SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
(Fee Required)
For the fiscal year ended June 30, 1996 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
for the transition period from to
Commission File Number: 1-13234
IONIC FUEL TECHNOLOGY, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1333140
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation) No.)
300 Delaware Avenue, #1704, Wilmington, Delaware 19801-1622
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (302) 427-5957
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, par value $.01 Boston Stock Exchange
Series A Redeemable Common
Stock Purchase Warrant ("A Warrants") Boston Stock Exchange
Series B Redeemable Common
Stock Purchase Warrant ("B Warrants") Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve (12) months or for such shorter period that the registrant
was required to file such reports, and (2) has been subject to such filing
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requirements for the past ninety (90) days. Yes: x No:
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. The aggregate market value shall be computed by reference to the
price at which the stock was sold, or the average bid and asked prices of such
stock, as of a specified date within 60 days prior to the date of filing.
Aggregate market value of securities held by non-affiliates as of September 16,
1996 - $9,604,480
Indicate the number of shares outstanding of each of the registrant's class of
common stock, as of the latest practicable date. At September 25, 1996, there
were 5,400,000 common shares, 1,200,000 Series A Warrants, 1,200,000
Series B Warrants and 120,000 Underwriters' Warrants outstanding.
List hereunder the following documents if incorporated by reference and the Part
of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security-holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) under the Securities Act of 1933. The listed documents should be clearly
described for identification purposes (e.g., annual report to security-holders
for fiscal year ended December 24, 1980)
1. Part III incorporates by reference the Company's Proxy Statement to
stockholders for the Annual Meeting to be held November 7, 1996.
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PART I
Item 1. BUSINESS
Introduction
The Company is an environmental technology company engaged in the
design, assembly, marketing, sale and leasing of its patented, proprietary IFT
System ("IFT System" or "System") designed to reduce harmful airborne emissions
from and increase fuel efficiency of heating and power generation systems. The
Company markets the System to various industries in the U.K. and Europe.
The IFT System, which is attached to a customer's heating or power
generation equipment, produces negatively charged particles by passing an air
flow over a body of vibrating liquid and into the combustion chamber or air
intake of the customer's machinery. The charged air supply accelerates the
normal combustion process. As a result of the improved combustion, the amount of
air and fuel supplied to the burner can be reduced while still maintaining a
constant measure of power output. This reduction of air and fuel decreases fuel
consumption as well as the production of NOx, CO2 and CO. A further significant
benefit, is the ability of the IFT System to initially remove and then to
prevent the further formation of "coke" on the combustion and flue side surfaces
of boiler tubes or walls, frequently found when burning heavy fuel oil or coal.
This coking also occurs in refinery and petrochemical crackers and reformers
when burning commercial gas on natural draft fired systems. The resulting
cleaner surfaces, ensure the further advantage of consistent heat transfer from
the flame through to the product, with better thermal efficiency. Plant shutdown
to clean tubes, often necessary when burning oil and coal, is substantially
reduced or completely eliminated. If fuel and air flow cannot be closely
controlled in an existing combustion system or if customer equipment is in need
of repair, the IFT technology may not be effective. Boilers utilizing oil or gas
fuels have provided the best improvements with the IFT system. The Company has
completed testing it's technology at a leading international oil company's
research facility in the UK and their report stating the benefits has been
circulated to all operating facilities. On two large pulverized coal electric
power generating facilities in the United States testing has been terminated
because continuing costs would not be funded by the power plants. Positive
results have been established on traditional coal fired boilers in the U.K.
The System
The IFT System is self contained in a cube-shaped free
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standing metal enclosure. The System's interior mechanism vibrates the surface
of a liquid contained inside the cabinet. The vibrating liquid releases
negatively charged particles that are then delivered to the customer's equipment
through a connection to the boiler's combustion chamber or to the boiler's
combustion air system.
The System is available in eight sizes ranging from 15" x 12" x 16" to
43" x 31.5" x 35". Such sizes are suitable for boilers generating from
approximately 1,000 lbs. of steam per hour to approximately 96,000 lbs. of steam
per hour. Multiple Systems are used when either the boiler has more than one
burner or the boiler's power generating capacity exceeds the capacity of the
largest IFT System. Multiple Systems are currently installed on boilers up to
250,000lbs/hr. The System generally, can be retrofitted while the customer's
boiler is operating and requires only a routine servicing every six months and
may be leased or purchased.
Performance results of the System reveal a reduction in NOx emissions
ranging from 6% to 60%, a reduction in CO2 emissions ranging from 8% to 12%, a
reduction in CO emissions ranging from 6% to 80%, a reduction in particulate
emissions ranging from 6% to 40% and a reduction in fuel consumption ranging
from 21/2% to 11%. The exact performance of the System depends upon the
customer's existing equipment and desired objectives; customers may achieve less
favorable results or no results if their equipment requires repair or if fuel
and air flows cannot be closely controlled.
Marketing and Sales
Performance Trials
The Company initially sought to performance test its System in
locations where a sales or lease contract could result. It also has performance
tested the System in certain locations solely to develop performance test data.
The Company has now phased out uncompensated performance testing because the
Company's data from its numerous sites supports the claims regarding the
benefits offered by the IFT System. The Company has now developed new
application software enabling on site performance to be evaluated in real time
to show the immediate improvements to the customer resulting in reducing the
lead time between performance trials and customer commitment.
The performance trial results obtained at a customer's location, enable
the Company to use such results to confirm the
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price of the IFT System to such customer. In setting the price, the Company
considers the potential fuel savings and emissions reduction to be realized by
that customer from use of the System, thereby enabling a customer to partially,
if not fully, offset the cost of the System.
The Company has also participated in a laboratory test conducted by The
Building Services Research and Information Association ("BSRIA"), an independent
U.K. organization. The BSRIA test was instigated and primarily funded by the
British government to generate data on the emissions of various power generation
systems and ancillary equipment. BSRIA rendered a favorable report on the IFT
System and such report was disseminated to BSRIA's members.
The Company has completed testing it's technology at a leading
international oil company's research facility in the UK and their report stating
the benefits has been circulated to all operating facilities. On two large
pulverized coal electric power generating facilities in the United States
testing has been terminated because continuing costs would not be funded by the
power plants. Postitive results have been established on traditional coal fired
boilers in the U.K.
Marketing
The Company currently markets the IFT System to (a) large scale
commercial power plant and industrial manufacturers such as breweries, oil
refiners, textile plants, chemical plants and paper mills and (b) commercial
industrial heat processors including municipal authorities and universities.
The Company had found that its technology was often not readily
understood by power plant managers who therefore hesitated to test the IFT
System. The Company devised a four step approach to educate the power generation
community about its technology. First, it employed people experienced in boiler
and burner applications to market the System. Second, the Company has marketed
the System to large multiple plant users, with emphasis on well known
international companies, so that such companies may be used as references for
other potential customers and also that such customers will consider using the
IFT System in their other plants. Third, the Company utilizes the services of a
recognized authority in flame chemistry to more specifically explain the
scientific principles behind the System. Fourth, the Company has introduced a
reporting system using sophisticated statistical modeling to present the test
results to potential customers in a succinct, concise manner. This reporting
system computerizes data derived
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from testing flue gases, monitors fuel to steam performance and then presents in
graphic form the benefits offered by the IFT System to the customer.
Sales and Rentals
The Company has adopted two approaches to its sales efforts. First, it
sells directly to industrial users with its own employees in the UK and Belgium
supplemented by the use of independent sales agents. Secondly, the Company sells
the System through dealers who are assigned a specific territory and compensated
on a commission basis. This marketing method is generally used in Europe.
The Company will rent or sell the System. In the U.K. and Belgium, most
orders consist of rental agreements while in Austria, Hungary, Czech Republic
and Slovakia, most orders consist of outright sales plus an installation fee and
a maintenance agreement.
Warranty and Service
The Company provides a one year warranty on parts and labor to
purchasers of the System and thereafter servicing under a service contract.
Lessees of the system receive service without additional charge within the terms
of the rental agreement.
Assembly and Suppliers
The IFT System is assembled in the U.K. at the Company's facility in
Laindon, Essex under strict quality control procedures. Although there have been
no sourcing problems, the Company has a policy of dual sourcing where this is
deemed advantageous for cost and continuity of supply. Single sourcing is
currently confined to vibrators and air pumps that are widely produced for use
in other industries and therefore readily available.
Research and Development
The Company's research and development efforts are focused primarily on
refining the vibration technology that forms the basis of the IFT System. To
that end, the Company has studied such areas as the interaction of the charged
particles and the combustion process, the delivery of the charged particles to
the combustion chamber, the optimum volume of the charge, the optimum ratio of
air to liquid surface and the impact of pressure and temperature on delivery of
the charge. The Company's efforts resulted in an enhancement to the patented
vibration technology for which a European patent application was filed in
January 1994.
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The Company's research and development costs are written off as
incurred. Employees engaged in engineering and manufacturing also perform R & D
functions, therefore it is unrealistic to isolate these specific costs since
they were not material in 1996.
Patents
The first U.S. Patent for the Ion generating technology utilized by the
IFT System was issued in 1975 to F.A. Wentworth, Jr. ("Wentworth"). This
original technology employed a "bubble" process whereby the air was "bubbled"
through liquid to release Ions at the surface of the liquid. A subsequent patent
was issued to Wentworth in December 1990 employing a "vibration" process which
substantially enhanced the commercial potential of the technology by increasing
the negative charge. The "vibration" technology involves vibrating the surface
of the water to release the Charged Particles. In January 1994, an additional
patent application was filed in Europe on behalf of the Company covering an
enhancement to the "vibration" technology. This improved "vibration" technology
allows for a more powerful and more consistent negative charge than the initial
Wentworth vibration patent. This improvement has been incorporated into the IFT
System. The Company filed counterpart applications to its latest European patent
application in the United States and several other foreign countries in 1995.
The Company entered into a Royalty Agreement ("Royalty Agreement")
dated June 2, 1994 (effective as of December 5, 1991) with Wentworth pursuant to
which Wentworth sold all of his interest in the patents relating to the ion
generating technology to the Company. As consideration for the assignment and
sale, Wentworth received a $50,000 initial payment and a $6,000 per month
royalty fee during the life of the patents. In addition, Wentworth purchased
80,000 shares of the Company's Common Stock at $.125 per share in December 1991.
Additionally, in December 1991, Messrs. Johnston and O'Neill, executive
officers, directors and principal stockholders of the Company, granted to
Wentworth from their stock holdings options to purchase in the aggregate 22,400
shares of the Company's Common Stock at an exercise price of $3.125 per share.
Wentworth has retained a security interest in the patent rights transferred to
the Company pursuant to the Royalty Agreement.
The Company owns six U.S. Patents, twelve foreign patents and five
foreign patent applications covering, in the aggregate, up to twenty different
countries. Several of the earlier "bubble" technology patents have expired.
However, improvement patents covering the "bubble" technology still exist in the
United States and several foreign countries, and the more important "vibration"
technology patents, which form the basis of the IFT System, run to
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at least 2007. The Company was granted a patent in Japan during
the year.
While the Company intends to vigorously enforce its patent rights
against infringement by third parties, no assurance can be given that such
rights will be enforceable or will provide the Company with meaningful
protection from competitors or that any pending patent applications will be
allowed. Even if a competitor's products were to infringe patents owned by the
Company, it could be damaging to the Company to enforce its rights because such
action would divert funds and resources which otherwise could be used in the
Company's operations. No assurance can be given that the Company would be
successful in enforcing such rights, that the Company's products or processes do
not infringe the patent or intellectual property rights of a third party, or
that, if the Company is not successful in a suit involving patents or other
intellectual property rights of a third party, a license for such technology
from such third party would be available on commercially reasonable terms, if at
all.
Regulations
Concern over environmental pollution has led to legislation introducing
tougher and tighter controls on emissions. NOx, for example, is now understood
to be a key element in the formation of ground level ozone, widely recognized as
a hazard to health and a precursor to urban smog. The problem for industry is to
reduce NOx levels as is currently demanded while not increasing emissions of the
equally undesirable carbon monoxide or reducing power generation capacity.
According to available statistics, approximately 55% of the 20 million tons of
annual NOx production comes from utilities, industrial boilers and furnaces; the
balance is from motor vehicles.
The Federal Clean Air Act, initially adopted in 1970 and extensively
amended in 1990 and European Community regulations require compliance with
specified air quality standards and empower government to establish and enforce
limits on the emission of various pollutants from specific types of industrial
facilities. In the USA, the states have primary responsibility for implementing
these standards, and, in some cases, have adopted standards more stringent than
those established by Federal regulation.
In general, emitters of pollution are required to obtain permits issued
by the appropriate environmental agency. A typical permit would set forth the
amount of pollutants that the "source" may emit, mandatory emission control
device description and
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installation deadlines plus monitoring/reporting requirements. Pollution sources
maybe charged a fee proportional to the amount of pollution the source creates
each year. This provides an incentive for the polluter to acquire technology
which will reduce its emissions. IFT is attempting to work with customers on an
individual basis prior to and during its process of negotiating permits in an
attempt to have the System "accepted" by such regulatory agencies.
Domestic and international environmental laws and regulations are, and
will continue to be, a principal factor affecting demand for the IFT System.
Although the Company believes there is a trend toward increasing regulation and
enforcement by all levels of government, a decline in enforcement and related
expenditures by businesses subject to such laws and regulations could have a
significant adverse effect on the demand for the IFT System. In addition, there
can be no assurance that the IFT System currently, or as adjusted or enhanced,
will enable others to comply with specified or yet unspecified emissions
standards implemented by any amendments to present laws and regulations or any
future legislation.
Competition
While most other pollution control technologies are aimed at reducing
airborne emissions, the Company is not aware of any technology which enhances
combustion efficiency to reduce both noxious emissions and fuel consumption. The
technology used by the Company's competitors can be divided into three
categories:
pre-combustion, combustion and post-combustion.
Pre-combustion techniques include chemical additives, low NOx burners,
and water/steam injection added to the fuel. Such techniques can achieve
reduction in particulate and NOx emissions but do not result in material fuel
savings.
Combustion techniques include air/fuel control systems, chemical
additives (i.e. urea injection) and flue gas recirculation. These methods reduce
NOx emissions but may result in higher particulate emissions and/or reduced
boiler efficiency. Furthermore, they are generally more expensive to install
than the IFT System.
Post-combustion systems include precipitators, bag filters and
scrubbers. These systems require large capital expenses often involve high
maintenance and operating costs and do not address fuel efficiency. Some have
the added disadvantage of producing by-products which may present disposal
problems.
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The IFT technology is not, by itself, a solution to all emissions
problems. More frequently the technology is complimentary to solutions a
customer may wish to utilize. For example, to achieve extremely low NOx
emission, ammonia injection might be selected. IFT could enhance combustion
efficiency so that less NOx is produced and subsequently less ammonia required
to achieve the final lower NOx level.
While the Company believes that its System enjoys significant
advantages as compared to its competitors' products, many of the Company's
competitors have greater resources, both financial and otherwise, than the
Company and therefore may be capable of testing, enhancing, marketing and
distributing their products on a wider basis than the Company. In addition,
future technological developments and novel approaches in the flame combustion
field as well as enhancements of current technology will, in all likelihood,
create new products and services that directly compete with the IFT System.
There can be no assurance that the Company would not be adversely affected by
such technological change.
Employees
As of September 1, 1996, the Company employed 13 persons on a full-time
basis, four in administrative and finance, three in sales and marketing, six in
manufacturing and field engineering. Most employees fill in on assignments
outside their primary responsibilities as needed. The Company believes that its
relations with its employees are satisfactory.
Item 2. PROPERTY
The Company leases approximately 10,000 square feet of space for its
principal executive offices, manufacturing and research and development
facilities in Laindon, Essex, U.K. This lease expires in December 1997. The base
rent for this facility is approximately $6,000 per month for 1995, approximately
$6,655 per month for 1996 and approximately $7,375 per month for 1997.
The Company maintains one office in New Canaan, Connecticut on a month
to month basis at $105 per month and a sales office in Gent, Belgium pursuant to
a three year lease at $360 per month plus utilities.
The Company's corporate office is in Wilmington, Delaware pursuant to
an annual lease of $2,766 or $225 per month plus utilities. The lease expires in
December 1996.
The Company believes that its facilities are adequate for its
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present and anticipated needs.
Item 3. LEGAL PROCEEDINGS
Not applicable.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
Item 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED
STOCKHOLDER MATTERS
The Company's common stock, Class A and Class B Warrants are quoted on
the Nasdaq SmallCap Market under the symbols "IFTI", "IFTIW, AND "IFTIZ"
respectively.
The table set forth below shows, for the period indicated, the high and
low bid quotations on the Nasdaq SmallCap Market for the Company's Securities.
These amounts represent quotation between dealers in securities, and do not
include retail mark-ups, mark-downs or commissions and may not represent actual
transactions.
Bid
Period Ended Type of Security High Low
December 1994 Common Stock 3 3/8 2 1/4
Class A Warrant 1/2 3/8
Class B Warrant 7/16 3/8
March 1995 Common Stock 2 7/8 1 1/16
Class A Warrant 1/2 1/4
Class B Warrant 3/8 3/16
June 1995 Common Stock 1 5/16 7/16
Class A Warrant 1/4 1/8
Class B Warrant 3/16 3/32
Bid
Period Ended Type of Security High Low
September 1995 Common Stock 1 3/16 11/32
Class A Warrant 5/32 3/32
Class B Warrant 3/32 3/32
December 1995 Common Stock 7/16 1/4
Class A Warrant 3/32 1/64
Class B Warrant 3/32 1/64
March 1996 Common Stock 1 1/8 1/4
Class A Warrant 3/16 3/32
Class B Warrant 5/32 3/32
June 1996 Common Stock 2 25/32 5/8
Class A Warrant 9/32 5/32
Class B Warrant 7/32 1/8
At September 25, 1996 the number of shareholders of record of the
Company's common stock and Class A Warrants and Class B Warrants were 69, 25 and
25, respectively.
The Company has not paid any cash dividends.
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Listing of Common Stock on Nasdaq SmallCap Market under symbol IFTI and
on Boston Stock Exchange.
Listing of Class A and Class B warrants will be discontinued on the
Boston Stock Exchange.
Item 6. SELECTED FINANCIAL DATA
Statement of Six Months
Operations Year Ended Ended
Data: December 31, 1992 June 30,1993(1)
Revenues.... $ 22,751 $17,025
Cost of
Revenues... 131,793 121,828
Operating
Expenses... 1,485,644 999,771
Net (loss).. (1,573,706) (1,101,056)
Net (loss) per
share...... $ (.44) $ (. 27)
Weighted average
number of common
shares..... 3,546,668 3,957,540
Cash dividend
per common share..
Balance Sheet
Data: December 31, 1992 June 30, 1993 (1)
----------------- -------------
Total assets.. $2,063,110 $3,965,244
Working capital. 765,500 2,670,427
Long-term
liabilities. 437,464 437,108
Total
liabilities. 806,732 758,335
Accumulated
deficit..... (1,579,788) (2,680,844)
Cumulative
translation
adjustment... (148,467) (166,806)
Stockholders'
equity...... 1,256,378 3,206,909
(1) During 1993, the Company changed its fiscal year end to June 30, 1993.
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Year Ended Year Ended Year Ended
June 30, 1994 June 30, 1995 June 30, 1996
Statement of
Operations Data:
Revenues $1,190,291 $ 476,161 $ 593,959
Cost of Revenues 445,355 344,868 537,110
Operating Expenses 2,631,912 2,974,998 1,669,145
Net Loss (1,928,987) (2,725,744) (1,563,667)
Net Loss per
share $ (.46) $ (.51) $ (.29)
Weighted average
number of 4,210,668 5,318,445 5,410,500
common shares
Cash Dividend
per common share --- --- ---
Balance Sheet:
Total Assets $2,601,471 $4,463,543 $2,659,185
Working Capital 636,096 2,687,338 1,322,420
Long-term
liabilities 422,521 394,625 380,900
Total
liabilities 1,318,560 1,106,581 886,274
Accumulated
deficit (4,609,831) (7,335,575) (8,899,242)
Cumulative
translation
adjustment (161,817) (130,436) (150,820)
Stockholders'
Equity 1,282,911 3,356,962 1,772,911
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Overview
The Company commenced operations in late December 1991. During 1992, the
Company's primary focus was completing the design and testing of the IFT System.
In 1993, the first production equipment was made available and a customer
testing program was commenced. Simultaneously, the Company stepped-up its
marketing and promotional activities.
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In 1993, the Company changed its year end to June 30. During Fiscal 1994
the Company increased its staffing levels and acquired the Vapormid business
from EcoLab, BVBA, a distributor of the Company's earlier "bubble technology".
On July 18, 1994 the Company's Initial Public Offering was completed
generating net proceeds of $4,768,414. In conjunction with the public offering,
the Company increased its operational and marketing activities in an effort to
achieve cash flow break even by fiscal year end. This objective was not
accomplished in part because of long lead times experienced between initial
sales presentations and invoicing, together with a lack of positive test data
on
three very large pulverized coal facilities. Therefore a sharp reduction in
expenses, including staff cuts, was implemented in May which reduced annual
costs by approximately $1,200,000 during fiscal 1996. During the year a leading
international oil company completed testing the IFT System in its
central
research facility with positive results and recommendations to its operating
units to utilize the technology. As a consequence the Company is in active
negotiations with three leading oil companies covering six locations with
receipt of the first contract imminent. An average size refinery or
petrochemical plant could utilize IFT technology and equipment valued at
approximately $1,000,000. With this large market opportunity, fiscal '97
revenues are estimated to be sharply higher than in the past year providing
positive cash flow and net income. The additional volume of business can be
accommodated within the existing capacity of the Company allowing for increases
in material purchases. The attainment of positive cash flow remains the
Company's primary financial objective and the immediate focus of operations will
be the European Community where the IFT technology has achieved market
recognition.
Year ended June 30, 1996 and June 30, 1995
Total revenues increased to approximately $594,000 during the year ended
June 30, 1996. The increase relates to an increase in rental income to
approximately $347,000 ($277,000 in 1995), an increase in system sales to
approximately $123,000 ($81,000 in 1995) and an increase in service income to
approximately $124,000 ($118,000 in 1995). The increase in rental income is due
to trials being converted to normal rentals during the year. The increase in
system sales is primarily attributable to UK activity in 1996 where larger
companies may prefer to purchase the IFT system rather than rent. System sales
occur on an irregular basis. The increase in service income reflects the
increased sales and rentals in 1996.
Gross profit decreased to approximately $57,000 during the year ended
June 30, 1996 from $131,000 during the year ended June 30,
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1995. The decrease related to field engineering, installation and other field
costs of approximately $176,000 incurred during the final quarter of the year
ended June 30, 1996 which had been classified as cost of revenues; in previous
periods, these costs have been classified as sales and marketing expenses. The
different classification relates to the maturing of the Company's system from a
development state requiring extensive engineering support to complete the sales
process to a mature product. In January, the Company discontinued free or
conditional testing and by the fourth quarter all previously free tests had been
completed.
General and administrative expenses decreased to approximately
$1,230,000 during the year ended June 30, 1996 from approximately $1,855,000
during the year ended June 30, 1995, a decrease of $625,000 due to internal
staff and other cost reductions implemented in May 1995. A total one-time cost
of $198,000 was incurred in May 1995, related to the personnel reductions.
Sales and marketing expenses decreased to approximately $362,000 during
the year ended June 30, 1996 from approximately $853,000 during the year ended
June 30, 1995. The decrease of $491,000 is due to cost reductions implemented in
May 1995, and continuing through 1996, as well as approximately $176,000 of
engineering and other technical costs incurred in the fourth quarter of the
year ended June 30, 1996 which were included in cost of revenues.These technical
costs were included in sales and marketing expenses during the year ended June
30, 1995 and the first three quarters of the year ended June 30, 1996. This
change is a result of the change in responsibilities of certain employee's
caused by the maturing of the Company's system from a developmental state to a
mature product.
Other income decreased to approximately $49,000 during the year ended
June 30, 1996 from approximately $118,000 during the year ended June 30, 1995, a
decrease of $69,000 primarily due to the use of funds in operations of the
Company.
Year ended June 30, 1995 and June 30, 1994
Total revenues decreased to approximately $476,000 during the year
ended June 30, 1995 from approximately $1,190,000 during the year ended June 30,
1994. The decrease related to a decrease in System sales to approximately
$81,000 ($852,000 in 1994), net of an increase in rental income to approximately
$277,000 ($220,000 in 1994). The decrease in System sales is primarily
attributable to activity in 1994 in former "eastern bloc" countries where sales
are preferable over rentals. System sales, particularly in these former "eastern
bloc" countries, occur on an irregular basis. The increase in rental income
relates to the increase in the number of Systems leased at June 30, 1995 versus
June 30, 1994.
Gross profit decreased to approximately $131,000 during the
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year ended June 30, 1995 from $745,000 during the year ended June 30, 1994. This
decrease related primarily to the decrease in System sales; the irregular
occurrence of System sales will cause significant fluctuations in gross profit
until the rental revenue base is significantly higher.
General and administrative expenses increased to approximately
$1,855,000 during the year ended June 30, 1995, from approximately $1,610,000
during the year ended June 30, 1994, an increase of $245,000 due to the
Company's expanded European and United States operations. A total cost of
$198,000 was incurred in the fourth quarter as a result of an internal staff
reduction in May 1995, which reduced total personnel from 28 to 18 and
eliminated other costs such as advertising and promotion. These savings are
projected to reduce expenses by approximately $1,000,000 in 1996.
Sales and marketing expenses decreased to approximately $853,000 during
the year ended June 30, 1995, from approximately $936,000 during the year ended
June 30, 1994. The decrease of $83,000 is principally due to reduced commission
expense related to lower system sales, partially offset by increased marketing
costs in the United States.
Other income increased to approximately $118,000 during the year ended
June 30, 1995 due to additional interest earned on the proceeds of the July 28,
1994 public offering.
Liquidity and Capital Resources
Since inception, the Company's funding requirements have been met
through the initial public offering of equity securities totaling approximately
$4.8 million, the private placement of equity securities totaling approximately
$6 million, revenue generated from equipment sales of approximately $1,056,000,
service and rental income of approximately $1,244,000 and interest earnings
totaling approximately $386,000. Cash on hand at June 30, 1996 was approximately
$1,173,000. All short term U.S. Treasury investments have been liquidated by
June 30, 1996.
Net cash used by operations was approximately $1.3 million, $2.7 million
and $1.7 million for the years ended June 30, 1996, 1995 and 1994. The principal
use of cash was to fund operating losses incurred by the Company in developing
the IFT System and sales, marketing and promotional activities. Working capital
was approximately $1.3 million, $2.7 million and $636,000 at June 30, 1996,
1995, and 1994, respectively. Fluctuations in working capital have been
primarily due to increases in accounts receivable and inventory offset by
increases in accounts payable and other
17
<PAGE>
accruals as well as $4,768,000 of new equity capital raised in July
1994.
The Company liquidated its U.S. Treasury investments during the year
ended June 30, 1996. The Company's primary investing activity in the year ended
June 30, 1995 involved the acquisition and sale of U.S. Treasury obligations.
During the year ended June 30, 1994, the Company's primary investing activities
included an acquisition of an operating business and capital expenditures for
equipment for the Company. The Vapormid business was acquired in August of 1993
for approximately $150,000. As part of the acquisition, the Company acquired an
established customer base, the continued use of the Vapormid product and various
ongoing customer contracts relating to equipment rentals and maintenance
agreements. There were no capital expenditures during the year ended June 30,
1996; capital expenditures amounted to approximately $100,000 and $151,000
during fiscal years '95 and '94, respectively. Capital expenditures were
associated with the purchase of equipment used in manufacturing as well as
expenditures incurred to produce rental equipment. The Company has no plans for
a significant investment in capital equipment in the next year.
Under an Assignment and Royalty Agreement with the inventor of the
technology utilized by the Company's System ("Royalty Agreement"), the Company
is required to make payments of $6,000 per month to the inventor over the
remaining life of patents relating to the technology. In conjunction with the
Royalty Agreement, the Company pays an executive officer/director of the Company
a royalty override of $5,000 per month.
On July 28, 1994 the Company registered with the Securities and Exchange
Commission and issued 1,200,000 units, each unit consisting of one share of
common stock, par value $.01 per share, one Series A, and one Series B
Redeemable Common Stock purchase warrant. As a result, the Company raised
$4,768,414 net of discounts, commissions and offering costs of $1,231,586.
The Company believes that the remaining proceeds from the Offering of
$1,173,000, together with anticipated funds from operations, will satisfy the
Company's working capital requirements and capital expenditures through fiscal
1997. The Company intends to focus its operations on continued expansion within
the European Community.
Currency Fluctuation
The Company's revenues are invoiced primarily in Pounds Sterling and
also currencies of other European countries (Belgium,
18
<PAGE>
Austria and Germany). Changes in exchange rates of these currencies relative to
the U.S. dollar could affect the Company's operations and cash flow. During the
fiscal years ended June 30, '96 and '95, currency fluctuations were not
significant and were not an influence on Company revenues and expenses.
Currently, the Company does not enter into derivative contracts to hedge
currency risks.
During the year ended June 30, 1996, the average rate of exchange used
to translate revenues and expenses denominated in Pounds Sterling has decreased
from approximately $1.58 U.S. dollars to 1 Pound to approximately $1.55 U.S.
dollars to 1 Pound.
Inflation
The Company does not believe that inflation has had a significant impact
on the results of its operations since inception.
Forward-looking statements made in this release are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that all forward-looking statements involve risks and
uncertainties including without limitation risks in technology development,
risks in product development and market acceptance of and demand for the
Company's products, risks associated with competition and competitive pricing
pressures, risks associated with foreign sales and other risks detailed in the
Company's filings with the Securities and Exchange Commission.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the consolidated financial statements and the financial statement schedules
set forth in Item 14 of this annual report.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable
19
<PAGE>
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
Page
A. (1) Financial Statements
Report of Independent Auditors F-1
Consolidated Balance Sheet - June 30, 1996 and 1995 F-2
Consolidated Statement of Operations - Years Ended F-3
June 30, 1996, 1995 and 1994
Consolidated Statement of Stockholders' Equity - F-4
Years Ended June 30, 1996, 1995 and 1994
Consolidated Statement of Cash Flows - Years Ended F-6
June 30, 1996, 1995 and 1994
Notes to Consolidated Financial Statements F-7
All other schedules for which provision is made in the applicable
accounting regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and therefore have
been omitted.
(3) Exhibits
3.1 Certificate of Incorporation
3.2 By-Laws
4.1 Specimen Certificate of Common Stock
4.2 Specimen Certificate of A Warrant
4.3 Specimen Certificate of B Warrant
10.1 Stock Option Plan
B. Reports on Form 8-K
Not Applicable
20
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Ionic Fuel Technology, Inc.
We have audited the accompanying consolidated balance sheet of Ionic Fuel
Technology, Inc. at June
30, 1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. These
financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence
supporting the amounts and 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 Ionic Fuel Technology, Inc. at
June 30, 1996 and 1995,
and the consolidated results of its operations and its cash flows for each of
the three years in the period
ended June 30, 1996 in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
September 6, 1996
F-1
<PAGE>
Ionic Fuel Technology, Inc.
Consolidated Balance Sheet
June 30
1996 1995
Assets
Current assets:
Cash and cash equivalents (Note 1) $1,173,088 $ 1,281,258
Short-term investments (Note 1) - 1,286,051
Trade accounts receivable (net of
allowances of $43,791
and $45,004) 80,332 197,902
VAT and other receivables 25,642 17,554
Inventory (Note 2) 464,093 466,941
Prepaid expenses 84,639 149,588
Total current assets 1,827,794 3,399,294
Equipment and vehicles, net (Notes 1 and 3) 192,608 312,683
Patents, net (Notes 1 and 4) 638,783 679,811
Rental maintenance contracts, net of
accumulated amortization of
$113,233 (Note 1) - 24,584
Total assets $2,659,185 $ 4,463,543
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 87,739 $ 120,127
Accrued expenses 316,493 373,203
Provisions for warranties and returns 63,833 145,650
Accrued royalty - due to officer (Note 4) 20,800 1,600
Accrued salary, benefits and payroll taxes 16,509 56,262
Current portion of capital lease
obligations (Note 5) - 15,114
Total current liabilities 505,374 711,956
Other long-term liabilities (Note 4) 380,900 394,625
Stockholders' equity:
Common stock, $.01 par value:
20,000,000 shares authorized; issued
and outstanding 5,400,000
shares (Note 7) 54,000 54,000
Capital in excess of par value 10,768,973 10,768,973
Accumulated deficit (8,899,242) (7,335,575)
Cumulative translation
adjustment (Note 1) (150,820) (130,436)
Total stockholders' equity 1,772,911 3,356,962
Total liabilities and stockholders' equity $ 2,659,185 $ 4,463,543
See accompanying notes.
F-2
<PAGE>
Ionic Fuel Technology, Inc.
Consolidated Statement of Operations
Year ended June 30
1996 1995 1994
Revenues (Note 1):
Equipment sales $ 122,671 $ 80,788 $ 851,785
Service income 124,084 118,035 118,404
Rental income 347,204 277,338 220,102
Total revenue 593,959 476,161 1,190,291
Cost of revenues 537,110 344,868 445,355
56,849 131,293 744,936
Operating expenses:
General and
administrative 1,229,969 1,854,880 1,609,930
Sales and marketing 361,644 853,093 935,778
Restructuring charges
(Note 9) - 198,006 -
Royalty charges 60,000 60,000 60,000
Research and development 17,532 9,019 26,204
1,669,145 2,974,998 2,631,912
-------------------- ---------------- --------------
Loss from operations (1,612,296) (2,843,705) (1,886,976)
Other income (expense):
Interest income 106,905 161,787 18,591
Miscellaneous income - 16,145 11,155
Interest expense (58,276) (59,971) (71,757)
48,629 117,961 (42,011)
-------------------- ---------------- -------------
Net (loss) $(1,563,667) $(2,725,744) $ (1,928,987)
Net (loss) per
share (Note 1) $ (0.29) $ (0.51) $ (0.46)
==================== ==================== ===================
Weighted average
number of common shares
(Note 1) 5,410,500 5,318,445 4,210,668
See accompanying notes.
<PAGE>
F-3
<PAGE>
Ionic Fuel Technology, Inc.
Consolidated Statement of Stockholders' Equity
Common Stock Capital in
-------------------------------
Par Excess of
Shares Value Par Value
Balance at June 30, 1993 4,200,000 $42,000 $ 6,012,559
Net loss
Translation adjustment
Balance at June 30, 1994 4,200,000 42,000 6,012,559
Issuance of common stock 1,200,000 12,000 4,756,414
Net loss
Translation adjustment
---------------- -------------- -----------------
Balance at June 30, 1995 5,400,000 54,000 10,768,973
Net loss
Translation adjustment
---------------- -------------- -----------------
Balance at June 30, 1996 5,400,000 $54,000 $10,768,973
================ ============== =================
See accompanying notes.
F-4
<PAGE>
Ionic Fuel Technology, Inc.
Consolidated Statement of Stockholders' Equity (continued)
Cumulative
Accumulated Translation
Deficit Adjustment Total
Balance at June 30, 1993 $(2,680,844) $(166,806) $ 3,206,909
Net loss (1,928,987) (1,928,987)
Translation adjustment 4,989 4,989
Balance at June 30, 1994 (4,609,831) (161,817) 1,282,911
Issuance of common stock 4,768,414
Net loss (2,725,744) (2,725,744)
Translation adjustment 31,381 31,381
-------------- ---------------- ------------------
Balance at June 30, 1995 (7,335,575) (130,436) 3,356,962
Net loss (1,563,667) (1,563,667)
Translation adjustment (20,384) (20,384)
-------------- ---------------- ------------------
Balance at June 30, 1996 $(8,899,242) $(150,820) $ 1,772,911
================ ================ ==================
See accompanying notes.
F-5
<PAGE>
Consolidated Statement of Cash Flows
Year ended June 30
1996 1995 1994
-------- -------------------- -------------------
Operating activities
Net (loss) $(1,563,667) $(2,725,744) $(1,928,987)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation 111,316 67,763 116,834
Amortization 85,653 79,414 144,314
Provision for bad debts - - 43,565
Changes in operating
assets and liabilities:
Accounts receivable 112,352 (77,870) (143,863)
Other receivables 2,311 5,039 44,347
Inventory (9,058) (89,498) (172,103)
Prepaid expenses 61,750 (62,966) (24,112)
Deferred charges - 327,614 (327,614)
Other assets 33,374 (6,267) (2,384)
Accounts payable
and accrued expenses (174,440) (165,866) 543,783
Net cash used in operating
activities (1,340,409) (2,648,381) (1,706,220)
Investing activities
Acquisition of investments - (6,063,303) (27,005)
Acquisition of patents and
license (18,703) (38,219) (151,424)
Acquisition of equipment - (100,283) (143,373)
Accretion of interest (13,949) (122,161) -
Proceeds from maturity of
investments 1,300,000 4,899,413 -
Net cash provided
by (used in) investing
activities 1,267,348 (1,424,553) (321,802)
Financing activities
Principal payments on
capital leases (14,707) (30,911) (15,766)
Principal payments
under licensing agreement (13,725) (11,824) (9,220)
Net proceeds from issuance
of stock - 4,768,414 -
Net cash (used in) provided
by financing activities (28,432) 4,725,679 (24,986)
-------------------- -------------------- -------------------
Effects of exchange rate
differences on cash (6,677) 9,810 (5,927)
-------------------- -------------------- -------------------
(Decrease) increase
in cash (108,170) 662,555 (2,058,935)
Cash, beginning of year 1,281,258 618,703 2,677,638
Cash, end of year $ 1,173,088 $ 1,281,258 $ 618,703
Interest paid $ 58,276 $ 59,971 $ 66,505
See accompanying notes.
F-6
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
Ionic Fuel Technology, Inc. ( "Company"), a Delaware corporation formed on
December 10, 1991,
manufactures ion generating equipment for sale or lease to entities in various
industries, in the United
Kingdom and Europe, to reduce airborne emissions and fuel consumption.
The consolidated financial statements include the accounts of the Company and
its wholly-owned
subsidiaries, Ionic Fuel Technology USA, Inc. ("IFT, USA"), a company
incorporated in the U.S. and
Ionic Fuel Technology, Ltd. ("IFT, Ltd."), a company incorporated in the
United Kingdom. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Concentration of Credit Risk
At June 30, 1996 and 1995, the Company maintained cash balances of
approximately $980,000 and
$1,167,000, respectively, at a bank in excess of the insurance limits
($100,000) of the Federal Deposit
Insurance Corporation.
The Company performs periodic evaluations of its customers financial condition
and generally does not
require collateral.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three
months or less when
purchased to be cash equivalents.
Short-term Investments
Effective July 1, 1994 the Company adopted Statement of Financial Accounting
Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." This
statement addresses the
accounting and reporting for investments in debt and equity securities that
have readily determinable fair
values.
Debt securities are classified as held-to-maturity when the Company has the
positive intent and ability
to hold the securities to maturity. Held-to-maturity securities are stated at
amortized cost. The amortized
cost of debt securities classified as held-to-maturity is adjusted for
amortization of premiums and
accretion of discounts to maturity. Such amortization is included in interest
income from investments.
Interest and dividends are included in interest income from investments.
Realized gains and losses on
dispositions are based on the net proceeds and the adjusted book value of the
securities sold, using the
specific identification method. The realized gains and losses flow through the
Company's statement of income.
At June 30, 1996, the Investment Securities portfolio had been liquidated.
F-7
<PAGE>
Notes to Consolidated Financial Statements
(continued)
1. Summary of Significant Accounting Policies (continued)
Inventory
Inventory is valued at the lower of cost, determined by the first-in, first-ou
method, or net realizable
value.
Equipment and Vehicles
Equipment and vehicles are stated at cost less accumulated depreciation and
amortization provided on
the straight-line basis over the estimated useful lives of the assets, which
range from three to ten years.
Equipment under lease to third parties is depreciated over the life of the
lease, generally five years.
Impairment of Long-Lived Assets
In 1995, the Financial Accounting Standards Board issued 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". The Company will adopt SFAS No. 121 in the year ended
June 30, 1997, and is not
expected to have a material impact.
Intangible Assets
Patents are carried at cost, less accumulated amortization provided on the
straight-line basis over the
estimated useful lives of the assets which range from five to fifteen years.
Amortization expense of these
intangible assets amounted to $61,732, $59,410 and $56,892 for the years ended
June 30, 1996, 1995
and 1994, respectively. Accumulated amortization amounted to $259,611 and
$197,879 at June 30, 1996
and 1995, respectively.
The value of rental and maintenance contracts acquired has been amortized over
the lives of the
contracts, which range from one to four years. The original lives of all
contracts purchased expired in
1996. This amortization expense amounted to $23,921, $20,004 and $87,422
for the years ended June
30, 1996, 1995 and 1994, respectively.
Income Taxes
The Company accounts for income taxes under the liability method in accordance
with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes"
(SFAS 109). Under this
method, deferred income taxes are recognized for the tax consequences of
"temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. Under SFAS 109, the
effect upon deferred taxes of a change in tax rates is recognized in income
in the period that includes
the enactment date.
Fair Value
<PAGE>
Cash and cash equivalents, accounts receivable and accounts payable: The
carrying amounts reported
in the balance sheet for cash and cash equivalents, accounts receivable and
accounts payable approximate
their fair value.
F-8
<PAGE>
Notes to Consolidated Financial Statements
(continued)
1. Summary of Significant Accounting Policies (continued)
Stock Compensation
The Company accounts for stock option grants in accordance with Accounting
Principles Board (APB)
Opinion No. 25, "Accounting for Stock Issued to Employees". Under the Company's
current plan,
options may be granted at no less than the fair market value on the date of
grant and therefore, no
compensation expense is recognized for the stock options granted. In the year
ended June 30, 1997, the
Company intends to adopt the disclosure provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation".
Per Share Data
Net loss per share of common stock is computed using the treasury stock method
based on the weighted
average number of shares of common stock and dilutive common equivalent shares
outstanding during
the period.
Foreign Currencies
Adjustments resulting from the translation of the financial statements of the
Company's foreign
subsidiary are excluded from the determination of income (loss) and are
accumulated in a separate
component of stockholders' equity.
Revenue Recognition
Rental income under operating leases is recognized on a straight-line basis
over the lease term. The
equipment leased is owned by the Company and, accordingly, the Company bears
all repairs and
maintenance costs incurred. The lease term is generally five years with an
option for renewal. Equipment
sales are recognized upon shipment of the equipment and are recorded net of
an allowance for returns.
Warranty Costs
Estimated warranty costs are provided for when the product is sold.
Field Engineering Costs
Cost of revenues reflects approximately $176,000 of field engineering,
installation, and other field costs
incurred in the fourth quarter of the year ended June 30, 1996. Similar costs
incurred in prior periods
are included in sales and marketing expenses because extensive engineering
support was required to
complete the sales process. This change is a result of the change in
responsibilities of certain employee's
caused by the maturing of the Company's system from a developmental state to
a mature product.
Reclassification
Certain amounts from the year ended June 30, 1995 have been reclassified to
conform to the presentation
at and for the year ended June 30, 1996.
<PAGE>
F-9
<PAGE>
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)
Use of Estimates
The consolidated financial statements have been prepared in accordance with
generally accepted
accounting principles and as such, include amounts based on judgments and
estimates made by
management, which may differ from actual results.
2. Inventory
Inventory is comprised of the following:
June 30
1996 1995
Material and supplies $152,721 $123,977
Finished goods 311,372 342,964
$464,093 $466,941
================== =================
Included in finished goods inventory are units, at customer sites, on a
short-term trial basis.
3. Equipment and Vehicles
Equipment and vehicles are comprised of the following:
June 30
1996 1995
Equipment $ 404,994 $ 403,068
Vehicles 22,754 23,717
427,748 426,785
Accumulated depreciation (321,242) (237,269)
106,506 189,516
------------------- -----------------
Equipment under lease 126,072 148,510
Accumulated depreciation (39,970) (25,343)
86,102 123,167
------------------- -----------------
$ 192,608 $ 312,683
=================== =================
Amortization expense included in depreciation expense, relating to the leased
equipment, amounted to
$20,898, $18,208 and $28,622 for the years ended June 30, 1996, 1995 and 1994,
respectively.
F-10
<PAGE>
<PAGE>
Notes to Consolidated Financial Statements
(continued)
4. Royalty Agreement
Under an agreement effective as of December, 1991 the Company purchased certain
patents and
inventions for $50,000 and agreed to make payments of $6,000 per month over
the remaining life of the
patents (initially 15 years). The Company has valued these patent rights
($428,698) based upon the
present value of the future minimum royalty payments. The remaining balance of
this obligation, less
amounts currently due, is included in other long-term obligations. If certain
annual profitability levels
are achieved, an additional royalty of $24,000 per annum will be payable. In
conjunction with this
agreement, the Company granted the inventor a security interest in the patents
and inventions during the
royalty period.
A founder/officer of the Company receives an override royalty of $5,000 per
month. This expense
amounted to $60,000, for the years ended June 30, 1996, 1995 and 1994. During
1995, $1,600 per month
of this override royalty was deferred resulting in an accrued royalty expense
of $20,800 and $1,600 at
June 30, 1996 and 1995, respectively.
5. Leases
The Company was the lessee of vehicles under capital leases which expired in
1996. The Company leases
its facility under a noncancelable operating lease expiring in 1997. The future
minimum lease payments
under the operating lease as of June 30, 1996 are as follows:
Operating
lease
Year ending June 30:
1997 $150,064
1998 91,302
1999 8,547
2000 2,848
--------------
Total minimum lease payments $252,761
==============
The cost of assets under capital leases amounted to $42,964 at June 30, 1995.
Accumulated amortization
relating to the leased equipment, amounted to $33,011 at June 30, 1995.
There was no cost of assets
under capital leases at June 30, 1996.
Rent expense amounted to $135,720, $102,439 and $117,366 for the years ended
June 30, 1996, 1995
and 1994, respectively.
The future minimum lease payments receivable under noncancelable operating
leases as of June 30, 1996
are as follows:
Operating
leases
Year ending June 30:
1997 $141,241
1998 113,911
1999 57,832
2000 6,435
--------------
Total minimum lease payments receivable $319,419
==============
<PAGE>
F-11
Notes to Consolidated Financial Statements
(continued)
6. Income Taxes
At June 30, 1996, the Company has available operating loss carryforwards for
United States Federal
income tax purposes of $1,759,354 which are available to offset future taxable
income, if any, through
the indicated years: $6,082 in 2006, $54,766 in 2007, $95,812 in 2008, $600,574
in 2009, $615,511 in
2010 and $386,609 in 2011. The amount and timing upon which the Company may
realize future tax
benefits from its net operating loss is affected by prior changes in ownership
of the Company. The
Company's subsidiary has an unused operating loss carryforward,
with no expiration date, for United
Kingdom income tax purposes of $6,545,318 at June 30, 1996. The statutory tax
rates during the years
ended June 30, 1996, 1995 and 1994 are 34% and 25% in the U.S. and U.K.,
respectively.
Significant components of the Company's deferred tax assets and liabilities
are as follows:
June 30
1996 1995
Deferred tax liabilities:
Total deferred tax liabilities $ $
- -
Deferred tax assets:
Benefit of net operating loss
carryforwards - U.S. 598,180 483,477
Benefit of net operating loss
carryforwards - U.K. 1,636,330 1,334,346
Other 58,899 98,114
Total deferred tax assets 2,293,409 1,915,937
Valuation allowance for
deferred tax assets (2,293,409) (1,915,937)
Net deferred tax assets - -
Total net deferred tax
assets (liabilities) $ - $ -
==================== ===================
7. Stockholders' Equity
Effective March 28, 1994, an amendment and restatement of the Company's
Restated Certificate of
Incorporation was approved by the Board of Directors of the Company providing
for an increase in the
authorized common stock of the Company to 20,000,000 shares. The Board also
approved a 1.6 for 1
stock split of the Company's then outstanding common stock. All share and per
share data were
retroactively adjusted in 1994 to reflect these actions.
In December 1991, the Company raised approximately $2,985,000, net of offering
costs of $145,000,
through the issuance of 2,640,000 shares of common stock at a price of $.125
per share (including
2,128,000 shares of common stock to its founders in exchange for certain
patent rights) and 896,000
shares at a price of $3.125 per share.
<PAGE>
In March 1993, the Company raised approximately $3,070,000, net of
offering costs of $250,000,
through the issuance of 664,000 shares of common stock at $5.00 per share.
F-12
Notes to Consolidated Financial Statements
(continued)
7. Stockholders' Equity (continued)
On July 28, 1994, the Company issued 1,200,000 units, each unit consisting
of one share of common
stock, par value $.01 per share, one Series A redeemable common stock purchase
warrant and one Series
B redeemable common stock purchase warrant. Two Series A Warrants entitle the
holder, to purchase
one share of Common Stock for $6.50 until July 28, 1997. Two Series B Warrants
entitle the holder,
to purchase one share of Common Stock for $7.50 until July 28, 1999. Each
Series of Redeemable
Warrants is redeemable at a price of $.01 per two Redeemable Warrants at any
time after July 1995,
upon not less than 30 days prior written notice, if the last sale price of the
Common Stock has been at
least $9.50 with respect to the Series A Warrants and $10.50 with respect to
the Series B Warrants for
the 20 consecutive trading days ending on the third day prior to the notice of
redemption. As a result
of the offering, the Company raised $4,768,414, net of discounts, commissions
and offering costs of
$1,231,586.
Stock Options
The Company's 1992 Stock Option Plan, as amended, (the "Plan"), provides for
the granting of qualified
or nonqualified options to acquire up to 450,000 common shares by certain key
employees of the
Company or its subsidiary. Under the Plan, the options granted may not be at
a price of less than 100%
of the fair market value of the common stock at the date of grant as determined
by the Company's Board
of Directors. Options are exercisable one year after the date of grant at
a rate of 20% per annum, on a
cumulative basis. Options may be granted through November 30, 2002, althoug
the Plan may be
terminated at any time.
Option
Number price
of shares per share
Options outstanding at June 30, 1993 87,200 $2.81
Granted 194,000 $2.81-$5.00
Exercised -
Canceled (83,200) $2.81-$5.00
Options outstanding at June 30, 1994 198,000
Granted 28,000 $2.13
Exercised -
Canceled (136,000) $2.81-$4.69
----------------
Options outstanding at June 30, 1995 90,000 $2.13-$5.00
Granted 36,000 $.28
Exercised -
Canceled -
Options outstanding at June 30, 1996 128,000 $ .28-$5.00
At June 30, 1996, options for 332,000 shares were available for future
grants and 47,200 options were
exercisable.
F-13
<PAGE>
Notes to Consolidated Financial Statements (continued)
8. Results of Foreign Operations
Total assets and liabilities and results of operations for IFT, Ltd. were as
follows:
June 30
1996 1995
Total assets $ 1,001,869 $ 1,315,409
======================== =====================
Total liabilities $ 543,080 $ 692,803
======================== =====================
Revenues $ 593,959 $ 477,783
======================== =====================
Loss from operations $(1,197,933) $(2,060,986)
======================== =====================
9. Restructuring Charges
During 1995, IFT Ltd. undertook a fundamental restructuring, leading to the
termination of over half of
its workforce. Other costs relating to this restructuring included inventory
writedowns and early
termination payments on certain motor vehicle leases.
F-14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(b) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: September 25, 1996
IONIC FUEL TECHNOLOGY, INC.
By: /s/ Douglas F. Johnston
Douglas F. Johnston
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant in the capacities and on the date indicated.
NAME TITLES DATE
/S/ DOUGLAS F. JOHNSTON
DOUGLAS F. JOHNSTON CHAIRMAN & CHIEF FINANCIAL SEPTEMBER 25, 1996
ACCOUNTING OFFICER
/S/ ANTHONGY J.S. GARNER
ANTHONY J.S. GARNER EXECUTIVE VICE PRESIDENT- SEPTEMBER 25, 1996
OPERATIONS AND DIRECTOR
/S/ PAUL C. O'NEILL
PAUL C. O'NEILL TREASURER AND DIRECTOR SEPTEMBER 25, 1996
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
IONIC FUEL TECHNOLOGY INC.
The undersigned, a natural person, for the purpose of organizing a
corporation for conducting the business and promoting the purposes hereinafter
stated, under the provisions and subject to the requirements of the laws of the
State of Delaware (particularly Chapter 1, Title 8 of the Delaware Code and acts
amendatory thereof and supplementary thereto, and known, identified and referred
to as the "General Corporation Law of the State of Delaware"), hereby certifies
that:
FIRST: The name of the corporation (hereinafter called the
"Corporation") is Ionic Fuel Technology Inc.
SECOND: The address, including street, number, city and county, of the
registered office of the Corporation in the State of Delaware is 15 East North
Street, City of Dover 19901, County of Kent; and the name of the registered
agent of the Corporation in the State of Delaware at that address is XL
Corporate Services.
THIRD: The nature of the business and purposes to be conducted or
promoted by the Corporation is to engage in any lawful act or activity for which
corporations may be organized under the General Corporation Law of the State of
Delaware.
FOURTH: The total number of Shares of all classes of stock which the
Corporation shall have authority to issue is 5,000,000 which shall be shares of
Common Stock, par value $.01 per share.
FIFTH: The name of the incorporator is Jack H. Halperin and his mailing
address is 361 Silver Court, Woodmere, New York 11598.
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
Section 201 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
Section 279 of Title 8 of the Delaware Code, order a meeting of the creditors or
class of creditors and/or of the stockholders or class of stockholders of this
Corporation, as the case may
20
<PAGE>
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise and arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its board of directors and of
its stockholders or any class thereof, as the case may be, it is further
provided:
1. The management of the business and the conduct of the affairs of the
Corporation shall be vested in its Board of Directors. The number of directors
shall constitute the whole board of directors shall be fixed by, or in the
manner provided in, the By-Laws. The phrase "whole board" and the phrase "total
number of directors" shall be deemed to have the same meaning, to wit, the total
number of directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
2. After the original or other By-Laws of the Corporation have been
adopted, amended or repealed, as the case may be, in accordance with the
provisions of Section 109 of the General Corporation Law of the State of
Delaware, and, after the Corporation has received any payment for any of its
stock, the power to adopt, amend or repeal the By-Laws of the Corporation may be
exercised by the Board of Directors of the Corporation; provided, however, that
any provision for the classification of Directors of the Corporation for
staggered terms pursuant to the provisions of subsection (d) of Section 141 of
the General Corporation law of the State of Delaware shall be set forth in an
initial By-Law or in a By-Law adopted by the stockholders entitled to vote of
the Corporation unless provisions for such classification shall be set forth in
this certificate of incorporation.
3. Whenever the Corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice of,
and the right to vote at, any meeting of stockholders. Whenever the Corporation
shall be authorized to issue more than one class of stock, no outstanding share
of any class of stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the right to
vote at any meeting of stockholders except as the provisions of paragraph (2) of
subsection (b) of Section 242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of any such class
which is otherwise denied voting power shall entitle the holder thereof to vote
upon the increase or decrease in the authorized shares of such class.
NINTH: The personal liability of the Directors of the Corporation is
hereby eliminated to the fullest extent permitted by paragraph (7) of
21
<PAGE>
subsection (b) of Section 102 of the General Corporation Law of the State of
Delaware, as the same may be amended and supplemented.
TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of the State of Delaware, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have power
to indemnify under said section from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said section, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any By-Law, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his official capacity and as to action in another capacity while holding such
office, and shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders or the Corporation by this
certificate of incorporation are granted subject to the provisions of this
paragraph ELEVENTH.
Signed at Woodmere, New York on November 25, 1991
----------------------
Jack H. Halperin
22
<PAGE>
IMALBYL-3 EXHIBIT 3.2
9010.26-1
BY-LAWS
OF
IONIC FUEL TECHNOLOGY INC.
ARTICLE I - OFFICERS
The principal office of the Corporation shall be located in the City, County and
State so provided in the Certificate of Incorporation. The Corporation may also
maintain offices at such other places within or without the State of Delaware as
the Board of Directors may, from time to time, determine and the business may
require.
ARTICLE II - STOCKHOLDERS
1. Place of meetings
Meetings of stockholders shall be held at the principal office of the
Corporation, or at such other places within or without the State of Delaware as
the Board shall authorize.
2. Annual Meetings
The annual meeting of the stockholders of the Corporation shall be held either
(i) at 2:00 p.m. on the last Tuesday of the third month in each year after the
close of the fiscal year of the Corporation, if such date is not a legal holiday
and if a legal holiday, then on the next business day following at the same
hour, or (ii) at such other time and date, not more than thirteen months after
the last preceding annual meeting, as the Board shall designate, at which time
the stockholders shall elect a Board of Directors, and transact such other
business as may properly come before the meeting.
3. Special Meetings
Special meetings of the stockholders may be called at any time by the Board or
by the President, or as otherwise required by law.
4. Notice of Meetings
Written notice of each meeting of stockholders, whether annual or special,
stating the time when and place where it is to be held, shall be served either
personally, by mail or by telex or telecopier. Such notice shall be served not
less than ten (10) nor more than sixty (60) days before the meeting, upon each
stockholder of record entitled to vote at such meeting, and to any other
stockholder to whom the giving of notice may be required by law. Notice of a
special meeting shall also state the purpose or purposes for which the meeting
is called, and shall indicate that it is being issued by the person calling the
meeting. If at any meeting, action is proposed to be taken that would, if taken,
entitle stockholders to receive payment for their shares, the notice of such
meeting shall include a statement of that purpose and to that effect. If mailed,
telexed, or telecopied, as the case may be, such notice shall be directed to
each such stockholder at his address, or telex or telecopier number
23
<PAGE>
as it appears on the records of the stockholders of the Corporation, unless he
shall have previously filed with the Secretary of the Corporation a written
request that notices intended for him be mailed to some other address, or
telexed or telecopied to some other number in which event, it shall be mailed to
the address, or telexed or telecopied to the number, designated in such request.
5. Waiver
Notice of any meeting need not be given to any stockholder who submits a signed
waiver of notice either before or after a meeting. The attendance of any
stockholder at a meeting, in person or by proxy, shall constitute a waiver or
notice by such stockholder.
6. Fixing Record Date
For the purpose of determining the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, or to express consent
to or dissent from any proposal without a meeting, or for the purpose of
determining stockholders entitled to receive payment of any dividend or the
allotment of any rights, or for the purpose of any other action, the Board shall
fix, in advance, a date as the record date for any such determination of
stockholders. Such date shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed, it shall be determined in accordance
with the provisions of law.
7. Quorum
(a) Except as otherwise provided by the Certificate of Incorporation, at all
meetings of stockholders of the Corporation, the presence at the commencement of
such meetings, in person or by proxy, or stockholders holding a majority of the
total number of shares of the Corporation then issued and outstanding on the
records of the Corporation and entitled to vote, shall be necessary and
sufficient to constitute a quorum for the transaction of any business. If a
specified item of business is required to be voted on by a class or classes, the
holder of a majority of the shares of such class or classes shall constitute a
quorum for the transaction of such specified item of business. The withdrawal of
any stockholder after the commencement of a meeting shall have no effect on the
existence of a quorum, after a quorum has been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
stockholders, the stockholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting.
8. Voting
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation,
(1) directors shall be elected by a plurality of the votes
cast; and
(2) all other corporate action to be taken by vote of the
stockholders, shall be authorized by a majority of votes
cast;
24
<PAGE>
at a meeting of stockholders by the holders of shares entitled to vote thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of stockholders, each holder of record of shares
of the Corporation entitled to vote, shall be entitled to one vote for each
share of stock registered in his name on the books of the Corporation.
(c) Each stockholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the stockholder
himself, or by his attorney-in-fact duly authorized in writing. No proxy shall
be voted or acted upon after three (3) years, unless the proxy shall specify the
length of time it is to continue in force. The proxy shall be delivered to the
Secretary at the meeting and shall be filed with the records of the Corporation.
Every proxy shall be revocable at the pleasure of the stockholder executing it,
unless the proxy states that it is irrevocable, except as otherwise provided by
law.
(d) Any action that may be taken by vote may be taken without a meeting, without
prior notice and without a vote, if a consent or consents in writing, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present and voted and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested.
Such action shall constitute action by such stockholders with the same
force and effect as if the same had been approved at a duly called meeting of
stockholders and evidence of such consent shall be inserted in the Minute Book
of the Corporation. Prompt written consent shall be given to those stockholders
who have not consented in writing.
ARTICLE III - BOARD OF DIRECTORS
1. Number.
The number of the directors of the Corporation shall be three (3), until
otherwise determined by a vote of the Board.
2. Election.
Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board need not be stockholders and shall be
elected by a majority of the votes cast at a meeting of stockholders, by the
holders of shares entitled to vote in the election.
3. Term of Office.
Each director shall hold office until the annual meeting of the stockholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
25
<PAGE>
4. Duties and Powers.
The Board shall be responsible for the control and management of the affairs,
property and interests of the Corporation, and may exercise all powers of the
Corporation, except those powers expressly conferred upon or reserved to the
stockholders.
5. Regular Meetings and Notice.
The Board may provide by resolution for the holding of regular meetings of the
Board of Directors, and may fix the time and place thereof.
Notice of regular meetings shall not be required to be given and, if given, need
not specify the purpose of the meeting; provided, however, that in case the
Board shall fix or change the time or place of any regular meeting, notice of
such action be given to each director who shall not have been present at the
meeting at which such action was taken within the time limited, and in the
manner set forth at Section 6 of this Article III, unless such notice shall be
waived.
6. Special Meetings and Notice.
(a) Special meetings of the Board shall be held whenever called by the President
or by one of the directors, at such time and place as may be specified in the
respective notices or waivers of notice thereof.
(b) Notice of special meetings shall be mailed directly to each director,
addressed to him at the address designated by him for such purpose at his usual
place of business, at least two (2) business days before the day on which the
meeting is to be held, or delivered to him personally or given to him orally,
not later than the business day before the day on which the meeting is to be
held.
(c) Notice of a special meeting shall not be required to be given to any
director who shall attend such meeting, or who submits a signed waiver of
notice.
7. Chairman.
At all meetings of the Board, the Chairman, if present, shall preside. If there
shall be no Chairman, or he shall be absent, then the President shall preside.
In his absence, the Chairman shall be chosen by the Directors present.
8. Quorum and Adjournments.
(a) At all meetings of the Board, the presence of a majority of the entire Board
shall be necessary to constitute a quorum for the transaction of business,
except as otherwise provided by law, by the Certificate of Incorporation, or by
these By-laws. Participation of any one or more members of the Board by means of
a conference telephone or similar communications equipment, allowing all persons
participating in the meeting to hear each other at the same time, shall
constitute presence in person at any such meeting.
(b) A majority of the directors present at any regular or special meeting,
although less than a quorum, may adjourn the same from time to time without
notice, until a quorum shall be present.
26
<PAGE>
9. Manner of Acting.
(a) At all meetings of the Board, each director present shall have one vote.
(b) Except as otherwise provided by law, by the Certificate of Incorporation, or
these By-Laws, the action of a majority of the directors present at any meeting
at which a quorum is present shall be the act of the Board. Any action
authorized, in writing, by all of the directors entitled to vote thereon and
filed with the minutes of the Corporation shall be the act of the Board with the
same force and effect as if the same had been passed by unanimous vote at a duly
called meeting of the Board.
10. Vacancies.
Any vacancy in the Board of Directors resulting from an increase in the number
of directors, or the death, resignation, disqualification, removal or inability
to act of any director, shall be filled for the unexpired portion of the term by
a majority vote of the remaining directors, though less than a quorum, at any
regular meeting or special meeting of the Board called for that purpose.
11. Resignation.
Any director may resign at any time by giving written notice to the Board, and
President or the Secretary of the Corporation. Unless otherwise specified in
such written notice, such resignation shall take effect upon receipt thereof by
the Board or such officer, and the acceptance of such resignation shall not be
necessary to make it effective.
12. Removal.
Any director may be removed, with or without cause, at any time by the holders
of a majority of the shares then entitled to vote at an election of directors,
at a special meeting of the stockholders called for that purpose, and may be
removed for cause by action of the Board.
13. Compensation.
No compensation shall be paid to directors as such, for their services, but by
resolution of the Board, a fixed sum and expenses for actual attendance may be
authorized for attendance at each regular or special meeting of the Board.
Nothing herein contained shall be construed to preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.
14. Contracts.
(a) No contracts or other transaction between this Corporation and any other
business shall be affected or invalidated, nor shall any director be liable in
any way by reason of the fact that a director of this Corporation is interested
in, or is financially interested in such other business, provided such fact is
disclosed to the Board.
(b) Any director may be a party to or may be interested in any contract or
transaction of this corporation individually, and no director shall be liable in
any way by reason of such interest, provided that the fact of such participation
or interest be disclosed to the Board and provided that the Board shall
authorize or ratify such contract or transaction by the vote (not counting
27
<PAGE>
the vote of any such director) of a majority of a quorum, notwithstanding the
presence of any such director at the meeting at which such action is taken. Such
director may be counted in determining the presence of a quorum at such meeting.
This Section shall not be construed to invalidate or in any way affect any
contract or other transaction which would otherwise be valid under the law
applicable thereto.
15. Committees.
The Board, by resolution adopted by a majority of the entire Board, may from
time to time designate from among its members an executive committee and such
other committees, and alternate members thereof, as they deem desirable, each
consisting of three or more members, with such powers and authority (to the
extent permitted by law) as may be provided in such resolution. Each such
committee shall remain in existence at the pleasure of the Board. Participation
of any one or more members of a committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time, shall constitute a director's
presence in person at any such meeting. Any action authorized in writing by all
of the members of a committee and filed with the minutes of the committee shall
be the act of the committee with the same force and effect as if the same had
been passed by unanimous vote at a duly called meeting of the committee.
ARTICLE IV - OFFICERS
1. Number and Qualifications.
The officers of the Corporation shall consist of a President and a Secretary,
and such other officers, including a Chairman of the Board, one or more Vice
Presidents, and a Treasurer, as the Board of Directors may from time to time
deem advisable. Any officer other than the Chairman of the Board may be, but is
not required to be, a director of the Corporation. Any two or more offices may
be held by the same person, except the offices of President and Secretary.
2. Election.
The officers of the Corporation shall be elected by the Board at the regular
annual meeting of the Board following the annual meeting of stockholders.
3. Term of Office.
Each officer shall hold office until the annual meeting of the Board next
succeeding his election, and until his successor shall have been elected and
qualified, or until his death, resignation or removal.
4. Resignation.
Any officer may resign at any time by giving written notice thereof to the
Board, the President or the Secretary of the Corporation. Such resignation shall
take effect upon receipt thereof by the Board or by such officer, unless
otherwise specified in such written notice. The acceptance of such resignation
shall not be necessary to make it effective.
5. Removal.
Any officer, whether elected or appointed by the Board, may be removed by the
28
<PAGE>
Board, with or without cause, and a successor elected by the Board at any time.
6. Vacancies.
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by the Board.
7. Duties.
Unless otherwise provided by the Board, officers of the Corporation shall each
have such powers and duties as generally pertain to their respective offices,
such powers and duties as may be set forth in these by-laws, and such powers and
duties as may be specifically provided for by the Board. The President shall be
the chief executive officer of the Corporation.
8. Sureties and Bonds.
At the request of the Board, any officer, employee or agent of the Corporation
shall execute for the Corporation a bond in such sum, and with such surety as
the Board may direct, conditioned upon the faithful performance of his duties to
the Corporation, including responsibility for negligence and for the accounting
for all property, funds or securities of the Corporation which may come into his
hands.
9. Shares of Other Corporations.
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such stockholder shall be exercised on
behalf of the Corporation in such manner as the Board may authorize.
ARTICLE V - SHARES OF STOCK
1. Certificates.
(a) The certificates representing shares in the Corporation shall be in such
form as shall be approved by the Board and shall be numbered and registered in
the order issued. They shall bear the holder's name and the number of shares and
shall be signed by (i) the Chairman of the Board or the Vice Chairman of the
Board or the President or a Vice President, and (ii) the Secretary or Treasurer,
or any Assistant Secretary or Assistant Treasurer, and shall bear the corporate
seal.
(b) Certificates representing shares shall not be issued until they are fully
paid for.
(c) The Board may authorize the issuance of certificates for fractions of a
share which shall entitle the holder to exercise his voting rights, receive
dividends and participate in liquidating distributions, in proportion to the
fractional holdings.
2. Lost or Destroyed Certificates.
Upon notification by the holder of any certificate representing share of the
Corporation of the loss or destruction of one or more certificates representing
the same, the Corporation may issue new certificates in place of any
29
<PAGE>
certificates previously issued by it, and alleged to have been lost or
destroyed. Upon production of evidence of loss or destruction, in such form as
the Board in its sole discretion may require, the Board may require the owner of
the lost or destroyed certificates to provide the Corporation with a bond in
such sum as the Board may direct, and with such surety as may be satisfactory to
the Board, to indemnify the Corporation against any claims, loss, liability or
damage it may suffer on account of the issuance of the new certificates. A new
certificate may be issued without requiring any such evidence or bond when, in
the judgment of the Board, it is proper to do so.
3. Transfers of Shares.
(a) Transfers of shares of the Corporation may be made on the share records of
the Corporation solely by the holder of such records, in person or by a duly
authorized attorney, upon surrender for cancellation of the certificates
representing such shares, with an assignment or power of transfer endorsed
thereon or delivered therewith, duly executed and with such proof of the
authenticity of the signature, and the authority to transfer and the payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any
shares as the absolute owner thereof for all purposes and shall not be bound to
recognize any legal, equitable or other claim to, or interest in, such shares on
the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise expressly provided by law.
(c) The Corporation shall be entitled to impose such restrictions on the
transfer of shares as may be necessary for the purpose of electing or
maintaining Subchapter S status under the Internal Revenue Code or for the
purpose of securing or maintaining any other tax advantage to the Corporation.
4. Record Date.
In lieu of closing the share records of the Corporation, the Board may fix, in
advance, a date not less than ten (10) days nor more than sixty (60) days, as
the record date for the determination of stockholders entitled to receive notice
of, and to vote at, any meeting of stockholders, or to consent to any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day immediately preceding
the day on which notice is given, or, if notice is waived, at the close of
business on the day immediately preceding the day on which the meeting is held;
the record date for determining stockholders for any other purpose shall be at
the close of business on the day on which the resolution of the directors
relating thereto is adopted. The record date for determining stockholders
entitled to express consent to corporate action in writing without a meeting,
when no prior action by the Board is necessary, shall be the day on which the
first written consent is expressed. When a determination of stockholders of
record entitled to notice of or to vote at any meeting of stockholders has been
made as provided for herein, such determination shall apply to any adjournment
thereof, unless the directors fix a new record date for the adjourned meeting.
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<PAGE>
ARTICLE VI - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board from time to
time, subject to applicable law.
ARTICLE VII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to time by the Board.
ARTICLE VIII - -AMENDMENTS
All by-laws of the Corporation shall be subject to revision, amendment or
repeal, and new by-laws may be adopted from time to time by a majority of the
stockholders who are at such time entitled to vote in the election of directors
or by the Board of Directors to the extent authorized by the Certificate of
Incorporation.
31
<PAGE>
EXHIBIT 4.1
COMMON STOCK COMMON STOCK
PAR VALUE $.01 PAR VALUE $.01
SHARES
SEE REVERSE FOR CERTAIN
DEFINITIONS AND LIMITATIONS CUSIP 462211103
IONIC FUEL TECHNOLOGY, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, OF
IONIC FUEL TECHNOLOGY, INC. (hereinafter called the Corporation) transferable on
the books of the Corporation or by the holder hereof, in person or by duly
authorized Attorney, upon surrender of this Certificate properly endorsed. This
Certificate is not valid until countersigned and registered by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
Transfer Agent and Registrar
AUTHORIZED SIGNATURE
SECRETARY
PRESIDENT
The following abbreviations, when used in the inscription on the face of this
certificate, shall be constured as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship and not as tenants in
common UNIF GIFT MIN ACT - Custodian
(Cust) (Minor)
Under Uniform Gifts to Minor Act
(State)
Addtional abbreviations may also be used though not in the above list.
For Value received hereby sell, assign and transfer unto
32
<PAGE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
(NAME AND ADDRESS OF TRANSFEREE SHOULD BE PRINTED OR TYPEWRITTEN)
Shares of the Common Stock represented by the within Certificate and do hereby
irrevocably constitute and appoint Attorney to transfer the said stock on the
books of the within-named Corporation with
full power of substitution in the premises.
Dated
SIGNATURE
Signature(s) Guaranteed
By
THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (Banks,
Stockbrokers, Savings and Loan Associations and Credit Unions WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-1 5.
NOTICE: The signature of this assignment must correspond with name(s) as
written upon the face of the certificate in every particular without alteration
or enlargement or any change whatever.
33
<PAGE>
EXHIBIT 4.2
AW-
SERIES A WARRANTS
CUSIP 462211103
VOID AFTER July 28, 1997
SERIES A REDEEMABLE COMMON STOCK WARRANT CERTIFICATE FOR PURCHASE OF COMMON
STOCK OF IONIC FUEL TECHNOLOGY, INC.
This certifies that FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Series A Redeemable Common Stock Purchase Warrants (the "Warrants") specified
above. Two Warrants initially entitles the Registered Holder to purchase,
subject to the terms and conditions set forth in this Certificate and the
Warrant Agreement (as hereinafter defined), one fully paid and nonassessable
share of Common Stock, $0.01 par value, of Ionic Fuel Technology, Inc., a
Delaware corporation (the "Company") at any time commencing 6 days from the date
of the Warrant Agreement or such earlier time as First Hanover Securiites, Inc.,
in its sole discretion, may determine, and the Expiration Date (as hereinafter
defined), upon the presentation and surrender of this Warrant Certificate with
the Subscription Form on the reverse hereof duly executed, at the corporate
office of Continental Stock Transfer & Trust Company as Warrant Agent, or its
successor (the "Warrant Agent"), accompanied by payment of $6.50 (the "Purchase
Price") in lawful money of the United States of America in cash or by official
bank or certified check made payable to the Warrant Agent. This Warrant
Certificate and each Warrant represented hereby are issued pursuant to and are
subject in all respects to the terms and conditions set forth in the Warrant
agreement (the "Warrant Agreement"), dated as of July 28, 1994, by and among the
Company, the Warrant Agent and First Hanover Securities, Inc.
In the event of certain contingencies provided for in the Warrant Agreement, the
Purchase Price or the number of shares of Common Stock subject to purchase upon
the exercise of each Warrant represented hereby are subject to modification or
adjustment.
Each Warrant represented hereby is exercisable at the option of the Registered
Holder, but no fractional shares of Common Stock will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City time) on July 28,
1997, or such earlier date asthe Warrants shall be redeemed. If such date shall
in the State of New York be a holiday or a day on which the banks are authorized
to close, then the Expiration Date shall be 5:00 p.m. (New York City time) the
next day which in the State of New York is not a holiday or a day in which banks
are authorized to close.
The Company shall not be obligated to deliver any securities pursuant to the
exercise of this Warrant unless a registration statement under the Securities
Act of 1933, as amended, with respect to such securities is effective. The
Company has covenanted and agreed that it will file a registration statement and
will use its best efforts to cause the same to become effective and to keep such
34
<PAGE>
registration statement current while any of the Warrants are outstanding. This
Warrant shall not be exercisable by a Registered Holder in any state where such
exercise would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment together with any tax or other
governmental charge imposed in connection therewith, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered Holder
shall not be entitled to any rights of a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends or other
distributions and shall not be entitled to receive any notice of any proceedings
of the Company, except as provided in the Warrant Agreement.
Commencing days after the date of the Warrant Agreement or such earlier date as
First Hanover Securities, Inc., in its sole discretion, may determine, this
Warrant may be redeemed at the option of the Company, at redemption price of
$0.01 per two Warrants, (i) provided the closing bid price of the Company's
Common Stock as reported on the automated quotation system of the National
Association of Securities Dealers, Inc. ("NASDAQ") averages, for at least 20
consecutive trading days ending within a period of 30 consecutive trading days
ending within 5 days prior to the date of the notice of redemption, in excess of
$9.50 per share or (ii) with First Hanover Securities, Inc. prior written
consent. Notice of redemption shall be given not later than the thirtieth (30th)
day before the date fixed for redemption, all as provided in the Warrant
Agreement. On and after the date fixed for redemption, the Registered Holder
shall have no rights with respect to this Warrant except to receive the $0.01
per two Warrants upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company and
the Warrant Agent may deem and treat the Registered Holder as the absolute owner
hereof and of each Warrant represented hereby (notwithstanding any notations of
ownership or writing hereon made by anyone other than a duly authorized officer
of the Company or the Warrant Agent) for all purposes and shall not be affected
by any notice to the contrary.
The Company has agreed to pay a fee of five (5%) percent of the Purchase Price
upon certain conditions as specified in the Warrant Agreement upon the exercise
of this Warrant.
This Warrant Certificate shall be governed by and construed in accordance with
the laws of the State of Delaware. This Warrant Certificate is not valid unless
countersigned by the Warrant Agent.
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly
executed, manually or in facsimile by two (2) of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By
AUTHORIZED OFFICER
Dated:
By
SECRETARY
IONIC FUEL TECHNOLOGY, INC.
By
PRESIDENT
IONIC FUEL TECHNOLOGY, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrant
represented by this Warrant Certificate, and to purchase the securities issuable
upon the exercise of such Warrants, and requests that certificates for such
securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER (please print or type
name and address) and be delivered to (please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was solicited
by a member of the National Association of Securities Dealers, Inc., ("NASD").
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by First Hanover
Securities, Inc.
Name of NASD Member if other than Biltmore Securities, Inc.
Dated:
36
<PAGE>
Signature
Street Address
City, State and Zip Code
Taxpayer ID Number
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please print or type name and address)
) of the Warrants
represented by this Warrant Certificate, and hereby irrevocably constitutes
and appoints
Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated:
Signature Guaranteed
THIS SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
PURSUANT TO S.E.C.
RULE 17 AD 15.
37
<PAGE>
EXHIBIT 4.3
AW-
SERIES B WARRANTS
CUSIP 462211129
VOID AFTER July 28, 1999
SERIES B REDEEMABLE COMMON STOCK WARRANT CERTIFICATE FOR PURCHASE OF
COMMON STOCK OF IONIC FUEL TECHNOLOGY, INC.
This certifies that FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner
of the number of Series B Redeemable Common Stock Purchase Warrants
(the "Warrants") specified above. Two Warrants initially entitles the
Registered Holder to purchase, subject to the terms and conditions set
forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, $0.01
par value, of Ionic Fuel Technology, Inc., a Delaware corporation (the
"Company") at any time commencing 6 days from the date of the Warrant
Agreement or such earlier time as First Hanover Securiites, Inc., in
its sole discretion, may determine, and the Expiration Date (as
hereinafter defined), upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof
duly executed, at the corporate office of Continental Stock Transfer &
Trust Company as Warrant Agent, or its successor (the "Warrant Agent"),
accompanied by payment of $7.50 (the "Purchase Price") in lawful money
of the United States of America in cash or by official bank or
certified check made payable to the Warrant Agent.
This Warrant Certificate and each Warrant represented hereby
are issued pursuant to and are subject in all respects to the terms and
conditions set forth in the Warrant agreement (the "Warrant
Agreement"), dated as of July 28, 1994, by and among the Company, the
Warrant Agent and First Hanover Securities, Inc.
In the event of certain contingencies provided for in the
Warrant Agreement, the Purchase Price or the number of shares of Common
Stock subject to purchase upon the exercise of each Warrant represented
hereby are subject to modification or adjustment.
Each Warrant represented hereby is exercisable at the option
of the Registered Holder, but no fractional shares of Common Stock will
be issued. In the case of the exercise of less than all the Warrants
represented hereby, the Company shall cancel this Warrant Certificate
upon the surrender hereof and shall execute and deliver a new Warrant
Certificate or Warrant Certificates of like tenor, which the Warrant
Agent shall countersign, for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (New York City
time) on July 28, 1999, or such earlier date asthe Warrants shall be
redeemed. If such date shall in the State of New York be a holiday or a
day on which the banks are authorized to close, then the Expiration
Date shall be 5:00 p.m. (New York City time) the next day which in the
State of New York is not a holiday or a day in which banks are
authorized to close.
The Company shall not be obligated to deliver any securities
pursuant to the exercise of this Warrant unless a registration
statement under the Securities Act of 1933, as amended, with respect to
such securities is effective. The Company has covenanted and agreed
that it will file a
38
<PAGE>
registration statement and will use its best efforts to cause the same
to become effective and to keep such registration statement current
while any of the Warrants are outstanding. This Warrant shall not be
exercisable by a Registered Holder in any state where such exercise
would be unlawful.
This Warrant Certificate is exchangeable, upon the surrender
hereof by the Registered Holder at the corporate office of the Warrant
Agent, for a new Warrant Certificate or Warrant Certificates of like
tenor representing an equal aggregate number of Warrants, each of such
new Warrant Certificates to represent such number of Warrants as shall
be designated by such Registered Holder at the time of such surrender.
Upon due presentment together with any tax or other governmental charge
imposed in connection therewith, for registration of transfer of this
Warrant Certificate at such office, a new Warrant Certificate or
Warrant Certificates representing an equal aggregate number of Warrants
will be issued to the transferee in exchange therefor, subject to the
limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the
Registered Holder shall not be entitled to any rights of a stockholder
of the Company, including, without limitation, the right to vote or to
receive dividends or other distributions and shall not be entitled to
receive any notice of any proceedings of the Company, except as
provided in the Warrant Agreement.
Commencing days after the date of the Warrant Agreement or
such earlier date as First Hanover Securities, Inc., in its sole
discretion, may determine, this Warrant may be redeemed at the option
of the Company, at redemption price of $0.01 per two Warrants, (i)
provided the closing bid price of the Company's Common Stock as
reported on the automated quotation system of the National Association
of Securities Dealers, Inc. ("NASDAQ") averages, for at least 20
consecutive trading days ending within a period of 30 consecutive
trading days ending within 5 days prior to the date of the notice of
redemption, in excess of $10.50 per share or (ii) with First Hanover
Securities, Inc. prior written consent. Notice of redemption shall be
given not later than the thirtieth (30th) day before the date fixed for
redemption, all as provided in the Warrant Agreement. On and after the
date fixed for redemption, the Registered Holder shall have no rights
with respect to this Warrant except to receive the $0.01 per two
Warrants upon surrender of this Certificate.
Prior to due presentment for registration of transfer hereof,
the Company and the Warrant Agent may deem and treat the Registered
Holder as the absolute owner hereof and of each Warrant represented
hereby (notwithstanding any notations of ownership or writing hereon
made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any
notice to the contrary.
The Company has agreed to pay a fee of five (5%) percent of
the Purchase Price upon certain conditions as specified in the Warrant
Agreement upon the exercise of this Warrant.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Delaware. This Warrant Certificate is not
valid unless countersigned by the Warrant Agent.
39
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed, manually or in facsimile by two (2) of
its officers thereunto duly authorized and a facsimile of its corporate
seal to be imprinted hereon.
Countersigned and Registered:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY
By
AUTHORIZED OFFICER
Dated:
By
SECRETARY
IONIC FUEL TECHNOLOGY, INC.
By
PRESIDENT
IONIC FUEL TECHNOLOGY, INC.
SUBSCRIPTION FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
Warrant
represented by this Warrant Certificate, and to purchase the securities issuable
upon the exercise of such Warrants, and requests that certificates for such
securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER (please print or type
name and address) and be delivered to (please print or type name and address)
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was solicited
by a member of the National Association of Securities Dealers, Inc., ("NASD").
If not solicited by an NASD member, please write "unsolicited" in the space
below. Unless otherwise indicated by listing the name of another NASD member
firm, it will be assumed that the exercise was solicited by First Hanover
Securities, Inc.
40
<PAGE>
Name of NASD Member if other than Biltmore Securities, Inc.
Dated:
Signature
Street Address
City, State and Zip Code
Taxpayer ID Number
Signature Guaranteed
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, hereby
sells, assigns and transfers unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
(please print or type name and address)
) of the Warrants
represented by this Warrant Certificate, and hereby irrevocably constitutes
and appoints
Attorney
to transfer this Warrant Certificate on the books of the Company, with full
power of substitution in the premises.
Dated:
Signature Guaranteed
THIS SIGNATURE SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION
PURSUANT TO S.E.C.
RULE 17 AD 15.
41
<PAGE>
EXHIBIT 10.1
IONIC FUEL TECHNOLOGY, INC.
INCENTIVE STOCK OPTION PLAN
AND
NONSTATUTORY STOCK OPTION PLAN
1. Name, Effective Date and Purpose.
(a) This Plan document is intended to implement and govern two separate
stock option plans of IONIC FUEL TECHNOLOGY, INC. (The "Company"): the
Incentive Stock Option Plan ("Plan A") and the Nonstatutory Stock
Option Plan ("Plan B"). Plan A provides for the granting of options
that are intended to qualify as incentive stock options ("Incentive
Stock Options") within the meaning of Section 422A(b) of the Internal
Revenue Code of 1986, as amended (the "Code"). Plan B provides for the
granting of options that are not intended to so qualify. Unless
otherwise specified, all the provisions of this plan relate equally to
both Plan A and Plan B and are condensed for convenience into one
document.
2. Administration.
(a) The Plan shall be administered by the Board of Directors of the Company
(the "Board").
(b) The Board shall have sole authority, in its absolute discretion, to
determine which of the eligible persons of the Company and its
affiliated companies shall receive Options ("Optionees"), and, subject
to the express provisions and restrictions of this Plan, to determine
the time when Options shall be granted, the terms and conditions of an
Option other than the terms and conditions fixed under this Plan, the
number of shares which may be issued upon exercise of an Option and the
means of payment for such shares, and shall be issued upon exercise of
an Option and the means of payment for such shares, and shall have
authority to do everything necessary or appropriate to administer this
Plan. All decisions, determinations and interpretations of the Board
shall be final and binding on all Optionees.
(c) The Board shall have the authority to delegate some or all of the
powers granted to it pursuant to Section 2 to a committee appointed by
the Board and consisting of not less than three (3) members of the
Board (the "Committee").
(d) Aggregate limitations with respect to the participation of directors and
officers in the plan:
(i) No more than 25,000 shares of Common Stock may be optioned
and sold to directors of the Company under the Plans in the
42
<PAGE>
aggregate.
(ii) No more than 200,000 shares of Common Stock may be
optioned
and sold to non-director officers and employees of the Company
under the Plans in the aggregate.
3. Eligibility.
(a) Plan A: The Board of the Committee, if so authorized by the Board,
may in its discretion, grant one or more options under Plan A to any
key management employee of the Company or any of its affiliated
companies, including any employee who is a director of the Company or
any of its affiliated companies presently existing or hereafter
organized or acquired. Such options may be granted to one or more such
employees without being granted to other eligible employees, as the
Board may deem fit.
(b) Plan B: The Board of the Committee if so authorized by the Board,
may in its discretion grant one or more Options under Plan B to any key
management employee, any non-employee director of the Company or any of
its affiliated companies, including any employee who is a director of
the Company or any of its affiliated companies presently existing or
hereinafter organized or any person who performs consulting services
for the Company or any of its affiliated companies and is designated by
the Board as eligible to participate in Plan B. Such options may be
granted to one or more such persons without being granted to other
eligible persons, as the Board may deem it.
4. Stock to be Optioned.
(a) The maximum aggregate number of shares which may be optioned and
sold under Plan A and Plan B is 225,000 (Two Hundred and Twenty-Five
Thousand) shares of authorized Common Stock of the Company.
(b) Shares of Common Stock that (i) are repurchased by the Company
after issuance hereunder pursuant to the exercise of an Option, or (ii)
are not purchased by the Optionee prior to the expiration or
termination of the applicable Option, shall again become available to
be covered by Options to be issued hereunder and shall not, as of the
effective date of such repurchase or expiration, be counted as counted
as covered by an outstanding Option for purposes of the above-described
number of shares which may be optioned hereunder.
5. Option Price.
The option price for shares of Common Stock to be optioned
either under Plan A or Plan B shall be 100% of the fair market value of
such shares on the date on which the Option covering such shares is
granted by the Board or the Committee if so authorized, except where a
higher price is required by the Code. The fair market value of shares
of Common Stock for all purposes of this Plan is to be determined by
the Board or the committee is so authorized in its sole discretion,
exercised in good faith.
43
<PAGE>
6. Terms of Plan.
The Plans shall become effective on December 1, 1992 and shall
continue in effect until November 30, 2002 unless terminated earlier by
the Board. No Option may be granted hereunder after November 30, 2002.
7. Exercise of Options.
The Board, or the Committee if so authorized, may determine
the time or times at which any option granted under the Plans may be
exercised, and may accelerate the time at which all or part of an
Option may be exercised. No Option shall have a term of more than ten
(10) years.
8. Effect of Death or Other Termination of Employment.
(a) If an option holder dies while employed by the corporation or a
subsidiary and without having fully exercised any then existing option,
his estate or the legatees or distributees of his estate or of the
option, as the case may be, shall have the right to purchase under the
option the number of shares, if any, which the option holder was
entitled to purchase as of the date of death at any time within 12
months following the date of death, but not beyond that time and in no
event later than the expiration date of the option.
(b) If an option holder's employment with the corporation and its
subsidiaries is terminated by reason of his complete on or after he
reaches the age of 60 years in such manner as would entitled him to
receive full Social Security benefits if he were then 65 years of age,
without his having fully exercised any existing option, the option
holder shall have the right to purchase under the option the number of
shares, if any, which he is entitled to purchase at the time of such
retirement at any time within 3 months following such retirement date,
but not beyond that time and in no event any later than the expiration
date of the option.
(c) If any option holder's employment with the corporation and its
subsidiaries as the case may be, is terminated for any cause designated
by the Executive Committee as an "approved termination" by reason of
his illness, disability or other incapacity, without his having fully
exercised any existing option, the option holder shall have the right
to purchase under the option the number of shares, if any, which he is
entitled to purchase at the time of such approved termination any time
within 3 months following the effective date of such termination of
employment, but not beyond that time and in no event later than the
expiration date of the option.
(d) If an option holder's employment with the corporation and its
subsidiaries, as the case may be, is terminated for any reason other
than set forth in paragraph (a), (b), or (c) above, whether such
termination be voluntary or involuntary, without his having fully
exercised any existing option, the option shall be cancelled and he
shall have no further rights to exercise any such option and all his
rights thereunder shall terminate as of the effective date of such
termination of employment.
44
<PAGE>
9. Exercise of Options.
An option shall be deemed exercised when written notice of
such exercise has been given to the Company at its principal business
office by the person entitled to exercise the Option and full payment
in cash (or shares of Common Stock in accordance with this Plan) for
the shares with respect to which the Option has been received by the
Company.
10. Shareholder Approval.
The grant of Options under this Plan shall be conditioned upon
approval of the Plan by the holders of a majority of the outstanding
shares of Common Stock.
11. Limit on Value of Optioned Shares.
The aggregate fair market value (determined as of the date of
grant of an Option) of the shares of Common Stock for which Incentive
Stock Options are exercisable for the first time by any employee of the
Company during any calendar year under all incentive stock option plans
of the Company and its parent and subsidiary corporations (as defined
under the Code) shall not exceed $100,000. The limitation shall not
apply with respect to Options granted under Plan B.
12. Exercise with Company Stock.
The Board of the Committee if so authorized may provide that,
upon exercise of an Option, the Optionee may elect to pay for some or
all of the shares of Common Stock underlying the option with shares of
Common Stock of the Company previously acquired and owned at the time
of exercise by the Optionee, subject to the restrictions and
limitations of applicable laws, including the Code, and to such
conditions as the Board may impose. The equivalent dollar value of the
shares used to effect the purchase shall be the fair market value of
the shares on the date of purchase as determined by the Board of the
Committee if so authorized, exercised in good faith.
13. Stock Option Agreement.
The terms and conditions of Options granted under the Plan
shall be evidenced by a Stock Option Agreement executed by the Company
and the person to whom the Option is granted. Such agreement shall
contain such terms and conditions not inconsistent with this Plan as
the Board or the Committee if so authorized, shall determine.
14. Taxes, Fees and Expenses.
The Company shall pay all original issue and transfer taxes
but not income taxes, if any, with respect to the grant of Options
and/or the issue and transfer of shares pursuant to the exercise of
such Options, and all other fees and expenses necessarily incurred in
connection therewith.
45
<PAGE>
15. Withholding of Taxes.
The grant of Options hereunder and the issuance of Common
Stock pursuant to the exercise of such Options is conditioned upon the
Company's reservation of the right to withhold, in accordance with the
applicable law, from any compensation payable to the Optionee any taxes
required to be withheld by federal, state or local law as a result of
the grant or exercise of any such Option.
16. Amendment or Termination of the Plan.
(a) The Board may amend this Plan from time to time in such respects as
the Board may deem advisable, provided, however, that no such amendment
shall operate to (i) affect adversely an Optionee's rights under this
Plan with respect to any Option granted hereunder prior to the adoption
of such amendment, except as may be necessary in the judgment of
counsel to the Company, to comply with any applicable law, (ii)
increase the maximum aggregate number of shares which may be optioned
and sold under the Plan, (iii) change the manner of determining the
option exercise price, (iv) change the classes of persons eligible to
receive Options under the Plan, or (v) extend the maximum duration of
an Option or the Plan.
(b) The Board may at any time terminate this Plan. Any such termination
of the Plan shall not, without the written consent of the Optionee,
alter the terms of Options already granted and such Options shall
remain in full force and effect as if this Plan had not been
terminated.
17. Options Not Transferable.
Options granted under this Plan may not be sold, pledged,
hypothecated, assigned, encumbered, gifted or otherwise transferred or
alienated in any manner, either voluntarily or involuntarily by
operation of law, otherwise than by will or the laws of descent and
distribution, and may be exercised during the lifetime of the Optionee
only by the Optionee.
18. Reservation of Shares.
The Company will during the term of this Plan at all times
receive and keep available such number of shares of its Common Stock as
shall be sufficient to satisfy the requirements of the Plan.
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19. Notices.
Any notice to be given to the Company pursuant to the
provisions of this Plan shall be addressed to the Company in care of
its President at its principal executive office, and any notice to be
given to an Optionee shall be addressed to him at the address given
beneath his signature on his Stock Option Agreement, or such other
address as such person may hereafter designate in writing to the
Company. Any such notice shall be deemed duly given when enclosed in a
properly sealed envelope or wrapper addressed as aforesaid, registered
or certified, and deposited, postage and fees prepaid, in a post office
or branch post office regularly maintained by the Untied States Postal
Service.
20. Adjustments Upon Changes in Capitalization.
If the outstanding shares of Common Stock of the Company are
increased, decreased, changed into or exchanged for a different number
or kind of shares of the Company through reorganization,
recapitalization, reclassification, stock dividend, stock split or
reverse stock split, then upon proper authorization by the Board an
appropriate and proportionate adjustment shall be made in the number or
kind of shares which may be issued upon exercise of Options granted
under the plan; provided, however, that no such adjustment need be made
if, upon the advice of counsel, the Board determines that such
adjustment may result in the receipt of federally taxable income to
holders of Options granted hereunder or the holders of Common Stock or
other classes of the Company's securities.
21. Representations and Warranties.
As a condition to the exercise of any portion of an Option,
the Company may require the person exercising such Option to make any
representation and/or warranty to the Company as may, in judgment of
counsel to the Company, be required under any applicable law or
regulation, including but not limited to a representation and warranty
that the shares are being acquired only for investment and without any
recent intention to sell or distribute such shares if, in the opinion
of counsel for the Company, such representation is required under the
Securities Act of 1933, as amended, or any other applicable law,
regulation or rule of any governmental agency.
22. No Enlargement of Employee Rights.
This Plan is purely voluntary on the part of the Company, and
while the Company hopes to continue it indefinitely, the continuance of
the Plan shall not be deemed to constitute a contract between the
Company and any employee. Nothing contained in the Plan shall be deemed
to give any employee the right to be retained in the employ of the
Company or one of its affiliated companies, or to interfere with the
right of the Company or any affiliated company to discharge or retire
any employee thereof at any time. No employee shall have any right to
or interest in Options authorized hereunder prior to the grant of such
an Option to such employee, and upon such grant he shall have only such
rights and interests as are expressly provided herein, subject,
however, to all applicable
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provisions of the Company's Certificate of Incorporation, as the
same may
be amended from time to time.
23. Successors and Assigns.
This Plan shall be binding on and inure to the benefit of the
Company and the employees to whom Options are granted hereunder, and
such employees' heirs, executors, administrators, legatees, personal
representatives, assignees and transferees.
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