectively
(Note 4), all other amounts relate to stock options the Company has issued.
<TABLE>
<CAPTION>
1999 1998
-------------------- --------------------
WGT. AVE. WGT. AVE.
SHARES EXERCISE SHARES EXERCISE
(X1,000) PRICE (X1,000) PRICE
-------- --------- -------- ---------
<S> <C> <C> <C> <C>
Options and warrants outstanding at beginning of year..... 480 $ 3.93 274 $5.20
Granted................................................... 567 $ 0.61 206 $2.00
Exercised................................................. (46) $ 2.00 0
Expired................................................... (10) $10.00 0
----- ---
Options and warrants outstanding at end of year........... 991 $ 2.06 480 $3.93
----- ---
Options and warrants exerciseable at end of year.......... 901 $ 2.06 480 $3.93
===== ===
Weighted average fair value of options and warrants
granted during the year................................. $ 0.60 $0.45
</TABLE>
The following table summarizes information about the Company's stock options
and warrants outstanding at May 31, 1999, all of which are exercisable.
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVE. WEIGHTED
RANGE OF OUTSTANDING REMAINING AVERAGE
EXERCISE PRICES (X1,000) CONTRACTUAL LIFE EXERCISE PRICE
--------------- ----------- ---------------- --------------
<C> <C> <S> <C>
$.20 - $.60.......... 485 3.3 years $ .31
$2.00 - $2.50........ 243 1.1 years $ 2.12
$3.75 - $5.00........ 240 3.0 years $ 4.17
$10.00 - $22.50...... 23 1.6 years $15.62
</TABLE>
The following pro forma disclosures reflect the Company's net loss and net
loss per share amounts assuming the Company accounted for stock options granted
using the fair value method pursuant to Statement of Financial Accounting
Standards No. 123. The fair value of each option granted was estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions: risk-free interest rate of 5.6%; no expected dividends; expected
lives of 3 to 10 years; and expected volatility of 220.51%.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
MAY 31, 1999 MAY 31, 1998
------------ ------------
<S> <C> <C>
Net loss............................................ $(4,364,880) $(883,812)
Net loss per share.................................. $ (0.41) $ (0.33)
</TABLE>
F-33
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. STOCK OPTIONS AND WARRANTS (CONTINUED)
During the years ended May 31, 1999 and 1998, the Company also issued
1,583,334 and 58,912 common stock shares, respectively, in exchange for
services. These services were recorded at their fair value of $791,667 and
$169,475, respectively, and were charged to expense.
8. RELATED PARTIES
During the years ended May 31, 1999 and 1998, the Company's chief executive
officer and president made cash operating advances of $100,000 and $186,000 and
received repayments of $127,000 and $0, respectively. The advances are to be
repaid as cash is available or by the issuance of common stock. These advances
are unsecured but bear interest at 15% per annum. At May 31, 1999 and 1998,
advances payable to these officers totaled $216,488 and $186,000, respectively,
and included $57,488 and $0, respectively, of accrued interest.
F-34
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1999 AND 1998
UNAUDITED
ASSETS
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
CURRENT ASSETS
Cash...................................................... $ 14,544 $ 127,400
Receivables
Trade accounts, net of allowance for doubtful accounts
of $20,000 and $10,080, respectively.................. 295,385 163,131
Other................................................... 205,511 --
Notes receivable, current portion......................... 143,750 --
Inventory................................................. 242,665 323,489
Prepaid expenses and other assets......................... -- 61,996
---------- ----------
Total current assets.................................. 901,855 676,016
---------- ----------
PROPERTY AND EQUIPMENT--net of accumulated depreciation of
$138,117 and $250,338, respectively....................... 117,086 170,252
---------- ----------
NOTES RECEIVABLE--net of current portion, net of allowance
for doubtful accounts of $0 and $0, respectively.......... 431,250 899,833
---------- ----------
OTHER ASSETS
Goodwill, net of accumulated amortization of $64,763 and
$98,000 respectively.................................... 114,291 759,302
Intellectual properties, net of accumulated amortization
of $78,060 and $29,808, respectively.................... 1,003,112 1,067,397
Trademarks................................................ --
Other..................................................... 516,208 531,772
---------- ----------
Total other assets.................................... 1,633,611 2,358,471
---------- ----------
$3,083,802 $4,104,572
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-35
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 30, 1999 AND 1998
UNAUDITED
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES
Notes payable--current portion............................ $ 277,185 $ 66,748
Accounts payable, trade................................... 654,563 403,318
Advances from officers.................................... 236,488 48,900
Accrued payroll and payroll taxes......................... 354,802
Other accrued expenses.................................... 415,912 170,812
----------- -----------
Total current liabilities............................. 1,938,950 689,778
----------- -----------
LONG-TERM LIABILITIES
Notes payable............................................. -- 277,185
Deferred revenue.......................................... 400,000 400,000
Product Marketing Obligation.............................. 405,000 --
----------- -----------
Total long-term liabilities........................... 805,000 677,185
Total liabilities..................................... 2,743,950 1,366,963
----------- -----------
COMMITMENTS AND CONTINGENCIES............................... -- --
STOCKHOLDERS' EQUITY
Preferred Stock--Series M cumulative, convertible
preferred, 1,143,750 and 1,143,750 shares issued and
outstanding, respectively; liquidation preference of
$1.00 per share......................................... 1,143 1,143
Common stock--$.05 par value, 50,000,000 shares
authorized, 16,560,440 and 10,637,380 shares issued and
outstanding, respectively............................... 828,022 531,869
Additional paid-in capital................................ 6,499,252 4,523,669
Retained deficit.......................................... (6,988,565) (2,319,072)
----------- -----------
Total stockholders' equity............................ 339,852 2,737,609
----------- -----------
$ 3,083,802 $ 4,104,572
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-36
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
REVENUES
Product sales............................................. $ 418,338 $ 640,601
Franchisee fees........................................... 115,000
Other revenues............................................ 225
---------- ----------
Total revenues...................................... 533,563 640,601
COSTS AND EXPENSES
Salaries and wages........................................ 385,138
Cost of sales............................................. 415,649 346,230
Advertising............................................... 50,195 21,234
Depreciation and amortization............................. 72,756 62,375
General & administrative expenses......................... 376,513 691,947
---------- ----------
Total costs and expenses............................ 1,300,251 1,121,786
---------- ----------
LOSS FROM OPERATIONS........................................ (766,688) (481,185)
Interest expense.......................................... (37,276) (170,817)
---------- ----------
NET LOSS BEFORE INCOME TAX BENEFIT.......................... (803,964) (652,002)
Income tax benefit........................................ -- --
---------- ----------
NET LOSS.................................................... $ (803,964) $ (652,002)
========== ==========
LOSS PER COMMON SHARE--BASIC................................ $ (0.05) $ (0.06)
========== ==========
LOSS PER COMMON SHARE--DILUTED.............................. $ (0.05) $ (0.06)
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-37
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 AND 1998
UNAUDITED
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
REVENUES
Product sales............................................. $ 72,897 $ 168,236
Franchisee fees........................................... 100,000
Other revenues............................................ 225
--------- ---------
Total revenues...................................... 173,122 168,236
COSTS AND EXPENSES
Salaries and wages........................................ 168,968
Cost of sales............................................. 93,100 84,354
Advertising............................................... 25,555 21,234
Depreciation and amortization............................. 19,335 42,931
General & administrative expenses......................... 308,720 456,725
--------- ---------
Total costs and expenses............................ 615,678 605,244
--------- ---------
LOSS FROM OPERATIONS........................................ (442,556) (437,008)
Interest expense.......................................... (18,680) (18,338)
--------- ---------
NET LOSS BEFORE INCOME TAX BENEFIT.......................... (461,236) (455,346)
Income tax benefit........................................ -- --
--------- ---------
NET LOSS.................................................... $(461,236) $(455,346)
========= =========
LOSS PER COMMON SHARE--BASIC................................ $ (0.03) $ (0.05)
========= =========
LOSS PER COMMON SHARE--DILUTED.............................. $ (0.03) $ (0.05)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-38
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED NOVEMBER 30, 1999 AND 1998
UNAUDITED
Reconciliation of Net Loss to Net Cash
Used in Operating Activities
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Net Loss.................................................... $(803,964) $(622,002)
--------- ---------
Adjustments to reconcile net loss to net cash used in
operating activities:
Amortization and Depreciation............................... 72,756 62,375
Common stock for services................................... 263,618 150,000
(Increase) decrease in accounts receivable.................. (121,434) 9,006
Decrease in prepaid expenses................................ -- 5,218
(Increase) decrease in other assets......................... 19,970 (94,756)
Increase in accounts payable................................ 144,370 266,363
Increase (decrease) in accrued expenses..................... 85,592 (153,145)
--------- ---------
Total adjustments......................................... 464,872 245,061
--------- ---------
Net cash (used) in operating activities..................... $(339,092) $(376,941)
========= =========
Cash flows used in operating activities:
Cash received from customers.............................. $ 317,601 $ 611,009
Cash paid to employees.................................... (385,138) (299,827)
Cash paid to suppliers.................................... (271,555) (688,123)
--------- ---------
Net cash used in operating activities................... (339,092) (376,941)
--------- ---------
Cash flows from financing activities:
Advances to Subsidiaries.................................. -- (132,395)
Proceeds from issuance of preferred stock, net offering
costs................................................... -- 112,500
Repayments of notes payable............................... 291,828 (20,668)
Proceeds from issuance of common stock.................... -- 399,060
--------- ---------
Net cash provided by financing activity................. 291,828 358,497
--------- ---------
Net (decrease) in cash...................................... (47,264) (18,444)
Cash at beginning of period................................. 61,808 145,844
--------- ---------
Cash at end of period....................................... $ 14,544 $ 127,400
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-39
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Airtech International Group, Inc. (the Company), (formerly Interactive
Technologies Corporation), was incorporated in the state of Wyoming on
August 8, 1991. The Company manufactures and sells a full line of air
purification products. The Company primarily markets, sells and distributes its
products through a network of franchisees.
On May 31, 1998, the Company acquired all of the outstanding common stock
shares of Airtech International Corporation (AIC), which through its
subsidiaries manufacture and sell various air filtration and purification
products. The total purchase price of $22,937,760 was funded through the
issuance of 2,100,000 of its common stock shares valued at $.625 per share, the
issuance of 11,858,016 of its Series A convertible preferred stock shares valued
at $.625 per share (Note 7) and the issuance of $9,000,000 of convertible
debentures.
The transaction was accounted for using the purchase method of accounting
with Airtech International Corporation for accounting and reporting purposes.
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the general
accounts of the Company and its subsidiaries, AIC, Airsopure, Inc. and McCleskey
Sales and Service, Inc., each of which have a fiscal year end of May 31. All
material intercompany accounts and balances have been eliminated in the
consolidation.
AMORTIZATION
Intellectual property is allocated to the Company's air filtration products
based on expected sales as a percent of total sales by product. The Company
records amortization beginning when the product is initially inventoried for
sale. Amortization is recorded over a ten year term.
Goodwill recorded from the acquisition of ITC, is being amortized using the
straight-line method over 20 years. For the six months ended November 30, 1999
and 1998, amortization and goodwill expense totaled $44,468 and $19,444,
respectively
INVENTORIES
Inventories are carried at the lower of cost or net realizable value
(market) and include component parts used I the assembly of the Company's line
of air purification units and filters and finished goods comprised of completed
products. The costs of inventories are based upon specific identification of
direct costs and allocable costs of direct labor, packaging and other indirect
costs.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of property and equipment is currently being provided by straight
line and accelerated methods for financial and tax reporting purposes,
respectively, over estimated useful lives of five years.
F-40
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
Revenues from the Company's operations are recognized at the time products
are shipped or services are provided. Revenues from franchise sales are
recognized at the time all material services relating to the sale of a franchise
have been performed by the Company and, in some instances, when the related
notes receivable have been collected. Revenues based on the collection of
franchise notes receivable are deferred until the time of collection.
MANAGEMENT ESTIMATES
The preparation of financial statements is in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH FLOW
For purposes of the statement of cash flows, cash includes demand deposits
and time deposits with maturities of less than three months. None of the
Company's cash is restricted.
EARNINGS PER SHARE
Basic and diluted loss per share are based upon the weighted average shares
of common stock outstanding. No effect has been given to the assumed conversion
of convertible preferred stock and convertible debentures and the assumed
exercise of stock options and warrants as the effect would be antidilutive.
2. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company is currently obligated under a noncancellable operating lease
for its Dallas office facilities which expire in September 2000.
Minimum future rental payments required under the above operating lease is
as follows.
<TABLE>
<CAPTION>
YEAR ENDING MAY 31,
- -------------------
<S> <C>
2000........................................................ $ 77,184
2001........................................................ 29,436
2002........................................................ 9,812
--------
$116,432
========
</TABLE>
YEAR 2000 COMPUTER COMPLIANCE
The Company is currently using computer hardware and software that is in
compliance with the year 2000 dating issues. The Company is in compliance prior
to December 31, 1999. During the year ended May 31, 1999, the Company incurred
approximately $15,000 of costs related to this effort. Management does not
believe any additional significant cost will be incurred and the accompanying
consolidated financial statements do not contain any reserve for this
contingency.
F-41
<PAGE>
AIRTECH INTERNATIONAL GROUP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Based on the unprecedented nature of the year 2000 issue, its effects and
the success of related remediation efforts will not be fully determinable until
the year 2000 and thereafter. As of March 20, 2000 the company states that it
was in full compliance with the year 2000 issue. As of this date no problems
have occurred concerning this issue.
3. FINANCIAL INSTRUMENTS
The Company's financial instruments consist of its cash, accounts and notes
receivable, trade payable.
CASH
The Company maintains its cash in bank deposit and other accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts, and does not believes it is subject to any credit risks
involving its cash.
ACCOUNTS AND NOTES RECEIVABLE, TRADE
The Company accounts and notes receivable are unsecured and represent sales
not collected at the end of the year. Management believes these accounts and
notes receivable are fairly stated at estimated net realizable amounts.
ASSETS HELD FOR SALE
In February 1998, the Company formally discontinued its Rebate TV operations
and adopted a plan not successful as of March 20, 2000, to dispose of the only
asset of this business segment, the proprietary software and trademark. The
Company also adopted a plan, not successful as of March 30, 2000 to dispose of
its FCC license rights, the only asset of its interactive video and data
services business segment, which were never operational. Management expects to
sell these assets by May 31, 2000. These assets have no carry value on the books
of the company.
5. STOCK OPTIONS AND WARRANTS
Through the quarter ended August 31, 1999 and 1998, the Company issued
various stock options and warrants to employees and others and uses the
intrinsic value method of accounting for these stock options. Compensation cost
for options granted has not been recognized in the accompanying financial
statements because the amounts are not material. The options and warrants expire
between January 1999 and December 2008 and are exercisable at prices from $0.20
to $22.50 per option or warrant. Exercise prices were set at or above the
underlying common stock's fair market value on the date of grant.
6. RELATED PARTIES
For the six months ended November 30, 1999, the Company's chief executive
officer and president made cash operating advances of $20,000 and $20,000 and
received repayments of $0 and $0, respectively. The advances are to be repaid as
cash is available or by the issuance of common stock. These advances are
unsecured but bear interest at 15% per annum.
As of November 30, 1999, advances payable to these officers totaled $20,000
and $20,000, respectively.
F-42
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
EXHIBITS
AIRTECH INTERNATIONAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Wyoming Corporation Law provides that indemnification of directors,
officers, employees and other agents of a corporation, and persons who serve at
its request as directors, officers, employees or other agents of another
corporation may be provided by such corporation. The Company's Certificate of
Incorporation includes provisions eliminating the personal liability of its
directors for monetary damages resulting from breaches of their fiduciary duty
except, pursuant to the limitations of the Wyoming Corporation Law, (i) for any
breach of their fiduciary duty except, pursuant to the limitations of its
directors for monetary damages resulting from breaches of their fiduciary duty
of loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Wyoming Corporation law, or any amendatory or successor
provisions thereto, or (iv) with respect to any transaction from which the
director derived an improper personal benefit. The Company's By-Laws provide
indemnification to directors, officers, employees and agents, including against
claims brought under state or Federal Securities laws, to the full extent
allowable under Wyoming law. The Company also has entered into indemnification
agreements with its directors and executive officer providing, among other
things, that the Company will provide defense cost against any such claim,
subject to reimbursement in certain events.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 2,386
Accounting fees and expenses................................ $ 5,000
Blue Sky fees and expenses.................................. $ 5,000
Legal fees and expenses..................................... $ 50,000
Printing.................................................... $ 15,000
Miscellaneous............................................... $ 15,000
----------
TOTAL..................................................... $ 91,187
==========
</TABLE>
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
<TABLE>
<CAPTION>
SHARES PRICE PER ISSUED UNDER
DATE TITLE ISSUED SHARE NATURE OF TRANSACTION EXEMPTION
- ---- ------------------ --------- --------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1999 Common 300,000 $0.19 Shares issued to CEO and S-8 Registration
President for services Statement
rendered
August 31, 1999...... Common 358,591 $0.34 to Shares issued to S-8 Registration
$0.50 investment bankers, Statement
consultants, management,
CEO and President for
services rendered or to
be rendered.
June 30, 1999........ Common 1,200,000 $0.10 Shares issued to Private Placement under
accredited investors, Section 4 (2) of the
including 500,000 shares Securities Act
to CR Saulsbury, Sr.
Warrants attached are
exercisable at $0.20 and
expire on May 31, 2000
May 31, 1999......... Common 700,000 $0.10 Shares issued to Private Placement under
accredited investors, Section 4 (2) of the
including 500,000 shares Securities Act
to Peter Kertes. Warrants
attached are exercisable
at $0.20 and expire on
May 31, 2000
February 28, 1999.... Common 1,583,134 $0.50 Shares issued to CEO and Private Placement under
President in Section 4 (2) of the
consideration of deferred Securities Act
wages from June 1, 1997
through December 31, 1998
December 31, 1998.... Common 46,250 $0.50 Warrants exercised by Private Placement under
holders of Series M Section 4 (2) of the
Preferred Stock Securities Act
November 30, 1998.... Common 828,000 $0.33 Shares issued to Private Placement under
accredited investors Section 4 (2) of the
including C.R. Saulsbury, Securities Act
Sr.
November 30, 1998.... Common 224,000 $0.48 to Shares issued to S-8 Registration
$0.69 investment bankers and Statement
consultants for services
rendered
August 31, 1998...... Common 146,025 $1.25 to Shares issued to S-8 Registration
$1.56 consultants and employees Statement
for services rendered
July 31, 1998........ Common 2,614,286 $0.70 Conversion of debentures Private Placement under
issued in conjunction Section 4 (2) of the
with the acquisition of Securities Act
AIC
July 31, 1998........ Common 2,371,603 One-for- Conversion of Series A Private Placement under
one preferred stock issued in Section 4 (2) of the
conjunction with the Securities Act
acquisition of AIC
March 1998 thru
September 1998 Series M 1,143,750 $1.14 Private Placement Private Placement under
Preferred......... Section 4 (2) of the
Securities Act
</TABLE>
ITEM 27. EXHIBITS
The Exhibits to this Registration Statement are listed in the Exhibit Index
beginning on page EX-1 of this Registration Statement. The Company will furnish
copies of these Exhibits upon request and the
II-2
<PAGE>
payment of $.20 per page. Requests should be addressed to Mr. James R. Halter,
c/o Airtech International Group, Inc., 15400 Knoll Trail, Suite 200, Dallas,
Texas 75248.
ITEM 28. UNDERTAKINGS
The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made of
the securities registered hereby, a post-effective amendment to this
registration statement (i) to include any prospectus required by Section 10(a)
(3) of the Securities Act of 1933; (ii) to reflect in the prospectus any facts
or events arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement; notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and (iii) to
include any material information with respect to the plan of distribution not
previously disclosed in the registration statement or any material change to
such information in the registration statement; provided, however, that the
undertakings set forth in subparagraphs (i) and (ii) above do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 that are incorporated by reference in this registration
statement;
2. That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described under Item 15 above, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
II-3
<PAGE>
The undersigned registrant hereby undertakes to deliver to cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
give, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X is not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
The undersigned registrant hereby undertakes that:
1. For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to rule 424(b) (1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
2. For the purpose of determining any liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of Dallas, State of Texas, on
the 8th day of May, 2000.
<TABLE>
<S> <C> <C>
AIRTECH INTERNATIONAL GROUP, INC.,
a Wyoming corporation (Registrant)
By: /s/ C J COMU
-----------------------------------------
C J Comu
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
C.J. Comu and John Potter, and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and any registration statement that is to be effective upon filing pursuant to
Rule 462 under the Securities Act of 1933, as amended, and to cause the same to
be filed with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission, hereby granting to said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing whatsoever requisite or desirable to be
done in and about the premises, as fully to all intents and purposes as the
undersigned might or could do in person, hereby ratifying and confirming all
acts and things that said attorneys-in-fact and agents, or either of them, or
their substitutes or substitute, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below on the 8th day of May, 2000 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ C J COMU
------------------------------------------- Director and Chief Executive Officer
C J Comu
/s/ JOHN POTTER
------------------------------------------- Director and President
John Potter
/s/ JAMES R. HALTER
------------------------------------------- Chief Financial Officer and General Counsel
James R. Halter (Principal Financial Officer)
/s/ R. JOHN HARRIS
------------------------------------------- Director
R. John Harris
/s/ DR. ANDREW WELCH
------------------------------------------- Director
Dr. Andrew Welch, M. D.
/s/ ROBERT GALVAN
------------------------------------------- Director
Robert Galvan
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
AIRTECH INTERNATIONAL GROUP, INC.
The following exhibits are included as part of this Registration Statement,
except those exhibits which are referenced as previously filed with the
Securities and Exchange Commission and are incorporated by reference to another
registration statement, report or document. References to the "Company" in the
Exhibit Index mean AIRTECH INTERNATIONAL GROUP, INC., a Wyoming corporation.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DOCUMENT
- -------------- --------
<C> <S>
3.1 Restated Articles of Incorporation filed December 27, 1991
of the Company's predecessor in name, Interactive
Technologies Corporation, Inc.
3.2 Articles of Amendment dated filed May 14, 1997 of the
Company's predecessor in name Interactive Technologies
Corporation, Inc.
3.3 Articles of Amendment of the Company filed October 16, 1998
3.4 Bylaws of the Company's predecessor in name, Interactive
Technologies Corporation, Inc. (incorporated by reference to
the Company's Form 10 filed on January 14, 1992)
3.5 Specimen Series "M" Preferred Stock Certificate
4.1 Specimen Common Stock Certificate
4.2 Form of Warrant to purchase shares of Common Stock granted
to holders of Series "M" Convertible Preferred Stock
4.3 Form of Securities Purchase Agreement dated February 22,
2000 by and between the Company and PK Investors LLC
4.4 Form of 6% Convertible Debenture Due 2002
4.5 Form of Warrant to purchase shares of Common Stock granted
to holders of 6% Convertible Debentures Due 2002
4.6 Registration Rights Agreement dated February 22, 2000 by and
between the Company and PK Investors LLC relating to the
registration of the Common Stock and Warrants related to
Exhibits 4.4 and 4.5
4.7 Form of Conditional Warrant to Purchase 6% Convertible
Debentures and Warrants to Purchase Common Stock
5.1* Legal Opinion of John G. Rebensdorf, P.C.
10.1 Stock Purchase Agreement dated May 5, 1997 by and between
Interactive Technologies Corporation, Inc. and Airtech
International Corporation (incorporated by reference to
Exhibit 10.5 to Company's Annual Report filed on August 28,
1997 for the year ended May 31, 1997, file No. 19796)
10.2 Employment Agreement dated May 1, 1997 between the Company
and C.J. Comu
10.3 Employment Agreement dated May 1, 1997 between the Company
and John Potter
10.4 Form of Franchise Agreement relating to franchises offered
by Airsopure International Group, Inc., a wholly-owned
subsidiary of the Company
10.5 Form of Development Agreement offered to franchisees by
Airsopure International Group, Inc., a wholly-owned
subsidiary of the Company
10.6 Form of Offering Circular presented to franchisees by
Airsopure International Group, Inc., a wholly-owned
subsidiary of the Company
21 Subsidiaries of the Registrant
24.1 Power of Attorney (included in Part II of the Registration
Statement)
</TABLE>
* To be filed by amendment
<PAGE>
Exhibit 3.1
Secretary of State
State of Wyoming
The Capital
Cheyenne, Wyoming 82002-0020
RESTATED ARTICLES
OF INCORPORATION
ARTICLE ONE: The name of the corporation is Interactive Technologies
Corporation Inc.
ARTICLE TWO: The purpose for which the corporation is organized is:
Business Acquisition and Investments.
ARTICLE THREE: The period of the corporation's duration is perpetual.
ARTICLE FOUR: The authorized shares shall be:
<TABLE>
<CAPTION>
Number of
Shares Class Series Par Value Per Share
------------ ------- -------- ----------------------
<S> <C> <C> <C>
12,500,000 $0.01
</TABLE>
ARTICLE FIVE: The registered agent and street address of its
registered office are: C T CORPORATION SYSTEM, c/o CT CORPORATION SYSTEM,
1720 Carey Avenue, Cheyenne, Wyoming 82001
Signed:/s/ Milton Klyman
--------------------------------------------
Milton Klyman, President and sole director
Dated: December 24, 1991
<PAGE>
Exhibit 3.2
Secretary of State
State of Wyoming
The Capitol
Cheyenne, Wyoming 82002-0020
ARTICLES OF AMENDMENT
INTERACTIVE TECHNOLOGIES CORPORATION, INC.
The shareholders of the Corporation held a special meeting on May 2,
1997 at 10:00 a.m. at its offices at 102 South Harbor City Boulevard,
Melbourne, Florida. The record date established for this meeting was April 1,
1997, on which date there were 12,209,612 shares outstanding. Roll was taken
and there were 7,581,808 shares present to vote at the meeting.
Upon motion duly made a vote was taken and the following resolution was
passed by an affirmative vote of 7,581,808 shares:
RESOLVED that ARTICLE FOUR of the Articles of Incorporation of the
Company be amended to read as follows:
"ARTICLE FOUR: The authorized shares shall be:
<TABLE>
<CAPTION>
Number of
Shares Class Series Par Value Per Share
- --------------------------------------------------------------------------------
<S> <C> <C>
50,000,000 COMMON $0.01
20,000,000 PREFERRED $0.01
</TABLE>
As to the 20,000,000 shares of authorized Preferred Stock, the Board of
Directors of the Company shall have the authority to determine in whole or part
the preferences, limitations and relative rights within the limits set forth in
W.S. 17-16-601 of the Wyoming Business Corporation Act. The Board of Directors
of the Company will have the authority to, but not be limited to, issue the
Preferred Stock in one or more series and to establish the number of shares to
be included in each series, to fix or alter the voting powers and designation,
conversion prices, redemption prices, maturity dates or other special rights and
qualifications, limitations or restrictions of such shares of Preferred Stock."
Dated: May 2,1997 /s/ Perry Douglas West
------------------------------------
Perry Douglas West
<PAGE>
Chairman of the Board of Directors
Chief Executive Officer
<PAGE>
Exhibit 3.3
Secretary of State
State of Wyoming
The Capital
Cheyenne, Wyoming 82002-0020
ARTICLES OF AMENDMENT
(By Shareholders)
1. The name of the corporation is Interactive Technologies
Corporation, Inc.
2. Article One is amended as follows: "The name of the
Corporation is Airtech International Group, Inc."
3. Article Four is amended to change the par value per share
of Common Stock from $0.01 to $0.05, in accordance with and as a result of a
one for five reverse split of Common Stock, adopted by the Shareholders on
October 5, 1998.
4. The Amendments were adopted on October 5, 1998 by a vote of
the Shareholders.
5. The designation, number of outstanding shares, number of
votes entitled to be cast by each voting group entitled to vote separately on
the Amendment were: 25,251,885 and the number of votes of each voting group
indisputably represented at the meeting were 15,019,690.
6. The number of votes cast for the Amendments by each voting
group entitled to vote on the Amendments were sufficient for approval by that
voting group.
7. These Articles of Amendment are in replacement and in lieu of
the Articles of Amendment of the Corporation filed on October 16, 1998 and
misplaced of record by the Secretary of State of Wyoming. These Articles of
Amendment shall be deemed for all purposes to have an effective file date of
October 16, 1998.
/s/ C. J. Comu
-------------------------------------
C. J. Comu, Chairman of the Board of
Directors
Executed on April 28, 2000, to be
effective as of October 16, 1998.
<PAGE>
EXHIBIT 3.5
INCORPORATED UNDER THE LAWS OF
WYOMING
NUMBER SHARES
SERIES "M" CONVERTIBLE PREFERRED STOCK
AIRTECH INTERNATIONAL GROUP, INC.
THE CORPORATION IS AUTHORIZED TO ISSUE 20,000,000 SHARES
OF PREFERRED STOCK, PAR VALUE $.001 PER SHARE
THIS CERTIFIES THAT SPECIMEN CERTIFICATE-VOID
IS THE OWNER OF __________________________ SHARES OF THE CAPITAL STOCK OF
AIRTECH INTERNATIONAL GROUP, INC.
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DUTY AUTHORIZED OFFICERS AND ITS CORPORATE SEAL TO BE
HEREUNTO AFFIXED
THIS ____________ DAY OF ___________________ A.D. ________
/s/ [ILLEGIBLE] [SEAL] /s/ [ILLEGIBLE]
------------------------- -------------------------
PRESIDENT CHIEF EXECUTIVE OFFICER
<PAGE>
CONVERTIBLE RIGHTS -- PREFERENCES -- RESTRICTIONS
CONVERTIBLE RIGHTS: Each share of Series "M" Convertible Preferred Stock is
convertible into one share of Common Stock of the Corporation at any time
prior to 5:00 p.m. May 31, 2002, unless extended, by surrendering this
certificate duly endorsed to the Transfer Agent of the Company.
PREFERENCES: The holder of each share of Series "M" Convertible Preferred
Stock receives a preference to a pro rata portion of 20% of the Gross
Revenues from the sales of the Airtech Model 950 or Model 850 Air
Purification units until the close of business May 31, 2002 or until the
holder has received three full years of Gross Revenue distributions,
whichever is greater. These revenues will be distributed by the Company on or
before the 60th day of each calendar quarter based upon the gross revenue
from the previous quarter beginning in the quarter following the realization
of collections from the sale of this device.
RESTRICTIONS: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED UNLESS AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY SHALL HAVE BEEN RECEIVED BY THE COMPANY TO THE EFFECT THAT SUCH SALE,
TRANSFER OR ASSIGNMENT WILL NOT BE IN VIOLATION OF THE SECURITIES ACT OF 1933,
AS AMENDED, AND THE RULES AND REGULATIONS THEREUNDER, OR APPLICABLE STATE
SECURITIES LAWS.
AIRTECH INTERNATIONAL
GROUP, INC.
CERTIFICATE
FOR
-------------
SHARES
CAPITAL STOCK
ISSUED TO
--------------------
DATED
--------------------
FOR VALUE RECEIVED, ______________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
______________________________________________________________________________
____________________________________________________________________ SHARES
REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE
AND APPOINT _____________________________________________ ATTORNEY TO
TRANSFER THE SAID SHARES ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ________________________ 19___
IN PRESENCE OF
___________________________________ ______________________________________
NOTICE. THE SIGNATURE OF 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 WHATEVER
<PAGE>
NUMBER [LOGO] SHARES
- ---------- ----------
4142
- ---------- ----------
AIRTECH INTERNATIONAL GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF WYOMING
PAR VALUE $0.05 CUSIP NO. 00950F 20 5
COMMON STOCK
THIS CERTIFIES THAT SPECIMEN CERTIFICATE - VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK PAR VALUE OF
$0.05 EACH OF
AIRTECH INTERNATIONAL GROUP, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned by the Transfer Agent and
registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
[ILLEGIBLE] DATED:
- --------------------------
CHAIRMAN & CEO Countersigned and Registered
SIGNATURE STOCK TRANSFER, INC.
(Dallas, Texas) Transfer Agent
[ILLEGIBLE]
- -------------------------- By
PRESIDENT
[SEAL]
Authorized Signature
<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 according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT: ____________Custodian________________
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN(J/T)- as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act____________________________________
in common. (State)
Additional abbreviations may also be used though not in the above list.
</TABLE>
FOR VALUE RECEIVED _________________________________ HEREBY SELL,
ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR SOME OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------------------------------------- Shares
of the Capital Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint ___________________________________ Attorney
to transfer the said Stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated _________________________________
X _________________________________
- --------------------------------------- ---------------------------------
SIGNATURE GUARANTEE NOTICE: THE SIGNATURE TO THIS
(BY BANK, BROKER, CORPORATE OFFICER) AGREEMENT MUST CORRESPOND WITH
THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE, IN
EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT,
OR ANY CHANGE WHATEVER.
<PAGE>
Exhibit 4.2
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER: (A) THE SECURITIES ACT OF 1933, AS AMENDED, IN
RELIANCE UPON THE EXEMPTIONS FROM REGISTRATION PROVIDED IN SECTIONS 3 AND 4 OF
SUCH ACT AND/OR REGULATION D PROMULGATED THEREUNDER; OR (B) ANY STATES
SECURITIES LAWS IN RELIANCE UPON APPLICABLE EXEMPTIONS THEREUNDER. THESE
SECURITIES MUST BE ACQUIRED FOR INVESTMENT ONLY FOR THE ACCOUNT OF THE INVESTOR
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
OF THEM UNDER SUCH ACT AND ALL OTHER APPLICABLE SECURITIES LAWS OR AN OPINION
OF COUNSEL ACCEPTABLE TO THE CORPORATION OR ITS REPRESENTATIVES THAT SUCH SALE
OR TRANSFER WOULD NOT VIOLATE APPLICABLE SECURITIES LAWS OR REGULATIONS.
- --------------------------------------------------------------------------------
Warrant No. ______________ To Purchase 25,000
Shares of Common Stock
($.005 par value)
WARRANT TO PURCHASE SHARES
OF COMMON STOCK OF
AIRTECH INTERNATIONAL GROUP, INC.
(A WYOMING CORPORATION)
PURCHASE PRICE PER SHARE: $.25
EXPIRATION DATE: May 31, 2000
THIS CERTIFIES that, for value received,
Is the registered owner and is entitled, subject to the terms and conditions of
this Warrant, until the Expiration date, to purchase the number of shares set
forth above of the Common Stock, $.005 par value (the "Common Stock"), of
Airtech International Group, Inc. (the "Corporation") from the Corporation at
the purchase price set forth above.
Section 1: EXERCISE OF WARRANTS. Subject to the provisions hereof,
this Warrant may be exercised in whole or in part until the
Expiration Date, by delivery of this Warrant to the Corporation with
the exercise for duly executed and payment of the purchase price for
each share purchased.
Section 2: CORPORATION'S COVENANTS AS TO COMMON STOCK. Shares
deliverable on the exercise of this Warrant shall, at delivery, be
fully paid and non-assessable, free from taxes, liens, and charges
with respect to their purchase. The Corporation shall at all times
reserve and hold available sufficient shares of Common Stock to
satisfy all conversion and purchase rights of outstanding convertible
securities, options and warrants.
Section 3: METHOD OF EXERCISE: FRACTIONAL SHARES. The purchase
rights represented by this Warrant are exercisable at the option of
the registered owner in whole at any time, or in part, from time to
time, within the period above specified, provided, however, that
purchase rights are not exercisable with respect to a fraction of a
share of Common Stock. In lieu of issuing a fraction of
<PAGE>
a share remaining after exercise of this Warrant as to all full
shares covered hereby, the Corporation shall either (1) pay therefor
cash equal to the same fraction of the then current Warrant purchase
price per share or, at its option, (2) issue script for the same
fraction, in registered or bearer form approved by the board of
directiors of the Corporation, which shall entitle the holder to
receive a certificate for a full share of Common Stock on surrender
of scrip aggregating a full share. Scrip may become void after a
reasonable period (but not less than one year after the expiration
date of this Warrant) determined by the board of directors and
specified in the scrip. In case of the exercise of this Warrant
for less than all the shares purchasable, the Corporation shall
cancel the Warrant and deliver a new Warrant of like tenor and date
for the balance of the shares pureasable.
Section 4: LIMITED RIGHTS OF OWNER. This Warrant does not
entitle the owner to any voting rights or other rights as a
shareholder of the Corporation, or to any other rights whatsoever
except the rights herein expressed. No dividends are payable or
will accrue on this warrant or the shares purchasable hereunder
until, and except to the extent that, this Warrant is exercised.
Section 5: EXCHANGE FOR OTHER DENOMINATIONS. This Warrant is
exchangeable, on its surrender by the registered owner to the
Corporation, for new Warrants of like tenor and date representing
in the aggregate the right to purchase the number of shares
purchasable hereunder in denominations designated by the registered
owner at the time of surrender.
Section 6: TRANSFER. Except as otherwise above provided, this
Warrant is transferable only on the books of the Corporation by the
registered owner in person or by attorney, on surrender of this
Warrant, properly endorsed. However, because this Warrant has not
been registered under the Securities Act of 1933, as amended, and
applicable state securities laws, this Warrant may not be sold or
transferred in the absence of an effective registration of it under
such Act and all other applicable securities laws or an opinion of
counsel acceptable to the Corporation or its representatives that
such sale or transfer would not violate applicable securities laws
or regulations. Any Common Stock purchased upon exercise of this
Warrant shall also be subject to the same restrictions on transfer
and will contain the same transfer legend found in the face of this
Warrant.
Section 7: RECOGNITION OF REGISTERED OWNER. Prior to due
presentment for registration of transfer of this Warrant, the
Corporation may treat the registered owner as the person
exclusively entitled to receive notices and otherwise to exercise
rights hereunder.
Section 8: ADJUSTMENT OF SHARES PURCHASABLE. The number of
shares purchasable hereunder and the purchase price per share are
subject to adjustment from time to time as specified in this
warrant.
Section 9: EFFECT OF STOCK SPLIT, ETC. If the Corporation, by
stock dividend, split, reverse split, reclassification of shares, or
otherwise, changes as a whole the outstanding Common Stock into a
different number or class of shares, then:
1) the number and class of shares so changed shall, for the
purposes of this Warrant, replace shares outstanding
immediately prior to the change; and
2) the Warrant purchase price in effect, and the number of
shares purchasable under this Warrant, immediately prior
to the date upon which the change becomes effective, shall
be proportionately adjusted (the price to the nearest
cent). Irrespective of any adjustment or change in the
Warrant purchase price or the number of shares purchasable
under this or any other Warrant of like tenor, the
Warrants theretofore and thereafter issued may continue to
express the Warrant purchase price per share and the
number of shares purchasable as were expressed in the
Warrants when initially issued.
Section 10: EFFECT OF MERGER. If the Corporation
consolidates with or merges into another corporation, the
registered owner shall thereafter be entitled on exercise
to purchase, with respect
<PAGE>
to each share of Common Stock purchasable hereunder immediately before the
consolidation or merger becomes effective, the securities or other consideration
to which a holder of one share of Common Stock is entitled in the consolidation
or merger to assure that all the provisions of this Warrant shall thereafter be
applicable, as nearly as reasonably may be, to any securities or other
consideration so deliverable on exercise of the warrant. The Corporation shall
not consolidate or merge, unless, prior to consummation, the successor
corporation (if other than the Corporation) assumes the obligations of this
Section 10 by written instrument executed and mailed to the registered owner at
the address of the owner on the books of the Corporation.
Section 11: NOTICE OF ADJUSTMENT. On the happening of an event requiring an
adjustment of this Warrant purchase price or the shares purchasable hereunder,
the Corporation shall forthwith give written notice to the registered owner
stating the adjusted Warrant purchase price and the adjusted number and kind of
securities or other property purchasable hereunder resulting from the event and
setting forth in reasonable detail the method of calculation and the facts upon
which the calculation is based. The board of directors of the Corporation,
acting in good faith, shall determine the calculation.
Section 12: NOTICE AND EFFECT OF DISSOLUTION, ETC. In case a voluntary or
involuntary dissolution, liquidation, or winding up or the Corporation (other
than in conjunction with a consolidation or merger covered by Section 10 above)
is at any time proposed, the Corporation shall provide at least 10 days'
written notice to the registered owner prior to the record date as of which
holders of Common Stock will be entitled to receive distributions as a result
of the proposed transaction. Such notice shall contain: (1) the date on which
the transaction is to take place; (2) the record date as of which holders of
Common Stock will be entitled to receive distributions as a result of the
transaction; (3) a brief description of the transaction; (4) a brief
description of the distributions to be made to holders of Common Stock as a
result of the transaction; and (5) an estimate of the fair value of the
distributions. On the date of the transaction, if it actually occurs, this
Warrant and all right hereunder shall terminate.
Section 13: METHOD OF GIVING NOTICE; EXTENT REQUIRED. Notices shall be given
by first class mail, postage prepaid, addressed to the registered owner at the
address of the owner appearing in the records of the Corporation. No notice to
warrant holders is required except as specified in Sections 11 and 12.
Section 14: ACCESS TO INFORMATION. The Company shall provide an opportunity
to any registered owner of this Warrant to ask questions of management of the
Company and to obtain information to the extent the Company has the same in
possession prior to any exercise of the owner's rights to purchase Common Stock
under this Warrant. Requests for information and any other questions
concerning the business and affairs of the Company should be directed to any
officer of the Company at its main business offices.
Witness the seal of the Corporation and the signatures of its authorized
officers.
Dated:_______________________ AIRTECH INTERNATIONAL GROUP, INC.
By:
- ----------------------------- -------------------------------------
[ILLEGIBLE] C.E.O.
<PAGE>
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of February 22, 2000, is
entered into by and between Airtech International Group, Inc., a Wyoming
corporation (the "Company"), and PK Investors LLC, a Delaware limited liability
company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company and the Purchaser are executing and delivering
this Agreement in reliance upon the exemptions from registration provided by
Regulation D ("Regulation D") promulgated by the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act"), and/or Section 4(2) of the Securities Act; and
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to
issue, upon the terms and subject to the conditions of this Agreement, two
million five hundred thousand dollars ($2,500,000) principal amount of the
Company's 6% Convertible Debentures (the "Initial Debentures") and warrants (the
"Initial Warrants") to purchase two hundred and fifty thousand (250,000) shares
of the Company's common stock, par value $.05 per share (the "Common Stock") for
the aggregate purchase price of two million five hundred thousand dollars
($2,500,000). The Initial Debentures are convertible, at the holder's option,
into the Company's Common Stock, on the terms set forth therein, and the Initial
Warrants may be exercised for the purchase of Common Stock, on the terms set
forth therein.
WHEREAS, the Purchaser wishes to purchase, and the Company wishes to
issue and sell for an aggregate purchase price of one hundred dollars ($100) a
supplemental warrant (the "Supplemental Warrant") pursuant to which the
Purchaser shall purchase and the Company shall issue and sell up to an
additional (i) two million five hundred thousand dollars ($2,500,000) principal
amount of the Company's 6% Convertible Debentures (the "Additional Debentures,"
together with the Initial Debentures, collectively the "Debentures") and (ii)
warrants (the "Additional Warrants," together with the Initial Warrants,
collectively the "Warrants") to purchase up to an additional two hundred fifty
thousand (250,000) shares of Common Stock, for up to an aggregate purchase price
of two million five hundred thousand dollars ($2,500,000).
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE
a. PURCHASE OF DEBENTURES AND WARRANTS. On the Initial Closing
Date (as defined herein) the Purchaser hereby agrees to purchase from the
Company (i)
<PAGE>
the Initial Debentures in the principal amount of two million five hundred
thousand dollars ($2,500,000), which shall be issued in substantially the
form attached hereto as EXHIBIT A; (ii) the Initial Warrants to purchase two
hundred and fifty thousand (250,000) shares of Common Stock, which shall be
issued in substantially the form attached hereto as EXHIBIT B and (iii) a
Supplemental Warrant which shall be issued in substantially the form attached
hereto as EXHIBIT C to purchase (a) Additional Debentures in the principal
amount of up to two million five hundred thousand dollars ($2,500,000), which
shall be issued in substantially the form attached hereto as EXHIBIT A; and
(b) Additional Warrants to purchase two hundred fifty thousand (250,000)
shares of Common Stock, which shall be issued in substantially the form
attached hereto as EXHIBIT B. The aggregate purchase price for such Initial
Debentures, Initial Warrants and Supplemental Warrant (collectively, the
"Initial Securities") shall be two million five hundred thousand one hundred
dollars ($2,500,100) and shall be payable in same day funds.
b. CLOSING. The Initial Securities to be purchased by the
Purchaser hereunder, in definitive form, and in such denominations and
registered in such names as the Purchaser or its representative, if any, may
request upon notice to the Company, shall be delivered by or on behalf of the
Company for the account of the Purchaser, against payment by the Purchaser or on
its behalf of the purchase price therefor by wire transfer to an account of the
Company, all at the offices of Pryor Cashman Sherman & Flynn LLP, 410 Park
Avenue, New York, New York 10022, at 9:30 a.m., New York time on February 22,
2000, or at such other time and date as the Purchaser or its representative, if
any, and the Company may agree upon in writing, such date being referred to
herein as the "Initial Closing Date." The closing date(s) for the Purchaser of
the Additional Debentures and Additional Warrants are as set forth in the
Supplemental Warrant.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER; ACCESS TO INFORMATION;
INDEPENDENT INVESTIGATION.
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
a. The Purchaser and each of its equity owners is (i)
experienced in making investments of the kind described in this Agreement and
the related documents, (ii) able, by reason of the business and financial
experience of its management, to protect its own interests in connection with
the transactions described in this Agreement and the related documents, and
(iii) able to afford the entire loss of its investment in the Initial
Securities.
b. All subsequent offers and sales of the Debentures, the
Warrants, and the Common Stock issuable upon conversion or exercise of, or in
lieu of interest payments on the Debentures or the Warrants, shall be made
pursuant to an effective registration statement under the Securities Act or
pursuant to an applicable exemption from such registration.
<PAGE>
c. The Purchaser understands that the Initial Securities are
being offered and sold to it in reliance upon exemptions from the registration
requirements of the United States federal securities laws, and that the Company
is relying upon the truth and accuracy of the Purchaser's representations and
warranties, and the Purchaser's compliance with its agreements, each as set
forth herein, in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Initial Securities.
d. The Purchaser: (A) has been provided with sufficient
information with respect to the business of the Company and such documents
relating to the Company as the Purchaser has requested and Purchaser has
carefully reviewed the same including, without limitation, the Company's Form
10-QSB for the quarter ended November 30, 1999 filed with the Securities and
Exchange Commission ("the Commission"), (B) has been provided with such
additional information with respect to the Company and its business and
financial condition as the Purchaser, or the Purchaser's agent or attorney, has
requested, and (C) has had access to management of the Company and the
opportunity to discuss the information provided by management of the Company and
any questions that the Purchaser has had with respect thereto have been answered
to the full satisfaction of the Purchaser.
e. The Purchaser has the requisite corporate power and
authority to enter into this Agreement and the registration rights agreement,
dated the date hereof, between the Company and the Purchaser (the "Registration
Rights Agreement"), and the transactions contemplated hereby and thereby, have
been duly and validly authorized by the Purchaser; and such agreements, when
executed and delivered by each of the Purchaser and the Company will each be a
valid and binding agreement of the Purchaser, enforceable in accordance with
their respective terms, except to the extent that enforcement of each such
agreement may be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or other similar laws now or hereafter in effect relating
to creditors' rights generally and to general principles of equity.
3. REPRESENTATIONS OF THE COMPANY
The Company represents and warrants to the Purchaser that:
a. ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Wyoming.
Each of the Company's subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of its respective jurisdiction.
Each of the Company and its subsidiaries is duly qualified as a foreign
corporation in all jurisdictions in which the failure to so qualify would have a
material adverse effect on the Company and its subsidiaries taken as a whole.
Schedule 3(a) lists all subsidiaries of the Company and, except as noted
therein, all of the outstanding capital stock of such subsidiaries is owned of
record and beneficially by the Company.
<PAGE>
b. CAPITALIZATION. On the date hereof, the authorized capital
of the Company consists of (i) 50,000,000 shares of Common Stock, par value
$.05 per share, of which [16,560,440] are issued and outstanding and (ii)
5,000,000 shares of preferred stock, par value $.005 per share of which
1,143,750 are issued and outstanding. Schedule 3(b) sets forth all of the
options, warrants and convertible securities of the Company, and any other
rights to acquire securities of the Company (collectively, the "Derivative
Securities") which are outstanding on the date hereof, including in each case
(i) the name and class of such Derivative Securities, (ii) the issue date of
such Derivative Securities, (iii) the number of shares of Common Stock of the
Company into which such Derivative Securities are convertible as of the date
hereof, (iv) the conversion or exercise price or prices of such Derivative
Securities as of the date hereof, (v) the expiration date of any conversion
or exercise rights held by the owners of such Derivative Securities and (vi)
any registration rights associated with such Derivative Securities or
outstanding Common Stock.
c. CONCERNING THE COMMON STOCK, THE INITIAL DEBENTURES, THE
INITIAL WARRANTS AND IF THE SUPPLEMENTAL WARRANT SHALL BE EXERCISED, THE
ADDITIONAL DEBENTURES AND ADDITIONAL WARRANTS. The Common Stock issuable upon
(i) conversion of, or in lieu of interest payments on, the Initial Debentures,
and upon exercise of the Initial Warrants and (ii) if the Supplemental Warrant
is exercised, conversion of or in lieu of interest payments on, the Additional
Debentures and upon exercise of the Additional Warrants, when issued, shall be
duly and validly issued, fully paid and non-assessable, and will not subject the
holder thereof to personal liability by reason of being such a holder. There are
no preemptive rights of any stockholder of the Company, as such, to acquire any
of the Initial Securities, or the Common Stock issuable to the Purchaser
pursuant to the terms of the Debentures and the Warrants.
d. REPORTING COMPANY STATUS. The Common Stock is registered
under Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Company has duly filed all materials and documents required
to be filed pursuant to all reporting obligations under either Section 13(a) or
15(d) of the Exchange Act, if any, prior to the offer and sale of the Initial
Securities. The Common Stock is listed and traded on the OTC Bulletin Board, and
the Company is not aware of any pending or contemplated action or proceeding of
any kind to suspend the trading of the Common Stock.
e. AUTHORIZED SHARES. The Company has legally available a
sufficient number of authorized and unissued shares of Common Stock as may be
necessary to effect (i) the conversion of the Initial Debentures and the
exercise of the Warrants, and (ii) if the Supplemental Warrant is exercised,
conversion of or in lieu of interest payments on, the Additional Debentures
and upon exercise of the Additional Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the
issuance of shares of Common Stock upon (i) conversion of the Initial
Debentures and the exercise of the Initial Warrants and (ii) if the
Supplemental Warrant is exercised, the conversion of the Additional
Debentures and the exercise of the
<PAGE>
Additional Warrants. The Company further acknowledges that its obligation to
issue shares of Common Stock upon (i) conversion of the Initial Debentures
and upon exercise of the Initial Warrants and (ii) if the Supplemental
Warrants is exercised, the conversion of the Additional Debentures and the
exercise of the Additional Warrants is absolute and unconditional regardless
of the dilutive effect that such issuance may have on the ownership interests
of other stockholders of the Company and notwithstanding the commencement of
any case under 11 U.S.C. Section 101 ET SEQ. (the "Bankruptcy Code"). In the
event the Company becomes a debtor under the Bankruptcy Code, the Company
hereby waives to the fullest extent permitted any rights to relief it may
have under 11 U.S.C. Section 362 in respect of the conversion of the Debentures
and the exercise of the Warrants. The Company agrees, without cost or expense
to the Purchaser, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
f. LEGALITY. The Company has the requisite corporate power and
authority to enter into this Agreement and to issue and deliver the Initial
Debentures, the Initial Warrants, the Supplemental Warrant, and the Common Stock
issuable upon (i) conversion of, or in lieu of interest payments on, the Initial
Debentures and the exercise of the Initial Warrants and (ii) if the Supplemental
Warrant is exercised, the conversion of the Additional Debentures and the
exercise of the Additional Warrants.
g. TRANSACTION AGREEMENTS. This Agreement, the Registration
Rights Agreement, the Supplemental Warrant, the Debentures and the Warrants
(collectively, the "Primary Documents"), and the transactions contemplated
hereby and thereby, have been duly and validly authorized by the Company; this
Agreement has been duly executed and delivered by the Company and this Agreement
is, and the Primary Documents, when executed and delivered by the Company, will
each be, a legal, valid and binding agreement of the Company, enforceable in
accordance with their respective terms, except to the extent that enforcement of
each of the Primary Documents may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws now or
hereafter in effect relating to creditors' rights generally and to general
principles of equity.
h. NON-CONTRAVENTION. The execution and delivery of this
Agreement and each of the other Primary Documents, and the consummation by the
Company of the other transactions contemplated by this Agreement and each of the
other Primary Documents, does not and will not conflict with or result in a
breach by the Company of any of the terms or provisions of, or constitute a
default under, the Articles of Incorporation or By-laws of the Company, or any
material indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or any of its subsidiaries is a party or by which they or any
of their properties or assets are bound, or any existing applicable law, rule,
or regulation or any applicable decree, judgment or order of any court or United
States federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets. Except as set forth on Schedule 3(h), neither the
filing of the registration statement required to be filed by the Company
pursuant to the Registration Rights Agreement nor the offering or sale of the
Initial Debentures, the Initial Warrants
<PAGE>
or the Supplemental Warrant as contemplated by this Agreement and if the
Supplemental Warrant is exercised the Additional Debentures and Additional
Warrants and the Common Stock into which all such securities may be converted
or exercised, as applicable, gives rise to any rights, other than those which
have been waived or satisfied on or prior to the Initial Closing Date, for or
relating to the registration of any shares of the Common Stock.
i. APPROVALS. No authorization, approval or consent of any
court, governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be obtained
by the Company for the entry into or the performance of this Agreement and the
other Primary Documents.
j. SEC FILINGS. None of the reports or documents filed by the
Company with the Commission (the "SEC Documents") contained, at the time they
were filed, any untrue statement of a material fact or omitted to state any
material fact required to be stated therein, or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
k. STABILIZATION. Neither the Company, nor any of its
affiliates, has taken or may take, directly or indirectly, any action designed
to cause or result in, or which has constituted or which might reasonably be
expected to constitute, the stabilization or manipulation of the price of the
shares of Common Stock.
l. ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
Company's SEC Documents and since November 30, 1999, there has been no material
adverse change nor any material adverse development in the business, properties,
operations, financial condition, prospects, outstanding securities or results of
operations of the Company.
m. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic conditions known to the public generally) that has
not been disclosed in writing to the Purchaser (i) that could reasonably be
expected to have a material adverse effect upon the condition (financial or
otherwise) or the earnings, business affairs, properties or assets of the
Company or (ii) that could reasonably be expected to materially and adversely
affect the ability of the Company to perform the obligations set forth in the
Primary Documents. The representations and warranties of the Company set forth
in this Agreement (and the schedules hereto) do not contain any untrue statement
of a material fact or omit any material fact necessary to make the statements
contained herein, in light of the circumstances under which they were made, not
misleading.
n. TITLE TO PROPERTIES; LIENS AND ENCUMBRANCES. The Company
has good and marketable title to all of its material properties and assets, both
real and personal, and has good title to all its leasehold interests, in each
case subject only to mortgages, pledges, liens, security interests, conditional
sale agreements, encumbrances
<PAGE>
or charges created in the ordinary course of business.
o. PATENTS AND OTHER PROPRIETARY RIGHTS. The Company has
sufficient title and ownership of all patents, trademarks, service marks,
trade names, copyrights, trade secrets, information, proprietary rights and
processes necessary for the conduct of its business as now conducted and as
proposed to be conducted, and such business does not and would not conflict
with or constitute an infringement on the rights of others.
p. PERMITS. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now
conducted, the lack of which would materially and adversely affect the business
or financial condition of the Company. The Company is not in default in any
respect under any of such franchises, permits, licenses or similar authority.
q. ABSENCE OF LITIGATION. Except as disclosed in the Company's
SEC Documents, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company
or any of its subsidiaries, in which an unfavorable decision, ruling or finding
would have a material adverse effect on the properties, business, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, or the transactions contemplated by the Primary
Documents, or which would adversely affect the validity or enforceability of, or
the authority or ability of the Company to perform its obligations under, the
Primary Documents.
r. NO DEFAULT. Each of the Company and its subsidiaries is not
in default in the performance or observance of any obligation, covenant or
condition contained in any indenture, mortgage, deed of trust or other
instrument or agreement to which it is a party or by which it or its property
may be bound.
s. TRANSACTIONS WITH AFFILIATES. Except as disclosed in the
Company's public filings with the Commission, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors or affiliates that, had they existed on May 31, 1999, would
have been required to be disclosed in the Company's 1999 Annual Report to
stockholders.
t. EMPLOYMENT MATTERS. The Company is in compliance in all
material respects with all presently applicable provisions of the Employee
Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined in
ERISA) for which the Company would have any liability; the Company has not
incurred and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of
<PAGE>
1986, as amended, including the regulations and published interpretations
thereunder (the "Code"); and each "pension plan" for which the Company would
have any liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
u. INSURANCE. The Company maintains property and casualty,
general liability, personal injury and other similar types of insurance with
financially sound and reputable insurers that is adequate, consistent with
industry standards and the Company's historical claims experience. The Company
has not received notice from, and has no knowledge of any threat by, any insurer
(that has issued any insurance policy to the Company) that such insurer intends
to deny coverage under or cancel, discontinue or not renew any insurance policy
covering the Company, or any of its subsidiaries, presently in force.
v. TAXES. All applicable tax returns required to be filed by
the Company and each of its subsidiaries have been prepared and filed in
compliance with all applicable laws, or if not yet filed have been granted
extensions of the filing dates which extensions have not expired, and all taxes,
assessments, fees and other governmental charges upon the Company, its
subsidiaries, or upon any of their respective properties, income or franchises,
shown in such returns and on assessments received by the Company or its
subsidiaries to be due and payable have been paid, or adequate reserves therefor
have been set up if any of such taxes are being contested in good faith; or if
any of such tax returns have not been filed or if any such taxes have not been
paid or so reserved for, the failure to so file or to pay would not in the
aggregate have a material adverse effect on the business or financial condition
of the Company and its subsidiaries, taken as a whole.
w. FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any
of its directors, officers or other employees has (i) used any Company funds for
any unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to any political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee; (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person. The
Company maintains a system of internal accounting controls sufficient to provide
reasonable assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
<PAGE>
x. INVESTMENT COMPANY ACT. The Company is not conducting, and
does not intend to conduct its business in a manner which would cause it to
become, an "investment company," as defined in Section 3(a) of the Investment
Company Act of 1940, as amended.
y. AGENT FEES. Except for $200,000 and warrants to purchase
62,500 shares of Common Stock which shall be paid by the Company to EBI
Securities Corporation, the Company has not incurred any liability for any
finder's or brokerage fees or agent's commissions in connection with the
offer and sale of the transactions contemplated by this Agreement.
z. PRIVATE OFFERING. Subject to the accuracy of the
Purchaser's representations and warranties set forth in Section 2 hereof, the
offer, sale and issuance of (i) the Initial Securities (ii) if the Supplemental
Warrant is exercised, the issuance of the Additional Debentures and the
Additional Warrants and (iii) the issuance of Common Stock upon conversion or
exercise of any of the above indicated securities are exempt from the
registration requirements of the Securities Act. The Company agrees that neither
the Company nor anyone acting on its behalf will offer any of the Debentures,
the Warrants, or any similar securities for issuance or sale, or solicit any
offer to acquire any of the same from anyone so as to render the issuance and
sale of such securities subject to the registration requirements of the
Securities Act. The Company has not offered or sold the Securities by any form
of general solicitation or general advertising, as such terms are used in Rule
502(c) under the Securities Act.
aa. YEAR 2000 PROCESSING. The computer systems used by the
Company and its subsidiaries (the "Systems"), both hardware and software, are in
good working order. The Company has taken steps that are reasonable to ensure
that the occurrence of the year 2000 does not materially and adversely affect
the Systems of the Company, its subsidiaries, or their business, and no material
expenditures are required in order to cause such Systems to operate properly as
a result of the change of the year 1999 to 2000. The Company and its
subsidiaries have resolved all issues discovered as a result of year 2000
inquires or compliance testing or otherwise known to the Company.
bb. ENVIRONMENTAL MATTERS. Neither the Company and its
subsidiaries, nor any predecessor in interest nor, to the Company's knowledge,
after due inquiry, any other person has ever caused or permitted any Hazardous
Material (as defined below) to be released, treated or disposed of on, at, under
or within any real property owned, leased or operated by the Company and its
subsidiaries or any predecessor in interest, and no such real property has ever
been used (either by the Company and its subsidiaries, any predecessor in
interest or, to the Company's knowledge, after due inquiry, by any other person)
as a treatment, storage or disposal site for any Hazardous Material. The Company
has no liabilities with respect to Hazardous Materials, and to the knowledge of
the Company, after due inquiry, no facts or circumstances exist which could give
rise to liabilities with respect to Hazardous Materials, which could have any
reasonable likelihood of having a material adverse effect
<PAGE>
on the Company. For purposes of this Agreement "Hazardous Materials" shall
mean (a) any pollutants or contaminations, (b) any asbestos or insulation or
other material composed of or containing asbestos and (c) any petroleum
product and any hazardous, toxic or dangerous waste, substance or material
defined as such in, or for purposes of, the Comprehensive Environmental
Response, Compensation and Liability Act, any so-called "Superfund" or
"Superlien" law, or (d) any other applicable federal, state, local or other
statute, law, ordinance, code, rule, regulation, order or decree concerning
the protection of human health or the environment or otherwise regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, toxic or dangerous waste, substance or material, as now or at any
time hereafter in effect.
cc. INTELLECTUAL PROPERTY. Except as set forth in the SEC
Documents, to the best of the Company's knowledge, each of the Company and its
subsidiaries owns or possesses adequate rights to use all material patents,
patent rights, inventions, trade secrets, know-how, trademarks, service marks,
trade names and copyrights which are described in the SEC Documents; except as
set forth in the SEC Documents, the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with asserted rights of the
Company by others with respect to any patent, patent rights, inventions, trade
secrets, know-how, trademarks, service marks, trade names and copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business of the Company and its subsidiaries,
taken as a whole, as presently conducted; and, except as set forth in the SEC
Documents, the Company has not received any notice of, and has no knowledge of,
any infringement of or conflict with the asserted rights of others with respect
to any patent, patent rights, inventions, trade secrets, know-how, trademarks,
service marks, trade names and copyrights which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings, operations,
or business of the Company and its subsidiaries, taken as a whole, as presently
conducted.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, (1) neither (i) the
Initial Debentures, the Initial Warrants, nor the Common Stock issuable upon
conversion of, or in lieu of interest payments on, the Initial Debentures or
upon exercise of the Initial Warrants, nor (ii) if the Supplemental Warrant is
exercised, the Additional Debentures, the Additional Warrants or the Common
Stock issuable upon conversion of or in lieu of interest on the Additional
Debentures or upon exercise of the Additional Warrants (collectively, the
"Additional Securities" and, together with the Initial Securities, collectively,
the "Securities") have been, and are not being, registered under the Securities
Act, and may not be transferred unless (A) subsequently registered thereunder or
(B) they are transferred pursuant to an exemption from such registration; and
(2) any sale of the Initial Debentures, the Initial Warrants, the Supplemental
Warrant or the Common Stock issuable upon conversion or exchange thereof made in
reliance upon Rule 144 under the
<PAGE>
Securities Act may be made only in accordance with the terms of said Rule and
further, if said Rule is not applicable, any resale of the Securities under
circumstances in which the seller, or the person through whom the sale is
made, may be deemed to be an underwriter, as that term is used in the
Securities Act, may require compliance with another exemption under the
Securities Act and the rules and regulations of the Commission thereunder.
The provisions of Section 4(a) and 4(b) hereof, together with the rights of
the Purchaser under this Agreement and the other Primary Documents, shall be
binding upon any subsequent transferee of the Debentures and the Warrants.
b. RESTRICTIVE LEGEND. The Purchaser acknowledges and agrees
that, until such time as the Securities or the Common Stock issuable upon
conversion or exchange thereof shall have been registered under the Securities
Act or the Purchaser demonstrates to the reasonable satisfaction of the Company
and its counsel that such registration shall no longer be required, such
Securities or the Common Stock issuable upon conversion or exchange thereof may
be subject to a stop-transfer order placed against the transfer of such
Securities, and such Securities shall bear a restrictive legend in substantially
the following form:
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION
SHALL NO LONGER BE REQUIRED.
c. FILINGS. The Company undertakes and agrees that it will
make all required filings in connection with the sale of the Securities or the
Common Stock issuable upon conversion or exchange thereof to the Purchaser as
required by United States laws and regulations, or by any domestic securities
exchange or trading market, including, qualifying the shares of Common Stock
issuable upon conversion of the Debentures and upon exercise of the Warrants for
trading on the OTC Bulletin Board or the filing of a listing application with
NASDAQ to list all of the shares of Common Stock issuable upon conversion of the
Debentures and upon the exercise of the Warrants, as applicable, and if
applicable, the filing of a notice on Form D (at such time and in such manner as
required by the Rules and Regulations of the Commission), and to provide copies
thereof to the Purchaser promptly after such filing or filings.
d. REPORTING STATUS. So long as the Purchaser beneficially
owns any of the Securities, the Company shall timely file all reports required
to be filed with the
<PAGE>
Commission pursuant to Section 13 or 15(d) of the Exchange Act and shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.
e. STATE SECURITIES FILINGS. The Company shall from time to
time promptly take such action as the Purchaser or any of its
representatives, if applicable, may reasonably request to qualify the
Securities or the Common Stock issuable upon conversion or exchange thereof
for offering and sale under the securities laws (other than United States
federal securities laws) of the jurisdictions in the United States as shall
be so identified to the Company, and to comply with such laws so as to permit
the continuance of sales therein, provided that in connection therewith, the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to the service of process in any jurisdiction.
f. USE OF PROCEEDS. The Company will use all of the net
proceeds from the issuance of the Securities for authorized corporate purposes.
g. RESERVATION OF COMMON STOCK. The Company will at all times
have authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the conversion of the Initial Debentures
and the exercise of the Initial Warrants and if the Supplemental Warrant is
exercised, for the conversion of the Additional Debentures and the exercise of
the Additional Warrants. The Company will use its best efforts at all times to
maintain a number of shares of Common Stock so reserved for issuance that is no
less than the sum of (i) two (2) times the sum of (x) the maximum number of
shares of Common Stock that could be issuable upon the conversion of the Initial
Debentures and (y) the maximum number of shares of Common Stock that could be
issuable upon conversion of the Additional Debentures and (ii) the sum of the
number of shares of Common Stock that could be issuable upon exercise in full of
the Initial Warrants and the Additional Warrants, in each case without regard to
whether the Supplemental Warrant shall have been exercised.
h. SALES OF ADDITIONAL SHARES. The Company shall not, directly
or indirectly, without the prior written consent of the Purchaser, offer, sell,
offer to sell, contract to sell or otherwise dispose of any of its securities or
any security or other instrument convertible into or exchangeable for shares of
its capital stock, in each case, for a period beginning on the date hereof and
ending two hundred seventy (270) days after the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective by the
Commission (the "Lock-Up Period"), except that the Company may (i) issue
securities for the aggregate consideration of at least $15 million in connection
with a bona fide, firm commitment, underwritten public offering under the
Securities Act; (ii) may issue shares of Common Stock which are issued in
connection with a bona fide transaction involving the acquisition of another
business entity or segment of any such entity by the Company by merger, asset,
purchase, stock purchase or otherwise; (iii) may issue shares of common stock to
directors, officers, employees or consultants of the Company for the primary
purpose of soliciting or retaining their
<PAGE>
services in an aggregate amount, together with any New Options (as defined
below) vesting or becoming exercisable during the Lock Up Period, not to
exceed 750,000 shares; (iv) may issue shares of Common Stock upon the
exercise or conversion of currently outstanding options, warrants and other
convertible securities and up to 750,000 shares of Common Stock underlying
New Options as provided in clause (v) below; (v) may issue options to
purchase shares of its Common Stock to its directors, officers, employees and
consultants in connection with its existing stock option plans ("new
Options"); provided, that, during the Lock Up Period, New Options to purchase
not more than 750,000 shares of Common Stock shall vest or become
exercisable; and (vi) may issue common Stock in connection with a stock
split, stock dividend or similar recapitalization of the Company which
affects all holders of the Company's Common Stock on an equivalent basis, in
each case, without the prior written consent of the Purchaser. In addition,
the Company agrees that it will not cause any shares of its capital stock
that are issued in connection with a transaction of the type contemplated by
clause (ii) (or upon the conversion or exercise of other securities that are
issued in connection with such transaction) or that were issued in connection
with financing, acquisition or other transaction that occurred prior or
subsequent to the date of this Agreement to be covered by a registration
statement that is filed with the Commission or declared effective by the
Commission prior to the time that the Debentures and the Warrants and Common
Stock issuable upon conversion or exercise thereof are covered by a
registration statement filed by the Company pursuant to its obligations under
the Registration Rights Agreement has been effective under the Securities Act
for a period of at least one hundred eighty (180) day period during which the
Company has not notified the Purchaser that such registration statement or
the prospectus included in such registration statement includes an untrue
statement of a material fact or omits to state a material fact required to be
stated therein in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
i. RIGHT OF FIRST REFUSAL. Subject to Section 4(h), if during
the eighteen (18) month period following the date hereof the Company shall
desire to sell, offer to sell, contract to sell or otherwise dispose of any
securities or any security or other instrument convertible into or exchangeable
for shares of Common Stock (collectively, the "Offered Securities") to a
prospective investor (the "Prospective Investor"), the Company shall notify (the
"Offer Notice") the Purchaser in accordance with Section 10 hereof of the terms
(the "Third Party Terms") on which the Company proposes to sell, contract to
sell or otherwise dispose of the Offered Securities to the Prospective Investor.
If, within the five (5) day period following the Purchaser's receipt of the
Offer Notice, the Purchaser delivers a written notice (the "Acceptance Notice")
to the Company stating its desire to purchase all or any portion of the Offered
Securities on the Third Party Terms, the Company shall be required to sell the
Offered Securities (or any portion thereof so desired by the Purchaser) to the
Purchaser at the price and on the terms set forth in the Offer Notice and the
Company shall not be permitted to sell such Offered Securities to the
Prospective Investor. If the Purchaser does not deliver an Acceptance Notice to
the Company in such five (5) day period, then for a period of sixty (60) days
following the date of the Offer Notice the Company may sell the Offered
Securities to the Prospective
<PAGE>
Investor on the terms set forth in the Offer Notice.
j. STOCKHOLDER APPROVAL. If required in accordance with Nasdaq
Rule 4310 or 4460, the Company agrees to use its best efforts (including
obtaining any vote of its stockholders required by applicable law or Nasdaq
rules to authorize and approve the issuance of the Common Stock issuable upon
conversion of the Debentures and exercise of Warrants, to the extent that
such conversion or issuance results in the issuance of 20% or more of the
Company's outstanding Common Stock; provided, however, that the failure to
obtain any such stockholder approval shall not limit any of Purchaser's
rights hereunder or pursuant to any Primary Documents.
k. OWNERSHIP. At no time shall the Purchaser (including its
officers, directors and affiliates) maintain in the aggregate beneficial
ownership (as defined for purposes of Section 16 of the Securities Exchange Act
of 1934, as amended) of shares of Common Stock in excess of 4.9% of the
Company's outstanding Common Stock unless the Purchaser gives the Company at
least sixty-one days notice that it intends to increase its ownership position.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company warrants that no instruction, other than the
instructions referred to in this Section 5 and stop transfer instructions to
give effect to Sections 4(a) and 4(b) hereof prior to the registration and sale
of the Securities in the manner contemplated by the Registration Rights
Agreement, will be given by the Company to the transfer agent and that the
shares of Common Stock issuable upon conversion of, or in lieu of interest
payments on the Debentures or upon exercise of the Warrants shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing in this Section shall affect in any way the Purchaser's obligations
and agreement to comply with all applicable securities laws upon resale of the
Securities. If the Purchaser provides the Company with an opinion of counsel
reasonably satisfactory (as to both the identity of such counsel and the content
of such opinion) to the Company and its counsel that registration of a resale by
the Purchaser of any of the Securities in accordance with clause (1)(B) of
Section 4(a) of this Agreement is not required under the Securities Act, the
Company shall permit the transfer of the Securities and, in the case of the
Common Stock, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without legend in such names and in such
denominations as specified by the Purchaser.
b. The Company will permit the Purchaser to exercise its right
to convert the Debentures or to exercise the Warrants by faxing an executed and
completed Notice of Conversion or Form of Election to Purchase, as applicable,
to the Company, and delivering within three (3) business days thereafter, the
original Notice of Conversion (and the related original Debentures) or Form of
Election to Purchase (and the related original Warrants) to the Company by hand
delivery or by express courier, duly endorsed. Each date on which a Notice of
Conversion or Form of Election to Purchase is faxed to
<PAGE>
the Company in accordance with the provisions hereof shall be deemed a
"Conversion Date." The Company will transmit the certificates representing
the Common Stock issuable upon conversion of any Debenture or upon exercise
of any Warrants (together with the Debentures not so converted, or the
Warrants not so exercised) or upon conversion of the Debentures and exercise
of the Warrants to the Purchaser via express courier as soon as practicable,
but in all events no later than five (5) business days in the case of
conversion of the Debentures, or five (5) business days in the case of the
exercise of any Warrant after the Conversion Date (the "Delivery Date"). For
purposes of this Agreement, any conversion of the Debentures or the exercise
of the Warrants shall be deemed to have been made immediately prior to the
close of business on the Conversion Date.
c. In lieu of delivering physical certificates representing
the Common Stock issuable upon the conversion of the Debentures or the exercise
of the Warrants, provided the Company's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, on
the written request of the Purchaser, who shall have previously instructed the
Purchaser's prime broker to confirm such request to the Company's transfer
agent, the Company shall cause its transfer agent to electronically transmit
such Common Stock to the Purchaser by crediting the account of the Purchaser's
prime broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system no later than the applicable Delivery Date.
d. The Company understands that a delay in the issuance of
Common Stock beyond the applicable Delivery Date could result in an economic
loss to the Purchaser. As compensation to the Purchaser for such loss, the
Company agrees to pay to the Purchaser for late issuance of Common Stock upon
conversion of, or in lieu of interest payments on, the Debentures or upon
exercise of the Warrants the sum of $2,500 per day for each $100,000 in
aggregate principal amount of Debentures that are being converted or for any or
all shares of Common Stock purchased upon the exercise of the Warrants. The
Company shall pay any payments that are payable to the Purchaser pursuant to
this Section 5 in immediately available funds upon demand. Nothing herein shall
limit the Purchaser's right to pursue actual damages for the Company's failure
to so issue and deliver Common Stock to the Purchaser. Furthermore, in addition
to any other remedies which may be available to the Purchaser, in the event that
the Company fails for any reason to effect delivery of such Common Stock within
five (5) business days after the relevant Delivery Date, the Purchaser will be
entitled to revoke the relevant Notice of Conversion or Form of Election to
Purchase by delivering a notice to such effect to the Company, whereupon the
Company and the Purchaser shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion or Form of Election
to Purchase. For purposes of this Section 5, "business day" shall mean any day
in which the financial markets of New York are officially open for the conduct
of business therein.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO ISSUE THE INITIAL SECURITIES.
<PAGE>
Purchaser understands that the Company's obligation to issue the
Initial Securities on the Initial Closing Date to Purchaser pursuant to this
Agreement is conditioned upon:
a. The accuracy on the Initial Closing Date of the
representations and warranties of Purchaser contained in this Agreement as if
made on the Initial Closing Date and the performance by Purchaser on or before
the Initial Closing Date of all covenants and agreements of Purchaser required
to be performed on or before the Initial Closing Date;
b. The absence or inapplicability of any and all laws, rules
or regulations prohibiting or restricting the transactions contemplated hereby,
or requiring any consent or approval which shall not have been obtained.
c. The absence of the occurrence on or prior to the Initial
Closing Date of any of the occurrences described in Section 7g(i) to (iv)
7. CONDITIONS TO THE PURCHASER'S OBLIGATION TO PURCHASE THE INITIAL SECURITIES.
The Company understands that Purchaser's obligation to purchase the
Initial Securities on the Initial Closing Date is conditioned upon:
a. The accuracy on the Initial Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Initial Closing Date, and the performance by the Company on or
before the Initial Closing Date of all covenants and agreements of the Company
required to be performed on or before the Initial Closing Date;
b. On the Initial Closing Date, the Purchaser shall have
received (i) the Initial Debentures, in substantially the form of EXHIBIT A
hereto, (ii) the Initial Warrants, in substantially the form of EXHIBIT B
hereto, and (iii) the Supplemental Warrant, in substantially the form of EXHIBIT
C hereto.
c. On the Initial Closing Date, the Purchaser shall have
received an opinion of counsel for the Company, dated the Initial Closing Date,
in form, scope and substance reasonably satisfactory to Purchaser, to the effect
set forth in EXHIBIT D attached hereto;
d. On the Initial Closing Date the Company shall have executed
and delivered a signed counterpart to the Registration Rights Agreement, in
form, scope and substance reasonably satisfactory to Purchaser, to the effect
set forth in EXHIBIT E attached hereto;
e. On the Initial Closing Date, the Purchaser shall have
received a
<PAGE>
certificate executed by (i) the President or the Chairman of the Company and
(ii) the Chief Financial Officer of the Company, stating that all of the
representations and warranties of the Company set forth in this Agreement are
accurate as of the Initial Closing Date and that the Company has performed
all of its covenants and agreements required to be performed under this
Agreement on or before the Initial Closing Date;
f. On the Initial Closing Date, the Purchaser shall have
received from the Company such other certificates and documents as it or its
representatives, if applicable, shall reasonably request, and all proceedings
taken by the Company in connection with the Primary Documents contemplated by
this Agreement and the other Primary Documents and all documents and papers
relating to such Primary Documents shall be satisfactory to the Purchaser;
g. On or prior to the Initial Closing Date, there shall not
have occurred any of the following: (i) a suspension or material limitation in
the trading of securities generally on the New York Stock Exchange, Nasdaq
National Market, Nasdaq SmallCap or OTC Bulletin Board; (ii) a general
moratorium on commercial banking activities in New York declared by the
applicable banking authorities; (iii) the outbreak or escalation of hostilities
involving the United States, or the declaration by the United States of a
national emergency or war; or (iv) a change in international, political,
financial or economic conditions, if the effect of any such event, in the
reasonable judgment of the Purchaser, makes it impracticable or inadvisable to
proceed with the purchase of the Securities on the terms and in the manner
contemplated in this Agreement and in the other Primary Documents.
h. The Company shall have delivered to the Purchaser
reimbursement of the Purchaser's out-of-pocket costs and expenses incurred in
connection with the transactions contemplated by this Agreement (including fees
and disbursements of the Purchaser's legal counsel). The total due under Section
7h and Section 8a shall not in the total exceed one percent (1%) of the amount
received by the Company on the Initial Closing Date.
8. EXPENSES.
The Company covenants and agrees with the Purchaser that the
Company will pay or cause to be paid the following: (a) the fees, disbursements
and expenses of the Purchaser and Purchaser's counsel in connection with the
issuance of the Securities payable on the Initial Closing Date, (b) all expenses
in connection with registration or qualification of the Securities for offering
and sale under state securities laws as provided in Section 4(e) hereof, and (c)
all other costs and expenses incident to the performance of its obligations
hereunder which are not otherwise specifically provided for in this Section,
including the fees and disbursements of the Company's counsel, accountants and
other professional advisors, if any. If the Company fails to satisfy its
obligations or to satisfy any condition set forth in this Agreement, as a result
of which the Securities are not delivered to the Purchaser on the terms and
conditions set forth herein, the Company shall
<PAGE>
reimburse the Purchaser for any out-of-pocket expenses reasonably incurred in
making preparations for the purchase, sale and delivery of the Securities not
so delivered. The total due under Section 7h and Section 8a shall not in the
total exceed one percent (1%) of the amount received by the Company on the
Initial Closing Date. The obligation to reimburse costs under Section 7h and
Section 8a arise only if there is a funding by the Purchaser and upon receipt
by the Company of such funds.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties of the Company and the Purchaser
shall survive the execution and delivery of this Agreement and the delivery of
the Debentures and the Warrants.
10. GOVERNING LAW; MISCELLANEOUS
This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to principles
of conflict of laws. Each of the parties consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement or any of the
transactions contemplated hereby, and hereby waives, to the maximum extent
permitted by law, any objection, including any objections based on FORUM NON
CONVENIENS, to the bringing of any such proceeding in such jurisdictions. This
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of this
Agreement. This Agreement and each of the Primary Documents have been entered
into freely by each of the parties, following consultation with their respective
counsel, and shall be interpreted fairly in accordance with its respective
terms, without any construction in favor of or against either party. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
unenforceability of this Agreement in any other jurisdiction. This Agreement
shall inure to the benefit of, and be binding upon the successors and assigns of
each of the parties hereto, including any transferees of the Securities. This
Agreement may be amended only by an instrument in writing signed by the party to
be charged with enforcement. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES.
Any notice required or permitted hereunder shall be given in
writing (unless otherwise specified herein) and shall be effective upon personal
delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days
<PAGE>
following deposit of such notice with an internationally recognized courier
service, with postage prepaid and addressed to each of the other parties
thereunto entitled at the following addresses, or at such other addresses as
a party may designate by five days advance written notice to each of the
other parties hereto.
COMPANY: Airtech International Group, Inc.
15400 Knoll Trail, Suite #200
Dallas, Texas 75248
ATTENTION: C.J. Comu, CEO
Tel: (972) 960-9400 x111
Fax: (972) 960-9395
<PAGE>
PURCHASER: PK Investors LLC
c\o WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
ATTENTION: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
WITH A COPY TO:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
ATTENTION: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
12. INDEMNIFICATION
The Company agrees to indemnify the Purchaser and each officer, director,
employee, agent, partner, stockholder, member and affiliate of the Purchaser
(collectively, the "Indemnified Parties") for, and hold each Indemnified Party
harmless from and against: (i) any and all damages, losses, claims and other
liabilities of any and every kind, including, without limitation, judgments and
costs of settlement, and (ii) any and all reasonable out-of-pocket costs and
expenses of any and every kind, including, without limitation, reasonable fees
and disbursements of counsel for such Indemnified Parties (all of which expenses
periodically shall be reimbursed as incurred), in each case, arising out of or
suffered or incurred in connection with any of the following: (a) any
misrepresentation or any breach of any warranty made by the Company herein or in
any of the other Primary Documents, (b) any breach or non-fulfillment of any
covenant or agreement made by the Company herein or in any of the other Primary
Documents and (c) any claim relating to or arising out of a violation of
applicable federal or state securities laws by the Company in connection with
the sale or issuance of the Initial Shares, Additional Shares, Initial Warrants,
Additional Warrants or Supplemental Warrant by the Company to the Purchaser
(collectively, the "Indemnified Liabilities"). To the extent that the foregoing
undertaking by the Company may be unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of each of
the Indemnified Liabilities which is permissible under applicable law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK, SIGNATURE PAGE TO
FOLLOW]IN WITNESS WHEREOF, this Securities Purchase Agreement has been duly
executed by each of the undersigned as of February 22, 2000.
<PAGE>
AIRTECH INTERNATIONAL GROUP,
INC.
By:
Name:
Title:
PK INVESTORS LLC
By: WEC Asset Management LLC,
Manager
By:
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
EXHIBIT INDEX
EXHIBIT AFORM OF DEBENTUREEXHIBIT BFORM OF WARRANTEXHIBIT CFORM
OF CONDITIONAL WARRANTEXHIBIT DFORM OF OPINION OF COUNSEL TO
COMPANY EXHIBIT EFORM OF REGISTRATION RIGHTS AGREEMENT
SCHEDULE INDEX
SCHEDULE 3(a) LIST OF SUBSIDIARIES
SCHEDULE 3(b) CAPITALIZATION, DERIVATIVE
SECURITIES AND
REGISTRATION RIGHTS
SCHEDULE 3(h) NON-CONTRAVENTION
SCHEDULE 3(a)
LIST OF SUBSIDIARIES
AIRSOPURE, Inc., a Texas corporation.
AIRTECH INTERNATIONAL CORP., a Texas corporation.
McCleskey Sales and Service, Inc., a Texas corporation.
Watersopure Inc., a dormant Texas corporation.
Airsopure International Group, Inc., a Nevada corporation.
Airsopure 999, L.P., a Texas Limited Partnership. Airtech International
Group, Inc. is the General Partner in this limited partnership.
SCHEDULE 3(b)
CAPITALIZATION, DERIVATIVE SECURITIES AND REGISTRATION RIGHTS
1. Preferred Stock "Series M".
There are 1,143,750 shares of this convertible
preferred stock outstanding. The related offering has closed.
Holders of the series M preferred stock may convert their
shares on a one for one basis into 1,143,750 shares of Common
Stock, which shall be restricted stock pursuant to Rule 144
under the Securities Act, at any time and such preferred stock
shall automatically convert into Common Stock in
<PAGE>
December 2001.
The holders of the Series M preferred stock also have
related warrants to purchase 993,750 shares of common stock,
which are also restricted pursuant to Rule 144 under the
Securities Act, which have a per share exercise price of ten
dollars per share, although the Company is currently
negotiating to reduce such exercise price to two dollars per
share.
2. S-999 Limited Partnership.
There is $430,000 of limited partnership interests (the offering is
closed) in the Airsopure 999, L.P. These limited partners are guaranteed a
150% return on their investment by the end of December 2001. The guarantee,
if payable, can be in shares of the Common Stock of the Company. Although
this guarantee does not so state, the Company believes that such shares shall
be restricted stock pursuant to Rule 144 under the Securities Act. Currently,
the Company does not feel that there be a need to issue any of its Common
Stock under this guarantee.
3. 12% convertible debentures due 2004
This is the current private placement offered by the
Company. The subscription will be stopped at less than
$1,000,000. This is due to some outstanding "soft commitments"
we have received and are compelled to honor. The Company does
not feel that all of the $1,000,000 will be purchased.
However, if the entire $1,000,000 in principal amount of
debenture is subscribed, then there is a conversion privilege
to convert into 1,000,000 shares of Common Stock, which shall
be restricted stock pursuant to Rule 144 under the Securities
Act, by June 2004. The debenture holders will also be eligible
to exercise the related warrant to purchase up to an
additional 1,000,000 shares of Common Stock at the exercise
price of $2.00 per share. The Company is no longer marketing
or promoting this issuance.
4. Options
There are 556,000 stock options outstanding for the
Company's Common Stock. 100,000 at $.31 with 2 years
remaining, 193,000 at $1.25 with one half year remaining.
240,000 at $4.17 with 2.5 years remaining and 23,000 at $15.62
with one year remaining.
SCHEDULE 3(h)
NON-CONTRAVENTION
<PAGE>
NONE.
EXHIBIT A
FORM OF DEBENTURE
NO. 1
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
AIRTECH INTERNATIONAL GROUP, INC.
6% CONVERTIBLE DEBENTURE
$500,000 FEBRUARY 22, 2000
New York, New York
1. CONSIDERATION. FOR VALUE RECEIVED, AIRTECH INTERNATIONAL
GROUP, INC. a Wyoming corporation (the "undersigned" or the "Company"), hereby
promises to pay to the order of PK Investors LLC, at its offices located at 110
Colabaugh Pond Road, Croton-on-Hudson, New York 10520 or at such other place as
the holder hereof (the "holder" or the "Registered Holder") shall designate to
the undersigned in writing, in lawful money of the United States of America or
in New York Clearing House Funds, the principal amount of Five Hundred Thousand
Dollars ($500,000) on the Maturity Date (as defined below). This Debenture is
one of five (5) Debentures to the Registered Holder on the date hereof in the
aggregate principal amount of two million five hundred thousand dollars
($2,500,000). The undersigned promises to pay the said principal sum in
accordance with the terms of this Debenture (as defined below).
2. PAYMENT. On February 22, 2002 (the "Maturity Date") the
undersigned shall pay the holder all unpaid principal and interest, if any, on
this Debenture. At the Company's option, any interest payment required to be
paid on this Debenture may be made in the form of the issuance to the holder of
the Company's
<PAGE>
common stock, par value $.05 per share (the "Common Stock"), with the number
of shares of such Common Stock to be payable in lieu of such interest
payments to be determined in accordance with the provisions of Section 6, as
if such interest payment were a portion of the principal amount of the
Debenture to be converted into Common Stock.
Principal and interest shall be payable at the most recent
address as the Registered Holder shall have designated to the Company in
writing. No payment of the principal of this Debenture may be made prior to the
Maturity Date by the Company without the consent of the Registered Holder,
except as otherwise provided herein.
3. OVERDUE INTEREST PAYMENTS. Interest on the indebtedness
evidenced by this Debenture after default or maturity accelerated or otherwise
shall be due and payable at the rate of ten (10%) percent per annum, subject to
the limitations of applicable law.
4. HOLIDAYS. If this Debenture or any installment hereof
becomes due and payable on a Saturday, Sunday or public holiday under the laws
of the State of New York, the due date hereof shall be extended to the next
succeeding business day and interest shall be payable at the rate of six (6%)
percent per annum during such extension. All payments received by the holder
shall be applied first to the payment of all accrued interest payable hereunder.
5. ISSUANCE OF DEBENTURES. This Debenture has been issued by
the Company pursuant to the authorization of the Board of Directors of the
Company (the "Board") and issued pursuant to a Securities Purchase Agreement,
dated as of February 22, 2000, by and between the Company and the Purchaser
identified therein (the "Securities Purchase Agreement"). Pursuant to the
Securities Purchase Agreement, the Company issued $2,500,000 principal amount of
the Debentures and warrants to purchase (the "Warrants") 250,000 shares of the
Company's Common Stock. The Securities Purchase Agreement contains certain
additional terms that are binding upon the Company and each Registered Holder of
the Debentures. A copy of the Securities Purchase Agreement may be obtained by
any registered holder of the Debentures from the Company upon written request.
Capitalized terms used but not defined herein shall have the meanings set forth
in the Securities Purchase Agreement, including the Exhibits thereto. This
Debenture and the other 6% Convertible Debentures due 2002 issued by the Company
pursuant to the terms of the Securities Purchase Agreement, together with any
debentures from time to time issued in replacement thereof, whether pursuant to
transfer and assignment, partial conversion thereof or otherwise, are
collectively referred to herein as the "Debentures."
6. CONVERSION. (a) Subject to and in compliance with the
provisions hereof, the holder shall have the right to convert all or a
portion of the outstanding principal amount of this Debenture into such
number of shares of Common Stock (the shares of Common Stock issuable upon
conversion of, and issuable in lieu of interest
<PAGE>
payments on, this Debenture, if any, are hereinafter referred to as the
"Conversion Shares") as shall equal the quotient obtained by dividing (x) the
principal amount of this Debenture to be converted by (y) the Applicable
Conversion Price (as hereinafter defined) and by surrender of this Debenture,
such surrender to be made in the manner provided herein.
(b) For purposes hereof the term "Applicable
Conversion Price" shall mean the lesser of: (i) $2.585 (the "Fixed Price") and
(ii) the product obtained by multiplying (x) the Average Lowest Closing Price
(as hereinafter defined) by (y) .80.
For purposes hereof the "Average Lowest Closing
Price" with respect to any conversion elected to be made by the holder shall be
the average of the three (3) lowest daily closing bid prices (each such price is
referred to individually as a "Floating Reference Price" and, collectively, as
the "Floating Reference Prices") during the thirty (30) trading days immediately
preceding the date on which the holder gives the Company a written notice of the
holder's election to convert outstanding principal of this Debenture (the
"Notice Date"). The closing bid price on any trading day shall be (a) if the
Common Stock is then listed or quoted on either the NASD Bulletin Board, the
NASDAQ SmallCap Market or the NASDAQ National Market, the reported closing bid
price for the Common Stock as reported by Bloomberg, L.P. ("Bloomberg") or The
Wall Street Journal (the "Journal") or on such day (or, if not so reported, as
otherwise reported by The NASDAQ Small Cap Market, NASDAQ National Market or the
NASD Bulletin Board, as the case may be), (b) if the Common Stock is listed on
either the American Stock Exchange or New York Stock Exchange, the closing bid
price for the Common Stock on such exchange on such day as reported by Bloomberg
or the Journal or (c) if neither (a) nor (b) apply but the Common Stock is
quoted in the over-the-counter market, another recognized exchange, or on the
pink sheets, the last reported bid price thereof on such date. If the prices of
the Common Stock cannot be calculated on such date on any of the foregoing
bases, such prices on such date shall be the fair market value as mutually
determined by the Company and the Registered Holder for which the calculation is
required in order to determine the Applicable Conversion Price; PROVIDED,
HOWEVER, that if the Company and the Registered Holder are unable to mutually
determine the fair market value, such fair market value shall be determined by a
nationally recognized investment banking firm or firm of independent certified
public accountants of recognized standing (which firm may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the Board and holders of a majority in interest of the
Debentures. "Trading day" shall mean any day on which the Company's Common Stock
is traded for any period on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
(c) If, during any period following February 22, 2000
(the "Original Issue Date"), as a result of the occurrence of any of the
events set forth in Section 3(f) or 3(g) of the Registration Rights
Agreement, dated as of February 22, 2000, by and between the Company and the
Purchaser set forth therein (the "Registration Rights Agreement"), the
Purchaser set forth therein is not able to sell shares of Common Stock
<PAGE>
issuable upon conversion of, or in lieu of interest payments on, this
Debenture pursuant to a registration statement filed pursuant to such
agreement, the Registered Holder shall have the right, for any purpose under
this Debenture during such period and thereafter, to designate as the
Applicable Conversion Price any Conversion Price that would have been
applicable during such period had the Registered Holder delivered a Notice of
Conversion with respect to any portion of this Debenture. "Conversion Date"
shall have the meaning given such term in Section 5(b) of the Securities
Purchase Agreement.
(d) The Registered Holder shall convert this
Debenture in accordance with Section 5(b) of the Securities Purchase Agreement.
If the Company fails to deliver to the holder a certificate or certificates for
shares of Common Stock in the period set forth in the Securities Purchase
Agreement, the Company shall make certain payments to the holder in accordance
with Section 5(d) of the Securities Purchase Agreement.
(e) If the entire outstanding principal amount of
this Debenture is not converted, the Company shall also issue and deliver to
such holder a new Debenture of like tenor in the principal amount equal to the
principal which was not converted and dated the Original Issue Date. Each
conversion shall be deemed to have been effected immediately prior to the close
of business on the date on which a Notice of Conversion shall have been
delivered as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date.
(f) All shares of Common Stock delivered upon
conversion of, or in lieu of interest payments on, this Debenture will, upon
delivery, be duly authorized, validly issued and fully paid and nonassessable.
(g) No fractional shares of Common Stock shall be
issued upon conversion of, or in lieu of interest payments on, this Debenture.
Instead of any fractional share of Common Stock which would otherwise be
deliverable upon the conversion of, or in lieu of interest payments on, the
principal of this Debenture, the Company shall pay to the holder an amount in
cash (computed to the nearest cent) equal to the Average Lowest Closing Price
multiplied by the fraction of a share of Common Stock represented by such
fractional interest.
(h) The issuance of certificates for shares of Common
Stock upon any conversion of, or in lieu of interest payments on, this Debenture
shall be made without charge to the payee hereof for any tax, unless required by
law, or other expense in respect to the issuance of such certificates, all of
which taxes and expenses shall be paid by the Company, and such certificates
shall be issued only in the name of the registered holder of this Debenture.
(i) Notwithstanding anything herein to the contrary,
at no time
<PAGE>
shall the Registered Holder (including its officers, directors and
affiliates) maintain in the aggregate beneficial ownership (as defined for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended) of
shares of Common Stock in excess of 4.9% of the Company's outstanding Common
Stock and accordingly, the Registered Holder may only convert this Debenture
up to the point where its aggregate beneficial ownership (as defined for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended) of
shares of Common Stock is equal or less than 4.9% of the Company's
outstanding Common Stock.
7. REDEMPTION BY COMPANY. (a) If, after the Original Issue
Date, there shall occur a Change in Control of the Company (as defined below),
then, at the option of the Registered Holder, the Company shall, on the
effective date of and subject to the consummation of such Change in Control,
redeem this Debenture for cash from the Registered Holder at a redemption price
equal to 125% of the aggregate principal and accrued interest outstanding under
this Debenture. Nothing in this subsection shall limit the Registered Holder's
right to convert this Debenture on or prior to such Change in Control. For
purposes hereof, a "Change in Control" shall be deemed to have occurred if (A)
any person or group (as defined for purposes of Regulation 13D of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) shall have become the
beneficial owner or owners of more than 50% of the outstanding voting stock of
the Company; (B) there shall have occurred a merger or consolidation in which
the Company or an affiliate of the Company is not the survivor or in which
holders of the Common Stock of the Company shall have become entitled to receive
cash, securities of the Company other than voting common stock or securities of
any other person; (C) at any time persons constituting the Existing Board of
Directors cease for any reason whatsoever to constitute at least a majority of
the members of the Board of Directors of the Company; or (D) there shall have
occurred a sale of all or substantially all the assets of the Company. For
purposes hereof, the term "Existing Board of Directors" shall mean the persons
constituting the Board of Directors of the Company on the date hereof, together
with each new director whose election, or nomination for election by the
Company's stockholders is approved by a vote of the majority of the members of
the Existing Board of Directors who are in office immediately prior to the
election or nomination of such director.
(b) In the event that the Company is subject to
Nasdaq Rule 4310 or 4460, if prior to the time the stockholders of the Company
shall have approved the transactions contemplated by the Securities Purchase
Agreement as provided in clause (B) below, the number of shares of Common Stock
issued (i) upon conversion of the Debentures and (ii) in lieu of interest
payments on the Debentures, if any, (collectively, the "Conversion Shares"),
shall be equal to or more than 19.9% of the number of the shares of capital
stock outstanding on the Initial Closing Date (a "Redemption Event"), the
Company shall have the option to (A) redeem the outstanding principal amount of
this Debenture at the redemption price of one hundred twenty-five percent (125%)
of the principal amount hereof plus accrued interest on this Debenture, if any,
or (B) call a special meeting of its stockholders for the purpose of approving
the transactions
<PAGE>
contemplated by the Securities Purchase Agreement, including the issuance of
the Debentures and Warrants on the terms set forth therein, together with any
other approvals that shall be required so as to cause the transactions
contemplated by the Securities Purchase Agreement to remain in compliance
with the Rules and Regulations of Nasdaq (including Rule 4460 of Nasdaq's
Non-Qualitative Designation Criteria on the occurrence of a Redemption Event;
such approvals are referred to herein as the "Required Approvals"). The
Company shall determine within five (5) business days following the
occurrence of any Redemption Event which of such actions it shall take, and
shall promptly furnish notice to the Purchaser as to such determination,
including, if applicable, a notice of redemption. If the Company does not
make a determination within such five (5) day period, this Debenture shall be
redeemed the first business day following the end of such five (5) day
period, if any, at the redemption price of one hundred twenty-five percent
(125%) of the principal amount hereof plus accrued interest on the Debenture,
if any.
(c) If the Company elects to call a special meeting
of its stockholders pursuant to Section 6(b) to obtain the Required Approvals,
the Company shall obtain such Required Approvals within thirty (30) days of the
distribution of the notice described in such Section (such thirty (30) day
period is referred to herein as an "Approval Period"). If such approval is not
obtained within the Approval Period, this Debenture shall be redeemed on the
first business day following the Approval Period at the redemption price of one
hundred twenty-five percent (125%) of the principal amount hereof plus accrued
interest on the Debenture, if any.
(d) If the Company fails to have a registration
statement effective within one hundred fifty (150) days of the date of the
Securities Purchase Agreement, at the option of the Purchaser, the Company shall
redeem these Debentures at a redemption price of one hundred twenty-five percent
(125%) of the principal amount hereof plus accrued and unpaid interest thereon,
if any.
If the Company shall be required to redeem the
Debentures pursuant to any of the terms or conditions set forth in this Section
7, the Company shall remit the redemption price to the Registered Holder thereof
immediately upon such redemption.
8. COVENANTS.
(a) The Company will pay all taxes, assessments and
governmental charges lawfully levied or assessed upon it, its property and any
part thereof, and upon its income for profits, and any part thereof, before the
same shall become delinquent; and will duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its property, and
all covenants, terms and conditions upon or under which any of its property is
held; provided that nothing in this Section shall require the Company to observe
or conform to any requirement of
<PAGE>
governmental authority so long as the validity thereof shall be contested in
good faith by appropriate proceedings or to pay any such tax, assessment or
governmental charges so long as the validity thereof shall be contested in good
faith by appropriate proceedings and adequate reserves with respect thereto
shall have been set aside on the books of the Company.
(b) Subject to the other provisions of this
Debenture, the Company at all times will maintain its corporate existence and
right to carry on its business and will duly procure all necessary renewals and
extensions thereof and use its best efforts to maintain, preserve and renew all
of its rights, powers, privileges and franchises; PROVIDED, HOWEVER, that
nothing herein contained shall be construed to prevent the Company from ceasing
or omitting to exercise any rights, powers, privileges or franchises which, in
the judgment of the Board, can no longer be profitably exercised, nor to prevent
the consolidation, merger or liquidation of any subsidiary or subsidiaries of
the Company with or into the Company.
(c) The Company will at no time close its stock
transfer books against the transfer of any shares of Common Stock issued or
issuable upon the conversion of, or in lieu of interest payments on, the
Debentures, in any manner which interferes with the timely conversion of such
Debentures.
(d) As used in this Debenture, the term "Common
Stock" shall include all stock of any class or classes (however designated) of
the Company, authorized on or after the date hereof, the holders of which shall
have the right, without limitation as to amount, either to all or to a share of
the balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily be entitled to vote for the election of the
directors of the Company. The Company shall not, without the prior written
consent of the Registered Holder of this Debenture, issue any shares of its
capital stock, other than as permitted by Section 4(i) of the Securities
Purchase Agreement, in exchange for Debentures as provided hereunder or upon
exercise of the Warrants in accordance with the terms thereof.
(e) The Company will not, by amendment of its
Articles of Incorporation or By-laws or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder or pursuant to the Securities Purchase Agreement by the Company, and
will at all times assist in good faith in the carrying out of all the provisions
of this Debenture and the Securities Purchase Agreement and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the Registered Holders of the Debentures against
impairment.
(f) In the event of any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof
<PAGE>
who are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the Company shall mail to each Registered Holder of the
Debentures, at least ten (10) days prior to the date specified therein, a notice
specifying the date on which any such record is to be taken for the purpose of
such dividend, distribution or right, and the amount and character of such
dividend, distribution or right.
9. LIMITATION ON CERTAIN CORPORATE ACTS. The Company hereby
covenants and agrees that upon any consolidation or merger or upon the transfer
of all or substantially all of the property or assets of the Company, the due
and punctual payment of the principal and interest on all the Debentures
according to their tenor and the due and punctual performance and observance of
all the terms, covenants and conditions of the Debentures and the Securities
Purchase Agreement to be kept and performed by the Company shall be expressly
assumed by the corporation formed by such consolidation, or into which the
Company shall have merged or by the purchaser of such property or assets; and
such assumption shall be an express condition of such merger or consolidation
agreement or agreement for the transfer of property or assets.
10. EVENTS OF DEFAULT. In case one or more of the following
events of default shall have occurred:
(a) default in the due and punctual payment of
interest upon or principal of any of the Debentures as and when the same becomes
due and payable either at maturity or otherwise; or
(b) failure to deliver the shares of Common Stock
required to be delivered upon conversion of, or in lieu of interest payments on,
the Debentures in the manner and at the time required by Section 5 of the
Securities Purchase Agreement; or
(c) failure of the Company to have authorized the
number of shares of Common Stock issuable upon conversion of, or in lieu of
interest payments on, the Debentures, or exercise of the Warrants; or
(d) failure on the part of the Company to duly
observe or perform any of its other covenants or agreements contained in, or to
cure any material breach in a material representation or covenant contained in
the Securities Purchase Agreement, the Debentures or the Registration Rights
Agreement for a period of ten (10) days after the date on which written notice
of such failure or breach requiring the same to be remedied has been given by a
Registered Holder to the Company; or
(e) a decree or order by a court having jurisdiction
has been entered adjudging the Company (or any Material Subsidiary (as herein
after defined)) bankrupt or insolvent, or approving a petition seeking
reorganization of the Company (or any Material Subsidiary) under any applicable
bankruptcy law and such decree or order
<PAGE>
has continued undischarged or unstayed for a period of thirty (30) days; or a
decree or order of a court having jurisdiction for the appointment of a receiver
or liquidator or trustee or assignee in bankruptcy or insolvency of the Company
(or any Material Subsidiary) or of all or substantially all of its property, or
for the winding-up or liquidation of its affairs, has been entered, and has
remained in force undischarged or unstayed for a period of thirty (30) days; or
(f) the Company (or any Material Subsidiary)
institutes proceedings to be adjudicated a voluntary bankrupt, or consents to
the filing of a bankruptcy proceeding against it, or files a petition or answer
or consent seeking reorganization under applicable law, or consents to the
filing of any such petition or to the appointment of a receiver or liquidator or
trustee or assignee in bankruptcy or insolvency of it or of all or substantially
all of its property, or makes an assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they become due;
or if the Company (or any Material Subsidiary) shall suffer any writ of
attachment or execution or any similar process to be issued or levied against
it or any significant part of its property which is not released, stayed,
bonded or vacated within thirty (30) days after its issue or levy; or if the
Company (or any Material Subsidiary) takes corporate action in furtherance of
any of the aforesaid purposes or conditions; or
(g) if any default shall occur under any indenture,
mortgage, agreement, instrument or commitment evidencing or under which there is
at the time outstanding any indebtedness of the Company (or a Material
Subsidiary), in excess of $50,000, or which results in such indebtedness, in an
aggregate amount (with other defaulted indebtedness) in excess of $50,000
becoming due and payable prior to its due date and if such indenture or
instrument so requires, the holder or holders thereof (or a trustee on their
behalf) shall have declared such indebtedness due and payable; or
(h) if any of the Company or its subsidiaries shall
default in the observance or performance of any material term or provision of a
material agreement to which it is a party or by which it is bound, and such
default is not waived or cured within the applicable grace period; or
(i) if a final judgment which, either alone or
together with other outstanding final judgments against the Company and its
subsidiaries, exceeds an aggregate of $50,000 shall be rendered against the
Company (or any Material Subsidiary) and such judgment shall have continued
undischarged or unstayed for thirty (30) days after entry thereof;
then, in each and every such case other than those specified in clauses (e) and
(f) above, so long as such event of default has not been remedied and unless the
principal of all the Debentures has already become due and payable, the holder
of this Debenture, by notice in writing to the Company, may declare the
principal of this Debenture and the interest accrued thereon, if not already due
and payable, to be due and payable immediately, and upon any such declaration
the same shall become and shall be immediately due and
<PAGE>
payable, anything herein contained to the contrary notwithstanding and, upon
the occurrence of the events specified in clauses (e) and (f) above, such
principal and interest shall automatically become and shall be due and payable
immediately without any action on the part of any holder of Debentures, anything
herein contained to the contrary notwithstanding.
For purposes of this Section 10, "Material
Subsidiary" means any subsidiary with respect to which the Company has directly
or indirectly invested, loaned, advanced or guaranteed the obligations of, an
aggregate amount exceeding fifteen percent (15%) of the Company's gross assets,
or the Company's proportionate share of the assets or net income of which (based
on the subsidiary's most recent financial statements) exceed fifteen percent
(15%) of the Company's gross assets or net income, respectively, or the gross
revenues of which exceed fifteen percent (15%) of the gross revenues of the
Company based upon the most recent financial statements of such subsidiary and
the Company.
11. TRANSFERABILITY. This Debenture is transferable, in whole
or in part, only in accordance with the terms of Section 5 of the Securities
Purchase Agreement. The Registered Holder may submit a written request, in
person or by his duly authorized attorney, for a transfer of this Debenture on
the register of the Company maintained at its principal offices. The Company may
deem and treat the person in whose name this Debenture is registered as the
absolute owner hereof, for the purpose of receiving payment of the principal
thereof and interest hereon, whether or not the same shall be overdue, and for
all other purposes whatsoever, including but without limitation, the giving of
any written notices required hereunder, and the Company shall not be affected by
any notice to the contrary
12. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time after the Original
Issue Date, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of Common
Stock, (ii) issue any securities payable in shares of Common Stock, (iii)
subdivide the outstanding shares of Common Stock into a larger number of shares,
(iv) combine outstanding shares of Common Stock into a smaller number of shares,
the Fixed Price and each Floating Reference Price prior to the date of any such
occurrence (collectively, the "Reference Prices") shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock outstanding after such event. Any adjustment made
pursuant to this Section 12(a) shall become effective immediately after the
record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of an issuance, a subdivision or a combination.
<PAGE>
(b) In the event that the Company, at any time after
the Original Issue Date, issues or sells any Common Stock or securities which
are convertible into or exchangeable for its Common Stock or any convertible or
exchangeable securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible or exchangeable securities (other than shares or options issued
pursuant to the Company's employee or director option plans or shares issued
upon exercise of options, warrants or rights outstanding on the date of the
Securities Purchase Agreement and listed in the Company's most recent periodic
report filed under the Exchange Act) at an effective purchase price per share
which is less than the Fixed Price then in effect, then the Fixed Price in
effect immediately prior to such issue or sale shall be reduced effective
concurrently with such issue or sale to an amount determined by multiplying such
Fixed Price then in effect by a fraction, (x) the numerator of which shall be
the sum of (1) the number of shares of Common Stock outstanding immediately
prior to such issue or sale, plus (2) the number of shares of Common Stock which
the aggregate consideration received by the Company for such additional shares
would purchase at such Fixed Price then in effect; and (y) the denominator of
which shall be the number of shares of Common Stock of the Company outstanding
immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the
case of the issuance of any convertible or exchangeable securities, warrants,
options or other rights to subscribe for or to purchase or exchange for, shares
of Common Stock ("Exchangeable Securities"), the maximum number of shares of
Common Stock issuable upon exercise, conversion or exchange of such Exchangeable
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon exercise,
exchange or conversion of such Exchangeable Securities.
(c) If the Company, at any time after the Original
Issue Date, shall distribute to all holders of Shares of Common Stock evidences
of its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Section 12(b) above) then in each
such case the Fixed Price thereafter shall be determined by multiplying the
Fixed Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction of which the denominator shall be the Market Price for Shares of Common
Stock (as defined below) determined as of the record date mentioned above, and
of which the numerator shall be such Market Price for Shares of Common Stock on
such record date less the then fair market value at such record date of the
portion of such assets or evidences of indebtedness so distributed applicable to
one outstanding share of Common Stock as determined by the Board in good faith;
PROVIDED, however that in the event of a distribution exceeding 25% of the net
assets of the Company, such fair market value shall be determined by an
Appraiser selected in good faith by the Board and holders of a majority in
interest of the Debentures. In either case the adjustments shall be described in
a statement provided to all holders of Debentures of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one outstanding share
<PAGE>
of Common Stock. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date mentioned
above.
"Market Price for Shares of Common Stock" shall mean
the price of one share of Common Stock determined as follows:
(i) If the Common Stock is then listed
or quoted on either the NASD Bulletin Board, the NASDAQ SmallCap Market or the
NASDAQ National Market, the reported closing bid price for the Common Stock as
reported by Bloomberg or the Journal on such day (or, if not so reported, as
otherwise reported by The NASDAQ Small Cap Market, NASDAQ National Market or the
NASD Bulletin Board, as the case may be);
(ii) If the Common Stock is listed on the
New York Stock Exchange or the American Stock Exchange, the closing bid price
for the Common Stock on such exchange on such day as reported by Bloomberg or
the Journal;
(iii) If neither (i) nor (ii) apply but the
Common Stock is quoted in the over-the-counter market, another recognized
exchange or on the pink sheets, the last reported bid price thereof on such
date; and
(iv) If neither clause (i), (ii) or (iii)
above applies, the market value as determined by a nationally recognized
investment banking firm or other nationally recognized financial advisor
retained by the Company for such purpose, taking into consideration, among
other factors, the earnings history, book value and prospects for the
Company, and the prices at which shares of Common Stock recently have been
traded. Such determination shall be conclusive and binding on all persons.
(d) (1) In the event that at any time or from time to
time after the Original Issue Date, the Common Stock issuable upon the
conversion of, or in lieu of interest payments on, the Debentures is changed
into the same or a different number of shares of any class or classes of stock,
whether by merger, consolidation, recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Paragraph 12), then and as a
condition to each such event provision shall be made in a manner reasonably
acceptable to the holders of Debentures so that each holder of Debentures shall
have the right thereafter to convert such Debenture into, and to receive in lieu
of interest payments, the kind of stock receivable upon such recapitalization,
reclassification or other change by holders of shares of Common Stock, all
subject to further adjustment as provided herein. In such event, the formulae
set forth herein for conversion and redemption shall be equitably adjusted to
reflect such change in number of shares or, if shares of a new class of stock
are issued, to reflect the market price of the class or classes of stock
(applying the same factors used in determining the Fixed Price) issued in
connection with the above described transaction.
<PAGE>
(2) If at any time or from time to time
after the Initial Closing Date there is a capital reorganization of the Common
Stock, including by way of a sale of all or substantially all of the assets of
the Company (other than a recapitalization, subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Paragraph
12), then, as a part of and a condition to such reorganization, provision shall
be made in a manner reasonably acceptable to the holders of the Debentures so
that the holders of the Debentures shall thereafter be entitled to receive upon
conversion of, or in lieu of interest payments on, the Debentures the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock deliverable upon conversion, or in lieu of interest
payments on, the Debentures would have been entitled on such capital
reorganization. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Paragraph 12 with respect to the rights of
the holders of the Debentures after the reorganization to the end that the
provisions of this Paragraph 12 shall be applicable after that event and be as
nearly equivalent as may be practicable, including, by way of illustration and
not limitation, by equitably adjusting the formulae set forth herein for
conversion and redemption to reflect the market price of the securities or
property (applying the same factors used in determining the Market Price for
Shares of Common Stock) issued in connection with the above described
transaction.
(e) If at any time during the period ending twelve
(12) months after the Original Issue Date, (but not including up to $1,000,000
of the $5,000,000 private offering of the Company's debentures that the Company
was in the process of placing prior to the Initial Closing Date and has
subscription agreements from investors for $275,000 as of the Initial Closing
Date) the Company sells or agrees to sell (including pursuant to a letter of
intent, term sheet, or similar means) shares of Common Stock or securities or
options convertible into, exercisable for, or exchangeable for, shares of Common
Stock (other than (i) a sale pursuant to a bona fide registered public offering
of shares of Common Stock by the Company conducted on the basis of a firm
commitment underwriting raising at least $10,000,000 and (ii) shares or options
issued pursuant to the Company's employee, director or consultant stock option
plans) then, if the effective or maximum sales price of the shares of Common
Stock with respect to such transaction (including the effective or maximum
conversion exercise or exchange price) ("Other Price") is less than the Fixed
Price of the Debentures at such time, the Company, at the option of a holder
exercised by written notice to the Company, shall adjust the Fixed Price
applicable to the Debentures of such holder not yet converted in form and
substance reasonably satisfactory to such holder of Debentures so that the
conversion price applicable to those Debentures shall, in no event, be greater,
after giving effect to all other adjustments contained therein, than the Other
Price.
(f) Whenever any element of the Applicable Conversion
Price is adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company
shall promptly mail to each holder of the Debentures, a notice setting forth the
Applicable Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
<PAGE>
(g) In the event of any taking by the Company of a
record date of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend or
other distribution, any security or right convertible or exchangeable into or
entitling the holder thereof to receive additional shares of Common Stock,
or any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other right,
the Company, shall deliver to each holder of Debentures at least thirty (30)
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution,
security or right and the amount and character of such dividend, distribution,
security or right.
13. REMEDIES CUMULATIVE. The rights, powers and remedies given
to the payee and Company under this Debenture shall be in addition to all
rights, powers and remedies given to it by virtue of the Securities Purchase
Agreement, any document or instrument executed in connection therewith, or any
statute or rule of law.
14. NON-WAIVER. Any forbearance, failure or delay by the payee
or Company in exercising any right, power or remedy under this Debenture, the
Securities Purchase Agreement, any documents or instruments executed in
connection therewith or otherwise available to the payee or Company shall not be
deemed to be a waiver of such right, power or remedy, nor shall any single or
partial exercise of any right, power or remedy preclude the further exercise
thereof.
15. MODIFICATIONS AND WAIVERS. No modification or waiver of
any provision of this Debenture, the Securities Purchase Agreement or any
documents or instruments executed in connection therewith shall be effective
unless it shall be in writing and signed by the payee and Company, and any such
modification or waiver shall apply only in the specific instance for which
given.
16. ATTORNEY'S FEES. If this Debenture shall not be paid when
due and shall be placed by the Registered Holder hereof in the hands of an
attorney for collection, through legal proceedings or otherwise, or if this
Debenture shall not be converted into shares of Common Stock on the Conversion
Date, subject to the provisions of Section 6 hereof, and an action is brought by
the Registered Holder with respect thereto, the Company shall pay attorney's
fees to the Registered Holder or if more than one Registered Holder then the
fees of one lead attorney hereof, together with reasonable costs and expenses of
collection or enforcement incurred in connection with any such action.
17. ENFORCEMENT; SPECIFIC PERFORMANCE. (a) In case any one or
more Events of Default shall occur and be continuing, a Registered Holder of a
Debenture then outstanding may proceed to protect and enforce the rights of such
holder by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby
<PAGE>
or thereby or by law. Each holder agrees that it will give written notice to the
other holders prior to instituting any such action.
(b) The Company expressly agrees that each
Registered Holder may not have adequate remedies at law if the Company does not
perform its obligations under this Debenture. Upon a breach of the terms or
covenants of this Debenture by the Company, the Registered Holder shall, each in
addition to all other remedies, be entitled to obtain injunctive relief, and an
order for specific performance of the Company's obligations hereunder.
18. GOVERNING LAW. This Debenture and the rights and
obligations of the parties hereto, shall be governed, construed and interpreted
according to the laws of the State of New York. The Company agrees that any
final judgment after exhaustion of all appeals or the expiration of time to
appeal in any such action or proceeding shall be conclusive and binding, and may
be enforced in any federal or state court in the United States by suit on the
judgment or in any other manner provided by law. Nothing contained in this
Debenture shall affect or limit the right of the Registered Holder to serve any
process or notice or motion or other application in any other manner permitted
by law, or limit or affect the right of the Registered Holder to bring any
action or proceeding against the Company or any of its property in the courts of
any other jurisdiction. The Company hereby consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or the
state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Debenture, and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions.
19. PAYEE DEFINED. The term "payee" as used herein shall be
deemed to include the payee and its successors, endorsees and assigns.
20. WAIVER OF PRESENTMENT, ETC. The undersigned hereby waives
presentment, demand for payment, protest, notice of protest and notice of
non-payment hereof.
21. HEADINGS. The headings contained in this Debenture are for
reference purposes only and shall not affect the meaning of interpretation of
this Debenture.
22. NOTICES. Any notice to any party required or permitted
hereunder shall be given in writing (unless otherwise specified herein) and
shall be effective upon personal delivery, via facsimile (upon receipt of
confirmation of error-free transmission) or two business days following deposit
of such notice with an internationally recognized courier service, with postage
prepaid and addressed to such party at the address set forth in the first
paragraph of this Agreement with a copy to the Company at the address set forth
below, and to the other parties thereunto entitled at the following addresses,
or at
<PAGE>
such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
COMPANY: Airtech International Group, Inc. 15400 Knoll Trail,
Suite #200 Dallas, Texas 77063 ATTENTION: C.J. Comu, CEO Tel: (972) 960-9400
x111 Fax: (972) 960-9395 REGISTERED HOLDER:PK Investors LLC c\o WEC Asset
Management LLC 110 Colabaugh Pond Road Croton-on-Hudson, New York 10520
ATTENTION: Daniel J. Saks Tel: (914) 271-2211 Fax: (914) 271-0889 WITH A COPY
TO: Pryor Cashman Sherman & Flynn LLP 410 Park Avenue New York, New York
10022 ATTENTION: Mark Saks, Esq. Tel: (212) 326-0140 Fax: (212) 326-0806
23. AMENDMENTS AND MODIFICATION. Changes in or additions to
this Debenture may be made, and compliance with any covenant or condition herein
set forth may be omitted only if the Company shall obtain the written consent
from the Registered Holder of this Debenture.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed as of
February 22, 2000.
AIRTECH INTERNATIONAL GROUP, INC.
By:_________________________________
_______
Name:
Title:
<PAGE>
NOTICE OF CONVERSION
The conversion form appearing below should only be executed by
the Registered Holder desiring to convert all or part of the principal amount of
the Debenture attached hereto.
CONVERSION FORM
Date: ____________________________________________
TO: AIRTECH INTERNATIONAL GROUP, INC.
The undersigned hereby exercises the conversion privilege upon
the terms and conditions set forth in the attached Debenture, to the extent of
the maximum number of shares of Common Stock issuable pursuant to the terms of
Section 6 of the Debenture, and accordingly, authorizes the Company to apply
$__________ principal amount of the attached Debenture to payment in full for
such shares of Common Stock. Please register such shares and make delivery
thereof as follows:
Registered in the Name of (Giving First or Middle Name in
Full)
Name_______________________________________________________
______
(Please Print)
Address____________________________________________________
______
<PAGE>
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to
persons other than the Registered Holder.
Name_______________________________________________________
_____
(Please Print)
Address____________________________________________________
______
Signature__________________________________________________
_____
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfer unto _______________________________________________________ with an
address at_____________________________________________________________________
__________________and a Federal Identification Number of_______________________
_____________the within Debenture and all rights thereunder, hereby irrevocably
authorizing the Company to transfer said Debenture on the books of the Company,
with full power of substitution in the premises.
Dated:_____________________________________________
Signature:__________________________________________
Print Name:________________________________________
EXHIBIT B
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 250,000
WARRANT
To Purchase Common Stock of
AIRTECH INTERNATIONAL GROUP, INC.
THIS IS TO CERTIFY THAT PK Investors LLC, a Delaware limited
liability company, or its registered assigns, is entitled, at any time from the
Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from Airtech International Group, Inc., a
Wyoming corporation (the "Company"), two hundred fifty thousand (250,000) shares
of Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
per share equal to $2.585 (subject to any adjustments made to such amount
pursuant to Section 4 hereto) on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS
<PAGE>
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Initial Closing Date, other than
Warrant Stock.
"Book Value" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book value of the Company
as of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by a firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.05 per share, of the Company as
constituted on the Initial Closing Date, and any capital stock into which such
Common Stock may thereafter be changed, and shall also include (i) capital stock
of the Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, $2.585 subject to any
adjustments to such amount made in accordance with Section 4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
<PAGE>
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall February 22, 2005.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, outstanding on such
date, and other options or warrants to purchase, or securities convertible into,
including without limitation the shares of Common Stock outstanding on such date
which would be deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Initial Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement.
"Market Price" per Common Share means the average of the
closing bid prices of the Common Shares as reported on the National Association
of Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter market on
the day in question as reported by the National Association of Security Dealers,
Inc., or a similar generally accepted reporting service, as the case may be, for
the five (5) trading days immediately preceding the date of determination.
"Other Property" shall have the meaning set forth in Section
4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal
<PAGE>
or otherwise, including, without limitation, any instrumentality, division,
agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated a date even herewith by and between the Company and PK
Investors LLC, as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement dated as of a date even herewith by and between the Company
and PK Investors LLC, as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrant Issuance Date" shall mean any date on which Warrants
are issued pursuant to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. From and after the Warrant Issuance
Date and until 5:00 P.M., New York City time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder.
<PAGE>
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment by cash, check or bank draft payable to the Company
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank or by the Holder's surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as EXHIBIT A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Warrant Price. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
The Holder shall be entitled to exercise the Warrant
notwithstanding the commencement of any case under 11 U.S.C. Section 101 ET
SEQ. (the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. Section 362 in respect of
the Holder's exercise right. The Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the exercise of the Warrant. The Company agrees, without cost or
expense to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
2.2. PAYMENT OF TAXES AND CHARGES. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable, and without any preemptive rights.
The Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof.
2.3. FRACTIONAL SHARES. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a
<PAGE>
share which Holder would otherwise be entitled to purchase upon such exercise,
the Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Market Price per share of Common Stock
on the relevant exercise date.
2.4. CONTINUED VALIDITY. A holder of shares of Common Stock
issued upon the exercise of this Warrant, in whole or in part (other than a
holder who acquires such shares after the same have been publicly sold pursuant
to a Registration Statement under the Securities Act or sold pursuant to Rule
144 thereunder), shall continue to be entitled with respect to such shares to
all rights to which it would have been entitled as Holder under Sections 9, 10
and 14 of this Warrant. The Company will, at the time of exercise of this
Warrant, in whole or in part, upon the request of Holder, acknowledge in
writing, in form reasonably satisfactory to Holder, its continuing obligation to
afford Holder all such rights; PROVIDED, HOWEVER, that if Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford to Holder all such rights.
2.5. RIGHT TO CONVERT WARRANT. The Holder shall have the right to
convert, in whole or in part, this Warrant (the "Conversion Right") at any time
prior to the expiration of the Exercise Period, into shares of Common Stock in
accordance with this Section 2.5, provided that such Conversion Right shall not
be available to the Holder in the event that the registration statement filed
pursuant to the Registration Rights Agreement covering the Registrable
Securities (as defined in the Registration Rights Agreement) is effective. Upon
exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of the Warrant Price) that number of shares of
Common Stock equal to the quotient obtained by dividing (x) the value of the
portion of this Warrant being converted at the time the Conversion Right is
exercised (determined by subtracting the Warrant Price for the portion of this
Warrant being converted (in effect immediately prior to the exercise of the
Conversion Right) from the amount obtained by multiplying the number of shares
of Common Stock issuable upon the whole or partial exercise of this Warrant, as
the case may be, by the Market Price immediately prior to the exercise of the
Conversion Right) by (y) the Market Price of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
The Conversion Right may be exercised by the Holder, at any
time or from time to time, prior to its expiration, on any business day by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company, exercising the Conversion Right and specifying (i) the
total number of shares of Common Stock the Holder will purchase pursuant to the
conversion and (ii) a place and date not less than two (2) nor more than twenty
(20) Business Days from the date of the Conversion Notice for the closing of
such purchase.
At any closing under this Section 2.5, (i) the Holder will
surrender this Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion. If this Warrant shall
<PAGE>
have been converted only in part, the Company shall, at the time of delivery of
said stock certificate or certificates, deliver to the Holder a new Warrant
evidencing the rights of the Holder to purchase the remaining shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical to this Warrant, or, at the request of the Holder, appropriate
notation may be made on this Warrant and the same returned to the Holder. The
Company shall pay all expenses, taxes and other charges payable in connection
with the preparation, issue and delivery of such stock certificates and new
Warrants, except that, in case such stock certificates and/or new Warrants shall
be registered in a name or names other than the name of the Holder, funds
sufficient to pay all stock transfer taxes that are payable upon the issuance of
such stock certificates or new Warrants shall be paid by the Holder at the time
of delivering the notice of exercise mentioned above.
3. TRANSFER, DIVISION AND COMBINATION
3.1. TRANSFER. Subject to compliance with Sections 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant substantially in
the form of EXHIBIT B hereto duly executed by Holder or its agent or attorney.
Upon such surrender, the Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
3.3. EXPENSES. The Company shall prepare, issue and deliver
at its own expense the new Warrant or Warrants under this Section 3.
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at
its aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
4. ADJUSTMENTS
<PAGE>
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any
time the Company shall:
(a) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS.
(a) If at any time prior to the Expiration
Date the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its indebtedness,
any shares of its stock or any other securities or
property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common
Stock), or
(iii) any warrants or other rights to
subscribe for or purchase any evidences of its
indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever
(other than cash, Convertible Securities or
Additional Shares of Common Stock),
<PAGE>
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
(b) In case the Company shall issue any Common
Stock or any rights, options or warrants to all holders of record of its Common
Stock (each an "Issuance") entitling all holders to subscribe for or purchase
shares of Common Stock at a price per share less than the Market Price per share
of the Common Stock on the date fixed for such issue, the Current Warrant Price
in effect immediately prior to the close of business on the date fixed for such
determination shall be reduced to the amount determined by multiplying such
Current Warrant Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the close of business
on the date fixed for such determination plus the number of shares of Common
Stock which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Market Price and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the close of business on the date
fixed for such determination plus the number of shares of Common Stock so
offered for subscription or purchase, such reduced amount to become effective
immediately after the close of business on the date fixed for such
determination. For the purposes of this clause (b), (i) the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company and (ii) in the case of any rights, options or warrants
which expire by their terms not more than 60 days after the date of issue, sale,
grant or assumption thereof, no adjustment of the Current Warrant Price shall be
made until the expiration or exercise of all rights, options or warrants,
whereupon such adjustment shall be made in the manner provided in this clause
(b), but only with respect to the shares of Common Stock actually issued
pursuant thereto. Such adjustment shall be made successively whenever any event
specified above shall occur up to February 22, 2003. For Company Issuances after
February 22, 2003 no adjustment pursuant to this Section 4.2 shall be made. The
Company agrees to notify the Holders as soon as practical of any Issuances after
February 22, 2003 to allow reasonable time to convert. In the event that any or
all rights, options or warrants covered by this clause (b) are not so issued or
expire or terminate before being exercised, the Current Warrant Price then in
effect shall be appropriately readjusted.
4.3. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provisions shall be applicable to the making of
adjustments of the number
<PAGE>
of shares of Common Stock for which this Warrant is exercisable and the Current
Warrant Price provided for in this Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The
adjustments required by this Section 4 shall be made whenever and as often as
any specified event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) FRACTIONAL INTERESTS. In computing
adjustments under this Section 4, fractional interests in Common Stock shall be
taken into account to the nearest 1/10th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) CHALLENGE TO GOOD FAITH DETERMINATION.
Whenever the Board of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under this Section 4,
such determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized national
standing selected by the Holder and reasonably acceptable to the Company.
4.4. REORGANIZATION, RECLASSIFICATION, MERGER,
CONSOLIDATION OR DISPOSITION OF ASSETS. In case the Company shall reorganize
its capital, reclassify its capital stock, consolidate or merge with or into
another corporation (where the Company is not the surviving corporation or
where there is a change in or distribution with respect to the Common Stock of
the Company), or sell, transfer or otherwise dispose of all or substantially all
its property, assets or business to another corporation and, pursuant to the
terms of such reorganization, reclassification, merger, consolidation or
disposition of assets, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, the number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property receivable upon or as a result
of such reorganization, reclassification, merger, consolidation or disposition
of assets by a holder of the number of shares of Common Stock for which this
Warrant is exercisable immediately prior to such event. In case of any such
reorganization, reclassification,
<PAGE>
merger, consolidation or disposition of assets, the successor or acquiring
corporation (if other than the Company) shall expressly assume the due and
punctual observance and performance of each and every covenant and condition of
this Warrant to be performed and observed by the Company and all the
obligations and liabilities hereunder, subject to such modifications as may be
deemed appropriate, subject to the Holder's consent, in order to provide for
adjustments of shares of Common Stock for which this Warrant is exercisable
which shall be as nearly equivalent as practicable to the adjustments provided
for in this Section 4. For purposes of this Section 4.4, "common stock of the
successor or acquiring corporation" shall include stock of such corporation of
any class which is not preferred as to dividends or assets over any other class
of stock of such corporation and which is not subject to redemption and shall
also include any evidences of indebtedness, shares of stock or other securities
which are convertible into or exchangeable for any such stock, either
immediately or upon the arrival of a specified date or the happening of a
specified event and any warrants or other rights to subscribe for or purchase
any such stock. The foregoing provisions of this Section 4.4 shall similarly
apply to successive reorganizations, reclassifications, mergers, consolidations
or disposition of assets.
4.5. OTHER ACTION AFFECTING COMMON STOCK. In case at any
time or from time to time the Company shall take any action in respect of its
Common Stock, other than any action taken in the ordinary course of the
Company's business or any action described in this Section 4, which would have
a material adverse effect upon the rights of the Holder, the number of shares of
Common Stock and/or the purchase price thereof shall be adjusted in such manner
as may be equitable in the circumstances, as determined in good faith by an
investment bank selected by Holder.
4.6. CERTAIN LIMITATIONS. Notwithstanding anything herein
to the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
4.7. NO VOTING RIGHTS. This Warrant shall not entitle its
Holder to any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares
of Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by an executive officer of the Company
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated, specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
<PAGE>
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to Section
12 copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder, its
representatives, or any prospective purchaser of a Warrant designated by the
Holder.
5.2. NOTICE OF CORPORATE ACTION. If at any time
(a) the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or other distribution, or any right to subscribe for or purchase any
evidences of its indebtedness, any shares of stock of any class or any other
securities or property, or to receive any other right, or
(b) there shall be any capital reorganization
of the Company, any reclassification or recapitalization of the capital stock of
the Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property, assets
or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i)
at least thirty (30) Business Days' prior written notice of the date on which
a record date shall be selected for such dividend, distribution or right or
for determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least thirty (30)
Business Days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common
Stock shall be entitled to any such dividend, distribution or right, and the
amount and character thereof, and (ii) the date on which any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up is to take place and the
time, if any such time is to be fixed, as of which the holders of Common
Stock shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up. Each such written notice shall be
sufficiently given if addressed to Holder at the last address of Holder
appearing on the books of the Company and delivered in accordance with
Section 14.2.
<PAGE>
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Initial Closing Date, the Company shall at
all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
<PAGE>
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record as of the close of business on a Business
Day. The Company will not at any time close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise
or transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. RESTRICTIVE LEGEND. The Holder by accepting this
Warrant and any Warrant Stock agrees that this Warrant and the Warrant Stock
issuable upon exercise hereof may not be assigned or otherwise transferred
unless and until (i) the Company has received an opinion of counsel for the
Holder that such securities may be sold pursuant to an exemption from
registration under the Securities Act or (ii) a registration statement
relating to such securities has been filed by the Company and declared
effective by the Commission.
(a) Each certificate for Warrant Stock issuable
hereunder shall bear a legend substantially worded as follows unless
such securities have been sold pursuant to an effective registration
statement under the Securities Act:
"The securities represented by this
certificate have not been registered under the
Securities Act of 1933, as amended (the "Act")
or any state securities laws. The securities
may not be offered for sale, sold, assigned,
offered, transferred or otherwise distributed
for value except (i) pursuant to an effective
registration statement under the Act or any
state securities laws or (ii) pursuant to an
exemption from registration or prospectus
delivery requirements under the Act or any
state securities laws in respect of which the
Company has received an opinion of counsel
satisfactory to the Company to such effect.
Copies of the agreement covering both the
purchase of the securities and restricting
their transfer may be obtained at no cost by
written request made by the holder of record of
<PAGE>
this certificate to the Secretary of the Company
at the principal executive offices of the
Company."
(b) Except as otherwise provided in this Section 9,
shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"This Warrant and the securities
represented hereby have not been registered
under the Securities Act of 1933, as amended,
or any state securities laws and may not be
transferred in violation of such Act, the
rules and regulations thereunder or any state
securities laws or the provisions of this
Warrant."
9.2. NOTICE OF PROPOSED TRANSFERS. Prior to any Transfer
or attempted Transfer of any Warrants or any shares of Restricted Common Stock,
the Holder shall give five (5) days' prior written notice (a "Transfer Notice")
to the Company of Holder's intention to effect such Transfer, describing the
manner and circumstances of the proposed Transfer, and obtain from counsel to
Holder an opinion that the proposed Transfer of such Warrants or such Restricted
Common Stock may be effected without registration under the Securities Act or
state securities laws. After the Company's receipt of the Transfer Notice and
opinion, such Holder shall thereupon be entitled to Transfer such Warrants or
such Restricted Common Stock, in accordance with the terms of the Transfer
Notice. Each certificate, if any, evidencing such shares of Restricted Common
Stock issued upon such Transfer and the Warrant issued upon such Transfer shall
bear the restrictive legends set forth in Section 9.1, unless in the opinion of
such counsel such legend is not required in order to ensure compliance with the
Securities Act.
9.3. REQUIRED REGISTRATION. Pursuant to the terms and
conditions set forth in the Registration Rights Agreement, the Company shall
prepare and file with the Commission not later than the thirtieth (30th) day
after the Initial Closing Date, a Registration Statement relating to the offer
and sale of the Common Stock issuable upon exercise of the Warrants and shall
use its best efforts to cause the Commission to declare such Registration
Statement effective in accordance with the terms set forth in Section 2(a) of
the Registration Rights Agreement.
9.4. TERMINATION OF RESTRICTIONS. Notwithstanding the
foregoing provisions of Section 9, the restrictions imposed by this Section upon
the transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and applicable state
securities laws and disposed of pursuant thereto or (ii) when the
<PAGE>
Company shall have received an opinion of counsel that such shares may be
transferred without registration thereof under the Securities Act and applicable
state securities laws. Whenever the restrictions imposed by Section 9 shall
terminate as to this Warrant, as hereinabove provided, the Holder hereof shall
be entitled to receive from the Company upon written request of the Holder, at
the expense of the Company, a new Warrant bearing the following legend in place
of the restrictive legend set forth hereon:
"THE RESTRICTIONS ON
TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED
ON ________, 20__, AND ARE OF NO FURTHER
FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 9.1.
9.5. LISTING ON SECURITIES EXCHANGE. If the Company shall
list any shares of Common Stock on any securities exchange, it will, at its
expense, list thereon, maintain and, when necessary, increase such listing of,
all shares of Common Stock issued or, to the extent permissible under the
applicable securities exchange rules, issuable upon the exercise of this Warrant
so long as any shares of Common Stock shall be so listed during the Exercise
Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; PROVIDED, in the case of mutilation, no indemnity
<PAGE>
shall be required if this Warrant in identifiable form is surrendered to the
Company for cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant, such office to
be initially located at 15400 Knoll Trail, Suite #200, Dallas, Texas 75248, fax
(972) 960-9395, provided, however, that the Company shall provide prior written
notice to Holder of a change in address no less than thirty (30) days prior to
such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
14. MISCELLANEOUS
14.1. NONWAIVER AND EXPENSES. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies, notwithstanding all rights hereunder terminate on the Expiration
Date. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
direct and indirect losses, damages, costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2. NOTICE GENERALLY. Except as may be otherwise provided
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, or by a nationally recognized overnight courier
service, and shall be deemed given when so delivered personally or by overnight
courier service, or, if mailed, three (3) days after the date of deposit in the
United States mails, as follows:
(1) if to the Company, to:
Airtech International Group, Inc.
15400 Knoll Trail, Suite #200
<PAGE>
Dallas, Texas 75248
Attention: C.J. Comu, CEO
Tel: (972) 960-9400 x111
Fax: (972) 960-9395
(2) if to the Purchaser to:
PK Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
with a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. INDEMNIFICATION. The Company agrees to indemnify and
hold harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against Holder in any manner relating to or arising out of any failure
by the Company to perform or observe in any respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant.
14.4. REMEDIES. Holder in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
successors and assigns of Holder. The provisions of this Warrant are intended to
be for the benefit of all Holders from time to time of this Warrant and, with
respect to Section 9 hereof, holders of Warrant Stock,
<PAGE>
and shall be enforceable by any such Holder or holder of Warrant Stock.
14.6. AMENDMENT. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived only with the prior written
consent of the Company and the Holder.
14.7. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.8. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.9. GOVERNING LAW. This Warrant shall be governed by the
laws of the State of New York, without regard to the provisions thereof relating
to conflict of laws. The Company consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Warrant or any of the transactions
contemplated hereby, and hereby waives, to the maximum extent permitted by law,
any objection, including any objections based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY
BLANK] IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: February 22, 2000
AIRTECH INTERNATIONAL GROUP, INC.
By:___________________________
Name:
Title:
Attest:
<PAGE>
By:___________________________
Name:
Title:
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of Airtech
International Group, Inc., and herewith makes payment therefor in cash or by
check or bank draft made payable to the Company, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered
to _____________ whose address is _________________ and whose Federal
Identification Number is ________________and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as provided in
this Warrant, that a new Warrant of like tenor and date for the balance of
the shares of Common Stock issuable hereunder be delivered to the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every particular, without
alteration or
<PAGE>
enlargement or any change whatsoever.
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
<TABLE>
<CAPTION>
Name and Federal Number of Shares
Address of Assignee Identification Number of Common Stock
- ------------------- --------------------- ----------------
<S> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of Airtech International
Group, Inc., maintained for the purpose, with full power of substitution in the
premises.
Dated:__________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
EXHIBIT C
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE
<PAGE>
OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH
ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER HEREOF TO THE COMPANY
OF AN OPINION OF COUNSEL STATING THAT AN EXEMPTION FROM REGISTRATION UNDER
SUCH ACT IS THEN AVAILABLE.
AIRTECH INTERNATIONAL GROUP, INC.
CONDITIONAL WARRANT TO PURCHASE 6%
CONVERTIBLE DEBENTURES
AND WARRANTS TO PURCHASE COMMON STOCK
THE TRANSFERABILITY OF THIS SUPPLEMENTAL WARRANT
IS RESTRICTED AS PROVIDED IN SECTION 2.
Void after December 22, 2000 Right to Purchase up to $2,500,000
principal amount of 6% Convertible
Debentures and Warrants to Purchase
up to 250,000 Shares of Common Stock
PREAMBLE
Airtech International Group, Inc. (the "Company"), a Wyoming
corporation, hereby certifies that, for value received, PK Investors LLC, whose
address is 110 Colabaugh Pond Road, Croton-on-Hudson, New York 10520, or its
registered assigns (hereinafter, the "Registered Holder"), is, subject to the
terms set forth herein, entitled to purchase from the Company at any time or
from time to time beginning on the date hereof and ending at 5:00 P.M. New York
time, on the date ten (10) months from the date hereof (the "Expiration Time")
up to (i) two million five hundred thousand dollars ($2,500,000) of the
Company's 6% Convertible Debentures (the "Additional Debentures") substantially
in the form of EXHIBIT A to the Securities Purchase Agreement (as defined below)
and (ii) warrants (the "Additional Warrants") to purchase one hundred thousand
(100,000) shares of common stock, par value $.05 per share (the "Common Stock")
for each one million dollars in principal value Additional Debentures purchased
hereunder. For purposes of this warrant (the "Supplemental Warrant") the
aggregate price paid by the Registered Holder for the Additional Debentures and
the Additional Warrants, as applicable, is referred to herein as the "Purchase
Price".
Subject to the terms set forth herein from time to time, beginning
ninety(90) days
<PAGE>
after the date on which the registration statement covering the Securities is
declared effective by the Commission and ending at the Expiration Time and
provided that the Closing Bid Price on the date of delivery of the
Supplemental Exercise Notice is greater than the Closing Bid Price on the
Initial Closing Date, at the election of the Company upon delivery of a
Supplemental Exercise Notice to the Registered Holder, the Registered Holder
shall at any time or from time to time before the Expiration Time be required
to exercise this Supplemental Warrant and purchase up to two million five
hundred thousand dollars ($2,500,000) of Additional Debentures and Additional
Warrants to purchase up to two hundred fifty thousand (250,000) shares of
Common Stock (minus any such Additional Debentures and Additional Warrants
previously purchased hereunder), at the Purchase Price; provided, that, the
Registered Holder shall not be required to exercise and purchase any such
shares if at any time from and after the delivery to the Registered Holder of
the Supplemental Exercise Notice through the Supplemental Closing Date (the
"Interim Period") any of the Closing Conditions (as defined below) shall not
have been satisfied.
This Warrant is the Supplemental Warrant (the "Supplemental Warrant")
to purchase up to two million five hundred thousand dollars ($2,500,000) of
Additional Debentures and Additional Warrants to purchase up to two hundred
fifty thousand (250,000) shares of Common Stock issued pursuant to the
Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of
February 22, 2000, by and between the Company and PK Investors LLC. The
Securities Purchase Agreement contains certain additional terms that are binding
upon the Company and each Registered Holder of this Supplemental Warrant. A copy
of the Securities Purchase Agreement, including the Exhibits thereto, may be
obtained by any Registered Holder of the Supplemental Warrant from the Company
upon written request. Capitalized terms used but not defined herein shall have
the meanings set forth in the Securities Purchase Agreement, including the
Exhibits thereto.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Closing Bid Price" shall mean the closing bid price on
any trading day (a) if the Common Stock is then listed or quoted on either the
NASD Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National Market,
the reported closing bid price for the Common Stock as reported by Bloomberg
L.P. or The Wall Street Journal or on such day (or, if not so reported, as
otherwise reported by The NASDAQ Small Cap Market, NASDAQ National Market or the
NASD Bulletin Board, as the case may be), (b) if the Common Stock is listed on
either the American Stock Exchange or New York Stock Exchange, the closing bid
price for the Common Stock on such exchange on such day as reported by Bloomberg
or the Journal or (c) if neither (a) nor (b) apply but the Common Stock is
quoted in the over-the-counter market, another recognized exchange, or on the
pink sheets, the last reported bid price thereof on such date. If the prices of
the Common Stock cannot be calculated on such date on any of the foregoing
bases, such prices on such date shall be the fair market value as mutually
<PAGE>
determined by the Company and the Registered Holder for which the calculation
is required in order to determine the Applicable Conversion Price; PROVIDED,
HOWEVER, that if the Company and the Registered Holder are unable to mutually
determine the fair market value, such fair market value shall be determined
by an by a nationally recognized investment banking firm or firm of
independent certified public accountants of recognized standing (which firm
may be the firm that regularly examines the financial statements of the
Company) selected in good faith by the Board and holders of a majority in
interest of the Debentures.
(b) The term "Company" includes any corporation which shall succeed to
or assume the obligations of the Company hereunder.
(c) The term "Common Stock" includes all shares of any
class or classes (however designated) of the Company, authorized
on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a
share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on
any shares entitled to preference, and the holders of which
shall ordinarily be entitled to vote for the election of
directors of the Company (even though the right so to vote has
been suspended by the happening of a contingency).
(d) The term the "Supplemental Exercise Notice" shall mean
a written notice delivered not less than ten (10) business days
nor more than twenty (20) business days prior to the
Supplemental Closing Date which sets forth the Additional
Debentures and the number of shares of Common Stock purchasable
pursuant to the Additional Warrant.
(e) The term the "Supplemental Closing Date" shall mean the
date specified in a duly delivered Supplemental Exercise Notice.
(f) The term "Major Transaction" shall be deemed to have
occurred at such time as any of the following events: (i) the
consolidation, merger or other business combination of the
Company with or into another person (other than (A) pursuant to
migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company, or (B) a
consolidation, merger or other business combination in which the
Company is the surviving entity and holders of the Company's
voting power immediately prior to the transaction continue after
the transaction to hold, directly or indirectly, the voting
power necessary to elect a majority of the members of the board
of directors of the Company); (ii) the sale or transfer of all
or substantially all of the Company's assets; or (iii)
consummation of a purchase, tender or exchange offer made to the
holders of more than thirty percent (30%) of the outstanding
shares of Common Stock.
<PAGE>
(g) The term "Material Adverse Change" means any change, event, result
or happening involving, directly or indirectly, the Company or any of its
subsidiaries resulting in a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(h) The term "Other Securities" refers to any class of
shares (other than Common Stock) and other securities of the
Company or any other person (corporate or otherwise) which the
holder of this Supplemental Warrant at any time shall be
entitled to receive, or shall have received, upon the exercise
of the Supplemental Warrant, in lieu of or in addition to the
Additional Debentures and Additional Warrants, or which at any
time shall be issuable or shall have been issued in exchange for
or in replacement of the Additional Debentures or Additional
Warrants or Other Securities.
(i) The term "Triggering Event" shall be deemed to have occurred at
such time as any of the following events: (i) the failure of the Initial
Registration Statement to be declared effective by the Securities and Exchange
Commission on or prior to the Effectiveness Deadline; (ii) while the Initial
Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the Initial
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Additional
Debentures for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
five (5) consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such holders
of Registrable Securities; (iii) the suspension from listing or the failure of
the Common Stock to be listed on the OTC Bulletin Board, the Nasdaq SmallCap
Market, the Nasdaq National Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five (5) consecutive days; (iv)
the Company's notice to any holder of Debentures, including by way of public
announcement, at any time, of its intention not to comply with proper requests
for conversion of Debentures into shares of Common Stock; (v) if the Closing Bid
Price for the Common Stock shall be less than two dollars ($2.00) per share at
any time during the Interim Period; (vi) the Company's stockholders shall not
have authorized and approved the transactions contemplated by the Securities
Purchase Agreement and this Warrant in accordance with applicable law; (vii) a
material breach by the Company of any representation, warranty, covenant or
other term or condition of the Securities Purchase Agreement, the Registration
Rights Agreement, this Supplemental Warrant or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby or hereby; (viii) if the average daily trading volume of
the Common Stock on the OTC Bulletin Board, the Nasdaq SmallCap Market, the
Nasdaq National Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc., as applicable, is less than thirty thousand (30,000) shares per
day during
<PAGE>
the thirty (30) trading days prior to the Supplemental Closing Date;
or; or (ix) if John Potter or C.J. Comu are no longer employed by the Company
in the position which they served the Company on the Initial Closing Date.
1. REGISTRATION RIGHTS.
The rights of the holder of this Supplemental Warrant to register the
shares of Common Stock issuable upon conversion of the Additional Debentures
purchasable hereunder and the shares of Common Stock issuable upon exercise
of the Additional Warrants purchasable hereunder shall be as stated in the
Registration Rights Agreement, which agreement is EXHIBIT E to the Securities
Purchase Agreement.
2. RESTRICTED STOCK.
If, at the time of any transfer or exchange of this Supplemental
Warrant or any Additional Debentures or Additional Warrants issuable upon
exercise of this Supplemental Warrant (other than a transfer or exchange not
involving a change in the beneficial ownership of this Supplemental Warrant or
any Additional Debentures or Additional Warrants, as applicable), such
Supplemental Warrant, such Additional Debentures or such Additional Warrants
shall not be registered under the Securities Act, and the Company's obligation
to transfer such Supplemental Warrant, such Additional Debentures or such
Additional Warrants shall be subject to the provisions of Section 4 of the
Securities Purchase Agreement.
3. EXERCISE OF SUPPLEMENTAL WARRANT AND ISSUANCE OF ADDITIONAL DEBENTURES AND
ADDITIONAL WARRANTS.
3.1. EXERCISE IN FULL. The holder of this Supplemental Warrant may, and
shall on the Supplemental Closing Date, provided the Supplemental Exercise
Notice is given and the Closing Conditions are satisfied as required below,
exercise this Supplemental Warrant in full by surrendering this Supplemental
Warrant, with the form of Election to Purchase at the end hereof duly executed
by such holder, to the Company in the manner set forth in Section 11 of the
Securities Purchase Agreement. The surrendered Supplemental Warrant shall be
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount equal to two million five hundred
thousand dollars ($2,500,000).
3.2. PARTIAL EXERCISE. This Warrant may, and shall on the Supplemental
Closing Date provided, the Supplemental Exercise Notice is given and the Closing
Conditions are satisfied as required above, be exercised in part by surrender of
this Supplemental Warrant in the manner provided in Subsection 3.1, except that
the exercise price shall be equal to the aggregate principal amount of the
Company's Debentures as shall be designated by the holder or the Company, as
applicable, in the Supplemental Exercise Notice. On any such partial exercise,
subject to the provisions of Section 2 hereof, the Company, at its expense, will
forthwith issue and deliver to or upon the order of the Registered Holder hereof
a new Supplemental Warrant or Supplemental Warrants
<PAGE>
of like tenor, in the name of the Registered Holder hereof or as such Registered
Holder may request, calling in the aggregate on the face or faces thereof for
the Additional Debentures and Additional Warrants equal to the number of shares
of Additional Debentures and Additional Warrants called for on the face of this
Supplemental Warrant minus the number of such shares designated by the
Registered Holder in the applicable Supplemental Exercise Notice.
3.3. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise, exchange or transfer of this Supplemental Warrant, upon the request of
the Registered Holder hereof, acknowledge in writing its continuing obligation
to afford to such Registered Holder or transferee any rights (including, without
limitation, any right to registration of the Company's shares of Common Stock)
to which such Registered Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Supplemental Warrant, provided that if the Registered Holder of this
Supplemental Warrant shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such Registered
Holder or transferee any such rights.
3.4. SUPPLEMENTAL WARRANT TO PURCHASE COMMON STOCK. Within five (5)
Business Days of any exercise of this Supplemental Warrant, the Company shall
issue to the Registered Holder a Warrant substantially in the form of EXHIBIT B
to the Securities Purchase Agreement (except that initially the Current Warrant
Price shall be equal to 110% of average closing bid price for five (5) trading
days prior to the date of exercise of the Supplemental Warrant) to purchase such
number of shares of Common Stock as shall equal the product of (x) .10 and (y)
the Purchase Price paid by the Registered Holder pursuant to any exercise of
this Supplemental Warrant.
4. DELIVERY OF SHARE CERTIFICATES UPON EXERCISE. Following the exercise of this
Supplemental Warrant in full or in part, within the time periods and in the
manner provided by Section 5(b) of the Securities Purchase Agreement, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the Registered
Holder hereof, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, a Debenture substantially
in the form of EXHIBIT A to the Securities Purchase Agreement to which such
Registered Holder shall be entitled on such exercise.
CLOSING CONDITIONS. Notwithstanding anything herein to the contrary, the Company
shall not be permitted to deliver a Supplemental Exercise Notice, nor shall the
Registered Holder be required to exercise and purchase on a Supplemental Closing
Date any Additional Debentures and Additional Warrants unless in either case
each of the following conditions is satisfied: (i) the Initial Registration
Statement shall have been declared effective and shall remain effective for a
period of at least ninety (90) days and at all times during the applicable
Interim Period; (ii) the Closing Bid Price for the Common Stock shall not be
less than two dollars and fifty cents ($2.50) per share; (iii) during the period
beginning on the original issue date of this Supplemental Warrant and
<PAGE>
ending on and including the applicable Supplemental Closing Date, there shall
not have occurred (A) a public announcement of a Major Corporate Event which
has not been abandoned or terminated, (B) a Triggering Event or (C) a
Material Adverse Change; (iv) at all times during the period beginning on the
original issue date of this Supplemental Warrant and ending on and including
the applicable Supplemental Closing Date, the Common Stock shall have been
designated on the NASDAQ OTC Bulletin Board, the Nasdaq SmallCap Market or
National Market System and shall not have been suspended from trading thereon
and the Company shall not have been notified of any pending or threatened
proceeding or other action to delist or suspend the Common Stock from so
trading; (v) the Company's Articles of Incorporation as amended pursuant to
the Articles of Amendment filed pursuant to the Securities Purchase Agreement
shall be in full force and effect and shall not have been amended since the
original issue date of this Supplemental Warrant; (vi) the representations
and warranties of the Company in the Securities Purchase Agreement shall be
true and correct as of the date when made and as of the applicable
Supplemental Closing Date as though made at that time (except for
representations and Supplemental Warranties that speak as of a specific date)
and the Company shall have performed, satisfied and complied with the
covenants, agreements and conditions required by the Primary Documents to be
performed, satisfied or complied with by the Company at or prior to the
applicable Supplemental Closing Date (and the Registered Holder of this
Supplemental Warrant shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the applicable Supplemental
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such holder); and (vii) as of the applicable
Supplemental Closing Date, the Company shall have reserved out of its
authorized and unissued Common Stock, the sum of (i) two (2) times the sum of
(x) maximum number of shares of Common Stock that could be issuable upon the
conversion of the Initial Shares and (y) the maximum number that could be
issuable upon conversion of the Additional Shares and (ii) the sum of the
number of shares of Common Stock issuable upon exercise in full of the
Initial Warrants and the Additional Warrant, in each case without regard to
whether the Supplemental Warrant shall have been exercised solely for the
purpose of effecting the conversion of Additional Debentures and Exercise of
the Additional Warrants, as applicable.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its Articles
of Incorporation or By-laws, or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Supplemental Warrant, but will at all times in good faith
assist in the carrying out of all such terms and in the taking of all such
action as may be necessary or appropriate in order to protect the rights of the
holders of the Supplemental Warrants, as specified herein and in the Securities
Purchase Agreement, against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value of
any Shares receivable on the exercise of the Supplemental Warrant above the
amount payable therefor on such exercise, and (b) will not effect a subdivision
or split up of shares or similar transaction with respect to any class of the
Common Stock without
<PAGE>
effecting an equivalent transaction with respect to all other classes of Common
Stock.
7. NOTICE OF RECORD DATE. In case of:
(a) any taking by the Company of a record of the holders of
any class of its securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or
(c) events shall have occurred resulting in the voluntary or
involuntary dissolution, liquidation or winding up of the Company, then and in
each such event the Company will mail or cause to be mailed to each holder of a
Supplemental Warrant a notice specifying (i) the date on which any record is to
be taken for the purpose of any such dividend, distribution or right, and
stating the amount and character of such dividend, distribution or right, (ii)
the date on which any such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up is to
take place, and the time, if any is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
Common Stock (or Other Securities) for securities or other property deliverable
on such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up, and (iii) the
amount and character of any stock or other securities, or rights or options with
respect thereto, proposed to be issued or granted, the date of such proposed
issue or grant and the persons or class of persons to whom such proposed issue
or grant
is to be offered or made. Such notice shall be mailed at least thirty (30) days
prior to the date specified in such notice on which any such action is to be
taken.
8. EXCHANGE OF SUPPLEMENTAL WARRANTS. On surrender for exchange of any
Supplemental Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or (subject to Section 2) on the order of the
holder thereof a new Supplemental Warrant or Supplemental Warrants of like
tenor, in the name of such holder or as such holder may direct, calling in the
aggregate on the face or faces thereof for the Additional Debentures and
Additional Warrants called for on the face or faces of the Supplemental Warrant
or Supplemental Warrants so surrendered.
9. REPLACEMENT OF SUPPLEMENTAL WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Supplemental Warrant and, in the case of any such loss, theft or destruction of
any Supplemental Warrant, on delivery of an indemnity agreement or security
reasonably
<PAGE>
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Supplemental Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a new
Supplemental Warrant of like tenor.
10. SUPPLEMENTAL WARRANT AGENT. The Company may, by written notice to each
holder of a Supplemental Warrant, appoint an agent having an office in New
York, New York, for the purpose of issuing Additional Debentures and
Additional Warrants on the exercise of the Supplemental Warrants pursuant to
Section 3, exchanging Supplemental Warrants pursuant to Section 8, and
replacing Supplemental Warrants pursuant to Section 9, or any of the
foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
11. REMEDIES. The Company stipulates that the remedies at law of the holder of
this Supplemental Warrant in the event of any default or threatened default by
the Company in the performance of or compliance with any of the terms of this
Supplemental Warrant are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
12. NEGOTIABILITY, ETC. This Supplemental Warrant is issued upon the following
terms, to all of which each Registered Holder or owner hereof by the taking
hereof consents and agrees:
(a) subject to the terms of Section 4 of the Securities
Purchase Agreement, title to this Supplemental Warrant may be transferred by
endorsement (by the Registered Holder hereof executing the form of assignment at
the end hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
(b) any person in possession of this Supplemental Warrant
properly endorsed is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Supplemental Warrant
in favor of each such bona fide purchaser, and each such bona fide purchaser
shall acquire absolute title hereto and to all rights represented hereby; and
(c) until this Supplemental Warrant is transferred on the
books of the Company, the Company may treat the Registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. NOTICES. All notices and other communications from the Company to the
Registered Holder of this Supplemental Warrant shall be given in writing (unless
otherwise specified herein) and shall be effective upon personal delivery, via
facsimile (upon receipt of confirmation of error-free transmission and mailing a
copy of such
<PAGE>
confirmation postage prepaid by certified mail return receipt requested) or
two business days following deposit of such notice with an internationally
recognized courier service, with postage prepaid and addressed, to such
address as may have been furnished to the Company in writing by such
Registered Holder or, until any such Registered Holder furnishes to the
Company an address, then to, and at the address of, the last Registered
Holder of this Supplemental Warrant who has so furnished an address to the
Company.
14. MISCELLANEOUS. This Supplemental Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Supplemental Warrant is being
delivered in the State of New York and, except for provisions with respect to
internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Delaware, shall be construed and enforced in
accordance with and governed by the laws of the State of New York, without
regard to principles of conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
or any of the transactions contemplated hereby, and hereby waives, to the
maximum extent permitted by law, any objection, including any objections
based on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions. The headings in this Supplemental Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof. All nouns and pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter, as the identity of the person or persons to
whom reference is made herein may require.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the undersigned have executed this Supplemental
Warrant as of February 22, 2000.
AIRTECH INTERNATIONAL GROUP, INC.
By:___________________________________
Name:
Title:
ACKNOWLEDGED AND AGREED:
PK INVESTORS LLC
<PAGE>
By: WEC ASSET MANAGEMENT LLC, Manager
By:___________________________________
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
ANNEX A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Supplemental Warrant, to purchase [_____] Additional
Debentures and Additional Warrants to purchase [____] shares of Common Stock and
herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of AIRTECH
INTERNATIONAL GROUP, INC., in the amount of [$________], all in accordance with
the terms hereof. The undersigned requests that a Debenture and Warrant be
registered in the name of _________________________, whose address is
_________________________________ and that such stock certificates and warrants
be delivered to ___________________________,whose address is __________________.
Dated:
Name: ________________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Supplemental Warrant.)
______________________________________
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO TRANSFER THE
SUPPLEMENTAL WARRANT.)
FOR VALUE RECEIVED, ____________________hereby sells, assigns and
transfers unto __________________________________ Please print name and
address of transferee) his Supplemental Warrant, together with all right,
title and interest therein, and does so hereby irrevocably constitute and
appoint _____________________ Attorney, to transfer the within
Supplemental Warrant on the books of the within-named Company, with full
power of substitution.
Dated:
Name: ________________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Supplemental Warrant.)
______________________________________
(Insert Social Security or Other
Identifying Number of Assignee)
EXHIBIT D
[FORM OF OPINION OF COUNSEL]
February 22, 2000
PK Investors LLC
c\o WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Dear Sirs:
This opinion is delivered to you pursuant to a Securities
Purchase Agreement (the "Purchase Agreement") dated as of February 22, 2000,
between PK Investors LLC (the "Purchaser") and Airtech International Group,
Inc., a Wyoming
<PAGE>
corporation (the "Company"), in connection with the sale by the Company and
purchase by the Purchaser of the Company's Initial Debentures, the Initial
Warrants and the Supplemental Warrant. All capitalized terms not otherwise
defined herein shall have the meanings given them in the Purchase Agreement.
I have examined and am familiar with the Certificate of
Incorporation and Bylaws of the Company any and all amendments thereto. I have
also examined and am familiar with the Primary Documents and any and all other
instruments executed and delivered by or on behalf of the Company in connection
with the Purchase Agreement and the transactions contemplated thereunder. In
addition to the foregoing, I have examined such minutes and other corporate
proceedings of the Company and such matters of law, documents and certificates
of public officials as I have deemed necessary in rendering my opinion. In all
such examinations, I have assumed the genuineness of all the signatures on
original documents and the conformity to original and certified documents of all
copies submitted to me as conformed or photostatic copies.
Based upon the foregoing, I am of the opinion that:
1. The Company and each of its subsidiaries is a corporation
duly organized, validly existing and in good standing under the laws of the
States of Wyoming, Texas or Nevada, as applicable, and has all requisite
corporate power and authority to own its properties and to carry on its business
as now being conducted and is duly qualified and in good standing as a foreign
corporation in, and is authorized to do business under the laws of, each
jurisdiction where the character of the properties owned or leased by it or the
transaction of its business makes such qualification or authorization necessary
and in which the failure to so qualify would have a material adverse effect on
the Company and its subsidiaries taken as a whole.
2. The authorized and issued and outstanding capital stock of
the Company are as stated in Section 3(b) of the Purchase Agreement. All shares
of the outstanding capital stock of the Company have been validly issued and are
fully paid and non-assessable. To our knowledge, Schedule 3 (b) of the Purchase
Agreement accurately sets forth the information to be provided therein pursuant
to Section 3 (b) of the Purchase Agreement.
3. The issuance by the Company of the Initial Debentures, the
Initial Warrants and the Supplemental Warrant (collectively the "Initial
Securities"), the Additional Debentures and Additional Warrants and the
shares of Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures and exercise of the Warrants (collectively, the
"Shares") been duly authorized and the Initial Debentures and the Initial
Warrants and Supplemental Warrant have been validly issued and the
consideration to be paid therefore under the Purchase Agreement has been
fully paid. The Common Stock issuable upon conversion of, or in lieu of
interest payments on, the Debentures, and upon exercise of the Warrants, when
issued in accordance with the Primary Documents, shall be duly and validly
issued, fully paid and non-assessable, and
<PAGE>
will not subject the holder thereof to personal liability by reason of being
such a holder. There are no preemptive rights of any stockholder of the
Company to acquire any of the Initial Securities, or the Common Stock
issuable to the Purchaser pursuant to the terms of the Debentures and the
Warrants.
4. The Common Stock is registered under Section 12 of the
Securities Exchange Act of 1934, as amended. The Company has duly filed all
materials and documents required to be filed pursuant to all reporting
obligations under either Section 13(a) or 15(d) of the Exchange Act, if any,
through the date hereof (prior to the offer and sale of the Securities). The
Common Stock is listed and traded on the NASDAQ Bulletin Board, and to our
knowledge there is no pending or contemplated action or proceeding of any kind
to suspend the trading of the Common Stock.
5. The Company has the requisite corporate power and authority
to enter into the Purchase Agreement and to issue and deliver the Debentures,
the Warrants, and the Common Stock issuable upon conversion of, or in lieu of
interest payments on, the Debentures and upon the exercise or conversion of the
Warrants.
6. The Primary Documents and the transactions contemplated
thereby, have been duly and validly authorized by the Company and are legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms, except to the extent that enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or other similar laws now or hereafter in effect relating to
creditors' rights generally and to general principles of equity.
7. The execution and delivery of the Primary Documents and the
consummation by the Company of the other transactions contemplated thereby, does
not and will not conflict with or result in a breach by the Company of any of
the terms or provisions of, or constitute a default under, the Certificate of
Incorporation or By-laws of the Company, or, to our knowledge, (i) any material
indenture, mortgage, deed of trust or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which they or any of their
properties or assets are bound, or (ii) any existing applicable law, rule, or
regulation or any applicable decree, judgment or order of any court or United
States Federal or state regulatory body, administrative agency, or any other
governmental body having jurisdiction over the Company, its subsidiaries, or any
of their properties or assets. Except as set forth on Schedule 3(h) to the
Purchase Agreement, neither the filing of the registration statement required to
be filed by the Company pursuant to the Registration Rights Agreement nor the
offering or sale of the Debentures or the Warrants gives rise to any rights for
or relating to the registration of any shares of the Common Stock.
8. No authorization, approval or consent of any court,
governmental body, regulatory agency, self-regulatory organization, stock
exchange or market or the stockholders of the Company is required to be
obtained by the Company for the entry into or the performance of the Primary
Documents by the Company, except for such approvals
<PAGE>
of Nasdaq as may be required as described in Section 7(b) of the Debenture.
9. To our knowledge, there is no action, suit, proceeding,
inquiry or investigation before or by any court, public board or body pending or
threatened against or affecting the Company or any of its subsidiaries, in which
an unfavorable decision, ruling or finding would have a material adverse effect
on the properties, business, condition (financial or other) or results of
operations of the Company and its subsidiaries, taken as a whole, or the
transactions contemplated by the Primary Documents, or which would adversely
affect the validity or enforceability of, or the authority or ability of the
Company to perform its obligations under, the Primary Documents.
10. To our knowledge, neither the Company nor any of its
subsidiaries is in default in the performance or observance of any obligation,
covenant or condition contained in any material indenture, mortgage, deed of
trust or other instrument or agreement to which it is a party or by which it or
its property may be bound.
11. Subject to the accuracy of the Purchaser's representations
and warranties set forth in Section 2 of the Purchase Agreement, the offer, sale
and issuance of the Securities and the other securities as contemplated by the
Purchase Agreement are exempt from the registration requirements of the
Securities Act.
I am a member of the Bar of the State of Wyoming. I call your
attention to the fact that the Purchase Agreement is stated therein to be
governed by the State of New York and that I am not a member of the Bar of the
State of New York. I express no opinion as to the enforceability of the choice
of law provisions of such documents under New York law. The enforceability
opinions contained herein are given on the assumption that the internal laws (as
opposed to conflict of law provisions) of the State of New York are identical to
those of the State of Wyoming. This opinion is based solely upon the foregoing
state laws and the laws of the United States as currently in effect.
Very truly yours
EXHIBIT E
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 22, 2000 (this
"Agreement"), is entered into by and between AIRTECH INTERNATIONAL GROUP, INC.,
a Wyoming corporation (the "Company") and PK Investors LLC, a Delaware limited
liability company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of
February
<PAGE>
22, 2000, by and between the Purchaser and the Company (the "Securities
Purchase Agreement"), the Company has agreed to issue and sell to the
Purchaser (i) $2,500,000 principal amount of the Company's 6% Convertible
Debentures due 2002 (the "Initial Debentures"); (ii) five year Warrants to
purchase 250,000 shares of common stock, par value $.05 per share (the
"Common Stock") of the Company (the "Initial Warrants"); a Supplemental
Warrant to purchase up to an additional $2,500,000 principal amount of the
Company's 6% Convertible Debentures (the "Additional Debentures," together
with the Initial Debentures, the "Debentures") and warrants to purchase up to
two hundred fifty thousand (250,000) shares of Common Stock (the "Additional
Warrants," together with the Initial Warrants, the "Warrants"; the Debentures
and Warrants collectively, the "Securities");
WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i)
upon the conversion of, or in lieu of interest payments on the Debentures and
(ii) upon exercise of the Warrants, the Company will issue to the Purchaser
shares of the Company's Common Stock (the shares of Common Stock issued or
issuable to the Purchaser upon the conversion the Debentures and/or upon the
exercise of the Warrants are collectively referred to herein as the "Shares");
and
WHEREAS, to induce the Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Minimum Conversion Shares" on any date
means a number of shares equal to at least the sum of: (x) two (2) times the
number of shares of Common Stock that are issuable upon conversion of the
Debentures on such date, without regard to any limitation on any holder's
ability to convert the Debentures and (y) the number of shares of Common Stock
issuable upon exercise of the Warrants.
(ii) "Register," "Registered," and
"Registration" refer to a registration effected by preparing and filing one or
more Registration Statement or Statements in compliance with the Securities Act
and pursuant to Rule 415 under the Securities Act or any successor rule
providing for offering securities on a continuous basis ("Rule 415"), and the
declaration or ordering of effectiveness of such Registration Statement by the
Securities and Exchange Commission (the "Commission").
<PAGE>
(iii) "Registrable Securities" means collectively,
the Shares and the Warrants.
(iv) "Registration Statement" means a
registration statement of the Company under the Securities Act.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Securities Purchase Agreement, the Debentures
or the Warrants, as the case may be.
2. REGISTRATION.
(a) Mandatory Registration. The Company shall prepare and, as
soon as practicable but in no event later than thirty (30) days after the
Initial Closing Date (the "Required Filing Date"), file with the Commission a
Registration Statement on Form SB-2, or an amendment to any pending
Registration Statement on Form SB-2 of the Company, covering resales of (a)
the Warrants and (b) the Minimum Conversion Shares on the filing date. In the
event that Form SB-2 is unavailable for such a registration, the Company
shall use such other form as is available for such a registration. Such
Registration Statement or amended Registration Statement, as the case may be,
shall state that, in accordance with Rule 416 under the Securities Act, it
also covers such indeterminate number of additional Shares as may become
issuable upon conversion of the Debentures and exercise of the Warrants (i)
to prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) to the extent consistent with the interpretations of
the Commission of such rule at such time, resulting from any adjustment in
the applicable Conversion Price of such Debentures or the Current Warrant
Price of such Warrants. If on any date the Minimum Conversion Shares exceed
the total number of Shares so registered, the Company shall (i) if such
Registration Statement has not been declared effective by the Commission at
that time, amend the Registration Statement filed by the Company pursuant to
the preceding portions of this paragraph, to register all of such Minimum
Conversion Shares, or (ii) if such Registration Statement has been declared
effective by the Commission at that time, file with the Commission an
additional Registration Statement on SB-2 (or, in the event that Form SB-2 is
unavailable for such a registration, on such other form as is available) to
register all of such Minimum Conversion Shares that have not already been so
registered. The Company shall use its best efforts to cause any such
Registration Statement or amended Registration Statement, as the case may be,
to become effective within the earliest to occur of (i) ninety (90) days
following the Initial Closing Date or in the event the Commission reviews the
Registration Statement, no longer than 120 days from the Initial Closing
Date; or (ii) if the Commission elects not to conduct a review of the
Registration Statement or has indicated that they have no further comments to
the Registration Statement, the date which is three (3) business days after
the date upon which either the Company or its counsel is so notified, whether
orally or in writing. The earliest of such dates is referred to herein as the
"Required Effective Date." Notwithstanding the use of the terms "Required
Filing Date" and "Required Effective Date" herein, the Company shall at all
<PAGE>
times use its best efforts to file each required Registration Statement or
amendment to a Registration Statement as soon as possible after the Initial
Closing Date or after the date the Company becomes obligated to file such
Registration Statement or amendment, as the case may be, and to cause each
such Registration Statement or amendment to become effective as soon as
possible thereafter. No securities of the Company other than the Registrable
Securities shall be included in any such Registration Statement. The Company
shall keep each Registration Statement effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the
Registrable Securities (in the opinion of counsel to the Purchaser) may be
immediately sold without restriction (including without limitation as to
volume by each holder thereof) without registration under the Securities Act
(the "Registration Period").
(b) PAYMENTS BY THE COMPANY.
(i) (A) If the Registration Statement covering
the Registrable Securities is not filed in proper form with the Commission on or
prior to the Required Filing Date, (B) if the Registration Statement covering
the Registrable Securities is not effective on or prior to the Required
Effective Date, (C) if the number of Shares qualified for trading on the OTC
Bulletin Board, NASDAQ SmallCap Stock Market or reserved by the Company for
issuance shall be insufficient for issuance upon the conversion of the
outstanding Debentures and the exercise of the Warrants, or (D) upon the
occurrence of a Blackout Event (as described in Section 3(f) or Section 3(g)
below) (each of the events described in clauses (A) through (D) of this
paragraph are referred to herein as a "Registration Default"), the Company will
make payments to the Purchaser in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be
paid by the Company to the Purchaser for each thirty (30) day period, or portion
thereof, during which a Registration Default shall be in effect (each such
period, a "Default Period") shall be equal to two percent (2%) of the sum of (a)
the principal amount of Debentures outstanding and (b) the principal amount of
Debentures converted into shares of Common Stock (the "Purchase Price");
PROVIDED, with respect to any Default Period during which the relevant
Registration Defaults shall have been cured, the Periodic Amount shall be PRO
RATED for the number of days during such period during which the Registration
Defaults were pending; and PROVIDED FURTHER, that the payment of such Periodic
Amounts shall not relieve the Company from its continuing obligations to
register the Registrable Securities pursuant to Section 2(a).
(iii) Each Periodic Amount shall be payable by the
Company, in cash or other immediately available funds, to the Purchaser on
the last day of each month during which a Registration Default occurred or
was continuing, without demand therefor by the Purchaser. If the Company
shall not remit the Periodic Amounts payable to the Purchaser as set forth in
paragraph (ii) above, the Company will pay the Purchaser reasonable costs of
collection, including attorneys' fees, in addition to the Periodic
<PAGE>
Amounts.
(iv) The parties acknowledge that the damages which
may be incurred by the Purchaser if the Registration Statement is not filed
by the Required Filing Date, if the Registration Statement has not been
declared effective by the Required Effective Date, if an insufficient number
of shares of Common Stock shall be qualified for trading or reserved for
issuance, or if the provisions of Section 3(f) or 3(g) become applicable, may
be difficult to ascertain. The parties agree that the Periodic Amount
represents a reasonable estimate on the part of the parties, as of the date
of this Agreement, of the amount of such damages.
(c) PIGGYBACK REGISTRATION. (i) If at any time or from time to time,
the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a Registration
Statement relating solely to employee share option plans or pursuant to an
acquisition transaction on Form S-4, the Company will:
(A) provide to the Purchaser written notice thereof as soon as
practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and in any
underwriting involved therein, all of the Registrable
Securities specified in a written request by the Purchaser
made within fifteen (15) days after receipt of such written
notice from the Company.
(ii) If the Registration is for a registered
public offering involving an underwriting, the Company shall so advise the
Purchaser as a part of the written notice given pursuant to this Section. In
such event, the rights of the Purchaser hereunder shall include participation
in such underwriting and the inclusion of the Registrable Securities in the
underwriting to the extent provided herein. To the extent that the Purchaser
proposes to distribute its securities through such underwriting, the
Purchaser shall (together with the Company and any other securityholders of
the Company distributing their securities through such underwriting) enter
into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding
any other provision of this Section, if the managing underwriter of such
underwriting determines that marketing factors require a limitation of the
number of shares to be offered in connection with such underwriting, the
managing underwriter may limit the number of Registrable Securities to be
included in the Registration and underwriting (PROVIDED, HOWEVER, that (a)
the Registrable Securities shall not be excluded from such underwritten
offering prior to the exclusion of any securities held by officers and
directors of the Company or their affiliates, (b) the Registrable Securities
shall be entitled to at least the same priority in an underwritten offering
as any securities included in such offering by any of the Company's other
existing securityholders, and (c) the Company shall not enter into any
agreement that would provide any securityholder with priority in connection
with an underwritten
<PAGE>
offering greater than the priority granted to the Purchaser hereunder). The
Company shall so advise any of its other securityholders who are distributing
their securities through such underwriting pursuant to their respective
piggyback registration rights, and the number of shares of Registrable
Securities and other securities that may be included in the registration and
underwriting shall be allocated among the Purchaser and all other
securityholders of the Company in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by the Purchaser and
such other securityholders at the time of the filing of the registration
statement. If the Purchaser disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company. Any Registrable Securities so excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
(d) ELIGIBILITY FOR FORM SB-2. The Company represents and warrants that
it meets all of the requirements for the use of Form SB-2 for the Registration
of the sale by the Purchaser and any transferee who purchases the Registrable
Securities, and the Company shall file all reports required to be filed by the
Company with the Commission in a timely manner, and shall take such other
actions as may be necessary to maintain such eligibility for the use of Form
SB-2.
(e) PRIORITY IN FILING. The Company covenants that beginning on the
Initial Closing Date and ending on the date that is one hundred and eighty (180)
days after the Registration Statement filed pursuant to Section 2(a) of this
Agreement becomes effective (PROVIDED that if, after the effective date of such
Registration Statement, the Purchaser shall be unable to sell Registrable
Securities pursuant to such Registration Statement for any number of days, the
provisions of this Section 2(e) shall apply for an additional number of days
equal to the number of days during which any Purchaser is unable to sell
Registrable Securities pursuant to such Registration Statement), the Company
will not file any Registration Statement, other than a Registration Statement
required by Section 2(a) hereof, without the written consent of the Purchaser.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall do each of the following:
(a) Prepare and file with the Commission the Registration
Statements required by Section 2 of this Agreement and such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectuses used in connection with such Registration
Statements, each in such form as to which the Purchaser and its counsel shall
not have objected, as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during the
Registration Period, comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities of the
Company covered by the Registration Statements until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers
<PAGE>
thereof as set forth in the Registration Statements;
(b) Furnish to the Purchaser and its legal counsel identified
to the Company, promptly after the same is prepared and publicly distributed,
filed with the Commission, or received by the Company, a copy of the
Registration Statement, each preliminary prospectus, each final prospectus, and
all amendments and supplements thereto and such other documents, as the
Purchaser may reasonably request in order to facilitate the disposition of its
Registrable Securities;
(c) Furnish to the Purchaser and its counsel copies of any
correspondence between the Company and the Commission with respect to any
Registration Statement or amendment or supplement thereto filed pursuant to this
Agreement;
(d) Use all reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statements under such other
securities or blue sky laws of such jurisdictions as the Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions, provided that in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to the
service of process in any jurisdiction;
(e) Qualify such securities for trading on the Nasdaq OTC
Bulletin Board and list such securities on all the other national securities
exchanges on which any securities of the Company are then listed, and file any
filings required by Nasdaq and/or such other exchanges;
(f) As promptly as practicable after becoming aware thereof,
notify the Purchaser of any need to suspend use of the prospectus included in
the Registration Statement, including as a result of the occurrence of any
event, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and to use its best efforts to promptly prepare a
supplement or amendment to such Registration Statement or other appropriate
filing with the Commission to allow the resumption of the use of such prospectus
and to deliver a number of copies of such supplement or amendment to the
Purchaser as the Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such
event,
<PAGE>
notify the Purchaser (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission or any stop order or
other suspension of the effectiveness of any Registration Statement at the
earliest possible time, and to use its best efforts to promptly obtain the
withdrawal of such stop order or other suspension of effectiveness (the
occurrence of any of the events described in paragraphs (f) and (g) of this
Section 3 is referred to herein as a "Blackout Event");
(h) During the period commencing upon (i) the Purchaser's
receipt of a notification pursuant to Section 3(f) above or (ii) the entry of a
stop order or other suspension of the effectiveness of the Registration
Statement described in Section 3(g) above, and ending at such time as (x) the
Company shall have completed the applicable filings (and if applicable, such
filings shall have been declared effective) and shall have delivered to the
Purchaser the documents required pursuant to Section 3(f) above or (y) such stop
order or other suspension of the effectiveness of the Registration Statement
shall have been removed, the Company shall be liable to remit the payments
required to be paid to the Purchaser pursuant to Section 2(b) above;
(i) Suspend the use of any prospectus used in connection with
any Registration Statement only in the event, and for such period of time as,
such a suspension is required by the rules and regulations of the Commission;
(j) Enter into such customary agreements for secondary
offerings (including a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other actions reasonably requested by
the Purchaser in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities. Whether or not an underwriting
agreement is entered into and whether or not the Registrable Securities are to
be sold in an underwritten offering the Company shall:
(i) make such representations and warranties to the Purchaser
and the underwriter or underwriters, if any, in form, substance and
scope as are customarily made by issuers to selling stockholders and
underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable
Securities and the underwriter or underwriters, if any, opinions of
independent counsel to the Company (which counsel and opinions shall be
reasonably satisfactory in form, scope and substance to Purchaser and
the underwriter(s), if any, and their counsel), (A) on and dated as of
the effective day of the applicable Registration Statement (and in the
case of an underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) stating that (x) such
Registration Statement complies in all material respects with the
requirements of the Securities Act and the rules and regulations of the
Commission thereunder, (y) such Registration Statement does not contain
an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and (z) the documents incorporated
<PAGE>
by reference in the prospectus accompanying such Registration
Statement, at the time they were filed with the Commission or as
amended, complied in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and
the rules and regulations thereunder and, when read together with the
other information in such prospectus, do not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and (B) within fifteen (15) days following the filing of
the Company's Annual Report on Form 10-K for each fiscal year
thereafter for a period not to exceed three (3) years, an opinion of
independent counsel to the Company, updating the opinion referred to in
clause (A) of this paragraph;
(iii) cause to be delivered, immediately prior to the
effectiveness of the applicable Registration Statement (and, in the
case of an underwritten offering, at the time of delivery of any
Registrable Securities sold pursuant thereto), and at the beginning
of each fiscal year for a period not to exceed three (3) years
following a year during which the Company's independent certified
public accountants shall have reviewed any of the Company's books or
records, a "comfort" letter from the Company's independent certified
public accountants addressed to the Purchaser and each underwriter,
if any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and otherwise
in customary form and covering such financial and accounting matters
as are customarily covered by letters of the independent certified
public accountants delivered in connection with secondary offerings;
such accountants shall have undertaken in each such letter to update
the same during each such fiscal year in which such books or records
are being reviewed so that each such letter shall remain current,
correct and complete throughout such fiscal year; and each such
letter and update thereof, if any, shall be reasonably satisfactory
to the Purchaser;
(iv) if an underwriting agreement is entered into, the same
shall include customary indemnification and contribution provisions
to and from the underwriters and procedures for secondary
underwritten offerings;
(v) deliver such documents and certificates as may be
reasonably requested by any purchaser of the Registrable Securities
being sold or the managing underwriter or underwriters, if any, to
evidence compliance with clause (i) above and with any customary
conditions contained in the underwriting agreement, if any; and
(vi) deliver to Purchaser on the effective day of the
applicable Registration Statement (and, in the case of an
underwritten offering, on the date of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each
fiscal quarter thereafter, a certificate in form and substance as
shall be reasonably satisfactory to Purchaser, executed by an
executive officer of the
<PAGE>
Company and to the effect that all the representations and warranties
of the Company contained in the Securities Purchase Agreement are still
true and correct except as disclosed in such certificate; the Company
shall, as to each such certificate delivered at the beginning of each
fiscal quarter, update or cause to be updated each such certificate
during such quarter so that it shall remain current, complete and
correct throughout such quarter; and such updates received by Purchaser
during such quarter, if any, shall have been reasonably satisfactory
to Purchaser.
(k) Make available for inspection by Purchaser, its
representative(s), any underwriter participating in any disposition pursuant to
a Registration Statement, and any attorney or accountant retained by the
Purchaser or underwriter all to be paid by Purchaser, all financial and other
records customary for purposes of Purchaser's and underwriters' due diligence
examination of the Company and review of any Registration Statement, all filings
made with the Commission subsequent to the Closing, 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 representative, underwriter, attorney or accountant in connection with such
Registration Statement, provided that such parties agree to keep such
information confidential;
(l) Cooperate with the Purchaser to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to any Registration Statement and to enable such certificates
for the Registrable Securities to be in such denominations or amounts, as the
case may be, as the Purchaser may reasonably request, and registered in such
names as the Purchaser may request; and, within five (5) business days after a
Registration Statement which includes Registrable Securities is ordered
effective by the Commission, the Company shall deliver, and shall cause legal
counsel selected by the Company to deliver, to the transfer agent for the
Registrable Securities (with copies to the Purchaser) an appropriate instruction
and opinion of such counsel; and
(m) Permit counsel to Purchaser to review the Registration
Statement and all amendments and supplements thereto within a reasonable period
of time (but not less than five (5) business days) prior to each filing, and to
incorporate those changes, if provided to the Company or its counsel within such
five (5) business day period, suggested by such counsel.
4. OBLIGATIONS OF THE PURCHASER.
In connection with the registration of the Registrable Securities, the
Purchaser shall have the following obligations:
(a) Furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities. The intended method or methods of
disposition and/or
<PAGE>
sale (Plan of Distribution) of the Registrable Securities as so provided by the
participating Purchaser shall be included without alteration in any
Registration Statement covering the Registrable Securities and shall not be
changed without written consent of the Purchaser. At least five (5) business
days prior to the first anticipated filing date of any Registration Statement,
the Company shall notify the Purchaser of the information the Company requires
from the Purchaser if the Purchaser elects to have any of its Registrable
Securities included in such Registration Statement; and
(b) The Purchaser agrees that, upon receipt of any notice from
the Company of the happening of any Blackout Event of the kind described in
Section 3(f) or 3(g) above, it will immediately discontinue disposition of its
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) shall be furnished to the
Purchaser.
5. EXPENSES OF REGISTRATION.
Other than underwriting discounts and commissions, all expenses
incurred in connection with registrations, filings or qualifications pursuant to
this Agreement, including, without limitation, all registration, listing, and
qualification fees, printing and accounting fees, and the fees and disbursements
of counsel for the Company, and the fees of one counsel to the Purchaser with
respect to each Registration Statement filed pursuant hereto, the total expense
including any expenses of this Agreement or as contemplated under this Agreement
shall not exceed one percent (1%) of the aggregate purchase price of the Initial
Debentures purchased by the Purchaser, shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) The Company will indemnify and hold harmless the
Purchaser, each of its officers, shareholders, members, directors and partners,
and each person, if any, who controls the Purchaser within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person"), against any
losses, claims, damages, liabilities or expenses (joint or several) incurred
(collectively, "Claims") to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claims (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon: (i) any untrue or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made, not
misleading, (ii) any untrue or alleged statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with
<PAGE>
the Commission) or the omission or alleged omission to state therein any
material fact necessary in order to make the statements made therein, in
light of the circumstances under which they were made, not misleading, or
(iii) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act, any state or foreign securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state or foreign
securities law (the matters in foregoing clauses (i) through (iii) being,
collectively, "Violations"). The Company shall, subject to the provisions of
Section 6(b) below, reimburse each Purchaser, promptly as such expenses are
incurred and are due and payable, for any legal and other costs, expenses and
disbursements in giving testimony or furnishing documents in response to a
subpoena or otherwise, including without limitation, the costs, expenses and
disbursements, as and when incurred, of investigating, preparing or defending
any such action, suit, proceeding or investigation (whether or not in
connection with litigation in which the Purchaser is a party), incurred by it
in connection with the investigation or defense of any such Claim, except
that the obligation of the Company to reimburse any and all legal or related
costs shall be for only one counsel selected by the Purchaser.
Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply
to any Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof supplement thereto; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended
or supplemented, if such final prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (iii) be available to the extent
that such Claim is based upon a failure of the Purchaser to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(b)
hereof; or (iv) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchaser pursuant to Section 9. The Purchaser will
indemnify the Company and its officers and directors against any Claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company, by or on
behalf of the Purchaser, expressly for use in connection with the preparation
of the Registration Statement, subject to such limitations and conditions as
are applicable to the Indemnification provided by the Company in this Section
6.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any
<PAGE>
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and to the extent that the indemnifying
party so desires, jointly with any other indemnifying party similarly
notified, to assume control of the defense thereof with counsel mutually
satisfactory to the indemnifying party and the Indemnified Person; PROVIDED,
HOWEVER, that an Indemnified Person shall have the right to retain its own
counsel with the reasonable fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person and the
indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by such counsel in such proceeding. In such event, the Company
shall pay for only one separate legal counsel for the Purchaser, and such
legal counsel shall be selected by the Purchaser. The failure to deliver
written notice to an indemnifying party within a reasonable time after the
commencement of any such action shall not relieve such indemnifying party of
any liability to the Indemnified Person under this Section 6, except to the
extent that the indemnifying party is materially prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is
incurred and is due and payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any
provisions relating to indemnification or contribution contained in the
underwriting agreements entered into among the Company, the underwriters and the
Purchaser in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in such underwriting agreements
shall be controlling as to the Registrable Securities included in the public
offering; PROVIDED, HOWEVER, that if, as a result of this Section 6(d), any
Purchaser, its officers, shareholders, members, directors, partners or any
person controlling such Purchaser is or are held liable with respect to any
Claim for which they would be entitled to indemnification hereunder but for this
Section 6(d) in an amount which exceeds the aggregate proceeds received by such
Purchaser from the sale of Registrable Securities included in a registration
pursuant to such underwriting agreement (the "Excess Liability"), the Company
shall reimburse such Purchaser for such Excess Liability.
7 CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or
<PAGE>
limited under applicable law, the indemnifying party agrees to contribute to
the amount paid or payable by such indemnified party as a result of such
loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the
one hand and the Indemnified Person on the other hand in connection with the
statements or omissions which resulted in such Claim, as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and the Indemnified Person shall be determined by reference to, among
other things, whether the untrue statement of a material fact or the omission
to state a material fact on which such Claim is based relates to information
supplied by the indemnifying party or by the Indemnified Person, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. Notwithstanding the forgoing,
(a) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities
who was not guilty of such fraudulent misrepresentation and (b) contribution
by any seller of Registrable Securities shall be limited in amount to the net
proceeds received by such seller from the sale of such Registrable
Securities. The Company and the Purchaser agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by PRO
RATA allocation (even if the Purchaser and any other party were treated as
one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in this Section.
8 REPORTS UNDER EXCHANGE ACT.
With a view to making available to the Purchaser the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(i) make and keep public information available,
as those terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Exchange Act; and
(iii) furnish to the Purchaser, so long as
Purchaser owns Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting requirements of
the Securities Act and the Exchange Act, (ii) a copy of the most recent annual
or periodic report of the Company and such other reports and documents so filed
by the Company and (iii) such other information as may be reasonably requested
to permit such Purchaser to sell such securities pursuant to Rule 144 without
registration.
9 ASSIGNMENT OF THE REGISTRATION RIGHTS.
<PAGE>
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assigned by any Purchaser to any
transferee of all or any portion of the Securities or Shares held by such
Purchaser if: (a) such Purchaser agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (b) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (i) the name and address of such transferee or assignee and
(ii) the Securities or Shares with respect to which such registration rights
are being transferred or assigned; (c) at or before the time the Company
receives the written notice contemplated by clause (b) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all
of the provisions contained herein; and (d) the transferee of the relevant
Securities or Shares complies with the restrictions on the Purchaser set
forth in Section 4 of the Securities Purchase Agreement.
10 AMENDMENT OF REGISTRATION RIGHTS.
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and holders of 75% of the dollar value of the Registrable Securities from time
to time. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon the Purchaser and the Company.
11 MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
COMPANY: Airtech International Group, Inc. 15400 Knoll Trail, Suite #200
Dallas, Texas 75248 Attention: C.J. Comu, CEO Tel: (972) 960-9400 x111 Fax:
(972) 960-9395 PURCHASER: PK Investors LLC c\o WEC Asset Management LLC 110
Colabaugh
<PAGE>
Pond Road Croton-on-Hudson, New York 10520 Attention: Daniel J. Saks Tel:
(914) 271-2211 Fax: (914) 271-0889 WITH A COPY TO:Pryor Cashman Sherman &
Flynn LLP 410 Park Avenue New York, New York 10022 Attention: Mark Saks,
Esq. Tel: (212) 326-0140 Fax: (212) 326-0806
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, except for provisions with
respect to internal corporate matters of the Company which shall be governed by
the corporate laws of the State of Wyoming. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection, including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. This Agreement has been entered into
freely by each of the parties, following consultation with their respective
counsel, and shall be interpreted fairly in accordance with its terms, without
any construction in favor of or against either party. If any provision of this
Agreement shall be invalid or unenforceable in any jurisdiction, such validity
or unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth,
or referred to herein and in the other Primary Documents. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company
to perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company
<PAGE>
shall be liable for all direct damages caused by any such failure or delay.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of February 22, 2000.
AIRTECH INTERNATIONAL GROUP,
INC.
By:_______________________________
Name:
Title:
PK INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:_______________________________
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
EXHIBIT 4.4
FORM OF DEBENTURE
NO. 1
THESE SECURITIES (INCLUDING ANY UNDERLYING SECURITIES) HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN
OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY THAT
SUCH REGISTRATION SHALL NO LONGER BE REQUIRED.
AIRTECH INTERNATIONAL GROUP, INC.
6% CONVERTIBLE DEBENTURE
$500,000 FEBRUARY 22, 2000
New York, New York
1. CONSIDERATION. FOR VALUE RECEIVED, AIRTECH INTERNATIONAL GROUP,
INC. a Wyoming corporation (the "undersigned" or the "Company"), hereby
promises to pay to the order of PK Investors LLC, at its offices located at 110
Colabaugh Pond Road, Croton-on-Hudson, New York 10520 or at such other place as
the holder hereof (the "holder" or the "Registered Holder") shall designate to
the undersigned in writing, in lawful money of the United States of America or
in New York Clearing House Funds, the principal amount of Five Hundred Thousand
Dollars ($500,000) on the Maturity Date (as defined below). This Debenture is
one of five (5) Debentures to the Registered Holder on the date hereof in the
aggregate principal amount of two million five hundred thousand dollars
($2,500,000). The undersigned promises to pay the said principal sum in
accordance with the terms of this Debenture (as defined below).
2. PAYMENT. On February 22, 2002 (the "Maturity Date") the
undersigned shall pay the holder all unpaid principal and interest, if any, on
this Debenture. At the Company's option, any interest payment required to be
paid on this Debenture may be made in the form of the issuance to the holder of
the Company's common stock, par value $.05 per share (the "Common Stock"), with
the number of shares of such Common Stock to be payable in lieu of such
interest payments to be determined in accordance with the provisions of Section
6, as if such interest payment were a portion of the principal amount of the
Debenture to be converted into Common Stock.
Principal and interest shall be payable at the most recent address
as the Registered Holder shall have designated to the Company in writing. No
payment of the principal of this Debenture may be made prior to the Maturity
Date by the Company without the consent of the Registered Holder, except as
otherwise provided herein.
<PAGE>
3. OVERDUE INTEREST PAYMENTS. Interest on the indebtedness
evidenced by this Debenture after default or maturity accelerated or otherwise
shall be due and payable at the rate of ten (10%) percent per annum, subject to
the limitations of applicable law.
4. HOLIDAYS. If this Debenture or any installment hereof becomes
due and payable on a Saturday, Sunday or public holiday under the laws of the
State of New York, the due date hereof shall be extended to the next succeeding
business day and interest shall be payable at the rate of six (6%) percent per
annum during such extension. All payments received by the holder shall be
applied first to the payment of all accrued interest payable hereunder.
5. ISSUANCE OF DEBENTURES. This Debenture has been issued by the
Company pursuant to the authorization of the Board of Directors of the Company
(the "Board") and issued pursuant to a Securities Purchase Agreement, dated as
of February 22, 2000, by and between the Company and the Purchaser identified
therein (the "Securities Purchase Agreement"). Pursuant to the Securities
Purchase Agreement, the Company issued $2,500,000 principal amount of the
Debentures and warrants to purchase (the "Warrants") 250,000 shares of the
Company's Common Stock. The Securities Purchase Agreement contains certain
additional terms that are binding upon the Company and each Registered Holder
of the Debentures. A copy of the Securities Purchase Agreement may be obtained
by any registered holder of the Debentures from the Company upon written
request. Capitalized terms used but not defined herein shall have the meanings
set forth in the Securities Purchase Agreement, including the Exhibits thereto.
This Debenture and the other 6% Convertible Debentures due 2002 issued by the
Company pursuant to the terms of the Securities Purchase Agreement, together
with any debentures from time to time issued in replacement thereof, whether
pursuant to transfer and assignment, partial conversion thereof or otherwise,
are collectively referred to herein as the "Debentures."
6. CONVERSION. (a) Subject to and in compliance with the
provisions hereof, the holder shall have the right to convert all or a portion
of the outstanding principal amount of this Debenture into such number of
shares of Common Stock (the shares of Common Stock issuable upon conversion of,
and issuable in lieu of interest payments on, this Debenture, if any, are
hereinafter referred to as the "Conversion Shares") as shall equal the quotient
obtained by dividing (x) the principal amount of this Debenture to be converted
by (y) the Applicable Conversion Price (as hereinafter defined) and by
surrender of this Debenture, such surrender to be made in the manner provided
herein.
(b) For purposes hereof the term "Applicable Conversion Price"
shall mean the lesser of: (i) $2.585 (the "Fixed Price") and (ii) the product
obtained by multiplying (x) the Average Lowest Closing Price (as hereinafter
defined) by (y) .80.
For purposes hereof the "Average Lowest Closing Price" with
respect to any conversion elected to be made by the holder shall be the average
of the three (3) lowest daily closing bid prices (each such price is referred
to individually as a "Floating Reference Price" and, collectively, as the
"Floating Reference Prices") during the thirty (30) trading days immediately
preceding the date on which the holder gives the Company a written notice of
the holder's election to convert outstanding principal of this Debenture (the
"Notice Date"). The closing bid price on any
<PAGE>
trading day shall be (a) if the Common Stock is then listed or quoted on either
the NASD Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National
Market, the reported closing bid price for the Common Stock as reported by
Bloomberg, L.P. ("Bloomberg") or The Wall Street Journal (the "Journal") or on
such day (or, if not so reported, as otherwise reported by The NASDAQ Small Cap
Market, NASDAQ National Market or the NASD Bulletin Board, as the case may be),
(b) if the Common Stock is listed on either the American Stock Exchange or New
York Stock Exchange, the closing bid price for the Common Stock on such
exchange on such day as reported by Bloomberg or the Journal or (c) if neither
(a) nor (b) apply but the Common Stock is quoted in the over-the-counter
market, another recognized exchange, or on the pink sheets, the last reported
bid price thereof on such date. If the prices of the Common Stock cannot be
calculated on such date on any of the foregoing bases, such prices on such date
shall be the fair market value as mutually determined by the Company and the
Registered Holder for which the calculation is required in order to determine
the Applicable Conversion Price; PROVIDED, HOWEVER, that if the Company and the
Registered Holder are unable to mutually determine the fair market value, such
fair market value shall be determined by a nationally recognized investment
banking firm or firm of independent certified public accountants of recognized
standing (which firm may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the Board
and holders of a majority in interest of the Debentures. "Trading day" shall
mean any day on which the Company's Common Stock is traded for any period on
the principal securities exchange or other securities market on which the
Common Stock is then being traded.
(c) If, during any period following February 22, 2000 (the
"Original Issue Date"), as a result of the occurrence of any of the events set
forth in Section 3(f) or 3(g) of the Registration Rights Agreement, dated as of
February 22, 2000, by and between the Company and the Purchaser set forth
therein (the "Registration Rights Agreement"), the Purchaser set forth therein
is not able to sell shares of Common Stock issuable upon conversion of, or in
lieu of interest payments on, this Debenture pursuant to a registration
statement filed pursuant to such agreement, the Registered Holder shall have
the right, for any purpose under this Debenture during such period and
thereafter, to designate as the Applicable Conversion Price any Conversion
Price that would have been applicable during such period had the Registered
Holder delivered a Notice of Conversion with respect to any portion of this
Debenture. "Conversion Date" shall have the meaning given such term in Section
5(b) of the Securities Purchase Agreement.
(d) The Registered Holder shall convert this Debenture in
accordance with Section 5(b) of the Securities Purchase Agreement. If the
Company fails to deliver to the holder a certificate or certificates for shares
of Common Stock in the period set forth in the Securities Purchase Agreement,
the Company shall make certain payments to the holder in accordance with
Section 5(d) of the Securities Purchase Agreement.
(e) If the entire outstanding principal amount of this
Debenture is not converted, the Company shall also issue and deliver to such
holder a new Debenture of like tenor in the principal amount equal to the
principal which was not converted and dated the Original Issue Date. Each
conversion shall be deemed to have been effected immediately prior to the close
of business on the date on which a Notice of Conversion shall have been
delivered as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common
<PAGE>
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby at such time on
such date.
(f) All shares of Common Stock delivered upon conversion of,
or in lieu of interest payments on, this Debenture will, upon delivery, be duly
authorized, validly issued and fully paid and nonassessable.
(g) No fractional shares of Common Stock shall be issued upon
conversion of, or in lieu of interest payments on, this Debenture. Instead of
any fractional share of Common Stock which would otherwise be deliverable upon
the conversion of, or in lieu of interest payments on, the principal of this
Debenture, the Company shall pay to the holder an amount in cash (computed to
the nearest cent) equal to the Average Lowest Closing Price multiplied by the
fraction of a share of Common Stock represented by such fractional interest.
(h) The issuance of certificates for shares of Common Stock
upon any conversion of, or in lieu of interest payments on, this Debenture
shall be made without charge to the payee hereof for any tax, unless required
by law, or other expense in respect to the issuance of such certificates, all
of which taxes and expenses shall be paid by the Company, and such certificates
shall be issued only in the name of the registered holder of this Debenture.
(i) Notwithstanding anything herein to the contrary, at no
time shall the Registered Holder (including its officers, directors and
affiliates) maintain in the aggregate beneficial ownership (as defined for
purposes of Section 16 of the Securities Exchange Act of 1934, as amended) of
shares of Common Stock in excess of 4.9% of the Company's outstanding Common
Stock and accordingly, the Registered Holder may only convert this Debenture up
to the point where its aggregate beneficial ownership (as defined for purposes
of Section 16 of the Securities Exchange Act of 1934, as amended) of shares of
Common Stock is equal or less than 4.9% of the Company's outstanding Common
Stock.
7. REDEMPTION BY COMPANY. (a) If, after the Original Issue Date,
there shall occur a Change in Control of the Company (as defined below), then,
at the option of the Registered Holder, the Company shall, on the effective date
of and subject to the consummation of such Change in Control, redeem this
Debenture for cash from the Registered Holder at a redemption price equal to
125% of the aggregate principal and accrued interest outstanding under this
Debenture. Nothing in this subsection shall limit the Registered Holder's right
to convert this Debenture on or prior to such Change in Control. For purposes
hereof, a "Change in Control" shall be deemed to have occurred if (A) any person
or group (as defined for purposes of Regulation 13D of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) shall have become the beneficial
owner or owners of more than 50% of the outstanding voting stock of the Company;
(B) there shall have occurred a merger or consolidation in which the Company or
an affiliate of the Company is not the survivor or in which holders of the
Common Stock of the Company shall have become entitled to receive cash,
securities of the Company other than voting common stock or securities of any
other person; (C) at any time persons constituting the Existing Board of
Directors cease for any reason whatsoever to constitute at least a majority of
the members of the Board of Directors of the Company; or (D) there shall have
occurred a sale of all or substantially all the assets of the
<PAGE>
Company. For purposes hereof, the term "Existing Board of Directors" shall
mean the persons constituting the Board of Directors of the Company on the date
hereof, together with each new director whose election, or nomination for
election by the Company's stockholders is approved by a vote of the majority of
the members of the Existing Board of Directors who are in office immediately
prior to the election or nomination of such director.
(b) In the event that the Company is subject to Nasdaq Rule
4310 or 4460, if prior to the time the stockholders of the Company shall have
approved the transactions contemplated by the Securities Purchase Agreement as
provided in clause (B) below, the number of shares of Common Stock issued (i)
upon conversion of the Debentures and (ii) in lieu of interest payments on the
Debentures, if any, (collectively, the "Conversion Shares"), shall be equal to
or more than 19.9% of the number of the shares of capital stock outstanding on
the Initial Closing Date (a "Redemption Event"), the Company shall have the
option to (A) redeem the outstanding principal amount of this Debenture at the
redemption price of one hundred twenty-five percent (125%) of the principal
amount hereof plus accrued interest on this Debenture, if any, or (B) call a
special meeting of its stockholders for the purpose of approving the
transactions contemplated by the Securities Purchase Agreement, including the
issuance of the Debentures and Warrants on the terms set forth therein,
together with any other approvals that shall be required so as to cause the
transactions contemplated by the Securities Purchase Agreement to remain in
compliance with the Rules and Regulations of Nasdaq (including Rule 4460 of
Nasdaq's Non-Qualitative Designation Criteria on the occurrence of a Redemption
Event; such approvals are referred to herein as the "Required Approvals"). The
Company shall determine within five (5) business days following the occurrence
of any Redemption Event which of such actions it shall take, and shall promptly
furnish notice to the Purchaser as to such determination, including, if
applicable, a notice of redemption. If the Company does not make a
determination within such five (5) day period, this Debenture shall be redeemed
the first business day following the end of such five (5) day period, if any,
at the redemption price of one hundred twenty-five percent (125%) of the
principal amount hereof plus accrued interest on the Debenture, if any.
(c) If the Company elects to call a special meeting of its
stockholders pursuant to Section 6(b) to obtain the Required Approvals, the
Company shall obtain such Required Approvals within thirty (30) days of the
distribution of the notice described in such Section (such thirty (30) day
period is referred to herein as an "Approval Period"). If such approval is not
obtained within the Approval Period, this Debenture shall be redeemed on the
first business day following the Approval Period at the redemption price of one
hundred twenty-five percent (125%) of the principal amount hereof plus accrued
interest on the Debenture, if any.
(d) If the Company fails to have a registration statement
effective within one hundred fifty (150) days of the date of the Securities
Purchase Agreement, at the option of the Purchaser, the Company shall redeem
these Debentures at a redemption price of one hundred twenty-five percent
(125%) of the principal amount hereof plus accrued and unpaid interest thereon,
if any.
If the Company shall be required to redeem the Debentures
pursuant to any of the terms or conditions set forth in this Section 7, the
Company shall remit the redemption price
<PAGE>
to the Registered Holder thereof immediately upon such redemption.
8. COVENANTS.
(a) The Company will pay all taxes, assessments and
governmental charges lawfully levied or assessed upon it, its property and any
part thereof, and upon its income for profits, and any part thereof, before the
same shall become delinquent; and will duly observe, and conform to, all lawful
requirements of any governmental authority relative to any of its property, and
all covenants, terms and conditions upon or under which any of its property is
held; provided that nothing in this Section shall require the Company to
observe or conform to any requirement of governmental authority so long as the
validity thereof shall be contested in good faith by appropriate proceedings or
to pay any such tax, assessment or governmental charges so long as the validity
thereof shall be contested in good faith by appropriate proceedings and
adequate reserves with respect thereto shall have been set aside on the books
of the Company.
(b) Subject to the other provisions of this Debenture, the
Company at all times will maintain its corporate existence and right to carry
on its business and will duly procure all necessary renewals and extensions
thereof and use its best efforts to maintain, preserve and renew all of its
rights, powers, privileges and franchises; PROVIDED, HOWEVER, that nothing
herein contained shall be construed to prevent the Company from ceasing or
omitting to exercise any rights, powers, privileges or franchises which, in the
judgment of the Board, can no longer be profitably exercised, nor to prevent
the consolidation, merger or liquidation of any subsidiary or subsidiaries of
the Company with or into the Company.
(c) The Company will at no time close its stock transfer
books against the transfer of any shares of Common Stock issued or issuable
upon the conversion of, or in lieu of interest payments on, the Debentures, in
any manner which interferes with the timely conversion of such Debentures.
(d) As used in this Debenture, the term "Common Stock" shall
include all stock of any class or classes (however designated) of the Company,
authorized on or after the date hereof, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily be entitled to vote for the election of the
directors of the Company. The Company shall not, without the prior written
consent of the Registered Holder of this Debenture, issue any shares of its
capital stock, other than as permitted by Section 4(i) of the Securities
Purchase Agreement, in exchange for Debentures as provided hereunder or upon
exercise of the Warrants in accordance with the terms thereof.
(e) The Company will not, by amendment of its Articles of
Incorporation or By-laws or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder or
pursuant to the Securities Purchase Agreement by the Company, and will at all
times assist in good faith in
<PAGE>
the carrying out of all the provisions of this Debenture and the Securities
Purchase Agreement and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the Registered Holders
of the Debentures against impairment.
(f) In the event of any taking by the Company of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Company shall mail to each
Registered Holder of the Debentures, at least ten (10) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or right, and the
amount and character of such dividend, distribution or right.
9. LIMITATION ON CERTAIN CORPORATE ACTS. The Company hereby
covenants and agrees that upon any consolidation or merger or upon the transfer
of all or substantially all of the property or assets of the Company, the due
and punctual payment of the principal and interest on all the Debentures
according to their tenor and the due and punctual performance and observance of
all the terms, covenants and conditions of the Debentures and the Securities
Purchase Agreement to be kept and performed by the Company shall be expressly
assumed by the corporation formed by such consolidation, or into which the
Company shall have merged or by the purchaser of such property or assets; and
such assumption shall be an express condition of such merger or consolidation
agreement or agreement for the transfer of property or assets.
10. EVENTS OF DEFAULT. In case one or more of the following events
of default shall have occurred:
(a) default in the due and punctual payment of interest upon
or principal of any of the Debentures as and when the same becomes due and
payable either at maturity or otherwise; or
(b) failure to deliver the shares of Common Stock required to
be delivered upon conversion of, or in lieu of interest payments on, the
Debentures in the manner and at the time required by Section 5 of the
Securities Purchase Agreement; or
(c) failure of the Company to have authorized the number of
shares of Common Stock issuable upon conversion of, or in lieu of interest
payments on, the Debentures, or exercise of the Warrants; or
(d) failure on the part of the Company to duly observe or
perform any of its other covenants or agreements contained in, or to cure any
material breach in a material representation or covenant contained in the
Securities Purchase Agreement, the Debentures or the Registration Rights
Agreement for a period of ten (10) days after the date on which written notice
of such failure or breach requiring the same to be remedied has been given by a
Registered Holder to the Company; or
<PAGE>
(e) a decree or order by a court having jurisdiction has been
entered adjudging the Company (or any Material Subsidiary (as herein after
defined)) bankrupt or insolvent, or approving a petition seeking reorganization
of the Company (or any Material Subsidiary) under any applicable bankruptcy law
and such decree or order has continued undischarged or unstayed for a period of
thirty (30) days; or a decree or order of a court having jurisdiction for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or
insolvency of the Company (or any Material Subsidiary) or of all or
substantially all of its property, or for the winding-up or liquidation of its
affairs, has been entered, and has remained in force undischarged or unstayed
for a period of thirty (30) days; or
(f) the Company (or any Material Subsidiary) institutes
proceedings to be adjudicated a voluntary bankrupt, or consents to the filing
of a bankruptcy proceeding against it, or files a petition or answer or consent
seeking reorganization under applicable law, or consents to the filing of any
such petition or to the appointment of a receiver or liquidator or trustee or
assignee in bankruptcy or insolvency of it or of all or substantially all of
its property, or makes an assignment for the benefit of creditors, or admits in
writing its inability to pay its debts generally as they become due; or if the
Company (or any Material Subsidiary) shall suffer any writ of attachment or
execution or any similar process to be issued or levied against it or any
significant part of its property which is not released, stayed, bonded or
vacated within thirty (30) days after its issue or levy; or if the Company (or
any Material Subsidiary) takes corporate action in furtherance of any of the
aforesaid purposes or conditions; or
(g) if any default shall occur under any indenture, mortgage,
agreement, instrument or commitment evidencing or under which there is at the
time outstanding any indebtedness of the Company (or a Material Subsidiary), in
excess of $50,000, or which results in such indebtedness, in an aggregate
amount (with other defaulted indebtedness) in excess of $50,000 becoming due
and payable prior to its due date and if such indenture or instrument so
requires, the holder or holders thereof (or a trustee on their behalf) shall
have declared such indebtedness due and payable; or
(h) if any of the Company or its subsidiaries shall default
in the observance or performance of any material term or provision of a
material agreement to which it is a party or by which it is bound, and such
default is not waived or cured within the applicable grace period; or
(i) if a final judgment which, either alone or together with
other outstanding final judgments against the Company and its subsidiaries,
exceeds an aggregate of $50,000 shall be rendered against the Company (or any
Material Subsidiary) and such judgment shall have continued undischarged or
unstayed for thirty (30) days after entry thereof;
then, in each and every such case other than those specified in clauses (e) and
(f) above, so long as such event of default has not been remedied and unless
the principal of all the Debentures has already become due and payable, the
holder of this Debenture, by notice in writing to the Company, may declare the
principal of this Debenture and the interest accrued thereon, if not already
due and payable, to be due and payable immediately, and upon any such
declaration the same shall become
<PAGE>
and shall be immediately due and payable, anything herein contained to the
contrary notwithstanding and, upon the occurrence of the events specified in
clauses (e) and (f) above, such principal and interest shall automatically
become and shall be due and payable immediately without any action on the part
of any holder of Debentures, anything herein contained to the contrary
notwithstanding.
For purposes of this Section 10, "Material Subsidiary" means
any subsidiary with respect to which the Company has directly or indirectly
invested, loaned, advanced or guaranteed the obligations of, an aggregate
amount exceeding fifteen percent (15%) of the Company's gross assets, or the
Company's proportionate share of the assets or net income of which (based on
the subsidiary's most recent financial statements) exceed fifteen percent (15%)
of the Company's gross assets or net income, respectively, or the gross
revenues of which exceed fifteen percent (15%) of the gross revenues of the
Company based upon the most recent financial statements of such subsidiary and
the Company.
11. TRANSFERABILITY. This Debenture is transferable, in whole or in
part, only in accordance with the terms of Section 5 of the Securities Purchase
Agreement. The Registered Holder may submit a written request, in person or by
his duly authorized attorney, for a transfer of this Debenture on the register
of the Company maintained at its principal offices. The Company may deem and
treat the person in whose name this Debenture is registered as the absolute
owner hereof, for the purpose of receiving payment of the principal thereof and
interest hereon, whether or not the same shall be overdue, and for all other
purposes whatsoever, including but without limitation, the giving of any
written notices required hereunder, and the Company shall not be affected by
any notice to the contrary
12. STOCK SPLITS; DIVIDENDS; ADJUSTMENTS; REORGANIZATIONS.
(a) If the Company, at any time after the Original Issue
Date, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on any equity securities (including investments or securities
convertible into or exchangeable for such equity securities) in shares of
Common Stock, (ii) issue any securities payable in shares of Common Stock,
(iii) subdivide the outstanding shares of Common Stock into a larger number of
shares, (iv) combine outstanding shares of Common Stock into a smaller number
of shares, the Fixed Price and each Floating Reference Price prior to the date
of any such occurrence (collectively, the "Reference Prices") shall be
multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding before such event and of which the denominator
shall be the number of shares of Common Stock outstanding after such event. Any
adjustment made pursuant to this Section 12(a) shall become effective
immediately after the record date for the determination of shareholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of an issuance, a subdivision
or a combination.
(b) In the event that the Company, at any time after the
Original Issue Date, issues or sells any Common Stock or securities which are
convertible into or exchangeable for its Common Stock or any convertible or
exchangeable securities, or any warrants or other rights to subscribe for or to
purchase or any options for the purchase of its Common Stock or any such
convertible or exchangeable securities (other than shares or options issued
pursuant to the
<PAGE>
Company's employee or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Securities Purchase
Agreement and listed in the Company's most recent periodic report filed under
the Exchange Act) at an effective purchase price per share which is less than
the Fixed Price then in effect, then the Fixed Price in effect immediately
prior to such issue or sale shall be reduced effective concurrently with such
issue or sale to an amount determined by multiplying such Fixed Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock outstanding immediately prior to such issue or
sale, plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Company for such additional shares would purchase
at such Fixed Price then in effect; and (y) the denominator of which shall be
the number of shares of Common Stock of the Company outstanding immediately
after such issue or sale.
For the purposes of the foregoing adjustment, in the case of
the issuance of any convertible or exchangeable securities, warrants, options
or other rights to subscribe for or to purchase or exchange for, shares of
Common Stock ("Exchangeable Securities"), the maximum number of shares of
Common Stock issuable upon exercise, conversion or exchange of such
Exchangeable Securities shall be deemed to be outstanding, provided that no
further adjustment shall be made upon the actual issuance of Common Stock upon
exercise, exchange or conversion of such Exchangeable Securities.
(c) If the Company, at any time after the Original Issue
Date, shall distribute to all holders of Shares of Common Stock evidences of
its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to in Section 12(b) above) then in each
such case the Fixed Price thereafter shall be determined by multiplying the
Fixed Price in effect immediately prior to the record date fixed for
determination of shareholders entitled to receive such distribution by a
fraction of which the denominator shall be the Market Price for Shares of
Common Stock (as defined below) determined as of the record date mentioned
above, and of which the numerator shall be such Market Price for Shares of
Common Stock on such record date less the then fair market value at such record
date of the portion of such assets or evidences of indebtedness so distributed
applicable to one outstanding share of Common Stock as determined by the Board
in good faith; PROVIDED, however that in the event of a distribution exceeding
25% of the net assets of the Company, such fair market value shall be
determined by an Appraiser selected in good faith by the Board and holders of a
majority in interest of the Debentures. In either case the adjustments shall be
described in a statement provided to all holders of Debentures of the portion
of assets or evidences of indebtedness so distributed or such subscription
rights applicable to one outstanding share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
"Market Price for Shares of Common Stock" shall mean the price
of one share of Common Stock determined as follows:
(i) If the Common Stock is then listed or quoted on
either the NASD Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ
National Market, the reported closing bid price for the Common Stock as
reported by Bloomberg or the Journal on such day (or, if not so reported, as
otherwise reported by The NASDAQ Small Cap Market, NASDAQ National
<PAGE>
Market or the NASD Bulletin Board, as the case may be);
(ii) If the Common Stock is listed on the New York Stock
Exchange or the American Stock Exchange, the closing bid price for the Common
Stock on such exchange on such day as reported by Bloomberg or the Journal;
(iii) If neither (i) nor (ii) apply but the Common Stock
is quoted in the over-the-counter market, another recognized exchange or on the
pink sheets, the last reported bid price thereof on such date; and
(iv) If neither clause (i), (ii) or (iii) above applies,
the market value as determined by a nationally recognized investment banking
firm or other nationally recognized financial advisor retained by the Company
for such purpose, taking into consideration, among other factors, the earnings
history, book value and prospects for the Company, and the prices at which
shares of Common Stock recently have been traded. Such determination shall be
conclusive and binding on all persons.
(d) (1) In the event that at any time or from time to time
after the Original Issue Date, the Common Stock issuable upon the conversion
of, or in lieu of interest payments on, the Debentures is changed into the same
or a different number of shares of any class or classes of stock, whether by
merger, consolidation, recapitalization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend or reorganization
provided for elsewhere in this Paragraph 12), then and as a condition to each
such event provision shall be made in a manner reasonably acceptable to the
holders of Debentures so that each holder of Debentures shall have the right
thereafter to convert such Debenture into, and to receive in lieu of interest
payments, the kind of stock receivable upon such recapitalization,
reclassification or other change by holders of shares of Common Stock, all
subject to further adjustment as provided herein. In such event, the formulae
set forth herein for conversion and redemption shall be equitably adjusted to
reflect such change in number of shares or, if shares of a new class of stock
are issued, to reflect the market price of the class or classes of stock
(applying the same factors used in determining the Fixed Price) issued in
connection with the above described transaction.
(2) If at any time or from time to time after the Initial
Closing Date there is a capital reorganization of the Common Stock, including by
way of a sale of all or substantially all of the assets of the Company (other
than a recapitalization, subdivision, combination, reclassification or exchange
of shares provided for elsewhere in this Paragraph 12), then, as a part of and a
condition to such reorganization, provision shall be made in a manner reasonably
acceptable to the holders of the Debentures so that the holders of the
Debentures shall thereafter be entitled to receive upon conversion of, or in
lieu of interest payments on, the Debentures the number of shares of stock or
other securities or property to which a holder of the number of shares of Common
Stock deliverable upon conversion, or in lieu of interest payments on, the
Debentures would have been entitled on such capital reorganization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of this Paragraph 12 with respect to the rights of the holders of the Debentures
after the reorganization to the end that the provisions of this Paragraph 12
shall be applicable after that event and be as nearly equivalent as
<PAGE>
may be practicable, including, by way of illustration and not limitation, by
equitably adjusting the formulae set forth herein for conversion and redemption
to reflect the market price of the securities or property (applying the same
factors used in determining the Market Price for Shares of Common Stock) issued
in connection with the above described transaction.
(e) If at any time during the period ending twelve (12) months
after the Original Issue Date, (but not including up to $1,000,000 of the
$5,000,000 private offering of the Company's debentures that the Company was in
the process of placing prior to the Initial Closing Date and has subscription
agreements from investors for $275,000 as of the Initial Closing Date) the
Company sells or agrees to sell (including pursuant to a letter of intent, term
sheet, or similar means) shares of Common Stock or securities or options
convertible into, exercisable for, or exchangeable for, shares of Common Stock
(other than (i) a sale pursuant to a bona fide registered public offering of
shares of Common Stock by the Company conducted on the basis of a firm
commitment underwriting raising at least $10,000,000 and (ii) shares or options
issued pursuant to the Company's employee, director or consultant stock option
plans) then, if the effective or maximum sales price of the shares of Common
Stock with respect to such transaction (including the effective or maximum
conversion exercise or exchange price) ("Other Price") is less than the Fixed
Price of the Debentures at such time, the Company, at the option of a holder
exercised by written notice to the Company, shall adjust the Fixed Price
applicable to the Debentures of such holder not yet converted in form and
substance reasonably satisfactory to such holder of Debentures so that the
conversion price applicable to those Debentures shall, in no event, be greater,
after giving effect to all other adjustments contained therein, than the Other
Price.
(f) Whenever any element of the Applicable Conversion Price is
adjusted pursuant to Section 12(a), (b), (c), (d) or (e), the Company shall
promptly mail to each holder of the Debentures, a notice setting forth the
Applicable Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(g) In the event of any taking by the Company of a record
date of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, any security or right convertible or exchangeable into or
entitling the holder thereof to receive additional shares of Common Stock, or
any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other
right, the Company, shall deliver to each holder of Debentures at least thirty
(30) days prior to the date specified therein, a notice specifying the date on
which any such record is to be taken for the purpose of such dividend,
distribution, security or right and the amount and character of such dividend,
distribution, security or right.
13. REMEDIES CUMULATIVE. The rights, powers and remedies given to
the payee and Company under this Debenture shall be in addition to all rights,
powers and remedies given to it by virtue of the Securities Purchase Agreement,
any document or instrument executed in connection therewith, or any statute or
rule of law.
14. NON-WAIVER. Any forbearance, failure or delay by the payee or
Company in exercising any right, power or remedy under this Debenture, the
Securities Purchase Agreement, any documents or instruments executed in
connection therewith or otherwise available to the payee
<PAGE>
or Company shall not be deemed to be a waiver of such right, power or remedy,
nor shall any single or partial exercise of any right, power or remedy preclude
the further exercise thereof.
15. MODIFICATIONS AND WAIVERS. No modification or waiver of any
provision of this Debenture, the Securities Purchase Agreement or any documents
or instruments executed in connection therewith shall be effective unless it
shall be in writing and signed by the payee and Company, and any such
modification or waiver shall apply only in the specific instance for which
given.
16. ATTORNEY'S FEES. If this Debenture shall not be paid when due
and shall be placed by the Registered Holder hereof in the hands of an attorney
for collection, through legal proceedings or otherwise, or if this Debenture
shall not be converted into shares of Common Stock on the Conversion Date,
subject to the provisions of Section 6 hereof, and an action is brought by the
Registered Holder with respect thereto, the Company shall pay attorney's fees
to the Registered Holder or if more than one Registered Holder then the fees of
one lead attorney hereof, together with reasonable costs and expenses of
collection or enforcement incurred in connection with any such action.
17. ENFORCEMENT; SPECIFIC PERFORMANCE. (a) In case any one or more
Events of Default shall occur and be continuing, a Registered Holder of a
Debenture then outstanding may proceed to protect and enforce the rights of
such holder by an action at law, suit in equity or other appropriate
proceeding, whether for the specific performance of any agreement contained
herein or for an injunction against a violation of any of the terms hereof or
thereof, or in aid of the exercise of any power granted hereby or thereby or by
law. Each holder agrees that it will give written notice to the other holders
prior to instituting any such action.
(b) The Company expressly agrees that each Registered Holder
may not have adequate remedies at law if the Company does not perform its
obligations under this Debenture. Upon a breach of the terms or covenants of
this Debenture by the Company, the Registered Holder shall, each in addition to
all other remedies, be entitled to obtain injunctive relief, and an order for
specific performance of the Company's obligations hereunder.
18. GOVERNING LAW. This Debenture and the rights and obligations of
the parties hereto, shall be governed, construed and interpreted according to
the laws of the State of New York. The Company agrees that any final judgment
after exhaustion of all appeals or the expiration of time to appeal in any such
action or proceeding shall be conclusive and binding, and may be enforced in
any federal or state court in the United States by suit on the judgment or in
any other manner provided by law. Nothing contained in this Debenture shall
affect or limit the right of the Registered Holder to serve any process or
notice or motion or other application in any other manner permitted by law, or
limit or affect the right of the Registered Holder to bring any action or
proceeding against the Company or any of its property in the courts of any
other jurisdiction. The Company hereby consents to the jurisdiction of the
federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Debenture, and hereby waives, to
the maximum extent permitted by law, any objection, including any objections
based on FORUM NON CONVENIENS, to the bringing of
<PAGE>
any such proceeding in such jurisdictions.
19. PAYEE DEFINED. The term "payee" as used herein shall be deemed
to include the payee and its successors, endorsees and assigns.
20. WAIVER OF PRESENTMENT, ETC. The undersigned hereby waives
presentment, demand for payment, protest, notice of protest and notice of
non-payment hereof.
21. HEADINGS. The headings contained in this Debenture are for
reference purposes only and shall not affect the meaning of interpretation of
this Debenture.
22. NOTICES. Any notice to any party required or permitted
hereunder shall be given in writing (unless otherwise specified herein) and
shall be effective upon personal delivery, via facsimile (upon receipt of
confirmation of error-free transmission) or two business days following deposit
of such notice with an internationally recognized courier service, with postage
prepaid and addressed to such party at the address set forth in the first
paragraph of this Agreement with a copy to the Company at the address set forth
below, and to the other parties thereunto entitled at the following addresses,
or at such other addresses as a party may designate by five days advance
written notice to each of the other parties hereto.
COMPANY: Airtech International Group, Inc. 15400 Knoll Trail, Suite
#200 Dallas, Texas 77063 ATTENTION: C.J. Comu, CEO Tel: (972) 960-9400 x111
Fax: (972) 960-9395 REGISTERED HOLDER:PK Investors LLC c\o WEC Asset Management
LLC 110 Colabaugh Pond Road Croton-on-Hudson, New York 10520 ATTENTION: Daniel
J. Saks Tel: (914) 271-2211 Fax: (914) 271-0889 WITH A COPY TO: Pryor Cashman
Sherman & Flynn LLP 410 Park Avenue New York, New York 10022 ATTENTION: Mark
Saks, Esq. Tel: (212) 326-0140 Fax: (212) 326-0806
23. AMENDMENTS AND MODIFICATION. Changes in or additions to this
Debenture may be made, and compliance with any covenant or condition herein
set forth may be omitted only if the Company shall obtain the written consent
from the Registered Holder of this Debenture.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK, SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed as of
February 22, 2000.
AIRTECH INTERNATIONAL GROUP, INC.
By:______________________________________
Name:
Title:
<PAGE>
NOTICE OF CONVERSION
The conversion form appearing below should only be executed by
the Registered Holder desiring to convert all or part of the principal amount of
the Debenture attached hereto.
CONVERSION FORM
Date: ________________________________
TO: AIRTECH INTERNATIONAL GROUP, INC.
The undersigned hereby exercises the conversion privilege upon
the terms and conditions set forth in the attached Debenture, to the extent of
the maximum number of shares of Common Stock issuable pursuant to the terms of
Section 6 of the Debenture, and accordingly, authorizes the Company to apply
$__________ principal amount of the attached Debenture to payment in full for
such shares of Common Stock. Please register such shares and make delivery
thereof as follows:
Registered in the Name of (Giving First or Middle Name in Full)
Name ____________________________________________________
(Please Print)
Address _________________________________________________
<PAGE>
DELIVERY INSTRUCTIONS
To be completed ONLY if Certificates are to be mailed to
persons other than the Registered Holder.
Name ________________________________________________
(Please Print)
Address _____________________________________________
Signature ___________________________________________
<PAGE>
EXHIBIT 4.5
THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE, AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR ANY STATE SECURITIES LAWS OR THE PROVISIONS OF THIS
WARRANT.
No. of Shares of Common Stock: 250,000
WARRANT
To Purchase Common Stock of
AIRTECH INTERNATIONAL GROUP, INC.
THIS IS TO CERTIFY THAT PK Investors LLC, a Delaware limited
liability company, or its registered assigns, is entitled, at any time from the
Warrant Issuance Date (as hereinafter defined) to the Expiration Date (as
hereinafter defined), to purchase from Airtech International Group, Inc., a
Wyoming corporation (the "Company"), two hundred fifty thousand (250,000) shares
of Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
per share equal to $2.585 (subject to any adjustments made to such amount
pursuant to Section 4 hereto) on the terms and conditions and pursuant to the
provisions hereinafter set forth.
1. DEFINITIONS
As used in this Warrant, the following terms have the
respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued by the Company after the Initial Closing Date, other than
Warrant Stock.
"Book Value" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book value of the Company
as of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by a firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
"Business Day" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.
<PAGE>
"Commission" shall mean the Securities and Exchange
Commission or any other federal agency then administering the Securities Act and
other federal securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.05 per share, of the Company as
constituted on the Initial Closing Date, and any capital stock into which such
Common Stock may thereafter be changed, and shall also include (i) capital stock
of the Company of any other class (regardless of how denominated) issued to the
holders of shares of Common Stock upon any reclassification thereof which is
also not preferred as to dividends or assets over any other class of stock of
the Company and which is not subject to redemption and (ii) shares of common
stock of any successor or acquiring corporation received by or distributed to
the holders of Common Stock of the Company in the circumstances contemplated by
Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, $2.585 subject to any
adjustments to such amount made in accordance with Section 4 hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.
"Expiration Date" shall February 22, 2005.
"Fully Diluted Outstanding" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, outstanding on such
date, and other options or warrants to purchase, or securities convertible into,
including without limitation the shares of Common Stock outstanding on such date
which would be deemed outstanding in accordance with GAAP for purposes of
determining book value or net income per share.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.
"Initial Closing Date" shall have the meaning set forth in the
Securities Purchase Agreement.
<PAGE>
"Market Price" per Common Share means the average of the
closing bid prices of the Common Shares as reported on the National Association
of Securities Dealers Automated Quotation System for the National Market,
("NASDAQ") or, if such security is not listed or admitted to trading on the
NASDAQ, on the principal national security exchange or quotation system on which
such security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or quotation
system, the closing bid price of such security on the over-the-counter market on
the day in question as reported by the National Association of Security Dealers,
Inc., or a similar generally accepted reporting service, as the case may be, for
the five (5) trading days immediately preceding the date of determination.
"Other Property" shall have the meaning set forth in Section
4.4.
"Outstanding" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration
Rights Agreement dated a date even herewith by and between the Company and PK
Investors LLC, as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock
which are, or which upon their issuance on the exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities
Purchase Agreement dated as of a date even herewith by and between the Company
and PK Investors LLC, as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section
9.2.
"Warrant Issuance Date" shall mean any date on which Warrants
are issued pursuant
<PAGE>
to the Securities Purchase Agreement.
"Warrants" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.
"Warrant Price" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.
"Warrant Stock" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.
2. EXERCISE OF WARRANT
2.1. MANNER OF EXERCISE. From and after the Warrant Issuance
Date and until 5:00 P.M., New York City time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment by cash, check or bank draft payable to the Company
of the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank or by the Holder's surrender of Warrant Stock (or the right
to receive such number of shares) having an aggregate Market Price equal to the
Warrant Price for all shares then being purchased and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as EXHIBIT A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five (5) Business Days thereafter, execute or cause to be executed and deliver
or cause to be delivered to Holder a certificate or certificates representing
the aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the Warrant has been exercised by payment to
the Company of the Warrant Price. If this Warrant shall have been exercised in
part, the Company shall, at the time of delivery of the certificate or
certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant.
<PAGE>
The Holder shall be entitled to exercise the Warrant
notwithstanding the commencement of any case under 11 U.S.C. Section 101 ET SEQ.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
Holder's exercise right. The Company hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the exercise of the Warrant. The Company agrees, without cost or
expense to the Holder, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
2.2. PAYMENT OF TAXES AND CHARGES. All shares of Common Stock
issuable upon the exercise of this Warrant pursuant to the terms hereof shall be
validly issued, fully paid and nonassessable, and without any preemptive rights.
The Company shall pay all expenses in connection with, and all taxes and other
governmental charges that may be imposed with respect to, the issue or delivery
thereof.
2.3. FRACTIONAL SHARES. The Company shall not be required to
issue a fractional share of Common Stock upon exercise of any Warrant. As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such exercise, the Company shall pay a cash adjustment in respect of such final
fraction in an amount equal to the same fraction of the Market Price per share
of Common Stock on the relevant exercise date.
2.4. CONTINUED VALIDITY. A holder of shares of Common Stock
issued upon the exercise of this Warrant, in whole or in part (other than a
holder who acquires such shares after the same have been publicly sold pursuant
to a Registration Statement under the Securities Act or sold pursuant to Rule
144 thereunder), shall continue to be entitled with respect to such shares to
all rights to which it would have been entitled as Holder under Sections 9, 10
and 14 of this Warrant. The Company will, at the time of exercise of this
Warrant, in whole or in part, upon the request of Holder, acknowledge in
writing, in form reasonably satisfactory to Holder, its continuing obligation to
afford Holder all such rights; PROVIDED, HOWEVER, that if Holder shall fail to
make any such request, such failure shall not affect the continuing obligation
of the Company to afford to Holder all such rights.
2.5. RIGHT TO CONVERT WARRANT. The Holder shall have the right to
convert, in whole or in part, this Warrant (the "Conversion Right") at any
time prior to the expiration of the Exercise Period, into shares of Common
Stock in accordance with this Section 2.5, provided that such Conversion
Right shall not be available to the Holder in the event that the registration
statement filed pursuant to the Registration Rights Agreement covering the
Registrable Securities (as defined in the Registration Rights Agreement) is
effective. Upon exercise of the Conversion Right, the Company shall deliver
to the Holder (without payment by the Holder of the Warrant Price) that
number of shares of Common Stock equal to the quotient obtained by dividing
(x) the value of the portion of this Warrant being converted at the time the
Conversion Right is exercised (determined by subtracting the Warrant Price
for the portion of this Warrant being converted (in effect immediately prior
to the exercise of the Conversion Right) from the amount obtained by
multiplying the number of shares of Common Stock issuable upon the whole or
partial exercise of this Warrant, as the case may be, by the Market Price
immediately prior to the exercise of the Conversion Right)
<PAGE>
by (y) the Market Price of one share of Common Stock immediately prior to the
exercise of the Conversion Right.
The Conversion Right may be exercised by the Holder, at any
time or from time to time, prior to its expiration, on any business day by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company, exercising the Conversion Right and specifying (i) the
total number of shares of Common Stock the Holder will purchase pursuant to the
conversion and (ii) a place and date not less than two (2) nor more than twenty
(20) Business Days from the date of the Conversion Notice for the closing of
such purchase.
At any closing under this Section 2.5, (i) the Holder will
surrender this Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion. If this Warrant shall have been converted only in part,
the Company shall, at the time of delivery of said stock certificate or
certificates, deliver to the Holder a new Warrant evidencing the rights of the
Holder to purchase the remaining shares of Common Stock called for by this
Warrant, which new Warrant shall in all other respects be identical to this
Warrant, or, at the request of the Holder, appropriate notation may be made on
this Warrant and the same returned to the Holder. The Company shall pay all
expenses, taxes and other charges payable in connection with the preparation,
issue and delivery of such stock certificates and new Warrants, except that, in
case such stock certificates and/or new Warrants shall be registered in a name
or names other than the name of the Holder, funds sufficient to pay all stock
transfer taxes that are payable upon the issuance of such stock certificates or
new Warrants shall be paid by the Holder at the time of delivering the notice of
exercise mentioned above.
3. TRANSFER, DIVISION AND COMBINATION
3.1. TRANSFER. Subject to compliance with Sections 9, transfer
of this Warrant and all rights hereunder, in whole or in part, shall be
registered on the books of the Company to be maintained for such purpose, upon
surrender of this Warrant at the principal office of the Company referred to in
Section 2.1 or the office or agency designated by the Company pursuant to
Section 12, together with a written assignment of this Warrant substantially in
the form of EXHIBIT B hereto duly executed by Holder or its agent or attorney.
Upon such surrender, the Company shall, subject to Section 9, execute and
deliver a new Warrant or Warrants in the name of the assignee or assignees and
in the denomination specified in such instrument of assignment, and shall issue
to the assignor a new Warrant evidencing the portion of this Warrant not so
assigned, and this Warrant shall promptly be cancelled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new Warrant issued.
3.2. DIVISION AND COMBINATION. Subject to Section 9, this
Warrant may be divided or combined with other Warrants upon presentation hereof
at the aforesaid office or agency of the Company, together with a written notice
specifying the names and denominations in which new Warrants are to be issued,
signed by Holder or its agent or attorney. Subject to compliance with Section
3.1 and with Section 9, as to any transfer which may be involved in such
division or combination, the Company shall execute and deliver a new Warrant or
Warrants in exchange for the Warrant or Warrants to be divided or combined in
accordance with such notice.
<PAGE>
3.3. EXPENSES. The Company shall prepare, issue and deliver
at its own expense the new Warrant or Warrants under this Section 3.
3.4. MAINTENANCE OF BOOKS. The Company agrees to maintain, at
its aforesaid office or agency, books for the registration and the registration
of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1. STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS. If at any
time the Company shall:
(a) take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend payable in, or
other distribution of, Additional Shares of Common Stock,
(b) subdivide its outstanding shares of Common
Stock into a larger number of shares of Common Stock, or
(c) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock,
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2. CERTAIN OTHER DISTRIBUTIONS.
(a) If at any time prior to the Expiration Date
the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive any dividend or other distribution of:
(i) cash,
(ii) any evidences of its
indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever
(other than cash, Convertible Securities or
Additional Shares of Common Stock), or
<PAGE>
(iii) any warrants or other rights to
subscribe for or purchase any evidences of its
indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever
(other than cash, Convertible Securities or
Additional Shares of Common Stock),
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
(b) In case the Company shall issue any Common Stock
or any rights, options or warrants to all holders of record of its Common Stock
(each an "Issuance") entitling all holders to subscribe for or purchase shares
of Common Stock at a price per share less than the Market Price per share of the
Common Stock on the date fixed for such issue, the Current Warrant Price in
effect immediately prior to the close of business on the date fixed for such
determination shall be reduced to the amount determined by multiplying such
Current Warrant Price by a fraction, the numerator of which shall be the number
of shares of Common Stock outstanding immediately prior to the close of business
on the date fixed for such determination plus the number of shares of Common
Stock which the aggregate of the offering price of the total number of shares of
Common Stock so offered for subscription or purchase would purchase at such
Market Price and the denominator of which shall be the number of shares of
Common Stock outstanding immediately prior to the close of business on the date
fixed for such determination plus the number of shares of Common Stock so
offered for subscription or purchase, such reduced amount to become effective
immediately after the close of business on the date fixed for such
determination. For the purposes of this clause (b), (i) the number of shares of
Common Stock at any time outstanding shall not include shares held in the
treasury of the Company and (ii) in the case of any rights, options or warrants
which expire by their terms not more than 60 days after the date of issue, sale,
grant or assumption thereof, no adjustment of the Current Warrant Price shall be
made until the expiration or exercise of all rights, options or warrants,
whereupon such adjustment shall be made in the manner provided in this clause
(b), but only with respect to the shares of Common Stock actually issued
pursuant thereto. Such adjustment shall be made successively whenever any event
specified above shall occur up to February 22, 2003. For Company Issuances after
February 22, 2003 no adjustment pursuant to this Section 4.2 shall be made. The
Company agrees to notify the Holders as soon as practical of any Issuances after
February 22, 2003 to allow reasonable time to convert. In the event that any or
all rights, options or warrants covered by this clause (b) are not so issued or
expire or terminate before being exercised, the Current Warrant Price then in
effect shall be appropriately readjusted.
4.3. OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
SECTION. The following provisions shall be applicable to the making of
adjustments of the number of shares of
<PAGE>
Common Stock for which this Warrant is exercisable and the Current Warrant
Price provided for in this Section 4:
(a) WHEN ADJUSTMENTS TO BE MADE. The
adjustments required by this Section 4 shall be made whenever and as often as
any specified event requiring an adjustment shall occur. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at the close of
business on the date of its occurrence.
(b) FRACTIONAL INTERESTS. In computing
adjustments under this Section 4, fractional interests in Common Stock shall be
taken into account to the nearest 1/10th of a share.
(c) WHEN ADJUSTMENT NOT REQUIRED. If the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend or distribution or subscription or
purchase rights and shall, thereafter and before the distribution to
stockholders thereof, legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then thereafter no adjustment
shall be required by reason of the taking of such record and any such adjustment
previously made in respect thereof shall be rescinded and annulled.
(d) CHALLENGE TO GOOD FAITH DETERMINATION.
Whenever the Board of Directors of the Company shall be required to make a
determination in good faith of the fair value of any item under this Section 4,
such determination may be challenged in good faith by the Holder, and any
dispute shall be resolved by an investment banking firm of recognized national
standing selected by the Holder and reasonably acceptable to the Company.
4.4. REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION
OR DISPOSITION OF ASSETS. In case the Company shall reorganize its capital,
reclassify its capital stock, consolidate or merge with or into another
corporation (where the Company is not the surviving corporation or where there
is a change in or distribution with respect to the Common Stock of the Company),
or sell, transfer or otherwise dispose of all or substantially all its property,
assets or business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, merger, consolidation or disposition of assets by a holder of
the number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate, subject to the
<PAGE>
Holder's consent, in order to provide for adjustments of shares of Common Stock
for which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class which is not preferred as
to dividends or assets over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 shall similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5. OTHER ACTION AFFECTING COMMON STOCK. In case at any time
or from time to time the Company shall take any action in respect of its Common
Stock, other than any action taken in the ordinary course of the Company's
business or any action described in this Section 4, which would have a material
adverse effect upon the rights of the Holder, the number of shares of Common
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by an investment
bank selected by Holder.
4.6. CERTAIN LIMITATIONS. Notwithstanding anything herein to
the contrary, the Company agrees not to enter into any transaction which, by
reason of any adjustment hereunder, would cause the Current Warrant Price to be
less than the par value per share of Common Stock.
4.7. NO VOTING RIGHTS. This Warrant shall not entitle its
Holder to any voting rights or other rights as a shareholder of the Company.
5. NOTICES TO HOLDER
5.1. NOTICE OF ADJUSTMENTS. Whenever the number of shares of
Common Stock for which this Warrant is exercisable, or whenever the price at
which a share of such Common Stock may be purchased upon exercise of the
Warrants, shall be adjusted pursuant to Section 4, the Company shall forthwith
prepare a certificate to be executed by an executive officer of the Company
setting forth, in reasonable detail, the event requiring the adjustment and the
method by which such adjustment was calculated, specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder, its
representatives, or any prospective purchaser of a Warrant designated by the
Holder.
5.2. NOTICE OF CORPORATE ACTION. If at any time
(a) the Company shall take a record of the holders of
its Common Stock
<PAGE>
for the purpose of entitling them to receive a dividend or other distribution,
or any right to subscribe for or purchase any evidences of its indebtedness,
any shares of stock of any class or any other securities or property, or to
receive any other right, or
(b) there shall be any capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger of the Company with, or any sale,
transfer or other disposition of all or substantially all the property,
assets or business of the Company to, another corporation, or
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least thirty (30) Business Days' prior written notice of the date on which a
record date shall be selected for such dividend, distribution or right or for
determining rights to vote in respect of any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up, and (ii) in the case of any such
reorganization, reclassification, merger, consolidation, sale, transfer,
disposition, dissolution, liquidation or winding up, at least thirty (30)
Business Days' prior written notice of the date when the same shall take place.
Such notice in accordance with the foregoing clause also shall specify (i) the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, the date on which the holders of Common Stock shall be
entitled to any such dividend, distribution or right, and the amount and
character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. NO IMPAIRMENT
The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
shares of Common Stock upon the exercise of this Warrant, and (c) use its
best efforts to obtain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction thereof as may be necessary to
enable the Company to perform its obligations under this Warrant.
<PAGE>
Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
reasonably satisfactory to Holder, the continuing validity of this Warrant and
the obligations of the Company hereunder.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Initial Closing Date, the Company shall at
all times reserve and keep available for issue upon the exercise of Warrants
such number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable, and not
subject to preemptive rights.
Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of such Common
Stock at such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of a record of such holders, the Company will
in each such case take such a record as of the close of business on a Business
Day. The Company will not at any time close its stock transfer books or Warrant
transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1. RESTRICTIVE LEGEND. The Holder by accepting this Warrant
and any Warrant Stock agrees that this Warrant and the Warrant Stock issuable
upon exercise hereof may not be assigned or otherwise transferred unless and
until (i) the Company has received an opinion of counsel for the Holder that
such securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.
<PAGE>
(a) Each certificate for Warrant Stock issuable
hereunder shall bear a legend substantially worded as follows unless such
securities have been sold pursuant to an effective registration statement under
the Securities Act:
"The securities represented by this
certificate have not been registered under the Securities Act
of 1933, as amended (the "Act") or any state securities laws.
The securities may not be offered for sale, sold, assigned,
offered, transferred or otherwise distributed for value except
(i) pursuant to an effective registration statement under the
Act or any state securities laws or (ii) pursuant to an
exemption from registration or prospectus delivery requirements
under the Act or any state securities laws in respect of which
the Company has received an opinion of counsel satisfactory to
the Company to such effect. Copies of the agreement covering
both the purchase of the securities and restricting their
transfer may be obtained at no cost by written request made by
the holder of record of this certificate to the Secretary of
the Company at the principal executive offices of the Company."
(b) Except as otherwise provided in this Section 9,
the Warrant shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"This Warrant and the securities represented
hereby have not been registered under the Securities Act of
1933, as amended, or any state securities laws and may not be
transferred in violation of such Act, the rules and regulations
thereunder or any state securities laws or the provisions of
this Warrant."
9.2. NOTICE OF PROPOSED TRANSFERS. Prior to any Transfer or
attempted Transfer of any Warrants or any shares of Restricted Common Stock, the
Holder shall give five (5) days' prior written notice (a "Transfer Notice") to
the Company of Holder's intention to effect such Transfer, describing the manner
and circumstances of the proposed Transfer, and obtain from counsel to Holder an
opinion that the proposed Transfer of such Warrants or such Restricted Common
Stock may be effected without registration under the Securities Act or state
securities laws. After the Company's receipt of the Transfer Notice and opinion,
such Holder shall thereupon be entitled to Transfer such Warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such Transfer and the Warrant issued upon such Transfer shall bear
the restrictive legends set forth in Section 9.1, unless in the opinion of such
counsel such legend is not required in order to ensure compliance with the
Securities Act.
9.3. REQUIRED REGISTRATION. Pursuant to the terms and
conditions set forth in the
<PAGE>
Registration Rights Agreement, the Company shall prepare and file with the
Commission not later than the thirtieth (30th) day after the Initial Closing
Date, a Registration Statement relating to the offer and sale of the Common
Stock issuable upon exercise of the Warrants and shall use its best efforts to
cause the Commission to declare such Registration Statement effective in
accordance with the terms set forth in Section 2(a) of the Registration Rights
Agreement.
9.4. TERMINATION OF RESTRICTIONS. Notwithstanding the
foregoing provisions of Section 9, the restrictions imposed by this Section upon
the transferability of the Warrants, the Warrant Stock and the Restricted Common
Stock (or Common Stock issuable upon the exercise of the Warrants) and the
legend requirements of Section 9.1 shall terminate as to any particular Warrant
or share of Warrant Stock or Restricted Common Stock (or Common Stock issuable
upon the exercise of the Warrants) (i) when and so long as such security shall
have been effectively registered under the Securities Act and applicable state
securities laws and disposed of pursuant thereto or (ii) when the Company shall
have received an opinion of counsel that such shares may be transferred without
registration thereof under the Securities Act and applicable state securities
laws. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON ________,
20__, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legends set forth in Section 9.1.
9.5. LISTING ON SECURITIES EXCHANGE. If the Company shall list
any shares of Common Stock on any securities exchange, it will, at its expense,
list thereon, maintain and, when necessary, increase such listing of, all shares
of Common Stock issued or, to the extent permissible under the applicable
securities exchange rules, issuable upon the exercise of this Warrant so long as
any shares of Common Stock shall be so listed during the Exercise Period.
10. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
<PAGE>
11. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; PROVIDED, in the case of mutilation, no indemnity shall be required
if this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant, such office to
be initially located at 15400 Knoll Trail, Suite #200, Dallas, Texas 75248, fax
(972) 960-9395, provided, however, that the Company shall provide prior written
notice to Holder of a change in address no less than thirty (30) days prior to
such change.
13. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
14. MISCELLANEOUS
14.1. NONWAIVER AND EXPENSES. No course of dealing or any
delay or failure to exercise any right hereunder on the part of Holder shall
operate as a waiver of such right or otherwise prejudice Holder's rights, powers
or remedies, notwithstanding all rights hereunder terminate on the Expiration
Date. If the Company fails to make, when due, any payments provided for
hereunder, or fails to comply with any other provision of this Warrant, the
Company shall pay to Holder such amounts as shall be sufficient to cover any
direct and indirect losses, damages, costs and expenses including, but not
limited to, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2. NOTICE GENERALLY. Except as may be otherwise provided
herein, any notice or other communication or delivery required or permitted
hereunder shall be in writing and shall be delivered personally or sent by
certified mail, postage prepaid, or by a nationally recognized overnight courier
service, and shall be deemed given when so delivered personally or by overnight
courier service, or, if mailed, three (3) days after the date of deposit in the
United States mails, as follows:
<PAGE>
(1) if to the Company, to:
Airtech International Group, Inc.
15400 Knoll Trail, Suite #200
Dallas, Texas 75248
Attention: C.J. Comu, CEO
Tel: (972) 960-9400 x111
Fax: (972)960-9395
(2) if to the Purchaser to:
PK Investors LLC
WEC Asset Management LLC
110 Colabaugh Pond Road
Croton-on-Hudson, New York 10520
Attention: Daniel J. Saks
Tel: (914) 271-2211
Fax: (914) 271-0889
with a copy to:
Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Mark Saks, Esq.
Tel: (212) 326-0140
Fax: (212) 326-0806
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3. INDEMNIFICATION. The Company agrees to indemnify and
hold harmless Holder from and against any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses and disbursements of any kind which may be imposed upon, incurred by or
asserted against Holder in any manner relating to or arising out of any failure
by the Company to perform or observe in any respect any of its covenants,
agreements, undertakings or obligations set forth in this Warrant.
14.4. REMEDIES. Holder in addition to being entitled to
exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Warrant. The Company
agrees that monetary damages would not be adequate compensation for any loss
incurred by reason of a breach by it of the provisions of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.
14.5. SUCCESSORS AND ASSIGNS. Subject to the provisions of
Sections 3.1 and 9, this Warrant and the rights evidenced hereby shall inure to
the benefit of and be binding upon the successors of the Company and the
successors and assigns of Holder. The provisions of this Warrant
<PAGE>
are intended to be for the benefit of all Holders from time to time of this
Warrant and, with respect to Section 9 hereof, holders of Warrant Stock, and
shall be enforceable by any such Holder or holder of Warrant Stock.
14.6. AMENDMENT. This Warrant and all other Warrants may be
modified or amended or the provisions hereof waived only with the prior written
consent of the Company and the Holder.
14.7. SEVERABILITY. Wherever possible, each provision of this
Warrant shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Warrant shall be prohibited by or
invalid under applicable law, such provision shall be ineffective to the extent
of such prohibition or invalidity, without invalidating the remainder of such
provision or the remaining provisions of this Warrant.
14.8. HEADINGS. The headings used in this Warrant are for the
convenience of reference only and shall not, for any purpose, be deemed a part
of this Warrant.
14.9. GOVERNING LAW. This Warrant shall be governed by the
laws of the State of New York, without regard to the provisions thereof relating
to conflict of laws. The Company consents to the jurisdiction of the federal
courts whose districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in connection
with any dispute arising under this Warrant or any of the transactions
contemplated hereby, and hereby waives, to the maximum extent permitted by law,
any objection, including any objections based on FORUM NON CONVENIENS, to the
bringing of any such proceeding in such jurisdictions.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed and
its corporate seal to be impressed hereon and attested by its Secretary or an
Assistant Secretary.
Dated: February 22, 2000
AIRTECH INTERNATIONAL GROUP, INC.
By:______________________________________
Name:
Title:
Attest:
<PAGE>
By:___________________________
Name:
Title:
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of ______ Shares of Common Stock of Airtech
International Group, Inc., and herewith makes payment therefor in cash or by
check or bank draft made payable to the Company, all at the price and on the
terms and conditions specified in this Warrant and requests that certificates
for the shares of Common Stock hereby purchased (and any securities or other
property issuable upon such exercise) be issued in the name of and delivered to
_____________ whose address is _________________ and whose Federal
Identification Number is ________________and, if such shares of Common Stock
shall not include all of the shares of Common Stock issuable as provided in this
Warrant, that a new Warrant of like tenor and date for the balance of the shares
of Common Stock issuable hereunder be delivered to the undersigned.
-------------------------------
(Name of Registered Owner)
-------------------------------
(Signature of Registered Owner)
-------------------------------
(Street Address)
-------------------------------
(City) (State) (Zip Code)
NOTICE: The signature on this subscription must correspond with the
name as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
<TABLE>
<CAPTION>
Name and Federal Number of Shares
Address of Assignee Identification Number of Common Stock
- ------------------- --------------------- ----------------
<S> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint _______ ________________
attorney-in-fact to register such transfer on the books of Airtech International
Group, Inc., maintained for the purpose, with full power of substitution in the
premises.
Dated:___________________ Print Name:___________________
Signature:____________________
Witness:______________________
NOTICE: The signature on this assignment must correspond with the name
as written upon the face of the within Warrant in every particular, without
alteration or enlargement or any change whatsoever.
<PAGE>
EXHIBIT 4.6
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of February 22, 2000 (this
"Agreement"), is entered into by and between AIRTECH INTERNATIONAL GROUP, INC.,
a Wyoming corporation (the "Company") and PK Investors LLC, a Delaware limited
liability company (the "Purchaser").
W I T N E S S E T H:
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of
February 22, 2000, by and between the Purchaser and the Company (the "Securities
Purchase Agreement"), the Company has agreed to issue and sell to the Purchaser
(i) $2,500,000 principal amount of the Company's 6% Convertible Debentures due
2002 (the "Initial Debentures"); (ii) five year Warrants to purchase 250,000
shares of common stock, par value $.05 per share (the "Common Stock") of the
Company (the "Initial Warrants"); a Supplemental Warrant to purchase up to an
additional $2,500,000 principal amount of the Company's 6% Convertible
Debentures (the "Additional Debentures," together with the Initial Debentures,
the "Debentures") and warrants to purchase up to two hundred fifty thousand
(250,000) shares of Common Stock (the "Additional Warrants," together with the
Initial Warrants, the "Warrants"; the Debentures and Warrants collectively, the
"Securities");
WHEREAS, pursuant to the terms of the Debentures and the Warrants, (i)
upon the conversion of, or in lieu of interest payments on the Debentures and
(ii) upon exercise of the Warrants, the Company will issue to the Purchaser
shares of the Company's Common Stock (the shares of Common Stock issued or
issuable to the Purchaser upon the conversion the Debentures and/or upon the
exercise of the Warrants are collectively referred to herein as the "Shares");
and
WHEREAS, to induce the Purchaser to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended (the "Securities Act"), and
applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Purchaser hereby agree as follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Minimum Conversion Shares" on any date
means a number of shares equal to at least the sum of: (x) two (2) times the
number of shares of Common Stock that are issuable upon conversion of the
Debentures on such date, without regard to any limitation on any holder's
ability to convert the Debentures and (y) the number of shares of Common Stock
issuable
<PAGE>
upon exercise of the Warrants.
(ii) "Register," "Registered," and "Registration
refer to a registration effected by preparing and filing one or more
Registration Statement or Statements in compliance with the Securities Act and
pursuant to Rule 415 under the Securities Act or any successor rule providing
for offering securities on a continuous basis ("Rule 415"), and the declaration
or ordering of effectiveness of such Registration Statement by the Securities
and Exchange Commission (the "Commission").
(iii) "Registrable Securities" means
collectively, the Shares and the Warrants.
(iv) "Registration Statement" means a
registration statement of the Company under the Securities Act.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings set forth in the Securities Purchase Agreement, the Debentures
or the Warrants, as the case may be.
2. REGISTRATION.
(a) Mandatory Registration. The Company shall prepare and, as
soon as practicable but in no event later than thirty (30) days after the
Initial Closing Date (the "Required Filing Date"), file with the Commission a
Registration Statement on Form SB-2, or an amendment to any pending Registration
Statement on Form SB-2 of the Company, covering resales of (a) the Warrants and
(b) the Minimum Conversion Shares on the filing date. In the event that Form
SB-2 is unavailable for such a registration, the Company shall use such other
form as is available for such a registration. Such Registration Statement or
amended Registration Statement, as the case may be, shall state that, in
accordance with Rule 416 under the Securities Act, it also covers such
indeterminate number of additional Shares as may become issuable upon conversion
of the Debentures and exercise of the Warrants (i) to prevent dilution resulting
from stock splits, stock dividends or similar transactions and (ii) to the
extent consistent with the interpretations of the Commission of such rule at
such time, resulting from any adjustment in the applicable Conversion Price of
such Debentures or the Current Warrant Price of such Warrants. If on any date
the Minimum Conversion Shares exceed the total number of Shares so registered,
the Company shall (i) if such Registration Statement has not been declared
effective by the Commission at that time, amend the Registration Statement filed
by the Company pursuant to the preceding portions of this paragraph, to register
all of such Minimum Conversion Shares, or (ii) if such Registration Statement
has been declared effective by the Commission at that time, file with the
Commission an additional Registration Statement on SB-2 (or, in the event that
Form SB-2 is unavailable for such a registration, on such other form as is
available) to register all of such Minimum Conversion Shares that have not
already been so registered. The Company shall use its best efforts to cause any
such Registration Statement or amended Registration Statement, as the case may
be, to become effective within the earliest to occur of (i) ninety (90) days
following the Initial Closing Date or in the event the Commission reviews the
Registration Statement, no longer than 120 days from the Initial Closing Date;
or (ii) if the Commission elects not to conduct a review of the Registration
Statement or has indicated that they
<PAGE>
have no further comments to the Registration Statement, the date which is
three (3) business days after the date upon which either the Company or its
counsel is so notified, whether orally or in writing. The earliest of such
dates is referred to herein as the "Required Effective Date." Notwithstanding
the use of the terms "Required Filing Date" and "Required Effective Date"
herein, the Company shall at all times use its best efforts to file each
required Registration Statement or amendment to a Registration Statement as
soon as possible after the Initial Closing Date or after the date the Company
becomes obligated to file such Registration Statement or amendment, as the
case may be, and to cause each such Registration Statement or amendment to
become effective as soon as possible thereafter. No securities of the Company
other than the Registrable Securities shall be included in any such
Registration Statement. The Company shall keep each Registration Statement
effective pursuant to Rule 415 at all times until such date as is the earlier
of (i) the date on which all of the Registrable Securities have been sold and
(ii) the date on which the Registrable Securities (in the opinion of counsel
to the Purchaser) may be immediately sold without restriction (including
without limitation as to volume by each holder thereof) without registration
under the Securities Act (the "Registration Period").
(b) PAYMENTS BY THE COMPANY.
(i) (A) If the Registration Statement covering
the Registrable Securities is not filed in proper form with the Commission on or
prior to the Required Filing Date, (B) if the Registration Statement covering
the Registrable Securities is not effective on or prior to the Required
Effective Date, (C) if the number of Shares qualified for trading on the OTC
Bulletin Board, NASDAQ SmallCap Stock Market or reserved by the Company for
issuance shall be insufficient for issuance upon the conversion of the
outstanding Debentures and the exercise of the Warrants, or (D) upon the
occurrence of a Blackout Event (as described in Section 3(f) or Section 3(g)
below) (each of the events described in clauses (A) through (D) of this
paragraph are referred to herein as a "Registration Default"), the Company will
make payments to the Purchaser in such amounts and at such times as shall be
determined pursuant to this Section 2(b).
(ii) The amount (the "Periodic Amount") to be paid by
the Company to the Purchaser for each thirty (30) day period, or portion
thereof, during which a Registration Default shall be in effect (each such
period, a "Default Period") shall be equal to two percent (2%) of the sum of (a)
the principal amount of Debentures outstanding and (b) the principal amount of
Debentures converted into shares of Common Stock (the "Purchase Price");
PROVIDED, with respect to any Default Period during which the relevant
Registration Defaults shall have been cured, the Periodic Amount shall be PRO
RATED for the number of days during such period during which the Registration
Defaults were pending; and PROVIDED FURTHER, that the payment of such Periodic
Amounts shall not relieve the Company from its continuing obligations to
register the Registrable Securities pursuant to Section 2(a).
(iii) Each Periodic Amount shall be payable by the
Company, in cash or other immediately available funds, to the Purchaser on the
last day of each month during which a Registration Default occurred or was
continuing, without demand therefor by the Purchaser. If the Company shall not
remit the Periodic Amounts payable to the Purchaser as set forth in paragraph
(ii) above, the Company will pay the Purchaser reasonable costs of collection,
including attorneys'
<PAGE>
fees, in addition to the Periodic Amounts.
(iv) The parties acknowledge that the damages which
may be incurred by the Purchaser if the Registration Statement is not filed by
the Required Filing Date, if the Registration Statement has not been declared
effective by the Required Effective Date, if an insufficient number of shares of
Common Stock shall be qualified for trading or reserved for issuance, or if the
provisions of Section 3(f) or 3(g) become applicable, may be difficult to
ascertain. The parties agree that the Periodic Amount represents a reasonable
estimate on the part of the parties, as of the date of this Agreement, of the
amount of such damages.
(c) PIGGYBACK REGISTRATION. (i) If at any time or from time to time,
the Company shall determine to register any of its securities, for its own
account or the account of any of its shareholders, other than a Registration
Statement relating solely to employee share option plans or pursuant to an
acquisition transaction on Form S-4, the Company will:
(A) provide to the Purchaser written notice thereof as soon as
practicable prior to filing the Registration Statement; and
(B) include in such Registration Statement and in any underwriting
involved therein, all of the Registrable Securities specified in a
written request by the Purchaser made within fifteen (15) days after
receipt of such written notice from the Company.
(ii) If the Registration is for a registered
public offering involving an underwriting, the Company shall so advise the
Purchaser as a part of the written notice given pursuant to this Section. In
such event, the rights of the Purchaser hereunder shall include participation in
such underwriting and the inclusion of the Registrable Securities in the
underwriting to the extent provided herein. To the extent that the Purchaser
proposes to distribute its securities through such underwriting, the Purchaser
shall (together with the Company and any other securityholders of the Company
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section, if the managing underwriter of such underwriting
determines that marketing factors require a limitation of the number of shares
to be offered in connection with such underwriting, the managing underwriter may
limit the number of Registrable Securities to be included in the Registration
and underwriting (PROVIDED, HOWEVER, that (a) the Registrable Securities shall
not be excluded from such underwritten offering prior to the exclusion of any
securities held by officers and directors of the Company or their affiliates,
(b) the Registrable Securities shall be entitled to at least the same priority
in an underwritten offering as any securities included in such offering by any
of the Company's other existing securityholders, and (c) the Company shall not
enter into any agreement that would provide any securityholder with priority in
connection with an underwritten offering greater than the priority granted to
the Purchaser hereunder). The Company shall so advise any of its other
securityholders who are distributing their securities through such underwriting
pursuant to their respective piggyback registration rights, and the number of
shares of Registrable Securities and other securities that may be included in
the registration and underwriting shall be allocated among the Purchaser and all
other
<PAGE>
securityholders of the Company in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by the Purchaser and
such other securityholders at the time of the filing of the registration
statement. If the Purchaser disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company. Any Registrable Securities so excluded or withdrawn from such
underwriting shall be withdrawn from such Registration.
(d) ELIGIBILITY FOR FORM SB-2. The Company represents and warrants that
it meets all of the requirements for the use of Form SB-2 for the Registration
of the sale by the Purchaser and any transferee who purchases the Registrable
Securities, and the Company shall file all reports required to be filed by the
Company with the Commission in a timely manner, and shall take such other
actions as may be necessary to maintain such eligibility for the use of Form
SB-2.
(e) PRIORITY IN FILING. The Company covenants that beginning on the
Initial Closing Date and ending on the date that is one hundred and eighty (180)
days after the Registration Statement filed pursuant to Section 2(a) of this
Agreement becomes effective (PROVIDED that if, after the effective date of such
Registration Statement, the Purchaser shall be unable to sell Registrable
Securities pursuant to such Registration Statement for any number of days, the
provisions of this Section 2(e) shall apply for an additional number of days
equal to the number of days during which any Purchaser is unable to sell
Registrable Securities pursuant to such Registration Statement), the Company
will not file any Registration Statement, other than a Registration Statement
required by Section 2(a) hereof, without the written consent of the Purchaser.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall do each of the following:
(a) Prepare and file with the Commission the Registration
Statements required by Section 2 of this Agreement and such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectuses used in connection with such Registration
Statements, each in such form as to which the Purchaser and its counsel shall
not have objected, as may be necessary to keep the Registration Statements
effective at all times during the Registration Period, and, during the
Registration Period, comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities of the Company
covered by the Registration Statements until such time as all of such
Registrable Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set forth in the
Registration Statements;
(b) Furnish to the Purchaser and its legal counsel identified
to the Company, promptly after the same is prepared and publicly distributed,
filed with the Commission, or received by the Company, a copy of the
Registration Statement, each preliminary prospectus, each final prospectus, and
all amendments and supplements thereto and such other documents, as the
Purchaser may reasonably request in order to facilitate the disposition of its
Registrable Securities;
(c) Furnish to the Purchaser and its counsel copies of any
correspondence
<PAGE>
between the Company and the Commission with respect to any Registration
Statement or amendment or supplement thereto filed pursuant to this Agreement;
(d) Use all reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statements under such other
securities or blue sky laws of such jurisdictions as the Purchaser may
reasonably request, (ii) prepare and file in those jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take such other actions as may be
necessary to maintain such registrations and qualifications in effect at all
times during the Registration Period and (iv) take all other actions reasonably
necessary or advisable to qualify the Registrable Securities for sale in such
jurisdictions, provided that in connection therewith, the Company shall not be
required to qualify as a foreign corporation or to file a general consent to the
service of process in any jurisdiction;
(e) Qualify such securities for trading on the Nasdaq OTC
Bulletin Board and list such securities on all the other national securities
exchanges on which any securities of the Company are then listed, and file any
filings required by Nasdaq and/or such other exchanges;
(f) As promptly as practicable after becoming aware thereof,
notify the Purchaser of any need to suspend use of the prospectus included in
the Registration Statement, including as a result of the occurrence of any
event, as a result of which the prospectus included in any Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading, and to use its best efforts to promptly prepare a
supplement or amendment to such Registration Statement or other appropriate
filing with the Commission to allow the resumption of the use of such prospectus
and to deliver a number of copies of such supplement or amendment to the
Purchaser as the Purchaser may reasonably request;
(g) As promptly as practicable after becoming aware of such
event, notify the Purchaser (or, in the event of an underwritten offering, the
managing underwriters) of the issuance by the Commission or any stop order or
other suspension of the effectiveness of any Registration Statement at the
earliest possible time, and to use its best efforts to promptly obtain the
withdrawal of such stop order or other suspension of effectiveness (the
occurrence of any of the events described in paragraphs (f) and (g) of this
Section 3 is referred to herein as a "Blackout Event");
(h) During the period commencing upon (i) the Purchaser's
receipt of a notification pursuant to Section 3(f) above or (ii) the entry of a
stop order or other suspension of the effectiveness of the Registration
Statement described in Section 3(g) above, and ending at such time as (x) the
Company shall have completed the applicable filings (and if applicable, such
filings shall have been declared effective) and shall have delivered to the
Purchaser the documents required pursuant to Section 3(f) above or (y) such stop
order or other suspension of the effectiveness of the Registration Statement
shall have been removed, the Company shall be liable to remit the payments
required to be paid to the Purchaser pursuant to Section 2(b) above;
(i) Suspend the use of any prospectus used in connection with
any Registration
<PAGE>
Statement only in the event, and for such period of time as, such a
suspension is required by the rules and regulations of the Commission;
(j) Enter into such customary agreements for secondary
offerings (including a customary underwriting agreement with the underwriter or
underwriters, if any) and take all such other actions reasonably requested by
the Purchaser in connection therewith in order to expedite or facilitate the
disposition of such Registrable Securities. Whether or not an underwriting
agreement is entered into and whether or not the Registrable Securities are to
be sold in an underwritten offering the Company shall:
(i) make such representations and warranties to the Purchaser and
the underwriter or underwriters, if any, in form, substance and
scope as are customarily made by issuers to selling stockholders and
underwriters in secondary offerings;
(ii) cause to be delivered to the sellers of Registrable Securities
and the underwriter or underwriters, if any, opinions of independent
counsel to the Company (which counsel and opinions shall be
reasonably satisfactory in form, scope and substance to Purchaser
and the underwriter(s), if any, and their counsel), (A) on and dated
as of the effective day of the applicable Registration Statement
(and in the case of an underwritten offering, dated the date of
delivery of any Registrable Securities sold pursuant thereto)
stating that (x) such Registration Statement complies in all
material respects with the requirements of the Securities Act and
the rules and regulations of the Commission thereunder, (y) such
Registration Statement does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
and (z) the documents incorporated by reference in the prospectus
accompanying such Registration Statement, at the time they were
filed with the Commission or as amended, complied in all material
respects with the requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act") and the rules and regulations
thereunder and, when read together with the other information in
such prospectus, do not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and (B)
within fifteen (15) days following the filing of the Company's
Annual Report on Form 10-K for each fiscal year thereafter for a
period not to exceed three (3) years, an opinion of independent
counsel to the Company, updating the opinion referred to in clause
(A) of this paragraph;
(iii) cause to be delivered, immediately prior to the effectiveness
of the applicable Registration Statement (and, in the case of an
underwritten offering, at the time of delivery of any Registrable
Securities sold pursuant thereto), and at the beginning of each
fiscal year for a period not to exceed three (3) years following a
year during which the Company's independent certified public
accountants shall have reviewed any of the Company's books or
records, a "comfort" letter from the Company's independent certified
public accountants addressed to the Purchaser and each underwriter,
if any, stating that such accountants are independent public
accountants within the meaning of the Securities Act and the
applicable published rules and regulations thereunder, and otherwise
in customary form and covering
<PAGE>
such financial and accounting matters as are customarily covered by
letters of the independent certified public accountants delivered in
connection with secondary offerings; such accountants shall have
undertaken in each such letter to update the same during each such
fiscal year in which such books or records are being reviewed so
that each such letter shall remain current, correct and complete
throughout such fiscal year; and each such letter and update
thereof, if any, shall be reasonably satisfactory to the Purchaser;
(iv) if an underwriting agreement is entered into, the same shall
include customary indemnification and contribution provisions to and
from the underwriters and procedures for secondary underwritten
offerings;
(v) deliver such documents and certificates as may be reasonably
requested by any purchaser of the Registrable Securities being sold
or the managing underwriter or underwriters, if any, to evidence
compliance with clause (i) above and with any customary conditions
contained in the underwriting agreement, if any; and
(vi) deliver to Purchaser on the effective day of the applicable
Registration Statement (and, in the case of an underwritten
offering, on the date of delivery of any Registrable Securities sold
pursuant thereto), and at the beginning of each fiscal quarter
thereafter, a certificate in form and substance as shall be
reasonably satisfactory to Purchaser, executed by an executive
officer of the Company and to the effect that all the
representations and warranties of the Company contained in the
Securities Purchase Agreement are still true and correct except as
disclosed in such certificate; the Company shall, as to each such
certificate delivered at the beginning of each fiscal quarter,
update or cause to be updated each such certificate during such
quarter so that it shall remain current, complete and correct
throughout such quarter; and such updates received by Purchaser
during such quarter, if any, shall have been reasonably satisfactory
to Purchaser.
(k) Make available for inspection by Purchaser, its
representative(s), any underwriter participating in any disposition pursuant
to a Registration Statement, and any attorney or accountant retained by the
Purchaser or underwriter all to be paid by Purchaser, all financial and other
records customary for purposes of Purchaser's and underwriters' due diligence
examination of the Company and review of any Registration Statement, all
filings made with the Commission subsequent to the Closing, 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 representative, underwriter, attorney or accountant in
connection with such Registration Statement, provided that such parties agree
to keep such information confidential;
(l) Cooperate with the Purchaser to facilitate the timely
preparation and delivery of certificates for the Registrable Securities to be
offered pursuant to any Registration Statement and to enable such
certificates for the Registrable Securities to be in such denominations or
amounts, as the case may be, as the Purchaser may reasonably request, and
registered in such names as the Purchaser may request; and, within five (5)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the Commission, the Company shall deliver,
and shall cause legal counsel selected by the Company to deliver, to the
transfer agent for the Registrable Securities (with copies to the Purchaser)
an appropriate instruction and opinion of such
<PAGE>
counsel; and
(m) Permit counsel to Purchaser to review the Registration
Statement and all amendments and supplements thereto within a reasonable period
of time (but not less than five (5) business days) prior to each filing, and to
incorporate those changes, if provided to the Company or its counsel within such
five (5) business day period, suggested by such counsel.
4. OBLIGATIONS OF THE PURCHASER.
In connection with the registration of the Registrable Securities, the
Purchaser shall have the following obligations:
(a) Furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of the
Registrable Securities held by it, as shall be reasonably required to effect the
registration of such Registrable Securities. The intended method or methods of
disposition and/or sale (Plan of Distribution) of the Registrable Securities as
so provided by the participating Purchaser shall be included without alteration
in any Registration Statement covering the Registrable Securities and shall not
be changed without written consent of the Purchaser. At least five (5) business
days prior to the first anticipated filing date of any Registration Statement,
the Company shall notify the Purchaser of the information the Company requires
from the Purchaser if the Purchaser elects to have any of its Registrable
Securities included in such Registration Statement; and
(b) The Purchaser agrees that, upon receipt of any notice from
the Company of the happening of any Blackout Event of the kind described in
Section 3(f) or 3(g) above, it will immediately discontinue disposition of its
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such copies of the supplemented or amended
prospectus contemplated by Section 3(f) or 3(g) shall be furnished to the
Purchaser.
5. EXPENSES OF REGISTRATION.
Other than underwriting discounts and commissions, all expenses
incurred in connection with registrations, filings or qualifications pursuant to
this Agreement, including, without limitation, all registration, listing, and
qualification fees, printing and accounting fees, and the fees and disbursements
of counsel for the Company, and the fees of one counsel to the Purchaser with
respect to each Registration Statement filed pursuant hereto, the total expense
including any expenses of this Agreement or as contemplated under this Agreement
shall not exceed one percent (1%) of the aggregate purchase price of the Initial
Debentures purchased by the Purchaser, shall be borne by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
(a) The Company will indemnify and hold harmless the
Purchaser, each of its
<PAGE>
officers, shareholders, members, directors and partners, and each person, if
any, who controls the Purchaser within the meaning of the Securities Act or
the Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, liabilities or expenses (joint or several) incurred (collectively,
"Claims") to which any of them may become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out
of or are based upon: (i) any untrue or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were made,
not misleading, (ii) any untrue or alleged statement of a material fact
contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as
amended or supplemented, if the Company files any amendment thereof or
supplement thereto with the Commission) or the omission or alleged omission
to state therein any material fact necessary in order to make the statements
made therein, in light of the circumstances under which they were made, not
misleading, or (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state or foreign securities law or any
rule or regulation under the Securities Act, the Exchange Act or any state or
foreign securities law (the matters in foregoing clauses (i) through (iii)
being, collectively, "Violations"). The Company shall, subject to the
provisions of Section 6(b) below, reimburse each Purchaser, promptly as such
expenses are incurred and are due and payable, for any legal and other costs,
expenses and disbursements in giving testimony or furnishing documents in
response to a subpoena or otherwise, including without limitation, the costs,
expenses and disbursements, as and when incurred, of investigating, preparing
or defending any such action, suit, proceeding or investigation (whether or
not in connection with litigation in which the Purchaser is a party),
incurred by it in connection with the investigation or defense of any such
Claim, except that the obligation of the Company to reimburse any and all
legal or related costs shall be for only one counsel selected by the
Purchaser. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (i) apply
to any Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of any Indemnified Person expressly for use in
connection with the preparation of the Registration Statement or any such
amendment thereof supplement thereto; (ii) with respect to any preliminary
prospectus, inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the final prospectus, as then amended
or supplemented, if such final prospectus was timely made available by the
Company pursuant to Section 3(b) hereof; (iii) be available to the extent
that such Claim is based upon a failure of the Purchaser to deliver or to
cause to be delivered the prospectus made available by the Company, if such
prospectus was timely made available by the Company pursuant to Section 3(b)
hereof; or (iv) apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Purchaser pursuant to Section 9. The Purchaser will
indemnify the Company and its officers and directors against any Claims
arising out of or based upon a Violation which occurs in reliance upon and in
conformity with information
<PAGE>
furnished in writing to the Company, by or on behalf of the Purchaser,
expressly for use in connection with the preparation of the Registration
Statement, subject to such limitations and conditions as are applicable to
the Indemnification provided by the Company in this Section 6.
(b) Promptly after receipt by an Indemnified Person under this
Section 6 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and to the
extent that the indemnifying party so desires, jointly with any other
indemnifying party similarly notified, to assume control of the defense thereof
with counsel mutually satisfactory to the indemnifying party and the Indemnified
Person; PROVIDED, HOWEVER, that an Indemnified Person shall have the right to
retain its own counsel with the reasonable fees and expenses to be paid by the
indemnifying party, if, in the reasonable opinion of counsel retained by the
indemnifying party, the representation by such counsel of the Indemnified Person
and the indemnifying party would be inappropriate due to actual or potential
differing interests between such Indemnified Person and any other party
represented by such counsel in such proceeding. In such event, the Company shall
pay for only one separate legal counsel for the Purchaser, and such legal
counsel shall be selected by the Purchaser. The failure to deliver written
notice to an indemnifying party within a reasonable time after the commencement
of any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person under this Section 6, except to the extent that the
indemnifying party is materially prejudiced in its ability to defend such
action. The indemnification required by this Section 6 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as such expense, loss, damage or liability is incurred and is due and
payable.
(c) No indemnifying party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Person of an unconditional and irrevocable release from all
liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that any
provisions relating to indemnification or contribution contained in the
underwriting agreements entered into among the Company, the underwriters and the
Purchaser in connection with an underwritten public offering are in conflict
with the foregoing provisions, the provisions in such underwriting agreements
shall be controlling as to the Registrable Securities included in the public
offering; PROVIDED, HOWEVER, that if, as a result of this Section 6(d), any
Purchaser, its officers, shareholders, members, directors, partners or any
person controlling such Purchaser is or are held liable with respect to any
Claim for which they would be entitled to indemnification hereunder but for this
Section 6(d) in an amount which exceeds the aggregate proceeds received by such
Purchaser from the sale of Registrable Securities included in a registration
pursuant to such underwriting agreement (the "Excess Liability"), the Company
shall reimburse such Purchaser for such Excess Liability.
7 CONTRIBUTION.
<PAGE>
To the extent any indemnification by an indemnifying party is
prohibited or limited under applicable law, the indemnifying party agrees to
contribute to the amount paid or payable by such indemnified party as a result
of such loss, claim, damage, liability or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and the Indemnified Person on the other hand in connection with the
statements or omissions which resulted in such Claim, as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and the Indemnified Person shall be determined by reference to, among other
things, whether the untrue statement of a material fact or the omission to state
a material fact on which such Claim is based relates to information supplied by
the indemnifying party or by the Indemnified Person, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. Notwithstanding the forgoing, (a) no seller of
Registrable Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation and (b) contribution by any seller of
Registrable Securities shall be limited in amount to the net proceeds received
by such seller from the sale of such Registrable Securities. The Company and the
Purchaser agree that it would not be just and equitable if contribution pursuant
to this Section 7 were determined by PRO RATA allocation (even if the Purchaser
and any other party were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section.
8 REPORTS UNDER EXCHANGE ACT.
With a view to making available to the Purchaser the benefits
of Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the Commission that may at any time permit the Purchaser to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees to:
(i) make and keep public information available,
as those terms are understood and defined in Rule 144;
(ii) file with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act; and
(iii) furnish to the Purchaser, so long as Purchaser
owns Registrable Securities, promptly upon request, (i) a written statement by
the Company that it has complied with the reporting requirements of the
Securities Act and the Exchange Act, (ii) a copy of the most recent annual or
periodic report of the Company and such other reports and documents so filed by
the Company and (iii) such other information as may be reasonably requested to
permit such Purchaser to sell such securities pursuant to Rule 144 without
registration.
9 ASSIGNMENT OF THE REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities pursuant
to this Agreement shall be automatically assigned by any Purchaser to any
transferee of all or any portion of the
<PAGE>
Securities or Shares held by such Purchaser if: (a) such Purchaser agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after
such assignment; (b) the Company is, within a reasonable time after such
transfer or assignment, furnished with written notice of (i) the name and
address of such transferee or assignee and (ii) the Securities or Shares with
respect to which such registration rights are being transferred or assigned;
(c) at or before the time the Company receives the written notice
contemplated by clause (b) of this sentence, the transferee or assignee
agrees in writing with the Company to be bound by all of the provisions
contained herein; and (d) the transferee of the relevant Securities or Shares
complies with the restrictions on the Purchaser set forth in Section 4 of the
Securities Purchase Agreement.
10 AMENDMENT OF REGISTRATION RIGHTS.
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and holders of 75% of the dollar value of the Registrable Securities from time
to time. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon the Purchaser and the Company.
11 MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of the
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Any notice required or permitted hereunder shall be given
in writing (unless otherwise specified herein) and shall be effective upon
personal delivery, via facsimile (upon receipt of confirmation of error-free
transmission) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed
to each of the other parties thereunto entitled at the following addresses, or
at such other addresses as a party may designate by five days advance written
notice to each of the other parties hereto.
COMPANY: Airtech International Group, Inc. 15400 Knoll Trail, Suite #200 Dallas,
Texas 75248 Attention: C.J. Comu, CEO Tel: (972) 960-9400 x111 Fax: (972)
960-9395 PURCHASER: PK Investors LLC c\o WEC Asset Management LLC 110 Colabaugh
Pond Road Croton-on-Hudson, New York 10520 Attention: Daniel J. Saks Tel: (914)
271-2211 Fax: (914) 271-0889 WITH A COPY TO:Pryor Cashman Sherman & Flynn LLP
410 Park Avenue New York, New York 10022 Attention: Mark Saks, Esq. Tel: (212)
326-0140 Fax: (212) 326-0806
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the
<PAGE>
laws of the State of New York, except for provisions with respect to internal
corporate matters of the Company which shall be governed by the corporate
laws of the State of Wyoming. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions. This Agreement may be signed in one or
more counterparts, each of which shall be deemed an original. The headings of
this Agreement are for convenience of reference and shall not form part of,
or affect the interpretation of, this Agreement. This Agreement has been
entered into freely by each of the parties, following consultation with their
respective counsel, and shall be interpreted fairly in accordance with its
terms, without any construction in favor of or against either party. If any
provision of this Agreement shall be invalid or unenforceable in any
jurisdiction, such validity or unenforceability shall not affect the validity
or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth,
or referred to herein and in the other Primary Documents. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The Company acknowledges that any failure by the Company
to perform its obligations under Section 2(a), or any delay in such performance
could result in direct damages to the Purchaser, and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
any such failure or delay.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of February 22, 2000.
AIRTECH INTERNATIONAL GROUP, INC.
By:_______________________________
Name:
Title:
<PAGE>
PK INVESTORS LLC
By: WEC Asset Management LLC, Manager
By:_______________________________
Name: Daniel J. Saks
` Title: Managing Director
<PAGE>
EXHIBIT 4.7
THE WARRANT REPRESENTED BY THIS CERTIFICATE AND THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER
HEREOF TO THE COMPANY OF AN OPINION OF COUNSEL STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS THEN AVAILABLE.
AIRTECH INTERNATIONAL GROUP, INC.
CONDITIONAL WARRANT TO PURCHASE 6%
CONVERTIBLE DEBENTURES
AND WARRANTS TO PURCHASE COMMON STOCK
THE TRANSFERABILITY OF THIS SUPPLEMENTAL WARRANT
IS RESTRICTED AS PROVIDED IN SECTION 2.
Void after December 22, 2000 Right to Purchase up to$2,500,000
principal amount of 6% Convertible
Debentures and Warrants to Purchase
up to 250,000 Shares of Common Stock
PREAMBLE
Airtech International Group, Inc. (the "Company"), a Wyoming
corporation, hereby certifies that, for value received, PK Investors LLC, whose
address is 110 Colabaugh Pond Road, Croton-on-Hudson, New York 10520, or its
registered assigns (hereinafter, the "Registered Holder"), is, subject to the
terms set forth herein, entitled to purchase from the Company at any time or
from time to time beginning on the date hereof and ending at 5:00 P.M. New York
time, on the date ten (10) months from the date hereof (the "Expiration Time")
up to (i) two million five hundred thousand dollars ($2,500,000) of the
Company's 6% Convertible Debentures (the "Additional Debentures") substantially
in the form of EXHIBIT A to the Securities Purchase Agreement (as defined below)
and (ii) warrants (the "Additional Warrants") to purchase one hundred thousand
(100,000) shares of common stock, par value $.05 per share (the "Common Stock")
for each one million dollars in principal value Additional Debentures purchased
hereunder. For purposes of this warrant (the "Supplemental Warrant") the
aggregate price paid by the Registered Holder for the Additional Debentures and
the Additional Warrants, as applicable, is referred to herein as the "Purchase
Price".
Subject to the terms set forth herein from time to time, beginning
ninety(90) days after the
<PAGE>
date on which the registration statement covering the Securities is declared
effective by the Commission and ending at the Expiration Time and provided that
the Closing Bid Price on the date of delivery of the Supplemental Exercise
Notice is greater than the Closing Bid Price on the Initial Closing Date, at the
election of the Company upon delivery of a Supplemental Exercise Notice to the
Registered Holder, the Registered Holder shall at any time or from time to time
before the Expiration Time be required to exercise this Supplemental Warrant and
purchase up to two million five hundred thousand dollars ($2,500,000) of
Additional Debentures and Additional Warrants to purchase up to two hundred
fifty thousand (250,000) shares of Common Stock (minus any such Additional
Debentures and Additional Warrants previously purchased hereunder), at the
Purchase Price; provided, that, the Registered Holder shall not be required to
exercise and purchase any such shares if at any time from and after the
delivery to the Registered Holder of the Supplemental Exercise Notice through
the Supplemental Closing Date (the "Interim Period") any of the Closing
Conditions (as defined below) shall not have been satisfied.
This Warrant is the Supplemental Warrant (the "Supplemental Warrant")
to purchase up to two million five hundred thousand dollars ($2,500,000) of
Additional Debentures and Additional Warrants to purchase up to two hundred
fifty thousand (250,000) shares of Common Stock issued pursuant to the
Securities Purchase Agreement (the "Securities Purchase Agreement"), dated as of
February 22, 2000, by and between the Company and PK Investors LLC. The
Securities Purchase Agreement contains certain additional terms that are binding
upon the Company and each Registered Holder of this Supplemental Warrant. A copy
of the Securities Purchase Agreement, including the Exhibits thereto, may be
obtained by any Registered Holder of the Supplemental Warrant from the Company
upon written request. Capitalized terms used but not defined herein shall have
the meanings set forth in the Securities Purchase Agreement, including the
Exhibits thereto.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Closing Bid Price" shall mean the closing bid price on
any trading day (a) if the Common Stock is then listed or quoted on either the
NASD Bulletin Board, the NASDAQ SmallCap Market or the NASDAQ National Market,
the reported closing bid price for the Common Stock as reported by Bloomberg
L.P. or The Wall Street Journal or on such day (or, if not so reported, as
otherwise reported by The NASDAQ Small Cap Market, NASDAQ National Market or the
NASD Bulletin Board, as the case may be), (b) if the Common Stock is listed on
either the American Stock Exchange or New York Stock Exchange, the closing bid
price for the Common Stock on such exchange on such day as reported by Bloomberg
or the Journal or (c) if neither (a) nor (b) apply but the Common Stock is
quoted in the over-the-counter market, another recognized exchange, or on the
pink sheets, the last reported bid price thereof on such date. If the prices of
the Common Stock cannot be calculated on such date on any of the foregoing
bases, such prices on such date shall be the fair market value as mutually
determined by the Company and the Registered Holder for which the calculation is
required in order to determine the Applicable Conversion Price; PROVIDED,
HOWEVER, that if the Company and the Registered Holder are unable to mutually
determine the fair market value, such fair market value shall be determined by
an by a nationally recognized investment banking firm or firm of independent
certified public accountants of recognized standing (which firm may be the firm
that regularly examines the financial statements of the Company)
<PAGE>
selected in good faith by the Board and holders of a majority in interest of the
Debentures.
(b) The term "Company" includes any corporation which shall succeed to
or assume the obligations of the Company hereunder.
(c) The term "Common Stock" includes all shares of any class or
classes (however designated) of the Company, authorized on or after the date
hereof, the holders of which shall have the right, without limitation as to
amount, either to all or to a share of the balance of current dividends and
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference, and the holders of which shall ordinarily be
entitled to vote for the election of directors of the Company (even though the
right so to vote has been suspended by the happening of a contingency).
(d) The term the "Supplemental Exercise Notice" shall mean a written
notice delivered not less than ten (10) business days nor more than twenty (20)
business days prior to the Supplemental Closing Date which sets forth the
Additional Debentures and the number of shares of Common Stock purchasable
pursuant to the Additional Warrant.
(e) The term the "Supplemental Closing Date" shall mean the date
specified in a duly delivered Supplemental Exercise Notice.
(f) The term "Major Transaction" shall be deemed to have occurred at
such time as any of the following events: (i) the consolidation, merger or other
business combination of the Company with or into another person (other than (A)
pursuant to migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company, or (B) a consolidation, merger or
other business combination in which the Company is the surviving entity and
holders of the Company's voting power immediately prior to the transaction
continue after the transaction to hold, directly or indirectly, the voting power
necessary to elect a majority of the members of the board of directors of the
Company); (ii) the sale or transfer of all or substantially all of the Company's
assets; or (iii) consummation of a purchase, tender or exchange offer made to
the holders of more than thirty percent (30%) of the outstanding shares of
Common Stock.
(g) The term "Material Adverse Change" means any change, event, result
or happening involving, directly or indirectly, the Company or any of its
subsidiaries resulting in a material adverse effect on the business, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole.
(h) The term "Other Securities" refers to any class of shares (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holder of this Supplemental Warrant at any
time shall be entitled to receive, or shall have received, upon the exercise of
the Supplemental
<PAGE>
Warrant, in lieu of or in addition to the Additional Debentures and Additional
Warrants, or which at any time shall be issuable or shall have been issued in
exchange for or in replacement of the Additional Debentures or Additional
Warrants or Other Securities.
(i) The term "Triggering Event" shall be deemed to have occurred at
such time as any of the following events: (i) the failure of the Initial
Registration Statement to be declared effective by the Securities and Exchange
Commission on or prior to the Effectiveness Deadline; (ii) while the Initial
Registration Statement is required to be maintained effective pursuant to the
terms of the Registration Rights Agreement, the effectiveness of the Initial
Registration Statement lapses for any reason (including, without limitation, the
issuance of a stop order) or is unavailable to the holder of the Additional
Debentures for sale of the Registrable Securities (as defined in the
Registration Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a period of
five (5) consecutive trading days, provided that the cause of such lapse or
unavailability is not due to factors solely within the control of such holders
of Registrable Securities; (iii) the suspension from listing or the failure of
the Common Stock to be listed on the OTC Bulletin Board, the Nasdaq SmallCap
Market, the Nasdaq National Market, The New York Stock Exchange, Inc. or The
American Stock Exchange, Inc. for a period of five (5) consecutive days; (iv)
the Company's notice to any holder of Debentures, including by way of public
announcement, at any time, of its intention not to comply with proper requests
for conversion of Debentures into shares of Common Stock; (v) if the Closing Bid
Price for the Common Stock shall be less than two dollars ($2.00) per share at
any time during the Interim Period; (vi) the Company's stockholders shall not
have authorized and approved the transactions contemplated by the Securities
Purchase Agreement and this Warrant in accordance with applicable law; (vii) a
material breach by the Company of any representation, warranty, covenant or
other term or condition of the Securities Purchase Agreement, the Registration
Rights Agreement, this Supplemental Warrant or any other agreement, document,
certificate or other instrument delivered in connection with the transactions
contemplated thereby or hereby; (viii) if the average daily trading volume of
the Common Stock on the OTC Bulletin Board, the Nasdaq SmallCap Market, the
Nasdaq National Market, The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc., as applicable, is less than thirty thousand (30,000) shares per
day during the thirty (30) trading days prior to the Supplemental Closing Date;
or ; or (ix) if John Potter or C.J. Comu are no longer employed by the Company
in the position which they served the Company on the Initial Closing Date.
1. REGISTRATION RIGHTS.
The rights of the holder of this Supplemental Warrant to register the
shares of Common Stock issuable upon conversion of the Additional Debentures
purchasable hereunder and the shares of Common Stock issuable upon exercise of
the Additional Warrants purchasable hereunder shall be as stated in the
Registration Rights Agreement, which agreement is EXHIBIT E to the Securities
Purchase Agreement.
2. RESTRICTED STOCK.
If, at the time of any transfer or exchange of this Supplemental
Warrant or any Additional Debentures or Additional Warrants issuable upon
exercise of this Supplemental Warrant (other than
<PAGE>
a transfer or exchange not involving a change in the beneficial ownership of
this Supplemental Warrant or any Additional Debentures or Additional Warrants,
as applicable), such Supplemental Warrant, such Additional Debentures or such
Additional Warrants shall not be registered under the Securities Act, and the
Company's obligation to transfer such Supplemental Warrant, such Additional
Debentures or such Additional Warrants shall be subject to the provisions of
Section 4 of the Securities Purchase Agreement.
3. EXERCISE OF SUPPLEMENTAL WARRANT AND ISSUANCE OF ADDITIONAL DEBENTURES
AND ADDITIONAL WARRANTS.
3.1. EXERCISE IN FULL. The holder of this Supplemental Warrant may, and
shall on the Supplemental Closing Date, provided the Supplemental Exercise
Notice is given and the Closing Conditions are satisfied as required below,
exercise this Supplemental Warrant in full by surrendering this Supplemental
Warrant, with the form of Election to Purchase at the end hereof duly executed
by such holder, to the Company in the manner set forth in Section 11 of the
Securities Purchase Agreement. The surrendered Supplemental Warrant shall be
accompanied by payment, in cash or by certified or official bank check payable
to the order of the Company, in the amount equal to two million five hundred
thousand dollars ($2,500,000).
3.2. PARTIAL EXERCISE. This Warrant may, and shall on the Supplemental
Closing Date provided, the Supplemental Exercise Notice is given and the Closing
Conditions are satisfied as required above, be exercised in part by surrender of
this Supplemental Warrant in the manner provided in Subsection 3.1, except that
the exercise price shall be equal to the aggregate principal amount of the
Company's Debentures as shall be designated by the holder or the Company, as
applicable, in the Supplemental Exercise Notice. On any such partial exercise,
subject to the provisions of Section 2 hereof, the Company, at its expense, will
forthwith issue and deliver to or upon the order of the Registered Holder hereof
a new Supplemental Warrant or Supplemental Warrants of like tenor, in the name
of the Registered Holder hereof or as such Registered Holder may request,
calling in the aggregate on the face or faces thereof for the Additional
Debentures and Additional Warrants equal to the number of shares of Additional
Debentures and Additional Warrants called for on the face of this Supplemental
Warrant minus the number of such shares designated by the Registered Holder in
the applicable Supplemental Exercise Notice.
3.3. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise, exchange or transfer of this Supplemental Warrant, upon the request of
the Registered Holder hereof, acknowledge in writing its continuing obligation
to afford to such Registered Holder or transferee any rights (including, without
limitation, any right to registration of the Company's shares of Common Stock)
to which such Registered Holder or transferee shall continue to be entitled
after such exercise, exchange or transfer in accordance with the provisions of
this Supplemental Warrant, provided that if the Registered Holder of this
Supplemental Warrant shall fail to make any such request, such failure shall not
affect the continuing obligation of the Company to afford to such Registered
Holder or transferee any such rights.
3.4. SUPPLEMENTAL WARRANT TO PURCHASE COMMON STOCK. Within five (5)
Business Days of any exercise of this Supplemental Warrant, the Company shall
issue to the Registered Holder a
<PAGE>
Warrant substantially in the form of EXHIBIT B to the Securities Purchase
Agreement (except that initially the Current Warrant Price shall be equal to
110% of average closing bid price for five (5) trading days prior to the date
of exercise of the Supplemental Warrant) to purchase such number of shares of
Common Stock as shall equal the product of (x) .10 and (y) the Purchase Price
paid by the Registered Holder pursuant to any exercise of this Supplemental
Warrant.
4. DELIVERY OF SHARE CERTIFICATES UPON EXERCISE. Following the exercise of
this Supplemental Warrant in full or in part, within the time periods and in the
manner provided by Section 5(b) of the Securities Purchase Agreement, the
Company, at its expense (including the payment by it of any applicable issue
taxes), will cause to be issued in the name of and delivered to the Registered
Holder hereof, or as such Registered Holder (upon payment by such Registered
Holder of any applicable transfer taxes) may direct, a Debenture substantially
in the form of EXHIBIT A to the Securities Purchase Agreement to which such
Registered Holder shall be entitled on such exercise.
CLOSING CONDITIONS. Notwithstanding anything herein to the contrary, the Company
shall not be permitted to deliver a Supplemental Exercise Notice, nor shall the
Registered Holder be required to exercise and purchase on a Supplemental Closing
Date any Additional Debentures and Additional Warrants unless in either case
each of the following conditions is satisfied: (i) the Initial Registration
Statement shall have been declared effective and shall remain effective for a
period of at least ninety (90) days and at all times during the applicable
Interim Period; (ii) the Closing Bid Price for the Common Stock shall not be
less than two dollars and fifty cents ($2.50) per share; (iii) during the period
beginning on the original issue date of this Supplemental Warrant and ending on
and including the applicable Supplemental Closing Date, there shall not have
occurred (A) a public announcement of a Major Corporate Event which has not been
abandoned or terminated, (B) a Triggering Event or (C) a Material Adverse
Change; (iv) at all times during the period beginning on the original issue date
of this Supplemental Warrant and ending on and including the applicable
Supplemental Closing Date, the Common Stock shall have been designated on the
NASDAQ OTC Bulletin Board, the Nasdaq SmallCap Market or National Market System
and shall not have been suspended from trading thereon and the Company shall not
have been notified of any pending or threatened proceeding or other action to
delist or suspend the Common Stock from so trading; (v) the Company's Articles
of Incorporation as amended pursuant to the Articles of Amendment filed pursuant
to the Securities Purchase Agreement shall be in full force and effect and shall
not have been amended since the original issue date of this Supplemental
Warrant; (vi) the representations and warranties of the Company in the
Securities Purchase Agreement shall be true and correct as of the date when made
and as of the applicable Supplemental Closing Date as though made at that time
(except for representations and Supplemental Warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied with
the covenants, agreements and conditions required by the Primary Documents to be
performed, satisfied or complied with by the Company at or prior to the
applicable Supplemental Closing Date (and the Registered Holder of this
Supplemental Warrant shall have received a certificate, executed by the Chief
Executive Officer of the Company, dated as of the applicable Supplemental
Closing Date, to the foregoing effect and as to such other matters as may be
reasonably requested by such holder); and (vii) as of the applicable
Supplemental Closing Date, the Company shall have reserved out of its authorized
and unissued Common Stock, the sum of (i) two (2) times the sum of (x) maximum
number of shares of Common Stock that could be issuable upon the conversion of
the Initial Shares and (y) the maximum number
<PAGE>
that could be issuable upon conversion of the Additional Shares and (ii) the
sum of the number of shares of Common Stock issuable upon exercise in full of
the Initial Warrants and the Additional Warrant, in each case without regard
to whether the Supplemental Warrant shall have been exercised solely for the
purpose of effecting the conversion of Additional Debentures and Exercise of
the Additional Warrants, as applicable.
6. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or By-laws, or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Supplemental Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Supplemental Warrants, as specified
herein and in the Securities Purchase Agreement, against dilution or other
impairment. Without limiting the generality of the foregoing, the Company (a)
will not increase the par value of any Shares receivable on the exercise of
the Supplemental Warrant above the amount payable therefor on such exercise,
and (b) will not effect a subdivision or split up of shares or similar
transaction with respect to any class of the Common Stock without effecting
an equivalent transaction with respect to all other classes of Common Stock.
7. NOTICE OF RECORD DATE. In case of:
(a) any taking by the Company of a record of the holders of
any class of its securities for the purpose of determining the holders thereof
who are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
transfer of all or substantially all the assets of the Company to or
consolidation or merger of the Company with or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, or
(c) events shall have occurred resulting in the voluntary
or involuntary dissolution, liquidation or winding up of the Company, then
and in each such event the Company will mail or cause to be mailed to each
holder of a Supplemental Warrant a notice specifying (i) the date on which
any record is to be taken for the purpose of any such dividend, distribution
or right, and stating the amount and character of such dividend, distribution
or right, (ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding up is to take place, and the time, if any is to be fixed, as of
which the holders of record of Common Stock (or Other Securities) shall be
entitled to exchange their Common Stock (or Other Securities) for securities
or other property deliverable on such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation
or winding up, and (iii) the amount and character of any stock or other
securities, or rights or options with respect thereto, proposed to be issued
or granted, the date of such proposed issue or grant and the persons or class
of persons to whom such proposed issue or grant is to be offered or made.
Such notice shall be mailed at least thirty (30) days prior to the date
<PAGE>
specified in such notice on which any such action is to be taken.
8. EXCHANGE OF SUPPLEMENTAL WARRANTS. On surrender for exchange of any
Supplemental Warrant, properly endorsed, to the Company, the Company, at its
expense, will issue and deliver to or (subject to Section 2) on the order of the
holder thereof a new Supplemental Warrant or Supplemental Warrants of like
tenor, in the name of such holder or as such holder may direct, calling in the
aggregate on the face or faces thereof for the Additional Debentures and
Additional Warrants called for on the face or faces of the Supplemental Warrant
or Supplemental Warrants so surrendered.
9. REPLACEMENT OF SUPPLEMENTAL WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Supplemental Warrant and, in the case of any such loss, theft or destruction of
any Supplemental Warrant, on delivery of an indemnity agreement or security
reasonably satisfactory in form and amount to the Company or, in the case of any
such mutilation, on surrender and cancellation of such Supplemental Warrant, the
Company, at its expense, will execute and deliver, in lieu thereof, a new
Supplemental Warrant of like tenor.
10. SUPPLEMENTAL WARRANT AGENT. The Company may, by written notice to each
holder of a Supplemental Warrant, appoint an agent having an office in New York,
New York, for the purpose of issuing Additional Debentures and Additional
Warrants on the exercise of the Supplemental Warrants pursuant to Section 3,
exchanging Supplemental Warrants pursuant to Section 8, and replacing
Supplemental Warrants pursuant to Section 9, or any of the foregoing, and
thereafter any such issuance, exchange or replacement, as the case may be, shall
be made at such office by such agent.
11. REMEDIES. The Company stipulates that the remedies at law of the holder
of this Supplemental Warrant in the event of any default or threatened default
by the Company in the performance of or compliance with any of the terms of this
Supplemental Warrant are not and will not be adequate, and that such terms may
be specifically enforced by a decree for the specific performance of any
agreement contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.
12. NEGOTIABILITY, ETC. This Supplemental Warrant is issued upon the
following terms, to all of which each Registered Holder or owner hereof by the
taking hereof consents and agrees:
(a) subject to the terms of Section 4 of the Securities
Purchase Agreement, title to this Supplemental Warrant may be transferred by
endorsement (by the Registered Holder hereof executing the form of assignment at
the end hereof) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery;
(b) any person in possession of this Supplemental Warrant
properly endorsed is authorized to represent himself as absolute owner hereof
and is empowered to transfer absolute title hereto by endorsement and delivery
hereof to a bona fide purchaser hereof for value; each prior taker or owner
waives and renounces all of his equities or rights in this Supplemental Warrant
in favor of each such bona fide purchaser, and each such bona fide purchaser
shall acquire absolute title hereto
<PAGE>
and to all rights represented hereby; and
(c) until this Supplemental Warrant is transferred on the
books of the Company, the Company may treat the Registered Holder hereof as the
absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
13. NOTICES. All notices and other communications from the Company to the
Registered Holder of this Supplemental Warrant shall be given in writing (unless
otherwise specified herein) and shall be effective upon personal delivery, via
facsimile (upon receipt of confirmation of error-free transmission and mailing a
copy of such confirmation postage prepaid by certified mail return receipt
requested) or two business days following deposit of such notice with an
internationally recognized courier service, with postage prepaid and addressed,
to such address as may have been furnished to the Company in writing by such
Registered Holder or, until any such Registered Holder furnishes to the Company
an address, then to, and at the address of, the last Registered Holder of this
Supplemental Warrant who has so furnished an address to the Company.
14. MISCELLANEOUS. This Supplemental Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Supplemental Warrant is being
delivered in the State of New York and, except for provisions with respect to
internal corporate matters of the Company which shall be governed by the
corporate laws of the State of Delaware, shall be construed and enforced in
accordance with and governed by the laws of the State of New York, without
regard to principles of conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
or any of the transactions contemplated hereby, and hereby waives, to the
maximum extent permitted by law, any objection, including any objections
based on FORUM NON CONVENIENS, to the bringing of any such proceeding in such
jurisdictions. The headings in this Supplemental Warrant are for purposes of
reference only, and shall not limit or otherwise affect any of the terms
hereof. All nouns and pronouns used herein shall be deemed to refer to the
masculine, feminine or neuter, as the identity of the person or persons to
whom reference is made herein may require.
[SIGNATURE PAGE FOLLOWS, REMAINDER OF PAGE INTENTIONALLY BLANK]
IN WITNESS WHEREOF, the undersigned have executed this Supplemental
Warrant as of February 22, 2000.
AIRTECH INTERNATIONAL GROUP, INC.
By:
Name:
Title:
<PAGE>
ACKNOWLEDGED AND AGREED:
PK INVESTORS LLC
By: WEC ASSET MANAGEMENT LLC, Manager
By:
Name: Daniel J. Saks
Title: Managing Director
<PAGE>
ANNEX A
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Supplemental Warrant, to purchase [_____] Additional
Debentures and Additional Warrants to purchase [____] shares of Common Stock and
herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of AIRTECH
INTERNATIONAL GROUP, INC., in the amount of [$________], all in accordance with
the terms hereof. The undersigned requests that a Debenture and Warrant be
registered in the name of _________________________, whose address is
_________________________________ and that such stock certificates and warrants
be delivered to ___________________________,whose address is __________________.
Dated:
Name: ______________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Supplemental Warrant.)
(Insert Social Security or Other
Identifying Number of Holder)
<PAGE>
ANNEX B
FORM OF ASSIGNMENT
(TO BE EXECUTED BY THE REGISTERED HOLDER IF SUCH HOLDER DESIRES TO TRANSFER THE
SUPPLEMENTAL WARRANT.)
FOR VALUE RECEIVED, ____________________hereby sells, assigns and
transfers unto __________________________________ Please print name
and address of transferee) his Supplemental Warrant, together with all
right, title and interest therein, and does so hereby irrevocably
constitute and appoint _____________________ Attorney, to transfer the
within Supplemental Warrant on the books of the within-named Company,
with full power of substitution.
Dated:
Name: ______________________________________
Signature: ___________________________________
(Signature must conform in all respects to the name of the Registered
Holder, as specified on the face of the Supplemental Warrant.)
(Insert Social Security or Other
Identifying Number of Assignee)
<PAGE>
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made by and between AIRTECH INTERNATIONAL
CORPORATION, a Texas Corporation (the "Corporation") and C J COMU (the
"Executive") effective the 1st day of May, 1977.
WHEREAS, The Corporation is in the business of manufacturing and
marketing commercial air purification technology ,
WHEREAS, The Executive has considerable experience in the management of
a successful businesses,
WHEREAS, The Corporation desires to hire Executive as Chief Executive
Officer of the Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements contained in this Agreement, the parties hereby agree
as follows:
1. EMPLOYMENT SCOPE AND AUTHORITY. The Corporation hereby employs
the Executive and Executive accepts employment as Chief Executive Officer of
the Corporation. The Executive shall report and be responsible to the
Corporation's Board of Directors. The management powers shall be superior to
all other officers or employees of the Corporation. Executive shall become
and remain a Director of the Corporation during the term of this agreement.
2. TERM. The initial term of the Agreement shall be for ten (10)
years from the date the Agreement is signed by all of the parties.
3. CONTINUED TERM. The Executive Committee of the Board of
Directors, after the initial term of the Agreement has expired, may extend
and renew this Agreement for additional ten (10) year terms.
<PAGE>
4. DUTIES. The Executive shall serve as Chief Executive Officer
of the Corporation and shall have such duties, responsibilities and authority
as is customary to such position and such other duties, responsibilities as
may from time to time be assigned by the Board of Directors of the
Corporation.
5. TIME, ABILITY AND ATTENTION. The Executive shall devote
substantially all of his working time, ability and attention to the business of
the Corporation. Corporation recognizes that the Executive may have other
business interest to which he may devote a reasonable amount of time, provided
such do not conflict with the conduct of the business affairs of the
Corporation.
6. PLACE OF PERFORMANCE. The Executive shall maintain his office
at the principal executive offices of the Corporation, subject to required
travel on behalf of the Corporation.
7. COMPENSATION. The Corporation shall pay the Executive the
salary, reimbursement of expenses and provide the benefits as specified below.
(a) SALARY. The Corporation shall pay the Executive a salary at
the annual rate of $250,000 commencing on the effective date
hereof, payable bimonthly or otherwise in accordance with the
Corporation's payroll practices for all employees;
(b) INCENTIVE BONUS. As a further inducement to accept the
position with the Corporation, during the term of this
Agreement and extensions thereof, Corporation shall pay to
Executive an annual bonus to be determined in good faith by
the Board of Directors. The Board of Directors of the
Corporation shall, within six (6) months of the date of this
Agreement, structure, institute and establish an incentive
bonus program specifying how and when bonuses are to paid
pursuant to this paragraph.
2
<PAGE>
(c) BENEFITS. Executive shall be entitled to participate in the
Corporation's employee benefit programs in effect from time to
time for employees at comparable levels of responsibility.
Participation will be in accordance with any applicable
policies adopted by the Board of Directors. Executive shall be
entitled to vacations, absences for illness, and to similar
benefits of employment to the extent such benefits are
generally offered to employees of the Corporation at a
comparable level of responsibility, subject to the policies
and procedures adopted by the Board of Directors.
(d) EXPENSES. Subject to the policies and procedures as may be
adopted by the Corporation's Board of Directors, Executive
shall be entitled to reimbursement for travel, entertainment
and other expenses actually incurred on behalf of Corporation
(upon presentation of reasonable evidence thereof) to the
extent such expenses are incurred in connection with direct
activities of the Corporation, and to the extent similar
reimbursements are generally available to employees of the
Corporation at a comparable level of responsibility.
(e) SERVICES. The Corporation shall furnish Executive office
space, personnel and such other facilities and services as
reasonably required for Executive to perform the duties of
Chief Executive Officer of the Corporation.
8. TERMINATION BY CORPORATION. This Agreement, and the employment
of Executive, hereunder, shall terminate immediately upon the occurrence of
any one of the following events:
(a) DEATH. Upon the death of Executive.
3
<PAGE>
(b) DISABILITY. The Executive becomes incapacitated due to
physical or mental illness and Executive shall have been
absent from employment on a full-time basis for one hundred
fifty (150) consecutive days, and fails to return to perform
the duties assigned by the Corporation on a full-time basis
within thirty (30) days after delivery of written notice of
termination of the Agreement.
(c) AGREEMENT. The mutual written agreement of the Corporation and
the Executive.
(d) TERM. The expiration of the term, as extended, of this
Agreement.
(e) FOR CAUSE. (i) willful, intentional and continued failure to
perform the duties of Chief Executive Officer of the
Corporation, except disability, for more than thirty (30) days
after delivery of written demand by the Corporation for
performance which shall specify the manner and means which the
Corporation believes that the Executive is not performing the
duties of Chief Executive Officer, (ii) the conviction of the
Executive of a criminal act of moral turpitude, have or liable
to have an adverse affect on the Corporation, its business,
reputation or good will. For purposes of this paragraph, no
act, or failure to act, on the Executive's part shall be
considered "willful" or "intentional" unless done, omitted to
be done, knowingly, in bad faith, and without reasonable
belief that such action or omission was in the best interest
of the Corporation. The Executive shall not be terminated for
cause by the Corporation without first having received the
opportunity, together with legal counsel, to be heard before
the Board of Directors and delivery of written notice
specifying the provisions of this Agreement and the facts and
circumstances relied upon as basis for
4
<PAGE>
termination and a written finding of facts and good faith
opinion of the Board of Directors that the Executive violated
clause (i) and/or (ii) of this paragraph.
9. TERMINATION BY EXECUTIVE. This Agreement may be terminated by
the Executive upon the occurrence of any one of the following events:
(a) DISABILITY. In the event the Executive's health impairs the
performance of the duties of President and such is hazardous
to Executive's physical or mental health or life, provided a
written statement from a qualified physician is delivered to
the Board of Directors reasonably describing such impairment.
(b) GOOD CAUSE. (i) the Board of Directors fails to reelect
Executive as President and Director of the Company or removes
Executive from such position or positions, (ii) the Board of
Directors shall fail to vest the powers and authority of Chief
Executive Officer, (iii) the Board of Directors shall fail to
comply with any material provision of the Agreement which is
not cured within ten (10) days of delivery of written notice
to the Board of Directors; or (iv) any purported termination
by Corporation not in compliance with the requirements of
paragraph 8(e).
10. EXECUTIVE COMPENSATION UPON TERMINATION. The Corporation shall
pay the Executive upon the event of termination the compensation set forth
below:
(a) DEATH. The Corporation shall continue the salary for a period
of twelve (12) months from and including the month of death
and pay such in accordance with the payroll policies of the
Corporation to the representative of the deceased Executive's
estate.
(b) DISABILITY. The Corporation shall continue the salary for a
period of six (6) months after this agreement is terminated
pursuant to paragraph (b), provided the salary
5
<PAGE>
payments may be reduced by the amount of payment received by
the Executive under disability benefits plans of the Company,
if any.
(c) BREACH OF AGREEMENT. In the event this Agreement is terminated
pursuant to paragraph 9(b) the Corporation shall pay Executive
(i) full salary through Date of Termination at the annual rate
then in effect at the time Notice of Termination is delivered,
(ii) in lieu of further salary payments after the Date of
Termination, the Corporation shall pay as severance pay to
Executive, the greater of one million dollars ($1,000,000) or
an amount equal to two times the salary remaining unpaid under
the term of this agreement or two times the amount equal to
the annual salary in effect at the Date of Termination,
payable in one lump sum on or before five (5) business days
after the Date of Termination; and (iii) if the termination
arises out of a breach by the Company of this agreement, the
Corporation shall pay all other damages to which the Executive
may be entitled in law or equity resulting from such breach,
including damages for loss of benefits, legal expenses
incurred and costs of court. In the event this Agreement is
terminated pursuant to paragraph 8(e) the Corporation shall be
obligated to pay Executive any salary due to the Date of
Termination.
(d) OPTIONAL SEVERANCE PAYMENT. Executive upon the event of the
Corporation's obligation to pay severance, may in Executive's
sole discretion and option elect to accept a number of shares
of registered stock of the Corporation determined by dividing
the severance amount due by $1.00 which number of shares when
delivered shall be in full payment and satisfaction of the
Corporation's obligation to Executive.
6
<PAGE>
(e) CONTINUATION OF BENEFITS. Except for termination for Cause,
the Corporation shall maintain in full force and effect, for
the benefit of the Executive for twelve (12) months, all
employee benefits, plans and programs in which Executive was
entitled to participate and did participate immediately prior
to the Date of Termination. If the Executive is terminated for
Cause, the Corporation shall terminate all employee benefits,
plans and programs in which Executive was entitled to
participate and did participate immediately prior to the Date
of Termination.
(f) MITIGATION. The Executive shall not be required to mitigate
the amount of any payment provided under this paragraph 10 by
seeking other employment or otherwise.
11. NON-COMPETITION. Executive expressly agrees that while this
agreement is in effect, and except for termination for Good Cause, for a period
of two (2) years following the termination of this Agreement, Executive will not
directly or indirectly, as an employee, agent, proprietor, partner, broker,
stockholder, officer, director, or otherwise, render any services to, on
Executives' own behalf or on behalf of any other person or entity, engage in as
an employee or owner of any competitive business or organization located within
a 100 mile radius of the Counties of Dallas, Tarrant, Denton, Collin, Rockwall,
Texas or any other county in any state in which the Corporation maintains an
office that would compete directly or indirectly with Corporation's business,
without prior written consent of Corporation. The term "competitive business"
shall include but shall not be limited to any business that manufactures and
markets commercial air purification technology. Executive further expressly
agrees that Executive will not use for Executives' own benefit or disclose to
any person any information, including confidential information, which is
obtained or
7
<PAGE>
learned while acting as Executive, without prior written consent of the
Corporation. The agreements contained in this paragraph on the part of
Executive shall be construed as an integral part of an enforceable agreement
and the agreements contained herein were made at the time this agreement was
consummated by the parties. The Executive acknowledges and agrees that the
non-competition restrictions contained herein are fair and reasonable as to
geographical area, length of time and scope of activity restrained. The
existence of any claim or cause of action against Executive by the
Corporation, whether predicated on this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Corporation of the agreements
contained in this paragraph.
12. ADMINISTRATIVE PROVISIONS. The terms of this Agreement shall
be administered pursuant to the following provisions:
(a) DEFINITION. "Date of Termination" shall mean (i) the date of
death of Executive, (ii) thirty (30) days after notice of
termination is given for disability, (iii) the date specified
in the notice of termination for cause or good cause;
provided, if within thirty (30) days after delivery of a
notice of termination the person receiving such notice
notifies the other in writing that a dispute exists, the Date
of Termination shall be the date he dispute is finally
determined by mutual agreement or otherwise.
(b) PARTIES BOUND. This Agreement shall be binding on and inure to
the benefit of the parties and their respective heirs,
executors, administrators, legal representatives, successors
and assigns.
(c) ASSIGNMENT. Executive shall have no right to transfer or
assign any interest in this Agreement without the prior
written consent of the Corporation.
8
<PAGE>
(d) TIME LIMITS. Time is of the essence in this Agreement; and all
time limits shall be strictly construed and rigidly enforced.
(e) NO WAIVER. A failure or delay in the enforcement of the rights
detailed in this Agreement by Corporation shall not constitute
a waiver of those rights or be considered a basis for
estoppel. Corporation may exercise its rights under this
Agreement despite any delay or failure to enforce those
rights.
(f) DISPUTE OR CONTEST. In the unlikely event that a dispute
occurs or an action in law or equity arises out of the
operation, construction, or interpretation of this Agreement,
the prevailing party shall be entitled, in addition to any
other relief granted to reasonable expenses for attorneys'
fees and costs incurred by such party in the action,.
(g) PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are descriptive only and shall have no legal force
or effect whatever.
(h) TEXAS LAW. This Agreement shall be subject to and governed by
the laws of the State of Texas. Any and all obligations or
payments are due and payable in Dallas County, Texas.
(i) SEVERABILITY. If any provision of this Agreement shall, for
any reason, be held violative of any applicable law, and so
much of the Agreement is held to be unenforceable, then the
invalidity of such a specific provision of this Agreement
shall not be deemed to invalidate any other provisions of this
Agreement, which other provisions shall remain in full force
and effect unless removal of the invalid
9
<PAGE>
provisions destroy the legitimate purposes of this Agreement,
in which event this Agreement shall be cancelled.
(j) MODIFICATION OF AGREEMENT. This Agreement represents the
entire Agreement by and between the parties, except as
otherwise provided in this Agreement, and it may not be
changed except by written amendment duly executed by all
parties.
(k) NOTICES. All notices and communications pursuant to this
Agreement shall be in writing and delivered when sent by
United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to Executive: C J Comu
18352 Dallas Parkway Suite 136
Dallas, TX 75287
If to Corporation: Airtech International Corporation
15400 Knoll Trail Suite 106
Dallas, Texas 75248
or such other address an any party may have furnished to the other in writing
upon receipt by such party.
10
<PAGE>
SIGNED, accepted and agreed to the first date stated above, by the undersigned
parties.
CORPORATION:
AIRTECH INTERNATIONAL CORPORATION
/s/ John Potter
- -----------------------------------------------
John Potter, Chairman of the Board of Directors
EXECUTIVE:
/s/ C J Comu
- -----------------------------------------------
C J Comu
11
<PAGE>
EMPLOYMENT AGREEMENT
This Agreement is made by and between AIRTECH INTERNATIONAL
CORPORATION, a Texas Corporation (the "Corporation") and JOHN POTTER (the
"Executive") effective the 1st day of May, 1977.
WHEREAS, The Corporation is in the business of manufacturing and
marketing commercial air purification technology ,
WHEREAS, The Executive has considerable experience in the management of
a successful businesses,
WHEREAS, The Corporation desires to hire Executive as President of the
Company.
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants and agreements contained in this Agreement, the parties hereby agree
as follows:
1. EMPLOYMENT SCOPE AND AUTHORITY. The Corporation hereby
employs the Executive and Executive accepts employment as President of the
Corporation. The Executive shall report and be responsible to the Chief
Executive Officer and the Corporation's Board of Directors. The management
powers shall be superior to all other officers or employees of the
Corporation, except the Chief Executive Officer. Executive shall become and
remain a Director of the Corporation during the term of this agreement.
2. TERM. The initial term of the Agreement shall be for ten (10)
years from the date the Agreement is signed by all of the parties.
3. CONTINUED TERM. The Executive Committee of the Board of
Directors, after the initial term of the Agreement has expired, may extend
and renew this Agreement for additional ten (10) year terms.
<PAGE>
4. DUTIES. The Executive shall serve as President of the
Corporation and shall have such duties, responsibilities and authority as is
customary to such position and such other duties, responsibilities as may
from time to time be assigned by the Chief Executive Officer and the Board of
Directors of the Corporation.
5. TIME, ABILITY AND ATTENTION. The Executive shall devote
substantially all of his working time, ability and attention to the business of
the Corporation. Corporation recognizes that the Executive may have other
business interest to which he may devote a reasonable amount of time, provided
such do not conflict with the conduct of the business affairs of the
Corporation.
6. PLACE OF PERFORMANCE. The Executive shall maintain his office
at the principal executive offices of the Corporation, as designated from
time to time by the Chief Executive Officer and President of the Corporation,
subject to required travel on behalf of the Corporation.
7. COMPENSATION. The Corporation shall pay the Executive the
salary, reimbursement of expenses and provide the benefits as specified below.
(a) SALARY. The Corporation shall pay the Executive a salary at
the annual rate of $250,000 commencing May 1, 1997, payable
bimonthly or otherwise in accordance with the Corporation's
payroll practices for all employees;
(b) INCENTIVE BONUS. As a further inducement to accept the
position with the Corporation, during the term of this
Agreement and extensions thereof, Corporation shall pay to
Executive an annual bonus to be determined in good faith by
the Board of Directors. The Board of Directors of the
Corporation shall, within six (6) months of the date of this
Agreement, structure, institute and establish an incentive
bonus program specifying how and when bonuses are to paid
pursuant to this paragraph.
2
<PAGE>
(c) BENEFITS. Executive shall be entitled to participate in the
Corporation's employee benefit programs in effect from time to
time for employees at comparable levels of responsibility.
Participation will be in accordance with any applicable
policies adopted by the Board of Directors. Executive shall be
entitled to vacations, absences for illness, and to similar
benefits of employment to the extent such benefits are
generally offered to employees of the Corporation at a
comparable level of responsibility, subject to the policies
and procedures adopted by the Board of Directors.
(d) EXPENSES. Subject to the policies and procedures as may be
adopted by the Corporation's Board of Directors, Executive
shall be entitled to reimbursement for travel, entertainment
and other expenses actually incurred on behalf of Corporation
(upon presentation of reasonable evidence thereof) to the
extent such expenses are incurred in connection with direct
activities of the Corporation, and to the extent similar
reimbursements are generally available to employees of the
Corporation at a comparable level of responsibility.
(e) SERVICES. The Corporation shall furnish Executive office
space, personnel and such other facilities and services as
reasonably required for Executive to perform the duties of
President of the Corporation.
8. TERMINATION BY CORPORATION. This Agreement, and the employment
of Executive, hereunder, shall terminate immediately upon the occurrence of any
one of the following events:
(a) DEATH. Upon the death of Executive.
3
<PAGE>
(b) DISABILITY. The Executive becomes incapacitated due to
physical or mental illness and Executive shall have been
absent from employment on a full-time basis for one hundred
fifty (150) consecutive days, and fails to return to perform
the duties assigned by the Corporation on a full-time basis
within thirty (30) days after delivery of written notice of
termination of the Agreement.
(c) AGREEMENT. The mutual written agreement of the Corporation and
the Executive.
(d) TERM. The expiration of the term, as extended, of this
Agreement.
(e) FOR CAUSE. (i) wilful, intentional and continued failure to
perform the duties of President of the Corporation, except
disability, for more than thirty (30) days after delivery of
written demand by the Corporation for performance which shall
specify the manner and means which the Corporation believes
that the Executive is not performing the duties of President,
(ii) the conviction of the Executive of a criminal act of
moral turpitude, have or liable to have an adverse affect on
the Corporation, its business, reputation or good will. For
purposes of this paragraph, no act, or failure to act, on the
Executive's part shall be considered "wilful" or "intentional"
unless done, omitted to be done, knowingly, in bad faith, and
without reasonable belief that such action or omission was in
the best interest of the Corporation. The Executive shall not
be terminated for cause by the Corporation without first
having received the opportunity, together with legal counsel,
to be heard before the Board of Directors and delivery of
written notice specifying the provisions of this Agreement and
the facts and circumstances relied upon as basis for
termination and
4
<PAGE>
a written finding of facts and good faith opinion of the Board
of Directors that the Executive violated clause (i) and/or
(ii) of this paragraph.
9. TERMINATION BY EXECUTIVE. This Agreement may be terminated by
the Executive upon the occurrence of any one of the following events:
(a) DISABILITY. In the event the Executive's health impairs the
performance of the duties of President and such is hazardous
to Executive's physical or mental health or life, provided a
written statement from a qualified physician is delivered to
the Board of Directors reasonably describing such impairment.
(b) GOOD CAUSE. (i) the Corporation or the Board of Directors
terminates this Agreement pursuant to paragraph 3, (ii) the
Board of Directors fails to reelect Executive as President and
Director of the Company or removes Executive from such
position or positions, (iii) the Board of Directors shall fail
to vest the powers and authority of President, (iv) the Board
of Directors shall fail to comply with any material provision
of the Agreement which is not cured within ten (10) days of
delivery of written notice to the Board of Directors; or (v)
any purported termination by Corporation not in compliance
with the requirements of paragraph 8(e).
10. EXECUTIVE COMPENSATION UPON TERMINATION. The Corporation shall
pay the Executive upon the event of termination the compensation set forth
below:
(a) DEATH. The Corporation shall continue the salary for a period
of twelve (12) months from and including the month of death
and pay such in accordance with the payroll policies of the
Corporation to the representative of the deceased Executive's
estate.
5
<PAGE>
(b) DISABILITY. The Corporation shall continue the salary for a
period of six (6) months after this agreement is terminated
pursuant to paragraph 8 (b), provided the salary payments may
be reduced by the amount of payment received by the Executive
under disability benefits plans of the Company, if any.
(c) BREACH OF AGREEMENT. In the event this Agreement is terminated
pursuant to paragraph 9(b) the Corporation shall pay Executive
(i) full salary through Date of Termination at the annual rate
then in effect at the time Notice of Termination is delivered,
(ii) in lieu of further salary payments after the Date of
Termination, the Corporation shall pay as severance pay to
Executive, the greater of one million dollars ($1,000,000) or
an amount equal to two times the salary remaining unpaid under
the term of this agreement or two times the amount equal to
the annual salary in effect at the Date of Termination,
payable in one lump sum on or before five (5) business days
after the Date of Termination; and (iii) if the termination
arises out of a breach by the Company of this agreement, the
Corporation shall pay all other damages to which the Executive
may be entitled in law or equity resulting from such breach,
including damages for loss of benefits, legal expenses
incurred and costs of court. In the event this Agreement is
terminated pursuant to paragraph 8(e) the Corporation shall be
obligated to pay Executive any salary due to the Date of
Termination.
(d) OPTIONAL SEVERANCE PAYMENT. Executive upon the event of the
Corporation's obligation to pay severence, may in Executive's
sole discretion and option elect to accept a number of shares
of registered stock of the Corporation determined by
6
<PAGE>
dividing the severance amount due by $1.00 which number of
shares when delivered shall be in full payment and
satisfaction of the Corporation's obligation to Executive.
(e) CONTINUATION OF BENEFITS. Except for termination for Cause,
the Corporation shall maintain in full force and effect, for
the benefit of the Executive for twelve (12) months, all
employee benefits, plans and programs in which Executive was
entitled to participate and did participate immediately prior
to the Date of Termination. If the Executive is terminated for
Cause, the Corporation shall terminate all employee benefits,
plans and programs in which Executive was entitled to
participate and did participate immediately prior to the Date
of Termination.
(f) MITIGATION. The Executive shall not be required to mitigate
the amount of any payment provided under this paragraph 10 by
seeking other employment or otherwise.
11. NON-COMPETITION. Executive expressly agrees that while this
agreement is in effect, and except for termination for Good Cause, for a period
of two (2) years following the termination of this Agreement, Executive will not
directly or indirectly, as an employee, agent, proprietor, partner, broker,
stockholder, officer, director, or otherwise, render any services to, on
Executives' own behalf or on behalf of any other person or entity, engage in as
an employee or owner of any competitive business or organization located within
a 100 mile radius of the Counties of Dallas, Tarrant, Denton, Collin, Rockwall,
Texas or any other county in any state in which the Corporation then maintains
an office that would compete directly or indirectly with Corporation's business,
without prior written consent of Corporation. The term "competitive business"
shall include but shall not be limited to any business that manufactures and
markets commercial air purification
7
<PAGE>
technology. Executive further expressly agrees that Executive will not use
for Executives' own benefit or disclose to any person any information,
including confidential information, which is obtained or learned while acting
as Executive, without prior written consent of the Corporation. The
agreements contained in this paragraph on the part of Executive shall be
construed as an integral part of an enforceable agreement and the agreements
contained herein were made at the time this agreement was consummated by the
parties. The Executive acknowledges and agrees that the non-competition
restrictions contained herein are fair and reasonable as to geographical
area, length of time and scope of activity restrained. The existence of any
claim or cause of action against Executive by the Corporation, whether
predicated on this Agreement or otherwise, shall not constitute a defense to
the enforcement by the Corporation of the agreements contained in this
paragraph.
12. ADMINISTRATIVE PROVISIONS. The terms of this Agreement shall
be administered pursuant to the following provisions:
(a) DEFINITION. "Date of Termination" shall mean (i) the date of
death of Executive, (ii) thirty (30) days after notice of
termination is given for disability, (iii) the date specified
in the notice of termination for cause or good cause;
provided, if within thirty (30) days after delivery of a
notice of termination the person receiving such notice
notifies the other in writing that a dispute exists, the
Date of Termination shall be the date he dispute is finally
determined by mutual agreement or otherwise.
(b) PARTIES BOUND. This Agreement shall be binding on and inure
to the benefit of the parties and their respective heirs,
executors, administrators, legal representatives, successors
and assigns.
8
<PAGE>
(c) ASSIGNMENT. Executive shall have no right to transfer or
assign any interest in this Agreement without the prior
written consent of the Corporation.
(d) TIME LIMITS. Time is of the essence in this Agreement; and all
time limits shall be strictly construed and rigidly enforced.
(e) NO WAIVER. A failure or delay in the enforcement of the rights
detailed in this Agreement by Corporation shall not constitute
a waiver of those rights or be considered a basis for
estoppel. Corporation may exercise its rights under this
Agreement despite any delay or failure to enforce those
rights.
(f) DISPUTE OR CONTEST. In the unlikely event that a dispute
occurs or an action in law or equity arises out of the
operation, construction, or interpretation of this Agreement,
the prevailing party shall be entitled, in addition to any
other relief granted to reasonable expenses for attorneys'
fees and costs incurred by such party in the action,.
(g) PARAGRAPH HEADINGS. The paragraph headings used in this
Agreement are descriptive only and shall have no legal force
or effect whatever.
(h) TEXAS LAW. This Agreement shall be subject to and governed by
the laws of the State of Texas. Any and all obligations or
payments are due and payable in Dallas County, Texas.
(i) SEVERABILITY. If any provision of this Agreement shall, for
any reason, be held violative of any applicable law, and so
much of the Agreement is held to be unenforceable, then the
invalidity of such a specific provision of this Agreement
shall not be deemed to invalidate any other provisions of this
Agreement, which other
9
<PAGE>
provisions shall remain in full force and effect unless
removal of the invalid provisions destroy the legitimate
purposes of this Agreement, in which event this Agreement
shall be cancelled.
(j) MODIFICATION OF AGREEMENT. This Agreement represents the
entire Agreement by and between the parties, except as
otherwise provided in this Agreement, and it may not be
changed except by written amendment duly executed by all
parties.
(k) NOTICES. All notices and communications pursuant to this
Agreement shall be in writing and delivered when sent by
United States certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to Executive: John Potter
4528 New Orleans Dr.
Plano, TX 75093
If to Corporation: Airtech International Corporation
15400 Knoll Trail Suite 106
Dallas, Texas 75248
or such other address an any party may have furnished to the other in writing
upon receipt by such party.
10
<PAGE>
SIGNED, accepted and agreed to the first date stated above, by the undersigned
parties.
CORPORATION:
AIRTECH INTERNATIONAL CORPORATION
/s/ C J Comu
- -------------------------------------------------------
C. J. Comu, Chief Executive Officer
EXECUTIVE:
/s/ John Potter
- -------------------------------------------------------
John Potter
11
<PAGE>
[LOGO]
EXHIBIT C
AIRSOPURE
FRANCHISE AGREEMENT
THIS AGREEMENT is entered into on this ____ day of ___________, 2000, by and
between Airsopure International Group, Inc., a Nevada corporation whose
principal place of business is located at 15400 Knoll Trail, Suite 200, Dallas,
Texas 75248 (hereinafter "AIRSOPURE" or by reference "we", "us", "our"), and
You: ,
------------------------------------
whose address is:
- ----------------------------------------
- ----------------------------------------
(hereinafter "You" or by reference "Franchisee", or "Your"). Either Party or
both Parties respectively may be referred to as "Party" or "Parties."
RECITALS
A. AIRSOPURE and its affiliate design, manufacture and distribute indoor air
cleaning systems under the name and mark "AIRSOPURE" (the "Products").
B. AIRSOPURE has developed a system for the establishment, development and
operation of sales centers ("AIRSOPURE Center(s)" or "Center(s)") for the sale
and servicing of AIRSOPURE's exclusive line of Products using the service mark
"AIRSOPURE" and other trademarks, service marks (including but not limited to,
"The Essence of Clean Air"), logos and identifying features designated from time
to time by AIRSOPURE (the "Licensed Marks") and using AIRSOPURE's distinctive
methods for establishing and operating AIRSOPURE Centers.
C. You desire to establish an AIRSOPURE Center to be located in the following
geographic area:
- ----------------------------------------
- ----------------------------------------
(the "Exclusive Territory"), and AIRSOPURE desires to grant You the right to
operate an AIRSOPURE Center at such location under the terms and conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the mutual rights, covenants and obligations
set forth herein, the Parties agree as follows:
1. GRANT OF FRANCHISE
1.01. AIRSOPURE grants to You, and You accept from AIRSOPURE, the right and
license to operate an AIRSOPURE Center (or the "Franchise") for the sale or
lease of AIRSOPURE's exclusive line of Products or at a location in the
Exclusive Territory to be approved in writing by AIRSOPURE and listed in
attached Exhibit A (the "Exclusive Territory and Center Location"), to purchase
Products from AIRSOPURE or its affiliates for resale at the Center to customers
in the Exclusive Territory, and to use the Licensed Marks only in connection
with the operation of the Franchise in accordance with the terms and conditions
of this Agreement. AIRSOPURE grants the Franchise to You hereunder in reliance
upon Your agreement to at all times operate and manage the Franchise faithfully,
honestly and diligently in strict conformance with AIRSOPURE's operating
procedures and specifications, as set forth herein and as otherwise from time to
time communicated to You, using Your best efforts to promote and enhance the
performance and operation of the Franchise.
1.02. AIRSOPURE hereby grants to You the exclusive right to solicit customers
for the Products by direct mail advertising, or other approved means, but not
including the World Wide Web (Internet) nor by printed catalogues, in
1
<PAGE>
the Exclusive Territory described above and in Exhibit A. Other AIRSOPURE
franchisees will not be permitted to solicit customers for Products by
advertising in Your Exclusive Territory. Likewise, You may not target or solicit
customers for Products by advertising in other Franchisees respective Exclusive
Territories. Exclusive Territories will not overlap into other Exclusive
Territories. You shall not purposely solicit sales and service to customers
located outside Your Exclusive Territory, provided such activity in not within
an assigned Exclusive Territory. You have been granted an exclusive trade area
by this Agreement.
2. TERM AND RENEWAL
2.01. The term of this Agreement shall be for 10 years commencing on the date of
execution of this Agreement by AIRSOPURE.
2.02. At the expiration of the term or any renewal term hereof, You may, at its
option, renew the Franchise granted hereunder for 2 additional terms of 10 years
each on the following terms and conditions:
A. You shall give AIRSOPURE notice in writing of Your election to renew this
Agreement at least 3 months prior to the expiration of the then-current term.
B. You shall not be in default of any provision of this Agreement or amendment
hereto, including without limitation all payment obligations to AIRSOPURE and
its affiliates.
C. As a condition of renewal of the Franchise, You agree to execute AIRSOPURE's
then-current form of franchise agreement and to comply fully with all terms and
conditions thereof, and to pay AIRSOPURE the then-current renewal fee, which is
presently $1,000.00. You understand that AIRSOPURE may revise its franchise
agreement for any renewal term, at AIRSOPURE's sole discretion, including
without limitation to increase the royalty fees or other fees payable by You or
to require other obligations of franchisees.
D. You shall meet AIRSOPURE's then-current qualifications and training
requirements.
E. You shall execute a general release in a form prescribed by AIRSOPURE
releasing AIRSOPURE and its affiliates, directors, officers, employees and
agents from all known and unknown claims and liabilities to the extent permitted
by state and federal law.
F. You may be required, at AIRSOPURE's sole discretion, to upgrade or remodel
Your AIRSOPURE Center to conform to AIRSOPURE's then-current specifications and
standards as specified in AIRSOPURE's Operating Manual of otherwise in writing,
provided such upgrade or remodel is reasonable in terms of cost and
implementation schedule.
3. FEES
3.01. In consideration of the Franchise rights and license granted herein, You
agree to pay to AIRSOPURE the following fees:
A. You shall pay to AIRSOPURE an initial franchise fee of $25,000.00 upon
execution of this Agreement. You agree that the initial franchise fee represents
payment for the initial grant of the Franchise rights and license granted
herein, shall be fully earned upon execution of this Agreement, and the said fee
will not be refunded under any circumstances unless otherwise specifically set
forth herein. You must find a suitable Center site within 90 days of signing the
Franchise Agreement, unless we mutually agree otherwise. If we cannot agree on a
Center location, within 4 months, we may a) extend your search time, b) exchange
your territory, or c) terminate your Franchise and refund up to 70% of your
Franchise Fee, at our sole discretion. There are no refunds under any other
circumstances.
B. You shall pay to AIRSOPURE a continuing non-refundable royalty fee on a
monthly basis of
2
<PAGE>
5% of Your total monthly gross sales, as defined below. This fee is due by the
7th of the month for the preceding month.
C. You shall account to AIRSOPURE for Your continuing non-refundable local
advertising fee of 2% of Your total monthly gross sales, which You must spend on
the promotion of Your Center. This accounting is due by the 7th of the month for
the preceding month.
D. You shall pay to AIRSOPURE a continuing non-refundable Advertising Fund fee
of 2% of Your total monthly gross sales, beginning January 1, 2001, or later at
our sole option, as described in Section 10 hereof. This fee will be due by the
7th of the month for the preceding month.
E. "Gross sales" as used in this Section 3.01 shall mean the amount of gross
revenues received by You from all sources, including without limitation sales of
Products, services or other merchandise of every kind or nature from, at or in
connection with the operation of the AIRSOPURE Center granted herein, excluding
state, federal or local sales taxes collected from customers and paid to the
appropriate taxing authority.
F. Fees payable under Paragraphs 3.01.B and 3.01.D above shall be due and
payable monthly by the seventh day of each month, based on Your gross sales of
the previous month. Delinquent fees shall bear interest at a rate of the lower
of: (i) one and one-half percent (1.5%) per month, or (ii) the maximum rate
permitted by applicable law.
4. DUTIES OF AIRSOPURE
4.01. Prior to the opening of the Franchise, AIRSOPURE shall:
A. Following receipt in writing from You of a request for approval of at least 3
possible locations as the Authorized Location for the Franchise, AIRSOPURE will
promptly evaluate such locations and notify You in writing of its approval or
rejection of such location(s) within 7 working days.
B. Provide You with AIRSOPURE's specifications and requirements or other
assistance deemed necessary by AIRSOPURE to assist You in opening the Center.
C. Provide an initial training program for 2 people to be designated by You as
described in AIRSOPURE's Operations Manual.
D. Provide one copy, on loan to You, of AIRSOPURE's Operations Manual as
described in Section 8 hereof for use solely in connection with operation of the
AIRSOPURE Center granted hereunder.
E. Sell to You an opening order of Products for resale or lease at the Franchise
as described in Paragraph 6.01 below.
4.02. Following the opening of the Franchise, AIRSOPURE shall:
A. Provide daily consultation by telephone as reasonably requested by You during
the first two weeks of operation of the AIRSOPURE Center Franchise.
B. Provide continuing general advisory assistance as deemed necessary by
AIRSOPURE regarding the operation and advertising of the Franchise.
C. Provide updates, revisions and amendments to the AIRSOPURE Operating Manual
and system as AIRSOPURE may from time to time deem necessary or desirable.
D. Fill Your orders for Products for resale at the Franchise in accordance with
Section 6 below.
E. Provide training programs or seminars as AIRSOPURE may, from time to time in
its sole discretion, deem appropriate. AIRSOPURE's training programs for
franchisees is described in AIRSOPURE's Operations Manual, and is subject to
change at any time in AIRSOPURE's sole
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discretion.
F. AIRSOPURE may, from time to time at its sole discretion, provide test
customers or store visits by AIRSOPURE representatives to evaluate Your methods
of operation and compliance with AIRSOPURE's standards and specifications.
5. YOUR DUTIES
5.01. You shall:
A. You must find a suitable Center site within 90 days of signing the Franchise
Agreement, unless we mutually agree otherwise, and attend (or if You are a
corporation, Your majority shareholder will attend or Your Operating Principal
or manager and one other employee) and successfully complete to AIRSOPURE's
reasonable satisfaction AIRSOPURE's initial training program within 90 DAYS
following execution of this Agreement.
B. Obtain all federal, state and local business licenses, permits,
certifications and bonds required for lawful operation of the Franchise and
certify in writing to AIRSOPURE prior to opening that all such requirements have
been obtained.
C. Attend (with Your manager) and complete to AIRSOPURE's reasonable
satisfaction such continuing training or educational programs as AIRSOPURE may
from time to time require in writing. AIRSOPURE will not charge You for the
training programs, but You shall be responsible for the costs of meals, lodging,
travel and all other expenses incurred by You or Your employees in attending
such programs.
D. Actively promote AIRSOPURE's Products and services and exert Your best
efforts to fully develop and maximize the market for AIRSOPURE's Products and
services in Your Exclusive Territory.
E. Devote Your full time (or if You are a corporation, designate a manager) to
oversee the management and operation of the Center.
F. Purchase and maintain and adequate supply for use in connection with the
operation of the Franchise Business various copyrighted materials and forms
which are the proprietary property of AIRSOPURE and which are an integral part
of AIRSOPURE's system franchised hereunder. Other supplies and equipment
necessary for operation of the Center may be purchased from third Party
suppliers who meet AIRSOPURE's standards and specifications and have been
approved in writing by AIRSOPURE in accordance with the procedures set forth in
AIRSOPURE's Operating Manual, which may be amended from time to time by
AIRSOPURE at its sole discretion.
G. Purchase Products from AIRSOPURE for resale to customers in the Exclusive
Territory in accordance with Section 6 below.
H. Comply with all federal, state and local health and safety laws, rules and
standards applicable to operation of the Franchise. You will forward copies of
all notices of non-compliance by the Franchise with any law, rule, regulation or
ordinance to AIRSOPURE within three days from receipt thereof accompanied by a
summary of action You will take to comply.
I. Maintain adequate working capital to operate the Franchise in accordance with
the AIRSOPURE Operations Manual, as such may be amended by AIRSOPURE from time
to time.
J. Operate the Franchise in strict conformance with AIRSOPURE's policies,
procedures, standards and specifications as may be prescribed by AIRSOPURE from
time to time in the Operations Manual or otherwise in writing, including without
limitation all changes specified by AIRSOPURE to its system or Products. .
K. Display AIRSOPURE's Licensed Marks or logos on all marketing materials and at
Your AIRSOPURE Center. AIRSOPURE reserves the
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right to alter or change its Licensed Marks, logos or trade dress at any time,
and You agree to use such Licensed Marks, logos or trade dress as specified from
time to time by AIRSOPURE promptly upon receipt of notice in writing from
AIRSOPURE.
L. Maintain and supply to third Parties upon request information to be supplied
by AIRSOPURE regarding the availability of franchises.
M. Provide AIRSOPURE and its representatives with unlimited access to
FRANCHISEE'S offices or its AIRSOPURE Center (personal residence excluded),
including Your books, computer system (for sales and products only, unless we
are auditing You) and records of the Franchise, during normal business hours for
purposes of conducting inspections to fully examine and evaluate Your methods of
doing business, including interviews with Your employees and customers.
N. You acknowledge and agree that such inspections and evaluations are necessary
for AIRSOPURE to insure the maintenance of its quality standards, and You agree
to fully cooperate with any reasonable request by AIRSOPURE in connection with
such inspections and evaluations.
O. Diligently and immediately take such steps as are deemed reasonably necessary
by AIRSOPURE to correct any deficiencies detected by AIRSOPURE in Your adherence
to AIRSOPURE's operating policies, procedures, standards and specifications.
P. In the event You are a corporation, comply with the following:
1. You will provide in Your Articles of Incorporation that Your sole corporate
purpose is the operation of the Franchise.
2. Every certificate for shares of stock in the corporation will include the
following legend printed thereon if sole purpose of the corporation is to own
and operate franchised business:
"THE TRANSFER, PLEDGE OR ASSIGNMENT OF THE SHARES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE TERMS AND RESTRICTIONS CONTAINED IN A FRANCHISE
AGREEMENT BETWEEN THE HOLDER OF THESE SHARES AND AIRSOPURE FRANCHISE GROUP,
INC."
3. You agree to comply with the restrictions on transfer of ownership of the
corporation set forth in Section 12.02 below.
4. You will provide AIRSOPURE, prior to the opening of the Franchise, with
copies of Your Articles of Incorporation, Bylaws and other governing documents,
including all amendments thereto, and a copy of the resolutions by Your Board of
Directors authorizing execution of this Agreement, certified by the Secretary of
the corporation.
5. You will provide AIRSOPURE with a current list of shareholders and will
update such list from time to time as the list changes.
6. Each shareholder of the corporation (if sole corporate purpose is the
franchise), will execute a personal guarantee of Your performance under this
Agreement and all amounts owed by You to AIRSOPURE in the form of attached
Exhibit B.
Q. The Parties recognize the importance of fully developing the market for
Products in the Exclusive Territory, and a substantial part of the consideration
for and inducement to AIRSOPURE to enter into this Agreement is Your agreement
to devote Your best efforts to market, sell and support Products to customers
located in Your Exclusive Territory. You agree to concentrate Your marketing
efforts to customers located in Your Territory, and You agree not to advertise
the Products using media or publications whose primary coverage area is outside
Your Exclusive Territory.
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R. You may relocate Your Center at Your sole expense, within Your Exclusive
Territory, provided You give us written notification at least 30 days prior to
relocation stating the reasons for such a move.
6. PURCHASE AND SALE OF PRODUCTS
6.01. You will purchase from AIRSOPURE and AIRSOPURE will sell to You for resale
or lease at the Center to customers in the Exclusive Territory an opening order
of Products having an aggregate cost to You of from $5,000.00 to $10,000.00, by
mutual agreement, based on market conditions. Such purchase must be consummated
in its entirety before You open Your Center, unless AIRSOPURE agrees in writing
to extend such time period.
6.02. After the opening order contemplated by the preceding Paragraph, You will
from time to time place orders for Products with AIRSOPURE on the following
basis:
A. All orders for Products shall be accompanied by payment, unless at
AIRSOPURE's sole discretion, other payment terms are permitted.
B. All orders will be shipped freight collect unless freight is paid in advance
by You.
C. You will pay the prices then prevailing at the time AIRSOPURE receives each
order. Such prices are subject to change at any time by AIRSOPURE.
D. All merchandise will be shipped to You at the Center for resale to customers
in the Exclusive Territory. You will sell Products only to end-user customers
and not for resale. You will not sell or lease Products at any location other
than within Your Exclusive Territory, engage in mail order sales of Products or
supply Products to others for resale or lease at any other location.
E. All orders for Products are subject to availability. In the event any Product
is in short supply, AIRSOPURE shall have the right to allocate such Product on
an equitable basis.
F. You will not modify the Products, and You will not offer or carry any
products or services other than AIRSOPURE's Products and services specified by
AIRSOPURE without written approval from AIRSOPURE.
G. Notwithstanding nationally advertised prices by AIRSOPURE, You may resell
Products purchased under this Agreement at prices set by You. However, AIRSOPURE
retains the right, to the extent permitted by law, to refuse to fill Your orders
for Products if You fail to honor AIRSOPURE's suggested prices for the same
Products sold by other franchise owners in Your region.
7. LICENSED MARKS
7.01. AIRSOPURE represents with respect to the Licensed Marks that:
A. AIRSOPURE is the owner of all right, title and interest in and to the
Licensed Marks or has the right and license to use and grant a license to You to
use the said Licensed Marks.
B. AIRSOPURE will take all steps reasonably necessary to preserve and protect
the ownership and validity in and to the Licensed Marks.
7.02. With respect to Your licensed use of the Licensed Marks pursuant to this
Agreement, You agree that:
A. You shall use only the Licensed Marks designated by AIRSOPURE and shall use
them only in the manner authorized and permitted by AIRSOPURE.
B. You shall use the Licensed Marks only for the operation of the Franchise at
the Authorized Location.
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C. During the term of this Agreement, You shall identify Yourself as the owner
of the Franchise in conjunction with any use of the Licensed Marks, including,
but not limited to, on invoices, order forms, receipts, business cards,
contracts and at such conspicuous locations on the Center's premises or in the
field as AIRSOPURE may specify. The identification shall be in a form which
specifies Your name, followed by the term "Independent Franchise Owner" or such
other identification as shall be approved by AIRSOPURE.
D. You shall not use the Licensed Marks to incur any obligation or indebtedness
on behalf of AIRSOPURE, and You shall not represent that Your Center is owned,
operated by or affiliated with AIRSOPURE other than as a franchisee.
E. You shall not use the Licensed Marks as part of Your corporate or other legal
name, without the prior written consent of AIRSOPURE.
F. You shall file an assumed name registration, and shall execute any documents
deemed necessary by AIRSOPURE to obtain protection for the Licensed Marks or to
maintain their continued validity and enforceability.
7.03. You expressly understand and acknowledge that:
A. As between the Parties hereto, AIRSOPURE, by its trademark License Agreement
with Airsopure, Inc. is the licensor of all right, title and interest in and to
the Licensed Marks and the goodwill associated with and symbolized by them.
B. You shall not directly or indirectly contest the validity of the ownership of
the Licensed Marks.
C. Your use of the Licensed Marks pursuant to this Agreement does not give You
any ownership interest or other interest in or to the Licensed Marks.
D. Any and all goodwill arising from Your use of the Licensed Marks in the
Franchise under AIRSOPURE's system shall inure solely and exclusively to the
benefit of AIRSOPURE, and upon expiration or termination of this Agreement and
the Franchise herein granted, no monetary amount shall be assigned as
attributable to any goodwill associated with Your use of the Licensed Marks.
E. The right and license to use the Licensed Marks granted hereunder to You is
nonexclusive, and AIRSOPURE may use and grant franchises to others to use the
Licensed Marks in any manner except as expressly provided otherwise herein.
F. AIRSOPURE reserves the right to substitute different Licensed Marks for use
in identifying the System and the businesses operating thereunder, and You agree
to comply with AIRSOPURE's requirements relating thereto.
7.04. You shall promptly notify AIRSOPURE of any unauthorized use of the
Licensed Marks or marks confusingly similar thereto, any challenge to the
validity of the Licensed Marks, or any challenge to AIRSOPURE's ownership of, or
Your right to use, the Licensed Marks. You acknowledge that AIRSOPURE has the
sole right to direct and control any administrative proceeding or litigation
involving the Licensed Marks, including any settlement thereof. AIRSOPURE has
the right, but not the obligation, to take action against uses by others that
may constitute infringement of the Licensed Marks.
7.05. Provided You have used the Licensed Marks in accordance with this
Franchise Agreement and AIRSOPURE's Operations Manual, AIRSOPURE will defend You
at AIRSOPURE's expense against any third Party claim, suit or demand involving
the Licensed Marks and arising out of Your use thereof. In the event that You
have not used the Licensed Marks in accordance with this Agreement, AIRSOPURE
shall defend You, at Your expense, against such third Party claims, suits or
demands.
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7.06. In the event of any litigation or administrative proceeding relating to
the Licensed Marks, You shall execute any and all documents and do all acts as
may, in the opinion of AIRSOPURE, be necessary to carry out such defense or
prosecution, including, but not limited to, becoming a nominal Party to any
legal action. Except to the extent that such litigation is the result of Your
use of the Proprietary Marks in a manner inconsistent with the terms of this
Agreement, AIRSOPURE agrees to reimburse You for its out-of-pocket costs in
performing such acts, except that You shall bear the salary costs of its
employees, and AIRSOPURE shall bear the cost of any judgment or settlement.
8. OPERATIONS MANUAL
8.01. AIRSOPURE shall provide You with one copy of AIRSOPURE's Operations Manual
covering the proper operating and marketing techniques and the standards and
specifications for operation of the Franchise. You agree to fully comply with
the Operations Manual in its entirety as an essential aspect of Your obligations
under this Agreement. Failure to so comply shall be treated as a breach of this
Agreement.
8.02. You shall at all times treat the Operations Manual, all supplements and
revisions thereto, any other operations manual, brochure or memorandum created
for or approved for use in the operation of the Franchise and the information
contained therein as the confidential and proprietary information of AIRSOPURE,
and shall use all reasonable efforts to maintain the confidentiality of such
information. You shall not at any time, without AIRSOPURE's prior written
consent, copy, duplicate, record, or otherwise reproduce the foregoing
materials, in whole or in part, nor otherwise make the same available to any
unauthorized person. You may disclose such information and materials only to
such of Your employees or agents, or others who must have access to it in
connection with their employment or the performance of this Agreement, in which
event You shall obtain the agreement of such persons and entities to maintain
the confidentiality thereof. The Operations Manual shall remain at all times the
sole property of AIRSOPURE.
8.03. AIRSOPURE may from time to time revise the contents of the Operations
Manual, and You expressly agree to comply with each new or changed standard,
specification or procedure set forth therein. You shall at all times ensure that
Your copy of the Operations Manual is kept current and up to date. In the event
of any dispute as to the content of the Operations Manual, the terms of the
master copy of the Operations Manual maintained by AIRSOPURE at AIRSOPURE's home
office shall be controlling.
9. ACCOUNTING AND RECORDS
9.01. During the term of this Agreement, You shall maintain and preserve, for at
least five years from the date of their preparation, full, complete, and
accurate, books, records and accounts in the form and manner prescribed by
AIRSOPURE from time to time in the Operations Manual or otherwise in writing.
9.02. You shall, at Your expense, submit to AIRSOPURE, by the 7th day of each
month, a monthly statement on forms prescribed by AIRSOPURE accurately
reflecting gross sales of the Franchise for the preceding calendar month. Each
statement shall accompany Your monthly royalty and advertising fund fee payments
and shall be signed by You attesting that it is true and correct.
9.03. You shall, at Your expense, submit to AIRSOPURE an annual financial
statement for the Franchise, which includes an income statement prepared in
accordance with generally accepted accounting principals, within 90 days of the
end of each fiscal year during the term hereof. Each statement shall be signed
by You attesting that it is true and correct.
9.04. You shall submit to AIRSOPURE for review and auditing such other forms,
reports,
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records, information and data, as AIRSOPURE may reasonably request in writing.
9.05. AIRSOPURE or its designated agents shall have the right at all reasonable
times to examine and copy, at its expense, all books, records, receipts and tax
returns of Yours related to the Franchise and, at its option, to have an
independent audit made, and thereupon be allowed to search Your computer
accounting files. If an inspection or audit should reveal that payments have
been understated in any report to AIRSOPURE, then You shall immediately pay to
AIRSOPURE the amount understated upon demand, in addition to interest from the
date such amount was due until paid, at the prime rate being charged by Bank of
America on the date the payment was due plus 2%, or the maximum rate permitted
by law, whichever is less. If an inspection discloses an underpayment to
AIRSOPURE of 2% or more of the total amount that should have been paid to
AIRSOPURE, You shall, in addition to repayment of such understated amount with
interest, reimburse AIRSOPURE for any and all costs and expenses incurred in
connection with the inspection or audit (including, without limitation,
reasonable accounting and attorneys' fees). The foregoing remedies shall be in
addition to any other remedies AIRSOPURE may have, including without limitation,
the remedies for default.
10. MARKETING AND ADVERTISING
10.01. You shall submit to AIRSOPURE for review prior to use samples of all
advertising and promotional materials that have not been previously approved by
AIRSOPURE. AIRSOPURE shall notify You of its approval or disapproval within 7
days or less from the date of receipt by AIRSOPURE of such materials. Failure by
You to obtain the prior approval in writing of AIRSOPURE for all advertising and
promotional materials shall be a violation of this Agreement.
10.02. AIRSOPURE has established an advertising fund (the "Fund") to build
recognition of the Products and the Licensed Marks and to promote AIRSOPURE's
Products and the Franchise. You shall participate in the Fund, in addition to
Your obligation to conduct local advertising of the Franchise, on the basis
described in Paragraph 3.01.D above.
10.03. AIRSOPURE will administer the Fund as follows:
A. The Fund shall be maintained in a separate bank account. Upon request by You,
AIRSOPURE will provide an annual accounting of amounts spent from the Fund,
including a reasonable allocation to cover AIRSOPURE's overhead expenses for
administration and management of the Fund.
B. AIRSOPURE may allocate amounts held in the Fund at its discretion as
AIRSOPURE deems appropriate. You are not guaranteed that any particular amount
or percentage of the Fund will be spent in Your local market.
C. AIRSOPURE shall have the right to terminate the Fund at any time. However,
the Fund will not be terminated until all moneys in the Fund have been expended
for the purposes stated in Paragraph 10.02 above.
D. AIRSOPURE may from time to time amend its policies or establish new policies
and procedures for administration of the Fund.
10.04. In addition to its monthly contribution to the Fund, You shall spend an
amount equal to at least 2% of Your total monthly gross sales (as defined in
Paragraph 3.01.C above) on local advertising in Your Exclusive Territory. You
shall submit to AIRSOPURE a monthly report to accompany Your advertising fund
fee and royalty fee payments accounting for and evidencing Your local
advertising expenditures. Your local advertising shall comply with the
procedures specified in Paragraph 10.01 above.
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11. INSURANCE
11.01. You shall procure and maintain in full force and effect during the term
of this Agreement, at Your expense, insurance policies written by an insurance
company satisfactory to AIRSOPURE in accordance with standards and
specifications set forth in the Operations Manual or otherwise by AIRSOPURE in
writing. Such policies shall name AIRSOPURE as an additional insured and shall
include, at a minimum:
A. Comprehensive general liability insurance in the amount of $1,000,000.00.
B. Comprehensive automobile liability insurance, including collision,
comprehensive, medical and liability to satisfy state law requirements.
C. Additional coverage's and higher policy limits may be required from time to
time by AIRSOPURE.
11.02. At least 7 days prior to the opening of the Center and on each policy
renewal date thereafter, You shall submit to AIRSOPURE copies of all policies
and policy amendments. The evidence of insurance shall include a statement by
the insurer that the policy or policies will not be canceled or materially
altered without at least 30 days prior written notice to AIRSOPURE.
11.03. Your obligation to obtain and maintain the foregoing policy or policies
in the amounts specified shall not be limited in any way by reason of any
insurance which may be maintained by AIRSOPURE, nor shall Your performance of
that obligation relieve You of liability under the indemnity provisions set
forth in Section 17 of this Agreement.
11.04. Should You, for any reason, fail to procure or maintain the insurance
required by this Agreement, AIRSOPURE shall have the right and authority
(without, however, any obligation to do so) immediately to procure such
insurance and to charge same to You, which charges, together with a reasonable
fee for AIRSOPURE's expenses in so acting, shall be payable by You immediately
upon notice. AIRSOPURE is not a licensed insurance agent or agency.
12. TRANSFER OF INTEREST
12.01. Transfer by AIRSOPURE
A. AIRSOPURE shall have the right to transfer or assign all or any part of its
rights or obligations in this Agreement to any person or legal entity. AIRSOPURE
may sell or assign any of its assets, including without limitation the Licensed
Marks, the system or Products, to any person or legal entity without liability
or obligation to You.
B. Nothing in this Agreement or otherwise shall obligate AIRSOPURE to remain in
the indoor air purification business in the event AIRSOPURE should exercise its
right to assign this Agreement or its assets which are the subject of this
Agreement to a third Party.
12.02. Transfer by You
A. You agree that the rights and duties set forth in this Agreement are personal
to You, and that AIRSOPURE has entered into this Agreement and granted the
Franchise rights and license hereunder in reliance on Your business skill,
financial capacity, and character. Accordingly, You shall not sell, assign,
transfer, convey, give away, mortgage or otherwise encumber any direct or
indirect interest in the Franchise without the prior written consent of
AIRSOPURE.
B. Any purported assignment or transfer, by operation of law or otherwise, not
having the prior written consent of AIRSOPURE shall be null and void and shall
constitute a material breach of this Agreement.
C. AIRSOPURE shall not unreasonably withhold its consent to a transfer of any
interest in Your Franchise or in this Agreement if the following conditions have
been met:
1. All of Your accrued monetary and other
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obligations to AIRSOPURE and its subsidiaries, affiliates and suppliers shall
have been satisfied;
2. You shall not be in default of any provisions of this Agreement or any other
agreement between You and AIRSOPURE or its affiliates or suppliers;
3. You shall have executed a general release, in a form satisfactory to
AIRSOPURE, of any and all claims against AIRSOPURE and its officers, directors,
shareholders and employees.
4. You shall remain liable for all obligations to AIRSOPURE in connection with
the Franchise prior to the effective date of the transfer;
5. The transferee shall enter into a written assignment in a form satisfactory
to AIRSOPURE assuming and agreeing to discharge all of Your obligations under
this Agreement;
6. The transferee shall demonstrate to AIRSOPURE's satisfaction that the
transferee meets AIRSOPURE's then existing requirements and qualifications for
the granting of an AIRSOPURE Franchise;
7. The transferee shall execute for a term ending on the expiration date of this
Agreement the standard form franchise agreement then being offered to new
franchisees and such other ancillary agreements and documents as AIRSOPURE may
then require for the Franchise, which may include changes in required fee
payments or other terms;
8. The transferee shall agree to upgrade the Franchise to conform to the then
current standards and specifications for AIRSOPURE franchises;
9. Transferee and its employees shall complete such training programs as
AIRSOPURE may reasonably require, at the transferee's expense;
10. You shall pay AIRSOPURE a transfer fee of $1000.00 to cover AIRSOPURE's
administrative expenses in connection with the transfer.
12.03. Right of First Refusal
In the event You desire to sell the AIRSOPURE Center and Franchise rights and
license granted herein, or any part of Your stock interest in a corporation that
has been granted such rights, and receives a bona fide acceptable offer in
writing, You agree to notify AIRSOPURE in writing of the terms and conditions of
such offer. AIRSOPURE shall have the option, within 15 days after receipt of
such written notice, to notify You that AIRSOPURE elects to purchase the rights
and license granted herein or stock ownership on the same terms and conditions
as the bona fide written offer. You agree to sell to AIRSOPURE on the same terms
and conditions as the bona fide offer and to comply with all applicable laws
relating to bulk transfers of assets. If AIRSOPURE fails to notify You of its
election to exercise its right of first refusal granted herein within the thirty
day period, then You may sell the franchise rights and license or the stock for
the amount of the bona fide offer, subject to AIRSOPURE's rights under Section
12.02 above. Any material change in the terms or conditions of any offer prior
to closing shall constitute a new offer subject to AIRSOPURE's right of first
refusal described herein. If You fail to consummate the transaction within 30
days from the earlier of: (a) receipt of notice from AIRSOPURE that it elects
not to exercise its right of first refusal, or (b) expiration of the 15 day
period referred to herein, then You must resubmit the proposed transaction to
AIRSOPURE, and AIRSOPURE shall have a new 15 day review period and right of
first refusal.
12.04. Transfer Upon Death or Mental Incapacity
Upon Your death or mental incapacity, or a person owning all or controlling
interest in Your Franchise, AIRSOPURE shall consent to the transfer of such
interest to Your spouse or heirs provided, in AIRSOPURE's sole determination,
such person(s) meet AIRSOPURE's then existing requirements and qualifications
for the granting of an AIRSOPURE Franchise. If the said transfer
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shall not be approved by AIRSOPURE, Your executor, administrator or personal
representative shall transfer Your interest to a third Party approved by
AIRSOPURE within 6 months after Your death or the determination of Your mental
incapacity. If Your interest is not disposed of within 6 months after such death
or mental incapacity, AIRSOPURE may terminate this Agreement.
12.05. Operation of Franchise by AIRSOPURE
In order to prevent any interruption in the business that would cause harm to
the Franchise or AIRSOPURE, You authorize AIRSOPURE, at its option but not its
obligation, in the event that You are absent or incapacitated by reason of
illness, death or otherwise and are not, in AIRSOPURE's sole judgment, able to
operate the Franchise for any extended period of time, to operate and manage the
Franchise for so long as AIRSOPURE deems necessary, without waiving any of
AIRSOPURE's other rights and remedies under this Agreement. All monies from the
operation of the Franchise during such period of operation by AIRSOPURE shall be
kept in a separate account, and the expenses of AIRSOPURE during such period for
operating the Franchise, including reasonable compensation of AIRSOPURE and its
employees or representatives, shall be charged to such account. You agree to
save harmless and fully indemnify AIRSOPURE and its employees and
representatives for and against all claims, losses or actions in connection with
the operation and management of the Franchise hereunder.
12.06. Non-Waiver of Claims
AIRSOPURE's consent to a transfer of any interest in the Franchise granted
herein shall not constitute a waiver of any claims it may have against You, nor
shall it be deemed a waiver of AIRSOPURE's right to demand exact compliance with
any of the terms of this Agreement by the transferee.
13. CONFIDENTIAL INFORMATION
13.01 You shall not, during the term of this Agreement or thereafter,
communicate, divulge, or use for the benefit of any other person or entity any
confidential information, knowledge, or know-how concerning AIRSOPURE's system,
the Products or the operation of the Franchise, including without limitation the
Operations Manual. You shall divulge such confidential information only to such
of Your employees or agents as must have access to it in order to operate the
Franchise. Any and all information, trade secrets, knowledge, know-how, or other
data concerning AIRSOPURE's system, the Products or which AIRSOPURE designates
as confidential shall be deemed confidential for purposes of this Agreement,
except information which You can demonstrate came to Your attention prior to
disclosure thereof by AIRSOPURE, or which, at or after the time of disclosure by
AIRSOPURE to You, had become or later becomes a part of the public domain,
through publication or communication by others. You agree to use such
proprietary information of AIRSOPURE only for operation of the Franchise
Business.
13.02. You acknowledge that the provisions of this Section 13 are and have been
a primary inducement to AIRSOPURE to enter into this Agreement, and that any
failure to comply with the requirements of Section 13.01 will cause AIRSOPURE
irreparable injury without an adequate remedy at law; and You agree to pay all
court costs and reasonable attorneys' fees incurred by AIRSOPURE in obtaining
specific performance of, or an injunction against any violation of, the
requirements of Section 13.01.
14. DEFAULT AND TERMINATION
14.01. AIRSOPURE may, at its option, terminate this Agreement and all rights
granted hereunder, without affording You any opportunity to cure the defaults,
effective immediately upon receipt of notice by You, upon the occurrence of any
of the following:
A. You become insolvent or makes a general assignment for the benefit of
creditors; or if a
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<PAGE>
petition in bankruptcy is filed by You or such a petition is filed against and
consented to by You; or if You are adjudicated a bankrupt; or if You are unable
to pay commercial debts as they become due.
B. You (or a principal shareholder if the Franchisee is a corporation) is
convicted of a felony or any other crime or offense that is reasonably likely,
in the sole opinion of AIRSOPURE, to adversely affect the goodwill or reputation
of AIRSOPURE or the Licensed Marks.
C. A judgment or consent decree is entered against You (or a principal
shareholder if the Franchisee is a corporation) in a case involving allegations
of fraud, racketeering, unfair or deceptive trade practices or similar
allegations which, in AIRSOPURE's judgment, are likely to adversely affect
AIRSOPURE, its Products, the Licensed Marks or the goodwill associated
therewith.
D. You or any partner or shareholder in You transfers any rights or obligations
under this Agreement or any interest in You or in the Franchise to any third
Party without AIRSOPURE's prior written consent.
E. You intentionally disclose the contents of the Operations Manual or other
trade secrets or confidential information provided to You by AIRSOPURE to any
unauthorized person or fails to exercise reasonable care to prevent such
disclosure.
F. You maintain false books or records of the Franchise or knowingly make any
material false statements or omission to AIRSOPURE in connection with Your
application for the franchise granted herein or in connection with any reports
submitted to AIRSOPURE, including without limitation the understatement of gross
sales by more than 2%.
G. You fail to commence business within 4 months following the execution of this
Agreement.
H. You (and Your manager) fail to attend any scheduled training program which
AIRSOPURE has indicated is mandatory.
I. You operate the Franchise in such a manner which causes a threat or danger to
public health or safety.
J. You receive 3 or more notices of default of this Agreement from AIRSOPURE for
violations under Section 14.02 hereof.
14.02. Except for violations of this Agreement listed in Section 13.01 above, or
violations specifically provided for elsewhere in this Agreement, You shall have
30 days from receipt from AIRSOPURE of a written Notice of Termination (citing
the reason(s) therefor) within which to remedy any default listed in this
Section 13.02, or any other violation of this Agreement.
A. You fail to pay promptly any monies owing to AIRSOPURE or its subsidiaries or
affiliates when due, or to submit the financial information or reports required
by AIRSOPURE under this Agreement.
B. You fail to meet or comply with any standards, specifications or procedures
prescribed by AIRSOPURE in this Agreement, the Operations Manual or otherwise
specified in writing from time to time by AIRSOPURE.
C. You are convicted, plead guilty or enter into a consent agreement for
violation of any federal, state or local law, ordinance, rule or regulation that
is reasonably likely, in the sole opinion of AIRSOPURE, to materially and
unfavorably affect the Franchise or AIRSOPURE, the Licensed Marks or the
goodwill associated therewith.
D. You misuse or make any unauthorized use of the Proprietary Marks or otherwise
impairs the
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<PAGE>
goodwill associated therewith or AIRSOPURE's rights therein.
E. You abandon the Franchise or fail to operate the Center during normal
business hours without the consent in writing of AIRSOPURE.
F. You fail to submit advertising or promotional materials to AIRSOPURE for
approval in writing prior to use.
14.03. No right or remedy of AIRSOPURE conferred herein shall be exclusive of
any other right or remedy provided herein, at law or in equity, unless
specifically provided otherwise in this Agreement or any amendment hereto.
14.04. In the event this Agreement is terminated by AIRSOPURE for violation of
this Agreement by You, AIRSOPURE shall have the right, at its option, to
purchase Your interest in the tangible assets of the Franchise at their fair
market value.
15. OBLIGATIONS UPON TERMINATION
15.01. Upon termination or expiration of this Agreement, this Agreement and all
rights granted hereunder to You shall immediately terminate, and:
A. You shall immediately cease to operate the Franchise and shall not
thereafter, directly or indirectly, represent to the public or hold itself out
as a present or former franchisee of AIRSOPURE.
B. You shall immediately and permanently cease to use, by advertising or in any
other manner whatsoever, the Licensed Marks of AIRSOPURE, any other identifying
characteristics or trade dress of the system, and all confidential methods,
procedures and techniques associated with the Franchise.
C. You shall take such action as may be necessary to cancel any assumed name or
equivalent registrations or listings in telephone or other directories which
contain the names or Licensed Marks of AIRSOPURE, and You shall furnish
AIRSOPURE with evidence satisfactory to AIRSOPURE of compliance with this
obligation within 30 days after termination or expiration of this Agreement.
D. You shall promptly pay all sums owing to AIRSOPURE and its subsidiaries and
affiliates, including all damages, costs and expenses, including reasonable
attorneys' fees, incurred by AIRSOPURE as a result of the default.
E. You shall pay to AIRSOPURE all damages, costs and expenses, including
reasonable attorneys' fees, incurred by AIRSOPURE subsequent to the termination
or expiration of the Franchise herein granted in obtaining injunctive or other
relief for the enforcement of any provisions of this Agreement.
F. You shall immediately turn over to AIRSOPURE the Operations Manual, records,
files, instructions, software, correspondence, and all other materials provided
by AIRSOPURE related to the operation of the Franchise, and all copies thereof
(all of which are acknowledged to be AIRSOPURE's property), and shall retain no
copy or record of any of the foregoing, except only Your copy of this Agreement
and any correspondence between the Parties, and any other documents which You
reasonably need for compliance with any applicable provision of law.
G. AIRSOPURE shall have the right, but not the duty, to be exercised by notice
of intent to do so within 30 days after termination or expiration, to purchase
any or all signs, advertising materials, supplies and inventory and any other
items bearing AIRSOPURE's Licensed Marks, at Your cost or at fair market value,
whichever is less. If the Parties cannot agree on the fair market value of such
items, the Parties will select and share the expense of an independent appraiser
to determine fair market value. With respect to any purchase by AIRSOPURE as
provided herein, AIRSOPURE shall have the right to set off against the purchase
price all amounts due from
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<PAGE>
You under this Agreement.
16. COVENANTS
16.01. You covenant and agree (or if Your Franchise is a corporation Your
controlling shareholder agrees) to supervise and devote Your best efforts to
manage and operate the Franchise.
16.02. You acknowledge that, pursuant to this Agreement, You will receive
valuable specialized training and confidential and proprietary information of
AIRSOPURE, including, without limitation, information regarding the operational,
sales, promotional, and marketing methods and techniques of AIRSOPURE and its
system. You covenant and agree that during the term of this Agreement, and
subject to the post-termination provisions contained herein, You shall not,
except as otherwise approved in writing by AIRSOPURE, either directly or
indirectly:
A. Divert or attempt to divert any business or customer of the Franchise to any
competitor, or competing business, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to AIRSOPURE or the goodwill associated with the Licensed Marks and
Products.
B. Employ or seek to employ any person who is at that time employed by AIRSOPURE
or by another AIRSOPURE franchisee or induce such person to leave his or her
employment.
C. Own, maintain, engage in, be employed by, advise, consult, assist, invest in
or have any interest whatsoever in any business or entity which competes with or
offers products or services which are the same or similar to those of AIRSOPURE
or the Franchise.
16.03. You covenant and agree that You (or any shareholder if Your Franchise is
a corporation) shall not, for a period of two years following termination of
this Agreement for any reason, either directly or indirectly own, maintain,
engage in, be employed by, advise, consult, assist, invest in or have any
interest whatsoever in any business or entity which competes with or offers
products or services which are the same or similar to those of AIRSOPURE or the
Franchise within a radius of 25 miles of Your Exclusive Territory. In the event
a court of competent jurisdiction should hold this covenant to be unreasonable
or overly broad, the Parties agree to reduce the scope of such covenant to the
maximum restriction permitted by law, and You agree to be bound by such less
restrictive terms of this covenant. If requested by AIRSOPURE, You agree to
obtain and provide to AIRSOPURE executed covenants containing terms equivalent
to those contained herein from any employee of Yours who has received training
from AIRSOPURE, and, if Your Franchise is a corporation, from any director or
shareholder of Your corporation.
16.04. AIRSOPURE covenants and agrees that the restrictions set forth above in
Paragraphs 16.02.C and 16.03 shall not apply to ownership by You of less than a
5% beneficial interest in the outstanding equity securities of any publicly
traded corporation, provided that You are not an employee, consultant or
director of such corporation.
16.05. You covenant and agree that its violation of any covenant contained
herein would result in serious, immediate and irreparable injury to AIRSOPURE
for which no adequate remedy at law will be available, and You consent, in
addition to other remedies which may be available to AIRSOPURE, to the entry
without opposition of an injunction prohibiting any conduct by You in violation
of any covenant set forth herein.
17. INDEMNIFICATION
17.01. You agree to defend, indemnify and hold AIRSOPURE and its affiliates,
directors, officers, employees and agents harmless from all claims, losses,
lawsuits and expenses arising from or relating to the Franchise and Your
operation thereof, except for: (i) any claims of infringement
15
<PAGE>
from third Parties due to Your use of the Licensed Marks, provided that You have
used the said Licensed Marks as authorized by AIRSOPURE; and (ii) claims
alleging that Products sold or leased by You are defective.
17.02. AIRSOPURE agrees to defend, indemnify and hold You harmless from all
claims, losses, lawsuits and expenses arising from or relating to: (i) any
claims of infringement from third Parties due to Your use of the Licensed Marks,
provided that You have used the Licensed Marks as authorized by AIRSOPURE; and
(ii) claims alleging that Products sold or leased by You are defective.
18. GENERAL PROVISIONS
18.01. No failure of a Party to exercise any power reserved to it by this
Agreement or to insist upon strict compliance by the other Party with any
obligation or condition hereunder shall constitute a waiver of such Party's
rights unless such waiver is in writing. Any waiver by either Party shall not
constitute a waiver thereafter to demand exact compliance with any of the terms
herein. Waiver by a Party of any particular default by the other Party shall not
affect or impair such Party's rights with respect to any subsequent default of
the same, similar or different nature; nor shall any delay, forbearance or
omission of a Party to exercise any power or right arising out of any breach or
default by the other Party of any of the terms, provisions, or covenants
thereof, affect or impair such Party's right to exercise the same.
18.02. Unforeseen Events
Delays in the performance of any duties hereunder which are not the fault of and
are beyond the ability of the Party to control, including without limitation
fires, floods, natural disasters, acts of God, labor disputes, riots or other
similar events, shall not constitute a default in the Party's performance of
this Agreement, and the Parties agree to extend the time of performance for a
reasonable period of time to allow for such delays.
18.03. The relationship between the Parties is that of independent contractors.
No partnership, joint venture, employment or relationship of principal and agent
is intended, and You may not commit or bind AIRSOPURE to any obligation
whatsoever.
18.04. Any and all notices required or permitted under this Agreement shall be
in writing and shall be delivered by any means which will provide evidence of
the date received, to the respective Parties at the following addresses unless
and until a different address has been designated by written notice to the other
Party:
Notices to AIRSOPURE:
Airsopure International Group, Inc.
15400 Knoll Trail, Suite 200
Dallas, Texas 75248
Attn: John Potter, President
Notices to You:
- --------------------------------
- --------------------------------
- --------------------------------
Any notice shall be deemed to have been given at the date and time it is
received.
18.05. This Agreement and the documents referred to herein constitute the entire
Agreement between AIRSOPURE and You concerning the subject matter hereof, and
supersede all prior agreements, oral or written. No amendment, change or
variance from this Agreement shall be binding on either Party unless executed by
both Parties in writing.
18.06. Except as expressly provided to the contrary herein, each provision of
this Agreement shall be considered severable; and if, for any reason, any
provision herein is determined to be invalid under any law or by a court having
valid jurisdiction, such shall not impair the operation of, or have any other
effect upon, such other
16
<PAGE>
provisions of this Agreement, and the latter shall continue to be given full
force and effect and bind the Parties hereto, and the invalid provision shall be
deemed not to be a part of this Agreement.
18.07. This Agreement takes effect upon its acceptance and execution by
AIRSOPURE in the State of Texas, and shall be interpreted and construed under
the laws of the State of Texas.
18.08. The Parties agree that any action brought by either Party against the
other in any court, whether federal or state, shall be brought within the State
of Texas in the judicial district in which AIRSOPURE has its principal place of
business and do hereby waive all questions of personal jurisdiction or venue for
the purpose of carrying out this provision.
18.09. If either Party is required to resort to legal process to enforce any
provision of this Agreement, the prevailing Party will recover all costs,
including reasonable attorneys fees, incurred in such legal proceeding.
18.10. You represent to AIRSOPURE that You have conducted an independent
investigation of the business franchised hereunder and recognizes that the
business venture contemplated by this Agreement involves business risks, and
that its success will be largely dependent upon Your ability as an independent
business person. AIRSOPURE expressly disclaims the making of, and You
acknowledge that You have not received, any representation or guarantee, express
or implied, as to the potential volume, profits or success of the business
venture contemplated by this Agreement.
18.11. You acknowledge that You received a completed copy of this Agreement, the
attachments hereto, if any, and agreements relating thereto, if any, at least 5
business days prior to the date on which this Agreement was executed. You
further acknowledge that You have received the Offering Circular, as required by
the Federal Trade Commission, at least 10 business days prior to the date on
which this Agreement was executed.
18.12. This Agreement contains various headings, but it is agreed that such
headings are for convenience only and shall not affect the meaning of the
provisions of this Agreement.
18.13. You acknowledge that You have read and understood this Agreement, the
attachments hereto, if any, and agreements relating thereto, if any, and that
AIRSOPURE has accorded You ample time and opportunity to consult with advisors
of Your own choosing about the potential benefits and risks of entering into
this Agreement.
19. APPLICABLE LAW AND MEDIATION
A. THE PARTIES AGREE TO SUBMIT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF
OR RELATING TO THIS AGREEMENT (AND ATTACHMENTS) OR THE RELATIONSHIP CREATED BY
THIS AGREEMENT TO NON-BINDING MEDIATION PRIOR TO BRINGING SUCH CLAIM,
CONTROVERSY OR DISPUTE IN A COURT. THE MEDIATION SHALL BE CONDUCTED THROUGH
EITHER AN INDIVIDUAL MEDIATOR OR A MEDIATOR APPOINTED BY A MEDIATION SERVICES
ORGANIZATION OR BODY, EXPERIENCED IN THE MEDIATION OF DISPUTES IN THE AIR
PURIFICATION SERVICE BUSINESS, AGREED UPON BY THE PARTIES AND, FAILING SUCH
AGREEMENT WITHIN A REASONABLE PERIOD OF TIME AFTER EACH PARTY HAS NOTIFIED THE
OTHER OF ITS DESIRE TO SEEK MEDIATION OF ANY CLAIM CONTROVERSY OR DISPUTE (NOT
TO EXCEED 15 DAYS), THROUGH THE AMERICAN ARBITRATION ASSOCIATION IN ACCORDANCE
THE RULES GOVERNING MEDIATION, AT AIRSOPURE CORPORATE HEADQUARTERS IN DALLAS,
TEXAS. THE COSTS AND EXPENSES OF MEDIATION, INCLUDING COMPENSATION AND EXPENSES
OF THE MEDIATOR, SHALL BE BORNE BY THE PARTIES EQUALLY. IF THE PARTIES ARE
UNABLE TO RESOLVE THE CLAIM, CONTROVERSY OR DISPUTE 90 DAYS
17
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AFTER THE MEDIATOR HAS BEEN APPOINTED, THEN EITHER PARTY MAY SUBMIT SUCH CLAIM,
CONTROVERSY OR DISPUTE TO A COURT IN ACCORDANCE WITH SECTION 19.B. BELOW
NOTWITHSTANDING THE FOREGOING, EITHER PARTY MAY BRING AN ACTION (1) FOR MONEYS
OWED, (2) FOR INJUNCTIVE RELIEF, OR (3) INVOLVING THE POSSESSION OR DISPOSITION
OF, OR OTHER RELIEF RELATING TO, REAL PROPERTY IN A COURT HAVING JURISDICTION
AND IN ACCORDANCE WITH SECTION 19.B. BELOW, WITHOUT SUBMITTING SUCH ACTION TO
MEDIATION.
B. WITH RESPECT TO ANY CLAIMS, CONTROVERSIES OR DISPUTES WHICH ARE NOT FINALLY
RESOLVED THROUGH MEDIATION, YOU HEREBY IRREVOCABLY SUBMIT YOURSELF TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE COURTS OF DALLAS COUNTY, TEXAS AND THE
FEDERAL DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION. YOU
HEREBY IRREVOCABLY AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON YOU IN ANY
EACH PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE RELATIONSHIP
CREATED BY THIS AGREEMENT BY ANY MEANS ALLOWED BY TEXAS OR FEDERAL LAW. VENUE
FOR ANY SUCH LEGAL PROCEEDING SHALL BE DALLAS COUNTY, TEXAS; PROVIDED, HOWEVER
WITH RESPECT TO ANY ACTION (1) FOR MONEYS OWED, (2) FOR INJUNCTIVE OR OTHER
EXTRAORDINARY RELIEF OR (3) INVOLVING POSSESSION OR DISPOSITION OF; OR OFFER
RELIEF RELATING TO, REAL PROPERTY, AIRSOPURE MAY BRING SUCH ACTION IN ANY STATE
OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION. YOU HEREBY WAIVE ALL QUESTIONS
OF PERSONAL JURISDICTION FOR TITLE PURPOSE OF CARRYING OUT THIS PROVISION. WITH
RESPECT TO ALL CLAIMS, CONTROVERSIES, DISPUTES OR ACTIONS, THIS AGREEMENT SHALL
BE INTERPRETED AND CONSTRUED UNDER TEXAS LAW (EXCEPT FOR TEXAS CHOICE OF LAW
RULES).
C. YOU AND AIRSOPURE ACKNOWLEDGE THAT THE PARTIES' AGREEMENT REGARDING
APPLICABLE STATE LAW AND FORUM SET FORTH IN SECTION 19.B. ABOVE PROVIDE EACH OF
THE PARTIES WITH THE MUTUAL BENEFIT OF UNIFORM INTERPRETATION OF THIS AGREEMENT
AND ANY DISPUTE ARISING OUT OF THIS AGREEMENT OR THE PARTIES' RELATIONSHIP
CREATED BY THIS AGREEMENT, EACH OF YOU AND AIRSOPURE FURTHER ACKNOWLEDGE THE
RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR SUCH BENEFIT.
D. YOU AND AIRSOPURE ACKNOWLEDGE THAT THE EXECUTION OF THIS AGREEMENT OCCURRED
IN DALLAS, TEXAS AND FURTHER ACKNOWLEDGE THAT THE PERFORMANCE OF CERTAIN
OBLIGATIONS OF YOU ARISING UNDER THIS AGREEMENT SHALL OCCUR IN DALLAS, TEXAS.
IN WITNESS WHEREOF, the Parties hereto have duly executed, sealed, and delivered
this Agreement on the day and year first above written.
AIRSOPURE:
By:
---------------------------------
Title:
------------------------------
YOU:
By:
---------------------------------
Title:
------------------------------
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EXHIBIT F
PERSONAL GUARANTEE
For value received, and in consideration of the execution by Airsopure
International Group, Inc. ("Airsopure") of a Franchise Agreement with
- ----------------------------------------
("Franchisee"), The undersigned
- ----------------------------------------
("Guarantor") hereby unconditionally guarantees to Airsopure all indebtedness,
obligations and liabilities, direct or indirect, matured or immatured, primary
or secondary, certain or contingent, of Franchisee to Airsopure, now or
hereafter owing or incurred. This Guarantee is an absolute, unconditional,
unlimited and continuing guarantee of the full and punctual payment by
Franchisee of the foregoing indebtedness, obligations and liabilities and not of
their collectibility only. Upon any default by Franchisee in such full and
punctual payment, the liabilities and obligations of the Guarantor hereunder
shall, at Airsopure's option, become forthwith due and payable without demand or
notice of any nature, all of which are expressly waived by the Guarantor.
Airsopure may deal with Franchisee in such manner as Airsopure in its sole
discretion deems fit, and Guarantor gives to Airsopure full authority, in its
sole discretion, to do any or all of the following things: a) extend credit,
make loans and afford other financial accommodations to Franchisee at such
times, in such amounts and on such terms as Airsopure may approve; b) vary the
terms and grant extensions or renewals of any present or future indebtedness of
Franchisee to Airsopure; c) grant time, waivers and other indulgences in respect
thereto; d) vary, exchange, release or discharge, wholly or partially, or delay
in or abstain from perfecting and enforcing any security or guaranty or other
means of obtaining payment; e) accept partial payments from Franchisee; f)
release or discharge, wholly or partially, any endorser or guarantor; g)
compromise or make any settlement or other arrangement with Franchisee.
Guarantor waives notice of acceptance hereof or of any action taken or omitted
by Airsopure in reliance hereon and any requirement that Airsopure be diligent
or prompt in making demands hereunder, giving notice of any default by
Franchisee or asserting any other right hereunder.
No provision of this Guaranty can be changed, waived, discharged or terminated
except by an instrument in writing signed by Airsopure and Guarantor, and no
such waiver shall extend to, affect or impair any other right of Airsopure
hereunder.
This Unlimited Guarantee shall inure to the benefit of Airsopure and its
successors and assigns, and shall be binding on the Guarantor and the
Guarantor's successors, heirs and assigns.
EXECUTED on this ____ day of ____________, 2000.
- ----------------------------------------
GUARANTOR
- ----------------------------------------
WITNESS
<PAGE>
EXHIBIT G
CONFIDENTIALITY AGREEMENT
This Confidentiality and Noncompetition Agreement (the "Agreement") is made and
entered into effective the _____day of ________________, 2000 by and between
Airsopure International Group, Inc., a Nevada corporation, located at 15400
Knoll Trail, Suite 200, Dallas, Texas 75248 (the "Company") and
- -----------------------------------------------
who resides at
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
- -----------------------------------------------
(the "Associate").
RECITALS
A. Company sells franchises for the operation of air purification system
business which operate under the name and service mark "Airsopure" (the
"Franchises");
B. Company has developed a business method for operating Franchises utilizing
certain Information, plans, methods, data, processes, marketing systems,
techniques, operating procedures, trademarks, designs, information and know how
of Company (the "Confidential Information"), and such Confidential Information
may be further developed from time to time by Company:
C. Company has established substantial goodwill and an excellent reputation with
respect to the quality of services available, which goodwill and reputation have
been and will continue to be of Major benefit to Company;
D. Associate is or will become involved with Company, or a franchise of Company,
in the capacity of an officer, partner, director or as beneficial owner of an
Airsopure Franchise or an employee of a Franchise, and will become privileged to
certain Confidential Information; and
E. Associate and Company have reached an understanding with regard to
nondisclosure by Associate of Confidential Information and Noncompetition by
Associate with Company
NOW THEREFORE, in consideration of the foregoing, the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which hereby are acknowledged, Associate and Company, intending legally to be
bound, hereby agree as follows:
1. CONFIDENTIAL INFORMATION. Associate and Company acknowledge that the business
plan and methods used in connection with the operation of the Franchise which
utilize Company's Confidential Information, are confidential, unique, constitute
the exclusive property of Company and are trade secrets of Company. Associate
acknowledges that any disclosure of the Confidential Information would be wrong
and would cause irreparable injury and harm to Company. Associate further
acknowledges that Company has expended a great amount of effort and money in
obtaining and developing the Confidential Information, the Company has taken
numerous precautions to guard the secrecy of the Confidential Information and
that it would be very costly for competitors to acquire or duplicate the
Confidential Information.
2. OPERATIONS MANUAL AS TRADE SECRET It is understood that Confidential
Information, constituting "trade secret", as used in this Agreement is deemed to
include, without initiation, any and all information contained in the Franchise
Operations Manual, which may be provided AS one or more separate manuals, or
written instructional guides, as the same are changed or supplemented from time
to time, and any information of whatever nature which gives to Company an
opportunity to obtain an advantage over its competitors who do not have access
to, know or use such lists, written materials or information.
3. CONFIDENTIAL INFORMATION. Associate shall not at any time, publish, disclose,
divulge or in any manner communicate to any person, firm' corporation,
association. partnership or any other entity whatsoever or use, directly or
indirectly, for its own benefit or for the benefit of any Person, firm,
corporation or other entity, other than the use of Company, any of the
Confidential Information of Company or its Affiliates.
4. NO INTERFERENCE WITH BUSINESS. During the term of this Agreement, neither
Associate nor any member of his or her immediate finally shall divert or attempt
to divert: I) any business related to, or any customer or prospective customer
of; the Franchise by direct inducement or otherwise, or 2) the employment of
Company or another franchisee licensed by Company,
1
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to any Competitive Business by any direct inducement or otherwise.
5. REMEDIES. Associate hereby acknowledges and agrees that in the event of any
violations of this Agreement, Company shall be authorized and entitled, without
posting a bond to obtain from any court of competent jurisdiction, preliminary
and permanent injunctive relief as well as an equitable accounting of all
profits or benefits arising out of any such violation, which rights and remedies
shall be cumulative and in addition to any rights or remedies to which Company
may be entitled.
6. EFFECT OF WAVIER. The waiver by Associate or company of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of any
subsequent breach thereof
7. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit
of Associate and Company and their respective heirs, executors, representatives
successors and assigns.
8. ENTIRE AGREEMENT. This instrument contains the entire agreement of Associate
and Company relating to the matters set forth here It may not be changed orally,
but only by an agreement in writing, signed by the party against whom
enforcement of any waiver, change modification, extension or discharge is
sought.
9. GOVERNING LAW. This instrument shall be governed by and construed under the
laws of the State of Texas.
10. JURISDICTION AND VENUE. In the event of a breach or threatened breach by
Associate of this Agreement, Associate hereby irrevocably submits to the
jurisdiction of the State District Court in Dallas County, Texas and the Federal
District Court for the Northern District of Texas, and irrevocably agrees that
venue for any action or proceeding shall be in Dallas County, Texas.
Notwithstanding the foregoing, in the event that the laws of the state where,
Associate resides require that the jurisdiction or venue be elsewhere, then such
other states laws shall control. but only to the extent that such other state's
laws so require.
11. SEVERABILITV. Should anyone or more of the provisions hereof be determined
to be illegal or unenforceable, all other provisions hereof shall be given
separately therefrom and shall not be affected thereby.
12. COST OF ENFORCEMENT. In any action at law or in equity to enforce any of the
provisions or rights under this Agreement, the unsuccessful party in such
litigation as determined by the court in a final judgment or decree, shall pay
the successful party or parties all costs, expenses and reasonable attorney's
fees incurred therein by such arty or parties (including without Initiation such
as costs, expenses and fees on any appeals), plus, if applicable, interest at
the highest rate allowable by law, accruing from the date of the breach of this
Agreement. If such successful party shall recover judgement in any such action
or proceeding, such costs, expenses. attorney's fees and interest shall be
included as part of such judgment.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement on the date
first above written.
FOR AIRSOPURE (COMPANY):
- --------------------------------------------
FOR FRANCHISEE OF AIRSOPURE:
- --------------------------------------------
ASSOCIATE OF FRANCHISEE:
- --------------------------------------------
ASSOCIATE'S WORK CAPACITY:
- --------------------------------------------
2
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EXHIBIT F
[GRAPHIC]
AIRSOPURE
DEVELOPMENT AGREEMENT
VERSION 1/00
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DEVELOPER
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STREET
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CITY STATE ZIP
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PHONE NUMBER
Date of this Agreement:
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THIS DEVELOPMENT AGREEMENT (the "Agreement") is made and entered into by and
between Airsopure International Group, Inc., a Nevada corporation (hereinafter
referred to as "Airsopure") and the Developer written in above (hereinafter
referred to as "You"). Either party or both parties respectively may be referred
to as "Party" or "Parties."
RECITALS
WHEREAS, Airsopure has acquired the right to develop and as a result of the
expenditure of time, skill, effort and money has developed, a unique and
distinctive system relating to the establishment and operation of retail and
direct marketing centers under the mark "Airsopure" which specialize in the sale
of residential air purification systems and other products (the "System");
WHEREAS, the distinguishing characteristics of the System include, without
limitation, distinctive exterior and interior design, decor, uniform standards,
specifications and procedures for operations; quality and uniformity of products
and services offered; procedures for inventory and management control; training
and assistance; and advertising and promotional programs; all of which may be
changed, improved and further developed by Airsopure from time to time;
WHEREAS, Airsopure identifies the System by means of certain trade names,
service marks, trademarks, symbols, logos, emblems and indicia of origin,
including, but not limited to, the mark "Airsopure" and such other trade names,
service marks (including but not limited to "The Essence of Clean Air"), and
trademarks as Airsopure may develop in the future to identify for the public the
source of services and products marketed under these marks and under the System
and representing the System's high standards of quality, products and services
(collectively, the "Proprietary Marks"); and
WHEREAS, You wish to obtain the right to develop Airsopure Centers (the
"Center(s)") under the System within the geographic territory described in this
Agreement, under the terms and conditions of this Agreement;
NOW, THEREFORE, the Parties, in consideration of the mutual undertakings and
commitments set forth herein, the receipt and sufficiency of which are hereby
acknowledged, agree as follows:
1. GRANT
A. Airsopure hereby grants to You and You hereby accept, pursuant to the terms
and conditions of this Agreement, the right and obligation to develop Centers
solely within the geographic area described below (the "Development Territory"),
such development rights to be exercised according to Section 3.A. and according
to the development schedule in Section 3.B.1. (the "Development Schedule").
The Territory shall be:
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B. Except as otherwise provided in this Agreement and any franchise agreement
between You and Airsopure, and subject to Your full compliance with this
Agreement, Airsopure shall not establish or authorize any other person or
entity, other than You, to establish, a Center in the
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Development Territory during the term of this Agreement.
C. This agreement is not a franchise agreement and does not grant to You any
right or franchise to operate a Center or any right to use or any interest in
the Proprietary Marks or the System.
2. DEVELOPMENT FEE
A. In consideration for the development rights granted to You herein and the
rights granted to You under separate Franchise Agreements, You shall pay to
Airsopure, upon execution of this Agreement, a non-refundable Development Fee
equal to $25,000.00 for the first Center, plus $10,000.00 for each subsequent
Center to be developed hereunder after the initial Center. Pursuant to the
Development Schedule set forth in Section 3.B., the total Development Fee is
$
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B. Application of Development Fee
The Development Fee shall be applied to the initial Franchise Fees under
separate franchise agreements payable with respect to each Center opened
hereunder as follows:
1. For the initial Center to be developed under this Agreement, $25,000.00
of the Development Fee shall be applied to the initial franchise fee of
$25,000.00 due upon execution of the franchise agreement for the initial Center;
2. For each additional Center to be developed under this Agreement,
$10,000.00 of the Development Fee shall be applied to the initial franchise fee
of $25,000.00 due upon the execution of each applicable franchise agreement, and
the balance shall be paid out of Your separate funds.
C. All franchise fees shall be nonrefundable except as otherwise provided in the
respective franchise agreement (as defined in Section 3.A. below).
3. SCHEDULE AND MANNER FOR EXERCISING DEVELOPMENT RIGHTS
A. You shall exercise the development rights granted hereunder only by entering
into a separate franchise agreement with Airsopure for each Center for which a
development right is granted. Airsopure correct form of franchise agreement is
attached as Exhibit C (the "Franchise Agreement"). Upon execution of this
Agreement, You shall execute and deliver a Franchise Agreement for the first
Center to be developed hereunder. You shall additionally execute the form of
franchise agreement then being used by Airsopure for new franchisees operating
under the System, with respect to each subsequent Center developed hereunder,
but not later than 4 months prior to the projected opening date of the
applicable Center. These subsequent forms of franchise agreements shall also be
included in the term "franchise agreements", as used herein.
B. 1. Development Schedule
Acknowledging that time is of the essence, You agree to exercise Your
development rights according to Section 3.A. and according to the Development
Schedule below, which schedule designates the number of Centers in the
Development Territory to be established and in operation by You upon the
expiration of each of the designated development periods (the "Development
Periods"):
Cumulative Total Number of
Centers located in the
Expiration Date of Territory Which You Shall
Development Period Have Open and in Operation
A.
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B.
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C.
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D.
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E.
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F.
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G.
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H.
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During any of the Development Periods set forth above, subject to the terms and
conditions of this Agreement, You may develop more than the total minimum number
of Centers which You are required to develop during that Development Period. Any
Centers developed during a Development Period in excess of the minimum number of
Centers required to be developed upon expiration of that Development Period
shall be applied to satisfy Your development obligation during the next
succeeding Development Period,
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if any. Notwithstanding the above, You shall not have open and in operation more
than the cumulative total number of Centers You are obligated to develop under
this Agreement as set forth above in the Development Schedule without the prior
written approval of Airsopure.
2. If during the term of this Agreement, You cease to operate any Center
developed under this Agreement, You shall develop a replacement Center to
fulfill Your obligation to have open and in operation the required number of
Centers upon the expiration of each Development Period. The replacement Center
shall be developed within a reasonable time to be agreed upon by the Parties
after You cease to operate the Center to be replaced. If during the term of this
Agreement You, in accordance with the terms of any Franchise Agreement for a
Center developed under this Agreement, transfers Your interest in such Center,
the transferred Center shall continue to be counted in determining whether You
have complied with the Development Schedule so long as it continues to be
operated as an Airsopure Center. If the transferred Center ceases to be operated
as an Airsopure Center during the term of this Agreement, You shall develop a
replacement Center within a reasonable time to be agreed upon by the Parties
after the transferred Center ceases to be operated as an Airsopure Center. In
either case, the reasonable time period shall, subject to Airsopure consent,
extend the term of the applicable Development Period to the end of the mutually
agreed upon time period; provided, however, that in no event shall such time
period exceed 6 months.
3. At the end of each Development Period, You shall provide Airsopure with
written notice of the projected opening date of each Center required to be
developed during the next Development Period.
4. Failure by You to adhere to the Development Schedule or to any time
period for the development of replacement Centers as set forth in Section 3.B.1.
shall constitute a material event of default under this Agreement (see Section
6. below).
4. TERM
Unless sooner terminated in accordance with this Agreement, the term of this
Agreement and all rights granted by Airsopure under this Agreement shall expire
on the date on which You successfully and in a timely manner have exercised all
of the development rights and completed the development obligations under this
Agreement in accordance with the Development Schedule (including, if applicable,
Section 3.B.2.)
5. YOUR DUTIES
You make the following representations, warranties and covenants and accepts the
following obligations:
A. You shall comply with all terms and conditions set forth in this Agreement.
B. 1. If You are a corporation or a partnership, You represent, warrant and
covenant that:
a. You are duly organized and validly existing under the state law
of its formation;
b. You are duly qualified and are authorized to do business in each
jurisdiction in which Your business activities or the nature of the properties
owned by You require such qualification;
c. Your corporate chart or written partnership agreement shall at all
times provide that Your activities include the development and operation of
Airsopure Centers;
d. The execution of this Agreement and the performance of the
transactions contemplated hereby are within Your corporate power if You are a
corporation or if You are a partnership, permitted under Your written
partnership agreement and have been duly authorized by You;
e. If You are a corporation, copies of Your articles of
incorporation, bylaws, other governing documents, any amendments thereto,
resolutions of the Board of Directors authorizing entry into and performance of
this Agreement, and any certificates or other documents as may be reasonably
required by Airsopure shall be furnished to Airsopure prior to the execution of
this Agreement; or, if You are a partnership, copies of Your written partnership
agreement, other governing documents and any amendments thereto shall be
furnished to Airsopure prior to the execution of this Agreement, including
evidence of consent or approval of the entry into and performance of this
Agreement by the requisite number or percentage of partners, if such approval or
consent is required by Your written partnership agreement;
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f. If You are a corporation or partnership, the ownership interests
are accurately and completely described in Attachment C. Further, if You are a
corporation, You shall maintain at all times a current list of all owners of
record and all beneficial owners of any class of voting securities or, if You
are a partnership, You shall maintain at all times a current list of all owners
of an interest in the partnership. You shall make Your list of owners available
to Airsopure upon request;
g. If any of Your officers or directors cease to serve as such or any
individual is elected as an officer or director after the execution of this
Agreement, You shall notify Airsopure within 5 days after any such change and
any newly elected officer or director shall execute this Agreement as one of
Your Principals (as defined in Section 10.3.E.) and shall be individually bound
by all obligations of Your Principals under this Agreement;
h. If You are a corporation, You shall maintain stop-transfer
instructions against the transfer on its records of any of its equity securities
and each stock certificate representing stock of the corporation shall have
conspicuously endorsed upon it a statement in a form satisfactory to Airsopure
that it is held subject to all restrictions imposed upon assignments by this
Agreement; provided, however, that the requirements of this Section 5.B.1.h.
shall not apply to the transfer of equity securities of a publicly-held
corporation (as defined in Section 7.B.). If You are a partnership, Your written
partnership agreement shall provide that ownership of an interest in the
partnership is held subject to all restrictions imposed upon assignments by this
Agreement;
i. You and, at Airsopure's request, each of Your Principals have
provided Airsopure with their most recent financial statements. Such financial
statements present fairly the financial position of You and each of Your
Principals, as applicable, at the dates indicated therein and with respect to
You, the results of Your operations and Your cash flow for the years then ended.
You agree that You shall maintain at all times, during the term of this
Agreement, sufficient working capital to fulfill Your obligations under this
Agreement. Each of the financial statements mentioned above has been prepared in
conformity with Generally Accepted Accounting Principles applicable to the
respective periods involved and, except as expressly described in the applicable
notes, applied on a consistent basis. No material liabilities, adverse claims,
commitments of obligations of any nature exist as of the date of this Agreement,
whether accrued, unliquidated, absolute, contingent or otherwise, which are not
reflected as liabilities on the financial statements of You or such Principals.
j. You and Your Principals acknowledge and agree that the
representations, warranties and covenants set forth above in Section 5.B.(1) are
continuing obligations of You and that any failure to comply with such
representations, warranties and covenants shall constitute a material event of
default under this Agreement You will cooperate with Airsopure in any efforts
made by Airsopure to verify compliance with such representations, warranties and
covenants.
5.B.2. Upon the execution of this Agreement, You shall designate and
retain an individual to serve as the Operating Principal for You (the "Operating
Principal"). The Operating Principal shall, during the entire period he serves
as such, meet the following qualifications:
a. If You are an individual, You shall perform all obligations of the
Operating Principal.
b. If You are a corporation, the Operating Principal shall, at all
times during which he serves as Operating Principal, (i) directly or indirectly
beneficially own at least fifty-one percent (51%) of the shares of each class of
Your issued and outstanding capital stock and (ii) be entitled, under its
governing documents and under any agreements among the shareholders, to cast a
sufficient number of votes to require such corporation to take or omit to take
any action which such corporation is required to take or omit to take under this
Agreement.
c. If You are a partnership, the Operating Principal shall, at all
times during which he serves as Operating Principal (i) own at least a
twenty-five percent (25%) interest in the operating profits and operating losses
of the partnership as well as a twenty-five percent (25%) ownership interest in
the partnership (and a fifty-one percent (51%) ownership interest in any class
of shares of any corporate general partner) and (ii) be entitled under Your
partnership agreement or applicable law to act on behalf of the partnership
without the approval or consent of any other partner or be able to cast a
sufficient number of
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votes to require the partnership to take or omit to take any action which the
partnership is required to take or omit to take under its last Agreement.
d. Except as may otherwise be provided in this Agreement, the
Operating Principal's interest in You shall be and shall remain free of any
pledge, mortgage, hypothecation, lien, charge, encumbrance, voting agreement,
proxy, security interest or purchase right or options.
e. The Operating Principal shall devote full time and best efforts to
the supervision and performance of the responsibilities and duties under this
Agreement, shall execute this Agreement as one of Your Principals and shall be
individually, jointly and severally bound by all obligations of You, the
Operating Principal and Your Principals hereunder.
f. The Operating Principal shall continuously meet Airsopure
standards and criteria for such individuals, as set forth in the Manuals (as
defined in the Franchise Agreement) or otherwise in writing by Airsopure.
g. The Operating Principal shall satisfy the training requirements
set forth in the Franchise Agreement. If, during the term of this Agreement, the
Operating Principal is not able to continue to serve in such capacity or no
longer qualifies to act as such in accordance with this Section 5.B.2. You shall
promptly notify Airsopure and designate a replacement within thirty (30) days
after the Operating Principal ceases to serve, such replacement being subject to
the same qualifications listed above. You shall provide for interim management
of the development activities under this Agreement until such replacement is so
designated, such interim management to be conducted in accordance with this
Agreement. Any failure to comply with the requirements of this Section 5.(2)
shall be deemed a material event of default under this Agreement.
5.B.3. If the You execute a Development Agreement for three (3) or more
Centers, notwithstanding anything contained herein which may be to the contrary,
the Operating Principal may be:
a. a partnership in which the You directly own at least fifty-one
percent (51%) of the ownership and voting interests therein and are entitled
under Your partnership agreement or applicable law to act on behalf of the
partnership without the necessity of any approval or consent from the other
partners to require the corporation to take or omit to take under the terms of
this Agreement; or
b. a corporation in which You directly own at least fifty-one percent
(51%) of the ownership and voting interests therein and are entitled under its
governing documents and any agreements among its shareholders, to cast a
sufficient number of votes by unanimous written consent without the necessity of
any meeting to require such corporation to take or omit to take any action which
the corporation is required to take or omit to take under the terms of this
Agreement.
4. You understand that all developers and franchisees operating under the
System must comply with Airsopure training, development and operational
requirements as an essential and material element of the System and that
Airsopure and developers and franchisees operating under the System consequently
expend substantial time, effort and expense in training management personnel for
the development and operation of their respective Airsopure Centers.
Accordingly, You agree that if during the term of this Agreement, You shall
designate as Your Operating Principal any individual who is at the time or was
at any time during the prior 6 months employed in a managerial position by
Airsopure or any of its subsidiaries or affiliates, including but not limited
to, individuals employed by Airsopure to work in its Airsopure Centers, or by
any other developer or franchisee operating under the System, such former
employer shall be entitled to be compensated for the reasonable costs and
expenses, of whatever nature or kind, incurred by such employer related to
training such employee. The Parties agree that such expenditures may be
uncertain and difficult to ascertain and, therefore, agree that the compensation
specified herein reasonably represents such expenditures and is not a penalty.
An amount equal to the annual compensation of such employee at the time of the
termination of his employment with the former employer shall be paid by You
prior to such employee assuming the position of Operating Principal. In seeking
any individual to serve as its Operating Principal, You shall not discriminate
in any manner whatsoever against any individual, to whom the provisions of this
Section 5.(3) apply, on the basis of the compensation required to be paid by You
hereunder if You designate or employ such individual. The Parties expressly
acknowledge
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and agree that no current or former employee of Airsopure, its' subsidiaries or
affiliates or any developer or franchisee under the System shall be a third
party beneficiary of this Agreement or any provision hereof, except for the
covenant of You in the preceding sentence. Airsopure expressly disclaims any
representations and warranties regarding the performance of any employee or
former employee of Airsopure its subsidiaries or affiliates or any developer or
Franchisee operating under the System, who is designated as Operating Principal
or employed by You in any capacity and Airsopure shall not be liable for any
losses, of whatever nature or kind, incurred by You in connection therewith.
5. You and each of Your Principals shall not, during the term of this
Agreement and thereafter, communicate or divulge to, or use for the benefit of,
another person, persons, partnership, association or corporation any
confidential information, knowledge or know-how concerning the methods of
development and operation of the Centers and/or products which may be
communicated to You or any of Your Principals or of which they may be apprised
under this Agreement. You and each of Your Principals shall disclose such
confidential information only to Your Principals and Your personnel who must
have access to it in connection with their employment with You. Any and all
information, knowledge, know-how, techniques and any materials used in or
related to the System which Airsopure communicates to You or Your Principals
shall be deemed confidential for the purposes of this Agreement. Neither You nor
Your Principals shall at any time, without Airsopure prior written consent,
copy, duplicate, record or otherwise reproduce such materials or information, in
whole or in part, nor otherwise make the same available to any unauthorized
person. The covenant in this Section 5.B.5. shall survive the expiration,
termination or transfer of this Agreement or any interest herein and shall be
perpetually binding upon You and each of Your Principals.
a. At Airsopure request, You shall require Your Operating Principal
and any personnel of You and any holder of a beneficial interest of less than
one percent (1%) of any class of the securities of You and any corporation
directly or indirectly controlling You, if You are a corporation (or of any
corporate general partner and any corporation direct or indirectly controlling a
general partner of You, or from any limited partner, if You are a partnership),
having access to any confidential information of Airsopure to execute covenants
that they will maintain the confidentiality of the information they receive in
connection with their relationship with You. Such covenants shall be
substantially in the form set forth in Attachment B.
b. You and Your Principals acknowledge that any failure to comply
with the requirements of this Section 5.B.(4) shall constitute a material event
of default under this Agreement and will cause Airsopure irreparable injury.
Therefore, You and Your Principals agree to pay all court costs and reasonable
legal fees included by Airsopure in obtaining specific performance, injunctive
relief or any other remedy available to Airsopure in this Agreement or by law
for any violation of the requirements of such section.
6. You shall timely comply with all requirements of federal, state and
local laws, rules and regulations.
6. DEFAULT, TRANSFER AND TERMINATION
A. You shall be deemed to be materially in default under this Agreement and all
rights granted herein shall automatically terminate without notice to You (1) if
You become insolvent or make a general assignment for the benefit of creditors
or file a voluntary petition under any section or chapter of federal bankruptcy
laws or under any similar law or statute of the United States or any state or
admit in writing Your inability to pay Your debts when due; or (2) if You are
adjudicated bankrupt or insolvent in proceedings filed against You under any
section or chapter of federal bankruptcy law or any similar law or statute of
the United States or any state, without further possibility of appeal or review;
or (3) if a bill in equity or other proceeding for the appointment of a receiver
of You or other custodian for Your business or assets is filed and consented to
by You, or if a receiver or other custodian permanent or temporarily of Your
assets or property, or any part thereof, is appointed by any court of competent
jurisdiction; or (4) if proceedings for a composition with creditors under any
state or federal law are instituted by or against You; or (5) if a final
judgment against You remains unsatisfied or of record for thirty (30) days or
longer (unless a supersedeas bond is filed); or (6) if You are dissolved; or (7)
if execution is levied against Your business or property; or (8) if suit to
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foreclose any lien or mortgage against the premises or equipment of such
business operated hereunder or under any Franchise Agreement is instituted and
not dismissed within thirty (30) days; or (9) if the real or personal property
of any business operated hereunder or under any Franchise Agreement shall be
sold after levy by any sheriff, marshal or constable.
B. You shall be deemed to be materially in default and Airsopure may, at its
option, terminate this Agreement and all rights granted hereunder, without
affording You any opportunity to cure the default except as provided below,
effective immediately upon written notice to You, upon the occurrence of any of
the following events of default:
1. If You fail to comply with the Development Schedule, or if You fail to
develop a replacement Center within any time period agreed upon by the Parties
under Section 3.;
2. If You or any of Your Principals is convicted of, or shall have entered
a plea of nolo contendere to, a felony, a crime involving moral turpitude or any
other crime or offense that Airsopure believes is reasonably likely to have an
adverse effect on the System, the Proprietary Marks, the goodwill associated
therewith or Airsopure interest therein;
3. If a threat or danger to public health or safety results from the
construction, maintenance or operation of any Center developed under this
Agreement;
4. If You fail to designate a qualified replacement Operating Principal
within 30 days after any initial or successor Operating Principal ceases to
serve as such, all as required under Section 5.B.;
5. If You or any of Your Principals breach or fail to perform any of the
representations, warranties and covenants in Section 5.B.1.;
6. If a transfer or an attempt to transfer any rights or obligations under
this Agreement or any interest in You to any third party is made without
Airsopure prior written consent or without offering Airsopure a right of first
refusal with respect to such transfer, contrary to the terms of Section 7;
7. If You or any of Your Principals fail to comply with the covenants in
Section 5.B.4. or 8.B. or if You fail to obtain the execution of the covenants
required under Section 5.B.5. or 8.H. within thirty (30) days following
Airsopure request that You obtain the execution of such covenants;
8. If an approved transfer upon death or permanent disability is not
effected within the time period and in the manner prescribed by Section 7.E.;
9. If You misuse or make any unauthorized use of the Proprietary Marks or
otherwise materially impair the goodwill associated therewith or with the System
or Airsopure rights therein and do not cure such default within twenty-four (24)
hours following notice from Airsopure;
10. If You fail, refuse or neglect promptly to pay when due any monetary
obligation owing to Airsopure or its subsidiaries or affiliates under this
Agreement, any Franchise Agreement or any other agreement between You and
Airsopure or its subsidiaries or affiliates, and do not cure such default within
five (5) days following notice from Airsopure; and
11. If You repeatedly commit a material event of default under this
Agreement, whether or not such defaults have been cured by You after notice by
Airsopure
C. Except as provided above in Section 6.B., if You fail to comply with any
other term or condition imposed by this Agreement, any Franchise Agreement or
any other development or franchise agreement between You and Airsopure, as such
may from time to time be amended, Airsopure may terminate this Agreement only by
giving written notice of termination stating the nature of such default to You
at least 30 days prior to the effective date of termination; provided, however,
that You may avoid termination by immediately initiating a remedy to cure such
default and curing it to Airsopure satisfaction within the 30 day period and by
promptly providing proof thereof to Airsopure. If any such default is not cured
within the specified time, or such longer period as applicable law may require,
this Agreement shall, subject to Section 6.D., terminate without further notice
to You effective immediately upon the expiration of the thirty (30) day period
or such longer period as applicable law may require.
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D. Upon default by You under Section 6.B. or C., Airsopure has the option, in
its sole discretion, in addition to exercising its option to terminate this
Agreement as provided in Sections 6.B. and C., to do any one or more of the
following:
1. terminate or modify any territorial rights granted to You in Section
1.B.;
2. reduce the area of such territorial rights;
3. reduce the number of Centers which You may establish pursuant to
Sections 1 and B.(1); or
4. accelerate the Development Schedule.
E. 1. Upon the termination or expiration of this Agreement, You shall have no
right to establish or operate any Center for which a Franchise Agreement has not
been executed by Airsopure and delivered to You at the time of termination or
expiration.
2. If Airsopure elects to terminate the territorial rights granted to You
in Section 1.B., modify such territorial rights or reduce the area of
territorial rights as provided in Section 6.D. above, You shall continue to
develop Centers in accordance with the Development Schedule, to the extent that
the number of Centers You are required to develop is reduced by Airsopure
pursuant to Section 6.D.(3).
3. If Airsopure exercises any of its rights in Section 6.D., or if this
Agreement otherwise expires or terminates, Airsopure shall be entitled to
establish, and to cause others to establish, Centers, or conduct any other
activity, in the Development Territory or in the portion thereof no longer a
part of the Territory or pursuant to any other modification of Your territorial
rights, except as may be otherwise provided under any Franchise Agreement which
is then in effect between Airsopure and You.
F. Airsopure exercise of any of its options under Section 6.D. shall not, in the
event of a default, constitute a waiver by Airsopure to exercise its option to
terminate this Agreement at any time with respect to a subsequent event of
default of a similar or different nature.
G. No default under this Agreement shall constitute a default under any
Franchise Agreement between the Parties hereto, unless the default is also a
default under the terms of such Franchise Agreement.
H. No right or remedy herein conferred upon or reserved to Airsopure is
exclusive of any other right or remedy provided or permitted by law or in
equity.
1. Upon termination or expiration of this Agreement, You and Your
Principals shall comply with the restrictions on confidential information
contained in Section 5.B.(4) and the covenants against competition contained
in Section 8.B.(2). Any other person required to execute similar covenants
pursuant to Section 5.B.(4)(a) or 8.H. shall also comply with such covenants.
7. TRANSFER OF INTEREST
A. Transfer by Airsopure
Airsopure shall have the right to transfer or assign this Agreement and all or
any part of its rights or obligations herein to any person or legal entity
without Your consent. Specifically, and without limitation to the foregoing, You
expressly affirm and agree that Airsopure may sell its assets, the Proprietary
Marks or the System to a third party; may merge, acquire other corporations, or
be acquired by another corporation; may undertake a refinancing
recapitalization, leveraged buy out or other economic or financial
restructuring, and, with regard to any or all of the above sales, assignments
and dispositions, You expressly and specifically waive any claim, demand or
damage arising from or related to the loss of the right to develop Centers under
the System against Airsopure under this Agreement. Nothing contained in this
Agreement shall require Airsopure to remain in the business of operating or
licensing the operation of Airsopure Centers or to offer any services or
products, whether or not bearing the Proprietary Marks, to Franchisee, if
Airsopure exercises its rights hereunder to assign its rights in this Agreement.
B. Transfer by You
1. You and Your Principals understand and acknowledge that the rights and
duties set forth in this Agreement are personal to You and that Airsopure has
granted such rights in reliance on the business skill, financial capacity and
personal character of You and Your Principals. Accordingly, neither You nor any
successor or assign to any part of Your interest in this Agreement, nor any
individual, partnership, corporation or other entity which directly or
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indirectly has or owns any interest in this Agreement or in You shall sell,
assign, transfer, convey, give away, pledge, mortgage or otherwise dispose of or
encumber any direct or indirect interest in this Agreement or in You without the
prior written consent of Airsopure; provided, however, that Airsopure prior
written consent shall not be required for a transfer of less than a one percent
(1%) interest in a publicly-held corporation. A publicly-held corporation is a
corporation whose securities are registered pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended, or a corporation subject to the
requirements of Section 15(d) of the Securities Exchange Act of 1934, as
amended. Any purported assignment or transfer, by operation of law or otherwise,
not having the written consent of Airsopure required by this Section 7. shall be
null and void and shall constitute a material event of default under this
Agreement.
2. Airsopure shall not unreasonably withhold its consent to a transfer of
any interest in You or in this Agreement. Airsopure may, however, in its sole
discretion, require some or all of the following as conditions of its approval
to any such transfer:
a. All of Your accrued monetary and other outstanding obligations to
Airsopure and its subsidiaries and affiliates arising under this Agreement or
any franchise agreement or other agreement between You and Airsopure or its
subsidiaries or affiliates shall have been satisfied in a timely manner, and You
shall have satisfied all trade accounts and other debts, of whatever nature or
kind, in a timely manner;
b. You are not in default of any provision of this Agreement or any
franchise agreement or any other agreement between You and Airsopure or its
subsidiaries or affiliates;
c. The transferor and its principals, as applicable, shall have
executed a general release, in a form prescribed by Airsopure, of any and all
claims of transferor, of whatever nature or kind, against Airsopure and its
subsidiaries and affiliates and their respective officers, directors,
shareholders, partners, employees, servants, representatives and agents, in
their corporate and individual capacities, including, without limitation, claims
arising under this Agreement, any franchise agreement and any other agreement
between You and Airsopure or its subsidiaries or affiliates and federal, state
and local laws, rules and ordinances;
d. The transferee shall enter into a written agreement, in a form
prescribed by Airsopure, assuming full, unconditional joint and several
liability for and agreeing to perform from the date of the transfer, all
obligations, covenants and agreements of You in this Agreement; and, if
transferee is a corporation or a partnership, transferee's shareholders,
partners or other investors, as applicable, shall also execute such agreement as
principals of the transferee, including a guaranty of Your obligations contained
in such agreements;
e. The transferee shall demonstrate to Airsopure satisfaction that
transferee meets the criteria considered by Airsopure when reviewing a
prospective developer's application for development rights, including Airsopure
educational, managerial and business standards, transferee's good moral
character, business reputation and credit rating, transferee's aptitude and
ability to conduct the business contemplated hereunder (as may be evidenced by
prior related business experience or otherwise), transferee's financial
resources and capital, and the geographic proximity of other territories with
respect to which transferee has been granted development rights or of other
Airsopure Centers operated by transferee, if any;
f. The transferee shall execute the standard form development
agreement then being offered to new System developers or a revised form of this
Agreement, as Airsopure deems appropriate, and such other ancillary agreements
as Airsopure may require, which agreements shall supersede this Agreement and
its ancillary documents in all respects and the terms of which agreements may
differ from the terms of this Agreement, and if the transferee is a corporation
or partnership, transferee's shareholders, partners or other investors, as
applicable, shall also execute such agreements as principals of the transferee,
including a guaranty of Franchisee's obligations contained in this Agreement;
g. You shall pay a transfer fee of $1,000.00 or such greater amount
as is necessary to reimburse Airsopure for its reasonable costs and expenses
associated with reviewing the application to transfer, including, without
limitation, legal and accounting fees;
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h. If transferee is a corporation or a partnership, transferee shall
make and will be bound by any or all of the representations, warranties and
covenants in Section 5.B.(1) as Airsopure requests. Transferee shall provide to
Airsopure evidence satisfactory to Airsopure that the terms of Section 5.B.(1)
have been satisfied and are true and correct on the date of transfer. The
transferor shall remain liable for all of the obligations to Airsopure in
connection with this Agreement incurred prior to, the effective date of the
transfer and shall execute any and all instruments reasonably requested by
Airsopure to evidence such liability.
3. You acknowledge and agree that each condition which must be met by the
transferee is reasonable and necessary to ensure the transferee's full
performance of the obligations hereunder.
C. Transfer for Convenience of Ownership
In the event the proposed transfer is to a corporation formed solely for the
convenience of ownership, Airsopure consent may be conditioned upon any of the
requirements in Section 7.B.(2), except that the requirements in Sections
7.B.(2)(c),(e),(f) and (g) shall not apply. You shall be the owner of all the
voting stock or interest of the corporation and if You are more than one
individual, each individual shall have the same proportionate ownership interest
in the corporation as he had in You prior to the transfer.
D. Right of First Refusal
1. Any Party holding any interest (including any interest acquired
pursuant to Section 7.E.) in You or in this Agreement and who desires to accept
any bona fide offer from a third party to purchase such interest shall promptly
notify Airsopure in writing of each such offer and shall provide such
information and documents relating to the offer as Airsopure may require.
Airsopure shall have the right and option, exercisable within 15 days after
receipt of such written notification, to send written notice to the transferor
that Airsopure intends to purchase the transferor's interest on the same terms
and conditions offered by the third party. If Airsopure elects to purchase the
transferor's interest, closing on such purchase must occur within 30 days from
the date of notice to the transferor of the election to purchase by Airsopure,
or such other date as may be agreed upon. Any material change in the terms of
any offer prior to closing shall constitute a new offer subject to the same
rights of first refusal by Airsopure as in the case of an initial offer. Failure
of Airsopure to exercise the option afforded by this Section 7.D. shall not
constitute a waiver of any other provision of this Agreement, including all
provisions relating to a proposed transfer.
2. If the offer from a third party provides for payment of consideration
other than cash or invoices certain intangible benefits, Airsopure may elect to
purchase the interest proposed to be sold for the reasonable equivalent in cash.
If the Parties cannot agree within a reasonable time on such amount, an
independent appraiser shall be designated by Airsopure to determine such amount
and the appraiser's determination shall be final and binding.
3. If Airsopure elects to exercise the option described in this Section
7.D., it shall have the right to set off the cost of the appraisal described in
Section 7.D.(2) above, if any against any payment made hereunder.
4. Failure to comply with the provisions of this Section 7.D. prior to the
transfer of any interest in You or in this Agreement shall constitute a material
event of default under this Agreement.
E. Transfer Upon Death or Permanent Disability
1. Upon the death of any person with an interest in this Agreement or in
You (the "Deceased"), the executor, administrator or other personal
representative of the Deceased shall transfer such interest to a third party
approved by Airsopure within 6 months after the death. If no personal
representative is designated or appointed or no probate proceedings are
instituted with respect to the estate of the Deceased, then the distributee of
such interest must be approved by Airsopure. If the distributee is not approved
by Airsopure, then the distributee shall transfer such interest to a third party
approved by Airsopure within 6 months after the death of the Deceased.
2. Upon the permanent disability of any person with an interest in this
Agreement or in You, Airsopure may, in its sole discretion, require such
interest to be transferred to a third party approved by Airsopure within 6
months after notice to You. "Permanent disability" shall mean any physical,
emotional or mental injury, illness or incapacity which would prevent a person
from performing the obligations set forth in this Agreement for at least 90
consecutive days and
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from which condition recovery within 90 days on the date of determination of
disability is unlikely. Permanent disability shall be determined upon
examination of the person by a licensed practicing physician selected by
Airsopure; or if the person refuses to submit to an examination, then such
person shall be automatically deemed permanently disabled as of the date of such
refusal for the purpose of this Section 7.E. The costs of any examination
required by this section shall be paid by Airsopure.
3. Upon the death or claim of permanent disability of any person with an
interest in this Agreement or in You, You or a representative of You must
promptly notify Airsopure of such death or claim of permanent disability. Any
transfer upon death or permanent disability shall be subject to the same terms
and conditions described in this Section 7. If any interest is transferred upon
death or permanent disability without written notification to Airsopure, You
shall be in material default under this Agreement.
F. Non-Waiver of Claims
Airsopure consent to a transfer of any interest in You or in this Agreement
shall not constitute a waiver of any claims it may have against the transferor,
nor shall it be deemed a waiver of Airsopure right to demand exact compliance
with any of the terms of this Agreement by the transferee.
G. Offerings by You
Securities of or partnership interests in You may be offered to the public, by
private offering or otherwise, only with the prior written consent of Airsopure
(whether or not Airsopure consent is required under Section 7.B.), which consent
shall not be unreasonably withheld. All materials required for such offering by
federal or state law shall be submitted to Airsopure for a limited review as
discussed below prior to their being filed with any government agency, and any
materials to be used in any exempt offering shall be submitted to Airsopure for
such review prior to their use. No offering by You shall imply by use of the
Proprietary Marks or otherwise) that Airsopure is participating in an
underwriting, issuance or offering of Your or Airsopure securities or the
securities of any subsidiary or affiliate of Airsopure; and Airsopure review of
any offering materials shall be limited solely to the subject of the
relationship between You and Airsopure and its subsidiaries and affiliates.
Airsopure may, at its option, require Your offering materials to contain a
written statement prescribed by Airsopure concerning the limitations described
in the preceding sentence. You and the other participants in the offering must
fully indemnify Airsopure in connection with the offering. For each proposed
offering, You shall pay to Airsopure a non-refundable fee of $2,000.00, or such
other amount as is necessary to reimburse Airsopure for its reasonable costs and
expenses associated with reviewing the proposed offering materials, including,
without limitation, legal and accounting fees. You shall give Airsopure written
notice at least 30 days prior to any offering or other transaction covered by
this Section 7.G.
8. COVENANTS
A. You covenant that during the term of this Agreement, except as otherwise
approved in writing by Airsopure, You and the Operating Principal shall devote
full time, every and best efforts to the management and operation of the
development activities contemplated under this Agreement.
B. You and Your Principals specifically acknowledge that, pursuant to this
Agreement, You and Your Principals will receive valuable specialized training
trade secrets and confidential information, which are beyond the present skills
and experience of You and Your Principals and Your managers and employees and
that You have the right and the obligation, arising from this Agreement, to
develop the Territory for the benefit of the System. You and Your Principals
acknowledge that such specialized training, trade secrets and confidential
information provide a competitive advantage and will be valuable to them in the
development of the Centers and that access to such specialized training, trade
secrets and confidential information is, therefore, a primary reason for
entering into this Agreement. In consideration for such specialized training,
trade secrets, confidential information and exclusive rights, You and Your
Principals covenant as follows:
1. With respect to You, during the term of this Agreement, or with respect
to each of Your Principals, during the term of this Agreement for so long as
such individual or entity satisfies the definition of "Your Principals" in
Section 13.E., except as otherwise approved in writing by Airsopure, neither You
nor any of Your Principals shall, either directly or indirectly, for themselves,
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or through, on behalf of or in conjunction with any person(s), partnership or
corporation:
a. Divert or attempt to divert any business or customer of any
Airsopure Center to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with Airsopure Proprietary Marks and the
System; or
b. Own, maintain, operate, engage in or have any financial or
beneficial interest in (including interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business which is the same as or similar to Airsopure Centers
including but not limited to, any business which offers air purification
equipment, products and services.
2. With respect to You, for a continuous uninterrupted period commencing
upon the expiration or termination of, or transfer of all of Your interest in,
this Agreement, or with respect to each of Your Principals, for a continuous
uninterrupted period commencing upon the earlier of: (i) the expiration,
termination or transfer of all of Your interest in this Agreement or (ii) the
time such individual or entity ceases to satisfy the definition of "Your
Principals" in Section 13.E., and for two (2) years thereafter, except as
otherwise approved in writing by Airsopure, neither You nor any of Your
Principals shall, either directly or indirectly, for themselves or through, on
behalf of or in conjunction with any person(s), partnership or corporation:
a. divert or attempt to divert any business or customer of any
Airsopure Center to any competitor, by direct or indirect inducement or
otherwise, or do or perform, directly or indirectly, any other act injurious or
prejudicial to the goodwill associated with Airsopure Proprietary Marks and the
System;
b. employ or seek to employ any person who is at that time employed
by Airsopure or by any other developer or franchisee of Airsopure, or otherwise
direct or indirectly induce such person to leave that person's employment;
provided, however, that You may employ such person in a managerial position with
respect to Your operation of a Airsopure Center pursuant to the terms of the
Franchise Agreement applicable to such Airsopure Center; or
c. own, maintain, operate, engage in or have any financial or
beneficial interest in (including; interest in corporations, partnerships,
trusts, unincorporated associations or joint ventures), advise, assist or make
loans to, any business which is the same as or similar to Airsopure Centers
including but not limited to, any business which offers air purification
systems, which business is, or is intended to be, located within the Territory
or within a 25 mile radius of any Airsopure Center in existence or under
construction as of: (i) the expiration or termination of, or the transfer of all
of Your interest in, this Agreement; or (ii) the time Your Principal ceases to
satisfy the definition of Your Principal, as applicable.
C. Section 8.B.(1)(b) and 2(c) shall not apply to ownership of less than one
percent (1%) beneficial interest in the outstanding equity securities of any
publicly-held corporation.
D. The Parties agree that each of the above covenants shall be construed as
independent of any other covenant: or provision of this Agreement. If all or any
portion of a covenant in this Section 8. is held unreasonable or unenforceable
by a court or agency having valid jurisdiction in an unappealed final decision
to which Airsopure is a Party, You and Your Principals expressly agree to be
bound by any lesser covenants subsumed within the terms of such covenant that
imposes the maximum duty permitted bylaw, as if the resulting covenant were
separately stated in and made a part of this section.
E. You and Your Principals understand and acknowledge that Airsopure shall have
the right, in its sole discretion, to reduce the scope of any covenant set forth
in Section 8.B., or any portion thereon, without their consent, effective
immediately upon notice to You; and You and Your Principals agree that they
shall immediately comply with any covenant as so modified, which shall be fully
enforceable notwithstanding the provisions of Section 14.A.
F. You and Your Principals expressly agree that the existence of any claims they
may have against Airsopure, whether or not arising from this Agreement, shall
not constitute a defense to the enforcement by Airsopure of the covenants in
this Section 8. You and Your Principals agree to pay all costs and expenses
(including reasonable legal
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fees) incurred by Airsopure in connection with the enforcement of this section.
G. Failure to comply with the requirements of this Section 8. shall constitute a
material event of default under this Agreement. You and Your Principals
acknowledge that a violation of this section would result in irreparable injury
to Airsopure for which no adequate remedy at law may be available, and You and
Your Principals accordingly consent to the issuance of an injunction prohibiting
any conduct by You or Your Principals in violation of the terms of this section.
H. At Airsopure request, You shall require and obtain the execution of covenants
similar to those set forth in this Section 8. (including covenants applicable
upon the termination of a person's employment with You) from any personnel of
You and any holder of a beneficial interest of less than one percent (1%) of the
securities of You and any corporation directly or indirectly controlling You, if
You are a corporation (or of any corporate general partner and any corporation
directly or indirectly controlling a general partner of You, if You are a
partnership), who has received or will receive confidential information or
training from Airsopure. These covenants shall be substantially in the form
contained in Attachment B. Failure by You to obtain the execution of these
covenants shall constitute a material event of default under this Agreement.
9. INDEPENDENT CONTRACTOR AND INDEMNIFICATION
A. The Parties acknowledge and agree that this Agreement does not create a
fiduciary relationship between them, that You shall be an independent contractor
and that nothing in this Agreement is intended to constitute either Party an
agent, legal representative, subsidiary, joint venturer, partner, employee,
joint employer or servant of the other for any purpose.
B. During the term of this Agreement, You shall hold Yourself out to the public
as an independent contractor conducting its development operations pursuant to
development rights granted by Airsopure. You agree to take such action as shall
be necessary to that end, including, without limitation, exhibiting a notice of
that fact in a conspicuous place in any office established for the purposes
hereunder, the content and form of which Airsopure reserves the right to specify
in writing.
C. You understand and agree that nothing in this Agreement authorizes You or any
of Your Principals to make any conduct, agreement, warranty or representation on
Airsopure behalf, or to incur any debt or other obligation in Airsopure name and
that Airsopure shall in no event assume liability for, or be deemed liable under
this Agreement as a result of, any such action, or for any act or omission of
You or any of Your Principals or any claim or judgment arising therefrom.
D. 1. You and each of Your Principals shall, at all times, indemnify and hold
harmless to the fullest extent permitted by law Airsopure, its subsidiaries,
affiliates, successors and assign as and their respective directors, officers,
shareholders, partners, servants, employees, agents and representatives from all
"losses and expenses" (as defined in Section 9.D.(4)(b) below) incurred in
connection with any action, suit, proceeding claim, demand, investigation or
inquiry (formal or informal), or any settlement thereof (whether or not a formal
proceeding or action has been instituted) which arises out of or is based upon
any of the following:
a. The infringement, alleged infringement, or any other violation, or
alleged violation by You or any of Your Principals of any patent, mark,
copyright or other proprietary right owned or controlled by third parties
(except as such may occur with respect to any rights in the Proprietary Marks or
copyrights granted to You under a Franchise Agreement);
b. The violation, breach or asserted violation or breach by You or
any of Your Principals of any federal, state or local law, regulation, ruling
standard or directive, or any industry standard;
c. Libel, slander or any other form of defamation of Airsopure or the
System, by You or by any of Your Principals;
d. The violation or breach by You or by any of Your Principals of any
warranty, representation, agreement or obligation in this Agreement or in any
Franchise Agreement or other agreement between You and Airsopure or its
subsidiaries or affiliates; and
e. Acts, errors or omissions of You, any of Your subsidiaries or
affiliates and any of Your Principals and the officers, directors,
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shareholders, partners, agents, independent contractors, servants, employees and
representatives of You and its subsidiaries and affiliates in connection with
the performance of the development activities contemplated under this Agreement
or the establishment and operation of any Airsopure Center pursuant to a
Franchise Agreement.
2. You and each of Your Principals agree to give Airsopure immediate
notice of any such action, suit, proceeding, claim, demand, inquiry or
investigation. At the expense and risk of You and each of Your Principals,
Airsopure may elect to control (but under no circumstance is obligated to
undertake), and associate counsel of its own choosing with respect to, the
defense and/or settlement of any such action, suit, proceeding, claim, demand,
inquiry or investigation. Such an undertaking by Airsopure shall, in no manner
or form, diminish the obligation of You and each of Your Principals to indemnify
Airsopure and to hold it harmless.
3. In order to protect persons or property or its reputation or goodwill,
or the reputation or goodwill of others, Airsopure may, at any time and without
notice, as it, in its judgment deems appropriate, consent or agree to
settlements or take such other remedial or corrective action as it deems
expedient with respond to the action, suit, proceeding, claim, demand, inquiry
or investigation if, in Airsopure sole judgment, there are reasonable grounds to
believe that:
a. any of the acts or circumstances enumerated in Section 9D.(1)
above has occurred; or
b. any act, error or omission as described in Section 9.D.(1)(e) may
result directly or indirectly in damage, injury or harm to any person or any
property.
4. a. All losses and expenses incurred under this Section 9 shall be
chargeable to and paid by You or any of Your Principals pursuant to its
obligations of indemnity under this section, regardless of any action, activity
or defense undertaken by Airsopure or the subsequent success or failure of such
action, activity or defense.
b. As used in this Section 9, the phrase "losses and expenses" shall
include, without limitation, all losses, compensatory, exemplary or punitive
damages, fines, charges, costs, expenses, lost profits, legal fees, court costs,
settlement amounts, judgments, compensation for damages to Airsopure reputation
and goodwill, costs of or resulting from delays, financing, costs of advertising
material and media time/space and costs of changing, substituting or replacing
the same, and any and all expenses of recall, refunds, compensation, public
notices and other such amounts incurred in connection with the matters
described.
5. The persons indemnified pursuant to this Section 9 do not assume any
liability for acts, errors or omissions of those with whom You, any of Your
Principals or Your subsidiaries and affiliates may contract, regardless of the
purpose, You and each of Your Principals shall hold harmless and indemnify the
persons indemnified pursuant to this section for all losses and expenses which
may arise out of any acts, errors or omissions of You, Your Principals, Your
subsidiaries and affiliates, the occurs, directors, shareholders, partners,
agents, servants, employees and representatives of You and its subsidiaries and
affiliates, and any such third parties without limitation and without regard to
the cause or causes thereof or the negligence of Airsopure or any other Party or
Parties arising in connection therewith, and whether such negligence be sole,
joint or concurrent or active or passive.
6. Under no circumstances shall the persons indemnified pursuant to this
Section 9 be required or obligated to seek recovery from third parties or others
to mitigate their losses to maintain a claim against You or any of Your
Principals. You and each of Your Principals agree that the failure to pursue
such recovery or mitigate loss will in no way reduce the amounts recoverable on
You or any of Your Principals by the persons indemnified pursuant to this
section.
7. You and Your Principals expressly agree that the terms of this Section
9.D. shall survive the termination, expiration or transfer of this Agreement or
any interest herein.
10. APPROVALS
A. Whenever this Agreement requires the prior approval or consent of Airsopure,
You shall make a timely written request to Airsopure and such approval or
consent shall be obtained in writing.
B. Airsopure makes no warranties or guarantees upon which You may rely and
assumes no
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liability or obligation to You or any third party to which it would not
otherwise be subject, by providing any waiver, approval, advice, consent or
suggestion to You in connection with this Agreement, or by reason of any
neglect, delay or denial of any request therefor.
11. NON-WAIVER AND REMEDIES
A. No delay, waiver, omission or forbearance on the part of Airsopure to
exercise any right, option, duty or power arising out of any breach or default
by You or Your Principals under this Agreement shall constitute a waiver by
Airsopure to enforce any such right, option, duty or power against You or Your
Principals, or as to a subsequent breach or default by You or Your Principals.
Acceptance by Airsopure of any payments due to it hereunder subsequent to the
time at which such payments are due shall not be deemed to be a waiver by
Airsopure of any preceding breach by You or Your Principals of any terms,
provisions, covenants or conditions of this Agreement.
B. All rights and remedies of the Parties to this Agreement shall be cumulative
and not alternative, in addition to and not exclusive of any other rights or
remedies which are provided for herein or which may be available at law or in
equity in case of any breach, failure or default or threatened breach, failure
or default of any term, provision or condition of this Agreement or any other
agreement between You and Airsopure or its subsidiaries and affiliates. The
rights and remedies of the Parties to this Agreement shall be continuing and
shall not be exhausted by any one or more uses thereof and may be exercised at
any time or from time to time as often as may be expedient; and any option or
election to enforce any such right or remedy may be exercised or taken at any
time and from time to time. The expiration, earlier termination or exercise of
Airsopure rights pursuant to Section 6 of this Agreement shall not discharge or
release You or any of Your Principals from any liability or obligation then
accrued, or any liability or obligation continuing beyond, or arising out of,
the expiration, the earlier termination or the exercise of such rights under
this Agreement.
12. NOTICES
Any and all notices required or permitted under this Agreement shall be in
writing and shall be personally delivered or mailed by expedited delivery
service or certified or registered mail, return receipt requested, first-class
postage prepaid, or sent by prepaid facsimile, telegram or telex (provided that
the sender confirms the facsimile, telegram or telex by sending an original
confirmation copy by certified or registered mail or expedited delivery service
within three (3) business days after transmission) to the respective Parties at
the following addresses unless and until a different address has been designated
by written notice to the other Party:
Notices to Airsopure:
Airsopure International Group, Inc.
15400 Knoll Trail, Suite 200
Dallas, Texas 75248
Attn: Mr. John Potter, President
Telephone: (972) 960-9400
Notices to You and Your Principals:
- ---------------------------
- ---------------------------
- ---------------------------
Attn:
---------------------
Telephone:
-----------------
Any notice shall be deemed to have been given at the time of personal delivery
or, in the case of facsimile, telegram or telex, upon transmission provided
confirmation is sent as described above) or, in the case of expedited delivery
service or registered or certified mail, 3 business days after the date and time
of mailing. Business days for the purpose of this Agreement excludes Saturday,
Sunday and the following national holidays: New Year's Day, Martin Luther King
Day, Presidents' Day, Memorial Day, Independence Day, Labor Day, Columbus Day,
Veterans' Day, Thanksgiving and Christmas.
13. SEVERABILITY AND CONSTRUCTION
A. Except as expressly provided to the contrary herein, each portion, section,
part, term and provision of this Agreement shall be considered severable; and
if, for any reason, any portion, section, part, term or provision is determined
to be invalid and contrary to, or in conflict with, any existing or future law
or regulation by a court or agency having valid jurisdiction, this shall not
impair the operation of, or have any other effect upon, the other portions,
sections, parts, terms or provisions of this Agreement that remain
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otherwise intelligible, and the latter shall continue to be given full force and
effect and bind the Parties; and the if invalid portions, sections, parts, terms
or provisions shall be deemed not to be part of this Agreement.
B. Except as expressly provided to the contrary herein, nothing in this
Agreement is intended, nor shall be deemed, to confer upon any person or legal
entity other than You, Airsopure, Airsopure officers, directors and personnel
and such of Your and Airsopure respective successors and assigns as may be
contemplated (and, as to You, authorized by Section 7.), any rights or remedies
under or as a result of this Agreement.
C. All captions in this Agreement are intended solely for the convenience of the
Parties and shall not affect the meaning or construction of any provision of
this Agreement.
D. All references to the masculine, neuter or singular shall be construed to
include the masculine, feminine, neuter or plural, where applicable. Without
limiting the obligations individually undertaken by Your Principals under this
Agreement, all acknowledgments, promises, covenants, agreements and obligations
made or undertaken by You in this agreement shall be deemed jointly and
severally undertaken by all of Your Principals.
E. Except as may be otherwise agreed to in writing between You and Airsopure,
the term "Your Principals" as used in this Agreement shall include, collectively
or individuality, Your spouse, if You is an individual; all officers and
directors of, and holders of a beneficial interest of one percent (1%) or more
of any class of securities of, You and any corporation direct or indirect
controlling You, if You are a corporation; and the general partners of You and
the officers and directors of, and holders of a beneficial interest of one
percent (1%) or more of any class of securities of, a corporate general partner
and any corporation which controls, directly or indirectly, any general partner,
if You are a partnership. The Operating Principal shall be one of Your
Principals unless otherwise agreed to between the developer and Airsopure, in
accordance with certain ownership conditions.
F. This Agreement may be executed in counterparts and each copy so executed
shall be deemed an original.
G. This Agreement shall not become effective until signed by the Chief Executive
Office or President of Airsopure.
H. Each reference in this Agreement to a corporation or partnership shall be
deemed to also refer to a limited liability company and any other similar entity
or organization. Each reference to the organizational documents, equity owners,
directors and officers of a corporation in this Agreement shall be deemed to
refer to the functional equivalents of such organizational documents, equity
owners, directors and officers, as applicable, in the case of a limited
liability company or any other similar entity or organization.
14. ENTIRE AGREEMENT: APPLICABLE LAW: MEDIATION
A. This Agreement, the documents referred to herein and the Attachments hereto,
constitute the entire, full and complete agreement between Airsopure and You and
Your Principals concerning the subject matter hereof and shall supersede all
prior related agreements between Airsopure and You and Your Principals. Except
for those permitted to be made unilaterally by Airsopure hereunder, no
amendment, change or variance from this Agreement shall be binding on either
Party unless mutually agreed to by the Parties and executed by their authorized
officers or agents in writing. This Agreement may be executed in multiple parts,
and by facsimile or other electronic transmission, each signed copy to be
considered an original.
B. THE PARTIES AGREE TO SUBMIT ANY CLAIM, CONTROVERSY OR DISPUTE ARISING OUT OF
OR RELATING TO THIS AGREEMENT (AND ATTACHMENTS) OR THE RELATIONSHIP CREATED BY
THIS AGREEMENT TO NON-BINDING MEDIATION PRIOR TO BRINGING SUCH CLAIM,
CONTROVERSY OR DISPUTE IN A COURT. THE MEDIATION SHALL BE CONDUCTED THROUGH
EITHER AN INDIVIDUAL MEDIATOR OR A MEDIATOR APPOINTED BY A MEDIATION SERVICES
ORGANIZATION OR BODY, EXPERIENCED IN THE MEDIATION OF DISPUTES IN THE AIR
PURIFICATION SERVICE BUSINESS, AGREED UPON BY THE PARTIES AND, FAILING SUCH
AGREEMENT WITHIN A REASONABLE PERIOD OF TIME AFTER
16
<PAGE>
EACH PARTY HAS NOTIFIED THE OTHER OF ITS DESIRE TO SEEK MEDIATION OF ANY CLAIM
CONTROVERSY OR DISPUTE (NOT TO EXCEED 15 DAYS), THROUGH THE AMERICAN ARBITRATION
ASSOCIATION IN ACCORDANCE THE RULES GOVERNING MEDIATION, AT AIRSOPURE CORPORATE
HEADQUARTERS IN DALLAS, TEXAS. THE COSTS AND EXPENSES OF MEDIATION, INCLUDING
COMPENSATION AND EXPENSES OF THE MEDIATOR, SHALL BE BORNE BY THE PARTIES
EQUALLY. IF THE PARTIES ARE UNABLE TO RESOLVE THE CLAIM, CONTROVERSY OR DISPUTE
90 DAYS AFTER THE MEDIATOR HAS BEEN APPOINTED, THEN EITHER PARTY MAY SUBMIT SUCH
CLAIM, CONTROVERSY OR DISPUTE TO A COURT IN ACCORDANCE WITH SECTION 14.C. BELOW
NOTWITHSTANDING THE FOREGOING, EITHER PARTY MAY BRING AN ACTION (1) FOR MONEYS
OWED, (2) FOR INJUNCTIVE RELIEF, OR (3) INVOLVING THE POSSESSION OR DISPOSITION
OF, OR OTHER RELIEF RELATING TO, REAL PROPERTY IN A COURT HAVING JURISDICTION
AND IN ACCORDANCE B SECTION 14.C. BELOW, WITHOUT SUBMITTING SUCH ACTION TO
MEDIATION.
C. WITH RESPECT TO ANY CLAIMS, CONTROVERSIES OR DISPUTES WHICH ARE NOT FINALLY
RESOLVED THROUGH MEDIATION, YOU HEREBY IRREVOCABLY SUBMIT YOURSELF TO THE
NONEXCLUSIVE JURISDICTION OF THE STATE COURTS OF DALLAS COUNTY, TEXAS AND THE
FEDERAL DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, DALLAS DIVISION. YOU
HEREBY IRREVOCABLY AGREE THAT SERVICE OF PROCESS MAY BE MADE UPON YOU IN ANY
EACH PROCEEDING RELATING TO OR ARISING OUT OF THIS AGREEMENT OR THE RELATIONSHIP
CREATED BY THIS AGREEMENT BY ANY MEANS ALLOWED BY TEXAS OR FEDERAL LAW. VENUE
FOR ANY SUCH LEGAL PROCEEDING SHALL BE DALLAS COUNTY, TEXAS; PROVIDED, HOWEVER
WITH RESPECT TO ANY ACTION (1) FOR MONEYS OWED, (2) FOR INJUNCTIVE OR OTHER
EXTRAORDINARY RELIEF OR (3) INVOLVING POSSESSION OR DISPOSITION OF; OR OFFER
RELIEF RELATING TO, REAL PROPERTY, AIRSOPURE MAY BRING SUCH ACTION IN ANY STATE
OR FEDERAL DISTRICT COURT WHICH HAS JURISDICTION. YOU HEREBY WAIVE ALL QUESTIONS
OF PERSONAL JURISDICTION FOR TITLE PURPOSE OF CARRYING OUT THIS PROVISION. WITH
RESPECT TO ALL CLAIMS, CONTROVERSIES, DISPUTES OR ACTIONS, THIS AGREEMENT SHALL
BE INTERPRETED AND CONSTRUED UNDER TEXAS LAW (EXCEPT FOR TEXAS CHOICE OF LAW
RULES).
D. YOU AND AIRSOPURE ACKNOWLEDGE THAT THE PARTIES' AGREEMENT REGARDING
APPLICABLE STATE LAW AND FORUM SET FORTH IN SECTION 14.C. ABOVE PROVIDE EACH OF
THE PARTIES WITH THE MUTUAL BENEFIT OF UNIFORM INTERPRETATION OF THIS AGREEMENT
AND ANY DISPUTE ARISING OUT OF THIS AGREEMENT OR THE PARTIES' RELATIONSHIP
CREATED BY THIS AGREEMENT, EACH OF YOU AND AIRSOPURE FURTHER ACKNOWLEDGE THE
RECEIPT AND SUFFICIENCY OF MUTUAL CONSIDERATION FOR SUCH BENEFIT.
E. YOU AND AIRSOPURE ACKNOWLEDGE THAT THE EXECUTION OF THIS AGREEMENT OCCURRED
IN DALLAS, TEXAS AND FURTHER ACKNOWLEDGE THAT THE PERFORMANCE OF CERTAIN
OBLIGATIONS OF YOU ARISING UNDER THIS AGREEMENT SHALL OCCUR IN DALLAS, TEXAS.
15. ACKNOWLEDGMENTS
A. You acknowledge that You have conducted an independent investigation of the
business venture contemplated by this Agreement and recognize that the success
of this business venture involves substantial business risks and will largely
depend upon the Your ability. Airsopure expressly disclaims making and You
acknowledge that it has not received or relied on, any warranty or guarantee,
express or implied, as to the potential volume, profits or success of the
business venture contemplated by this Agreement.
B. You acknowledge that You have received, read and understand this Agreement
and the related Attachments and agreements and that Airsopure has accorded You
sufficient time and opportunity to consult with advisors selected by
17
<PAGE>
You about the potential benefits and risks of entering into this Agreement.
C. You acknowledge that You received a complete copy of this Agreement and all
related Attachments and agreements at least 5 business days prior to the date on
which this Agreement was executed.
D. You acknowledge that You have received the disclosure document required by
the Trade Regulation Rule of the Federal Trade Commission entitled "Disclosure
Requirements and Prohibitions Concerning Franchising and Business Opportunity
Ventures" at least 10 business days prior to the date on which this Agreement
was executed.
IN WITNESS WHEREOF, the Parties hereto have duly executed and delivered this
Agreement on the day and year first above written.
AIRSOPURE:
AIRSOPURE FRANCHISE GROUP, INC.,
a Nevada corporation
- -------------------------------------------------------------
(SIGNATURE OF AUTHORIZED OFFICER, TITLE)
- -------------------------------------------------------------
(PRINT NAME OF AUTHORIZED OFFICER)
WITNESS:
-------------------------
YOU:
- -------------------------------------------------------------
(CORPORATION, COMPANY OR PARTNERSHIP NAME, IF APPLICABLE)
- -------------------------------------------------------------
(SIGNATURE OF INDIVIDUAL, AUTHORIZED OFFICER OR PARTNER)
- -------------------------------------------------------------
(PRINT NAME)
WITNESS:
------------------------
- -------------------------------------------------------------
(SIGNATURE OF INDIVIDUAL, AUTHORIZED OFFICER OR PARTNER)
- -------------------------------------------------------------
(PRINT NAME)
WITNESS:
-----------------------
- -------------------------------------------------------------
(SIGNATURE OF INDIVIDUAL, AUTHORIZED OFFICER OR PARTNER)
- -------------------------------------------------------------
(PRINT NAME)
WITNESS:
-----------------------
18
<PAGE>
DEVELOPER'S PRINCIPALS
Each of the undersigned acknowledges and agrees as follows:
1. Each has read the terms and conditions of this Development Agreement and
acknowledges that the execution of this guaranty and the undertakings of the
Your Principals in the Development Agreement are in partial consideration for
the granting of the development rights in the Development Agreement, and that
Airsopure would not have granted such rights without the execution of this
guaranty and these undertakings by each of the undersigned;
2. Each is included in the term "Your Principals" as described in Section 13.E.
of the Development Agreement;
3. Each individually, jointly and severally makes all of the covenants,
representations, warranties and agreements of Your Principals set forth in the
Development Agreement and is obligated to perform thereunder; and
4. Each individually, jointly and severally unconditionally and irrevocably
guarantees to Airsopure that all of Your obligations under this Agreement will
be punctually paid and performed. Upon default by You or upon notice from
Airsopure, each will immediately make each payment and perform each obligation
required of You under this Agreement. Without affecting the obligations of any
of Your Principals under this guaranty, Airsopure may, without notice to Your
Principals, waive, renew, extend, modify, amend or release any indebtedness or
obligation of You or settle, adjust or compromise any claims that Airsopure may
have against You. Each of Your Principals waives all demands and notices of
every kind with respect to the enforcement of this guaranty, including, without
limitation, notice of presentment, demand for payment or performance by You, any
default by You or any guarantor and any release of any guarantor or other
security for this Agreement or the obligations of You. Airsopure may pursue its
rights against any of Your Principals without first exhausting its remedies
against You and without joining any other guarantor hereto and no delay on the
part of Airsopure in the exercise of any right or remedy shall operate as a
waiver of such right or remedy, and no single or partial exercise by Airsopure
of any right or remedy shall preclude the further exercise of such right or
remedy. Upon receipt by Airsopure of notice of the death of any of Your
Principals, the estate of the deceased will be bound by the foregoing guaranty,
but only for defaults and obligations under this Agreement existing at the time
of death, and in such event, the obligations of the remaining Your Principals
shall continue in full force and effect.
Additionally, with respect to the individual designated as Operating Principal,
Operating Principal acknowledges that the undertakings by Operating Principal
under this Agreement are made and given in partial consideration of, and as a
condition to, Airsopure grant of rights to develop Centers as described herein;
Operating Principal individually, jointly and severally makes all of the
covenants, representations and agreements of You and Operating Principal set
forth in this Agreement and is obligated to perform hereunder.
DEVELOPER'S PRINCIPALS:
- -------------------------------------------------------------
(CORPORATION, COMPANY OR PARTNERSHIP NAME, IF APPLICABLE)
- -------------------------------------------------------------
(SIGNATURE OF INDIVIDUAL, AUTHORIZED OFFICER OR PARTNER)
- -------------------------------------------------------------
(PRINT NAME)
WITNESS:
-----------------------
- -------------------------------------------------------------
(SIGNATURE OF INDIVIDUAL, AUTHORIZED OFFICER OR PARTNER)
- -------------------------------------------------------------
(PRINT NAME)
WITNESS:
------------------------
* Denotes individual who is Your Operating Principal
19
<PAGE>
ITEM 1
THE FRANCHISOR, ITS PREDECESSORS
AND AFFILIATES
"Airsopure" or "we" means Airsopure International Group, Inc. the franchisor.
"You" means the person who buys the franchise. If the franchise owner is a
corporation or other entity, "you" refers only to the business entity which owns
the franchise unless we indicate otherwise. We do business under the same name
as our franchise company, "Airsopure." Airsopure is a wholly owned subsidiary of
Airtech International Group, a publicly traded company, on the NASDAQ/OTC BB
under the symbol AIRG. Additionally, Airsopure has an affiliate, Airsopure,
Inc., which may supply products to our franchise owners. The principal business
address for Airsopure International Group, Inc., Airsopure, Inc., and Airtech
International Group, Inc., is 15400 Knoll Trail, Suite 200, Dallas, Texas 75248.
Our agent for service of process is listed in this offering circular as Exhibit
B. Airsopure International Group, Inc. is a Nevada corporation which was
incorporated on January 5, 2000.
Airsopure grants franchises to individuals and business entities for the
operation of one or more retail/residential Airsopure Centers ("Airsopure
Center(s)" or "Center(s)"). Airsopure owns and operates one business of the type
being franchised. Airsopure offers no other types of franchises, and conducts no
other business than the franchising of Airsopure Centers.
Each Airsopure Center will be located in a retail center or office/showroom
space and occupy about 1,000-1,200 square feet. Your Center will be used to
showcase Airsopure air filtration products for retail sales, with office space
for your residential sales team and staff. Your Center will retail Airsopure
clean air filtration products to residential customers in your territory. Your
sales team will sell direct to customers in their homes, as well as conducting
retail sales in your Center. The market for air filtration products is
established and growing. As air quality in larger cities has declined,
respiratory problems and breathing related ailments have increased dramatically.
Air filtration and purification systems are well accepted and in wide use.
Airsopure has developed products using the latest technological advances to help
produce clean and purified air environments in homes. Customers are in all age
groups, and sales are not generally seasonal, but year around. There are no
specific state or federal regulations governing the sale of our products. There
are other existing competing products for air filtration and purification on the
retail market; however, we are not aware of any other franchise that is similar
to ours. Airsopure offers a "system" for operation of a complete business, not
just the sale of an individual product.
Airsopure is a new franchise offering. Airsopure opened its first company Center
as of February 1, 2000. Neither Airsopure, Inc., nor Airtech International
Group, Inc. has conducted a business or offered franchises of the type to be
operated by the Franchisee; although Airtech International Group, Inc. utilized
salesman to sell their indoor air filtration systems and supplies under the same
name Airsopure. Neither Airsopure nor Airtech International Group, Inc. have
offered franchises in other lines of business; however Airsopure, Inc., an
affiliate, offered and sold 18 franchises from April 1997 to December 1999, for
the sale of commercial building air filtration products. Airsopure, Inc. no
longer offers franchises.
ITEM 2
BUSINESS EXPERIENCE
C. J. COMU, CHIEF EXECUTIVE OFFICER, SECRETARY AND DIRECTOR. Mr. Comu has served
as Chief Executive Officer, Secretary and Director of Airsopure International
Group, Inc. since its inception. He has also served as Chief Executive Officer
of Airtech International Group, Inc. from February 1995 to the present. From
1990 to February 1995 he was President and co-founder of Transworld Leasing
located in Dallas, Texas. Mr. Comu directs the overall operations and marketing
strategy for Airsopure and its franchisees.
JOHN POTTER, PRESIDENT AND DIRECTOR. John Potter is President and a Director of
Airsopure International Group, Inc. He was also co-founder of Airtech
International Group, Inc., in February 1995. Mr. Potter is primarily responsible
for manufacturing, operations oversight, marketing and new product development.
JAMES R. HALTER, ESQ., MBA, CPA, CHIEF FINANCIAL OFFICER, TREASURER AND
DIRECTOR. Mr. Halter is Chief Financial Officer, Treasurer and a Director of
Airsopure International Group, Inc. since its inception on January 5, 2000. He
was employed by Airtech International Group, Inc., beginning in October 1999, as
CFO and General Counsel. From January 1990 to October 1999, Mr. Halter owned his
own tax and business
1
<PAGE>
consulting practice. Concurrently, from September 1996 to January 1999, he
attended and graduated from Case Western Reserve University School of Law, in
Cleveland, Ohio. Mr. Halter is assisting Airsopure with financial management and
strategic planning for the company and its franchisees.
STEPHEN W. HAMPTON, FRANCHISE SALES. Mr. Hampton was hired by Airtech
International Group, Inc., on November 1, 1999, to head the franchising efforts
of Airsopure International Group, Inc. Prior to that, Mr. Hampton was an
independent contractor, beginning in 1992, with PSA, Inc., a national
franchising and marketing company based in Dallas, Texas. Mr. Hampton consulted
and franchised 10 different companies while working with PSA. He did business as
President of Marketect, as a sub-contractor to PSA, Inc., for national and
international franchise sales. Mr. Hampton currently is responsible for all
franchise marketing efforts for Airsopure, domestically and internationally.
ITEM 3
LITIGATION
No litigation is required to be disclosed in this offering circular.
ITEM 4
BANKRUPTCY
No officer or director previously identified in Items 1 or 2 of this offering
circular has been involved as a debtor in proceedings under the US Bankruptcy
Code required to be disclosed in this Item.
ITEM 5
INITIAL FRANCHISE FEE
You must pay a $25,000 lump sum franchise fee when you sign the Franchise
Agreement (Exhibit C). Airsopure will refund the entire amount if we do not
approve your application within 45 days. You must find a suitable Center site
within 90 days of signing the Franchise Agreement, unless we mutually agree
otherwise (see Item 11.C.). If we cannot agree on a Center location within 4
months we may at our sole discretion a) extend your search time, b) exchange
your territory, or c) terminate your Franchise and refund up to 70% of your
Franchise Fee. There are no refunds under any other circumstances.
- --------------------------------------------------------------------------------
ITEM 6
OTHER FEES
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
NAME OF FEE AMOUNT DUE DATE REMARKS
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Royalty 5% Gross Sales 7th of the month for the
previous month
- ------------------------------------------------------------------------------------------------------------------------
Local Advertising 2% Gross Sales 7th of the month for the Starts 60 days after opening,
previous month you account for how you spent
money
- ------------------------------------------------------------------------------------------------------------------------
Advertising Fund 2% Gross Sales Begins January 2001 Regional, National Ads
Separate Fund
- ------------------------------------------------------------------------------------------------------------------------
Transfer $1000 Payable date of sale or
transfer of your franchise
- ------------------------------------------------------------------------------------------------------------------------
Audit Cost of audit Upon demand Payable only if audit reveals
underpayment of at least 2%of
funds due
- ------------------------------------------------------------------------------------------------------------------------
Interest (1) Lesser of Prime rate charged Upon demand Payable on overdue amounts
by Bank of America plus 2%or not paid by Due Date
maximum permitted by state law
- ------------------------------------------------------------------------------------------------------------------------
Renewal $1000 Upon renewal date
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
All fees are imposed by and payable to Airsopure, except Local Advertising,
which you spend in your own territory, and account to Airsopure for such
approved expenditures. All fees are non-refundable.
(1) Interest begins from the date the payment was due.
2
<PAGE>
ITEM 7
INITIAL INVESTMENT
Your Estimated Initial Investment for one Center (see also Notes following
table):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
CATEGORY AMOUNT PAYMENT WHEN DUE TO WHOM
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Franchise Fee (1) $25,000 Lump Sum Signing Agmt. Airsopure
- -------------------------------------------------------------------------------------------------------------------------
Training (2) $1,000-2,500 As Incurred As Incurred Airline, Hotel, etc.
- -------------------------------------------------------------------------------------------------------------------------
Lease Deposits (3) $1,000-3,000 Lump Sum As Incurred Landlord, utilities
- -------------------------------------------------------------------------------------------------------------------------
Remodeling (4) $1,000-7,000 As Incurred As Incurred Contractors, Landlord
- -------------------------------------------------------------------------------------------------------------------------
Computer System (5) $2,500-5,000 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Office Furnishings (6) $2,500-4,000 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Showroom, Signs (7) $2,500-5,000 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Open Inventory (8) $5,000-10,000 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Office Supplies (9) $500-1,000 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Marketing Mat'ls. (10) $1,000-3,000 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Miscellaneous (11) $500-1,500 As Incurred As Incurred Vendors
- -------------------------------------------------------------------------------------------------------------------------
Initial Advertising (12) $5,000-15,000 As Incurred As Incurred Media
- -------------------------------------------------------------------------------------------------------------------------
Insurance (13) $500-4,000 As Incurred As Incurred Insurance Agent
- -------------------------------------------------------------------------------------------------------------------------
Professional Fees (14) $500-1,500 As Incurred As Incurred Attorney, CPA
- -------------------------------------------------------------------------------------------------------------------------
Software Fee (15) $3,000 Lump Sum As Incurred Vendor
- -------------------------------------------------------------------------------------------------------------------------
Working Capital (16) $12,500-25,000 As Incurred As Incurred Various
- -------------------------------------------------------------------------------------------------------------------------
TOTAL $64,000-115,500
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES TO ITEM 7:
(l) See Item 5 for conditions when this fee is refundable. Airsopure does not
finance any fee.
(2) You pay transportation and boarding while in training. Expenses will vary
based on distance and level of your expenses.
(3) Lease costs and deposits may vary based on your choice of office/showroom.
(4) If your space requires improvements, you may need to purchase them from
landlord, contractors, or possibly negotiate them into your lease. Costs will
vary based on changes requested.
(5) You will purchase one computer system, with modem, printer, fax, internet
capability. We will specify configuration. You will use our software, or
approved vendor software, as available. You may purchase other computers if you
desire.
(6) You need regular office furniture, depending on size and layout of your
space, as well as plain paper fax, phone system (minimum 3 line), and copier
(optional).
(7) Showroom displays, graphics and equipment will vary based on size of your
space.
(8) Opening Inventory includes enough products to adequately begin your
marketing and sales efforts.
(9) We will supply you with a list of recommended supplies and stationery.
(10) Marketing materials include an opening supply of approved brochures and
other pieces in our marketing program from authorized vendors.
(11) Petty cash fund for unanticipated small miscellaneous expenses in opening
your office.
(12) We will assist you with designing a custom advertising program for your
office, including direct mail, flyers and other media and opening activities,
over the first 30-60 days.
(13) You will need general business insurance for the term of your franchise and
lease space. Rates will vary based on carrier, location, etc.
(14) If you incorporate, hire services of attorney or CPA, or accountant to help
set-up your business, you may be charged fees for such services. Charges and
services will vary.
(15) We may require you to purchase custom software, if we do, the fee will
include the first year's maintenance. There may be an annual fee thereafter for
updates and maintenance, although that fee is not yet known.
(16) The actual amount of working capital you will need may vary depending on
your Center, sales staff, marketing plan and other factors, as well as your
management and business skills.
The table above represents an estimate of your initial start-up expenses.
Airsopure cannot guarantee that you will not have additional expenses starting
the business. Your costs will depend on such factors as how much you follow our
system and procedures; your business and management skills; local economic
conditions and product acceptance; competition and your sales made during the
initial 60-90 day period. Airsopure has relied upon its own experience to
estimate these amounts. Review these figures
3
<PAGE>
carefully with a business advisor before making any decision to purchase the
franchise.
Airsopure does not offer direct or indirect financing to franchisees for any
items or products.
ITEM 8
RESTRICTIONS ON SOURCES OF
PRODUCTS AND SERVICES
PRODUCTS. You must purchase all air purification products from Airsopure, or its
affiliates. There are no other suppliers. These products are manufactured to
strict standards, incorporate trade secrets and are proprietary to Airsopure
and/or its affiliates. You are allowed to sell only products and services that
have been expressly authorized for sale in writing in the manner we specify. You
must not deviate from any of our specifications without our written consent. The
current product line for equipment and filters, and the services offered by
Airsopure are described in the confidential Operations Manual (also referred to
as the "Manual"). Airsopure or its affiliates will derive revenue from your
purchases of products. As this is a new offering, we do not have a precise basis
for estimating total revenues to Airsopure or its affiliates. Cost of products
will represent approximately 35% to 50% of suggested retail. Airsopure may
receive a portion of the wholesale cost, although that percentage has not yet
been set from our affiliate. We estimate that your initial purchases will
account for 7-8% of your initial investment, and perhaps 90% or more of all your
purchases while operating the business. You purchase all products at a wholesale
cost, and sell them at retail pricing. You have discretion as to the prices you
charge customers for your products although we recommend suggested retail
pricing. We may add, delete or modify products from time to time, for which you
will be notified in writing.
MARKETING MATERIALS. We are currently the only suppliers of marketing materials
in the system. These promotional materials are designed to promote sales within
the Airsopure product line for your benefit. If you desire to obtain promotional
materials or advertisements from other suppliers, you must submit the materials
to Airsopure for our approval in writing prior to use (Franchise Agreement
Section 10.01). We will determine whether such other suppliers can be approved
within 30 days, in writing to you, based on quality, pricing, delivery time, and
other factors. Our criteria are available in writing in our Manual.
COMPUTER HARDWARE CONFIGURATION AND SOFTWARE SPECIFICATION. We may specify
certain computer hardware in order to be compatible for polling and transferring
information from your computer system to ours. We use approved vendors, and may
approve others, provided they can demonstrate compatible configuration with our
system in a timely basis. We derive no revenue from these vendors. Computer
hardware approval criteria are available in writing in our Manual. The software
is in development, and if and when offered will be offered to all franchise
owners on the same basis. The software is owned by a third party company, and
customized for our use. If and when it is available, it will be a required
product for you to use, without exception,. We may derive no revenue from the
purchase of the software; however, if we do, it will be to offset the
development costs. Of the estimated $3,000 cost for software, up to 10% may go
to Airsopure for development costs. This will represent less than 1% of you
initial or ongoing expenses or purchases. Upgrades and maintenance costs will be
paid to a third party.
Airsopure relies totally upon its franchise network for the sale of its
products. You will derive some ongoing benefit from the purchase of products
from us, including maintaining your franchise, and sharing information and
techniques with other franchise owners. There is no quota for your sales.
- --------------------------------------------------------------------------------
ITEM 9
FRANCHISEE'S OBLIGATIONS
THIS TABLE LISTS YOUR PRINCIPAL OBLIGATIONS UNDER THE FRANCHISE AND OTHER
AGREEMENTS. IT WILL HELP YOU FIND MORE DETAILED INFORMATION ABOUT YOUR
OBLIGATIONS IN THESE AGREEMENTS AND IN OTHER ITEMS OF THIS OFFERING CIRCULAR.
4
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------- ------------------------------ -------------------------
OBLIGATION SECTION IN FRANCHISE ITEM IN OFFERING
AGREEMENT CIRCULAR
--------------------------------------- ------------------------------ -------------------------
<S> <C> <C>
Site selection and acquisitions/lease Section 4 Item 11
--------------------------------------- ------------------------------ -------------------------
The pre-opening purchases/leases Section 5 Items 7, 8
--------------------------------------- ------------------------------ -------------------------
Site development and other Sections 4 and 5 Items 7, 8
pre-opening requirements
--------------------------------------- ------------------------------ -------------------------
Initial and on-going training Sections 5.C. Items 7, 11
--------------------------------------- ------------------------------ -------------------------
Opening Sections 5 and 6 Items 7, 11
--------------------------------------- ------------------------------ -------------------------
Fees Section 3 Items 5, 6, 7
--------------------------------------- ------------------------------ -------------------------
Compliance with standards and Sections 5, 6, 7, 8 and 9 Items 8, 11, 14
policies/operating manual.
--------------------------------------- ------------------------------ -------------------------
Trademarks and proprietary Section 7 Items 13, 14
information.
--------------------------------------- ------------------------------ -------------------------
Restrictions on products/services Sections 5 and 6 Item 8
offered
--------------------------------------- ------------------------------ -------------------------
Warranty and customer service none none
requirements
--------------------------------------- ------------------------------ -------------------------
Territorial development and sales none none
quotas
--------------------------------------- ------------------------------ -------------------------
On-going product/purchases Section 6 Item 8
--------------------------------------- ------------------------------ -------------------------
Maintenance, appearance and Section 4 and 5 Items 16, 17
remodeling requirements
--------------------------------------- ------------------------------ -------------------------
Insurance Section 11 Items 7, 11
--------------------------------------- ------------------------------ -------------------------
Advertising Sections 7 and 10 Items 6, 11
--------------------------------------- ------------------------------ -------------------------
Indemnification Section 17 Item 11
--------------------------------------- ------------------------------ -------------------------
Owner's participation/ Section 5 Item 15
management/staffing
--------------------------------------- ------------------------------ -------------------------
Records and Reports Section 9 Item 6
--------------------------------------- ------------------------------ -------------------------
Inspection and audit Section 9 Items 6, 11
--------------------------------------- ------------------------------ -------------------------
Transfer Section 12 Item 17
--------------------------------------- ------------------------------ -------------------------
Renewal Section 2 Item 17
--------------------------------------- ------------------------------ -------------------------
Post-termination obligations Sections 15 and 16 Item 17
--------------------------------------- ------------------------------ -------------------------
Non-competition covenants Section 16 Item 17
--------------------------------------- ------------------------------ -------------------------
Dispute resolution Section 18 Item 17
--------------------------------------- ------------------------------ -------------------------
</TABLE>
ITEM 10
FINANCING
Airsopure does not offer direct or indirect financing. We do not offer any
notes, leases or any obligation.
ITEM 11
FRANCHISOR'S OBLIGATIONS
Except as listed below, we need not provide any assistance to you.
A. PRE-OPENING OBLIGATIONS
Before you open your franchised business, we will:
1) Designate a geographic area to be your designated territory (your "Exclusive
Territory") prior to your execution of the Franchise Agreement (Franchise
Agreement Paragraph C of Recitals and Section 1.01);
2) Provide you, on loan, one copy of Airsopure's Operations Manual (Franchise
Agreement Section 8.01);
3) Evaluate your request of the proposed location for the Center within 7
working days from receipt of your written request for approval, provided you
have met the listed criteria for office/showroom locations in the Operations
Manual (Franchise Agreement Section 4.01.A);
4) Within four months of your signing your Franchise Agreement, provide an
initial training program for you as described below (Franchise Agreement Section
4.01.C.); and
5) Provide you with specifications for inventory, supplies and equipment in the
Operations Manual (Franchise Agreement Section 4.01.B).
B. CONTINUING OBLIGATIONS
1. During the operation of the Center, we will:
A.) Provide daily advisory assistance by telephone for the first two weeks after
you begin operation
5
<PAGE>
of the Center (Franchise Agreement Section 4.02.A);
B.) Provide continuing consultation and advisory assistance to you in the manner
and at such time as we deem advisable concerning the operation, advertising and
promotion of the Center (Franchise Agreement Section 4.02.B);
C.) Provide you with any updates, revisions and amendments to the Operations
Manual (Franchise Agreement Section 4.02.C. and 8.03.);
D.) Assist you with product management and inventory controls (Franchise
Agreement Section 4.02.D and Section 6);
E.) Provide you at Airsopure's sole discretion such continuing training programs
as we deem appropriate (Franchise Agreement Section 4.02.E.); and
F.) Defend you at our expense against any third-party claim or lawsuit involving
your use of the Airsopure trademarks as long as you have used the Airsopure
trademarks as the Franchise Agreement requires (Franchise Agreement 7.05).
2. Advertising Program
A.) Local Advertising. Airsopure requires you to spend at least 2% of your Gross
Sales on approved local advertising, including direct mail, flyers, Yellow
Pages-Registered Tradmark- ads and other media, beginning with the date you open
your Center (Franchise Agreement Section 10.04.). You do not send these funds to
Airsopure. You may develop advertising materials for your own use at your cost,
but Airsopure must approve the advertising materials in advance in writing
before use (Franchise Agreement Section 10.01). You must account to us for the
advertising you place each month, in writing, as part of your quarterly
advertising plan.
B.) Advertising Fund. Airsopure may at its discretion provide placement of
advertising for the benefit of the entire Airsopure system, beginning January 1,
2001, unless Airsopure, in its sole discretion delays the start date (Franchise
Agreement Section 3.01D). You must pay this 2% of Gross Sales monthly to
Airsopure when the Fund is activated. There is no plan for an advertising
council. Airsopure will make all marketing decisions regarding this Fund. Most
of the advertising will be placed on a regional or national basis, typically by
management of Airsopure or by Airsopure's public relations company. Airsopure
anticipates that most of its advertising will be created by an outside
advertising agency.
Airsopure reserves the right to use the monthly fees collected for the
Advertising Fund to place advertising in regional and/or national media
(including broadcast, print or other media). All amounts contributed to the
Advertising Fund are used to promote the products sold by franchisees and are
not used to sell additional franchises. Any amount remaining in the Advertising
Fund at the end of a fiscal year may be spent in subsequent fiscal years. An
accounting of the Advertising Fund expenditures is available to you upon request
following the close of each fiscal year (May 31) (Franchise Agreement Section
10.03.A.). No Advertising Fund fees will be spent for the solicitation of
franchise sales. (See also Items 6, 8 and 9 of this offering circular.)
2. Computer Hardware and Software
Airsopure requires that you use and maintain a standard computer package of
hardware and software. You will purchase a Windows 2000 compatible system,
Pentium II based, with modem and sufficient memory to handle normal business
activities, and a color inkjet printer. Software programs will include
off-the-shelf accounting, lead management, word processing and graphics programs
(Microsoft Office 2000) to be used by all franchisees. We reserve the right to
require your use of customized software developed by a third party company
specifically for our franchisees, although such software has not been developed.
When such software is made available to all franchisees, you will be required to
install and use this software. We may impose a reasonable training fee paid to a
third party to train you (and your staff) on this software. You will be
obligated to use this software for lead, sales and product tracking and
accounting purposes. We estimate that such software may cost up to $3,000 to
purchase, and up to several hundred dollars per year for support and upgrades
from a third party. We will have independent modem access to your lead, sales
and product data; however, we will not access your financial records other than
as noted, unless we have your permission or we have notified you in writing that
you are being audited by us, within 24 hours of such notification.
We are not obligated by the Franchise Agreement or any other agreement to
provide any other supervision, assistance or services in connection with the
ongoing operation of the franchised business. Any duty or obligation imposed on
us by the Franchise Agreement or otherwise may be
6
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performed by any of our designees, employees or agents, as we may direct (See
also Item 6.).
You will be given an opportunity to review the Franchise Operations Manual
before you sign the Franchise Agreement.
C. YOUR CENTER LOCATION
Airsopure assigns you an Exclusive Territory (See Item 12.) in which you must
find an acceptable Center location in an retail office/showroom facility. We
must approve your proposed Center location, based on the location meeting
certain criteria including lease costs, terms, size and configuration,
visibility, traffic count, proximity within your territory to your prospective
customers, and other factors. Once you find at least 3 qualified sites, we will
approve one of these sites within 7 days. You must find a suitable Center site
within 90 days of signing the Franchise Agreement, unless we mutually agree
otherwise. If we mutually cannot agree on a Center location, within 4 months, we
may at our sole discretion a) extend your search time, b) exchange your
territory, or c) terminate your Franchise and refund up to 70% of your Franchise
Fee.
D. OPENING TIME FRAME
The typical length of time from the date you sign the Franchise Agreement until
the date you open a Center for business is 4 to 5 months or sooner, depending on
your ability to find a suitable Center location for approval, and other factors.
E. TRAINING PROGRAM
We will conduct our Indoor Air Quality (IAQ) Specialist and Center management
training program at out Dallas, Texas offices and/or our company-owned Center
facility in Dallas. You will learn all facets of the Airsopure Center business
from air diagnostics to product sales and business management techniques. We
will conduct such training programs on an as needed basis throughout the year,
based upon the number of franchisees to be trained and available trainers'
schedules. Training will be supervised by John Potter (See Item 2.), and will
also include industry trade specialists, as well as qualified advertising and
air purification equipment professionals as guest lecturers. All instructors
work for us, are approved vendors or approved consultants.
You will be responsible for travel, lodging, salary and personal expenses for
yourself and one of your employees during the 5 day training program. The
initial training is mandatory, and you and your employee must complete it to our
satisfaction. If neither of you completes the training within 90 days after
signing the Franchise Agreement, or if either of you fails the training, at our
sole option we may a) require you or your employee to retake the training, b)
require you to find an acceptable replacement for you or your employee for
training, or c) terminate your Franchise and refund up to 60% of your Franchise
Fee.
New Product courses, marketing and sales updates and additional field training
will be required of you and/or your employee from time to time, as required
uniformly of all franchisees. These additional training sessions will be solely
at your cost for travel and lodging, unless otherwise mutually agreed.
- --------------------------------------------------------------------------------
The Operations Manual will be used for reference during the training program. As
of the date of this offering circular, the Initial Training required by
Airsopure before opening your Center consists of the following:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
SUBJECT TIME HOURS OF HOURS OF INSTRUCTOR
BEGUN CLASSROOM ON-THE-JOB
TRAINING TRAINING
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Orientation Monday 1 0 CJ Comu
J Potter
- -----------------------------------------------------------------------------------------------------------
The Market Monday 1 0 J Potter
- -----------------------------------------------------------------------------------------------------------
The Product & Service Monday 1 2 Cliff Spicer
- -----------------------------------------------------------------------------------------------------------
Field Application Monday 4 2 John Harris
S Hampton
- -----------------------------------------------------------------------------------------------------------
Manufacturing Tuesday 0 2 C Spicer
Warehousing
- -----------------------------------------------------------------------------------------------------------
Product Knowledge Tuesday 1 1 J Potter
- -----------------------------------------------------------------------------------------------------------
Advertising Tuesday 4 2 S Hampton
Direct Mail Speaker
- -----------------------------------------------------------------------------------------------------------
7
<PAGE>
- -----------------------------------------------------------------------------------------------------------
Administration Wednesday 1 4 Susan Potter
- -----------------------------------------------------------------------------------------------------------
Computer system Wednesday 4 4 S Potter, Guest
- -----------------------------------------------------------------------------------------------------------
Sales Marketing Thursday 2 6 S Hampton
- -----------------------------------------------------------------------------------------------------------
Sales Marketing Friday 2 6 S Hampton
- -----------------------------------------------------------------------------------------------------------
Totals 5 Days 21 29
- -----------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 12
TERRITORY
You will be granted an Exclusive Territory for the operation of your franchised
Center, with a minimum population base of 500,000, as defined by zip codes or
other common boundaries. You are granted one Center location within your
Exclusive Territory. You may relocate your Center, at your sole expense, within
your territory upon 30 days prior notice to us in writing stating the reasons
for such relocation. Airsopure will not franchise or operate company-owned
Centers within your Exclusive Territory using our names, logos or marks. We may
franchise or operate company-owned Centers outside your Exclusive Territory
using our names, logos or marks. You may not advertise or sell Airsopure
products utilizing either the World Wide Web (internet) or through printed
catalogues. Any sales outside your territory must be first approved in writing
or by facsimile by Airsopure. We will not solicit or accept sales within your
territory without notifying you in writing, and arranging nominal compensation
to you which we solely determine appropriate.
Airsopure, Inc., an affiliate of Airsopure, has in the past licensed outlets for
the sales of similar products, although these products were primarily for
commercial application, and not directed at the residential market. While
Airsopure, Inc. is not granting any franchises or other licenses for such
outlets, these existing outlets may, from time to time, sell similar products
within your Exclusive Territory. In such case Airsopure will notify you in
writing, and arrange compensation to you which we solely determine appropriate.
Airtech International Group, Inc. also reserves the right in the future to grant
and make marketing arrangements with other companies for the marketing of
similar products which may be sold under a different trademark, but not the same
trademark as being granted in this franchise. If this happens in the future,
although there is no set timetable, Airsopure will notify you in writing, and
arrange compensation to you which we solely determine appropriate.
Unless you have executed a separate Development Agreement, you may not acquire
additional franchises within your territory. There is no minimum sales quota.
You maintain rights to your territory even though the population increases.
ITEM 13
TRADEMARKS
We grant you the right to operate your Center under the name and trademark
"Airsopure." By "trademark," we mean trademarks, trade names, service marks and
logos used to identify your franchised business, especially the name "Airsopure"
and its design logo, and the service mark "The Essence of Clean Air." Airsopure,
Inc. was granted a trademark on the Principal Register with the United States
Patent and Trademark Office for "Airsopure" on November 9, 1999, Registration
Number 2,291,477. Airsopure has a Trademark License Agreement (Exhibit E) with
Airsopure, Inc. granting Airsopure the right to use and franchise others to use
the names, logos and trade dress for Airsopure.
You must follow our rules when you use Airsopure's trademark. You cannot use our
trademark as part of your corporate legal name or with modifying words, designs
or symbols except for those which we license to you. You may not use our
trademark in connection with the sale of an unauthorized product or in a manner
not authorized in writing by us.
You must notify us immediately when you learn about an infringement of or
challenge to your use of our trademark, and you must cooperate with Airsopure in
defending or settling any litigation. We will take the action we deem necessary
to preserve and protect the ownership and validity of the trademark. Airsopure
will defend and indemnify you in legal proceedings involving the licensed
trademark filed by third parties alleging infringement provided that you have
used Airsopure's trademark as authorized by the Franchise Agreement. We reserve
the right to substitute different trademarks for use in identifying the
"Airsopure" system without liability to you.
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We do not know of any infringing uses of our name or trademarks that could
materially affect your use of Airsopure's trademark.
ITEM 14
PATENTS, COPYRIGHTS AND PROPRIETARY INFORMATION
There are no patents or copyrights currently registered or which we have applied
for which are material to the franchise, but you can use the proprietary
information in our Operations Manual. Although we have not filed an application
for a copyright registration for the Operations Manual, we claim a copyright and
the information is proprietary. Section 8., of the Franchise Agreement describes
the restrictions on your use of our Operations Manual and your obligation to
maintain the contents of the Operations Manual in confidence. All new air
purification products, including those under current testing will have patents
filed with the US Patent and Trademark Office at our discretion.
We have no obligation under the Franchise Agreement to defend the above
described copyrights or to defend you in any litigation relating to these
materials, and you have no obligation to report infringement of these to us. We
will take such action as we deem appropriate, and we have the right to control
all litigation involving these copyrights/patents.
ITEM 15
OBLIGATION TO PARTICIPATE IN THE
ACTUAL OPERATION OF THE
FRANCHISE BUSINESS
You must personally supervise the Center or hire a fully-trained full time
manager to devote his/her full time and best efforts to run the Center. The
manager must sign a written agreement to maintain confidentiality of the
proprietary information described in Item 14 and to comply with the covenants
not to compete described in Item 17.
If you are a corporation, the individual who owns controlling interest in the
corporation must sign a personal guarantee (Exhibit F) of all of the
corporation's obligations to Airsopure.
ITEM 16
RESTRICTIONS ON WHAT THE
FRANCHISEE MAY SELL
You must offer and sell only those products and services that Airsopure have
been approved (see Items 8 and 9). You must offer all products that Airsopure
designates as required for all franchisees. These required products and services
currently include air purification equipment and air filters. Airsopure has the
right to add additional authorized products and services that you are required
to offer. There are no limits on Airsopure's right to do so, except that the
investment required by a franchisee (for new display equipment, supplies and
open inventory) will not exceed $10,000 per year. You are restricted within your
territory with respect to the customers to whom you may provide products and
services (see Item 12).
- --------------------------------------------------------------------------------
ITEM 17
RENEWAL, TERMINATION, TRANSFER AND DISPUTE RESOLUTION
This table lists certain important provisions of the franchise and related
agreements. You should read the provisions in the agreements attached to this
offering circular.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
PROVISION SECTION IN FRANCHISE SUMMARY
AGREEMENT
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
a. Terms of the franchise 2 10 years
- ---------------------------------------------------------------------------------------------------------------------
b. Renewal or extension of 2 2 renewal terms of 10 years, subject to
the term contractual requirements
- ---------------------------------------------------------------------------------------------------------------------
c. Requirements for you to 2 Notice, good standing, training, upgrade
renew or extend business, sign release and new agreement, pay fees
- ---------------------------------------------------------------------------------------------------------------------
d. Termination by you None None
- ---------------------------------------------------------------------------------------------------------------------
e. Termination by Airsopure without None None
cause
- ---------------------------------------------------------------------------------------------------------------------
f. Termination by Airsopure with 14 Can terminate only if you default
- ---------------------------------------------------------------------------------------------------------------------
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<PAGE>
- ---------------------------------------------------------------------------------------------------------------------
cause
- ---------------------------------------------------------------------------------------------------------------------
g. "Cause" defined--defaults 14 You have 30 days to cure: failure to make
which can be cured payments, submit reports, maintain standard or
follow procedures; legal violations; or any other
default not listed in Section 14.01.A.
- ---------------------------------------------------------------------------------------------------------------------
h. "Cause" defined--defaults 14 Includes insolvency; conviction of felony;
which cannot be cured unauthorized transfer; disclosure of confidential
information; failure to complete training;
falsified records and reports; repeated defaults
even if cured; other
- ---------------------------------------------------------------------------------------------------------------------
i. Your obligations on 15 and 16 Includes complete identification; payment of
termination/non-renewal amounts due; return of proprietary information;
cessation of operation; (also see r. below)
- ---------------------------------------------------------------------------------------------------------------------
j. Assignment of the contract by 12 No restriction on our right to assign
Airsopure
- ---------------------------------------------------------------------------------------------------------------------
k. "Transfer" by you-- 12 Includes transfer of the contract or assets or
definition ownership change
- ---------------------------------------------------------------------------------------------------------------------
l. Our approval of transfer by 12 We have the right to approve all
you transfers but will not unreasonably
withhold approval
- ---------------------------------------------------------------------------------------------------------------------
m. Conditions for our approval 12 Includes payment of amounts due; no
defaults; release signed; new franchisee
qualifies and signs new agreement;
upgrade business; training; transfer fees
(see also r. below)
- ---------------------------------------------------------------------------------------------------------------------
n. Our right of first refusal to 12 We can match any offer for your
acquire your business business
- ---------------------------------------------------------------------------------------------------------------------
o. Our option to purchase your 12 Upon expiration or termination we have
business the right to acquire certain assets
- ---------------------------------------------------------------------------------------------------------------------
p. Your death or disability 12 Franchise may be transferred to heirs or
to approved third party within 6 months
with Airsopure Approval
- ---------------------------------------------------------------------------------------------------------------------
q. Non-competition covenants 13 No involvement in competing business
during the term of the franchise
- ---------------------------------------------------------------------------------------------------------------------
r. Non-competition covenants 16 No competing business for two years
within 25 miles of Designated Territory
or any other Airsopure franchise
- ---------------------------------------------------------------------------------------------------------------------
s. Modification of the 18 No modifications generally but
agreement Operations Manual and products subject
to change
- ---------------------------------------------------------------------------------------------------------------------
t. Integration/merger clause 18 Only the terms of the Franchise
Agreement is binding (subject to state
law). Any other promises may not be enforceable.
- ---------------------------------------------------------------------------------------------------------------------
u. Dispute resolution by 19 Non-binding mediation prior to other legal actions
arbitration or mediation by either party
- ---------------------------------------------------------------------------------------------------------------------
v. Choice of forum 18 Litigation must be in Texas
- ---------------------------------------------------------------------------------------------------------------------
w. Choice of law 18 Texas law applies
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
These states have statutes which may supersede the Franchise Agreement in your
relationship with us including the areas of termination and renewal of your
franchise: ARKANSAS [Stat. Section 70-807], CALIFORNIA [Bus. & Prof. Code
Sections 20000-20043], CONNECTICUT [Gen. Stat. Section 42-133e et seq.],
DELAWARE [Code, tit.], HAWAII [Rev. Stat. Section 482E-1], ILLINOIS [Rev. Stat.
Chapter 121 _ par 1719-1720], INDIANA [Stat. Section 23-2-2.7], IOWA [Code
Sections 523H.1-523H.17, MICHIGAN [Stat. Section 19.854 (27)], MINNESOTA [Stat.
Section 80C.14], MISSISSIPPI [Code Section 75-24-51, MISSOURI [Stat. Section
407.400], NEBRASKA [Rev. Stat. Section 87-401],
10
<PAGE>
NEW JERSEY [Stat. Section 56:10-1], SOUTH DAKOTA [Codified Laws Section
37-5A-51], VIRGINIA [Code 3.1-557-574-13.1-564], WASHINGTON [Code Section
19.100.180], WISCONSIN (Stat. Section 135.03]. These and other states may have
court decisions which may supersede the Franchise Agreement in your relationship
with us, including the areas of termination and renewal of your franchise. SEE
APPENDIX "A" REGARDING CERTAIN PROVISIONS OF CALIFORNIA LAW.
ITEM 18
PUBLIC FIGURES
We do not use any public figure to promote our franchise.
ITEM 19
EARNINGS CLAIMS
Airsopure does not furnish or authorize its salespersons to furnish any oral or
written information concerning the actual or potential sales, cost, income or
profits anticipated from operation of an Airsopure Center. Actual results will
vary from Center to Center, and we cannot estimate the results of any particular
franchise.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
ITEM 20
LIST OF OUTLETS
FRANCHISED CENTER STATUS SUMMARY FOR YEAR 1999
- ----------------------------------------------------------------------------------------------------------------------
STATE TRANSFERS CANCELED OR NOT REACQUIRED LEFT THE TOTAL FRANCHISES
TERMINATED RENEWED BY SYSTEM FROM LEFT OPERATING
AIRSOPURE OTHER COLUMNS AT YEAR END
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Texas 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
Totals 0 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: All numbers are as of December 31 for each year. Airsopure is a new
franchise offering. There were not any franchises operating or sold in 1999.
STATUS OF COMPANY OWNED CENTERS FOR YEAR 1999
<TABLE>
<CAPTION>
----------------------------- ---------------------------- --------------------------- ----------------------------
STATE CENTERS CLOSED CENTERS OPENED TOTAL CENTERS
DURING YEAR DURING YEAR OPERATING
AT YEAR END
----------------------------- ---------------------------- --------------------------- ----------------------------
<S> <C> <C> <C>
Texas 0 0 0
----------------------------- ---------------------------- --------------------------- ----------------------------
Totals 0 0 0
----------------------------- ---------------------------- --------------------------- ----------------------------
</TABLE>
PROJECTED OPENINGS AS OF FEBRUARY 1, 2000
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
STATE FRANCHISE AGREEMENTS PROJECTED FRANCHISED PROJECTED COMPANY
SIGNED BUT CENTER NOT OPEN NEW CENTERS IN THE NEXT OWNED OPENINGS IN
FISCAL YEAR NEXT FISCAL YEAR
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 0 1 0
---------------------------------------------------------------------------------------------------------------
California 0 1 0
---------------------------------------------------------------------------------------------------------------
Colorado 0 1 0
---------------------------------------------------------------------------------------------------------------
Florida 0 1 0
---------------------------------------------------------------------------------------------------------------
Georgia 0 1 0
---------------------------------------------------------------------------------------------------------------
New Jersey 0 1 0
---------------------------------------------------------------------------------------------------------------
Texas 0 1 1
---------------------------------------------------------------------------------------------------------------
Totals 0 7 1
---------------------------------------------------------------------------------------------------------------
</TABLE>
ITEM 21 FINANCIAL STATEMENTS
11
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Exhibit D is the audited financial statement for Airsopure International Group,
Inc., as of February 1, 2000, although the fiscal year for Airsopure ends on May
31.
ITEM 22
CONTRACTS
The following documents and contracts are part of this offering circular as
Exhibits:
State Administrators Exhibit A
Agents for Service of Process Exhibit B
Franchise Agreement Exhibit C
Financial Statement Exhibit D
Trademark License Agreement Exhibit E
Personal Guarantee Exhibit F
Confidentiality Agreement Exhibit G
Development Agreement Exhibit H
ITEM 23
RECEIPT
The last two pages of this Offering Circular are detachable Receipts
acknowledging receipt of this Offering Circular (one for your records, one for
ours).
12
<PAGE>
EXHIBIT E
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement ("License Agreement") is made and entered into
effective as of (although not necessarily on ) January 1, 2000 by and between
Airsopure, Inc., a Texas corporation with its principal place of business at
15400 Knoll Trail, Ste. 200, Dallas, TX 75248 ("AI"), and Airsopure
International Group, Inc., a Nevada corporation with its principal place of
business at 15400 Knoll Trail, Ste. 200, Dallas, TX 75248 ("AIGI").
WHEREAS, AI has developed and acquired valuable rights and goodwill in certain
trade names and service marks including the name and mark "Airsopure", the
service mark attached hereto as Attachment A, and all logos, insignias, and
trade dress associated therewith.
WHEREAS, AI owns the trademark on file with the United States Patent and
Trademark Office for the national registration of the service mark "Airsopure"
and all goodwill associated therewith.
WHEREAS, the above-described trade name, trademark, service mark, logo,
insignia, trade dress, registrations, and applications, together with all
goodwill and rights associated therewith, are hereinafter sometimes collectively
referred to as the "Marks".
WHEREAS, AI desires to grant AIGI a non-exclusive license to use and sublicense
the Marks in connection with the business to be conducted by AIGI and its
sublicensees, subject to AI's right to control the standard of services offered
under the Marks and subject to AI's right to utilize the Marks for its own
account.
NOW, THEREFORE, for and in consideration of the sum of $10.00 and other good and
valuable consideration, the receipt and sufficiency of which are acknowledged
and confessed: AI and AIGI hereby agree as follows:
1. AI hereby grants to AIGI the perpetual prepaid right to use the Marks on a
worldwide basis under the terms and conditions set forth herein. The license
hereby granted shall be non-exclusive; save and except that AI reserves the
right to use the Marks for its own account in accordance with Paragraph 7
hereof. AIGI hereby accepts such license and agrees to be bound by and subject
to the terms and conditions hereof.
2. In order to protect the goodwill associated with the Marks, and in order to
prevent any deception to the public, AIGI shall insure that all services
provided under the Marks shall conform to such standards and specifications as
to quality as may be prescribed by AI and approved by AIGI from time to time. AI
and AIGI agree that the license of the Marks shall be limited to the promotion
and operation of Airsopure Centers by AIGI or its licensees, the promotion,
marketing, and selling of Airsopure franchises by AIGI or its sublicensees, and
any other use necessary or incident thereto. Any other use of the Marks shall
require the prior written consent of AI, which consent shall not be unreasonably
withheld.
3. AI specifically authorizes AIGI to sublicense the Marks to third parties
which own and operate "Airsopure" Centers in retail outlets pursuant to
Franchise Agreements entered into with AIGI. AIGI agrees that it shall
diligently monitor its sublicensees' use of the Marks in order to insure that
all service provided under said Marks conforms to such standards and
specifications as to quality which may be prescribed by AI and approved by AIGI.
AI specifically acknowledges that the restrictions on the use of the Marks set
forth in AIGI's franchising program comply with AI's standards and
specifications. AIGI agrees to notify AI in writing of any unauthorized use of
the Marks by any third parties.
4. AIGI acknowledges that AI is the sole owner of the Marks and that all
goodwill arising from the use of said Marks by AIGI shall inure to the benefit
of AI. AI shall have the right to inspect and observe the uses made by AIGI or
its sublicenses of the Marks, and AIGI agrees to supply AI upon request,
specimens of its use of the Marks.
5. AI will maintain in good standing and police the Marks against any infringing
use. At the request of AIGI, AI will file suit or take appropriate legal action
against infringing third parties and/or defend the Marks against conflicting
claims asserted by third parties. AI shall give AIGI prompt written notice of
any third party claim asserted or of any infringing use by any third party with
respect to the Marks, shall consult with AIGI with respect to policing or
defending the Marks, and shall allow AIGI to participate in and become a party
to any litigation or proceeding relating to the Marks.
6. AI represents and warrants to AIGI that it will diligently maintain a
federally registered service mark for Airsopure.
7. AI warrants and represents to AIGI that its use of the Marks will be limited
to the geographical areas in which neither AIGI nor any licensee of AIGI is
operating a Airsopure Center. AI agrees that it shall not utilize the Marks nor
further license the use of the Marks in any location or locations which is
within the assigned territory of any licensee of AIGI under a validly existing
Franchise Agreement, unless AIGI makes arrangements with such licensee.
8. Any party alleging a default thereunder shall give the defaulting party
written notice detailing with specificity the nature of the default and
affording the defaulting party a thirty (30) day period in which to cure such
default. In the event the defaulting party fails to cure such default within
such thirty (30) day period, the defaulting party shall have the right to
terminate this License by written notice to the nondefaulting party and/or
pursue such relief or remedies as may be available at law or in equity. Upon
termination of this License, the rights of AIGI or its licenses to use the Marks
shall be modified as follows: (i) AIGI shall no
1
<PAGE>
longer be entitled to utilize or license to new franchisees the right to use the
Marks, (ii) AI shall be entitled to use and license to third parties the right
to use the Marks, (iii) AIGI shall, at AI's request, assign to AI AIGI's right,
title and interest in and to all Franchise Agreements with franchisees; and (iv)
any then existing franchisee of AIGI to whom the right to utilize the Marks has
been licensed may continue to utilize the Marks until the expiration of the term
of its Franchise Agreement and any renewal or option periods available or
afforded to such franchisee at law or by agreement.
9. Any notice required or permitted to be given hereunder shall be delivered by
United States Mail via certified mail, return receipt requested, addressed to
the appropriate party at the address for such party set forth hereinabove, and
shall be deemed received five (5) days following deposit in a regularly
maintained receptacle for the United States mail, postage prepaid, and delivered
as aforesaid. Either party may change their address by notice hereunder.
10. This License, and the rights and obligations of the parties hereunder, shall
continue for an indefinite term unless and until the parties otherwise agree in
writing.
11. Except for AIGI's right to license the Marks to franchisees, neither party
shall have the right to assign or transfer its rights, duties, privileges and
obligations hereunder without the prior consent of the other party.
12. Each party hereby represents and warrants to the other that the parties
executing this License on their behalf are duly authorized to enter into this
License and that, upon full execution, this License will constitute the legal
and binding agreement of the parties, enforceable in accordance with its terms.
13. This License shall be governed by and construed in accordance with the laws
of the United States of America and the State of Texas and shall be performable
in Dallas County, Texas.
14. Subject to the restrictions against assignment and transfer as set forth
herein, this License shall inure to the benefit of, and shall be binding upon,
the parties hereto and their respective successors and assigns.
15. This License may be modified only by mutual agreement in writing signed by
the parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this License Agreement as
of the day and year first above set forth.
AIRSOPURE, INC.,
a Texas corporation
By: C.J. Comu (SIGNATURE ON FILE)
---------
Title: Chairman
AIRSOPURE INTERNATIONAL GROUP, INC.,
a Nevada corporation
By: JOHN POTTER (SIGNATURE ON FILE)
-----------
Title: President
EXHIBIT A
SERVICE MARK
[GRAPHIC]
2
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EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
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<CAPTION>
State of Incorporation
Name or Organization
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<S> <C>
Airtech International Corporation Texas
Airsopure, Inc. Texas
Airsopure International Group, Inc. Nevada
McClesky Sales and Service, Inc. * Texas
Airsopure 999, L. P. Texas
Watersopure, Inc. * Texas
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* Dormant Corporation
