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As filed with the Securities and Exchange Commission on April 30, 1999
Registration No. _______________
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
INDUSTRIAL ECOSYSTEMS, INC.
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(Name of Small Business Issuer in its Charter)
Utah 94-3200034
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 Dondee Way, Suite 10, Pacifica, CA 94044
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (650) 355-4050
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Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
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N/A N/A
Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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(Title of Class)
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INDUSTRIAL ECOSYSTEMS, INC.
FORM 10-SB
TABLE OF CONTENTS
PART 1 Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 7
Item 3. Description of Property...................................... 11
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 12
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 13
Item 6. Executive Compensation....................................... 14
Item 7. Certain Relationships and Related Transactions............... 17
Item 8. Description of Securities.................................... 21
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 22
Item 2. Legal Proceedings............................................ 23
Item 3. Changes in and Disagreements with Accountants................ 24
Item 4. Recent Sales of Unregistered Securities...................... 24
Item 5. Indemnification of Directors and Officers.................... 26
PART F/S
Financial Statements......................................... 27
PART III
Item 1. Index to Exhibits............................................ 44
Signatures................................................... 44
<PAGE>
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
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General
The Company was incorporated in the state of Utah in July 1993 under the
name Agri World Development Corp. In January 1994, the name was changed to
Industrial Ecosystems, Inc. (hereinafter "IEI" or the "Company"). In March
1994, IEI acquired 100% of the equity securities of Environmental Protection
Company, a New Mexico corporation ("EPC") in exchange for shares of IEI's
Common Stock. Until the acquisition of EPC, IEI had no operating activities.
Also, the exchange of IEI's Common Stock for the Common Stock of EPC resulted
in the former stockholders of EPC obtaining control of IEI. Accordingly, EPC
became the continuing entity for accounting purposes, and the transaction was
accounted for as a recapitalization of EPC with no adjustment to the basis of
EPC's assets acquired or liabilities assumed. For legal purposes, IEI was the
surviving entity. EPC is in the excavation and bioremediation business and
operates principally in the Farmington, New Mexico area.
In June 1994, IEI, through IEI's wholly-owned Canadian subsidiary, IEI
Canada, Inc. ("IEI Canada"), acquired 100% of I.T.E. Ecosystems, Inc., Amlin
Grain Roasting, Inc. and a minority interest in N-Viro Systems Canada, Inc.
The operations of I.T.E. Ecosystems, Inc. and Amlin Grain Roasting, Inc. were
discontinued during 1994. In September 1994, IEI incorporated three separate
wholly-owned subsidiaries, RFP Management & Development Corp., ROP Management
& Development Corp. and IEI Canada, Inc. In December 1996, IEI incorporated
another wholly owned subsidiary, ROP Liquid Feed Corp. with the intent of
separating various business activities into different entities. Thereafter, in
March 1998, IEI created a Canadian entity (merger company) for the purpose of
consolidating IEI Canada, Inc., ROP Liquid Food Corp, ROP Management &
Development Corp. and RFP Management and Development Corp. into the merger
company. The resulting consolidated entity was named IEI Canada, Inc. The
assets and certain liabilities of all of these companies were later assumed by
ROP North America, LLC, a joint venture company formed in March, 1998, and the
consolidated companies' operations were discontinued.
Aborted Change of Domicile to Delaware
- - --------------------------------------
In February 1996, IEI filed incorporation documents in Delaware in the
name of Industrial Ecosystems, Inc., intending to accomplish a change of
domicile merger for the Utah corporation into Delaware. This merger was never
effected, and the Delaware corporation has never had any operations. However,
due to some confusion between the IEI and its then transfer agent, certain
share certificates were mistakenly issued designating Delaware as the state of
incorporation instead of Utah. All certificates issued with the Delaware
designation have been treated by the IEI and its transfer agent as validly
issued certificates of IEI, a Utah corporation. Any shareholder who holds a
certificate with the Delaware designation may, at IEI's sole expense, submit
the certificate to IEI's transfer agent for reissue with the correct Utah
designation, however shareholders are not required to do so.
<PAGE> 4
Revocation of Utah Charter and Subsequent Reinstatement
- - -------------------------------------------------------
IEI's Utah charter was involuntarily dissolved in October 1995 for
failure to file an annual report in the state of Utah. This failure to file
timely was the result of irregularities perpetrated by IEI's then registered
agent and its incorporator. No notices of the dissolution were ever sent to
IEI's principal office, nor were any of IEI's officers ever notified of the
dissolution by the state of Utah.
IEI discovered the revocation in June 1998, and retained legal counsel to
petition the state of Utah for reinstatement. The reinstatement of IEI's
charter was successfully accomplished by court order in October 1998. The
Company is now in good standing in the state of Utah.
Summary of Business Operations
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Environmental Protection Company
As indicated above, the Company operates a wholly owned subsidiary, EPC,
which, among other things, utilizes a unique bioremediation process to reclaim
contaminated soil. A majority of the Company's excavating and soil
remediation jobs are done on sites owned and operated by Amoco Production
Company ("Amoco"), in and around the Farmington, New Mexico area. If timing
and logistics dictate, the contaminated soil is excavated and transported from
the Amoco site to a ten acre parcel of land located five miles from
Farmington, New Mexico. This parcel which is owned and operated by EPC is
permitted to receive and bio-convert hydrocarbon impacted soils. EPC's
agreement with Amoco allows for the bioremediation of only Amoco soil on the
EPC parcel.
EPC engages in soil remediation of hydrocarbon spills using proprietary
biotechnology knowhow. The EPC process involves the use of a matrix of
bacteria. These bacteria are acquired from a number of different media which
are controlled by EPC. These bacteria, along with certain enzymes which are
produced by the bacteria, aid in the remediation of the contaminated soil.
When soils are treated using the bioconversion process, enzymatic metabolism
of the hydrocarbons can begin immediately. The bioconversion process causes
the breakdown and emulsification of hydrocarbon at the hydrocarbon/aqueous
interface. Once the hydrocarbons are emulsified, they are readily accessible
to the large number of naturally occurring bacteria present in the
biopreparation. Bacterial enzymes bind to the hydrocarbons forming enzyme-
substrate complexes which subsequently serve to breakdown the hydrocarbons.
The biopreparation itself is believed to be non-toxic.
Customers
- - ---------
EPC's chief revenue source has been and continues to be its work for
Amoco. EPC is highly dependent on Amoco as a customer. Even though AMOCO has
provided EPC with a fairly steady flow of business over the years, AMOCO is
under no obligation to continue as such in the future. The recent British
Petroleum ("BP") merger with AMOCO has not financially impacted EPC, however,
there can be no assurance that EPC's business with AMOCO will continue as it
has in the past. In an effort to broaden its customer base in the New Mexico
area, EPC recently signed an excavation and remediation agreement with Public
Service Company of New Mexico, a local public utility. The financial impact of
this agreement is not as yet known. Outside of New Mexico, the Company has had
<PAGE> 5
little success marketing its bioremediation service. The Company is, however,
presently preparing to conduct a demonstration of its bioremediation
technology for the U.S. Navy at the Pt. Molate naval fuel depot in Richmond,
California. Should the demonstration prove to be successful, the Company
believes that demand for its bioremediation technology will increase. In order
to enjoy the possible benefit associated therewith, the Company plans to
license its bioremediation technology to contractors that may be better
positioned to garner contracts than the Company.
In an effort to expand the Company's revenues, the Company may look to
form a strategic alliance or business combination with an operating company in
a similar or substantially related industry. The Company intends to utilize
various sources in its search for potential relationships, including its
officers and directors, venture capitalists, and others who may present
management with unsolicited proposals. To date, the Company has not engaged
or entered into any discussions, negotiations, agreements or understandings
regarding any potential alliances or business combinations, nor has management
engaged any consultants to specifically assist the Company for such purposes.
Competition
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Traditional hydrocarbon spill remediation methods have been based on
conventional civil engineering techniques such as excavation and removal to
landfill. These methods can be expensive because of cost of transporting large
volumes of material. The excavation and disposal methods are under increasing
regulatory scrutiny as landfill standards are tightened and disposal costs
rise. These traditional methods are being replaced by newer methods which use
a variety of physical, biological and chemical methods to either immobilize or
destroy contaminants.
Traditional remediation services are predominantly provided by
environmental firms, construction contractors and environmental engineering
firms. Numerous small companies are offering newer remediation services with
varying degrees of success in treating a wide array of contaminated soils.
These small companies generally have operations like EPC's New Mexico
operations which are relatively local in scope.
EPC's technology has only been utilized for the bioremediation of
hydrocarbon contamination and management does not know if it is appropriate or
effective for multiple contaminants. Direct competition in the limited area
of hydrocarbon contamination is primarily from landfill and land-spreading
operations permitted to handle soils contaminated with hydrocarbons.
Government Regulation
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Various environmental protection laws have been enacted and amended
during recent decades in response to public concern over the environment. The
Company's bioremediation operations may be subject to these evolving laws and
the implementing regulations. The Company believes, however, that the
requirements of these laws may ultimately contribute, in a number of respects,
to the demand for its services. The United States environmental laws which the
Company believes are or may be, applicable to EPC's bioremediation operations
include the Resource Conservation and Recovery Act ("RCRA"), as amended by the
Hazardous and Solid Waste Amendments of 1984 ("HSWA"), the Federal Water
Pollution Control Act of 1972 (the "Clean Water Act"), the Clean Air Act of
1970, as amended (the "Clean Air Act"), Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), the Pollution Prevention Act of
1990 and the Federal Insecticide, Fungicide and Rodenticide Act ("FIFRA").
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These laws regulate the management and disposal of wastes, control the
discharge of pollutants into the air and water, provide for the investigation
and remediation of contaminated land and groundwater resources and establish a
pollution prevention program. Various states in the United States have
implemented environmental protection laws that are similar to the applicable
federal laws and, in addition, states may require, among other things, permits
to maintain existing or construct additional EPC facilities, if necessary.
Employees
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As of December 31, 1998, EPC had six full-time employees, all of whom are
employees-at-will. EPC hires additional part-time employees on an as-needed
basis. All employees receive special training in the handling of contaminated
materials related to the EPC's bioremediation process.
ROP North America, LLC
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As indicated above, the Company's Canadian subsidiary IEI Canada, Inc.,
owns a 50% membership interest in ROP North America, LLC (the "JV"). The JV,
through its wholly owned subsidiary, ROP North America, Inc.("ROP"), operates
a blending/processing plant in Amherstberg, Ontario, Canada to convert organic
by-products from commercial food processors, such as potato skins and corn by-
products, and certain organic material from other commercial, industrial and
institutional sources, such as the syrup from ethanol production, into a
livestock feed ingredient.
The benefits of the blending/processing plant include the diversion of
waste from landfills and the reduction of the use of other environmentally
unsuitable disposal methods. The availability of such waste processing offers
reduced disposal costs to food processors and other waste generators. To the
extent energy conversion and increased handling/transportation costs can be
minimized, blended/processed waste provides an economical alternative for the
livestock feed industry.
In addition to blending/producing a liquid livestock feed-ingredient, ROP
also operates a facility in Amherstberg Ontario in which approximately 3,000
pigs per cycle (up to 3 cycles per year) are raised for a local pig producer.
These pigs are fed the ROP liquid feed-ingredient as part of their regular
diet. Once the pigs have reached the specified weight, the pigs are picked up
by the producer and replaced by new piglets.
The ROP liquid feed-ingredient which is produced at the Amherstberg
facility is also marketed in limited quantities to other producers in Western
Ontario. The market for the ROP liquid feed-ingredient is limited to pig
producers who employ liquid feed distribution systems. There are currently
under 100 pig farmers in the Western Ontario area who utilize liquid-feed
systems. Because of a limited customer base, logistical and economic factors
associated with obtaining raw materials for conversion and the costs
associated with converting and transporting the liquid feed-ingredient, there
may be limited cost-effective opportunities to expand ROP's current liquid
feed-ingredient product.
Management believes the best strategy for expanding ROP's business
involves obtaining, blending and processing of: (i) high value dry feed raw
material from commercial food processors and (ii) liquid and dry food by-
product waste steams. To accomplish this strategy ROP plans to: (i) obtain the
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specific permits required to process food by-product waste steams; (ii)
utilize its cooking and stabilizing system (called the proto-flow system),
which ROP owns; and (iii) establish distribution/transportation relationships
with waste haulers in order to obtain appropriate high value waste steams.
The JV is governed by a three person Board of Managers, two of whom were
appointed by JFJ Ecosystems, LLC (the Company's JV partner) and one of whom
was appointed by IEI Canada. Tom Jarnagin, the Company's President, has been
appointed by IEI Canada to serve as the Company's representative on the Board
of Managers. In connection with the formation of the JV, the JV entered into a
consulting agreement with the Company by which the JV agreed to pay the
Company certain consulting fees if the JV's income and expenses matched
certain financial projections established by the Company for the JV. The
Company received $100,000 after formation of the JV and was to receive
$100,000 on December 31, 1998, if the projections were met. The projections
were not attained on December 31, 1998, and the Company will not receive the
additional $100,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Cautionary Statement Regarding Forward-looking Statements
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This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
Year 2000 Disclosure
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The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a minimum
number of computer programs in its operations. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
Results of Operations
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General
-------
The Company's revenues are generated primarily by its business operations
in the United States through EPC. Since March, 1998, the Company has pursued
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the development of ROP, through the Company's Canadian subsidiary, IEI Canada,
which at December 31, 1998, was still in the stages of development. The
Company's results of operations include the costs of its investment in ROP.
For fiscal years ended December 31, 1998 and 1997, the functional
currency for the Company's foreign subsidiary (IEI Canada and its
subsidiaries) has been determined to be the Canadian Dollar. Assets and
liabilities have been translated at year end exchange rates and operating
statement items are translated at average exchange rates prevailing during the
year. For the fiscal years ended December 31, 1998 and 1997, the Company had
a foreign currency translation adjustment of $23,755 and $14,664,
respectively.
Year ended December 31, 1998 compared to year ended December 31, 1997
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Total revenues for the year ended December 31, 1998 was $625,545 compared
to $569,983 for the same period in 1997, an increase of 9.75%. This increase
in revenues is attributable to an increase in general excavation and hauling
work for Amoco. Direct costs for the year ended December 31, 1998 were
$405,787, or 64.7% of sales as compared to $360,569, or 63.3% of sales for the
year ended December 31, 1997. The slight increase in the direct cost of sales
as a percent of sales for fiscal year 1998 compared to fiscal year 1997 is not
directly attributable to any particular factors. EPC's work for Amoco is
allocated between routine site maintenance and emergency clean-up, and,
therefore, the Company cannot predict what events or uncertainties may be
reasonably expected to have a material impact on the net sales revenues or
income from continuing operations. Amoco has recently completed a merger with
British Petroleum which could possibly affect the amount of work Amoco makes
available to EPC, although management has no indication, as yet, of any
decline.
Corporate Expense. For fiscal 1998, total operating expenses were
$1,694,726, consisting of general and administrative expenses of $1,586,049
and depreciation and amortization expenses of $108,677, resulting in a loss
from operations of $1,473,968. Total expenses for fiscal 1997 were
$2,244,519, consisting of general and administrative expenses of $2,042,502
and depreciation and amortization expenses of $202,017, resulting in a loss
from operations of $2,035,105. The reduction in the general and
administrative expenses (22.35%) during fiscal year 1998 can be attributed to
a reduction in ROP related expenses that are now allocated between the members
of the JV, while the reduction in the depreciation and amortization expenses
(46.20%) during the same period is a direct result of assets conveyed to the
JV.
Interest Expense. Interest expense for fiscal 1998 was $40,236 as
compared to $78,835 in fiscal 1997. The decline is attributed to (a) the
conversion of a substantial amount of debt to equity in the second quarter of
1998.
Other Expense. Other expense for fiscal 1998 was a net $380,545, of
which, substantially all was represented by loss on the Company's investment
in the JV and the disposition of certain assets. Other expense for fiscal
1997 was a net $43,764, of which substantially all was represented by loss on
the disposition of assets during the period.
The Company experienced a net loss of $1,880,085 for the year ended
December 31, 1998 compared with a net loss of $2,133,949 for the same period
<PAGE> 9
in 1997, a decrease of 11.89%. The basic loss per share for fiscal 1998 was
$0.06 as compared to $0.10 for fiscal 1997, based on the weighted average
number of shares outstanding for the respective periods.
Liquidity and Capital Resources
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In March 1998, the Company, through IEI Canada, the Company's Canadian
subsidiary, entered into the JV with JFJ Ecosystems, L.L.C., wherein the
Company contributed the leasehold, contracts, equipment, personal property,
tools, furnishings, supplies, and tangible properties, inventories and
miscellaneous property constituting the Amherstberg, Ontario, Canada recovered
organic product facilities. In connection with the formation of the JV, the
JV entered into a consulting agreement with the Company by which the JV agreed
to pay the Company certain consulting fees if the JV's income and expenses
matched certain financial projections established by the Company for the JV.
The Company received $100,000 after formation of the JV and was to receive
$100,000 on December 31, 1998, if the projections were met. The projections
were not attained on December 31, 1998, and the Company will not receive the
additional $100,000.
The Company subleases a liquid feed distribution system to the JV for
$4,414 per month. The Company's lease payment is $4,414 per month and is
through an unrelated third party. The lease term expires in March, 2005.
During 1998, the Company completed the private placement of 2,865,701
shares of common stock at an average price of $0.35 per share for aggregate
cash proceeds of $1,000,922. Shares totaling 5,341,330 were issued in lieu of
debt at an average price of $0.16 per share for a total value of $836,067. In
addition, 99,999 shares were issued for services rendered to the Company at an
average of $0.21 per share for a total value of $21,425.
The issuances of common stock have been utilized for working capital,
conversion of debt, payment of professional services, the expansion capital
required for the newly formed JV, and for the continued development activities
of the Company; however, the Company will require additional capital to
continue its strategy with the JV and ROP.
The Company had a working capital deficit of $(714,199) at December 31,
1998. The Company had cash and cash equivalents of $12,552 and restricted
cash deposits of $40,669 at December 31, 1998. Cash used in operations for
the year ended December 31, 1998 was $(1,253,800) and $(1,196,926) for the
year ended December 31, 1997. Cash used in operations for the year ended
December 31, 1998 was funded primarily by cash received from notes payable,
capital contributions and the issuance of common stock for cash.
Because the Company has an accumulated deficit of $(22,521,496), has a
working capital deficit and limited internal financial resources, the report
of the Company's auditor contains a going concern modification as to the
ability of the Company to continue. During fiscal 1998, the Company began to
effect measures to reduce cash outflows and increase working capital thru the
issuance of additional shares of common stock for cash, services and
conversion of debt. The Company is aware of its ongoing cash requirements and
has implemented a cash flow plan, including continued reduction in its general
and administrative expenses. Additionally, the Company has developed an
overall strategy and certain financing options to meet its ongoing need
through December 31, 1999.
Due to the need for working capital for both the Company and the JV, JFJ,
the Company, and IEI Canada have agreed to restructure the JV to provide for
(a) the release of part of the funds escrowed pursuant to the Original JV
Agreement; (b)establishment of a line of credit to the Company; (c) the grant
<PAGE> 10
of certain rights to the Company to acquire JFJ's membership interest in the
JV; (d) the grant of certain rights to JFJ to sell its membership interest in
the JV to the Company; (e) the release by JFJ and its members and affiliates
of any and all claims against the Company, IEI Canada, the Company's
subsidiaries, their affiliates and officers and directors and shareholders for
any misrepresentations made to induce JFJ to enter into the Original JV
Agreement; and (f) the grant to the Company of a right to first refusal on JV
borrowing.
IEI Canada and JFJ have restructured the Original JV Agreement to provide
that JFJ would immediately release $250,000 of the $1,000,000 escrow to meet
immediate cash flow needs of the JV. The remaining $750,000 was then loaned by
JFJ to the Company through the establishment of a line of credit. Upon the
restructuring, JFJ became an equal 50% member of the JV with IEI Canada and
IEI Canada's option to reduce JFJ's membership interest to 19% was terminated.
In connection with the restructuring of the JV, JFJ has extended a
$750,000 line of credit to the Company. The line of credit bears interest at
6% per annum until December 31, 2000, at which time all principal advanced
under the line of credit, and any interest accrued thereon, will be due and
payable in full. As security for the line of credit, the Company caused IEI
Canada to pledge as security IEI Canada's 50% membership interest in the JV.
If the line of credit is not timely repaid in full, IEI Canada's membership
interest in the JV shall be conveyed to JFJ in satisfaction of the line of
credit, thus making JFJ the 100% owner of the JV. All disbursements from the
line of credit are subject to the prior review of an independent Credit
Committee appointed by the Company's Board of Directors.
At December 31, 1998, the Company had recorded $323,755 in accrued
expenses consisting primarily of accrued interest and unpaid payroll taxes,
unemployment taxes, sales taxes and gross receipts taxes due both the federal
and state taxing authorities, including reasonable interest and penalties for
delinquent filings. Subsequent to December 31, 1998, and prior to the date of
this filing, the Company extended a preliminary settlement offer to the IRS.
The settlement offer to the IRS was based on the Company's anticipated need to
raise additional working capital without exposing such capital to potential
seizure by the IRS. The terms of the preliminary settlement offer are based
on the trustee portion of tax due and contingent on the IRS finalizing its
examination confirming the financial condition of the Company and the
financial condition of those officers and directors of the Company during the
time that the tax liability arose (the "Responsible Parties"). The trustee
portion due is approximately $90,000 and will require the Company to make
payments to the IRS of approximately $5,000 per month over 24 months. Upon
payment in full of the aggregate amount the IRS will provide the Company and
any Responsible Parties with a full release from liability. Should the Company
fail to maintain the monthly payments to the IRS, the IRS will have the right
to collect from the individual Responsible Parties as well as the Company.
Finalizing the settlement offer with the IRS will require the Company to
provide the IRS with a narrative description of the Company's current plan of
business operations and a logical reason for the compromise. In addition, the
IRS will conduct an investigation of the assets of the Responsible Parties to
determine whether or not the Responsible Parties have sufficient liquid assets
to satisfy the trustee portion of the tax due.
The Company has reserved and recorded possible contingent liabilities to
individuals who claim they are still owed money by the Company although the
Company has issued shares of its common stock to such individuals as payment
<PAGE> 11
for such debts or because the Company is uncertain as the whether the
creditors are holding the Company responsible to certain debts incurred by
former officers and directors of the Company. At December 31, 1998, the
Company has recorded total contingent liabilities of $747,819. As of March
31, 1999, the Company has been able to obtain releases from certain of the
individuals and/or creditors relating to a reduction in the contingent
liabilities of $299,575, and a reduction in accrued expenses of $26,400, for
an aggregate amount of $325,975.
Impact of Inflation
-------------------
The Company does not anticipate that inflation will have a material
impact on its current or proposed operations.
Seasonality
-----------
The Company's bioremediation business operations tend to have varying
degrees of seasonality. A majority of the Company's bioremediation jobs are
done on sites in and around Farmington, New Mexico, during the warm weather
months. Since many of the clean-up sites are located in rural areas and
accessible only over dirt or unimproved roads, the Company's ability to
excavate and remove contaminated soil can be restricted during inclement
weather. In addition, soil is difficult or impracticable to dig and turn when
the ground is frozen, the bioremediation process requires above freezing
temperatures to be effective.
ITEM 3. DESCRIPTION OF PROPERTY
Executive offices
- - -----------------
The Company leases its principal executive office in Pacifica,
California. In December 1998, the Company reduced the size of the office by
approximately 25%, and renegotiated the lease on a month to month basis. The
current office is approximately 1,500 square feet at a rate of $1,894 per
month.
EPC owns a wood-framed mobile building of approximately 660 square feet
which it uses for an office. The building is located at 2040 West Broadway,
Bloomfield, New Mexico, on land leased at a rate of $300 per month. The lease
is on a month to month basis.
The Company owns a ten acre parcel of land five miles from Farmington,
New Mexico, which it uses to receive and bioconvert hydrocarbon impacted
soils, based on a joint permit with Amoco. The site is fenced and configured
to safely handle storm runoff.<PAGE>
<PAGE> 12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 19, 1999 the name and address
and the number of shares of the Company's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the 33,596,906
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group. The Company
has reserved 254,573 shares of Common Stock for 254,573 shares of IEI Canada,
Inc. Class A Special Shares which are convertible into an equal number of
shares of the Company's Common Stock, and 4,297,667 shares of Common Stock for
issuance pursuant to outstanding options.
Principal Shareholders:
Name and Address Number of Shares Nature of Ownership % of Class
- - ---------------- ---------------- ------------------- ----------
John P. Crowe 888,889 Direct 2.6
1015 West 54th Street 993,333 Indirect (1) 2.9
Kansas City, MO 64112
Tom Jarnagin 2,530,500 Direct 7.5
Industrial Ecosystems, Inc. 757,000 Indirect (2) 2.2
450 Dondee Way, Suite 10
Pacifica, CA 94044
Steven C. Justus 396,000 Direct 1.1
Industrial Ecosystems, Inc. 1,500,000 Options (3) 4.3
450 Dondee Way, Suite 10
Pacifica, CA 94044
Officers and Directors:
Name and Address Number of Shares Nature of Ownership % of Class
- - ---------------- ---------------- ------------------- ----------
Tom Jarnagin -see above-
Magaly Bianchini 685,888 Direct 2.0
Industrial Ecosystems, Inc.
450 Dondee Way, Suite 10
Pacifica, CA 94044
Steven C. Justus -see above-
- - --------------------------------
(1) Represents 833,333 shares held of record by Four C's Development, LLC, an
entity controlled by John P. Crowe, and 160,000 shares held of record by the
minor children of John P. Crowe. Should JFJ exercise its right to sell, or the
Company exercise its right to acquire JFJ's membership interest in the JV, JFJ
will receive additional shares and options to purchase additional shares of
the Company's Common Stock, and John Crowe may be deemed to have indirect
beneficial ownership of such shares.
(2) Represents 20,000 shares held of record by Tom Jarnagin as Trustee for his
minor daughter, and 1,057,000 shares held of record by Francine Jarnagin, Tom
Jarnagin's spouse.
(3) Options received for consulting services.
<PAGE> 13
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The names of the Registrant's executive officers and directors and the
positions held by each of them are set forth below:
Name Age Position Held Position Since
- - ---- --- -------- -------------------
Tom Jarnagin 57 President/Director April 1999
Magaly Bianchini 43 Director April 1999
Steven C. Justus 40 Director April 1999
The term of office of each director is one year and until his or her
successor is elected at the Registrant's annual shareholders' meeting and is
qualified, subject to removal by the shareholders. The term of office for
each officer is for one year and until a successor is elected at the annual
meeting of the board of directors and is qualified, subject to removal by the
board of directors.
Biographical Information
Set forth below is certain biographical information with respect to each
of the Registrant's officers and directors.
Tom Jarnagin - Until December 1995, Mr. Jarnagin, age 57, was the General
Manager in charge of Coal Operations for the Burlington Northern Railroad
Company. Since 1995, he has been involved in real estate development and new
business development as an independent investor and consultant. Mr. Jarnagin
earned a B.A. in economics from the University of Denver in 1967. He received
awards as Outstanding Safety Leader from Burlington Northern in 1993 and 1995.
He has been active in various community service and charitable organizations
such as the Lincoln, Nebraska Chamber of Commerce, Leadership Lincoln, and the
United Way.
Magaly Bianchini - Since 1986, Ms. Bianchini, age 43, is a residential
real estate developer. She is currently employed by Leader Capital
Corporation, a publicly traded company specializing in residential development
and home building in Ontario and Quebec. Ms. Bianchini is an officer and
director of Leader Capital Corporation, which is listed on the Canadian
Dealing Network under the symbol LEDR. Ms. Bianchini earned a B.A. in
political science and philosophy from the University of Toronto in 1977. She
is a partner in Diamante Development Corporation, developers of various
condominium projects in Toronto. She is managing partner for a
commercial/residential project in Gatineau, Quebec, and has been responsible
for all aspects of project administration, including planning, development and
sales. Ms. Bianchini is also a board member of Senior Living Management, a
company which owns and operates retirement homes across Canada.
Steven Justus - Since 1993, Steven Justus, age 40, has been President and
Owner of Steven C. Justus, Inc., a floor execution and brokerage firm at the
Chicago Mercantile Exchange, where he has been a member since 1988. Mr.
Justus also acts as an independent consultant for the brokerage industry.
From 1995 to 1997, Mr. Justus was a director of Stellaris Financial Services,
serving on the Executive Committee which formed company strategy. In 1995, he
was a director of Trine, Ltd., for which he formulated trading strategies,
raised funds and trained marketers. Mr. Justus holds a B.S. degree in Human
<PAGE> 14
Resource Management from Drake University. He is a former member of both the
Chicago Board of Trade and the Chicago Board Options Exchange. Mr. Justus
holds six securities industries licenses.
ITEM 6. EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last three completed
fiscal years to the Registrant's or its principal subsidiaries chief executive
officer and each of its other executive officers that received compensation in
excess of $100,000 during such period (as determined at December 31, 1998 the
end of the Registrant's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- - ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Walter Kolbe 1998 $ 103,002 -0- -0- -0- -0- -0- -0-
President 1997 $ 28,037 -0- -0- -0- -0- -0- -0-
1996 $ -0- -0- -0- -0- -0- -0- -0-
Gerard Amlin 1998 $ 131,152 -0- -0- -0- -0- -0- -0-
Vice-President 1997 $ 17,298 -0- -0- -0- -0- -0- -0-
1996 $ 26,440 -0- -0- -0- -0- -0- -0-
</TABLE>
Additional Executive Compensation
Tom Jarnagin, the Company's President, will be employed by the Company as
an employee-at-will, beginning April 19, 1999, at a salary of $5,000 per month
(pro-rata in the first month), plus a quarterly performance bonus of up to
$15,000 per quarter based on meeting certain per share earnings criteria set
forth in the operating plan currently being prepared. Mr. Jarnagin's
compensation includes management responsibilities for ROP. The Company has no
other employment agreements with members of management and or any other
personnel. All employees are treated as employees-at-will. The Company
reimburses each officer for expenses incurred in connection with the Company's
business.
Board Compensation
As of December 31, 1998, the Company's directors receive no compensation
for attendance at board meetings. Subsequent to December 31, 1998, the
Company's directors have adopted a resolution providing for the payment of
$1,000 to each director per meeting attended up to a maximum of $1,000 per
quarter or $4,000 per year. In addition, board members will be reimbursed for
all reasonable out-of-pocket expenses incurred by them in connection with
their attendance at the board meetings.
Options/SAR Grants in Last Fiscal Year
No individual grants of stock options (whether or not in tandem with
SARs), or freestanding SARs were made during the last completed fiscal year to
any of the named executive officers.
<PAGE> 15
Bonuses and Deferred Compensation
There are no compensation plans or arrangements, including payments to be
received from the Company, with respect to any person named as a director,
executive officer, promoter or control person above which would in any way
result in payments to any such person because of his resignation, retirement,
or other termination of such person's employment with the Company or its
subsidiaries, or any change in control of the Company, or a change in the
person's responsibilities.
Compensation Pursuant to Plans
Effective March 19, 1999, the Board of Directors of the Company approved
the terms of the 1999 Stock Option and Award Plan (the "Award Plan"). The
Award Plan was approved by the stockholders of the Company at a Special
Meeting on April 19, 1999. As of the date of this filing, no awards have been
made under this plan.
The following summary of the Award Plan is qualified in its entirety by
the specific provisions of the Award Plan.
Award Plan Summary
The Board of Directors of the Company believes that it is important that
employees and other individuals who contribute to the success of the Company
have a stake in the enterprise as shareholders. Consistent with this belief,
the award of stock options has been and will continue to be an important
element of the Company's compensation program.
The Award Plan is intended to (a) attract competent directors, executive
personnel, and other employees, (b) the retention of the services of existing
directors, executive personnel, and employees, and (c) provide incentives to
all of such personnel to devote the utmost effort and skill to the advancement
and betterment of the appropriate corporation by permitting them to
participate in ownership and thereby permitting them to share in increases in
the value which they help produce.
The Award Plan is to be administered either by the Board of Directors or
by a committee (the "Committee") to be appointed from time to time by such
Board of Directors. Awards granted under the Award Plan may be incentive stock
options ("ISOs") as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), appreciation rights, options which do not qualify as ISOs, or
stock bonus awards which are awarded to employees, including officers and
directors, who, in the opinion of the board or the Committee, have
contributed, or are expected to contribute, materially to the success of the
Company. In addition, at the discretion of the Board of Directors or the
Committee, options or bonus stock may be granted to individuals who are not
employees but contribute to the success of the Company.
The exercise price of options granted under the Award Plan will be based
on the fair market value of the underlying Common Stock at the time of grant
and, in the case of ISOs may not be less than 100% of the fair market value of
such capital stock on the date the option is granted (110% of the fair market
value in the case of 10% stockholders). Options granted under the Award Plan
shall expire no later than ten years after the date of grant (five years in
the case of ISOs granted to 10% stockholders). The option price may be paid by
cash or, at the discretion of the Board of Directors or Committee, by delivery
of a promissory note or shares of Common Stock of the Company already owned by
the optionee (valued at their fair market value at the date of exercise), or a
combination thereof.
<PAGE> 16
All of the employees, officers, and directors of the Company are eligible
to participate under the Award Plan. A maximum of 3,000,000 shares are
available for grant under the Award Plan. The identification of individuals
entitled to receive awards, the terms of the awards, and the number of shares
subject to individual awards, are determined by the Board of Directors or the
Committee, in their sole discretion: provided, however, that in no event may
the aggregate fair market value of shares for which an ISO is first
exercisable in any calendar year by any eligible employee exceed $100,000.
The aggregate number of shares with respect to which options or stock
awards may be granted under the Award Plan, the number of shares covered by
each outstanding option, and the purchase price per share, shall be adjusted
for any increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split, reverse stock split, or other subdivision or
consolidation of shares.
The Board of Directors or the Committee may from time to time alter,
amend, suspend, or discontinue the Award Plan with respect to any shares as to
which options or stock awards have not been granted. However, no such
alteration or amendment (unless approved by the stockholders) shall (a)
increase (except adjustment for an event of dilution) the maximum number of
shares for which options or stock awards may be granted under the Award Plan
either in the aggregate or to any eligible employee; (b) reduce (except
adjustment for an event of dilution) the minimum option prices which may be
established under the Award Plan; (c) extend the period or periods during
which options may be granted or exercised; (d) materially modify the
requirements as to eligibility for participation in the Award Plan; (e) change
the provisions relating to events of dilution; or (f) materially increase the
benefits accruing to the eligible participants under the Award Plan.
Certain Tax Matters
For tax purposes, a participant to whom a non-qualified option is granted
will not realize income at the time of the grant if the exercise price is
equal to the then current market price. Upon exercise of the option, the
excess of the fair market value of the stock on the date of exercise over the
exercise price will be taxable to the optionee as ordinary income. The tax
basis to the optionee for the stock acquired is the exercise price plus the
amount recognized as income. The Company will be entitled to a deduction equal
to the amount of the ordinary income realized by the optionee in the taxable
year which includes the end of the optionee's taxable year in which he
realizes the ordinary income. When shares acquired pursuant to the exercise of
the option are disposed of, the holder will realize additional capital gain or
loss equal to the difference between the sales proceeds and his or her tax
basis in the stock.
If a participant to whom an option is granted exercises such option by
payment of the exercise price in whole or in part with previously owned
shares, the optionee will not realize income with respect to the number of
shares received on exercise which equals the number of shares delivered by the
optionee. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of non-qualified option
shares received which exceeds the number of shares delivered, the optionee
will realize ordinary income at the time of exercise; the optionee's tax basis
in these additional option shares will equal the amount of ordinary income
realized plus the amount of any cash paid.
<PAGE> 17
Recipients of ISOs will not be required to recognize income at the time
of the grant of the options or at the time of exercise of the options as long
as the stock received on exercise is held for at least two years from the date
of the grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative
minimum tax purposes). If the stock received upon exercise of an ISO is
disposed of prior to the expiration of either of such time periods, the
optionee will be required to recognize as ordinary income the amount by which
the fair market value of the stock received at the time of exercise exceeds
the exercise price of the ISOs.
Under the Award Plan, stock appreciation rights ("SARs") can be granted
at the time an option is granted with respect to all or a portion of the
shares subject to the related option. SARs can only be exercised to the extent
the related option is exercisable and cannot be exercised for the six-month
period following the date of grant, except in the event of death or disability
of the optionee. The exercise of any portion of either the related option or
the tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs thus maintaining a balance
between outstanding options and SARs. SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
the Board of Directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on
the exercise date over the exercise price of the related options.
Under the terms of the Award Plan, the Board of Directors or the
Committee may also grant stock awards which may, at the discretion of the
Board of Directors or Committee, be subject to forfeiture under certain
conditions. Recipients of stock awards will realize ordinary income at the
time of the lapse of any forfeiture provisions equal to the fair market value
of the shares less any amount paid in connection with the issuance (the Board
of Directors or the Committee can require the payment of par value at the time
of the grant). The appropriate corporation will realize a corresponding
compensation deduction. The holder will have a basis in the shares acquired
equal to any amount paid on exercise plus the amount of any ordinary income
recognized by the holder. On sale of the shares, the holder will have a
capital gain or loss equal to the sale proceeds minus his or her basis in the
shares.
Pension Table
Not Applicable.
Other Compensation
None.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions with Management and Others
- - ---------------------------------------
The information set forth below is provided by the Company based on what
the Company believes may be material to the shareholders in light of all the
circumstances of the particular case. The significance of the transactions
disclosed may be evaluated by each shareholder after taking into account the
relationship of the parties to the transactions and the amounts involved in
the transactions.
<PAGE> 18
Since inception, the Company has made periodic cash disbursements and
issued shares of its Common Stock to certain officers and directors of the
Company, relatives of these officers and directors, and other companies
controlled by these officers and directors, although some of those individuals
are no longer officers or directors of the Company. Most of these
disbursements have been made for services rendered or for payments related to
construction of the Company's facilities and equipment. Any payments made
that could not be substantiated have been recorded by the Company as
additional compensation to those officers and directors.
The Company has reserved and recorded possible contingent liabilities to
individuals, some of whom are related to or associated with certain former
officers and directors, who have made loans or advances to the Company and
still claim they are owed, although the Company believes it issued shares of
Common Stock in full and complete payment of these amounts. The Company has
recorded a total of contingent liabilities at December 31, 1998 of $747,819.
It is uncertain as to whether or not the amounts claimed to be owed will be
paid in the future and the Company intends to vigorously contest any claim
that is made. It is reasonably possible, however, that, despite the Company's
belief that these contingent liabilities have been paid, the Company may have
to pay all or a portion of these amounts and, therefore, management has
recorded these possible debts as contingent liabilities.
From time to time, the Company has also incorporated subsidiaries for the
purpose of transacting business for a specific business purpose. These
subsidiaries may have incurred various debts for which the Company could be
deemed liable. The Company could also be construed to be liable for certain
debts incurred by its former officers and directors that were intended to be
personal debts. The Company is uncertain as to whether the potential
creditors are holding the Company responsible for these debts. The Company
believes that the provision for commitments and contingencies adequately
covers the potential liabilities for which the Company may ultimately be held
responsible.
Walter Kolbe, the Company's former president, from time to time, received
payments in the form of loans that have been repaid without interest. Mr.
Kolbe also advanced funds to the Company from time to time in order for the
Company to meet its ongoing needs. These advances were also repaid without
interest. At December 31, 1998, there were no loans or advances outstanding.
Restructure of Interest in ROP
------------------------------
The Company, through its subsidiary, IEI Canada, owns a 50% membership
interest in ROP. The other 50% membership interest is owned by JFJ Ecosystems
L.L.C., a Missouri limited liability company, ("JFJ"), controlled by John
Crowe, a 5% shareholder of the Company. The JV has been governed by a three
person Board of Managers, two of whom were appointed by JFJ and one of whom
was appointed by IEI Canada. Fred Rice and John Crowe serve as the two JFJ
Managers, with John Crowe serving as the Chairman of the Board of Managers.
Walter Kolbe, the Company's former President, was appointed by IEI Canada to
serve as the Company's representative on the Board of Managers. That position
is now occupied by Tom Jarnagin, the Company's current President.
Due to the need for working capital for both the JV and the Company, JFJ,
the Company, and IEI Canada restructured the JV to (a) provide for a quicker
release of part of the funds escrowed pursuant to the Original JV
Agreement;(b) establish a line of credit to the Company; (c) grant certain
rights to the Company to acquire JFJ's membership interest in the JV; (d)
<PAGE> 19
grant certain rights to JFJ to sell its membership interest in the JV to the
Company; (e) obtain releases from JFJ and its members of any and all claims
against the Company, IEI Canada, the Company's subsidiaries, their affiliates
and officers and directors and shareholders for any misrepresentations made to
induce JFJ to enter into the Original JV Agreement; and (f) grant to the
Company of a right to first refusal on JV borrowing.
IEI Canada and JFJ restructured the Original JV Agreement to provide for
the release of $250,000 of the $1,000,000 escrow to meet immediate cash flow
needs of the JV. The remaining $750,000 was then loaned by JFJ to the Company
through the establishment of a line of credit. Following the restructuring,
JFJ became an equal 50% member of the JV with IEI Canada and IEI Canada's
option to reduce JFJ's membership interest to 19%, was terminated.
The Line of Credit
------------------
JFJ has extended a $750,000 line of credit to the Company. The line of
credit bears interest at 6% per annum until December 31, 2000, at which time
all principal advanced under the line of credit, and any interest accrued
thereon, will be due and payable in full. As security for the line of credit,
the Company caused IEI Canada to pledge as security IEI Canada's 50%
membership interest in the JV. If the line of credit is not timely repaid in
full, IEI Canada's membership interest in the JV shall be conveyed to JFJ in
satisfaction of the line of credit, thus making JFJ the 100% owner of the JV.
The Company's Right to Acquire JFJ's Membership Interest in the JV
------------------------------------------------------------------
The Company has the right on or prior to December 31, 2000 (the line of
credit due date) to acquire JFJ's 50% membership interest in the JV by issuing
to JFJ shares of the Company's restricted Common Stock in exchange for JFJ's
membership interest in the JV (the "Acquisition Rights"). The following are
conditions that must be fulfilled prior to the Company's exercise of its
Acquisition Rights:
(a) Repayment to JFJ of the outstanding principal and accrued interest
on the line of credit;
(b) Issuance to JFJ of that number of shares of the Company's
restricted Common Stock that represents one-half (1/2) of the issued and
outstanding shares (all classes) in the Company as of December 31, 1998. The
issuance of the shares to JFJ would give JFJ ownership of approximately one-
third (1/3) of the Company's issued and outstanding shares of Common Stock,
not including other shares independently owned by JFJ, if any. The percentage
ownership ultimately held by JFJ could be subject to dilution by the issuance
of any additional shares of Common Stock after the date of the restructuring;
(c) Issuance of JFJ of options to purchase 2,065,500 shares of the
Company's Common Stock at $0.225 per share for a term of five (5) years. These
options preserve JFJ from dilution by way of the exercise of 4,131,000
outstanding options at an exercise price of $.225. Upon exercise of the
Company's Acquisition Rights, the Company will grant JFJ options equal to one-
half (1/2) of all options granted by the Company after December 31, 1998 and to
the date of exercise of the Acquisition Rights. Such options will be granted
to JFJ on substantially similar terms as are extended to other option holders.
These options are intended to preserve JFJ from subsequent dilution through
the granting of options and will be construed accordingly.
<PAGE> 20
(d) Execution by the Company and JFJ of a Registration Rights Agreement
by which the Company agrees to register the restricted stock issued to JFJ in
the Acquisition upon JFJ's request;
(e) The Company shall complete and file with the Securities and
Exchange Commission a Form 10-SB, General Form for Registration of Securities
under Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and file any other periodic reports required to be filed
under Section 13 or 15(d) of the Exchange Act (the "Periodic Reports").
(f) The Company's Board of Directors will be duly authorized and
elected pursuant to a vote of the Company's shareholders at a Special or
Annual Meeting of the Company's shareholders; and
(g) Following the exercise of the Acquisition Rights, the surviving
company will affirm and agree to assume any JV obligations to either JFJ or
the Company or third parties, including but not limited to, the $50,000 notes
to the Company and JFJ, and the $100,000 note to John P. Crowe & Co. These
notes or other obligations are to be paid in accordance with their terms.
JFJ's Right to Sell its Membership Interest in the JV to the Company
--------------------------------------------------------------------
JFJ has the right on or prior to December 31, 2000 to sell its 50%
membership interest in the JV to the Company through a share exchange, wherein
the Company would issue to JFJ shares of the Company's restricted Common Stock
in exchange for JFJ's membership interest in the JV (the "Sale Rights"). In
consideration for JFJ exercising its Sale Rights, JFJ shall receive that
number of shares of the Company's restricted Common Stock that represents one
half (1/2)of the issued and outstanding shares of the Company at December 31,
1998. The method of exact determination of the number of shares and options
issued hereunder is the same as described in the preceding paragraph. The
shares would be subject to the same Registration Rights Agreement discussed
above.
The following are conditions that must be fulfilled prior to JFJ's
exercise of its Sale Rights:
(a) JFJ will forgive the outstanding principal and accrued interest
borrowed by the Company under the line of credit or assign its interest as the
Creditor in the line of credit to the JV prior to exercising its Sale Rights,
whichever it may so elect;
(b) If not previously paid in full, JFJ and John P. Crowe & Co. will
not be required to forgive any outstanding loan balances to the JV which loan
balances shall be repaid by the JV or surviving company in accordance with
their terms; provided, however, that JFJ will release its security interest in
the JV assets.
JFJ's Right of First Refusal to Participate in Future Debt or Equity
--------------------------------------------------------------------
Financing
---------
The Company has granted JFJ a right of first refusal on any public
offering or private placement of any debt or equity securities or other
capital sourcing which could result in the issuance of The Company's
securities. JFJ's right of first refusal shall be a ten (10) day right of
first refusal on the same terms and conditions as are offered to the third
<PAGE> 21
party interested in investing in or lending to The Company. The right of first
refusal shall extend until December 31, 2000. JFJ can assign its right of
first refusal to John P. Crowe & Co. or another related entity or person in
its sole discretion.
The Company's Right of First Refusal on JV Borrowing
----------------------------------------------------
The Company has the right of first refusal to provide financing to the JV
through December 31, 2000. Before borrowing any money from a third party or a
related entity, the JV shall provide notice of a bona fide financing proposal
specifying the terms and security that will govern the borrowing, including
the proposed lender. The Company has the right to lend the money to the JV on
the terms proposed by providing the JV notice of acceptance within ten (10)
days of receipt of the proposal. The JV shall be free to borrow on the
proposed terms from the proposed lender absent timely receipt of the notice of
acceptance from The Company.
Consent and Approval by the Company's Shareholders
--------------------------------------------------
At the request of JFJ, prior to the signing of the definitive agreements
members of management and disinterested principal shareholders who,
collectively, hold in excess of 51% of the Company's issued and outstanding
shares provided the Company with their written consent to the terms of the
agreements. The Agreements were ratified by a majority of all the
Shareholders at a Special Meeting of the Shareholders on April 19, 1999.
ITEM 8. DESCRIPTION OF SECURITIES
General
- - -------
The Registrant is authorized to issue one hundred million shares of
common stock, par value $0.001 per share (the "Common Stock")and twenty-five
million shares of preferred stock, par value $0.001 per share (the "Preferred
Stock"). The Company has 33,596,906 shares of Common Stock and no shares of
Preferred Stock issued and outstanding at March 19, 1999.
Common Stock
- - ------------
The holders of Common Stock are entitled to one vote per share on each
matter submitted to a vote at any meeting of shareholders. Shares of Common
Stock do not carry cumulative voting rights and, therefore, a majority of the
shares of outstanding Common Stock will be able to elect the entire board of
directors and, if they do so, minority shareholders would not be able to elect
any persons to the board of directors. The Registrant's bylaws provide that a
majority of the issued and outstanding shares of the Registrant constitutes a
quorum for shareholders' meetings, except with respect to certain matters for
which a greater percentage quorum is required by statute or the bylaws.
Shareholders of the Registrant have no preemptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption and carries no subscription or conversion rights.
In the event of liquidation of the Registrant, the shares of Common Stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities.
<PAGE> 22
Holders of Common Stock are entitled to receive such dividends as the
board of directors may from time to time declare out of funds legally
available for the payment of dividends. The Registrant seeks growth and
expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay dividends in the foreseeable future.
Preferred Stock
- - ---------------
The authority to issue the Preferred Stock is vested in the board of
directors of the Company, which has authority to fix and determine the powers,
qualifications, limitations, restrictions, designations, rights, preferences,
or other variations of each class or series within each class which the
Company is authorized to issue. The above described authority of the Board of
Directors may be exercised by corporate resolution from time to time as the
Board of directors sees fit.
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
To the best of the Company's knowledge, there is no "established trading
market" for the Company's common stock. At March 19, 1999, the Company's
common stock was quoted on the NASD's OTC Bulletin Board under the symbol
"IECS". The table below sets forth, for the respective periods indicated, the
prices of the Company's common stock in the over-the-counter market as
reported by the NASD's OTC Bulletin Board. The bid prices represent inter-
dealer quotations, without adjustments for retail markups, markdowns or
commissions and may not necessarily represent actual transactions.
Fiscal Year Ended December 31, 1997 High Bid Low Bid
- - ----------------------------------- -------- --------
First Quarter $0.37 $0.08
Second Quarter $0.13 $0.04
Third Quarter $0.17 $0.06
Fourth Quarter $0.35 $0.11
Fiscal Year Ended December 31, 1998 High Bid Low Bid
- - ----------------------------------- -------- --------
First Quarter $0.31 $0.13
Second Quarter $0.94 $0.19
Third Quarter $0.81 $0.31
Fourth Quarter $0.38 $0.13
Fiscal Year Ended December 31, 1999 High Bid Low Bid
- - ----------------------------------- -------- --------
First Quarter $0.20 $0.15
As of March 19, 1999 there were approximately 400 shareholders of record
of the Company's common stock and the reported bid or asked prices for the
Company's common stock was $0.165 and $0.18, respectively.
As of March 19, 1999, the Company has issued and outstanding 33,596,906
of common stock.
<PAGE> 23
Dividend Policy
- - ---------------
The Company has not declared or paid cash dividends or made distributions
in the past, and the Company does not anticipate that it will pay cash
dividends or make distributions in the foreseeable future. The Company
currently intends to retain and reinvest future earnings, if any, to finance
its operations.
Transfer Agent
- - --------------
As of April 1, 1999, the transfer agent for the Company's common stock is
Atlas Stock Transfer, 5899 South State Street, Salt Lake City, Utah 84107.
The Company's transfer agent for the prior year was American Transfer and
Trust, Inc., 1172 South Dixie Highway, Suite 448, Coral Gables, Florida 33146.
ITEM 2. LEGAL PROCEEDINGS
The Company is involved in litigation with 54GO Products, a New Mexico
limited liability company ("54GO"), regarding an open account and a
distribution agreement between 54GO and the Company's subsidiary Environmental
Protection Company, a New Mexico corporation ("EPC"). 54GO filed a complaint
in July 1997 in the Eleventh District Court of San Juan County, New Mexico,
alleging that the Company owed money on an open account for products delivered
by 54GO to EPC, and also for products to be delivered pursuant to the
distribution agreement. In August 1997, the Company filed an answer to the
complaint in which the Company contends that the products delivered by 54GO
were not ordered by EPC, that EPC specifically requested the products not be
delivered, and that 54GO refused to take the products back. The Company also
contends that the distribution agreement was breached by 54GO before it became
operational and that any obligation to purchase products under the agreement
was negated by the failure of conditions precedent. The dispute is still in
the discovery stage and no trial date has been set. The total amount in
dispute is approximately $75,000.
On March 17, 1999, the Company received a letter from Canadian counsel
threatening litigation on behalf of Diamond Measure, Inc., a Canadian
corporation with which the Company engaged in discussions about a possible
acquisition during 1994. The negotiations were never consummated, and no
contract was ever signed. The letter of March 17, 1999 refers to a potential
suit for performance under a contract or, alternatively, an action for breach
of contract and detrimental reliance. Because no agreement was ever reached
and no written contract signed, the Company believes that the threatened
action is without merit. As of the date of this filing, the Company has not
received notice of any action. Therefore, the Company cannot speculate about
the potential amount of the claim, which, in any case, the Company believes
will be promptly dismissed.
On April 13, 1999, ROP received a letter from Canadian counsel
representing Middlemarch Farms, Ltd., a Canadian company ("Middlemarch"),
claiming a security interest in certain property transferred to ROP from IEI
Canada in March 1998 as part of the transaction creating the JV. This claimed
security interest was purportedly created in 1992, in connection with a loan
transaction between Middlemarch and a precursor company to a former IEI Canada
subsidiary.
<PAGE>
<PAGE> 24
The claim is apparently based on the premise that there are monies owing
to Middlemarch. The Company believes that the debt was fully satisfied in
April 1996 through an agreement between the Company and Middlemarch converting
debt to equity, represented by the Company's issuance to Middlemarch of
400,000 shares of the Company's common stock, plus cash payment of all
outstanding interest.
If Middlemarch proceeds with its claim, the Company may be involved in
litigation in regards to the circumstances surrounding the creation of the
claimed security interest and the payment of the debt. To date, the Company
has seen no evidence of such security interest.
The Company believes that the debt on which the claimed security interest
is based has been fully satisfied. In addition, the Company has seen no
evidence that such a security interest was ever created. Therefore, the
Company believes that this threatened claim has no merit.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant has not changed nor had any disagreements with its
independent certified accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
With respect to the following discussion relating the to recent issuance
of unregistered securities, all share amounts give effect to a 3-for-2 reverse
split of the Company's issued and outstanding shares effective April 30, 1998.
In 1998, the Company issued 2,865,701 shares of Common Stock in a private
placement for cash at an average price of $0.35 per share to certain
investors. No underwriter or placement agent was used by the Company and no
commissions were paid. No general advertising or solicitation was used in
connection therewith.
In 1998, the Company issued 5,341,330 shares of Common Stock to certain
creditors of the Company for conversion of outstanding indebtedness at an
average price of $0.16 per share.
In 1998, the Company issued 99,999 shares of Common Stock to various
individuals for professional services relating to the Company's business plan
and providing technical services. The value for the services was placed at an
average of $0.21 per share. No cash consideration was received by the issuer
and the aggregate offering price for the securities (approximately $21,000)
was determined to be the fair market value for the consulting services
provided. None of the purchasers were officers and/or directors of the issuer
at the time of issuance of the securities or currently hold such positions
with the issuer.
In 1997, the Company issued 3,533,335 shares of Common Stock for cash in
a private placement at an average price of $0.21 per share to certain
investors. No underwriter or placement agent was used by the Company and no
commissions were paid. No general advertising or solicitation was used in
connection therewith.
<PAGE> 25
In 1997, the Company issued 2,188,143 shares of Common Stock to various
individuals for professional and consulting services relating to conducting
market research, development of the Company's marketing research and business
plan, and providing legal and technical services. The value for the services
provided was placed at an average of $0.18 per share. No cash consideration
was received by the issuer and the aggregate offering price for the securities
(approximately $394,000) was determined to be the fair market value for the
consulting services provided. None of the purchasers were officers and/or
directors of the issuer at the time of issuance of the securities or currently
hold such positions with the issuer.
In 1997, the Company issued 2,163,917 shares of Common Stock in exchange
for the conversion of 2,163,917 shares of Class-A Special Shares of IEI Canada
which were issued in connection with: a Global Share Purchase Agreement
executed by and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc., and
ITE Ecosystems, Inc. shareholders; and a Share Exchange Agreement executed by
and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc. shareholders and
IEI, Canada, Inc., both dated June 28, 1994. The above Agreements were
executed to effect the purchase of all the outstanding shares of ITE
Ecosystems, Inc. common stock. Each ITE shareholder executed an individual
Share Purchase Agreement in which each share of ITE common stock was exchanged
for a designated number of shares of IEI, Canada "Special Class A" shares. In
addition, each ITE shareholder received a warrant permitting the exchange of
the IEI, Canada "Special Class A" shares for an equal number of Industrial
Ecosystems, Inc. shares at any time until 2015. A total of 4,000,000 Special
Class A shares were issued. At December 31, 1998, 324,390 shares were
outstanding that are convertible at the holder's option into 254,573 shares of
the Company's Common Stock.
In 1996, the Company issued 538,499 shares of Common Stock for cash in a
private placement at an average price of $0.70 per share to certain investors.
No underwriter or placement agent was used by the Company and no commissions
were paid. No general advertising or solicitation was used in connection
therewith.
In 1996, the Company issued 1,159,295 shares of Common Stock to various
individuals for professional and consulting services relating to conducting
market research, development of the Company's marketing research and business
plan, and providing legal and technical services. The value for the services
provided was placed at an average of $0.76 per share. No cash consideration
was received by the issuer and the aggregate offering price for the securities
(approximately $881,695) was determined to be the fair market value for the
consulting services provided. None of the purchasers were officers and/or
directors of the issuer at the time of issuance of the securities or currently
hold such positions with the issuer.
In 1996, the Company issued 4,613,340 shares of Common Stock to certain
creditors of the Company for conversion of outstanding indebtedness at an
average price of $0.87 per share.
In 1996, the Company issued 333,335 shares of Common Stock in connection
with negotiations with certain individuals and companies for acquisitions or
business deals which were never consummated at an average price of $0.78 per
share.
In 1996, the Company issued 2,734 shares of Common Stock in to certain
individuals in lieu of salary at an average value of $0.59 per share.
<PAGE>
<PAGE> 26
In 1996, the Company issued 366,667 shares in a private placement to
certain individuals from whom consideration was never received at an average
price of $0.60 per share. The certificates representing these shares have
subsequently been canceled and a corresponding adjustment to shareholders'
equity has been made to reflect the cancellation.
In 1996, the Company issued 221,370 shares of Common Stock in exchange
for the conversion of 221,370 shares of Class-A Special Shares of IEI Canada
which were issued in connection with: a Global Share Purchase Agreement
executed by and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc., and
ITE Ecosystems, Inc. shareholders; and a Share Exchange Agreement executed by
and between Industrial Ecosystems, Inc., ITE Ecosystems, Inc. shareholders and
IEI, Canada, Inc., both dated June 28, 1994. The above Agreements were
executed to effect the purchase of all the outstanding shares of ITE
Ecosystems, Inc. common stock. Each ITE shareholder executed an individual
Share Purchase Agreement in which each share of ITE common stock was exchanged
for a designated number of shares of IEI, Canada "Special Class A" shares. In
addition, each ITE shareholder received a warrant permitting the exchange of
the IEI, Canada "Special Class A" shares for an equal number of Industrial
Ecosystems, Inc. shares at any time until 2015. A total of 4,000,000 Special
Class A shares were issued.
Securities issued in the foregoing transactions were issued in reliance
on the exemption from registration and the prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), set forth in
Section 3(b) and/or Section 4(2) of the Securities Act and the regulations
promulgated thereunder.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 16-10a-901 through 909 of the Utah Revised Business Corporation
Act provides in relevant parts as follows:
(1) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or on
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
<PAGE> 27
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine on application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in 1) or (2) of this subsection, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
(4) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaws, 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.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to the above
discussed sections of the Utah Revised Business Corporation Act.
The Registrant's certificate of incorporation and bylaws provide that the
Registrant "may indemnify" to the full extent of its power to do so, all
directors, officers, employees, and/or agents. It is anticipated that the
Registrant will indemnify its officers and directors to the full extent
permitted by the above-quoted statute.
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to officers and directors of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
is aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's consolidated balance sheets of Industrial Ecosystems, Inc.
and Subsidiaries as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
the years ended December 31, 1998 and 1997, have been examined to the extent
indicated in their reports by Jones, Jensen & Company, independent certified
accountants, and have been prepared in accordance with generally accepted
accounting principles and pursuant to Regulation S-B as promulgated by the
Securities and Exchange Commission and are included herein.
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Industrial Ecosystems, Inc. and Subsidiaries
Pacifica, California
We have audited the accompanying consolidated balance sheet of Industrial
Ecosystems, Inc. and Subsidiaries as of December 31, 1998 and the related
consolidated statements of operations, stockholders' equity (deficit), and cash
flows for the years ended December 31, 1998 and 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our 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 consolidated financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall consolidated
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
Industrial Ecosystems, Inc. and Subsidiaries as of December 31, 1998, and the
consolidated results of their operations and their cash flows for the years
ended
December 31, 1998 and 1997, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 10 to the
consolidated financial statements, the Company has suffered recurring losses to
date, which raises substantial doubt about its ability to continue as a going
concern. Management's plans with regard to these matters are also described in
Note 10. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
Jones, Jensen & Company
Salt Lake City, Utah
February 19, 1999<PAGE>
<PAGE> 29
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS
------
December 31,
1998
------------
CURRENT ASSETS
Cash and cash equivalents $ 12,552
Restricted cash (Note 1) 40,669
Accounts receivable (Note 1) 35,079
------
Total Current Assets 88,300
------
PROPERTY AND EQUIPMENT (Net) (Notes 1 and 2) 275,973
-------
OTHER ASSETS
Investment in joint venture (Note 6) -
Deposits 10,740
------
Total Other Assets 10,740
------
TOTAL ASSETS $ 375,013
=======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 30
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
----------------------------------------------
December 31,
1998
------------
CURRENT LIABILITIES
Accounts payable $ 356,890
Accrued expenses (Note 4) 323,755
Unearned revenue (Note 1) 21,666
Due to related party (Note 3) 14,286
Notes payable, current portion (Note 5) 85,902
-------
Total Current Liabilities 802,499
-------
LONG-TERM DEBT
Notes payable (Note 5) 157,405
-------
Total Long-Term Debt 157,405
-------
Total Liabilities 959,904
-------
COMMITMENTS AND CONTINGENCIES (NOTE 7) 747,819
-------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock; 100,000,000 shares authorized of $0.001
par value, 33,596,906 shares issued and outstanding 33,597
Additional paid-in capital 21,116,770
Currency translation adjustment 38,419
Accumulated deficit (22,521,496)
----------
Total Stockholders' Equity (Deficit) (1,332,710)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 375,013
==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 31
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended
December 31,
1998 1997
--------- ---------
REVENUES
Net sales $ 626,545 $ 569,983
Direct costs 405,787 360,569
------- -------
Gross Profit 220,758 209,414
------- -------
EXPENSES
General and administrative 1,586,049 2,042,502
Depreciation and amortization 108,677 202,017
--------- ---------
Total Expenses 1,694,726 2,244,519
--------- ---------
Loss From Operations (1,473,968) (2,035,105)
--------- ---------
OTHER INCOME (EXPENSE)
Other income 95,118 300
Interest income 1,362 59
Interest expense (40,236) (78,835)
Bad debt expense (19,802) (7,325)
Loss on investment in joint venture (353,117) -
Loss on disposition of assets (104,106) (36,798)
------- ------
Total Other Income (Expense) (420,781) (122,599)
------- -------
NET LOSS (1,894,749) (2,157,704)
--------- ---------
OTHER COMPREHENSIVE INCOME
Foreign currency adjustments 14,664 23,755
------ ------
NET COMPREHENSIVE LOSS $1,880,085) $2,133,949)
========= =========
BASIC LOSS PER SHARE $ (0.06) $ (0.10)
==== ====
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 30,111,107 22,262,795
========== ==========
FULLY DILUTED LOSS PER SHARE $ (0.06) $ (0.10)
==== ====
FULLY DILUTED WEIGHTED AVERAGE
NUMBER OF SHARES OUTSTANDING 33,636,055 22,517,368
========== ==========
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 32
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Stockholders' Equity (Deficit)
<TABLE>
<CAPTION>
Additional Currency
Common Stock Paid-In Translation Accumulated
Shares Amount Capital Adjustment Deficit
---------- ------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 17,404,481 $17,405 $17,759,504 $ - $(18,469,043)
Common stock issued for cash
at an average price of $0.21
per share 3,533,335 3,533 726,467 - -
Conversion of IEI Canada, Inc.
Class A-special shares into
IEI common shares (Note 8) 2,163,917 2,164 (2,164) - -
Common stock issued for
services rendered at an
average price of $0.18 per
share 2,188,143 2,188 384,602 - -
Additional capital contributed - - 12,143 - -
Currency translation adjustment - - - 23,755 -
Net loss for the year ended
December 31, 1997 - - - - (2,157,704)
---------- ------- ---------- ------ ----------
Balance, December 31, 1997 25,289,876 25,290 18,880,552 23,755 (20,626,747)
Common stock issued for cash
at an average price of $0.35
per share 2,865,701 2,866 998,056 - -
Common stock issued in lieu
of debt at an average price
of $0.16 per share 5,341,330 5,341 830,726 - -
Common stock issued for
services rendered at an
average of $0.21 per share 99,999 100 21,325 - -
Additional capital contributed - - 386,111 - -
Currency translation adjustment - - - 14,664 -
Net loss for the year ended
December 31, 1998 - - - - (1,894,749)
---------- ------ ---------- ------ ----------
Balance, December 31, 1998 33,596,906 $33,597 $ 21,116,770 $38,419 $(22,521,496)
========== ====== ========== ====== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 33
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended
December 31,
1998 1997
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(1,894,749) $(2,157,704)
Adjustments to reconcile net loss to
net cash used by operating activities:
Depreciation and amortization 108,677 202,017
Stock issued for services 21,425 386,790
Loss on investment in joint venture 305,117 -
Loss on disposition of assets 104,106 36,798
Changes in assets and liabilities:
(Increase) decrease in accounts receivable 6,318 (40,841)
(Increase) decrease in deposits and
prepaid expenses (10,740) 10,842
(Increase) decrease in restricted cash (40,669) -
Increase (decrease) in accounts payable (82,952) 188,809
Increase (decrease) in unearned revenue 21,666 -
Increase (decrease) in accrued expenses 208,001 94,001
Increase (decrease) in contingent
liabilities - 82,362
--------- ---------
Net Cash (Used) by Operating Activities (1,253,800) (1,196,926)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of fixed assets (41,283) (424,398)
------ -------
Net Cash (Used) by Investing Activities (41,283) (424,398)
------ -------
CASH FLOWS FROM FINANCING ACTIVITIES
Principle payments on notes payable (93,857) (115,720)
Cash received from notes payable - 983,396
Capital contributions 386,111 12,143
Issuance of common stock for cash 1,000,922 730,000
--------- ---------
Net Cash Provided by Financing Activities 1,293,176 1,609,819
NET INCREASE (DECREASE) IN CASH (1,907) (11,505)
CASH AT BEGINNING OF YEAR 14,459 25,964
------ ------
CASH AT END OF YEAR $ 12,552 $ 14,459
====== ======
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 34
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Continued)
For the Years Ended
December 31,
1998 1997
----------- ----------
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR:
Interest $ 67,223 $ 25,448
Income taxes $ - $ -
NON-CASH FINANCING ACTIVITIES:
Stock issued for services $ 21,425 $ 386,790
Stock issued in conversion of debt
to common stock $ 836,067 $ -
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<PAGE> 35
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The consolidated financial statements presented are those of Industrial
Ecosystems, Inc.(IEI) and its wholly-owned subsidiaries, Environmental
Protection
Company (EPC), I.E.I. Canada, Inc. (IEI Canada) and 1297833 Ontario, Ltd.
(Ontario). Collectively, they are referred to herein as the "Company". IEI was
incorporated in January, 1994 through the acquisition of Agri World Development
Corp., a dormant public company. Agri World Development Corp. later changed its
name to Industrial Ecosystems, Inc. IEI is principally a holding company but
pays operating expenses for the bioremediation business.
In March 1994, IEI acquired 100% of EPC in exchange for 7,017,300 shares of its
outstanding common stock. At the time of this acquisition, IEI was essentially
inactive. Also, the exchange of IEI's common stock for the common stock of EPC
resulted in the former stockholders of EPC obtaining control of IEI.
Accordingly, EPC became the continuing entity for accounting purposes, and the
transaction was accounted for as a recapitalization of EPC with no adjustment to
the basis of EPC's assets acquired or liabilities assumed. For legal purposes,
IEI was the surviving entity. EPC is in the bioremediation business and
operates principally in New Mexico.
EPC held a minority interest in Analytica Environmental Laboratory. Analytica
Environmental Laboratory was later dissolved. Subsequently, EPC voluntarily
chose to satisfy some of the outstanding payroll liabilities of Analytica
Environmental Laboratory.
Effective June 30, 1994, IEI, through its wholly-owned subsidiary, IEI Canada,
Inc. (a Canadian Corporation) acquired 100% of I.T.E. Ecosystems, Inc., Amlin
Grain Roasting, Inc. and a minority interest in N-Viro Systems Canada, Inc. The
operations of I.T.E. Ecosystems, Inc. and Amlin Grain Roasting, Inc. were
discontinued during 1994. In September 1994, IEI incorporated three wholly-
owned
subsidiaries called RFP Management & Development Corp., ROP Management &
Development Corp. and IEI Canada, Inc. In December of 1996, IEI incorporated a
separate wholly-owned subsidiary called ROP Liquid Feed Corp. In March 1998,
IEI
created an entity (merger company) for the purpose of merging IEI Canada, Inc.,
ROP Liquid Feed Corp., ROP Management & Development Corp. and RFP Management &
Development Corp. into that entity. At the same time, the merger company was
merged into a new entity named IEI Canada, Inc. The assets and certain
liabilities of all of these companies were assumed by ROP North America, LLC, a
joint venture company formed in March, 1998 (see Note 6), and the companies
operations were discontinued.
During 1998, IEI Canada, Inc. incorporated two separate wholly-owned
subsidiaries
called 1297833 Ontario, Ltd. and 1303873 Ontario, Ltd. 1297833 Ontario, Ltd.
was
organized to be in the bioremediation business. Neither 1297833 Ontario, Ltd.
or 1303873 Ontario, Ltd. have had operations.
b. Accounting Methods
The Company's consolidated financial statements are prepared using the accrual
method of accounting. The Company has elected a December 31, year end.
<PAGE>
<PAGE> 36
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
c. Cash and Cash Equivalents
Cash equivalents include short-term, highly liquid investments with maturities
of three months or less at the time of acquisition.
d. Basic and Fully Diluted Loss Per Share
The computations of basic loss per share of common stock are based on the
weighted average number of common shares outstanding during the period of the
consolidated financial statements. Common stock equivalents, consisting of
stock
options and the IEI Canada Inc. class A-special shares, have not been included
in the calculation as their effect is antidilutive for the periods presented.
Stock options and IEI Canada, Inc. class A-special shares have been included in
the fully diluted loss per share.
e. Change in Accounting Principle
The Company adopted Statement of Financial Accounting Standards (SFAS) No. 128,
"Earnings Per Share" during the year ended December 31, 1998. In accordance
with
SFAS No. 128, diluted earnings per share must be calculated when an entity has
convertible securities, warrants, options, and other securities that represent
potential common shares. The purpose of calculating diluted earnings (loss) per
share is to show (on a pro forma basis) per share earnings or losses assuming
the
exercise or conversion of all securities that are exercisable or convertible
into
common stock and that would either dilute or not affect basis EPS. As permitted
by SFAS No. 128, the Company has retroactively applied the provisions of this
new
standard by showing the fully diluted loss per common share for all years
presented.
The Company also adopted Statement of Financial Accounting Standards (SFAS) No.
130, "Reporting Comprehensive Income" during the year ended December 31, 1998.
SFAS No. 130 established standards for reporting and display of comprehensive
income (loss) and its components (revenues, expenses, gains and losses) in a
full
set of general purpose financial statements. This statement requires that an
enterprise classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and additional paid-in capital in the
equity section of a balance sheet. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Company has retroactively applied the
provisions of this new standard by showing the other comprehensive income (loss)
for all years presented.
f. Unearned Revenue
The Company entered into a one-year consulting agreement with the JV (see Note
6) whereby the Company would receive a total of $200,000 for management
consulting. During 1998, the Company received a payment of $100,000 under the
consulting agreement. The balance was payable based on meeting certain
performance standards. At December 31, 1998, the Company had not met the
performance standards and was not entitled to the additional $100,000 under the
consulting agreement. Because the term of the agreement went from March, 1998
to March, 1999, the Company had unearned revenue of $21,666 as of December 31,
1998.
<PAGE> 37
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
g. Property and Equipment
Property and equipment is recorded at cost. Major additions and improvement are
capitalized. The cost and related accumulated depreciation of equipment retired
or sold are removed from the accounts and any differences between the
undepreciated amount and the proceeds from the sale are recorded as gain or loss
on sale of equipment. Depreciation is computed using the straight-line method
over the estimated useful life of the assets as follows:
Description Estimated Useful Life
------------------------ ---------------------
Furniture and fixtures 3 to 7 years
Machinery and equipment 5 to 7 years
Computers 5 years
Vehicles 5 years
Leasehold improvements 15 years
Buildings 15 years
h. Restricted Cash
The Company holds a certificate of deposit with a Canadian bank in the amount of
$40,669 which is being used as security and collateral on a demand note with the
same bank. The cash cannot be withdrawn from the CD until after the demand note
is paid in full.
I. Accounts Receivable
Accounts receivable consists almost entirely of amounts due from a major oil
company. Those outstanding invoices are considered to be fully collectible and
no allowance for doubtful accounts has been recorded.
j. Provision For Taxes
At December 31, 1998, the Company has an accumulated deficit of $22,521,496
which
includes net operating loss carryforwards that may be offset against future
taxable income through 2013. No tax benefit has been reported in the
consolidated financial statements because the Company believes there is a 50% or
greater chance the net operating loss carryforwards will not be used.
Accordingly, the potential tax benefits of the net operating loss carryforwards
are offset by a valuation allowance of the same amount.
k. Principles of Consolidation
The consolidated financial statements include those of Industrial Ecosystems,
Inc. and its wholly-owned subsidiaries.
All material intercompany accounts and transactions have been eliminated.
<PAGE>
<PAGE> 38
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
l. Statement of Cash Flows
For the Company's foreign subsidiary, (IEI Canada and its subsidiaries), the
functional currency has been determined to be the local currency. Accordingly,
assets and liabilities are translated at year-end exchange rates, and operating
statement items are translated at average exchange rates prevailing during the
year. The resultant cumulative translation adjustments to the assets and
liabilities are recorded as a separate component of stockholders' equity.
Exchange adjustments resulting from foreign currency transactions are included
in the determination of net income (loss). Such amounts are immaterial for all
years presented.
In accordance with Statement of Financial Accounting Standards No. 95,
"Statement
of Cash Flows, " cash flows from the Company's foreign subsidiaries are
calculated based upon the local currencies. As a result, amounts related to
assets and liabilities reported on the consolidated statements of cash flows
will
not necessarily agree with changes in the corresponding balances on the balance
sheets.
m. Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
n. Advertising
The Company follows the policy of charging the costs of advertising to expense
as incurred.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998:
Furniture and fixtures $ 35,535
Machinery and equipment 429,005
Computers 14,875
Vehicles 70,900
Leasehold improvements 10,340
Building 14,905
Land 31,561
-------
607,121
Accumulated depreciation (331,148)
-------
Net property and equipment $ 275,973
=======
Depreciation expense for the years ended December 31, 1998 and 1997 was $108,677
and $202,017, respectively.<PAGE>
<PAGE> 39
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 3 - RELATED PARTY TRANSACTIONS
As of December 31, 1998, the Company owed $14,286 to an employee of the joint
venture. This amount represents an advance made to the Company during 1996.
The amount is non-interest bearing and due on demand.
The Company also has been involved in a number of related party transactions.
The most significant of those transactions are summarized as follows:
The Company has made disbursements and issued shares of its common stock to
certain officers and directors of the Company, relatives of these officers and
directors and companies owned by these officers and directors, although those
individuals are no longer officers or directors of the Company. Most of these
funds have been paid for services rendered or for payments related to
construction of the Company's facilities and equipment. Any payments made that
could not be substantiated have been recorded by the Company as additional
compensation to those certain officers and directors.
The Company's president, from time to time, received payments in the form of
loans that have been repaid without interest. The Company's president also
advanced funds to the Company from time to time in order for the Company to meet
its ongoing needs. These advances were also repaid without interest.
The Company's transfer agent as of December 31, 1998, is controlled by a
minority
shareholder who has received options from the Company for consulting services.
As of December 31, 1998, the Company owed its transfer agent a total of
$25,000.
The minority shareholder has played a significant role in obtaining professional
consulting, accounting and legal services for the Company in helping the Company
try to become fully reporting with the SEC.
A former director of the Company has also controlled an entity that served as
the
Company's transfer agent prior to the current transfer agent taking over.
NOTE 4 - ACCRUED EXPENSES
Accrued expenses as of December 31, 1998 consist primarily of accrued interest
and unpaid payroll taxes, unemployment taxes, sales taxes and gross receipts
taxes due both the federal and state taxing authorities. The Company has been
delinquent on filing these tax forms and has unfiled taxes for both the 1997 and
1998 tax years. Reasonable interest and penalties have also been accrued as of
December 31, 1998.
<PAGE>
<PAGE> 40
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 5 - NOTES PAYABLE
Notes payable consisted of the following at December 31, 1998:
December 31,
1998
------------
SBA note payable to a bank, interest at prime + 3%
per annum, requires monthly payments of $1,860
plus interest, matures in December, 2005,
secured by machinery, equipment and certificate
of deposit. $ 156,250
Note payable to a company, interest at 11.5% per
annum, principle and interest of $ 5,002 due
monthly, matures in June, 2000, secured by
equipment. 82,058
Other obligations 4,999
--------
Total Notes Payable 243,307
Less: Current Portion (85,902)
--------
Long-Term Notes Payable $ 157,405
========
The aggregate principal maturities of notes payable are as follows:
Year Ended
December 31, Amount
------------ ---------
1999 $ 85,902
2000 45,795
2001 22,320
2002 22,320
2003 22,320
2004 and thereafter 44,650
=======
Total $ 243,307
=======
<PAGE>
<PAGE> 41
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 6 - INVESTMENT IN JOINT VENTURE
During March, 1998, IEI Canada, Inc., a wholly-owned subsidiary of IEI, entered
into a joint venture agreement with JFJ Ecosystems, Inc. to form ROP North
America, LLC (the JV). The JV created a wholly-owned subsidiary called ROP
North
America, Inc. (an Ontario Corporation) which became the operating entity. As of
December 31, 1998, pursuant to a subsequent transaction, IEI Canada, Inc. has a
50% equity interest in the JV but does not have management control. The
investment is being recorded under the equity method of accounting. Because of
a significant first year loss of the JV, the investment is being recorded at
$-0-
as of December 31, 1998. The Company has the right to acquire the remaining 50%
interest in the JV on or prior to December 31, 2000 conditional on meeting
certain requirements established by the JV.
The joint venture was established to transform organic by-product from
commercial
waste streams into livestock feed. This process is accomplished in part,
through
the joint venture's liquid feed system. The joint venture also raises
approximately 3,000 hogs under contract. In addition, the hog farm is a beta-
site for the joint venture's liquid feed products.
On March 20, 1998, the Company entered into an equipment lease agreement with
the
JV whereby the JV has agreed to lease from the Company a certain liquid feed
distribution system for $4,414 per month for a term of seven years.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
During 1997, the Company entered into a lease agreement for its office
facilities
in Pacifica, California effective May 1, 1997 and expiring May 1, 2000. The
monthly rental payment is $2,350.
The Company also has reserved and recorded possible contingent liabilities to
individuals who claim they are still owed although the Company issued shares of
common stock in payment of the debts. The Company has recorded a total of
contingent liabilities at December 31, 1998 of $747,819. It is currently
uncertain as to whether or not the amounts will be paid in the future and
management of the Company intends on vigorously contesting any claim that is
made. It is reasonably possible, however, that the Company will have to pay the
amounts and to be conservative, management has recorded these possible debts as
contingent liabilities.
Management of the Company has also incorporated numerous subsidiaries over the
past years with no real business purpose. These subsidiaries incurred various
debts that the Company is being held liable for. The Company may also be
responsible to cover certain debts incurred by the former officers and directors
of the Company that were intended to be personal debts. Current management of
the Company is uncertain as to whether the debtors are holding the Company
responsible for these debts. Management believes that the provision for
commitments and contingencies adequately covers the potential liabilities that
the Company may be held responsible for.
There are also certain individuals and entities that claim they have lien rights
on some or all of the Company's fixed assets. The Company may have secured the
same assets to more than one individual or entity. Management of the Company is
currently uncertain as to whether these individuals have a legitimate claim or
the potential liability related to these claims.<PAGE>
<PAGE> 42
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 8 - CLASS A-SPECIAL SHARES
IEI Canada, Inc., a wholly-owed subsidiary of the Company (by virtue of voting
rights and common stock shares), has 324,390 class A-special shares outstanding
that are convertible at the holder's option into 254,573 shares of the Company's
common stock. These shares have been included in additional paid-in capital of
the Company until they are converted into IEI shares.
NOTE 9 - STOCK OPTIONS
On July 23, 1997, the Board of Directors agreed to issue an option to purchase
166,667 (post-split) shares of common stock at an exercise price of $0.15 per
share to an entity that provided a loan to the Company.
On March 13, 1998, the Board of Directors agreed to issue options to various
individuals who have provided and may continue to provide consulting and other
services to the Company. Stock options for a total of 4,131,000 (post-split)
shares of common stock were granted at an exercise price of $0.225 per share.
As of December 31, 1998, an aggregate of 4,297,667 options to purchase common
shares were outstanding with exercise prices ranging from $0.15 to $0.225 per
share. At the time the options were granted, the exercise price was equal to or
greater than the prior 10 day average trading price of the Company's shares.
166,667 of the options will expire if not exercised by July 23, 2002 and 591,000
of the options will expire if not exercised by March 13, 2003. The remaining
3,540,000 options are "cashless" options and will expire if not exercised by
March 13, 2005. 3,277,667 of the options were exercisable on December 31, 1998
and the remaining 1,020,000 options become exercisable if the Company
successfully files Form 10SB with the Securities and Exchange Commission prior
to December 31, 1999.
NOTE 10 - GOING CONCERN
The Company's consolidated financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. The Company has historically incurred significant losses which have
resulted in an accumulated deficit of $22,521,496 at December 31, 1998 which
raises substantial doubt about the Company's ability to continue as a going
concern. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result from
the outcome of this uncertainty. The Company is in the process of trying to
obtain new directors and management and focusing on additional avenues of
generating revenues sufficient to cover the operating costs. It is the intent
of management to rely upon additional equity financing if required to sustain
operations until revenues are adequate to cover the costs.<PAGE>
<PAGE> 43
INDUSTRIAL ECOSYSTEMS, INC. AND SUBSIDIARIES
Notes to the Consolidated Financial Statements
December 31, 1998
NOTE 11 - SUBSEQUENT EVENT
Subsequent to December 31, 1998, the Company obtained a line-of-credit with a
related party for up to $750,000 at 6% interest per annum. Withdrawals from the
line-of-credit are to be authorized by an independent credit committee on a
case-
by-case basis. Total advances from the line-of-credit through the date of our
audit report was $362,402. The line-of-credit is secured by the Company's
interest in the JV and is due and payable in full by December 31, 2000.
The Company also entered into an agreement with the JV on January 4, 1999,
whereby the joint venture partner received an immediate vesting of its 50%
membership interest in the JV and the termination of the Company's option to
reduce the joint venture partners membership interest to 19%. The joint venture
partner was also granted certain rights, subject to certain conditions, to
exercise an option to exchange their membership interest in the JV for that
number of shares of the Company's common stock which would make the joint
venture
partner a 33.3% owner of the total outstanding common shares of the Company's
stock issued and outstanding at the time of exercise.
<PAGE>
<PAGE> 44
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this Form
10SB
pursuant to Item 601 of Regulation SB.
SEC
Exhibit Reference
No. No. Title of Document
- - ------- --------- -----------------
1 3(i) Articles of Incorporation of the Registrant and related
Amendments
2 3(ii) Bylaws of the Registrant
3 4.01 Specimen Stock Certificate
4 4.02 Rights Agreement between the Company and JFJ Ecosystems
5 10.01 Service Agreement between Environmental Protection Company
and AMOCO Production Company
6 10.02 Agreement with Public Service Company of New Mexico
7 10.03 Credit Agreement between the Company and JFJ Ecosystems
8 10.04 1999 Stock Option and Award Plan
9 27 Financial Data Schedule
ITEM 2. SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
Registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
INDUSTRIAL ECOSYSTEMS, INC.
DATED: APRIL 30, 1999 /S/ Tom Jarnagin, President
<PAGE> 1
Exhibit No. 3(i)
AMENDED ARTICLES OF INCORPORATION
OF
INDUSTRIAL ECOSYSTEMS, INC.
Pursuant to the provisions of Section 16-10a-1001 et. seq. of the Utah
Revised Business Corporation Act, the undersigned corporation, hereinafter
referred to as the "Corporation," hereby adopts the following Amended Articles
of Incorporation:
FIRST: The name of the Corporation is: Industrial Ecosystems, Inc.
SECOND: The following Amended Articles of Incorporation were duly adopted
by the board of directors and the shareholders of the corporation in
accordance with Section 16-10a-1003 of the Utah Revised Business Corporation
Act and supercede and replace the original Articles of Incorporation of the
Corporation and all amendments thereto as on file with the Utah Division of
Corporations and Commercial Code.
ARTICLE I
NAME
The name of the Corporation shall be: INDUSTRIAL ECOSYSTEMS, INC.
ARTICLE II
PURPOSE AND POWERS
The Corporation is organized for the purpose or purposes of engaging in
any lawful act or activity for which a corporation may be organized under the
laws of the state of Utah and to exercise all powers permitted thereby.
ARTICLE III
AUTHORIZED SHARES
The Corporation is authorized to issue a total of 125,000,000 shares,
consisting of 25,000,000 shares of preferred stock having a par value of
$0.001 per share (hereinafter referred to as "Preferred Stock") and
100,000,000 shares of common stock having a par value $0.001 per share
(hereinafter referred to as "Common Stock").
ARTICLE IV
CAPITAL STOCK
(A) Common Stock. The Common Stock shall be non-assessable and shall
not have cumulative voting rights or pre-emptive rights. In addition, the
Common Stock shall have the following powers, preferences, rights,
qualifications, limitations, and restrictions:
(i) the holders of the Common Stock shall be entitled to receive
such dividends, if any, as may be declared from time to time by the board of
directors;
(ii) after payment of all liabilities the holders of the Common
Stock shall be entitled to receive all of the remaining assets of this
Corporation, tangible and intangible, of whatever kind available for
distribution to stockholders, ratably in proportion to the number of shares of
Common Stock held by each; and
<PAGE> 2
(iii) except as may otherwise be required by law or these Articles
of Incorporation, each holder of Common Stock shall have one vote in respect
to each share of Common Stock held by such holder on each matter voted upon by
the shareholders; no shareholder shall be entitled to cumulate his vote for
the election of directors or for any other reason.
(B) Preferred Stock. The authority to issue the Preferred Stock shall
be vested in the board of directors. Furthermore, the board of directors is
vested with the authority to fix and determine the powers, qualifications,
limitations, restrictions, designations, rights, preferences, or other
variations of each class or series within each class which the Corporation is
authorized to issue. The above-described authority of the board of directors
to fix and determine may be exercised by corporate resolution from time to
time as the board of directors sees fit.
ARTICLE V
TRANSACTIONS WITH INTERESTED DIRECTORS AND OFFICERS
No contract or other transaction between the Corporation and any other
firm or corporation shall be affected by the fact that a director or officer
of the Corporation has an interest in, or is a director or officer of, such
other firm or corporation. Any officer or director, individually or with
others, may be a party to, or may have an interest in, any transaction of the
Corporation or any transaction in which the Corporation is a party or has an
interest. Each person who is now or may become an officer or director of the
Corporation is hereby relieved from liability that he or she might otherwise
incur in the event such officer or director contracts with the Corporation,
individually or in behalf of another corporation or entity, in which he or she
may have an interest; provided, that such officer or director acts in good
faith.
ARTICLE VI
LIMITATION ON LIABILITY
A director of the Corporation shall have no personal liability to the
Corporation or its shareholders for monetary damages for breach of fiduciary
duty, except:
(i) for any breach of a director's duty of loyalty to the
Corporation or its shareholders;
(ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii) for liability arising from any action under section 16-10a-
841 of the Utah Revised Business Corporation Act as it may from time to time
be amended or any successor provision thereto; or
(iv) for any transaction from which a director derived an improper
personal benefit.
ARTICLE VII
INDEMNIFICATION OF OFFICERS, DIRECTORS, AND OTHERS
The Corporation shall indemnify each director, and shall have the power
to indemnify each officer, employee, or agent of the Corporation, and their
respective heirs, administrators, and executors against all liabilities and
expenses reasonably incurred in connection with any action, suit, or
proceeding to which he or she may be made an officer, employee, or agent of
<PAGE> 3
the Corporation, to the full extent permitted by the laws of the state of Utah
now existing or as such laws may hereafter be amended.
The Corporation shall have the power to indemnify any person who was or
is a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he or she is or was a
director, officer, employee, or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other
enterprise, against expenses, including attorneys' fees, judgements, fines,
and amounts paid in settlement, actually and reasonably incurred by him or her
in connection with the defense or settlement of the action, suit, or
proceeding, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, except that no indemnification shall be made in respect of any
claim, issue, or matter as to which such a person shall have been adjudged to
be liable to the Corporation, unless and only to the extent that the court in
which the action or suit was brought shall determine on application that,
despite the adjudication of liability, but in view of all circumstances of the
case, the person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper.
ARTICLE VIII
RIGHT TO ACQUIRE OWN SHARES
The Corporation shall have the right to redeem, purchase, take, receive,
or otherwise acquire, hold, own, pledge, transfer, or otherwise dispose of its
own shares to the extent of unreserved and unrestricted capital surplus
available therefor.
ARTICLE IX
AMENDMENTS
The Corporation reserves the right to amend, alter, change, or repeal all
or any portion of the provisions in its Articles of Incorporation from time to
time in accordance with the laws of the state of Utah, and all rights
conferred on stockholders herein are granted subject to this reservation.
ARTICLE X
ADOPTION OR AMENDMENT OF BYLAWS
The bylaws of the Corporation shall be adopted by its board of directors.
The power to alter, amend, or repeal the bylaws or adopt new bylaws shall be
vested in the board of directors, but the shareholders of the corporation may
also alter, amend or repeal the bylaws or adopt new bylaws. The bylaws may
contain any provisions for the regulation and management of the affairs of the
Corporation not inconsistent with the Utah Revised Business Corporation Act,
as now existing or as hereafter amended, or these Articles of Incorporation.
ARTICLE XI
REGISTERED OFFICE AND REGISTERED AGENT
The address of the Corporation's registered office in the state of Utah
is 3090 East 3300 South, Suite 400, Salt Lake City, Utah 84109. The name of
its registered agent at such office is Taylor and Associates, Inc. Either the
registered office or the registered agent may be changed in the manner
provided for by law.
<PAGE> 4
ARTICLE XII
BOARD OF DIRECTORS
The governing board of the Corporation shall be known as the board of
directors, and the number of directors comprising the board of directors shall
be fixed by the bylaws of the Corporation, provided that the number of
directors shall not be less than three. The name and address of the members of
the board of directors to serve until the next annual meeting of shareholders
and until their successors are elected and shall qualify are as follows:
NAME ADDRESS
---- -------
Tom Jarnagin 450 Dondee Way, Suite 10, Pacifica, CA 94044
Magaly Bianchini 450 Dondee Way, Suite 10, Pacifica, CA 94044
Steven Justus 450 Dondee Way, Suite 10, Pacifica, CA 94044
THIRD: The designation and number of outstanding shares of each class
entitled to vote thereon as a class were as follows:
Class Number of Shares
----- ----------------
Common 33,596,906
FOURTH: That there were 208,887 shares present in person and
25,014,712shares represented by proxy at the Special Meeting of Shareholders
and that a quorum of shareholders was present, that the meeting was duly
called and noticed, and was properly convened for the transaction.
FIFTH: The number of shares required to approve the Amended Articles of
Incorporation was 12,611,801 shares.
SIXTH: The Amended Articles of Incorporation were adopted by a vote of
the shareholders in excess of the number of shares required to approve the
Amended Articles of Incorporation.
SEVENTH: The Amended Articles of Incorporation do not provide for any
exchange, reclassification, or cancellation of issued shares.
IN WITNESS WHEREOF, the foregoing Amended Articles of Incorporation have
been executed this 19th day of April, 1999.
ATTEST: INDUSTRIAL ECOSYSTEMS, INC.
/s/Magaly Bianchini, Secretary /s/Tom Jarnagin, President
State of Utah )
: ss
County of Salt Lake )
On this 19th day of April, 1999, personally appeared before me, the
undersigned, a notary public, Tom Jarnagin and Magaly Bianchini, who being by
me duly sworn did state, each for himself, that he Tom Jarnagin is the
President, and that she Magaly Bianchini is the Secretary of Industrial
Ecosystems, Inc., a Utah corporation, that they signed the foregoing Amended
Articles of Incorporation on behalf of the corporation by authority of its
board of directors and that the statements contained therein are true.
/s/sic., Notary Public<PAGE>
<PAGE> 5
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
INDUSTRIAL ECOSYSTEMS, INC.
Pursuant to the provisions of the Laws of the State of Utah, Business
Corporation Act, the undersigned corporation adopts the following articles of
amendment to the articles of incorporation.
1. To authorize the increase of authorized common share from 25,000,000 to
100,000,000 shares par value $0.001.
2. To delete the 10,000,000 shares of Class B Cumulative convertible
preferred stock with a par value of one dollar.
These amendments of the articles of Incorporation were adopted by a quorum of
shareholders of the corporation March 1, 1994. There are 250,000 outstanding
shares, of which 172,125 share voted for the amendment and 0 against.
Dated the 5th day of March, 1994.
By: /s/Paul Parshall, Incorporator, President and Director
[State of Utah
Department of Commerce
Division of Corporation and Commercial Code
I Hereby certify that the foregoing has been filed
and approved on this 7th of Mar, 94
in the office of this Division and hereby issue
this Certificate thereof.
Examiner: /s/BS Date: 3/11/94]
[SEAL - /s/Korla T. Woods, Division Director]
<PAGE>
<PAGE> 6
ARTICLES OF AMENDMENT
TO THE ARTICLES OF INCORPORATION
OF
AGRI WORLD TRADE DEVELOPMENT CORP.
Pursuant to the provisions of the Laws of the State of Utah, Business
Corporation Act, the undersigned corporation adopts the following articles of
amendment to the articles of incorporation.
1. To amend the name of the corporation to INDUSTRIAL ECOSYSTEMS, INC. from
AGRI WORLD TRADE DEVELOPMENT CORP.
2. To authorize a reverse stock split of its common stock one share for each
two thousand, reducing the issued and outstanding shares from 500,000,000 to
250,000 and reduce the authorized common share form 5,000,000,000 to 2,500,000
shares.
3. To authorize the increase of authorized common shares from 2,500,000 to
25,000,000 shares par value .001.
4. The authorization of 10,000,000 shares of class B cumulative convertible
preferred stock with a par value of one dollar.
5. To change the address of the company to 80 Eureka Square, Suite 128,
Pacifica, CA 94044.
These amendments of the articles of Incorporation were adopted by a quorum of
shareholders of the corporation January 18, 1994. There are 500,000,000
outstanding shares, of which 344,250,000 shares voted for the amendment, and 0
against.
Dated this 18th day of January, 1994
By: /s/Paul L. Parshall, Incorporator President and Director
[State of Utah
Department of Commerce
Division of Corporation and Commercial Code
I Hereby certify that the foregoing has been filed
and approved on this 20th of Jan, 94
in the office of this Division and hereby issue
this Certificate thereof.
Examiner: /s/BS Date: 1/20/94]
[SEAL - /s/Korla T. Woods, Division Director]
<PAGE>
<PAGE> 7
ARTICLES OF INCORPORATION
OF
AGRI WORLD TRADE
DEVELOPMENT CORP.
Pursuant to the Utah Business Corporation Act, the undersigned desiring to
form a corporation for profit, do hereby state the following:
First: The name of said corporation shall be Agri World Trade Development
Corp.
Second: The purpose for which this corporation is formed is to acquire the
assets and certain liabilities, subject to Director approval, of its
predecessor corporations of the same name incorporated in the State of Utah on
December 22, 1983, and engage in any lawful business within the United States
of America.
Third: The number of shares which the corporation is authorized to have
outstanding is Five Billion (5,000,000,000) common shares of par value
$0.000001 per share.
Fourth: The name and address of the incorporator is:
Paul L. Parshall, C.E.O.
I.I.S., Ltd. (a Utah Corporation)
106 Heischman Ave.
Worthington, Ohio 43085
Fifth: The place in Utah where the corporation's initial registered agent is
located at: Denton C. Linton, 2845 Bonnie Brae, Salt Lake City, Utah 84124.
By:/s/Denton C. Linton
In witness whereof, I have hereunto subscribed my name this First day of July,
Nineteen Hundred Ninety-three.
By:/s/Paul L. Parshall, Incorporator
President
I.I.S., Ltd.
106 Heischman Ave.
Worthington, Ohio 43085
(614) 888-6200
[State of Utah
Department of Commerce
Division of Corporation and Commercial Code
I Hereby certify that the foregoing has been filed
and approved on this 13th of Jul, 93
in the office of this Division and hereby issue
this Certificate thereof.
Examiner: /s/J. Smullin Date: 7-13-93]
[SEAL - /s/Korla T. Woods, Division Director]
<PAGE> 1
Exhibit 3(ii)
BYLAWS
OF
INDUSTRIAL ECOSYSTEMS, INC.
ARTICLE I
OFFICES
Section 1.1 Business Office. The principal office of the corporation
shall be located at any place either within or outside the state of Utah as
designated in the corporation's most current annual report filed with the Utah
Division of Corporations and Commercial Code. The corporation may have such
other offices, either within or without the state of Utah, as the board of
directors may designate or as the business of the corporation may require from
time to time.
Section 1.2 Registered Office. The registered office of the
corporation, required by section 16-10a-501 of the Utah Revised Business
Corporation Act (the "Act") or any section of like tenor as from time to time
amended shall be located within Utah and may be, but need not be, identical
with the principal office (if located within Utah). The address of the
registered office may be changed from time to time.
ARTICLE II
SHAREHOLDERS
Section 2.1 Annual Shareholder Meeting. The annual meeting of the
shareholders shall be held within 150 days of the close of the corporation's
fiscal year, at a time and date as is determined by the corporation's board of
directors, for the purpose of electing directors and for the transaction of
such other business as may come before the meeting. If the day fixed for the
annual meeting shall be a legal holiday in the state of Utah, such meeting
shall be held on the next succeeding business day.
If the election of directors shall not be held on the day designated
herein for any annual meeting of the shareholders, or at any subsequent
continuation after adjournment thereof, the board of directors shall cause the
election to be held at a special meeting of the shareholders as soon
thereafter as convenient. The failure to hold an annual or special meeting
does not affect the validity of any corporate action or work a forfeiture or
dissolution of the corporation.
Section 2.2 Special Shareholder Meetings. Special meetings of the
shareholders, for any purpose or purposes described in the meeting notice, may
be called by the president or by the board of directors and shall be called by
the president at the request of the holders of not less than one- tenth of all
outstanding votes of the corporation entitled to be cast on any issue at the
meeting.
Section 2.3 Place of Shareholder Meetings. The board of directors may
designate any place, either within or without the state of Utah, as the place
of meeting for any annual or any special meeting of the shareholders, unless
by written consents, which may be in the form of waivers of notice or
otherwise, a majority of shareholders entitled to vote at the meeting may
designate a different place, either within or without the state of Utah, as
the place for the holding of such meeting. If no designation is made by
either the directors or majority action of the voting shareholders, the place
of meeting shall be the principal office of the corporation.
<PAGE> 2
Section 2.4 Notice of Shareholder Meetings.
(a) Required Notice. Written notice stating the place, day, and
time of any annual or special shareholder meeting shall be delivered not less
than 10 nor more than 60 days before the date of the meeting, either in
person, by any form of electronic communication, by mail, by private carrier,
or by any other manner provided for in the Act, by or at the direction of the
president, the board of directors, or other persons calling the meeting, to
each shareholder of record, entitled to vote at such meeting and to any other
shareholder entitled by the Act or the articles of incorporation to receive
notice of the meeting. Notice shall be deemed to be effective at the earlier
of: (1) when deposited in the United States mail, addressed to the
shareholder at his address as it appears on the stock transfer books of the
corporation, with postage thereon prepaid; (2) on the date shown on the return
receipt if sent by registered or certified mail, return receipt requested, and
the receipt is signed by or on behalf of the addressee; (3) when received; or
(4) five days after deposit in the United States mail, if mailed postpaid and
correctly addressed to an address other than that shown in the corporation's
current record of shareholders.
(b) Adjourned Meeting. If any shareholder meeting is adjourned to
a different date, time, or place, notice need not be given of the new date,
time, and place, if the new date, time, and place is announced at the meeting
before adjournment. If a new record date for the adjourned meeting is, or
must be fixed (see section 2.5 of this Article II) or if the adjournment is
for more than 30 days, then notice must be given pursuant to the requirements
of paragraph (a) of this section 2.4, to those persons who are shareholders as
of the new record date.
(c) Waiver of Notice. The shareholder may waive notice of the
meeting (or any notice required by the Act, articles of incorporation, or
bylaws), by a writing signed by the shareholder entitled to the notice, which
is delivered to the corporation (either before or after the date and time
stated in the notice) for inclusion in the minutes or filing with the
corporate records.
(d) Shareholder Attendance. A shareholder's attendance at a
meeting:
(1) waives objection to lack of notice or defective notice of
the meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; and
(2) waives objection to consideration of a particular matter
at the meeting that is not within the purpose or purposes described in the
meeting notice, unless the shareholder objects to considering the matter when
it is presented.
(e) Contents of Notice. The notice of each special shareholder
meeting shall include a description of the purpose or purposes for which the
meeting is called. Except as provided in this section 2.4(e), the articles of
incorporation, or otherwise in the Act, the notice of an annual shareholder
meeting need not include a description of the purpose or purposes for which
the meeting is called.
If a purpose of any shareholder meeting is to consider either: (1) a
proposed amendment to the articles of incorporation (including any restated
articles requiring shareholder approval); (2) a plan of merger or share
<PAGE> 3
exchange; (3) the sale, lease, exchange, or other disposition of all, or
substantially all of the corporation's property; (4) the dissolution of the
corporation; or (5) the removal of a director, the notice must so state and,
to the extent applicable, be accompanied by a copy or summary of the: (1)
articles of amendment; (2) plan of merger or share exchange; (3) agreement for
the disposition of all or substantially all of the corporation's property; or
(4) the terms of the dissolution. If the proposed corporate action creates
dissenters' rights, the notice must state that shareholders are, or may be
entitled to assert dissenters' rights, and must be accompanied by a copy of
the provisions of the Act governing such rights.
Section 2.5 Meetings by Telecommunications. Any or all of the
shareholders may participate in an annual or special meeting of shareholders
by, or the meeting may be conducted through the use of, any means of
communication by which all persons participating in the meeting can hear each
other during the meeting. A shareholder participating in a meeting by this
means is considered to be present in person at the meeting.
Section 2.6 Fixing of Record Date. For the purpose of determining
shareholders of any voting group entitled to notice of or to vote at any
meeting of shareholders, or shareholders entitled to receive payment of any
distribution or dividend, or in order to make a determination of shareholders
for any other proper purpose, the board of directors may fix in advance a date
as the record date. Such record date shall not be more than 70 days prior to
the meeting of shareholders or the payment of any distribution or dividend.
If no record date is so fixed by the board of directors for the determination
of shareholders entitled to notice of, or to vote at a meeting of
shareholders, or shareholders entitled to receive a share dividend or
distribution, or in order to make a determination of shareholders for any
other proper purpose, the record date for determination of such shareholders
shall be at the close of business on:
(a) With respect to an annual shareholder meeting or any special
shareholder meeting called by the board of directors or any person
specifically authorized by the board of directors or these bylaws to call a
meeting, the day before the first notice is delivered to shareholders;
(b) With respect to a special shareholders' meeting demanded by the
shareholders, the date the first shareholder signs the demand;
(c) With respect to the payment of a share dividend, the date the
board of directors authorizes the share dividend;
(d) With respect to actions taken in writing without a meeting
(pursuant to Article II, section 2.12), the date the first shareholder signs a
consent; and
(e) With respect to a distribution to shareholders (other than one
involving a repurchase or reacquisition of shares), the date the board
authorizes the distribution.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section 2.6, such determination
shall apply to any adjournment thereof unless the board of directors fixes a
new record date. A new record date must be fixed if the meeting is adjourned
to a date more than 120 days after the date fixed for the original meeting.
<PAGE> 4
Section 2.7 Shareholder List. The officer or agent having charge of the
stock transfer books for shares of the corporation shall make a complete
record of the shareholders entitled to vote at each meeting of shareholders,
arranged in alphabetical order with the address of and the number of shares
held by each. The list must be arranged by voting group (if such exists, see
Article II, section 2.8) and within each voting group by class or series of
shares. The shareholder list must be available for inspection by any
shareholder, beginning on the earlier of ten days before the meeting for which
the list was prepared or two business days after notice of the meeting is
given for which the list was prepared and continuing through the meeting. The
list shall be available at the corporation's principal office or at a place
identified in the meeting notice in the city where the meeting is to be held.
A shareholder, or his agent or attorney, is entitled, on written demand, to
inspect and, subject to the requirements of section 2.18 of this Article II
and sections 16-10a-1602 and 16-10a-1603 of the Act, or any sections of like
tenor as from time to time amended, to inspect and copy the list during
regular business hours, at his expense, during the period it is available for
inspection. The corporation shall maintain the shareholder list in written
form or in another form capable of conversion into written form within a
reasonable time.
Section 2.8 Shareholder Quorum and Voting Requirements. If the articles
of incorporation or the Act provides for voting by a single voting group on a
matter, action on that matter is taken when voted upon by that voting group.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the articles of incorporation, a bylaw adopted pursuant
to section 2.9 of this Article II, or the Act provides otherwise, a majority
of the votes entitled to be cast on the matter by the voting group constitutes
a quorum of that voting group for action on that matter.
If the articles of incorporation or the Act provides for voting by two or
more voting groups on a matter, action on that matter is taken only when voted
upon by each of those voting groups counted separately. Action may be taken
by one voting group on a matter even though no action is taken by another
voting group entitled to vote on the matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for
that adjourned meeting.
If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless
the articles of incorporation, a bylaw adopted pursuant to section 2.9 of this
Article II, or the Act require a greater number of affirmative votes.
Section 2.9 Increasing Either Quorum or Voting Requirements. For
purposes of this section 2.9, a "supermajority" quorum is a requirement that
more than a majority of the votes of the voting group be present to constitute
a quorum; and a "supermajority" voting requirement is any requirement that
requires the vote of more than a majority of the affirmative votes of a voting
group at a meeting.
The shareholders, but only if specifically authorized to do so by the
articles of incorporation, may adopt, amend, or delete a bylaw which fixes a
<PAGE> 5
"supermajority" quorum or "supermajority" voting requirement.
The adoption or amendment of a bylaw that adds, changes, or deletes a
"supermajority" quorum or voting requirement for shareholders must meet the
same quorum requirement and be adopted by the same vote and voting groups
required to take action under the quorum and voting requirement then in effect
or proposed to be adopted, whichever is greater.
A bylaw that fixes a supermajority quorum or voting requirement for
shareholders may not be adopted, amended, or repealed by the board of
directors.
Section 2.10 Proxies. At all meetings of shareholders, a shareholder
may vote in person, or vote by proxy, executed in writing by the shareholder
or by his duly authorized attorney-in-fact. Such proxy shall be filed with
the secretary of the corporation or other person authorized to tabulate votes
before or at the time of the meeting. No proxy shall be valid after 11 months
from the date of its execution unless otherwise provided in the proxy.
Section 2.11 Voting of Shares. Unless otherwise provided in the
articles of incorporation, each outstanding share entitled to vote shall be
entitled to one vote upon each matter submitted to a vote at a meeting of
shareholders.
Except as provided by specific court order, no shares held by another
corporation, if a majority of the shares entitled to vote for the election of
directors of such other corporation are held by the corporation, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting; provided, however, the
prior sentence shall not limit the power of the corporation to vote any
shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of redemption is
mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
Section 2.12 Corporation's Acceptance of Votes.
(a) If the name signed on a vote, consent, waiver, or proxy
appointment or revocation corresponds to the name of a shareholder, the
corporation if acting in good faith is entitled to accept the vote, consent,
waiver, or proxy appointment or revocation and give it effect as the act of
the shareholder.
(b) If the name signed on a vote, consent, waiver, or proxy
appointment or revocation does not correspond to the name of its shareholder,
the corporation, if acting in good faith, is nevertheless entitled to accept
the vote, consent, waiver, or proxy appointment or revocation and give it
effect as the act of the shareholder if:
(1) the shareholder is an entity as defined in the Act and the
name signed purports to be that of an officer or agent of the entity;
(2) the name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
<PAGE> 6
corporation has been presented with respect to the vote, consent, waiver, or
proxy appointment or revocation;
(3) the name signed purports to be that of receiver or
trustee in bankruptcy of the shareholder and, if the corporation requests,
evidence of this status acceptable to the corporation has been presented with
respect to the vote, consent, waiver, or proxy appointment or revocation;
(4) the name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder has been presented with
respect to the vote, consent, waiver, or proxy appointment or revocation; and
(5) two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at least one of the
co-owners and the person signing appears to be acting on behalf of all the co-
owners.
(c) The corporation is entitled to reject a vote, consent, waiver,
or proxy appointment or revocation if the secretary or other officer or agent
authorized to tabulate votes, acting in good faith, has reasonable basis for
doubt about the validity of the signature or about the signatory's authority
to sign for the shareholder.
(d) The corporation and its officer or agent who accepts or rejects
a vote, consent, waiver, or proxy appointment or revocation in good faith and
in accordance with the standards of this section are not liable in damages to
the shareholder for the consequences of the acceptance or rejection.
(e) Corporate action based on the acceptance or rejection of a
vote, consent, waiver, or proxy appointment or revocation under this section
2.12 is valid unless a court of competent jurisdiction determines otherwise.
Section 2.13 Inspectors of Election. There shall be appointed at least
one inspector of the vote. Such inspector shall first take and subscribe an
oath or affirmation faithfully to execute the duties of inspector at such
meeting with strict impartiality and according to the best of his ability.
Unless appointed in advance of any such meeting by the board of directors,
such inspector shall be appointed for the meeting by the presiding officer.
In the absence of any such appointment, the secretary of the corporation shall
act as the inspector. No candidate for the office of director (whether or not
then a director) shall be appointed as such inspector. Such inspector shall
be responsible for tallying and certifying each vote, whether made in person
or by proxy.
Section 2.14 Shareholder Action Without Meeting. Any action required or
permitted to be taken at a meeting of the shareholders, except for the
election of directors as set forth in section 2.15 of this Article II, may be
taken without a meeting and without prior notice if one or more consents in
writing, setting forth the action so taken, shall be signed by shareholders
having not less than the minimum number of votes that would be necessary to
authorize or take the action at a meeting at which all shares entitled to vote
with respect to the subject matter thereof are present. Directors may be
elected without a meeting of shareholders by the written consent of the
shareholders holding all of the shares entitled to vote for the election of
directors. Unless the written consents of all shareholders entitled to vote
have been obtained, notice of any shareholder approval without a meeting shall
<PAGE> 7
be given at least ten days before the consummation of the action authorized by
the approval to (i) those shareholders entitled to vote who have not consented
in writing, and (ii) those shareholders not entitled to vote and to whom the
Act requires that notice of the proposed action be given. If the act to be
taken requires that notice be given to nonvoting shareholders, the corporation
shall give the nonvoting shareholders written notice of the proposed action at
least ten days before the action is taken. The notice shall contain or be
accompanied by the same material that would have been required if a formal
meeting had been called to consider the action. A consent signed under this
section 2.14 has the effect of a meeting vote and may be described as such in
any document. The written consents are only effective if received by the
corporation within a 60 day period and not revoked prior to the receipt of the
written consent of that number of shareholders necessary to effectuate such
action. Action taken pursuant to a written consent is effective as of the
date the last written consent necessary to effect the action is received by
the corporation, unless all of the written consents necessary to effect the
action specify a later date as the effective date of the action, in which case
the later date shall be the effective date of the action. If the corporation
has received written consents signed by all shareholders entitled to vote with
respect to the action, the effective date of the action may be any date that
is specified in all the written consents as the effective date of the action.
Such consents may be executed in any number of counterparts or evidenced by
any number of instruments of substantially similar tenor.
Section 2.15 Election of Directors. At all meetings of the shareholders
at which directors are to be elected, except as otherwise set forth in any
stock designation with respect to the right of the holders of any class or
series of stock to elect additional directors under specified circumstances,
directors shall be elected by a plurality of the votes cast at the meeting.
The election need not be by ballot unless any shareholder so demands before
the voting begins. Except as otherwise provided by law, the articles of
incorporation, any preferred stock designation, or these bylaws, all matters
other than the election of directors submitted to the shareholders at any
meeting shall be decided by a majority of the votes cast with respect thereto.
Section 2.16 Business at Annual Meeting. At any annual meeting of the
shareholders, only such business shall be conducted as shall have been brought
before the meeting (a) by or at the direction of the board of directors or
(b)by any shareholder of record of the corporation who is entitled to vote
with respect thereto. Notwithstanding anything in these bylaws to the
contrary, no business shall be brought before or conducted at an annual
meeting except in accordance with the provisions of this section. The officer
of the corporation or other person presiding at the annual meeting shall, if
the facts so warrant, determine and declare to the meeting that business was
not properly brought before the meeting in accordance with such provisions,
and if such presiding officer should so determine and declare to the meeting
that business was not properly brought before the meeting in accordance with
such provisions and if such presiding officer should so determine, such
presiding officer shall so declare to the meeting, and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
Section 2.17 Conduct of Meeting. The board of directors of the
corporation shall be entitled to make such rules or regulations for the
conduct of meetings of shareholders as it shall deem necessary, appropriate,
or convenient. Subject to such rules and regulations of the board of
directors, if any, the chairman of the meeting shall have the right and
authority to prescribe such rules, regulations, and procedures and do all such
<PAGE> 8
acts as, in the judgment of such chairman, are necessary, appropriate, or
convenient for the proper conduct of the meeting, including, without
limitation, establishing an agenda or order of business for the meeting, rules
and procedures for maintaining order at the meeting, and the safety of those
present, limitations on participation in such meeting to shareholders of
record of the corporation and their duly authorized and constituted proxies,
and such other persons as the chairman shall permit, restrictions on entry to
the meeting after the time fixed for the commencement thereof, limitations on
the time allotted to questions or comments by participants and regulation of
the opening and closing of the polls for balloting on matters which are to be
voted on by ballot, unless, and to the extent, determined by the board of
directors or the chairman of the meeting, meetings of shareholders shall not
be required to be held in accordance with rules of parliamentary procedure.
Section 2.18 Financial Statements Shall be Furnished to the
Shareholders. Upon written request of any shareholder, the corporation shall
mail to such shareholder its most recent annual or quarterly financial
statements showing in reasonable detail its assets and liabilities and the
results of its operations.
Section 2.19 Dissenters' Rights. Each shareholder shall have the right
to dissent from and obtain payment for such shareholder's shares when so
authorized by the Act, the articles of incorporation, these bylaws, or in a
resolution of the board of directors.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1 General Powers. Unless the articles of incorporation have
dispensed with or limited the authority of the board of directors, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the corporation shall be managed under the direction
of, the board of directors.
Section 3.2 Number, Tenure, and Qualification of Directors. Unless
permitted by the Act, the authorized number of directors shall be not less
than three. The current number of directors shall be as determined (or as
amended from time to time) by resolution adopted from time to time by either
the shareholders or directors. Each director shall hold office until the next
annual meeting of shareholders or until removed. However, if his term
expires, he shall continue to serve until his successor shall have been
elected and qualified, or until there is a decrease in the number of
directors. A decrease in the number of directors does not shorten an
incumbent director's term. Unless required by the articles of incorporation,
directors do not need to be residents of Utah or shareholders of the
corporation.
Section 3.3 Regular Meetings of the Board of Directors. A regular
meeting of the board of directors shall be held without other notice than this
bylaw immediately after, and at the same place as, the annual meeting of
shareholders. The board of directors may provide, by resolution, the time and
place for the holding of additional regular meetings without other notice than
such resolution.
Section 3.4 Special Meetings of the Board of Directors. Special
meetings of the board of directors may be called by or at the request of the
<PAGE> 9
president or any one director. The person authorized to call special meetings
of the board of directors may fix any place as the place for holding any
special meeting of the board of directors.
Section 3.5 Notice of, and Waiver of Notice for, Special Director
Meetings. Unless the articles of incorporation provide for a longer or
shorter period, notice of any special director meeting shall be given at least
two days prior thereto either orally, in person, by telephone, by any form of
electronic communication, by mail, by private carrier, or by any other manner
provided for in the Act. Any director may waive notice of any meeting.
Except as provided in the next sentence, the waiver must be in writing, signed
by the director entitled to the notice, and filed with the minutes or
corporate records. The attendance of a director at a meeting shall constitute
a waiver of notice of such meeting, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business and at
the beginning of the meeting (or promptly upon his arrival) objects to holding
the meeting or transacting business at the meeting, and does not thereafter
vote for or assent to action taken at the meeting. Unless required by the
articles of incorporation or the Act, neither the business to be transacted
at, nor the purpose of, any special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 3.6 Director Quorum. A majority of the number of directors in
office immediately before the meeting begins shall constitute a quorum for the
transaction of business at any meeting of the board of directors, unless the
articles of incorporation require a greater number.
Any amendment to this quorum requirement is subject to the provisions of
section 3.8 of this Article III.
Section 3.7 Directors, Manner of Acting. The act of the majority of the
directors present at a meeting at which a quorum is present when the vote is
taken shall be the act of the board of directors unless the articles of
incorporation require a greater percentage. Any amendment which changes the
number of directors needed to take action, is subject to the provisions of
section 3.8 of this Article III.
Unless the articles of incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may simultaneously hear each other during the meeting. A
director participating in a meeting by this means is deemed to be present in
person at the meeting.
A director who is present at a meeting of the board of directors or a
committee of the board of directors when corporate action is taken is deemed
to have assented to the action taken unless: (1) he objects at the beginning
of the meeting (or promptly upon his arrival) to holding it or transacting
business at the meeting; or (2) his dissent or abstention from the action
taken is requested by such director to be entered in the minutes of the
meeting; or (3) he delivers written notice of his dissent or abstention to the
presiding officer of the meeting before its adjournment or to the corporation
immediately after adjournment of the meeting. The right of dissent or
abstention is not available to a director who votes in favor of the action
taken.
Section 3.8 Establishing a "Supermajority" Quorum or Voting Requirement
for the Board of Directors. For purposes of this section 3.8, a
<PAGE> 10
"supermajority" quorum is a requirement that requires more than a majority of
the directors in office to constitute a quorum; and a "supermajority" voting
requirement is any requirement that requires the vote of more than a majority
of those directors present at a meeting at which a quorum is present to be the
act of the directors.
A bylaw that fixes a supermajority quorum or supermajority voting
requirement may be amended or repealed:
(1) if originally adopted by the shareholders, only by the
shareholders (unless otherwise provided by the shareholders); or
(2) if originally adopted by the board of directors, either by the
shareholders or by the board of directors.
A bylaw adopted or amended by the shareholders that fixes a supermajority
quorum or supermajority voting requirement for the board of directors may
provide that it may be amended or repealed only by a specified vote of either
the shareholders or the board of directors.
Subject to the provisions of the preceding paragraph, action by the board
of directors to adopt, amend, or repeal a bylaw that changes the quorum or
voting requirement for the board of directors must meet the same quorum
requirement and be adopted by the same vote required to take action under the
quorum and voting requirement then in effect or proposed to be adopted,
whichever is greater.
Section 3.9 Director Action Without a Meeting. Unless the articles of
incorporation provide otherwise, any action required or permitted to be taken
by the board of directors at a meeting may be taken without a meeting if all
the directors sign a written consent describing the action taken, and such
consent is filed with the records of the corporation. Action taken by consent
is effective when the last director signs the consent, unless the consent
specifies a different effective date. A signed consent has the effect of a
meeting vote and may be described as such in any document. Such consent may
be executed in any number of counterparts, or evidenced by any number of
instruments of substantially similar tenor.
Section 3.10 Removal of Directors. The shareholders may remove one or
more directors at a meeting called for that purpose if notice has been given
that the purpose of the meeting is such removal. The removal may be with or
without cause unless the articles of incorporation provide that directors may
only be removed with cause. If a director is elected by a voting group of
shareholders, only the shareholders of that voting group may participate in
the vote to remove him. If cumulative voting is authorized, a director may
not be removed if the number of votes sufficient to elect him under cumulative
voting is voted against his removal. If cumulative voting is not authorized,
a director may be removed only if the number of votes cast to remove him
exceeds the number of votes cast against such removal.
Section 3.11 Board of Director Vacancies. Unless the articles of
incorporation provide otherwise, if a vacancy occurs on the board of
directors, including a vacancy resulting from an increase in the number of
directors, the shareholders may fill the vacancy. During such time that the
shareholders fail or are unable to fill such vacancies, then and until the
shareholders act:
(1) the board of directors may fill the vacancy; or
<PAGE> 11
(2) if the directors remaining in office constitute fewer than a
quorum of the board, they may fill the vacancy by the affirmative vote of a
majority of all the directors remaining in office.
If the vacant office was held by a director elected by a voting group of
shareholders, only the holders of shares of that voting group are entitled to
vote to fill the vacancy if it is filled by the shareholders. If two or more
directors are elected by the same voting group, only remaining directors
elected by such voting group are entitled to vote to fill the vacancy of a
director elected by the voting group if it is filled by directors.
A vacancy that will occur at a specific later date (by reason of
resignation effective at a later date) may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. However, if his term
expires, he shall continue to serve until his successor is elected and
qualified or until there is a decrease in the number of directors.
Section 3.12 Director Compensation. Unless otherwise provided in the
articles of incorporation, by resolution of the board of directors, each
director may be paid his expenses, if any, of attendance at each meeting of
the board of directors, and may be paid a stated salary as director or a fixed
sum for attendance at each meeting of the board of directors or both. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor.
Section 3.13 Director Committees.
(a) Creation of Committees. Unless the articles of incorporation
provide otherwise, the board of directors may create one or more committees
and appoint members of the board of directors to serve on them. Each
committee must have two or more members, who serve at the pleasure of the
board of directors.
(b) Selection of Members. The creation of a committee and
appointment of members to it must be approved by the greater of (1) a majority
of all the directors in office when the action is taken or (2) the number of
directors required by the articles of incorporation to take such action (or if
not specified in the articles of incorporation, the number required by section
3.7 of this Article III to take action).
(c) Required Procedures. Sections 3.4, 3.5, 3.6, 3.7, 3.8, and
3.9 of this Article III, which govern meetings, action without meetings,
notice and waiver of notice, quorum and voting requirements of the board of
directors, apply to committees and their members.
(d) Authority. Unless limited by the articles of incorporation,
each committee may exercise those aspects of the authority of the board of
directors which the board of directors confers upon such committee in the
resolution creating the committee; provided, however, a committee may not:
(1) authorize distributions to shareholders;
(2) approve, or propose to shareholders, action that the
Act requires be approved by shareholders;
<PAGE> 12
(3) fill vacancies on the board of directors or on any of its
committees;
(4) amend the articles of incorporation pursuant to the
authority of directors to do so granted by section 16-10a-1002 of the Act or
any section of like tenor as from time to time amended;
(5) adopt, amend, or repeal bylaws;
(6) approve a plan of merger not requiring shareholder
approval;
(7) authorize or approve reacquisition of shares, except
according to a formula or method prescribed by the board of directors; or
(8) authorize or approve the issuance or sale or contract for
sale of shares or determine the designation and relative rights, preferences,
and limitations of a class or series of shares, except that the board of
directors may authorize a committee (or a senior executive officer of the
corporation) to do so within limits specifically prescribed by the board of
directors.
ARTICLE IV
OFFICERS
Section 4.1 Number of Officers. There shall be at least one officer of
the corporation, a president, who shall be appointed by the board of
directors. Such other officers and assistant officers as may be deemed
necessary, including any vice-presidents, may be appointed by the board of
directors. If specifically authorized by the board of directors, an officer
may appoint one or more officers or assistant officers. The same individual
may simultaneously hold more than one office in the corporation.
Section 4.2 Appointment and Term of Office. The officers of the
corporation shall be appointed by the board of directors for a term as
determined by the board of directors. If no term is specified, such term
shall continue until the first meeting of the directors held after the next
annual meeting of shareholders. If the appointment of officers shall not be
made at such meeting, such appointment shall be made as soon thereafter as is
convenient. Each officer shall hold office until his successor shall have
been duly appointed and shall have qualified, until his death, or until he
shall resign or shall have been removed in the manner provided in section 4.3
of this Article IV.
Section 4.3 Removal of Officers. Any officer or agent may be removed by
the board of directors or an officer authorized to do so by the board of
directors at any time either before or after the expiration of the designated
term, with or without cause. Such removal shall be without prejudice to the
contract rights, if any, of the person so removed. Neither the appointment of
an officer nor the designation of a specified term shall create any contract
rights.
Section 4.4 President. The president shall be the principal executive
officer of the corporation and, subject to the control of the board of
directors, shall in general supervise and control all of the business and
affairs of the corporation. The president shall, when present, preside at all
meetings of the shareholders and of the board of directors, if the chairman of
<PAGE> 13
the board is not present. The president may sign, with the secretary or any
other proper officer of the corporation thereunto authorized by the board of
directors, certificates for shares of the corporation and deeds, mortgages,
bonds, contracts, or other instruments arising in the normal course of
business of the corporation and such other instruments as may be authorized by
the board of directors, except in cases where the signing and execution
thereof shall be expressly delegated by the board of directors or by these
bylaws to some other officer or agent of the corporation, or shall be required
by law to be otherwise signed or executed; and in general shall perform all
duties incident to the office of president and such other duties as may be
prescribed by the board of directors from time to time.
Section 4.5 Vice-Presidents. If appointed, in the event of the
president's death or inability to act, the vice-president (or in the event
there be more than one vice-president, the executive vice-president or, in the
absence of any designation, the senior vice-president in the order of their
appointment) shall perform the duties of the president, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
president. A vice-president, if any, may sign, with the secretary or an
assistant secretary, certificates for shares of the corporation the issuance
of which has been authorized by resolution of the board of directors; and
shall perform such other duties as from time to time may be assigned to him by
the president or by the board of directors.
Section 4.6 Secretary. The secretary shall: (a) keep the minutes of
the proceedings of the shareholders and of the board of directors in one or
more books provided for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these bylaws or as required by law; (c)
be custodian of the corporate records and of any seal of the corporation and,
if there is a seal of the corporation, see that it is affixed to all documents
the execution of which on behalf of the corporation under its seal is duly
authorized; (d) when requested or required, authenticate any records of the
corporation; (e) keep a register of the post office address of each
shareholder which shall be furnished to the secretary by such shareholders;
(f) sign with the president, or a vice-president, certificates for shares of
the corporation, the issuance of which has been authorized by resolution of
the board of directors; (g) have general charge of the stock transfer books of
the corporation; and (h) in general perform all duties incident to the office
of secretary and such other duties as from time to time may be assigned to him
by the president or by the board of directors.
Section 4.7 Treasurer. The treasurer, if any, and in the absence
thereof of the secretary, shall: (a) have charge and custody of and be
responsible for all funds and securities of the corporation; (b) receive and
give receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies, or other depositories as shall be selected by the
board of directors; and (c) in general perform all of the duties incident to
the office of treasurer and such other duties as from time to time may be
assigned to him by the president or by the board of directors. If required by
the board of directors, the treasurer shall give a bond for the faithful
discharge of his duties in such sum and with such surety or sureties as the
board of directors shall determine.
Section 4.8 Assistant Secretaries and Assistant Treasurers. Any
assistant secretary, when authorized by the board of directors, may sign with
the president or a vice-president certificates for shares of the corporation
the issuance of which has been authorized by a resolution of the board of
<PAGE> 14
directors. Any assistant treasurer shall, if required by the board of
directors, give bonds for the faithful discharge of his duties in such sums
and with such sureties as the board of directors shall determine. Any
assistant secretary or assistant treasurer, in general, shall perform such
duties as shall be assigned to them by the secretary or the treasurer,
respectively, or by the president or the board of directors.
Section 4.9 Salaries. The salaries of the officers shall be fixed from
time to time by the board of directors or by a duly authorized officer.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS, AND EMPLOYEES
Section 5.1 Indemnification of Directors. The corporation shall
indemnify any individual made a party to a proceeding because such individual
was a director of the corporation to the extent permitted by and in accordance
with section 16-10a-901, et seq. of the Act or any amendments of successor
sections of like tenor.
Section 5.2 Advance Expenses for Directors. To the extent permitted by
section 16-10a-904 of the Act or any section of like tenor as amended from
time to time, the corporation may pay for or reimburse the reasonable expenses
incurred by a director who is a party to a proceeding in advance of final
disposition of the proceeding, if:
(a) the director furnishes the corporation a written affirmation
of his good faith belief that he has met the standard of conduct described in
the Act;
(b) the director furnishes the corporation a written undertaking,
executed personally or on his behalf, to repay advances if it is ultimately
determined that he did not meet the standard of conduct (which undertaking
must be an unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability to make
repayment); and
(c) a determination is made that the facts then known to those
making the determination would not preclude indemnification under section 5.1
of this Article V or section 16-10a-901 through section 16-10a-909 of the Act
or similar sections of like tenor as from time to time amended.
Section 5.3 Indemnification of Officers, Agents, and Employees Who are
not Directors. Unless otherwise provided in the articles of incorporation,
the board of directors may authorize the corporation to indemnify and advance
expenses to any officer, employee, or agent of the corporation who is not a
director of the corporation, to the extent permitted by the Act.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 6.1 Certificates for Shares.
(a) Content. Certificates representing shares of the corporation
shall at minimum, state on their face the name of the issuing corporation and
that it is formed under the laws of the state of Utah; the name of the person
to whom issued; and the number and class of shares and the designation of the
series, if any, the certificate represents; and be in such form as determined
by the board of directors. Such certificates shall be signed (either manually
<PAGE> 15
or by facsimile) by the president or a vice-president and by the secretary or
an assistant secretary and may be sealed with a corporate seal or a facsimile
thereof. Each certificate for shares shall be consecutively numbered or
otherwise identified.
(b) Legend as to Class or Series. If the corporation is
authorized to issue different classes of shares or different series within a
class, the designations, relative rights, preferences, and limitations
applicable to each class and the variations in rights, preferences, and
limitations determined for each series (and the authority of the board of
directors to determine variations for future series) must be summarized on the
front or back of each certificate. Alternatively, each certificate may state
conspicuously on its front or back that the corporation will furnish the
shareholder this information without charge on request in writing.
(c) Shareholder List. The name and address of the person to whom
the shares represented thereby are issued, with the number of shares and date
of issue, shall be entered on the stock transfer books of the corporation.
(d) Transferring Shares. All certificates surrendered to the
corporation for transfer shall be canceled and no new certificate shall be
issued until the former certificate for a like number of shares shall have
been surrendered and canceled, except that in case of a lost, destroyed, or
mutilated certificate a new one may be issued therefor upon such terms and
indemnity to the corporation as the board of directors may prescribe.
Section 6.2 Shares Without Certificates.
(a) Issuing Shares Without Certificates. Unless the articles of
incorporation provide otherwise, the board of directors may authorize the
issuance of some or all the shares of any or all of its classes or series
without certificates. The authorization does not affect shares already
represented by certificates until they are surrendered to the corporation.
(b) Written Statement Required. Within a reasonable time after
the issuance or transfer of shares without certificates, the corporation shall
send the shareholder a written statement containing at minimum:
(1) the name of the issuing corporation and that it is
organized under the laws of the state of Utah;
(2) the name of the person to whom issued; and
(3) the number and class of shares and the designation of the
series, if any, of the issued shares.
If the corporation is authorized to issue different classes of shares or
different series within a class, the written statement shall describe the
designations, relative rights, preferences, and limitations applicable to each
class and the variation in rights, preferences, and limitations determined for
each series (and the authority of the board of directors to determine
variations for future series). Alternatively, each written statement may
state conspicuously that the corporation will furnish the shareholder this
information without charge on request in writing.
Section 6.3 Registration of the Transfer of Shares. Registration of the
transfer of shares of the corporation shall be made only on the stock transfer
books of the corporation. In order to register a transfer, the record owner
<PAGE>
shall surrender the shares to the corporation for cancellation, properly
endorsed by the appropriate person or persons with reasonable assurances that
the endorsements are genuine and effective. Unless the corporation has
established a procedure by which a beneficial owner of shares held by a
nominee is to be recognized by the corporation as the record owner of such
shares on the books of the corporation shall be deemed by the corporation to
be the owner thereof for all purposes.
Section 6.4 Restrictions on Transfer of Shares Permitted. The board of
directors (or shareholders) may impose restrictions on the transfer or
registration of transfer of shares (including any security convertible into,
or carrying a right to subscribe for or acquire, shares). A restriction does
not affect shares issued before the restriction was adopted unless the holders
of the shares are parties to the restriction agreement or voted in favor of
the restriction.
A restriction on the transfer or registration of transfer of shares is
authorized:
(a) to maintain the corporation's status when it is dependent on
the number or identity of its shareholders;
(b) to preserve entitlements, benefits, or exemptions under
federal, state, or local law; and
(c) for any other reasonable purpose.
A restriction on the transfer or registration of transfer of shares may:
(a) obligate the shareholder first to offer the corporation or
other persons (separately, consecutively, or simultaneously) an opportunity to
acquire the restricted shares;
(b) obligate the corporation or other persons (separately,
consecutively, or simultaneously) to acquire the restricted shares;
(c) require the corporation, the holders of any class of its
shares, or another person to approve the transfer of the restricted shares, if
the requirement is not manifestly unreasonable; and
(d) prohibit the transfer of the restricted shares to designated
persons or classes of persons, if the prohibition is not manifestly
unreasonable.
A restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section 6.4 and such person has knowledge of
the restriction or its existence is noted conspicuously on the front or back
of the certificate or is contained in the written statement required by
section 6.2 of this Article VI with regard to shares issued without
certificates. Unless so noted, a restriction is not enforceable against a
person without knowledge of the restriction.
Section 6.5 Acquisition of Shares. The corporation may acquire its own
shares and unless otherwise provided in the articles of incorporation, the
shares so acquired constitute authorized but unissued shares.
<PAGE> 17
If the articles of incorporation prohibit the reissuance of acquired
shares, the number of authorized shares is reduced by the number of shares
acquired by the corporation, effective upon amendment of the articles of
incorporation, which amendment may be adopted by the shareholders or the board
of directors without shareholder action. The articles of amendment must be
delivered to the Utah Division of Corporations and Commercial Code for filing
and must set forth:
(a) the name of the corporation;
(b) the reduction in the number of authorized shares, itemized by
class and series;
(c) the total number of authorized shares, itemized by class and
series, remaining after reduction of the shares; and
(d) if applicable, a statement that the amendment was adopted by
the board of directors without shareholder action and that shareholder action
was not required.
ARTICLE VII
DISTRIBUTIONS
The corporation may make distributions (including dividends on its
outstanding shares) as authorized by the board of directors and in the manner
and upon the terms and conditions provided by law and in the corporation's
articles of incorporation.
ARTICLE VIII
CORPORATE SEAL
The board of directors may provide for a corporate seal which may have
inscribed thereon any designation including the name of the corporation, Utah
as the state of incorporation, and the words "Corporate Seal."
ARTICLE IX
DIRECTORS CONFLICTING INTEREST TRANSACTIONS
A director's conflicting interest transaction may not be enjoined, be set
aside, or give rise to an award of damages or other sanctions, in a proceeding
by a shareholder or by or in the right of the corporation, solely because the
director, or any person with whom or which the director has a personal,
economic, or other association, has an interest in the transaction, if:
(a) directors' action respecting the transaction was at any time
taken in compliance with section 16-10a-852 of the Act or any section of like
tenor as amended from time to time;
(b) shareholders' action respecting the transaction was at any
time taken in compliance with section 16-10a-853 of the Act or any section of
like tenor as amended from time to time; or
(c) the transaction, judged according to the circumstances at the
time of commitment, is established to have been fair to the corporation.
<PAGE>
<PAGE> 18
ARTICLE X
AMENDMENTS
The corporation's board of directors may amend or repeal the
corporation's bylaws unless:
(a) the Act or the articles of incorporation reserve this power
exclusively to the shareholders in whole or part; or
(b) the shareholders in adopting, amending, or repealing a
particular bylaw provide expressly that the board of directors may not amend
or repeal that bylaw; or
(c) the bylaw either establishes, amends, or deletes, a
supermajority shareholder quorum or voting requirement (as defined in Article
II, section 2.9).
Any amendment which changes the voting or quorum requirement for the
board must comply with Article III, section 3.8, and for the shareholders,
must comply with Article II, section 2.9.
The corporation's shareholders may amend or repeal the corporation's
bylaws even though the bylaws may also be amended or repealed by its board of
directors.
ARTICLE XI
FISCAL YEAR
The fiscal year of the corporation shall be fixed by resolution of the
board of directors in consultation with the financial and tax advisors of the
corporation.
<PAGE>
Exhibit No. 4.01 - SPECIMEN STOCK CERTIFICATE
COMMON STOCK COMMON STOCK
XXXX XXXXXXX
INCORPORATED UNDER THE LAWS CUSIP 456088 20 2
OF THE STATE OF UTAH
INDUSTRIAL ECOSYSTEMS, INC.
THIS IS TO CERTIFY THAT [SPECIMEN]
IS THE OWNER OF ***VOID***
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK $.001 PAR VALUE OF
- - -------------------------INDUSTRIAL ECOSYSTEMS,INC.--------------------------
(hereinafter called the "Corporation"), transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation and By-Laws of the Corporation and the amendments
from time to time made thereto, copies of which are or will be on the at the
principal office of the Corporation, to all of which the holder by acceptance
hereof assents. This Certificate is not valid unless countersigned by the
Transfer Agent and Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: _____________
/s/------VOID--------------- [Corporate Seal] /s/-----VOID---------------
Secretary Chairman
<PAGE> 1
Exhibit 4.02
RIGHTS AGREEMENT
THIS RIGHTS AGREEMENT ("Rights Agreement")is made and entered into
effective the 31st day of December, 1998, by and between JFJ ECOSYSTEMS, LLC,
a Missouri limited liability company ("JFJ"), and INDUSTRIAL ECOSYSTEMS,
INC., a Utah corporation ("IEI"), and IEI CANADA, INC., an Ontario corporation
("IEI Canada").
RECITALS
A. JFJ and IEI, through its wholly owned subsidiary, IEI Canada, are partners
in ROP North America, LLC, a joint venture formed in March 1998 to transform
organic waste into livestock feed (the "Joint Venture").
B. JFJ, IEI and IEI Canada have recently entered into a letter of intent,
dated December 14, 1998 (the "Letter of Intent") wherein JFJ, IEI and IEI
Canada propose a restructuring of the Joint Venture.
C. Pursuant to the terms and conditions of the Letter of Intent, JFJ, IEI
and IEI Canada desire to set forth the definitive terms for the grant of
certain rights contemplated by the Letter of Intent.
D. It is an express condition precedent to the consummation of the
transactions contemplated by the Letter of Intent that the JFJ, IEI and IEI
Canada enter into this Rights Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Line of Credit. JFJ agrees to extend a $750,000 revolving line of credit
to IEI (the "Line of Credit"). The Line of Credit shall be evidenced by a
Credit Agreement, substantially in the form attached hereto as Exhibit A, and
incorporated herein by this reference. The Line of Credit will bear interest
at 6% per annum until December 31, 2000, at which time all funds advanced
under the line of credit shall be due and payable in full. The Line of Credit
shall be evidenced by a Master Promissory Note, substantially in the form
attached hereto as Exhibit A-1, and incorporated herein by this reference. In
connection with the Line of Credit, IEI will cause IEI Canada to pledge as
security, IEI Canada's 50% membership interest in the Joint Venture. The
pledge of IEI Canada's membership interest in the Joint Venture shall be
evidenced by a Pledge and Security Agreement, substantially in the form
attached hereto as Exhibit A-2, and incorporated herein by this reference. In
the event the Line of Credit is not timely repaid in full in accordance with
the terms of the Credit Agreement, the Master Promissory Note, IEI Canada's
membership interest in the Joint Venture shall be transferred to JFJ, in
accordance with the terms of the Pledge and Security Agreement.
2. IEI and IEI Canada's Right to Merge. IEI and IEI Canada shall have the
right on or prior to December 31, 2000, to merge the Joint Venture into IEI
Canada through a share exchange, wherein IEI would issue to JFJ shares of IEI
restricted common stock in exchange for JFJ's interest in the Joint Venture.
The following are conditions that must be fulfilled prior to IEI and IEI
Canada's exercise of its right to merge the Joint Venture into IEI Canada:
(a) Repayment to JFJ of the outstanding principal and accrued interest
on the Line of Credit;
<PAGE> 2
(b) Issuance of that number of shares of IEI restricted common stock
that represents one-half (1/2) of the issued and outstanding shares (all
classes) in IEI as of the Closing Date (as herein defined)having the effect of
making JFJ the owner of one-third (1/3) of the total issued and outstanding
shares of IEI's common stock on the Closing Date, but subject to dilution by
the issuance of IEI common stock offered and sold to third parties after the
Closing Date. The number of shares of IEI common stock issuable to JFJ has
been set at 16,958,187 shares based on the Shareholder Analysis Report dated
November 12, 1998, which report indicates that IEI has 33,534,514 shares of
common stock and 381,860 shares of Class A common stock issued and
outstanding. The final number of shares issuable to JFJ pursuant to the
rights granted hereunder shall be reconciled up or down to take into account
the number of shares actually issued and outstanding on the Closing Date based
on the number reflected in consolidated statement of shareholders' equity
contained in IEI's audited financial statements for the fiscal year ended
December 31, 1998;
(c) IEI shall grant to JFJ an option to purchase up to 2,190,500 shares
of IEI restricted common stock at an exercise price of twenty-two and one-half
cents ($0.225) per share. The exercise period of the option shall be for a
period of five (5) years from the date of the merger and the option shall be
granted substantially in accordance with the terms and conditions set forth in
form of option attached hereto as Exhibit B, and incorporated herein by this
reference. In the event neither IEI and IEI Canada nor JFJ exercise their
right to merge prior to December 31, 2000, the option to be granted pursuant
to this paragraph 2(c) shall terminate.
In the event either IEI and IEI Canada or JFJ exercise their right to
merge under the terms of this Rights Agreement, IEI shall grant to JFJ an
option to purchase that number of shares of IEI restricted common stock equal
to one-half (1/2) of all other options to purchase shares of IEI common stock
granted by IEI to third parties after the Closing Date and prior to the date
of merger (the "Additional Options"). The Additional Options shall be granted
to JFJ on the same terms and conditions as those options granted to third
parties. The right to JFJ for Additional Options is intended to preserve JFJ
from subsequent dilution through the granting of options to third parties and
shall be construed accordingly;
(d) IEI shall have completed and filed with the Securities and Exchange
Commission a Form 10-SB, General Form for Registration of Securities under
Section 12(g) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and any other periodic reports required to be filed under
Section 13 or 15(d) of the Exchange Act. (the "Periodic Reports"). The
Periodic Reports shall contain all such information required to be provided
therein, including but not limited to, audited and/or unaudited financial
information for the periods indicated. All financial information contained in
the periodic reports shall be prepared in accordance with generally accepted
accounting principals;
(e) The Board of Directors of IEI shall be duly authorized and elected
pursuant to a vote of the IEI shareholders at a special or annual meeting of
the IEI shareholders;
(f) After giving effect to the merger, the surviving entity, shall agree
to affirm and assume any unpaid Joint Venture obligations to Joint Venture
members or third parties, including, but not limited to (i) a promissory note
in the principal amount of $50,000, payable to IEI; (ii) a promissory note in
the principal amount of $50,000, payable to JFJ; and (iii) a promissory note
<PAGE> 3
in the principal amount of $100,000, payable to John P. Crowe & Co. These
promissory notes and the other obligations affirmed and assumed shall be paid
in accordance with their terms; and
(g) For purposes of this Agreement, the Credit Agreement, the Master
Promissory Note and the Pledge and Security Agreement, the Closing Date shall
be December 31, 1998.
3. JFJ's Right to Merge. JFJ shall have the right on or prior to December
31, 2000 to merge the Joint Venture into IEI Canada through a share exchange,
wherein IEI would issue to JFJ shares of IEI restricted common stock in
exchange for JFJ's interest in the Joint Venture. In consideration for JFJ
exercising its option to merge the Joint Venture into IEI Canada, JFJ shall
receive that number of shares of IEI restricted common stock that represents
one-half (1/2) of the issued and outstanding stock in IEI on the Closing Date.
The following are conditions that must be fulfilled prior to JFJ's
exercise of its right to merge the Joint Venture into IEI Canada:
(a) JFJ shall have received the option to purchase up to 2,190,500
shares of IEI restricted common stock at an exercise price of twenty-two and
one-half cents ($0.225) per share, as specified in paragraph 2(c) of this
Rights Agreement and set forth in Exhibit B;
(b) As further consideration, IEI shall grant to JFJ an option to
purchase that number of shares of IEI restricted common stock equal to one-
half (1/2) of all other options to purchase shares of IEI common stock granted
by IEI to third parties after the Closing Date and prior to the date of
merger. The method of exact determination of the number of shares and
Additional Options issued pursuant to JFJ's exercise of its right to merge is
the same method as provided above in paragraphs 2(b) and(c) of this Rights
Agreement.
(c) JFJ shall forgive the outstanding principal and accrued interest
borrowed by IEI under the Line of Credit (or assign its interest as the
Creditor in the Line of Credit to the Joint Venture prior to exercising its
right to merger if such assignment is more favorable to JFJ for tax
purposes).
(d) JFJ and John P. Crowe & Co. shall not be required to forgive the
$150,000 loans to the Joint Venture which notes shall be repaid by the merger
survivor in accordance with their terms; provided, however that JFJ shall
release its security interest in the Joint Venture assets if JFJ exercises its
right to merge. JFJ shall also cause John P. Crowe & Co. to release its
security interest in the Joint Venture assets in the event JFJ exercises its
right to merge.
(e) If IEI shareholder approval is required for the issuance of the IEI
shares of common stock to JFJ hereunder, and such approval is not obtained by
IEI, then IEI shall pay JFJ liquidated damages equal to the number of shares
of IEI common stock to which JFJ would have been entitled multiplied by the
average of the closing price for the IEI common stock for the five (5) trading
days immediately preceding the day JFJ exercises its right to merge.
4. Registration Rights.
4.1 Definitions. As used in this Rights Agreement, the following terms
shall have the meanings set forth below:
<PAGE> 4
(a) Commission shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
(b) Exchange Act shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
(c) Registrable Securities shall mean shares of IEI restricted
common stock issued or issuable to JFJ pursuant to the exercise of the right
to merge set forth in paragraphs 2 or 3 of this Rights Agreement.
(d) The terms register, registered and registration shall refer to
a registration effected by preparing and filing a Registration Statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(e) Registration Statement shall mean a registration statement
filed by the Company on Form S-4 of the Securities Act.
(f) Securities Act shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and
regulations thereunder, all as the same shall be in effect from time to time.
The Company agrees to register or qualify the Common Stock for sale as
follows:
4.2 At such time as IEI or JFJ exercises its right to merge pursuant to
paragraphs 2 or 3 of this Rights Agreement, the Company shall use its best
efforts to file a Registration Statement under the Securities Act for the
public sale of the shares of IEI common stock issued in exchange for JFJ's
membership interest in the Joint Venture. Notwithstanding any provision to
the contrary contained herein, IEI shall not be required to register the offer
and sale of the common stock if IEI's counsel is of the opinion that
registration is not required in order to dispose of the common stock as
proposed.
4.3 JFJ (and its members) shall provide IEI with all information
relating to such sale and on which IEI shall be entitled to rely and to
include such information in any such registration statement. All sales
pursuant to any such registration statement shall be made in accordance with
the Securities Act and the Securities Exchange Act, and IEI shall not be
required to include any shares of common stock in any registration statement
until it has received written assurances satisfactory in the form and
substance to IEI from JFJ that such sales shall be so conducted.
4.4 All expenses incurred by IEI in complying with the registration
requirements hereof (except fees, discounts, commissions, or similar expenses
to be incurred in connection with the sale of the common stock) shall be borne
by IEI.
4.5 In connection with the filing of any registration statement under
this section, IEI covenants and agrees that it will take all necessary action
which may be required in qualifying or registering the common stock included
in the registration statement for the offer and sale under the securities or
blue sky laws of such states as may be reasonably requested by JFJ (and its
members); provided, that IEI shall not be obligated to qualify as a foreign
corporation to do business under the laws of such jurisdiction.
<PAGE> 5
5. IEI's Right of First Refusal on Joint Venture Borrowing. IEI and IEI
Canada, are hereby granted a right of first refusal to provide financing to
the Joint Venture through December 31, 2000. Before borrowing any money from a
third party or a related entity, the Joint Venture shall provide IEI and IEI
Canada with notice of a bona fide financing proposal specifying the terms and
security that will govern the borrowing, including the name of the proposed
lender. IEI and IEI Canada shall have the right to loan funds to the Joint
Venture on the terms proposed by providing the Joint Venture notice of
acceptance within ten (10) days of receipt of the funding proposal. The Joint
Venture shall be free to borrow on the proposed terms from the proposed lender
absent timely receipt by the Joint Venture of notice of acceptance from IEI.
6. Restriction on Joint Venture Activities. From and after the Closing Date
IEI Canada and JFJ agree each will (i) carry on the business of the Joint
Venture in substantially the same manner as it has heretofore; (ii) perform in
all material respects all of its obligations under material contracts, leases,
and instruments relating to or affecting its assets, properties, and business;
(iii) use its best efforts to maintain and preserve the business organization
of the Joint Venture intact, to retain its key employees, and to maintain its
relationships with its material suppliers and customers; (iv) duly and timely
file for all taxable periods ending after the Closing Date all federal, state,
county, and local tax returns required to be filed by or on behalf of the
Joint Venture and shall pay, or cause to pay, all taxes required to be shown
as due and payable on such returns, as well as all installments of tax due and
payable during the period commencing on the Closing Date and ending on the on
December 31, 2000; (v) fully comply with and perform in all material respects
all obligations and duties imposed on the Joint Venture by all federal and
state laws and all rules, regulations, and orders imposed by federal or state
governmental authorities; and (vi) not enter into or amend any material
contract, agreement, or other instrument of any of the types, except may be
entered into or amended in the ordinary course of business.
7. Access to Financial Statements. After the Closing Date, IEI, IEI Canada
and JFJ (the latter two parties on behalf of the Joint Venture) will afford to
the other party's officers and authorized representatives full access to the
financial books, and records of the other party in order that each party may
have full opportunity to make such reasonable investigation as it shall desire
to make of the affairs of IEI, IEI Canada or the Joint Venture and will
furnish the other party with such additional financial information as each
party shall from time to time reasonably request. All financial information
will be prepared in accordance with generally accepted accounting principles.
8. Conditions Precedent to Obligations of IEI and IEI Canada. The
obligations of IEI and IEI Canada under this Rights Agreement are subject to
the delivery by JFJ, at or before the Closing Date, of the following:
8.1 Manager's Certificate. IEI and IEI Canada shall have been furnished
with a certificate dated the Closing Date and signed by the manager of JFJ to
the effect that to the manager's best knowledge no litigation, proceeding,
investigation, or inquiry is pending or threatened against JFJ which might
result in an action to enjoin or prevent the consummation of the transaction
contemplated by this Rights Agreement. Furthermore, based JFJ's own documents
and information, the certificate shall represent, to the best knowledge of the
manager that:
(a) This Rights Agreement has been duly approved by JFJ's manager
and members and has been duly executed and delivered in the name and on behalf
of JFJ by its manager pursuant to, and in compliance with, authority granted
to the manager by JFJ's members;
<PAGE> 6
(b) All conditions precedent required by this Rights Agreement have
been met, satisfied, or performed by JFJ;
(c) JFJ shall have obtained a certificate of good standing from the
Secretary of State of Missouri, dated as of the date within ten (10) days
prior to the Closing Date, certifying that JFJ is in good standing as a
limited liability company in the State of Missouri.
(d) IEI and IEI Canada have received such further documents,
certificates, or instruments relating to the transactions contemplated hereby
as IEI and IEI Canada may reasonably request.
8.2 Opinion Letter. JFJ shall have furnished to IEI an opinion of
counsel satisfactory to IEI, dated the Closing Date, to the effect generally
that JFJ is duly organized, has power and authority to execute the definitive
agreements contemplated under the terms of the Letter of Intent and that such
agreements are binding and enforceable without its members approval.
9. Conditions Precedent to Obligations of JFJ. The obligations of JFJ under
this Rights Agreement are subject to the delivery by IEI and IEI Canada, at or
before the Closing Date, of the following:
9.1 Officer's Certificates. JFJ shall have been furnished with
certificates dated the Closing Date and signed by an officer of IEI and IEI
Canada to the effect that to the Officer's best knowledge no litigation,
proceeding, investigation, or inquiry is pending or threatened against IEI and
IEI Canada which might result in an action to enjoin or prevent the
consummation of the transaction contemplated by this Rights Agreement.
Furthermore, based IEI and IEI Canada's own documents and information, the
certificates shall represent, to the best knowledge of the officer that:
(a) This Rights Agreement has been duly approved by the board of
directors of IEI and IEI Canada and has been duly executed and delivered in
the name and on behalf of IEI and IEI Canada by its authorized representative
pursuant to, and in compliance with, authority granted to the representative
by IEI and IEI Canada's board of directors;
(b) All conditions precedent required by this Rights Agreement have
been met, satisfied, or performed by IEI and IEI Canada;
(c) IEI and IEI Canada shall have obtained certificates of good
standing from the Secretary of State of Utah and the Province of Ontario,
Canada, respectively, dated as of the date within ten (10) days prior to the
Closing Date, certifying that IEI is in good standing as a corporation in the
State of Utah, and that IEI Canada is in good standing as a corporation in the
Province of Ontario.
(d) JFJ has received such further documents, certificates, or
instruments relating to the transactions contemplated hereby as JFJ may
reasonably request.
9.2 Opinion Letter. IEI and IEI Canada shall have furnished to JFJ
opinions of counsel satisfactory to JFJ, dated the Closing Date, to the effect
generally that IEI and IEI Canada are duly organized, have power and authority
to execute the definitive agreements contemplated under the terms of the
Letter of Intent and that such agreements are binding and enforceable without
shareholder approval, but reserving an opinion whether issuance of the IEI
common stock to JFJ might require subsequent IEI shareholders' approval.
<PAGE> 7
10. Governing Law. The laws of the state of Missouri shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
11. Consent to Jurisdiction and Venue. In the event of any breach,
threatened breach or other dispute between the parties under this Rights
Agreement, the parties agree that the United States District Court for the
Western District of Missouri shall have the sole and exclusive jurisdiction
over any such proceeding. If such court lacks federal subject matter
jurisdiction, the Jackson County Circuit Court shall have sole and exclusive
jurisdiction. Any of these courts shall be proper venue for such proceedings
and the parties hereto waive any objection to such venue. The parties hereto
consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept service of process to vest personal
jurisdiction over them in any of these courts.
12. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to it or, if
sent by facsimile transmission or other electronic communication confirmed by
registered or certified mail, postage prepaid, or if sent by prepaid telegram
addressed as follows:
If to: JFJ ECOSYSTEMS, LLC If to: INDUSTRIAL ECOSYSTEMS, INC.
Attn: John P. Crowe Attn: President
1015 West 54th Street 450 Dondee Way, Suite 10
Kansas City, MO 64112 Pacifica, CA 94044
Fax No: (816) 361-2210 Fax No.: 650-355-4517
and: SEIGFREID, BINGHAM, LEVY, and: TAYLOR AND ASSOCIATES , INC.
SELZER & GEE
Attn: Kevin Connor, Esq. Attn: Elliott N. Taylor, Esq.
911 Main Street, Suite 2800 3090 East 3300 South, Suite 400
Kansas City, MO 64105 Salt Lake City, UT 84109
Fax No: 816-474-3447 Fax No: 801-463-6085
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered or sent by
facsimile transmission or other electronic communication, three days after the
date so mailed, or one day after the date so telegraphed or sent by overnight
delivery.
13. Further Action. The parties shall execute and deliver all documents or
instruments, provide all information, and take or forebear from all such
action as may be necessary or appropriate to achieve the purpose of this
Rights Agreement.
14. Binding Effect Upon Successors. This Rights Agreement shall be binding
upon, and inure to the benefit of, the parties and their respective heirs,
executors, administrators, successors, legal representatives, and assigns;
provided, that this provision shall not be construed as permitting assignment,
substitution, delegation, or other transfer of rights or obligations, except
strictly in accordance with the provisions of the other sections of this
Rights Agreement.
15. Severability. In the event that any condition, covenant, or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the remainder
<PAGE> 8
of this Agreement and shall in no way affect any other covenant or condition
herein contained. If such condition, covenant, or other provision shall be
deemed invalid due to its scope or breadth, such provision shall be deemed
valid to the extent of the scope or breadth permitted by law.
16. Exhibits. All exhibits annexed to this Rights Agreement and any
documents to be delivered herewith are expressly made a part of this Rights
Agreement as fully as though completely set forth in it. All references to
this Rights Agreement, either in the Rights Agreement itself or in any of such
writings, shall be deemed to refer to and include this Rights Agreement itself
or in any of such exhibits or writings. Any breach of or default under any
provision of any of such writing shall, for all purposes, constitute a breach
or default under this Rights Agreement and all other such writings.
17. Attorneys' Fees. Should either party take any legal action to enforce
any of the terms or provisions of this Agreement, or any costs are incurred by
reason of breach or default in any of the covenants, representations,
warranties, terms, or conditions of this Agreement, the non-defaulting party
shall be entitled to recover any costs, including attorneys' fees incurred in
enforcing the obligations of the other party under the terms of this Agreement
or in collecting any judgment that may be entered.
18. Time of Essence. Time is of the essence in the performance of the
duties, covenants, or obligations of the parties under the terms of this
Agreement.
19. Facsimile Transmission. Facsimile transmission of any signed original
document, and retransmission of any signed facsimile transmission, shall be
the same as delivery of an original. At the request of any party hereto, the
parties will confirm facsimile transmitted signatures by signing an original
document.
20. Counterparts. This Agreement may be executed in multiple counterparts,
each of which shall be deemed an original and all of which taken together
shall be but a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Rights
Agreement as of the date first above written.
JFJ ECOSYSTEMS, LLC INDUSTRIAL ECOSYSTEMS, INC.
By /s/John P. Crowe, Manager By /s/Walter Kolbe, President
IEI CANADA, INC.
By /s/Walter Kolbe, President
<PAGE> 1
Exhibit 10.01
SERVICE AGREEMENT
THIS AGREEMENT is made this day of June 26, 1992, by and between Amoco
Production Company, a Delaware corporation, hereinafter called "Amoco" and
Environmental Protection Company, a New Mexico corporation, hereinafter called
"Contractor".
The parties agree as follows:
1 . Services: Contractor shall provide the following services to Amoco
(hereinafter the "Services"). The Contractor shall be responsible for
excavating, backfilling, and remediating hydrocarbon contaminated soils
("HCS") from production pits as designated by Amoco and transporting such HCS
to the Jadria site (the "Site") described on Exhibit A and shown on the
attached map. No such pits shall be located more than 100 miles from the Site.
The cost will be $65.00 per ton. Trucks will be weighed when entering the
facility and after dumping and Amoco will be billed based on the weight
differences. Upon Amoco notifying Contractor of the pits to be cleaned,
Contractor will undertake the same and thereafter carry on with due diligence
and in a good and workmanlike manner to completion.
2. HCS Ownership and Quality: The HCS shall remain the property of Amoco at
all times, and the disposition, use, treatment and transportation of such
material shall be within Amoco's sole discretion and shall be handled by
Contractor in accordance with Amoco's instructions. The HCS shall not exceed
100 PPM Total Petroleum Hydrocarbons ("TPH") prior to the time it leaves the
Site. The TPH level shall be reviewed and adjusted in accordance with
instructions from Amoco, requirements of the state of New Mexico, and any
additional requirements or treatment of Contractor.
3. Materials: In the performance of any operations hereunder Contractor shall
furnish at its own expense and cost any and all necessary labor, machinery,
equipment, tools, transportation and whatever else is necessary in the
performance and completion of the work herein provided other than such items
thereof as Amoco specifically agrees to furnish. If, in order to gain access
to or return from the pit to be serviced, it is necessary to repair roadbeds,
or, to provide tractors, vessels, or other special means of transportation for
the trucks, equipment, or personnel of Contractor, such shall be arranged and
paid for by Amoco,
4. Lions; Compliance with Laws: Contractor agrees to pay and discharge all
valid taxes, lienable claims, charges or other impositions imposed and to be
imposed by law, on Contractor, arising out of, in connection with or resulting
from, work performed hereunder, Contractor shall comply with all applicable
laws and regulations of any state, county, municipality or the federal
government, including those, with reference to Contractor's employees engaged
in the performance of the Services. Contractor agrees to indemnify Amoco
against any liability for any such taxes, lienable claims, charges or
impositions, and for the failure to comply with any such laws or regulations.
Contractor will provide copies of all permits required to perform services.
5. Records: Contractor shall maintain a true and correct set of records
pertaining to work performed hereunder, for a period of two years from the
completion of the Services. Amoco may, upon request, audit any and all records
of Contractor and of any subcontractor relating to work performed hereunder;
provided, however, Contractor shall have the right to exclude any unrelated
trade secrets, formulas or processes from such inspection.
<PAGE> 2
6. Independent Contractor: Contractor shall bean independent contractor with
respect to the Services, and neither Contractor nor anyone used or employed by
Contractor shall be deemed for any purpose to be the agent, servant or
representative of Amoco in the performance of the Services or any part
thereof, or in any matter dealt with herein, and Amoco shall have no direction
or control of Contractor, or its employees and agents, except in the results
to be obtained. Neither party is assuming any liability for the actions or
omissions of the other party, except as is stated in this contract. However,
the Contractor shall not be liable for damage to property owned by Amoco,
unless such damage is caused by the negligence of the Contractor.
7. Exclusive use of site and option to purchase:
a) Unless and until Contractor receives written permission from Amoco,
Contractor shall not use the Site for any purpose whatsoever other than the
treating, storage, and remediation of HCS from Amoco. At the termination of
this agreement, and if Amoco has not exercised its preferential right to
purchase the Site in accordance with the provisions of 7 (b), below, the
parties shall use their best efforts to enter into an amendment to this
agreement addressing the future use of the Site and disposition, if any, of
the Amoco HCS.
b) For valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, Walter R. Kolbe ("Kolbe") and Contractor hereby grant to
Amoco the right and option to purchase the Site and related easement (as
described in the Warranty Deed referenced in Exhibit A), by giving written
notice to Kolbe and/or Contractor stating that Amoco desires to exercise its
option and specifying a closing date no earlier than twenty days and no later
than thirty days f rom the date of said notice. The term of this option shall
be for twenty-four months from the date of this agreement and the purchase
price, upon the exercise of such option, shall be $41,022.98. If so exercised,
the Site and easement shall be conveyed to Amoco by warranty deed, free and
clear of any and all claims, charges, liens, judgements, burdens or
liabilities of any kind whatsoever.
8. Notices: All notices to be given under this contract shall be in writing
and shall be sent to Contractor at 44 Montgomery Street, Suite 500, San
Francisco, CA 94104, and to Amoco at 200 Amoco Court, Farmington, New Mexico
87401.
9. Payment: The consideration to be paid by Amoco to Contractor is specified
above. Amoco shall pay Contractor within 30 days of invoicing.
10. Indemnification: In order to eliminate controversies between Contractor,
and Amoco and their respective insurers, Contractor assumes all liability for
and hereby agrees to defend, indemnify and hold Amoco, its joint owner or
owners, if any, and their insurers, harmless from and against any and all
losses, costs, expenses and causes of action, including attorney's fees and
court costs, for injuries to and death of Contractor's and its Subcontractors
employees, arising out of, incident to, or in connection with any and all
operations under this contract and whether or not such losses, costs, expenses
and causes of action are occasioned by or incident to or the result of the
negligence of Amoco, its joint owner or owners, if any, and its agents,
representatives and employees. Contractor agrees to insure this assumption of
liability. The liability assumed by Contractor pursuant to this clause shall
be limited to the amounts carried by Contractor's current liability insurance,
but in no event shall it be less than the minimum limits set out in Paragraph
11, below.
<PAGE> 3
11. Insurance: As to all operations provided for herein, Contractor shall
secure and maintain during the term of this agreement the following insurance:
(a) Workmen's Compensation Insurance which shall fully comply with the
requirements of state laws as well as federal laws, if applicable.
(b) Comprehensive General Liability Insurance, including Contractual
Liability coverage, with minimum limits of $100,000 each person and $300,000
each occurrence for Bodily Injury and $100,000 each occurrence for Property
Damage.
(c) Automobile Liability Insurance covering owned, hired and non-owned
vehicles used by Contractor with minimum limits of $100,000 each person and
$300,000 each occurrence for Bodily Injury and $100,000 each occurrence for
Property Damage. Contractor shall furnish Amoco insurance certificates to
evidence the insurance required herein. Maintaining the prescribed insurance
shall not relieve Contractor of any other obligation under this Agreement.
12. Term: Amoco's obligation to provide HCS will terminate automatically after
10,000 tons of HCS has been received at the Site. At that time Amoco will have
a 30 day period to evaluate whether to proceed with committing to providing
180,000 tons of HCS over a one year period. During the 30 day evaluation
period Amoco may direct the Contractor to continue operations without
obligating itself to providing HCS beyond the 10,000 tons. In addition, any
tonnage provided during the 30 day evaluation period will be credited toward
the 180,000 ton commitment.
13. Force Majeure: Neither Amoco nor Contractor shall be liable for any delay
or damage due, occasioned or caused as a result of strikes, action of the
elements, or causes beyond the control of the parties; and any delay due to
above causes or any of them, shall not be deemed to be a breach of or failure
to perform this Contract, or any part thereof.
14. Assignment: Contractor may not assignor sublet this contract, or any part
thereof, without the written consent of Amoco, and the assignment of this
contract, or the subletting of any work to be performed hereunder, if so
permitted by Amoco, shall not relieve Contractor of its obligations hereunder.
15. Contractor Insolvency: Should Contractor become insolvent or make an
assignment for the benefit of creditors or be adjudicated a bankrupt or admit
in writing his inability to pay his debts generally as the same become due, or
should any proceedings be instituted by Contractor under and State or Federal
law for relief of debtors or for the appointment of a receiver, trustee or
liquidator of Contractor, or should a voluntary petition in bankruptcy or for
a reorganization or for an adjudication of Contractor as an insolvent or a
bankrupt be filed, or should an attachment be levied upon Contractor's
equipment and not removed within five (5) days therefrom, then upon the
occurrence of any such event, Amoco shall thereupon have the right to cancel
this contract and terminate immediately all work then being performed by
Contractor hereunder.
WITNESS THE SIGNATURES of the parties hereto the day and year first above
written.
Amoco Production Company* Environmental Protection Company*
By:/s/J.H. Hasche,Attorney -in-Fact By:/s/W. Kolbe, President
/s/Walter R. Kolbe, individually
*Subject to -the attached Addendum between the parties, dated June:26, 1992.
<PAGE>
<PAGE> 4
Environmental Protection Company
State of California
County of San Mateo
On June 4, 1992 before me, a Notary Public in and for the State of California,
personally appeared W. Kolbe personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person (s) whose name (s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/W. G. Spengler [OFFICIAL NOTARY SEAL
W. G. Spengler
Notary Public California
SAN MATEO COUNTY
My Comm. Expires JUL 10, 1995]
Walter R. Kolbe, Individual
State of California
County of San Mateo
On June 4, 1992 before me, a Notary Public in and for the State of California,
personally appeared W. Kolbe personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person (s) whose name (s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/W. G. Spengler [OFFICIAL NOTARY SEAL
W. G. Spengler
Notary Public California
SAN MATEO COUNTY
My Comm. Expires JUL 10, 1995]
Amoco Production Company
State of Colorado
City and County of Denver
On June 26, 1992 before me, a Notary Public in and for the State of
California, personally appeared J.H. Hasche personally known to me (or proved
to me on the basis of satisfactory evidence) to be the person Duiiii(s) whose
name (s) is/are subscribed to the within instrument and acknowledged to me
that he/she/they executed the same in his/her/their authorized capacity(ies),
and that by his/her/their signature(s) on the instrument the person (s), or
the entity upon behalf of which the person(s) acted, executed the instrument.
Witness, my hand and official seal,
/s/ sic.
My Commission expires May 2, 1994
<PAGE>
<PAGE> 5
Exhibit A
The project site is located in San Juan County, New Mexico. It would be
referred to as "the Southwest Quarter of the Southwest quarter of the
Southeast Quarter (SW 1/4SW1/4SE1/4) of section two (2), township twenty nine
(29), Range twelve (12) west, N.M.P.M., San Juan County, New Mexico, as more
particularly described in that certain Warranty Deed between Phillip Culver,
Barbara Culver, Emmitt Culver, Yvonne Culver, Clara Culver, Lawrence Robson
and Environmental Protection Company (sellers) and Walter R. Kolbe (buyer),
dated January 22, 1992, and recorded at Book 1141, Page 627 of the San Juan
County, New Mexico records.
There is a map on the following page showing the location of the site with
respect to the City of Farmington.
<PAGE>
<PAGE> 6
ADDENDUM
THIS ADDENDUM is made this 26th day of JUNE, 1992, by and between Amoco
Production Company and Environmental Protection Company, and is an addendum to
that certain Service Agreement between the parties, dated June 25, 1992. The
parties further agree as follows:
1. RETENTION: For a period of three weeks or until the TPH of the HCS
conforms to the specifications of the Agreement, whichever period is greater,
the payment by Amoco to Contractor pursuant to Section 1 of the Agreement
shall be subject to a twenty percent (20%) retainage. That is, until such time
as the Contractor is able to transport conforming and remediated HCS from the
Site to backfill the excavated pits, Amoco shall pay the Contractor eighty
percent (80%) of $65.00 per ton for excavating such HCS and the remaining
twenty percent (20%) upon remediation, backfilling and transporting the soil
back to each particular pit that has been excavated.
2. PROPRIETARY INFORMATION: The Contractor's remediation methods and
technical information and know-how applied and implemented pursuant to the
Agreement shall remain the sole and exclusive property of the Contractor.
3. OPTION TO PURCHASE PROPERTY: In the event Amoco exercises its option to
purchase the Site pursuant to Section 7(b) of the Agreement, the parties shall
renegotiate the costs of the services ($65.00 per ton), to reflect the
Contractor's savings or increased revenues, if any, resulting from Amoco's
exercise of such option.
4. MINIMUM OBLIGATION: The Agreement represents Amoco's commitment to the
Contractor as Amoco's exclusive party to perform the services described
therein in the vicinity. In the event Amoco determines that it does not
require the removal and remediation of ten thousand (10,000) tons of HCS (for
any reason other than a breach by Amoco or because Amoco has hired a
competitor of the Contractor to perform such work) , Amoco shall not suffer
any penalty or be required to pay any damages to the Contractor for failing to
designate such ten thousand (10,000) ton minimum. Provided, however, Amoco
hereby commits to provide the Contractor with a minimum of four thousand
(4,000) tons of HCS pursuant to Section I of the Agreement.
5. EFFECTIVE DATE: Notwithstanding anything in the Agreement to the
contrary, the effective date of the Agreement shall be retroactive to June 1,
1992.
IN WITNESS WHEREOF, this Addendum has been executed on the day and year
first above written.
AMOCO PRODUCTION COMPANY
By: /s/J.H. Hasche
ENVIRONMENTAL PROTECTION COMPANY
By: /s/Walter R.Kolbe, President
/s/Walter R. Kolbe, Individually
<PAGE>
<PAGE> 7
Environmental Protection Company
State of California
County of San Mateo
Environmental Protection Company
State of California
County of San Mateo
On June 4, 1992 before me, a Notary Public in and for the State of California,
personally appeared W. Kolbe personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person (s) whose name (s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/W. G. Spengler [OFFICIAL NOTARY SEAL
W. G. Spengler
Notary Public California
SAN MATEO COUNTY
My Comm. Expires JUL 10, 1995]
Walter R. Kolbe, Individual
State of California
County of San Mateo
On June 4, 1992 before me, a Notary Public in and for the State of California,
personally appeared W. Kolbe personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person (s) whose name (s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person(s), or the entity upon
behalf of which the person(s) acted, executed the instrument.
Witness my hand and official seal.
/s/W. G. Spengler [OFFICIAL NOTARY SEAL
W. G. Spengler
Notary Public California
SAN MATEO COUNTY
My Comm. Expires JUL 10, 1995]
Amoco Production Company
State of Colorado
City and County of Denver
On ____________ before me, a Notary Public in and for the State of California,
personally appeared ___________ personally known to me (or proved to me on the
basis of satisfactory evidence) to be the person(s)whose name(s) is/are
subscribed to the within instrument and acknowledged to me that he/she/they
executed the same in his/her/their authorized capacity(ies), and that by
his/her/their signature(s) on the instrument the person (s), or the entity
upon behalf of which the person(s) acted, executed the instrument.
Witness, my hand and official seal,
<PAGE> 1
Exhibit 10.02
PUBLIC SERVICE COMPANY OF NEW MEXICO
ALVARADO SQUARE
ALBUQUERQUE, NM 87158
THIS CONTRACT is entered into as of the 1st day of April 1999, between
Industrial Ecosystems, Inc. (hereafter "Contractor"), and PUBLIC SERVICE
COMPANY OF NEW MEXICO, a New Mexico corporation with principal offices located
at Alvarado Square, Albuquerque, New Mexico 87158 (hereafter, Contractor and
PNM are often collectively referred to as "Parties" and singularly as "Party."
This Contract is a nonexclusive contract for pit remediation in the San
Juan Basin of northern new Mexico (hereafter "Work") at a Contract price as
set forth in each ITA.
PNM and contractor mutually agree to perform this Contract in strict
accordance with the Schedule (Attachment A), and Public Service Company of New
Mexico General Provisions for Construction Contracts dated March 1988.
The Contract documents consist of this Contract and all Attachments and
Exhibits thereto and all subsequent changes. The Contract documents are
complementary and what is called for by one is as binding as if called for by
all. If Contractor finds a conflict, error, or discrepancy in the Contract
documents, Contractor will call it to PNM's attention in writing before
proceeding with the Work affected thereby. In resolving such conflicts,
errors, or discrepancies, the documents shall be given precedence in the
following order: (a) Changes, (b) Schedule, (c) Scope of Work, (d) General
Provisions, (e) any other provisions in this Contract, and (f) the
Contractor's proposal if incorporated in this Contract by reference.
This Contract constitutes and expresses the entire agreement between the
Parties with respect to the subject matter; all prior agreements,
representations, statements, negotiations and undertakings are superseded
hereby. This Contract may not be modified nor amended except by written
instrument executed on behalf of each Party by an officer or other duly
authorized representative.
IN WITNESS WHEREOF, the Parties have caused this Contract to be executed
in several counterparts on the day and year first above written.
PUBLIC SERVICE COMPANY OF NEW MEXICO
By: /s/Alan B. Cuneo, Contracting
Industrial Ecosystems, Inc.
By: /S/[SIC]<PAGE>
<PAGE> 2
ATTACHMENT A
SCHEDULE
ARTICLE 1
SCOPE OF WORK
1.1 Work performed under this Contract shall be authorized in writing
by an Individual Task Authorization (ITA) and signed by one of the following
PNM authorized representatives (hereafter "Authorizing Representative"): Roy
Burham, Gary Cook, Ron Dedrick, Maureen Gannon, Ray Haston or Mark Sikelianos
The ITA may be based on individual proposals submitted by the Contractor to
PNM. An ITA signed by other than PNM's Authorizing Representative shall bot
be binding upon PNM and shall not be acted upon by Contractor. Each ITA shall
act forth (i) the Work to be performed, (ii) the period of performance, (iii)
the maximum number of hours subject to profit or the fixed price, if
applicable, (iv) the ceiling price, (v) appropriate labor rate schedules, and
(vi) other data as necessary. Contractor shall, upon acceptance of the ITA,
provide all necessary supervision, labor, supplies, materials, and facilities
including all vehicles and transportation, except as may be provided by PNM,
for the performance of the Work authorized herein. Verbal authorizations
maybe given by an Authorizing Representative of PNM in emergency situations,
but shall be confirmed in writing by PNM within five (5) days of the verbal
authorization to Contractor.
ARTICLE 2
PERIOD OF PERFORMANCE
2.1 This Agreement shall remain in ful force and effect from the
effective date hereof until terminated by PNM as provided herein.
ARTICLE 3
REPRESENTATIVES AND NOTICES
3.1 Contractor shall place a Project Manager in charge of the Work.
The Project Manager and all other supervisory personnel assigned to the Work
shall be permanent employees of Contractor. The Project Manager shall
maintain close contact with PNM's Project Manager and Field Manager. All
instructions, requests for changes, and other communications to Contractor
shall be directed in writing to the Project Manager. All communications from
Contractor shall be directed to the Field Manager and/or the Project Manager.
Contractor shall receive all requests for changes and other communications
from the Field Manager and/or the Project Manager. Contractor shall receive
all requests for changes and other communications from the Field Manager
and/or Project Manager made on behalf of PNM.
3.2 PNM shall designate in the ITA the Field Coordinator, who shall
have authority to review Contractor's performance of Work hereunder, and
approve alterations in plans or specifications, and who shall cooperate with
Contractor to the end that the greatest economy and speed consistent with good
workmanship may be attained, and to who all communications from Contractor
shall be directed and from whom Contractor shall receive all request for
changes and other communications made on behalf of PNM. PNM may appoint
another Field Coordinator at any time by written notice to Contractor.
3.3 Any formal notice, demand, or request provided for in this
Contract shall be deemed properly made if personally delivered, or sent by
registered or certified mail, postage prepaid, to the person specified below:
<PAGE> 3
To Contractor: Industrial Ecosystems, Inc.
2040 West Broadway
Bloomfield, NM 87413
Attention: Mr. Kelly Johnson
To PNM: Public Service Company of New Mexico
Alvarado Square MS 0408
Albuquerque, NM 87158
Attention: Mr. Maureen Cannon
3.4 Nothing contained in this article shall preclude the transmission
of routine correspondence, messages, and information between the respective
Parties hereto, either at the Work site or at their respective home offices,
by an official of either Party or their representatives.
ARTICLE 4
INVOICING AND PAYMENT
4.1 Contractor shall submit final invoices to PNM in accordance with
this Article 4. Each final invoice shall reference this Contract number, and
the ITA number, shall contain such documentation as PNM may require, and shall
be mailed to Ms. Kathy Jukes, PNM, 603 W. Elm St., Farmington, NM 87401.
Payment of each invoice is due within thirty (30) days of its receipt by PNM;
provided, however, if PNM objects to all or any portion thereof, it shall so
notify Contractor of same within ten (10) days after receipt, and shall pay
that portion of the invoice not in dispute, and the Parties shall immediately
make every effort to settle the disputed portion in accordance with the clause
of this Contract entitled "Disputes."
4.2 Contractor shall submit invoices to PNM per pit location and per
landfarm location after final acceptance of the Work for each pit which shall
reference this Contract, the applicable ITA number and the pit location name.
A draft invoice shall be prepared and submitted to the PNM Field Coordinator
authorizing the subject Work. Upon approval of the draft invoice, a final
invoice shall be prepared and submitted to PNM. All appropriate back-up
documentation, including but not be limited to time sheets, subcontractor
invoices, and procurement invoices, shall be included with both the draft
invoice and final invoice. Contractor invoices shall be modeled after the
sample invoice provided as attachment B. Notwithstanding approval of a draft
or final invoice by the PNM Field Coordinator, PNM shall have the right
thereafter to object to all or any portion of the invoice in accordance with
Section 4.1 herein and/or Clause 22 of General Provisions for Construction
Contracts, March 1998 attached.
4.3 On a monthly basis, Contractor shall provide to PNM Project
Manager and Field Manager an accounting on all pits remediated and closed to
date with a detail of all Contractor charges per pit and per landfarm. This
spread sheet may be submitted electronically.
ARTICLE 5
INSURANCE
5.1 Required Insurance coverage. Without limiting any liabilities or
any other obligations of contractor, contractor shall, at its sole cost and
expense, unless otherwise approved in writing, provide and maintain the
following minimum coverages, with forms and insurers acceptable to PNM, until
all the obligations under this Contract are satisfied:
<PAGE> 4
(a) Workers Compensation Insurance to cover obligations imposed by
Federal and State statutes having jurisdiction of its employees engaged in the
performance of its services and Employer's Liability Insurance with a minimum
of $100,000.00.
(b) Comprehensive General Liability Insurance, or the equivalent, with a
minimum combined single limit of $1,000,000.00.
(c) Comprehensive Automobile Liability Insurance, or the equivalent,
with a combined single limit for bodily injury and property damage of not less
than $1,000,000.00 each occurrence with respect to Contractor's vehicles
whether owned, hired, or non-owned, or assigned to or used in the performance
of the Services.
5.2 Additional Insured. The policies required by Section 6.1 herein
shall be endorsed to include PNM as additional insured.
5.3 Certificate of Insurance. Prior to commencing the Work,
Contractor shall furnish PNM with Certificates of Insurance as evidence that
policies providing the required coverage, conditions, and limits are in full
force and effect. Such certificates of Insurance shall provide that not less
than thirty (30) days advance notice of cancellation, termination, or
alteration shall be sent directly to PNM addressed as follows:
PUBLIC SERVICE COMPANY OF NEW MEXICO
Alvarado Square
Albuquerque, NM 87158
ATTN: Mr. Alan B. Cuneo
Contractor shall require that each subcontractor comply with
insurance requirements as set forth herein.
ARTICLE 6
Y2000 COMPLIANCE LANGUAGE
6.1 Contractor warrants and represents that there will be no
interruption in Contractor's performance of Work under this Contract as a
result of a change from the year 1999 to the year 2000 or the occurrence of
any other date. Notwithstanding anything to the contrary herein, this warranty
and representation is not subject to any limitation, exception or exclusion
contained in this Contract, shall survive the termination of this Contract and
shall not be subject to merger.
ARTICLE 7
CRITICAL PERSONNEL
7.1 PNM has the right to request changes or replacement of on site
Contractor personnel where performance is an issue. The Contractor may not
change or replace on site personnel without notification to and subsequent
approval from the on site PNM Field Manager.
SCOPE OF WORK
SOIL REMEDIATION OF PNM DEHYDRATOR, SEPARATOR OR DRIP PITS
I. Objective
With the sale of its natural gas gathering system to the Williams
Companies in 1995, PNM retained the environmental liability associated with
<PAGE> 5
unlined earthen pits scattered across the system in the San Juan Basin of
northern New Mexico. These pits have received produced fluids from natural gas
production activities at the gas well head. Produced fluids consist of water
with small amounts of hydrocarbons. PNM has determined that some of its former
dehydrator, separator or drip pits require remediation. The pit sites are
located in the San Juan basin in northwest New Mexico generally within a 90
mile radius of Bloomfield, New Mexico. There are approximately 260 pits sites
requiring remediation. Remediation will be accomplished by:
- - -excavation of contaminated soil within the pit;
- - -backfilling with clean native fill or remediated soils; and/or
- - -on site landfarming of contaminated soil and/or transportation of
contaminated soil to a commercial landfarm.
II. Schedule
The remediation effort will occur during 1999 and consist of whatever
number of pit sites the Contractor can excavate and remediate within the year,
as assigned by PNM through individual Task Authorizations (ITA).
III. Remediation Procedure
The following procedure will be performed at each pit site that is
determined to require remediation. The Contractor will excavate contaminated
soil from earthen pits associated with former Gas Company of New Mexico
equipment such as dehydrators, separators and drips. The contractor will
spread the soil on the well pad or transport the soil to an Oil Conservation
Division approved landfarm or to another area for on-site landfarming per
PNM's Field Coordinator. In the performance of this Work, the Contractor:
a) will provide the company's general Health & Safety (H&S) Plan and/or
policies which address all activities as detailed in this scope of work. The
H&S Plan and/or policies will be prepared in accordance with the Occupational
Safety and Health Administration's (OSHA) hazardous waste site safety
standards found in 29 CFR 1910.120. The plan will be submitted as part of the
Contractor's bid package. Constituents of concern are benzene, toluene,
ethylbenzene, and xylenes (BTEX) in soil and groundwater. There is also the
potential for hydrogen sulfide (H2S) gas at some of the gas wellhead
locations. The H&S Plan will include the company's internal personnel
monitoring program. In addition, the plan will provide for safety briefings,
as needed, to ensure field activities are conducted property. Documentation of
those briefings will be required as part of the H&S Plan.
b) will furnish documentation (as part of their bid) on their internal
medical monitoring program (29 CFR Par 1910.134[b][101]) and 40-Hr Hazardous
Worker Training certification for all personnel proposed to conduct on-site
work. Certification documentation will also be submitted in the Contractor's
bid package on respirator fit testing (including full face respirator) for
such persons scheduled to be on-site, including operators, truck drivers and
field foreman. The Contractor will be responsible for supplying personnel
protective equipment and clothing to their site workers for Level C Protection
(as required by federal regulation in the OSHA standards in 29 CFR Part 1910
Subparts I and Z), including respirators (full face with organic vapor
cartridge), coveralls, gloves, hard-hats, and steel-toed boots.
The Contractor will provide documentation in the Contractor's bid of
First Aid/CPR training certification of all personnel proposed to conduct work
on site. The Contractor will also provide documentation in the Contractor's
<PAGE> 6
bid of their internal drug and alcohol testing program. The Contractor should
be aware that PNM requires that contractors will be subject to testing to
determine the presence of unacceptable levels of illegal drugs, alcohol or
inappropriately used legal drugs within their bodies while performing PNM
business.
The PNM Field Coordinator will serve as the on-site health and safety
officer. The Coordinator will furnish Photoionization Detectors (PIDs) in
order to monitor the presence of organic vapors. The Contractors's site
workers will have knowledge of how this equipment works and will have
responsibility for taking appropriate actions should a health-or life-
threatening situation occur.
NOTE: A remote possibility exists that mercury may be present in soils at
some of the pit sites, typically in areas (beneath the meter house and along
the meter run) which will not be remediated under this Scope of Work. However,
the Contractor must be aware of this potential concern. The contractor should
note any silver-appearing liquid in soil and immediately notify the PNM Field
Coordinator if visual observations indicate the possible presence of mercury.
c) will follow OSHA standard Subpart O (motor vehicles and mechanized
equipment) 1926.600 Equipment, 1926.601 Motor vehicles, and 1926.602 Material
handling equipment.
d) will follow OSHA standard Subpart P (excavations) 1926.650 Scope,
application, and definitions applicable to this subpart, 1926.651 Specific
Excavation Requirements and 1926.652 Requirements for protective systems.
e) will follow OSHA standard Subpart G (with respect to traffic control)
1926.200 Accident prevention signs and tags, 1926.201 Signaling, 1926.202
Barricades, and 1926.203 Definitions applicable to this subpart for the
purposes of traffic control. The Contractor will provide any signage,
barricades, signals or flag personnel to maintain traffic control on or
adjacent to a highway or street and/or where appropriate.
f) will, using the proper equipment, excavate the contaminated soil from
the earthen pit to a width and depth determined by the PNM Field Coordinator.
g) will not during the prosecution of the Work, operate its equipment or
excavate off of the well pad unless the proper authorization is obtained and
approval is granted by the PNM Field Coordinator.
h) will prepare any on-site landfarm (if PNM Field Coordinator indicates
that the soil can be landfarmed on the well pad). Basic requirements will be
to spread the soil in six to 12 inch lifts on a location designated by the
Field Coordinator. The landfarm will be bermed and storm water runoff controls
implemented as directed by the Field Coordinator.
i) will fence any open excavation at the end of a day's work and/or
until the backfilling is completed.
j) will, using the proper equipment, load clean backfill from a site
approved by the PNM Field Coordinator.
k) will, after the pit is considered remediated by the PNM Field
Coordinator, backfill the pit with either clean virgin fill dirt or remediated
soil as a determined suitable by PNM. PNM will work with the BLM and
landowners to locate clean virgin fill within the area.
<PAGE> 7
l) will leave the location smooth and cleaned of all debris. In most
instances, metal fencing material and piping will be left on location in neat
order as instructed by the PNM Field Coordinator.
m) will make all calls necessary, including One Call but not limited to
One Call, prior to commencing the Work in order to locate all underground gas
lines and utilities.
IV. Quality Assurance
The PNM Field Coordinator will perform an in-depth inspection of the pit
excavation to determine if additional soil removal is required. If necessary,
the Coordinator will instruct the Contractor to conduct additional soil
excavation. After the excavation is completed, the Coordinator will collect
soil sample(s) for field and laboratory analysis. The Coordinator will
determine when the pit excavation is complete. In addition, the Coordinator
will conduct an on site inspection of the remediated pit, spoil piles, any on
site landfarms and general site conditions. The Coordinator will direct the
Contractor to conduct the necessary work to ensure that PNM specifications on
all aspects of the remediation operation are met.
V. Soil Analysis
PNM will make direct arrangements with a laboratory to provide analysis
of soil to determine the contaminants present and the levels of contaminants.
The Contractor will not include any costs for sampling or analysis in its bid
nor change PNM any cost of analysis. PNM will provide or cause to be provided
all containers and forms required to handle samples, including sample
containers, sample chain of custody forms and request for analysis forms.
<PAGE>
<PAGE> 8
Addendum No. 1
Invitation to Bid
Pit Remediation
Public Service Company of New Mexico
Gas Services
Albuquerque, New Mexico
03/09/99
1. Attachment B. Example Consultant/Contractor Invoice may be used as Bid
From guideline (since no formal bid form was included in the original
invitation to bid). The bid should include a rate sheet, however, PNM will
consider alternative forms of bidding (i.e. price per pit).
2. Suggested equipment to perform pit remediation includes (but should not be
limited to): trackhoe with 18' reach, trackhoe with 20' reach, bulldozer, 3
yd. front end loader, 4 yd. front end loader, end dump trucks and belly dump
trucks (various sizes), tractor/disc, blade, vehicles, and low boy trailer.
3. PNM is considering using two front end crews to perform excavations and
one to two backend crews to manage landfarms and the backfilling operation.
The prospective contractor may include other equipment and costs that are
appropriate to this type of work.
4. In lieu of 40-Hour OSHA Health and Safety (H&S) training certificates and
First Aid/CPR training certificates, PNM will accept in the bid submittal a
list of duly trained individuals. This list must be signed by an officer of
the company. PNM reserves the right to request such certificates at any time
after the project has been awarded. PNM recognizes that new personnel may be
hired by the contractor after the bid is awarded and that not all employees
may have the necessary 40-Hour OSHA H&S training. Proof to PNM of such
training will be required prior to any contractor personnel conducting work on
location for PNM. Prospective contractors should note that all health and
safety training for on site contractor personnel will be at the expense of the
contractor and should not be included as a cost in the bid submittal.
5. PNM will provide photoionization detectors on site. PNM may agree to some
cost sharing of other health and safety equipment (i.e. H2S monitors, escape
packs). In the bid submittal and as part of the contractor's H&S plan and/or
policies, the contractor will suggest other H&S equipment that is applicable
to the scope of work and include appropriate costs.
6. The contractor may be required to move equipment on location, including,
but not limited to, the dehydrator unit. The contractor will furnish the
appropriate equipment to perform such moves.
7. If an excavation is greater than 20 feet, PNM will furnish a professional
engineer to conduct a review of the excavation.
8. The awarded contractor(s) will name the Williams Companies as an
additional insured party.
9. The awarded contractor(s) will be required to complete a Williams Companies
Contractor Safety Form prior to conducting work on site for PNM.
<PAGE> 1
Exhibit 10.03
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement") is made and entered into
effective the 31st day of December, 1998 by and between JFJ ECOSYSTEMS, LLC, a
Missouri limited liability company ("Creditor"), INDUSTRIAL ECOSYSTEMS, INC.,
a Utah corporation ("Debtor"), and IEI CANADA, INC. an Ontario corporation
("IEI Canada").
Premises
A. Creditor and Debtor, through its wholly owned subsidiary, IEI Canada,
are partners in ROP North America, LLC, a joint venture formed in March 1998
to transform organic waste into livestock feed (the "Joint Venture").
B. The Creditor, Debtor, and IEI Canada have recently entered into a
letter of intent, dated December 14, 1998 (the "Letter of Intent") wherein
Creditor, Debtor and IEI Canada propose a restructuring of the Joint Venture.
C. In connection with the restructuring of the Joint Venture the
Creditor and Debtor have entered into a Rights Agreement, of even date, to
which this Agreement has been attached as Exhibit A, wherein the Creditor has
agreed to extend to Debtor a line of credit in the aggregate principal amount
of $750,000, subject to the terms and conditions hereinafter set forth.
Agreement
NOW, THEREFORE, in reliance upon the recitals set forth above and for and
in consideration of the mutual promises and covenants contained herein and
the mutual benefits to the parties to be derived from this Agreement, it is
hereby agreed as follows:
ARTICLE I
LINE OF CREDIT
1.1 Amount. Pursuant to the terms of this Agreement, Creditor shall
provide to Debtor a line of credit in the aggregate principal amount $750,000.
The credit extended under this Agreement and as evidenced by this Agreement is
to be used by Debtor for working capital in operating the Debtor's business.
Debtor agrees that the monthly statements of account provided by the Creditor
to the Debtor shall serve as prima facie evidence as to the unpaid and funded
principal balanced owed to Creditor.
1.2 Interest. All loan proceeds provided pursuant to the terms of this
Agreement shall bear interest on the monthly balance (as defined below in
Section 1.5 (c)) at six percent (6%) per annum from the date hereof until
either paid in full or satisfied pursuant to the terms of the Rights
Agreement. Any additional extensions of credit by Creditor to Debtor shall
bear interest at the foregoing rate from and after the date of such loan. The
principal and interest, together with any extensions, modifications, renewals,
or additional loans, the performance of the covenants and agreements of Debtor
contained herein, and the obligations of Debtor under the terms of the
accompanying promissory note and collateral pledge agreement attached hereto
shall be hereinafter referred to collectively as the "Obligation."
1.3 Master Promissory Note. The Obligation, including any
modifications, extensions, or renewals thereof, will be evidenced by a Master
Promissory Note executed by the Debtor, substantially in the form attached
hereto as Exhibit A-1 and incorporated herein by this reference (the "Master
Promissory Note"), payable by December 31, 2000.
<PAGE> 2
1.4 Collateral Pledge Agreement. As security for the Obligation,
including any modifications, extensions, or renewals thereof, Debtor and IEI
Canada will execute the Pledge and Security Agreement attached hereto as
Exhibit A-2and incorporated herein by this reference (the "Pledge and Security
Agreement"), granting Creditor a security interest in all of IEI Canada's
membership interest in the Joint Venture, which shall be deemed the
"Collateral."
1.5 Payment.
(a) The entire Obligation is due December 31, 2000 unless canceled
pursuant to the Rights Agreement, extended by Creditor pursuant to written
notice thereof or such other agreement as may be entered into between Creditor
and Debtor with respect thereto;
(b) Debtor may, but is not obligated to, make periodic payments in
part or full payment of the "monthly balance" as defined in subsection (c) of
this section.
(c) The "monthly balance" will be computed by taking the balance of
Debtor's account on the first day of each month, adding any additional
advances and interest charges and subtracting any payments or credits.
(d) The entire Obligation will be due immediately upon the
expiration of the notice of default given to Debtor from Creditor in the event
of default by Debtor as hereinafter provided.
1.6 Term. Unless terminated earlier by the mutual agreement of the
parties or pursuant to the Rights Agreement or another provision of this
Agreement, this Agreement shall continue in full force and effect until
December 31, 2000, and shall be renewable, if not paid in full or otherwise
canceled pursuant to the terms of the Rights Agreement, on the mutual
agreement of the parties.
1.7 Credit Account. In connection with the funding of the line of
credit, Debtor will establish a trust account at the law firm of Taylor and
Associates, Inc., Salt Lake City, Utah (the "Credit Account") for the purpose
of depositing the funds from the line of credit. Interest on the funds
advanced under the line of credit shall begin to accrue at such time as the
Credit Account is funded by the Creditor. All disbursements from the Credit
Account to Debtor shall be subject to checks signed or approved by at least
two members of the Credit Committee, as designated by Debtor and hereafter
defined in section 5.1 of this Agreement.
ARTICLE II
CONDITIONS OF CREDITOR'S OBLIGATIONS
All obligations of Creditor under this Agreement are subject to the
fulfillment, prior to any funds being loaned hereunder, of each of the
following conditions, any or all of which may be waived in writing in whole or
in part by Creditor at or prior to execution.
2.1 Satisfaction of Conditions. Debtor shall have performed and
satisfied in all material respects all obligations, conditions, and covenants
required by this Agreement to be performed and satisfied by it at or before
the execution of this Agreement.
2.2. Certain Documents. The obligation of Creditor to fund the line of
<PAGE> 3
credit is subject to the condition that all of the following documents shall
have been received by Creditor:
(a) The Master Promissory Note, in the form of Exhibit A-1, with
appropriate insertions, executed as appropriate by Debtor;
(b) The Pledge and Security Agreement in the form of Exhibit A-2
attached hereto, with appropriate insertions, executed as appropriate by
Debtor;
(c) Form UCC-1, executed as appropriate by Debtor, IEI Canada and
Creditor; and
(d) This Agreement executed by Debtor, IEI Canada and Creditor.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF DEBTOR
In order to obtain Creditor's reliance and agreement to enter into this
Agreement and the transactions contemplated hereby, Debtor makes the following
representations and warranties:
3.1 Organization. Debtor is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Utah and has the
corporate power and authority to carry on its business in all material
respects as it is now being conducted. The execution and delivery of this
Agreement does not, and the consummation of the transactions contemplated by
this Agreement in accordance with the terms hereof will not, violate any
provision of the Debtor's articles of incorporation or bylaws, or other
agreement to which it is a party or by which it is bound.
3.2 Approval of Agreement. Debtor has full power, authority, and legal
right and has taken, or will take, all action required by law, its articles of
incorporation, bylaws, and otherwise to execute and deliver this Agreement and
to consummate the transactions herein contemplated. The board of directors
Debtor has authorized and approved the execution, delivery, and performance of
this Agreement and the transactions contemplated hereby.
3.3 No Conflicting Agreements. The execution and delivery of this
Agreement and the consummation of the transactions provided for herein will
not violate or conflict with or result in the breach of any provision or
covenant or constitute a default or an event which with notice or lapse of
time or both would constitute a default under, or accelerate the performance
required by, or result in the termination of any agreement, stipulation,
order, judgment, or decree to which Debtor is a party.
3.4 Binding Obligation. This Agreement, the Master Promissory Note and
the Pledge and Security Agreement have been duly executed and delivered by
Debtor and constitute legal, valid, and binding obligations of Debtor and are
enforceable against them in accordance with their terms.
ARTICLE IV
NEGATIVE COVENANTS OF DEBTOR
Debtor agrees that it will not, prior to the satisfaction of all its
obligations under the terms of this Agreement, the Master Promissory Note and
the Pledge and Security Agreement, do any of the following:
<PAGE> 4
4.1 Satisfaction of Existing Obligations. Other than in the ordinary
course of business as now conducted, Debtor shall not cause to be created or
suffer to exist any additional lien, mortgage, pledge, charge, security, or
other encumbrance on the Collateral.
4.2 Continuation of Business. Debtor shall use its best efforts
consistent with prudent business practices to preserve and maintain the
business and business organization of Debtor intact.
4.3 Regulatory Compliance. Debtor shall not violate in any material
respect any law, rule, regulation, order, or ordinance applicable to the
conduct of the business of Debtor or relinquish or terminate any rights,
qualifications, license, or permits that would materially affect the financial
condition or the business of Debtor.
ARTICLE V
AFFIRMATIVE COVENANTS OF DEBTOR
5.1 Credit Committee and Use of Credit Proceeds. Debtor shall utilize
the credit extended hereby for working capital in operating Debtor's business.
The use of the funds provided under the line of credit shall be approved by
the Credit Committee established by the Debtor specifically for such purpose.
5.2 Financial Records. Debtor shall maintain adequate books, accounts,
and records in accordance with the practices of prudent businessmen and in
accordance with generally accepted accounting principles, consistently
applied, and shall make all such records available for inspection and
duplication, by Creditor or its agents at any time during reasonable business
hours.
5.3 Compliance With Laws. Debtor shall take whatever actions are
necessary to comply with all statutes and regulations governing the activities
and operations of Debtor and maintain its corporate existence and right to
carry on business in each state or other jurisdiction in which Debtor now
conducts business.
ARTICLE VI
DEFAULT OF DEBTOR
6.1 Events of Default. Upon the occurrence and during the continuance of
any one or more of the events hereinafter enumerated, Creditor may forthwith
or at any time thereafter during the continuance of any such event, by notice
in writing to Debtor, declare the unpaid balance of the principal and interest
then accrued to be immediately due and payable, and the principal and interest
shall become and shall be immediately due and payable without presentation,
demand, protest, notice of protest, or other notice of dishonor, all of which
are hereby expressly waived by Debtor, such events being as follows:
(a) Default in the payment of the principal and interest or any
portion thereof when the same shall become due and payable, whether at
maturity as therein expressed, by acceleration, or otherwise, unless cured
within ten (10) days after notice thereof by the Creditor to Debtor; or
(b) Default in the due observance or performance of any other
covenant or obligation contained in the Rights Agreement, this Agreement, the
Master Promissory Note, or the Pledge and Security Agreement, unless observed
or performed within ten (10) days after notice thereof to Debtor by Creditor;
provided, if compliance is not possible within ten (10) days, default shall
<PAGE> 5
occur upon failure within ten (10) days to take steps that will produce
compliance as soon as is reasonably practicable.
6.2 Procedure on Default. Upon the occurrence of an event of default,
and at any time thereafter, Creditor may elect to declare the entire
Obligation immediately due and payable and after notice of default has
expired, at any time thereafter, without further notice, Creditor may take
possession of the Collateral pursuant to the terms of the Pledge and Security
Agreement. At such time that Creditor elects to take possession of the
Collateral, Debtor shall give Creditor its full and complete cooperation in
immediately transferring the Collateral to Creditor. At such time as the
Collateral has been transferred by Debtor to Creditor the entire Obligation
under this Agreement and the Master Promissory Note shall be deemed paid-in-
full and the Creditor shall have no further claims against the Debtor with
respect to the Obligation.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
7.1 Assignment of Agreement. Except as expressly provided, neither the
rights nor the obligations of the parties to this agreement may be assigned or
delegated by either party in whole or in part without the prior written
consent of the other party.
7.2 Governing Law. The laws of the state of Missouri shall govern the
validity of this Credit Agreement, the construction of its terms, and the
interpretation of the rights and duties of the parties.
7.3 Consent to Jurisdiction and Venue. In the event of any breach,
threatened breach or other dispute between the parties under this Credit
Agreement, the parties agree that the United States District Court for the
Western District of Missouri shall have the sole and exclusive jurisdiction
over any such proceeding. If such court lacks federal subject matter
jurisdiction, the Jackson County Circuit Court shall have sole and exclusive
jurisdiction. Any of these courts shall be proper venue for such proceedings
and the parties hereto waive any objection to such venue. The parties hereto
consent to and agree to submit to the jurisdiction of any of the courts
specified herein and agree to accept service of process to vest personal
jurisdiction over them in any of these courts.
7.4 Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to it or, if
sent by facsimile transmission or other electronic communication confirmed by
registered or certified mail, postage prepaid, or if sent by prepaid telegram
addressed as follows:
If to Creditor: JFJ ECOSYSTEMS, LLC
Attn: John P. Crowe
1015 West 54th Street
Kansas City, MO 64112
Fax No: (817) 361-2210
with copies to: SEIGFREID, BINGHAM, LEVY, SELZER & GEE
Attn: Kevin Connor, Esq.
911 Main Street, Suite 2800
Kansas City, MO 64105
Fax No: 816-474-3447
<PAGE> 6
If to Debtor: INDUSTRIAL ECOSYSTEMS, INC AND IEI CANADA:
Attn: President
450 Dondee Way, Suite 10
Pacifica, CA 94044
Fax No.: 650-355-4517
with copies to: TAYLOR AND ASSOCIATES, INC.
Elliott N. Taylor, Esq.
3090 East 3300 South, Ste. 400
Salt Lake City, UT 84109
Fax No.: 801-463-6085
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered or sent by
facsimile transmission or other electronic communication, three days after the
date so mailed, or one day after the date so telegraphed or sent by overnight
delivery.
7.5 Title and Captions. Section titles or captions to this Agreement
are for convenience and reference only and shall not be deemed part of this
Agreement and shall not be interpreted to define, limit, augment, extend, or
describe the scope, content, or intent of any part or parts of this Agreement.
7.6 Further Action. The parties shall execute and deliver all documents
or instruments, provide all information, and take or forebear from all such
action as may be necessary or appropriate to achieve the purpose of this
Agreement.
7.7 Binding Effect Upon Successors. This Agreement shall be binding
upon, and inure to the benefit of, the parties and their respective heirs,
executors, administrators, successors, legal representatives, and assigns;
provided, that this provision shall not be construed as permitting assignment,
substitution, delegation, or other transfer of rights or obligations, except
strictly in accordance with the provisions of the other sections of this
Agreement.
7.8 Creditors. Unless expressly provided in this Agreement, none of the
provisions of this Agreement shall be for the benefit of, or enforceable by,
any creditors of any party hereto.
7.9 Waiver. No failure by any party to insist upon the strict
performance of any covenant, duty, promise, or condition of this Agreement or
to exercise any right or remedy consequent upon a breach thereof shall
constitute a waiver of any such breach or any other covenant, duty, promise,
or condition. Any party may, by notice delivered in the manner provided in
this Agreement, but shall be under no obligation to, waive any of its rights
or any conditions to its obligations hereunder, or any duty, obligation, or
covenant of any other party. No waiver shall affect or alter the remainder of
this Agreement, but each and every other covenant, duty, promise, and
condition hereof shall continue in force and effect with respect to any other
then existing or subsequently occurring breach.
7.10 Severability. In the event that any condition, covenant, or other
provision herein contained is held to be invalid or void by any court of
competent jurisdiction, the same shall be deemed severable from the remainder
of this Agreement and shall in no way affect any other covenant or condition
herein contained. If such condition, covenant, or other provision shall be
<PAGE> 7
deemed invalid due to its scope or breadth, such provision shall be deemed
valid to the extent of the scope or breadth permitted by law.
7.11 Exhibits. All exhibits annexed to this Agreement and any documents
to be delivered herewith are expressly made a part of this Agreement as fully
as though completely set forth in it. All references to this Agreement,
either in the Agreement itself or in any of such writings, shall be deemed to
refer to and include this Agreement itself or in any of such exhibits or
writings. Any breach of or default under any provision of any of such writing
shall, for all purposes, constitute a breach or default under this Agreement
and all other such writings.
7.12 Attorneys' Fees. Should either party take any legal action to
enforce any of the terms or provisions of this Agreement, or any costs are
incurred by reason of breach or default in any of the covenants,
representations, warranties, terms, or conditions of this Agreement, the non-
defaulting party shall be entitled to recover any costs, including attorneys'
fees incurred in enforcing the obligations of the other party under the terms
of this Agreement or in collecting any judgment that may be entered.
7.13 Time of Essence. Time is of the essence in the performance of the
duties, covenants, or obligations of the parties under the terms of this
Agreement.
7.14 Facsimile Transmission. Facsimile transmission of any signed
original document, and retransmission of any signed facsimile transmission,
shall be the same as delivery of an original. At the request of any party
hereto, the parties will confirm facsimile transmitted signatures by signing
an original document.
7.15 Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CREDITOR: DEBTOR:
JFJ ECOSYSTEMS, LLC INDUSTRIAL ECOSYSTEMS, INC.
By /s/John P. Crowe, Manager By /s/Walter Kolbe, President
IEI CANADA, INC.
By /s/Walter Kolbe, President
<PAGE>
<PAGE> 8
MASTER PROMISSORY NOTE
$750,000.00 DATE: DECEMBER 31, 1998
FOR VALUE RECEIVED, INDUSTRIAL ECOSYSTEMS, INC., a Utah corporation
("Debtor"), promises to pay to JFJ ECOSYSTEMS, LLC, a Missouri limited
liability company ("Creditor"), or order, the principal amount of Seven
Hundred Fifty Thousand Dollars ($750,000.00) with interest on the unpaid
principal balance at six percent (6%) per annum (the "Line of Credit").
This Promissory Note is the Master Promissory Note referred to as
Exhibit A-1 to the Credit Agreement of even date herewith entered into by
Debtor and Creditor. Pursuant to the terms of the Credit Agreement, Creditor
makes the Line of Credit to Debtor as follows:
1. Master Note Agreement. This Promissory Note shall constitute a
"Master Note" under which Creditor may make advances to Debtor aggregating up
to the principal amount of this Promissory Note as shown on the face hereof.
Debtor agrees that the records of Creditor shall serve as prima facia evidence
as to the unpaid and funded principal balance of this Master Note.
2. Payment. The principal shall bear interest on the monthly balance
(as defined in subsection (c) of this section) at 6% per annum from and after
the date thereof until payment in full. The principal and interest, is due
and payable as follows:
(a) The Master Note is due in full on December 31, 2000 unless
canceled pursuant to the terms of the Rights Agreement, extended by Creditor
pursuant to written notice thereof or such other agreement as may be entered
into between Creditor and Debtor with respect thereto;
(b) Debtor may, but is not obligated to, make periodic payments in
part or full payment of the "monthly balance" as defined in subsection (c) of
this section.
(c) The "monthly balance" will be computed by taking the balance of
Debtor's account on the first day of each month, adding any additional
advances and interest charges and subtracting any payments or credits.
(d) The entire Obligation will be due immediately upon the
expiration of the notice of default given to Debtor from Creditor in the event
of default by Debtor as hereinafter provided.
3. Application of Payments. Unless applicable law provides otherwise,
all payments received by Debtor shall be applied by Creditor first in payment
of interest payable, next to the principal, and last to any other sums secured
by this Agreement.
4. Term. Unless terminated earlier by the mutual agreement of the
parties or pursuant to another provision of this Agreement, this Agreement
shall continue in full force and effect until December 31, 2000, if not paid
in full or otherwise canceled pursuant to the terms of the Rights Agreement,
or on the mutual agreement of the parties.
5. Events of Default. Upon the occurrence and during the continuance of
any one or more of the events hereinafter enumerated, Creditor may forthwith
or at any time thereafter during the continuance of any such event, by notice
in writing to Debtor, declare the unpaid balance of the principal and interest
then accrued to be immediately due and payable, and the principal and interest
shall become and shall be immediately due and payable without presentation,
<PAGE> 9
demand, protest, notice of protest, or other notice of dishonor, all of which
are hereby expressly waived by Debtor, such events being as follows:
(a) Default in the payment of the principal and interest or any
portion thereof when the same shall become due and payable, whether at
maturity as therein expressed, by acceleration, or otherwise, unless cured
within ten (10) days after notice thereof by the Creditor to Debtor; or
(b) Default in the due observance or performance of any other
covenant or obligation contained in the Rights Agreement, the Credit
Agreement, this Master Promissory Note, or the Pledge and Security Agreement,
unless observed or performed within ten (10) days after notice thereof to
Debtor by Creditor; provided, if compliance is not possible within ten (10)
days, default shall occur upon failure within ten (10) days to take steps that
will produce compliance as soon as is reasonably practicable.
6. Procedure on Default. Upon the occurrence of an event of default,
and at any time thereafter, Creditor may elect to declare the Line of Credit
due and payable and after notice of default has expired, at any time
thereafter, without further notice, Creditor may take possession of the
Collateral pursuant to the terms of the Pledge and Security Agreement. At such
time that Creditor elects to take possession of the Collateral, Debtor shall
give Creditor its full and complete cooperation in immediately transferring
the Collateral to Creditor. At such time as the Collateral has been
transferred by Debtor to Creditor the entire Line of Credit under this Master
Promissory Note and the Credit Agreement shall be deemed paid-in-full and the
Creditor shall have no further claims against the Debtor with respect to the
Line of Credit.
7. Governing Law. The laws of the state of Missouri shall govern the
validity of this Master Promissory Note, the construction of its terms, and
the interpretation of the rights and duties of the parties.
8. Consent to Jurisdiction and Venue. In the event of any breach,
threatened breach or other dispute between the parties under this Master
Promissory Note, the parties agree that the United States District Court for
the Western District of Missouri shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the Jackson County Circuit Court shall have sole and
exclusive jurisdiction. Any of these courts shall be proper venue for such
proceedings and the parties hereto waive any objection to such venue. The
parties hereto consent to and agree to submit to the jurisdiction of any of
the courts specified herein and agree to accept service of process to vest
personal jurisdiction over them in any of these courts.
9. Security Interest. Debtor shall execute a Pledge and Security
Agreement wherein Debtor shall grant to Creditor a security interest in the
Collateral as defined in the Credit Agreement, sufficient to secure the
obligation created hereunder, which Pledge and Security Agreement shall be
made a part of the Credit Agreement and this Master Promissory Note and
incorporated herein by this reference.
BORROWER:
INDUSTRIAL ECOSYSTEMS, INC.
By:/S/Walter Kolbe, President
<PAGE>
<PAGE> 10
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT (this "Agreement") is made and entered
into effective the 31st day of December, 1998, by and between JFJ ECOSYSTEMS,
LLC, a Missouri limited liability company ("Creditor"), and INDUSTRIAL
ECOSYSTEMS, INC., a Utah corporation ("Debtor"), and IEI Canada, Inc., an
Ontario corporation ("IEI Canada").
FOR AND IN CONSIDERATION of the mutual promises and covenants hereinafter
set forth, and other good and valuable consideration, it is agreed as follows:
1. Creation of Security Interest. To secure the due and timely
performance of the payment by Debtor to Creditor of the obligation represented
by a master promissory note of even date in the principal amount of seven
hundred fifty thousand dollars ($750,000.00) and payable, together with
interest thereon at the rate of 6% per annum, on or before two (2) years from
the date of the Master Promissory Note, a copy of which is attached hereto and
incorporated herein by this reference and all accessions, renewals,
extensions, and modifications hereto (the "Master Promissory Note"), Debtor
has caused IEI Canada to hereby pledge, hypothecate, assign, transfer, set
over, and grant a security interest in and to that certain 50% membership
interest in and to ROP North America, LLC (the "Joint Venture"), hereinafter
called the "Collateral." The Collateral shall be delivered as hereinafter
provided to be held for and on behalf of Creditor and to be disposed of in
accordance with the terms hereof.
2. Delivery of Collateral. So long as the Master Promissory Note
remains outstanding, Debtor, will cause IEI Canada to, unless Creditor shall
otherwise consent in writing in Creditor's sole discretion (a) at its expense,
promptly deliver to Creditor, for holding such stock powers and other
documents, satisfactory in form and substance to the Creditor, with respect to
the Collateral as the Creditor may reasonably request to preserve and protect,
and to enable the Creditor to enforce, Creditor's rights and remedies
hereunder; (b) not sell, assign, exchange, or otherwise transfer any of his
rights in any of the Collateral; (c) not create or suffer to exist any lien,
security interest, or other charge or encumbrance against the Collateral,
except for the pledge hereunder; (d) not make or consent to any amendment or
other modification or waiver with respect to any of the Collateral or enter
into any agreement or permit to exist any restriction with respect to any of
the Collateral other than pursuant hereto; and (e) not take or fail to take
any action which would in any manner impair the value or enforceability of
Creditor's security interest in any of the Collateral. Any transfer by Debtor
of the Collateral shall be subject to the interest of Creditor as a secured
party therein.
3. Power to Vote Membership Interest. During the term of this Agreement
and so long as Debtor is not in default in the performance of any of their
terms of this Agreement or the Master Promissory Note, Debtor shall have the
sole right to vote the membership interest of the Joint Venture on all company
questions and actions.
4. Ownership of Collateral. Debtor, by and through its wholly owned
subsidiary, IEI Canada, Inc. ("IEI Canada") owns all the Collateral
absolutely, and no other person has or claims any interest in the Collateral.
Debtor and IEI Canada will defend any proceeding which may affect the title to
or Creditor's security interest in any Collateral, and will indemnify Creditor
for all costs and expenses of Creditor's defense.
<PAGE>
<PAGE> 11
5. Adjustments. In the event that, during the term of this Agreement,
any share dividend, reclassification, readjustment, or other change is
declared or made in the capital structure of the Joint Venture, all new,
substitute, and additional shares, or other securities, issued by reason of
any such change shall be delivered to the agent to be held for and on behalf
of Creditor under the terms of this Agreement in the same manner as the
membership interest originally pledged hereunder.
6. Charges, Liens, and Encumbrances on Collateral. Debtor will pay,
when due, all future charges, liens, obligations, or encumbrances on, and all
taxes and assessments hereafter imposed on or affecting the Collateral.
7. Application of Payments. Unless applicable law provides otherwise,
all payments received by Creditor under the Master Promissory Note shall be
applied by Creditor first in payment of interest payable on the Master
Promissory Note, next to the principal of the Master Promissory Note, and last
to any other sums secured by this Agreement.
8. Collateral Generally. As to all Collateral, unless specifically
otherwise agreed by the Creditor in writing, the Debtor will cause IEI Canada
to promptly deliver the Collateral to Creditor to be held until payment of the
Master Promissory Note is received or the Collateral is disposed of pursuant
to this Agreement.
9. Events of Default. Upon the occurrence and during the continuance of
any one or more of the events hereinafter enumerated, Creditor may forthwith
or at any time thereafter during the continuance of any such event, by notice
in writing to Debtor, declare the unpaid balance of the Master Promissory Note
and the interest then accrued to be immediately due and payable, and the
principal and interest shall become and shall be immediately due and payable
without presentation, demand, protest, notice of protest, or other notice of
dishonor, all of which are hereby expressly waived by Debtor, such events
being as follows:
(a) Default in the payment of the principal and interest or any
portion thereof when the same shall become due and payable, whether at
maturity as therein expressed, by acceleration, or otherwise, unless cured
within ten (10) days after notice thereof by the Creditor to Debtor; or
(b) Default in the due observance or performance of any other
covenant or obligation contained in the Rights Agreement, the Credit
Agreement, the Master Promissory Note, or this Agreement, unless observed or
performed within ten (10) days after notice thereof to Debtor by Creditor;
provided, if compliance is not possible within ten (10) days, default shall
occur upon failure within ten (10) days to take steps that will produce
compliance as soon as is reasonably practicable.
10. Procedure on Default. Upon the occurrence of an event of default,
and at any time thereafter, Creditor may elect to declare the entire
Obligation hereby secured immediately due and payable and after notice of
default has expired, at any time thereafter, without further notice, Creditor
may take possession of the Collateral pursuant to the terms of this Agreement.
At such time that Creditor elects to take possession of the Collateral, Debtor
shall give Creditor its full and complete cooperation in immediately
transferring the Collateral to Creditor. At such time as the Collateral has
been transferred to Creditor the entire Obligation under the Credit Agreement
and the Master Promissory Note shall be deemed paid-in-full and the Creditor
shall have no further claims against the Debtor with respect to the
Obligation.
<PAGE> 12
11. Remedy Cumulative. All remedies provided in this Agreement are
distinct and cumulative to any other right or remedy under this Agreement or
afforded by law or equity, and may be exercised concurrently, independently,
or successively.
12. Financing Statement. Debtor agrees that this Agreement shall also
constitute a financing statement under the Utah Uniform Commercial Code.
13. Notices. Any notices or other communications required or permitted
hereunder shall be sufficiently given if personally delivered to it or, if
sent by facsimile transmission or other electronic communication confirmed by
registered or certified mail, postage prepaid, or if sent by prepaid telegram
addressed as follows:
If to Creditor: JFJ ECOSYSTEMS, LLC
Attn: John P. Crowe
1015 West 54th Street
Kansas City, MO 64112
Fax No: (817) 361-2210
with copies to: SEIGFREID, BINGHAM, LEVY, SELZER & GEE
Attn: Kevin Connor, Esq.
911 Main Street, Suite 2800
Kansas City, MO 64105
Fax No: 816-474-3447
If to Debtor: INDUSTRIAL ECOSYSTEMS, INC AND IEI CANADA:
Attn: President
450 Dondee Way, Suite 10
Pacifica, CA 94044
Fax No.: 650-355-4517
with copies to: TAYLOR AND ASSOCIATES, INC.
Elliott N. Taylor, Esq.
3090 East 3300 South, Ste. 400
Salt Lake City, UT 84109
Fax No.: 801-463-6085
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and any such notice or communication
shall be deemed to have been given as of the date so delivered or sent by
facsimile transmission or other electronic communication, three days after the
date so mailed, or one day after the date so telegraphed or sent by overnight
delivery.
14. Waiver. No failure to exercise and no delay in exercising, any
right, power or privilege hereunder shall operate as a waiver thereof. Any
single or partial exercise of any right, power or privilege hereunder shall
not preclude any other or further exercise thereof, or the exercise of any
other right, power or privilege. No waiver of any provision of this Agreement
or of any right, or remedy afforded by law shall be deemed, or shall
constitute, a waiver of any other provision, right, or remedy, whether or not
similar, nor shall any waiver constitute a continuing waiver. No waiver shall
be binding unless evidenced by a writing which contains an express reference
to this Agreement and which is signed by the party against whom enforcement of
the waiver is sought.
<PAGE> 13
15. Successors and Assigns. This Agreement shall bind and shall inure
to the benefit of the respective successors, assigns, heirs, beneficiaries,
and personal representatives of the parties hereto.
16. Additional Assurances and Documentation. Debtor and IEI Canada
agree to provide Creditor such further representations, assurances, and
documents as may, from time to time, be required by Creditor to document and
evidence the security interest in the Collateral created hereby including a
UCC-1 which will be filed in all states necessary to secure Creditor's
interest in the Collateral.
17. Headings. The headings or captions of the paragraphs, sections, or
articles herein are inserted for the convenience only and shall not be deemed
to constitute a part of this Agreement for any purpose, and in particular
shall not be construed to limit, define, or explain the subject matter or
modify the meaning of any part or all of this Agreement.
18. Survival of Warranties and Representations. The representations,
warranties, covenants, agreements, indemnities, and undertakings of the
parties in this Agreement shall not expire with, or be terminated or
extinguished by, the execution and delivery of this Agreement or any document
or instrument contemplated hereby, notwithstanding any investigations of the
facts constituting the basis of the representations and warranties of another
party by any party hereto or anyone on behalf of any party hereto.
Consummation of the transactions contemplated hereby shall not be deemed or
construed as a waiver of any right or remedy that any party hereto may have or
covenant, notwithstanding any fact or facts that such party knew or should
have known at such time.
19. Severability. In the event of this Agreement or the application of
any such provision to any person or circumstance shall conflict with any
jurisdiction, then such conflict shall not affect any other provision of this
Agreement which can be given effect without the conflicting provision and the
remainder of this Agreement or the application of such provisions to persons
or circumstances other than those as to which such provisions are held invalid
or unenforceable, shall not be affected thereby. The invalidity or
unenforceability of this Agreement or any provisions thereof in any
jurisdiction shall not affect the validity or enforceability of this Agreement
or of such provision in any other jurisdiction. To this end, the provisions
of this Agreement are declared to be severable.
20. Modification. This Agreement may not be supplemented, varied, or
rescinded except by a writing which contains an express reference to this
Agreement and which is signed by the party against whom enforcement of the
supplement, variance, or rescission is asserted.
21. Governing Law. The laws of the state of Missouri shall govern the
validity of this Pledge and Security Agreement, the construction of its terms,
and the interpretation of the rights and duties of the parties.
22. Consent to Jurisdiction and Venue. In the event of any breach,
threatened breach or other dispute between the parties under this Pledge and
Security Agreement, the parties agree that the United States District Court
for the Western District of Missouri shall have the sole and exclusive
jurisdiction over any such proceeding. If such court lacks federal subject
matter jurisdiction, the Jackson County Circuit Court shall have sole and
exclusive jurisdiction. Any of these courts shall be proper venue for such
proceedings and the parties hereto waive any objection to such venue. The
<PAGE> 14
parties hereto consent to and agree to submit to the jurisdiction of any of
the courts specified herein and agree to accept service of process to vest
personal jurisdiction over them in any of these courts.
23. Facsimile Transmission. Facsimile transmission of any signed
original document, and retransmission of any signed facsimile transmission,
shall be the same as delivery of an original. At the request of any party
hereto, the parties will confirm facsimile transmitted signatures by signing
an original document.
24. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CREDITOR: DEBTOR:
JFJ ECOSYSTEMS, LLC INDUSTRIAL ECOSYSTEMS, INC.
By /s/John P. Crowe, Manager By /s/Walter Kolbe, President
IEI CANADA, INC.
By /s/Walter Kolbe, President
<PAGE> 1
Exhibit 10.04
INDUSTRIAL ECOSYSTEMS, INC.
1999 STOCK OPTION AND AWARD PLAN
INDUSTRIAL ECOSYSTEMS, INC., a Utah corporation (the "Company"), hereby adopts
this INDUSTRIAL ECOSYSTEMS, INC. 1999 Stock Option and Award Plan" (the
"Plan"), effective as of the 19th day of March, 1999, under which options to
acquire stock of the Company or bonus stock may be granted from time to time
to employees, including of officers and directors of the Company and/or its
subsidiaries. In addition, at the discretion of the board of directors or
other administrator of this Plan, options to acquire stock of the Company or
bonus stock may from time to time be granted under this Plan to other
individuals who contribute to the success of the Company or its subsidiaries
but who are not employees of the Company, all on the terms and conditions set
forth herein.
1. Purpose of the Plan. The Plan is intended to aid the Company in
maintaining and developing a management team, attracting qualified officers
and employees capable of assisting in the future success of the Company, and
rewarding those individuals who have contributed to the success of the
Company. It is designed to aid the Company in retaining the services of
executives and employees and in attracting new personnel when needed for
future operations and growth and to provide such personnel with an incentive
to remain employees of the Company, to use their best efforts to promote the
success of the Company's business, and to provide them with an opportunity to
obtain or increase a proprietary interest in the Company. It is also designed
to permit the Company to reward those individuals who are not employees of the
Company but who are perceived by management as having contributed to the
success of the Company or who are important to the continued business and
operations of the Company. The above aims will be effectuated through the
granting of options ("Options") to purchase shares of common stock of the
Company, par value $0.001 per share (the "Stock"), or the granting of awards
of bonus stock ("Stock Awards"), all subject to the terms and conditions of
this Plan. It is intended that the Options issued pursuant to this Plan
include. when designated as such at the time of grant, options which qualify
as Incentive Stock Options ("Incentive Options") within the meaning of section
422 of the Internal Revenue Code of 1986, as amended (the "Code"), or any
amendment or successor provision of like tenor. If the Company has a class of
securities registered under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), it is intended that Options or Stock Awards granted
pursuant to this Plan qualify for the exemption provided for in Rule 16b-3
("Rule 16b-3") promulgated under the Exchange Act or any amendment or
successor rule of like tenor when granted in accordance with the provisions of
such rule.
2. Shareholder Approval. The Plan shall become effective immediately
on adoption by the board of directors of the Company (the "Board") and awards
under the Plan can be made at that time or at any subsequent time. The Plan
shall be submitted to the Company's shareholders in the manner set forth
below:
(a) Within twelve months after the Plan has been adopted by the
Board, the Plan shall be submitted for approval by those shareholders of the
Company who are entitled to vote on such matters at a duly held shareholders'
meeting or approved by the unanimous written consent of the holders of the
issued and outstanding Stock of the Company. If the Plan is presented at a
shareholders' meeting, it shall be approved by the affirmative vote of the
holders of a majority of the issued and outstanding Stock in attendance, in
person or by proxy, at such meeting. Notwithstanding the foregoing, the Plan
<PAGE> 2
may be approved by the shareholders in any other manner not inconsistent with
the Company's articles of incorporation and bylaws, the applicable provisions
of state corporate laws, and the applicable provisions of the Code and
regulations adopted thereunder.
(b) In the event the Plan is so approved, the secretary of the
Company shall, as soon as practicable following the date of final approval,
prepare and attach to this Plan certified copies of all relevant resolutions
adopted by the shareholders and the Board.
(c) Failure to obtain shareholder approval on or before the date
that is twelve months subsequent to the adoption of this Plan by the Board
shall not affect awards previously granted under the Plan; provided that, none
of the Options issued under this Plan will qualify as Incentive Options.
3. Administration of the Plan. Administration of the Plan shall be
determined by the Board. Subject to compliance with applicable provisions of
the governing law, the Board may delegate administration of the Plan or
specific administrative duties with respect to the Plan, on such terms and to
such committees of the Board as it deems proper. Any Option or Stock Award
approved by the Board shall be approved by a majority vote of those members of
the Board in attendance at a meeting at which a quorum is present. Any Option
or Stock Award approved by a committee designated by the Board shall be
approved as specified by the Board at the time of delegation. The
interpretation and construction of the terms of the Plan by the Board or a
duly authorized committee shall be final and binding on all participants in
the Plan absent a showing of demonstrable error. No member of the Board or
duly authorized committee shall be liable for any action taken or
determination made in good faith with respect to the Plan.
The Board's or duly authorized committee's determination under the Plan
(including without limitation determinations of the persons to receive Options
or Stock Awards, the form, amount, and timing of such Options or Stock Awards,
the terms and provisions of such Options or Stock Awards, and the agreements
evidencing same) need not be uniform and may be made by the Board or duly
authorized committee selectively among persons who receive, or are eligible to
receive, Options or Stock Awards under the Plan, whether or not such persons
are similarly situated.
4. Shares of Stock Subject to the Plan. A total of 3,000,000 shares
of Stock may be subject to, or issued pursuant to, Options or Stock Awards
granted under the terms of this Plan. Any shares subject to an Option or Stock
Award under the Plan, which Option or Stock Award for any reason expires or is
forfeited terminated, or surrendered unexercised as to such shares, shall be
added back to the total number of shares reserved for issuance under the terms
of this Plan. If any right to acquire Stock granted under the Plan is
exercised by the delivery of shares of Stock or the relinquishment of rights
to shares of Stock, only the net shares of Stock issued (the shares of Stock
issued less the shares of Stock surrendered) shall count against the total
number of shares reserved for issuance under the terms of this Plan. The
number of shares of Stock subject to the Plan is subject to adjustment as set
forth in Section 17 hereof.
5. Reservation of Stock on Granting of Option. At the time of
granting any Option under the terms of this Plan, there will be reserved for
issuance on the exercise of the Option the number of shares of Stock of the
Company subject to such Option. The Company may reserve either authorized but
unissued shares or issued shares that have been reacquired by the Company.
<PAGE> 3
6. Eligibility. Options or Stock Awards under the Plan may be granted
to employees, including officers and directors, of the Company or its
subsidiaries, as may be existing from time to time, and to other individuals
who are not employees of the Company as may be deemed in the best interest of
the Company by the Board or a duly authorized committee. Such Options or Stock
Awards shall be in the amounts, and shall have the rights and be subject to
the restrictions, as may be determined by the Board or a duly authorized
committee at the time of grant, all as may be within the general provisions of
this Plan.
7. Term of Options and Certain Limitations on Right to Exercise.
(a) Each Option shall have the term established by the Board or
duly authorized committee at the time the Option is granted but in no event
may an Option have a term in excess of ten years.
(b) The term of the Option, once it is granted, may be reduced
only as provided for in this Plan or under the written provisions of the
Option.
(c) Unless otherwise specifically provided by the written
provisions of the Option, no holder or his or her legal representative,
legatee, or distributee will be, or shall be deemed to be, a holder of any
shares subject to an Option unless and until the holder exercises his or her
right to acquire all or a portion of the Stock subject to the Option and
delivers the required consideration to the Company in accordance with the
terms of this Plan and the Option and then only to the extent of the number of
shares of Stock acquired. Except as specifically provided in this Plan or as
otherwise specifically provided by the written provisions of the Option, no
adjustment to the exercise price or the number of shares of Stock subject to
the Option shall be made for dividends or other rights for which the record
date is prior to the date the Stock subject to the Option is acquired by the
holder.
(d) Options under the Plan shall vest and become exercisable at
such time or times and on such terms as the Board or a duly authorized
committee may determine at the time of the grant of the Option.
(e) Options granted under the Plan shall contain such other
provisions, including, without limitation. further restrictions on the vesting
and exercise of the Option, as the Board or a duly authorized committee shall
deem advisable.
(f) In no event may an Option be exercised after the expiration
of its term.
(g) Unless otherwise specifically provided by the written
provisions of an Option granted pursuant to this Plan, upon receipt of:
(i) any request that the exercise of the Option or the
resale of any shares of Stock issued or to be issued on exercise of such
Option will be registered under the Securities Act; or
(ii) any notice of exercise of such Option pursuant to its terms,
in lieu of any obligation to effect any registration with respect to the
Options or shares of Common Stock issuable on such Option or in lieu of
delivering shares of Common Stock on the exercise of the Option; the Company
may, within five business days of receipt of such request to register or
<PAGE> 4
notice of exercise, purchase, in whole or in part, such Options from the
Optionee at an amount in cash equal to the difference between the then current
fair market value (as defined below) of the Common Stock on the day of such
repurchase and the exercise price in effect on such day.
In order to exercise such right, the Company must provide written notice to
the optionee at least five days prior to the date that the Company proposes to
repurchase such Options. For purposes of this section. the fair market value
of the Common Stock shall be determined by the Board or a duly authorized
committee based on the closing price for the Stock as quoted on a registered
national securities exchange or, if not listed on a national exchange, the
Nasdaq Stock Market ("Nasdaq"), on the trading day immediately preceding the
date that the Company's provides notice of its intent to repurchase the
Options, or, if not listed on such an exchange or included on Nasdaq, the
closing price for the Stock as determined by the Board or a duly authorized
committee through any other reliable means of determination available on the
close of business on the trading day last preceding the date of providing the
notice.
8. Exercise Price. The exercise price of each Option issued under the
Plan shall be determined by the Board or a duly authorized committee on the
date of grant.
9. Payment Exercise Price. The exercise of any Option shall be
contingent on receipt by the Company of cash, certified bank check to its
order, or other consideration acceptable to the Company; provided that, at the
discretion of the Board or a duly authorized committee, the written provisions
of the Option may provide that payment can be made in whole or in part in
shares of Stock of the Company that have been owned by the optionee for more
than six months or by the surrender of Options to acquire Stock from the
Company that have been held for more than six months, which Stock or Options
shall be valued at their then fair market value as determined by the Board or
a duly authorized committee. Any consideration approved by the Board or a duly
authorized committee that calls for the payment of the exercise price over a
period of more than one year shall provide for interest, which shall not be
included as part of the exercise price, that is equal to or exceeds the
imputed interest provided for in section 483 of the Code or any amendment or
successor section of like tenor.
10. Withholding. If the grant of a Stock Award or the grant or
exercise of an Option pursuant to this Plan, or any other event in connection
with any such grant or exercise, creates an obligation to withhold income and
employment taxes pursuant to the Code or applicable state or local laws, such
obligation may, at the discretion of the Board or a duly authorized committee
at the time of the grant of the Option or Stock Award and to the extent
permitted by the terms of the Option or Stock Award and the then governing
provisions of the Code and the Exchange Act, be satisfied (i) by the holder of
the Option or Stock Award delivering to the Company an amount of cash equal to
such withholding obligation; (ii) by the Company withholding from any
compensation or other amount owing to the holder of the Option or Stock Award
the amount (in cash, Stock, or other property as the Company may determine) of
the withholding obligation; (iii) by the Company withholding shares of Stock
subject to the Option or Stock Award with a fair market value equal to such
obligation; or (iv) by the holder of the Option or Stock Award either
delivering shares of Stock that have been owned by the holder for more than
six months or canceling Options or other rights to acquire Stock from the
Company that have been held for more than six months with a fair market value
equal to such requirements. In all events, delivery of shares of Stock
<PAGE> 5
issuable on exercise of the Option or on grant of the Stock Award shall be
conditioned upon and subject to the satisfaction or making provision for the
satisfaction of the withholding obligation of the Company resulting from the
grant or exercise of the Option, grant of the Stock Award, or any other event.
The Company shall be further authorized to take such other action as may be
necessary, in the opinion of the Company, to satisfy all obligations for the
payment of such taxes.
11. Incentive Options - Additional Provisions. In addition to the
other restrictions and provisions of this Plan, any Option granted hereunder
that is intended to be an Incentive Option shall meet the following further
requirements:
(a) The exercise price of an Incentive Option shall not be less
than the fair market value of the Stock on the date of grant of the Incentive
Option as determined by the Board or a duly authorized committee based on the
closing price for the Stock as quoted on a registered national securities
exchange or, if not listed on a national exchange or Nasdaq, over the five-day
trading period immediately prior to the date of grant of such Incentive
Option, or, if not listed on such an exchange or included on Nasdaq, the
closing price for the Stock as determined by the Board or a duly authorized
committee through any other reliable means of determination available on the
close of business on the trading day last preceding the date of grant of such
Incentive Option and permitted by the applicable provisions of the Code.
(b) No Incentive Option may be granted under the Plan to any
individual that owns (either of record or beneficially) Stock possessing more
than 10% of the combined voting power of the Company or any parent or
subsidiary corporation unless both the exercise price is at least 110% of the
fair market value of the Stock on the date the Option is granted and the
Incentive Option by its terms is not exercisable more than five years after
the date it is granted.
(c) Incentive Options may be granted only to employees of the
Company or its subsidiaries and only in connection with that employee's
employment by the Company or the subsidiary. Notwithstanding the above,
directors and other individuals who have contributed to the success of the
Company or its subsidiaries may be granted Incentive Options under the Plan,
subject to, and to the extent permitted by, applicable provisions of the Code
and regulations promulgated thereunder, as they may be amended from time to
time.
(d) The aggregate fair market value (determined as of the date
the Incentive Option is granted) of the shares of Stock with respect to which
Incentive Options are exercisable for the first time by any individual during
any calendar year under the Plan (and all other plans of the Company and its
subsidiaries) may not exceed $100,000.
(e) No Incentive Option shall be transferable other than by will
or the laws of descent and distribution and shall be exercisable, during the
lifetime of the optionee, only by the optionee to whom the Incentive Option is
granted.
(f) No individual acquiring shares of Stock pursuant to any
Incentive Option granted under this Plan shall sell, transfer, or otherwise
convey the Stock until after the date that is both two years after the date
the Incentive Option was granted and one year after the date the Stock was
acquired pursuant to the exercise of the Incentive Option. If any individual
<PAGE> 6
makes a disqualifying disposition, he or she shall notify the Company within
30 days of such transaction.
(g) No Incentive Option may be exercised unless the holder was,
within three months of such exercise, and had been since the date the
Incentive Option was granted, an eligible employee of the Company as specified
in the applicable provisions of the Code, unless the employment was terminated
as a result of the death or disability (as defined in the Code and the
regulations promulgated thereunder as they may be amended from time to time)
of the employee or the employee dies within three months of the termination.
In the event of termination as a result of disability, the holder shall have a
one year period following termination in which to exercise the Incentive
Option. In the event of death of the holder, the Incentive Option must be
exercised within six months after the issuance of letters testamentary or
administration or the appointment of an administrator, executor, or personal
representative, but not later than one year after the date of termination of
employment. An authorized absence or leave approved by the Board or a duly
authorized committee for a period of 90 days or less shall not be considered
an interruption of employment for any purpose under the Plan.
(h) All Incentive Options shall be deemed to contain such other
limitations and restrictions as are necessary to conform the Incentive Option
to the requirements for "incentive stock options" as defined in section 422 of
the Code, or any amendment or successor statute of like tenor.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Code as of the date of adoption of this Plan. If at any time
the Code is amended to permit the qualification of an Option as an incentive
stock option without one or more of the foregoing restrictions or limitations
or the terms of such restrictions or limitations are modified, the Board or a
duly authorized committee may grant Incentive Options, and may modify
outstanding Incentive Options in accordance with such changes, all to the
extent that such action by the Board or duly authorized committee does not
disqualify the Options from treatment as incentive stock options under the
provisions of the Code as may be amended from time to time.
12. Awards to Directors and Officers. To the extent the Company has a
class of securities registered under the Exchange Act, Options or Stock Awards
granted under the Plan to directors and officers (as used in Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor) intended to qualify for the exemption from section 16(b) of the
Exchange Act provided in Rule 16b-3 shall, in addition to being subject to the
other restrictions and limitations set forth in this Plan, be made as follows:
(a) A transaction whereby there is a grant of an Option or Stock
Award pursuant to this Plan must satisfy one of the following:
(i) The transaction must be approved by the Board or a
duly authorized committee composed solely of two or more non-employee
directors of the Company (as defined in Rule 16b-3);
(ii) The transaction must be approved or ratified, in
compliance with section 14 of the Exchange Act, by either: the affirmative
vote of the holders of a majority of the securities of the Company present or
represented and entitled to vote at a meeting of the shareholders of the
Company held in accordance with the applicable laws of the state of
incorporation of the Company; or, if allowed by applicable state law, the
written consent of the holders of a majority, or such greater percentage as
<PAGE> 7
may be required by applicable laws of the state of incorporation of the
Company, of the securities of the Company entitled to vote. If the transaction
is ratified by the shareholders, such ratification must occur no later than
the date of the next annual meeting of shareholders; or
(iii) The Stock acquired must be held by the officer or
director for a period of six months subsequent to the date of the grant;
provided that, if the transaction involves a derivative security (as defined
in section 16 of the Exchange Act), this condition shall be satisfied if at
least six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than on
exercise or conversion) or its underlying equity security.
(b) Any transaction involving the disposition to the Company of
its securities in connection with Options or Stock Awards granted pursuant to
this Plan shall:
(i) be approved by the Board or a duly authorized committee
composed solely of two or more non-employee directors; or
(ii) be approved or ratified, in compliance with section 14
of the Exchange Act, by either: the affirmative vote of the holders of a
majority of the securities of the Company present, or represented, and
entitled to vote at a meeting duly held in accordance with the applicable laws
of the state of incorporation of the Company or, if allowed by applicable
state law, the written consent of the holders of a majority, or such greater
percentage as may be required by applicable laws of the state of incorporation
of the Company, of the securities of the Company entitled to vote; provided
that, such ratification occurs no later than the date of the next annual
meeting of shareholders.
All of the foregoing restrictions and limitations are based on the governing
provisions of the Exchange Act and the rules and regulations promulgated
thereunder as of the date of adoption of this Plan. If at any time the
governing provisions are amended to permit an Option to be granted or
exercised or Stock Award to be granted pursuant to Rule 16b-3 or any amendment
or successor rule of like tenor without one or more of the foregoing
restrictions or limitations, or the terms of such restrictions or limitations
are modified, the Board or a duly authorized committee may award Options or
Stock Awards to directors and of dicers, and may modify outstanding Options or
Stock Awards, in accordance with such changes, all to the extent that such
action by the Board or a duly authorized committee does not disqualify the
Options or Stock Awards from exemption under the provisions of Rule 16b-3 or
any amendment or successor rule of similar tenor.
13. Stock Awards. The Board or a duly authorized committee may grant
Stock Awards to individuals eligible to participate in this Plan, in the
amount, and subject to the provisions determined by the Board or a duly
authorized committee. The Board or a duly authorized committee shall notify in
writing each person selected to receive a Stock Award hereunder as soon as
practicable after he or she has been so selected and shall inform such person
of the number of shares he or she is entitled to receive, the approximate date
on which such shares will be issued, and the Forfeiture Restrictions
applicable to such shares. (For purposes hereof, the term "Forfeiture
Restrictions" shall mean any prohibitions against sale or other transfer of
shares of Stock granted under the Plan and the obligation of the holder to
forfeit his or her ownership of or right to such shares and to surrender such
shares to the Company on the occurrence of certain conditions.) The Board or a
<PAGE> 8
duly authorized committee may, at its discretion, require the payment in cash
to the Company by the award recipient of the par value of the Stock. The
shares of Stock issued pursuant to a Stock Award shall not be sold, exchanged,
transferred, pledged, hypothecated, or otherwise disposed of during such
period or periods of time which the Board or a duly authorized committee shall
establish at the time of the grant of the Stock Award. If a Stock Award is
made to an employee of the Company or its subsidiaries, the employee shall be
obligated for no consideration other than the amount, if any, of the par value
paid in cash for such shares, to forfeit and surrender such shares as he or
shall have received under the Plan which are then subject to Forfeiture
Restrictions to the Company if he or she is no longer an employee of the
Company or its subsidiaries for any reason; provided that, in the event of
termination of the employee's employment by reason of death or total and
permanent disability, the Board or duly authorized committee, in its sole
discretion, may cancel the Forfeiture Restrictions. Certificates representing
shares subject to Forfeiture Restrictions shall be appropriately legend as
determined by the Board or a duly authorized committee to reflect the
Forfeiture Restrictions, and the Forfeiture Restrictions shall be binding on
any transferee of the shares.
14. Assignment. At the time of grant of an Option or Stock Award, the
Board or duly authorized Committee. in its sole discretion, may impose
restrictions on the transferability of such Option or Stock Award and provide
that such Option shall not be transferable other than by will or the laws of
descent and distribution or pursuant to a qualified domestic relations order
as defined in the Code and that, except as permitted by the foregoing, such
Options or Stock Awards, granted under the Plan and the rights and privileges
thereby conferred shall not be transferred, assigned, pledged, or hypothecated
in any way (whether by operation of law or otherwise), and shall not be
subject to execution, attachment, or similar process. On any attempt to
transfer, assign, pledge, hypothecate, or otherwise dispose of the Option or
Stock Award, or of any right or privilege conferred thereby, contrary to the
provisions thereof, or on the levy of any attachment or similar process on
such rights and privileges, the Option or Stock Award and such rights and
privileges shall immediately become null and void.
15. Additional Terms and Provisions of Awards. The Board or duly
authorized committee shall have the right to impose additional limitations on
individual awards under the Plan. For example, and without limiting the
authority of the Board or a duly authorized committee, an individual award may
be conditioned on continued employment for a specified period or may be voided
based on the award holder's gross negligence in the performance of his or her
duties, substantial failure to meet written standards established by the
Company for the performance of his or her duties, criminal misconduct, or
willful or gross misconduct in the performance of his or her duties. In
addition, the Board or a duly authorized committee may establish additional
rights in the holders of individual awards at the time of grant. For example,
and without limiting the authority of the Board or a duly authorized
committee, an individual award may include the right to immediate payment of
the value inherent in the award on the occurrence of certain events such as a
change in control of the Company, all on the terms and conditions set forth in
the award at the time of grant. The Board or a duly authorized committee may.
at the time of the grant of the Option or Stock Award, establish any other
terms, restrictions, or provisions on the exercise of an Option or the holding
of Stock subject to the Stock Award as it deems appropriate. All such terms,
restrictions, and provisions must be set forth in writing at the time of grant
in order to be effective.
<PAGE> 9
16. Dilution or Other Adjustment. In the event that the number of
shares of Stock of the Company from time to time issued and outstanding is
increased pursuant to a stock split or a stock dividend, the number of shares
of Stock then covered by each outstanding Option granted hereunder shall be
increased proportionately, with no increase in the total purchase price of the
shares then so covered, and the number of shares of Stock subject to the Plan
shall be increased by the same proportion. Shares awarded under the terms of a
Stock Award shall be entitled to the same rights as other issued and
outstanding shares of Stock, whether or not then subject to Forfeiture
Restrictions, although any additional shares of Stock issued to the holder of
a Stock Award shall be subject to the same Forfeiture Restrictions as the
Stock Award. In the event that the number of shares of Stock of the Company
from time to time issued and outstanding is reduced by a combination or
consolidation of shares, the number of shares of Stock then covered by each
outstanding Option granted hereunder shall be reduced proportionately, with no
reduction in the total purchase price of the shares then so covered, and the
number of shares of Stock subject to the Plan shall be reduced by the same
proportion. Shares awarded under a Stock Award shall be treated as other
issued and outstanding shares of Stock, whether or not then subject to
Forfeiture Restrictions. In the event that the Company should transfer assets
to another corporation and distribute the stock of such other corporation
without the surrender of Stock of the Company, and if such distribution is not
taxable as a dividend and no gain or loss is recognized by reason of section
355 of the Code or any amendment or successor statute of like tenor, then the
total purchase price of the Stock then covered by each outstanding Option
shall be reduced by an amount that bears the same ratio to the total purchase
price then in effect as the market value of the stock distributed in respect
of a share of the Stock of the Company, immediately following the
distribution, bears to the aggregate of the market value at such time of a
share of the Stock of the Company plus the stock distributed in respect
thereof. Shares issued under a Stock Award shall be treated as issued and
outstanding whether or not subject to Forfeiture Restrictions, although any
stock of the other corporation to be distributed with respect to the shares
awarded under the Stock Award shall be subject to the Forfeiture Restrictions
then applicable to such shares and may be held by the Company or otherwise
subject to restrictions on transfer until the expiration of the Forfeiture
Restrictions. In the event that the Company distributes the stock of a
subsidiary to its shareholders, makes a distribution of a major portion of its
assets, or otherwise distributes a significant portion of the value of its
issued and outstanding Stock to its shareholders, the number of shares then
subject to each outstanding Option and the Plan, or the exercise price of each
outstanding Option, may be adjusted in the reasonable discretion of the Board
or a duly authorized committee. Shares awarded under a Stock Award shall be
treated as issued and outstanding, whether or not subject to Forfeiture
Restrictions, although any Stock, assets, or other rights distributed shall be
subject to the Forfeiture Restrictions governing the shares awarded under the
Stock Award and, at the discretion of the Board or a duly authorized
committee, may be held by the Company or otherwise subject to restrictions on
transfer by the Company until the expiration of such Forfeiture Restrictions.
All such adjustments shall be made by the Board or duly authorized committee,
whose determination upon the same, absent demonstrable error, shall be final
and binding on all participants under the Plan. No fractional shares shall be
issued, and any fractional shares resulting from the computations pursuant to
this section shall be eliminated from the respective Option or Stock Award. No
adjustment shall be made for cash dividends, for the issuance of additional
shares of Stock for consideration approved by the Board, or for the issuance
to stockholders of rights to subscribe for additional Stock or other
securities.
<PAGE> 10
17. Options or Stock Awards to Foreign Nationals. The Board or a duly
authorized committee may, in order to fulfill the purposes of this Plan and
without amending the Plan, grant Options or Stock Awards to foreign nationals
or individuals residing in foreign countries that contain provisions,
restrictions, and limitations different from those set forth in this Plan and
the Options or Stock Awards made to United States residents in order to
recognize differences among the countries in law, tax policy, and custom. Such
grants shall be made in an attempt to provide such individuals with
essentially the same benefits as contemplated by a grant to United States
residents under the terms of this Plan.
18. Listing and Registration of Shares. Unless otherwise expressly
provided on the granting of an award under this Plan, the Company shall have
no obligation to register any securities issued pursuant to this Plan or
issuable on the exercise of Options granted hereunder. Each award shall be
subject to the requirement that if at any time the Board or a duly authorized
committee shall determine, in its sole discretion, that it is necessary or
desirable to list, register, or qualify the shares covered thereby on any
securities exchange or under any state or federal law, or obtain the consent
or approval of any governmental agency or regulatory body as a condition of,
or in connection with, the granting of such award or the issuance or purchase
of shares thereunder, such award may not be made or exercised in whole or in
part unless and until such listing. registration, consent, or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board or a duly authorized committee.
19. Expiration and Termination of the Plan. The Plan may be abandoned
or terminated at any time by the Board or a duly authorized committee except
with respect to any Options or Stock Awards then outstanding under the Plan.
The Plan shall otherwise terminate on the earlier of the date that is: (i) ten
years after the date the Plan is adopted by the Board; or (ii) ten years after
the date the Plan is approved by the shareholders of the Company.
20. Form of Awards. Awards granted under the Plan shall be represented
by a written agreement which shall be executed by the Company and which shall
contain such terms and conditions as may be determined by the Board or a duly
authorized committee and permitted under the terms of this Plan. Option
agreements evidencing Incentive Options shall contain such terms and
conditions, among others, as may be necessary in the opinion of the Board or a
duly authorized committee to qualify them as incentive stock options under
section 422 of the Code or any amendment or successor statute of like tenor.
21. No Right of Employment. Nothing contained in this Plan or any
Option or Stock Award shall be construed as conferring on a director, officer,
or employee any right to continue or remain as a director, officer, or
employee of the Company or its subsidiaries.
22. Leaves of Absence. The Board or duly authorized committee shall be
entitled to make such rules, regulations, and determinations as the Board or
duly authorized committee deems appropriate under the Plan in respect of any
leave of absence taken by the recipient of any Option or Stock Award. Without
limiting the generality of the foregoing, the Board or duly authorized
committee shall be entitled to determine (a) whether or not any such leave of
absence shall constitute a termination of employment within the meaning of the
Plan, and (b) the impact, if any, of any such leave of absence on any Option
or Stock Award under the Plan theretofore made to any recipient who takes such
leave of absence.
<PAGE> 11
23. Amendment of the Plan. The Board or a duly authorized committee may
modify and amend the Plan in any respect; provided, however, that to the
extent such amendment or modification would cause the Plan to no longer comply
with the applicable provisions of the Code with respect to Incentive Options,
such amendment or modification shall also be approved by the shareholders of
the Company. Subject to the foregoing and, if the Company is subject to the
provisions of 16(b) of the Exchange Act, the limitations of Rule 16b-3
promulgated under the Exchange Act or any amendment or successor rule of like
tenor, the Plan shall be deemed to be automatically amended as is necessary
(i) with respect to the issuance of Incentive Options, to maintain the Plan in
compliance with the provisions of section 422 of the Code, and regulations
promulgated thereunder from time to time, or any amendment or successor
statute thereto, and (ii) with respect to Options or Stock Awards granted to
officers and directors of the Company, to maintain the awards made under the
Plan in compliance with the provisions of Rule 16b-3 promulgated under the
Exchange Act or any amendment or successor rule of like tenor.
ATTEST:
By /s/Magaly Bianchini, Secretary
SECRETARY'S CERTIFICATE
The undersigned, the duly constituted and elected secretary of Industrial
Ecosystems, Inc., hereby certifies that a duly constituted meeting of the
shareholders held on April 19, 1999, pursuant to notice and at which a quorum
was present in accordance with the requirements of law and the Company's
articles of incorporation and bylaws. the foregoing Industrial Ecosystems,
Inc. 1999 Stock Option and Award Plan was approved by the affirmative vote of
the holders of a majority of the shares of Common Stock in attendance, in
person or by proxy, at such meeting.
DATED this 19 day of APRIL, 1999.
By /s/Magaly Bianchini, Secretary
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