<PAGE>
As filed with the Securities and Exchange Commission on July 11, 1996
REGISTRATION NO. 33-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
_______________
DYNECO CORPORATION
(Name of Small Business Issuer in its Charter)
<TABLE>
<CAPTION>
<S> <C> <C>
MINNESOTA 3563 41-1508703
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
</TABLE>
_______________
564 INTERNATIONAL PLACE
ROCKLEDGE, FLORIDA 32955
(407) 639-0333
(Address and Telephone Number
of Principal Executive Offices)
_______________
564 INTERNATIONAL PLACE
ROCKLEDGE, FLORIDA 32955
(Address of Principal Place of Business
or Intended Place of Business)
_______________
RICHARD D. BESSER
CHIEF EXECUTIVE OFFICER
DYNECO CORPORATION
564 INTERNATIONAL PLACE
ROCKLEDGE, FLORIDA 32955
(407) 639-0333
(Name, Address and Telephone Number
of Agent for Service)
_______________
COPIES TO:
SCOTT D. SMITH, ESQ.
LINZY O. SCOTT, III, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY
16TH FLOOR, 191 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303
Approximate Date of Proposed Sale to the Public: From time to time after
the effective date of this Registration Statement.
_______________
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. /X/
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED
TITLE OF EACH CLASS PROPOSED MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED(1) PER SECURITY(2) OFFERING PRICE(2) FEE
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.01 par value)(3) 3,000,000 $ 3.00 $ 9,000,000 $ 3,103.45
- -------------------------------------------------------------------------------------------------------------------
Common Stock ($.01 par value)(4) 5,244,318 $ 3.00 $ 15,732,954 $ 5,425.16
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Class D Warrants 940,305 $ -- $ -- $ --
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Class E Warrants 427,911 $ -- $ -- $ --
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Common Stock ($.01 par value)(5) 940,305 $ 3.00 $ 2,820,915 $ 972.73
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Common Stock ($.01 par value)(6) 427,911 $ 5.00 $ 2,139,555 $ 737.78
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Total $ 29,693,424 $ 10,239.12
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</TABLE>
(1) Pursuant to Rule 416 under the Securities Act, this Registration Statement
also covers such additional indeterminate shares of Common Stock that may
become issuable pursuant to anti-dilution adjustments, stock splits, stock
dividends and similar adjustments.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457 under the Securities Act as of
July 8, 1996.
(3) The Registrant intends to issue such shares of Common Stock for cash to
certain purchasers within ninety (90) days following the effective date of
this Registration Statement; provided, however, that the Registrant will
offer such shares of Common Stock on a delayed or continuous basis in one
or more acquisitions pursuant to Rule 415 under the Securities Act to the
extent such shares of Common Stock are not sold within the ninety (90) day
period.
(4) Includes: (a) 3,926,000 shares of Common Stock issued to investors in
connection the acquisition of DynEco International, Inc.; (b) 132,496
shares of Common Stock issued in 1994 and 1995 pursuant to certain stock
options and warrants issued by the Registrant; and (c) 1,185,822 shares of
Common Stock issued to investors in connection with the Registrant's
private placements of Common Stock from December 1994 to October 1995.
(5) Issuable upon the exercise of the Class D Warrants.
(6) Issuable upon the exercise of the Class E Warrants.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
PART I
INFORMATION REQUIRED IN PROSPECTUS
CROSS REFERENCE SHEET
SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM SB-2
<TABLE>
<CAPTION>
FORM SB-2 ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS
<S> <C>
1. Front of Registration Statement and
Outside Front Cover Page of Prospectus . . . . . . . . . . . . . . . . . Front of Registration Statement; Outside Front
Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Inside Front and Outside Back Cover Pages of
Prospectus
3. Summary Information and Risk Factors. . . . . . . . . . . . . . . . . . . . Prospectus Summary; Risk Factors
4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Use of Proceeds
5. Determination of Offering Price . . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus
6. Dilution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Risk Factors; Dilution
7. Selling Security Holders. . . . . . . . . . . . . . . . . . . . . . . . . . *
8. Plan of Distribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . Outside Front Cover Page of Prospectus; Plan of
Distribution
9. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Business
10. Directors, Executive Officers, Promoters
and Control Persons. . . . . . . . . . . . . . . . . . . . . . . . . . . Management
11. Security Ownership of Certain Beneficial
Owners and Management. . . . . . . . . . . . . . . . . . . . . . . . . . Principal Shareholders and Share Ownership of
Management
12. Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . Capitalization; Description of Capital Stock
13. Interests of Named Experts and Counsel. . . . . . . . . . . . . . . . . . . Legal Matters
14. Disclosure of Commission Position on
Indemnification for Securities
Act Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . *
15. Organization Within Last Five Years . . . . . . . . . . . . . . . . . . . . *
16. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . Business
17. Management's Discussion and Analysis
or Plan of Operation . . . . . . . . . . . . . . . . . . . . . . . . . . Management's Discussion and Analysis of
Financial Condition and Results of Operations
18. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . Business
19. Certain Relationships and Related Transactions. . . . . . . . . . . . . . . Certain Transactions
20. Market for Common Equity and Related
Shareholder Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . Price Range of and Dividends on Common Stock
21. Executive Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . Management
22. Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . Consolidated Financial Statements
23. Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . *
</TABLE>
_______________
* Not applicable.
<PAGE>
PROSPECTUS SUBJECT TO COMPLETION, DATED JULY 11, 1996
DYNECO CORPORATION
8,244,318 SHARES OF COMMON STOCK
940,305 CLASS D WARRANTS
427,911 CLASS E WARRANTS
This Prospectus relates to 3,000,000 shares of Common Stock, $.01 par value
per share (the "Common Stock"), of DynEco Corporation, a Minnesota corporation
(the "Company"), to be issued and sold from time to time by the Company, and
5,244,318 shares of Common Stock for reoffer or resale from time to time by the
selling shareholders (the "Selling Shareholders"). This Prospectus also relates
to 940,305 Class D Warrants and 427,911 Class E Warrants issued to investors in
connection with the Company's most recent private placement that closed in
October 1995. See "Plan of Distribution." The Selling Shareholders acquired
their respective shares of Common Stock in private placement transactions
effected by the Company, upon the exercise of stock options and warrants or
through direct sales effected with the Company. See "Management" and
"Description of Capital Stock-Stock Warrants."
This offering (the "Offering") is not being underwritten. The securities
covered hereby may be sold by the Company and the Selling Shareholders and/or
their respective registered representatives from time to time at prices to be
determined at the time of such sales. There is no minimum required purchase,
and there is no arrangement to have funds received by the Company and such
Selling Shareholders and/or their respective registered representatives placed
in escrow, trust or similar account or arrangement, unless the proceeds come
from a purchaser residing in a state in which the sale of the securities has not
yet been qualified. With respect to the shares of Common Stock to be issued and
sold by the Company, the Company intends to issue such shares for cash to
certain purchasers within ninety (90) days following the date of this
Prospectus. However, the Company has not entered into purchase agreements with
respect to such shares of Common Stock, and there can be no assurance that the
Company will be able to effect such sales. To the extent the Company does not
sell such shares within the ninety (90) day period, the Company shall offer the
remaining shares of Common Stock on a delayed or continuous basis in connection
with one or more acquisitions pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"). The Company, the Selling Shareholders
and intermediaries through whom such securities are sold may be deemed
"underwriters" within the meaning of the Securities Act with respect to the
securities offered, and any profits realized or commissions received may be
deemed underwriting compensation. See "Plan of Distribution."
The Company intends to apply for listing of the Company's Common Stock on
The Nasdaq SmallCap Market of The Nasdaq Stock Market ("NASDAQ") at such time
that it reasonably believes that the Company will meet The Nasdaq SmallCap
Market listing requirements, although there can be no assurance that the
Company's Common Stock will be accepted for listing on The Nasdaq SmallCap
Market, or that, if listed, that an active trading market will develop. The
Company's Common Stock is currently quoted on the NASDAQ OTC Bulletin Board
under the symbol "DYCO." On July ___, 1996, the closing bid price of the
Company's Common Stock as reported on the NASDAQ OTC Bulletin Board was
$___________ per share. See "Price Range of and Dividends on Common Stock."
All costs, expenses and fees in connection with the registration of the
securities covered hereby, estimated at $206,539, will be borne by the Company.
Brokerage commissions, if any, attributable to the sale of the securities by the
Selling Shareholders will be borne by such Selling Shareholders. Except for the
purchase price payable upon exercise of the Class D Warrants and Class E
Warrants, the Company will not receive any proceeds from the sale of the
securities by the Selling Shareholders. In the event the Class D Warrants and
Class E Warrants are fully exercised and the Company effects the sale of the
3,000,000 shares of Common Stock offered hereby at the last reported closing
bid price on July ___, 1996, the Company will receive net proceeds of $______.
See "Plan of Distribution" and "Use of Proceeds."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD
BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED HEREBY.
____________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is July ___, 1996
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of
any such State.
<PAGE>
AVAILABLE INFORMATION
The Company is not currently a reporting company under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Upon completion of this
Offering, the Company intends to register as such and to furnish its security
holders with annual reports containing audited financial statements and such
interim unaudited reports as it deems appropriate.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form SB-2 (the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement, certain items of which are contained in schedules and exhibits to the
Registration Statement as permitted by the rules and regulations of the
Commission. Statements made in the Prospectus concerning the contents of any
documents referred to herein are not necessarily complete. With respect to each
such document filed with the Commission as an exhibit to the Registration
Statement, reference is made to the exhibit for a more complete description, and
each such statement shall be deemed qualified in its entirety by such reference.
Copies of the Registration Statement, including the exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office at
450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional office of
the Commission located at 1401 Brickell Avenue, Suite 200, Miami, Florida 33131.
Copies of all or any part thereof may be obtained from the Commission upon the
payment of the fees prescribed by the Commission.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ
IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS,"
AND THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE
IN THIS PROSPECTUS. EXCEPT AS OTHERWISE INDICATED HEREIN, REFERENCES TO THE
"COMPANY" OR "DYNECO CORPORATION" INCLUDE ITS DIRECT AND INDIRECT SUBSIDIARIES,
INCLUDING ITS WHOLLY-OWNED SUBSIDIARIES DYNECO INTERNATIONAL, INC. ("DYNECO
INTERNATIONAL") AND TERTM TECHNOLOGY CORPORATION ("TERTM"). EACH PROSPECTIVE
INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
ORBITAL VANE-TM- IS A REGISTERED TRADEMARK OF THE COMPANY. ALL OTHER
TRADEMARKS AND SERVICE MARKS APPEARING IN THIS PROSPECTUS ARE THE PROPERTY OF
THEIR RESPECTIVE HOLDERS.
THE COMPANY
The Company designs, develops, joint-ventures and licenses advanced
proprietary compressor technologies for use in industrial, commercial and
selected consumer-related markets. These markets include but are not limited to
air compression systems, automotive air conditioning, vacuum pumps, commercial
and residential building climate control systems, consumer refrigeration
systems, transport refrigeration systems, military applications and other
advanced compressor technologies. The Company believes that it is an industry
leader in the innovation, design and development of state-of-the-art compressor
technology, and that its DynEco Orbital Vane Compressor can provide end-users
with a small, quiet, reliable and low-cost alternative to traditional compressor
designs. The DynEco Orbital Vane Compressor is based on a circular, non-contact
sealing rotary mechanism with an integral lubricant management system and can be
sized and configured to operate over a wide range of capacities and
applications.
Until recently, the Company's business strategy has been to develop and
license its proprietary technology to third-parties for product development
applications initiated by such parties and to enter into joint-venture
arrangements. Although the Company presently intends to continue joint-
venturing and licensing its proprietary technology to third-parties, the Company
also intends to develop and manufacture compressor products directed to selected
consumer-related markets and to original equipment manufacturers in a variety of
industries such as air compression, automotive climate control, vacuum pumps,
mass transit and electric vehicle climate control systems, commercial
environmental systems and residential and light commercial hermetic air
conditioning systems. The Company believes that through a series of strategic
alliances and acquisitions it can assemble the resources to manufacture and
market air compressors, airends, air conditioner compressors and vacuum pumps in
the near future. The Company also intends to produce specialty and niche
applications of its patented DynEco Orbital Vane Compressor systems through its
own manufacturing facilities and market such products through established
industrial distribution channels.
The Company has historically incurred losses primarily resulting from
expenditures related to the research, development, testing and marketing of its
proprietary technology. The Company expects that operating losses will continue
until such time as its proposed compressor products generate sufficient revenues
to fund its continuing operations.
The Company's principal executive offices are located at 564 International
Place, Rockledge, Florida 32955, and the Company's telephone number is (407)
639-0333.
3
<PAGE>
THE OFFERING
Common Stock Offered by the Company. . . . . . . . 3,000,000 shares
Common Stock Offered by
the Selling Shareholders. . . . . . . . . . . . 5,244,318 shares(1)
Class D Warrants and Class E Warrants. . . . . . . 940,305 Class D Warrants
and 427,911 Class E
Warrants. Each Class D
Warrant and Class E
Warrant entitles the
holder, for $2.50 and
$5.00, respectively, to
purchase one share of the
Company's Common Stock.
See "Description of
Capital Stock - Stock
Warrants."
Common Stock Outstanding
after the Offering. . . . . . . . . . . . . . . 9,075,132 shares(2)
NASDAQ Bulletin Board Symbol . . . . . . . . . . . DYCO
Proposed NASDAQ SmallCap Market Symbol . . . . . . DYCO
Use of Proceeds. . . . . . . . . . . . . . . . . . See "Use of Proceeds."
(1) Based on the number of shares issued and outstanding as of the date of this
Prospectus. Does not include 1,368,216 shares of Common Stock reserved for
issuance upon the exercise of the Company's Class D Warrants and Class E
Warrants. See "Description of Capital Stock - Stock Warrants."
(2) Assumes the sale of all shares of Common Stock offered by the Company
hereby.
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
------------------------------ --------------------------------
1996 1995 1995 1994
---------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues $ - $ 5,000 $ 5,000 $ 70,000
Operating expenses:
General and administrative 188,351 320,056 836,550 735,002
Research and development 59,610 59,489 248,523 43,835
---------- ---------- ------------ ------------
Total operating expenses 247,961 379,545 1,085,073 778,837
---------- ---------- ------------ ------------
Operating loss (247,961) (374,545) (1,080,073) (708,837)
Other income (expense):
Interest income 13,074 - 8,776 -
Gain (loss) on sale of property
and equipment - 585 789 (1,640)
Loss in joint-venture (15,000) - (23,900) -
Interest expense (100) - (1,597) (313)
Loss in litigation settlement - - - (75,456)
---------- ---------- ------------ ------------
Total other income (expense) (2,026) 585 (15,932) (77,409)
---------- ---------- ------------ ------------
Net loss $ (249,987) $ (373,960) $ (1,096,005) $ (786,246)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Net loss per share $ (.04) $ (.08) $ (.22) $ (.24)
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
Weighted average number of common
shares outstanding 6,075,132 4,666,623 5,075,014 3,312,721
---------- ---------- ------------ ------------
---------- ---------- ------------ ------------
</TABLE>
CONSOLIDATED BALANCE SHEET DATA:
MARCH 31, 1996
--------------
Current assets $ 897,873
Total assets $ 1,710,066
Current and total liabilities $ 312,168
Accumulated deficit $(4,015,399)
Total shareholders' equity $ 1,397,898
Working capital $ 585,705
________________________
5
<PAGE>
RISK FACTORS
The securities offered hereby are highly speculative and involve a high
degree of risk and should only be purchased by investors who can afford to lose
their entire investment. Prospective investors, prior to making an investment,
should carefully consider, along with the other information contained in this
Prospectus, the following considerations and risks in evaluating an investment
in the Company. The order in which risk factors appear is not intended as an
indication of the relative weight or importance thereof.
LIMITED OPERATING HISTORY
Although the Company has been in existence since 1984, the Company has only
recently begun to focus on the production and sales of its proposed compressor
technology. Until recently, the Company was primarily engaged in the licensing
of its proprietary compressor technology and certain proprietary technology
related to one of its subsidiaries. The Company is currently negotiating a
joint-venture arrangement for the manufacture and sale of its compressor
products, but to date it has not begun to manufacture or sell any compressor
products or compressor systems. Accordingly, the Company has no relevant
operating history upon which potential investors may base an evaluation of the
Company's performance. There can be no assurance that the Company's operations
will be profitable, or that sales of the Company's compressor products will
develop. The likelihood of success of the Company must be considered in light
of the problems, experiences, difficulties, complications and delays frequently
encountered in connection with the operation and development of new and
expanding businesses. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
HISTORICAL LOSSES AND ACCUMULATED DEFICIT
The Company has historically incurred losses primarily resulting from
expenditures related to the research, development, testing and marketing of its
proprietary technology. For the year ended December 31, 1995, and three months
ended March 31, 1996, the Company incurred net losses of $1,096,005 and
$249,987, respectively. At December 31, 1995 and March 31, 1996, the Company
had an accumulated deficit of $3,765,412 and $4,015,399, respectively. The
Company expects that operating losses will continue until such time as sales of
its proposed compressor products generate sufficient revenues to fund its
continuing operations. There can be no assurance, however, that the Company
will ever be able to successfully make the transition from research and
development to manufacturing, marketing and selling of its proposed compressor
products at competitive prices, or that the Company will ever generate
significant income or become profitable. The Company's prospects therefore must
be considered in light of the risks, expenses, and difficulties frequently
encountered in establishing a new business in a highly competitive and mature
industry. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
NEED FOR ADDITIONAL CAPITAL
The Company generated only nominal revenues of $5,000 for the year ended
December 31, 1995 from operations. The Company did not generate any revenues
during the three months ended March 31, 1996 and is unlikely to achieve any
significant revenues, if any, during the remainder of the current fiscal year.
To date, the Company has relied principally upon cash provided by external
financing activities to fund its capital requirements. The Company obtained
approximately $1,904,145 of cash or cash equivalents provided by financing
activities for the year ended December 31, 1995, but did not obtain any cash or
cash equivalents from financing activities for the three months ended March 31,
1996. The Company believes that its existing capital resources obtained from
such external financing activities will be sufficient to satisfy its capital
requirements for approximately the next 4 to 7 months. There is no assurance,
however, that the Company will be able to generate sufficient cash from
operations, if any, in future periods beyond this 4 to 7 month period to satisfy
the Company's capital requirements. Therefore, the Company may have to continue
to rely on external
6
<PAGE>
financing activities to satisfy the Company's capital requirements for the
foreseeable future. However, other than as described in this Prospectus, the
Company has no commitments for borrowings or additional sales of equity, and
there can be no assurance that the Company will be successful in consummating
any such future financing transactions on terms satisfactory to the Company, if
at all. Factors which could affect the Company's access to the capital markets,
or the costs of such capital, include changes in interest rates, general
economic conditions and the perception in the capital markets of the Company's
business, results of operations, leverage, financial condition and business
prospects. If the Company is unable to secure sufficient capital in the
immediate future, its results of operations for future periods and its ability
to pursue its business strategy may be impaired. See "Use of Proceeds" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
UNCERTAINTY OF MARKET ACCEPTANCE
The worldwide compressor market is well established and substantial in
terms of varying designs and types, units purchased and dollar volume. Due to
the variety of consumer, commercial and industrial applications for compressor
products, the Company believes the compressor market offers significant
opportunity for the entrance of new compressor products based upon the Company's
proprietary compressor technology. The Company's future financial performance
and market acceptance are dependent, in part, upon the Company's ability to
educate end-users of the potential cost and performance advantages of the
Company's compressor technology over traditional compressor products. In
certain instances, for example, the Company has and may continue to be required
to supply compressor products on a test-market basis for which it will not
receive immediate, if any, revenues. However, current economic pressure and
proven reliability of traditional compressor products may make end-users
reluctant to purchase substantial capital equipment or invest in new technology.
There can be no assurance that the Company's proposed compressor products will
be accepted by end-users or that a significant market for such products will be
developed and sustained. See "Business."
TECHNOLOGICAL CHANGE AND RISKS OF PRODUCT DEVELOPMENT
The consumer, commercial and industrial compressor markets are mature,
highly competitive and characterized by few technological changes. While the
Company believes that its proposed compressor products are based on improved
technology that has undergone extensive laboratory and limited field testing,
the Company anticipates that it will need to conduct further field testing and
compressor product development to determine whether the manufacture and
distribution of commercially feasible and quality compressor products can be
accomplished in the various markets where the Company believes market
opportunities presently exist. Furthermore, the Company's future success will
depend upon its ability to research and develop enhancements to its products or
new products which are responsive to the demands of the marketplace. There can
be no assurance that these product development efforts will be successful, that
other new products will be developed on a timely basis or that such products
will achieve market acceptance. Any failure by the Company to continue to
anticipate or respond adequately to technological developments and customer
requirements, or any significant delays in product development or introduction,
could result in a loss of competitiveness and have a material adverse effect on
the Company's results of operations. See "Business."
COMPETITION
The Company is engaged in fields within the compressor industry that are
characterized by a high level of competition. Most of the Company's competitors
have significantly greater financial, technical, manufacturing, sales, marketing
and other resources, greater name recognition and longer operating histories.
While the Company believes that its technology and products are superior to the
technology and products of its competitors, there can be no assurance that the
Company's technology and products will achieve market acceptability sufficient
to result in profitable operations, or that its competitors or other companies
not presently
7
<PAGE>
manufacturing compressors will not in the future develop and market better
technology and products for sale at lower prices that may render the Company's
technology and products obsolete or less competitive.
LIMITATIONS ON THE PROTECTION OF INTELLECTUAL PROPERTY
The Company relies on a combination of patents, copyrights, trademarks,
trade secret protection and licensing, confidentiality and nondisclosure
agreements to establish and protect its intellectual property rights. As a
practical matter, however, these approaches may provide only limited protection
and, notwithstanding these precautions, it may be possible for unauthorized
third parties to obtain and use information that the Company regards as
proprietary or copy certain portions of the Company's products or manufacturing
processes. In addition, the laws of some foreign countries may not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. Even if a competitor were to infringe upon the Company's intellectual
property rights, enforcing the Company's proprietary rights in an infringement
action would be costly. Furthermore, there can be no assurance that others will
not independently develop similar technology or products, duplicate the
Company's technology or products or design products that circumvent any patents
used by the Company. There can also be no assurance that the Company will not
be the subject to an infringement action brought by third parties or a demand
that the Company obtain a license from such third parties. Such claims may
result in protracted and costly litigation or royalty arrangements or otherwise
have a material adverse effect on the Company's results of operations. While it
may be necessary or desirable in the future for the Company to obtain licenses
relating to one or more of its products or relating to current or future
technologies, there can be no assurance that the Company will be able to do so
on commercially reasonable terms or at all. See "Business - Patents and
Proprietary Rights."
PRODUCT LIABILITY CLAIMS
The future manufacture and sale of the Company's proposed products will
involve the inherent risk of product liability claims against the Company. The
Company does not currently maintain any product liability coverage but intends
to do so at such time as the Company begins to manufacture and sell its
products. However, due to the uncertainty as to the nature and extent of
manufacturers' and distributors' liability for personal injuries, there can be
no assurance that the product liability insurance obtained by the Company will
be adequate to cover such claims. The successful assertion or settlement of an
uninsured claim, or a claim exceeding the Company's insurance coverage would
have a material adverse effect on the Company's results of operations and
financial condition. In addition, there can be no assurance that insurance will
be available, or if available, that it will not be prohibitively expensive. To
date, the Company has not been the subject of any suits or legal proceedings
relating to its technology or products.
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent upon the personal efforts and abilities of
its senior management, directors and certain of its key technical employees.
The loss of the services of any member of the management or technical staff,
particularly those of Mr. Richard D. Besser or Thomas C. Edwards, Ph.D., could
have a material adverse effect on the Company's ability to achieve its
objectives. The Company has entered into employment, confidentiality and non-
competition agreements with Mr. Besser and Dr. Edwards and intends to obtain
confidentiality and non-competition agreements with its key employees and others
who may become knowledgeable with respect to the Company's intellectual
property. The Company has obtained key-man life insurance on Mr. Besser and
Dr. Edwards in the amounts of $2,000,000 and $1,500,000, respectively. The
Company's success and plans for future growth will also depend in part on its
ability to attract and retain qualified professional, technical, managerial and
marketing personnel. There can be no assurance that the Company will be
successful in attracting and retaining, on terms satisfactory to the Company,
the personnel it requires to develop, manufacture, market and sell its products
and to conduct its operations successfully. See "Management."
8
<PAGE>
BROAD DISCRETION IN USE OF PROCEEDS
Management of the Company may adjust the application and allocation of the
net proceeds from the sale of the shares of Common Stock offered by the Company
hereby and upon the exercise, if any, of its Class D Warrants and Class E
Warrants if such adjustment is determined to be in the best interests of the
Company in order to address changed circumstances and opportunities. As a
result, shareholders will not have an opportunity to review or vote upon such
application and allocation of the net proceeds, and the success of the Company
will be substantially dependent upon the judgment of the Company's management.
See "Use of Proceeds."
CONTINUED CONTROL BY PRESENT MANAGEMENT
Upon completion of this Offering, assuming the Company effects the sale of
3,000,000 shares of Common Stock offered by the Company hereby, the Company's
officers and directors and their affiliates will beneficially own approximately
2,239,500 shares of Common Stock, or approximately 24.68% of the issued and
outstanding shares of the Company's Common Stock as described in "Principal
Shareholders and Share Ownership of Management" without giving effect to the
exercise of any stock options or warrants held by them and assuming no shares of
Common Stock are sold by such officers and directors and their affiliates.
Although upon completion of this Offering the Company's officers and directors
and their affiliates will not control a majority of the Company's Common Stock,
if they act in concert with other Company shareholders, they will collectively
under some circumstances control the affairs and decisions of the Company for an
indefinite period of time through the election of their nominees to the Board of
Directors, who in turn appoint the Company's officers. Consequently, the
purchasers of the Common Stock offered hereby may not have an effective voice in
the management of the Company. See "Principal Shareholders and Share Ownership
of Management." Further, Mr. Besser and Dr. Edwards have been elected as
Directors of the Company to hold office until 1999, and Frederick M. Zimmerman,
Ph.D., has been elected to hold office as a Director of the Company until 1998.
See "Management - Directors and Executive Officers" and "Description of Capital
Stock - Change of Control Provisions."
ANTI-TAKEOVER PROVISIONS
The Company is subject to Minnesota statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of Common Stock of the Company, which may hinder or delay a change in control of
the Company that a shareholder might consider to be in the best interests of the
Company and its shareholders. Additionally, certain provisions of the Company's
Amended and Restated Articles of Incorporation and By-laws contain provisions
which may hinder, delay or prevent a change in control of the Company. See
"Description of Capital Stock - Change of Control Provisions."
ARBITRARY DETERMINATION OF OFFERING PRICE
The public offering price for the shares of Common Stock offered by the
Company hereby will be determined by negotiations between the Company and
prospective purchasers and may not necessarily bear any relationship to the
assets, earnings, net worth or current market value of the Company's Common
Stock or any other recognized criteria of value.
DILUTION
The Company has granted significant stock options and warrants and expects
to issue additional equity interests, including stock options and warrants, to
directors, officers, employees, consultants and third-party financing sources in
amounts that are uncertain at this time. Moreover, the Company may sell up to
3,000,000 shares of Common Stock offered by the Company hereby at, above or less
than market price. As a result,
9
<PAGE>
purchasers of the Common Stock will experience dilution in an uncertain amount.
Accordingly, in the aggregate, purchasers of the Common Stock offered hereby
will bear a greater risk of loss than the current shareholders. See "Dilution,"
"Management - Stock Option Plans" and "Description of Capital Stock - Stock
Warrants."
DIVIDEND POLICY
The Company has not paid any dividends on its capital stock since its
incorporation and does not intend to pay any cash dividends in the foreseeable
future. The Company currently intends to follow a policy of retaining earnings,
if any, to finance the development and expansion of its business. See "Price
Range of and Dividends on Common Stock."
NO ASSURANCE OF A PUBLIC MARKET AND POSSIBILITY OF A VOLATILE MARKET
While there is presently only a limited, sporadic and highly volatile
public market for shares of the Company's Common Stock, prior to this Offering,
there has been no public market for the Company's Class D Warrants and Class E
Warrants. There is no assurance that any public market will exist after this
Offering for the securities offered hereby, or, if one exists, that it will not
be volatile. The market price for the securities offered hereby may be subject
to significant fluctuations in response to variations in the Company's quarterly
operating results, general trends in the Company's industry and other factors,
as well as general economic conditions. In addition, the stock market, at
times, has experienced substantial price and volume fluctuations that have often
been unrelated or disproportionate to the operating performance of companies.
Securities of issuers having relatively limited capitalization or securities
recently offered in a public offering or being publicly traded are particularly
susceptible to change based on short-term trading strategies of certain
investors. Accordingly, there can be no assurance that purchasers will be able
to resell their securities at prices for which they were purchased or at any
price.
SHARES ELIGIBLE FOR FUTURE SALE
Following the Offering and assuming the Company effects the sale of the
3,000,000 shares of Common Stock offered by the Company hereby, the Company will
have 9,075,132 shares of Common Stock outstanding, not including 1,368,216 and
718,779 shares of Common Stock reserved for issuance upon the exercise of the
Company's outstanding warrants and stock options, respectively. Of the shares
outstanding, a total of 7,965,132, including the shares offered hereby, will be
eligible for sale in the open market without restriction. The remaining
1,110,000 shares of Common Stock are "restricted securities" as that
term is defined in Rule 144 promulgated under the Securities Act. Of these
restricted securities, approximately 1,110,000 shares are currently eligible
for sale in the public market pursuant to Rule 144. The Company, its directors
and executive officers and certain other shareholders have agreed not to sell
any of their shares of Common Stock for a period of 180 days from the date of
this Prospectus. The lock-up provisions are intended to assist in the
development of an orderly trading market in the Common Stock, the development of
an adequate investment research following of the Company and the promotion of
institutional demand for the Common Stock. Following the Offering, sales and
potential sales of substantial amounts of the Company's Common Stock in the
public market pursuant to Rule 144 or otherwise could adversely affect the
prevailing market prices for the Common Stock and impair the Company's ability
to raise additional capital through the sale of equity securities. See
"Principal Shareholders and Share Ownership of Management," "Description of
Capital Stock" and "Shares Eligible for Future Sale."
EXERCISE OF WARRANTS AND OPTIONS
The existence of the Class D Warrants and Class E Warrants and the
outstanding stock options to acquire 718,779 shares of the Common Stock of the
Company could adversely affect the Company's ability to obtain
10
<PAGE>
future financing, and their exercise could further dilute the interests of
investors acquiring securities in this Offering. The price which the Company
may receive for the Common Stock issued upon exercise of such warrants and stock
options will probably be less than the market price of the Common Stock at the
time such warrants and stock options are exercised. Moreover, the holders of
the warrants and stock options might be expected to exercise them at a time when
the Company would, in all likelihood, be able to obtain needed capital by a new
offering of its securities on terms more favorable than those provided for by
the warrants and stock options. The Company may also issue additional shares,
warrants and stock options, which issuances may have the same effect. See
"Management" and "Description of Capital Stock."
REDEMPTION OF WARRANTS
The Class D Warrants and Class E Warrants may be redeemed by the Company at
any time prior to the expiration of such Warrants at a redemption price of $.01
per Warrant upon thirty (30) days prior written notice if the bid price of the
Company's Common Stock shall have closed at or above $3.00 and $5.50 per share
for the Class D Warrants and Class E Warrants, respectively, for ten (10)
consecutive trading days on The Nasdaq SmallCap Market or on any other national
securities exchange. Redemption of the Warrants could force the holders to
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for the holders to do so, to sell the Warrants at the then
current market price when they might otherwise wish to hold the Warrants, or to
accept the redemption price, which is likely to be substantially less than the
market value of the Warrants at the time of redemption. See "Description of
Capital Stock - Stock Warrants."
NON-REGISTRATION IN CERTAIN JURISDICTIONS OF COMMON STOCK, WARRANTS AND SHARES
UNDERLYING THE WARRANTS
The Company's shares of Common Stock, Class D Warrants and Class E Warrants
that are being registered hereby are not saleable or exercisable unless, at the
time of such sale or exercise, the Company has a current prospectus covering the
Common Stock, the Warrants and the shares issuable upon exercise of such
Warrants, and such securities have been registered, qualified or deemed to be
exempt under the securities laws of the state of residence of the holders of
such securities. Due to the Company's lack of financial resources, the Company
anticipates that the securities offered hereby will be initially registered and
qualified in the States of Florida and Minnesota only. Although the Company
will use its best efforts to have all such securities so registered or qualified
in such other states as required, there is no assurance that it will be able to
do so.
Although the shares of Common Stock and Warrants have not been knowingly
sold by the Company to purchasers in jurisdictions in which such securities were
not registered or otherwise qualified for sale, purchasers may buy shares of
Common Stock and Warrants in the aftermarket or may move to jurisdictions in
which such securities are not so registered or qualified. In these events, the
Company would be unable to transfer ownership on its books or to issue shares to
those persons desiring to exercise their Warrants unless and until their shares
of Common Stock and Warrants could be qualified for sale in the jurisdiction in
which such purchasers reside, or an exemption from such qualification exists in
such jurisdiction, and holders of such shares of Common Stock or Warrants would
have no choice but to attempt to sell the shares of Common Stock and Warrants in
a jurisdiction where such sale is permissible. No assurances can be given that
the Company will be able to effect any required qualification.
LISTING AND MAINTENANCE CRITERIA FOR NASDAQ SYSTEM
Under the rules of the National Association of Securities Dealers, Inc.
("NASD"), in order to qualify for initial quotation of securities on The Nasdaq
SmallCap Market, a company, among other things, must have at least $4,000,000 in
total assets, $2,000,000 in total capital and surplus, $1,000,000 in market
value of public float, a minimum bid price of $3.00 per share and at least two
active market makers for its Common Stock. For continued listing, a company,
among other things, must have at least $2,000,000 in total assets, $1,000,000
11
<PAGE>
in total capital and surplus, $1,000,000 in market value of public float, a
minimum bid price of $1.00 per share and the continuation of at least two active
market makers. If the Company is unable to satisfy NASDAQ's maintenance
requirements, trading, if any, in the listed securities would thereafter be
conducted in the over-the-counter market in what are commonly referred to as the
"pink sheets" or the NASDAQ OTC Bulletin Board. As a result, the liquidity of
the Company's securities could be impaired, not only in the number of
securities which could be bought and sold, but also through delays in the
timing of the transactions, reduction in security analysts' and the news
media's coverage of the Company and lower prices for the Company's securities
than might otherwise be attained.
BROKER-DEALER SALES OF COMPANY SECURITIES
During periods when the Company's securities do not qualify for inclusion
on the NASDAQ SmallCap Market or are removed therefrom, the Company's securities
may become subject to a rule of the Commission that imposes additional sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and accredited investors (generally
institutions with assets in excess of $5,000,000 or individuals with net worths
in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000
together with their spouses). For transactions covered by this rule, the
broker-dealer must make a special suitability determination for the purchaser of
such securities and have received the purchaser's written consent to the
transaction prior to the sale. Consequently, the Commission's rule may
adversely affect the ability of broker-dealers to sell the Company's securities
and may also affect the ability of purchasers in this Offering to sell such
securities in the secondary market.
The Company intends to promptly apply for inclusion of its Common Stock on
The Nasdaq SmallCap Market at such time that it reasonably believes that the
Company will meet The Nasdaq SmallCap Market listing requirements. However,
there is no assurance that the Company's Common Stock will be accepted for
listing on The Nasdaq SmallCap Market.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements. The Company's
forward-looking statements include the plans and objectives of management for
future operations, including plans and objectives relating to the design,
development, joint-venturing and licensing of its compressor technologies. The
forward-looking statements and associated risks set forth in this Prospectus
include or relate to the Company's ability to: (i) consummate the acquisition of
Fab-Tech Industries of Brevard, Inc.; (ii) develop and distribute its industrial
air compressor system through Kurt/Dyneco Compressor Company, LLC;
(iii) finalize the joint-venture arrangement with SCS/Frigette Corp.;
(iv) finalize its licensing arrangement with Coltec Industries, Inc.; (v) design
and develop its compressor technology for the mass transit and electric powered
vehicle climate control systems market; (vi) design and develop its compressor
technology for the commercial environmental systems market; (vii) design and
develop its compressor technology for the residential and light commercial
hermetic air conditioning compressor market; (viii) market its products;
(ix) develop market recognition and market acceptance of the Company's Orbital
Vane Compressor; (x) successfully implement its marketing initiatives; and
(xi) achieve adequate intellectual property protection for the Company's
products.
The forward-looking statements herein are based on current expectations
that involve a number of risks and uncertainties. Such forward-looking
statements are based on assumptions that: (i) the Company will continue to
design, market and provide new compressor products and technologies on a timely
basis; (ii) competitive conditions in the market will not change adversely or
materially; (iii) interest in the Company's Orbital Vane Compressor technology
will continue or increase; (iv) the market will accept the Orbital Vane
Compressor technology; (v) the Company will retain and add qualified sales,
research and development personnel; (vi) the Company's forecasts will accurately
anticipate market demand; and (vii) there will be no material adverse change in
the Company's operations or business. The foregoing assumptions are based on
12
<PAGE>
judgments with respect to, among other things, future economic, competitive and
market conditions, and future business decisions, all of which are difficult or
impossible to predict accurately and many of which are beyond the Company's
control. Accordingly, although the Company believes that the assumptions
underlying the forward-looking statements are reasonable, any such assumption
could prove to be inaccurate and therefore there can be no assurance that the
results contemplated in forward-looking statements will be realized. In
addition, there are a number of other risks presented by the Company's business
and operations which could cause the Company's financial condition and results
of operations to vary markedly from the results contemplated by the forward-
looking statements. In light of significant uncertainties inherent in the
forward-looking information included in this Prospectus, the inclusion of such
information should not be regarded as a representation by the Company, or any
other person that the Company's objectives or plans will be achieved.
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$ _______ million, after deducting estimated offering expenses payable by the
Company and assuming a public offering price of $ _____ per share. In addition,
in the event the Class D Warrants and Class E Warrants are fully exercised, the
Company would receive an additional $4,490,317.50 in net proceeds. While the
Company currently anticipates that the sale of the shares of Common Stock
offered by the Company hereby shall be made at or around the market price for
the Common Stock as of the date of this Prospectus, there can be no assurance
that the Company will effect such sales at such price, or that the Company will
effect such sales at all. The Company will not receive any proceeds from the
sale of the shares of Common Stock offered by the Selling Shareholders.
The Company intends to use the net proceeds, if any, for the acquisition of
the assets and business of Fab-Tech Industries of Brevard, Inc. ("Fab-Tech") of
Rockledge, Florida for an anticipated purchase price of $2,400,000 in cash and
the assumption of all liabilities, which may be retired by the Company. Fab-
Tech is an established business engaged in the production of precision parts,
components and sub-assemblies and sheetmetal fabrication of mechanical
components. See "Business-Manufacturing Facilities Acquisition." Although the
Company intends to consummate the purchase of Fab-Tech as soon as practicable
after the sale of the shares of Common Stock offered by the Company hereby,
there can be no assurance that the Company will be able to consummate such
purchase. In the event the acquisition of Fab-Tech is not consummated for any
reason, the Company intends to proceed to identify other companies comparable to
Fab-Tech in size, operations and purchase price and initiate discussions with a
view of making such acquisition. However, the Company has not initiated any
discussions with a view to make any acquisition. Therefore, there can be no
assurance that the Company will acquire any business operations, and if the
Company were to make any such acquisition, there is no assurance that such
business operations will be profitable or of any financial benefit to the
Company. The Company intends to use the balance of any net proceeds to provide
increased working capital to support anticipated marketing and sales growth, for
research and product development, purchase of capital equipment, leasehold
improvements and complementary technologies and for other general corporate
purposes. In addition, any proceeds received upon the exercise of the Class D
Warrants, Class E Warrants and outstanding stock options to purchase the
Company's Common Stock will be used for general working capital purposes.
Pending the foregoing uses, the net proceeds will be invested in short-term,
interest-bearing investment grade securities, certificates of deposit, money
market accounts or obligations issued or guaranteed by the United States
government.
The foregoing represents the Company's best estimate of the allocation of
the net proceeds of this Offering based upon the current status of its business
operations, its current plans and current economic conditions. Future events,
including problems, delays, expenses and complications frequently encountered by
early stage companies as well as changes in competitive conditions affecting the
Company's business and the success or lack thereof of the Company's marketing
efforts, may make shifts in the allocation of funds necessary or desirable. A
change in the use of such proceeds or the timing of such use will be at the
Company's sole discretion.
14
<PAGE>
PRICE RANGE OF AND DIVIDENDS ON COMMON STOCK
Since April 1994, the Company's Common Stock has traded on the NASDAQ OTC
Bulletin Board administered by the NASD under the symbol "DYCO." The following
table sets forth, for the periods indicated, the range of high and low bid
prices for the Common Stock as reported by the NASD. These quotations reflect
inter-dealer prices, without adjustments for retail mark-ups, mark-downs or
commissions, and may not represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
FISCAL 1994
<S> <C> <C>
Second Quarter (from April 4). . . . . . . $ 3 1/4 $ 2
Third Quarter. . . . . . . . . . . . . . . 3 1/2 2 3/4
Fourth Quarter . . . . . . . . . . . . . . 2 3/4 1 1/2
FISCAL 1995
First Quarter. . . . . . . . . . . . . . . 3 3/8 1 3/4
Second Quarter . . . . . . . . . . . . . . 4 1/4 1 1/2
Third Quarter. . . . . . . . . . . . . . . 3 3/8 2 5/16
Fourth Quarter . . . . . . . . . . . . . . 3 1/2 2 1/8
FISCAL 1996
First Quarter. . . . . . . . . . . . . . . 3 3/4 2 1/2
Second Quarter . . . . . . . . . . . . . . 5 2
</TABLE>
The high and low bid price per share for the Common Stock on July 8, 1996
was $2 1/4. As of July 8, 1996, the Company had approximately 694 shareholders
of record.
Since its inception, the Company has paid no dividends on shares of the
Common Stock. The Company does not anticipate paying any dividends in the
foreseeable future. The Board of Directors of the Company has determined to
retain all earnings to support anticipated growth in the operations of the
Company. Future declarations and payments of dividends, if any, will be
determined in light of then-current conditions, including the Company's
earnings, operations, capital requirements, liquidity, financial conditions and
other factors deemed relevant by the Board of Directors. See "Risk Factors -
Dividend Policy."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996, as adjusted to give effect to the sale of the 3,000,000 shares
of Common Stock by the Company for an aggregate purchase price of $9,750,000, in
connection with the Offering and the anticipated application of the net proceeds
therefrom of $9,543,461, after deducting estimated offering expenses of $206,539
payable by the Company.(1)(2)
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------
ACTUAL AS ADJUSTED
------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 14,592 $ 14,592
Accrued expenses 297,576 147,576
------------ ------------
Total current liabilities 312,168 162,168
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; 6,075,132 shares
issued and outstanding (and adjusted to
reflect issuance of the 3,000,000 shares in
connection with this Offering) 60,751 90,751
Paid-in capital 5,352,546 14,866,007
Accumulated deficit (4,015,399) (4,015,399)
------------ ------------
Total shareholders' equity 1,397,898 10,941,359
------------ ------------
Total liabilities and shareholders' equity $ 1,710,066 $ 11,103,527
------------ ------------
------------ ------------
</TABLE>
(1) Assumes a $3.25 purchase price for the 3,000,000 shares of Common Stock
offered by the Company hereby. On March 31, 1996, the closing bid price
for the Company's Common Stock as reported on the NASDAQ OTC Bulletin Board
was $3.25 per share.
(2) At March 31, 1996, the Company had outstanding stock options for the
purchase of 718,779 shares of Common Stock at exercise prices ranging from
$.01 to $2.00. Additionally, the Company had outstanding Class D Warrants
for the purchase of 940,305 shares of Common Stock for $2.50 per share and
Class E Warrants for the purchase of 427,911 shares of Common Stock for
$5.00 per share. The capitalization table does not include the effects of
any exercise of these outstanding stock options or warrants as of March 31,
1996.
16
<PAGE>
DILUTION
At March 31, 1996, the Company's net book value was $1,397,898 or $.23 per
share of Common Stock. "Net book value" represents the assets of the Company,
less all liabilities. Without taking into account any further changes in such
net book value after March 31, 1996, other than to give effect to the sale of
3,000,000 shares of Common Stock by the Company hereby for an aggregate purchase
price of $9,750,000 (assuming a purchase price of $3.25 per share), and the
respective application of the net proceeds therefrom of $9,543,461, after
deducting estimated offering expenses of $206,539 payable by the Company, the
pro-forma net book value as of such date would have been $10,941,359 or
approximately $1.21 per share. This represents an immediate increase to
existing shareholders in net book value of $.98 per share, and an immediate
dilution to new investors of $2.04 per share. "Dilution" represents the
difference between the offering price per share and the pro-forma net book value
per share of Common Stock at March 31, 1996.
The following table illustrates the dilution per share of Common Stock to
new investors in net book value per share of Common Stock on the sale of the
Common Stock offered by the Company hereby:
Offering price per share $3.25
Net book value per share before Offering $ .23
Pro-forma net book value per share after this Offering $1.21
Increase per share attributable to sale of shares $ .98
Dilution per share to new investors $2.04
The following tables summarize the differences between the current
shareholders and new investors with respect to the number of shares of Common
Stock purchased from the Company, the total consideration paid by each group,
and the average price per share of Common Stock paid by each group.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------------ -------------------------- PRICE PER
NUMBER % AMOUNT % SHARE
--------- ---- ----------- ---- -----------
<S> <C> <C> <C> <C> <C>
Current shareholders 6,075,132 67% $ 5,413,297 36% $ .89
New investors 3,000,000 33% $ 9,750,000 64% $ 3.25
--------- ---- ----------- ----
Total 9,075,132 100% $15,163,297 100%
--------- ---- ----------- ----
--------- ---- ----------- ----
</TABLE>
The above table does not take into account the estimated expenses of this
Offering nor the exercise of issued and outstanding stock options and warrants.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION AND OTHER DATA
The selected consolidated statement of operations data presented below for
the fiscal years ended December 31, 1995 and 1994 have been derived from the
Company's consolidated financial statements, which statements have been audited
by Silverman Olson Thorvilson & Kaufmann LTD, certified public accountants, as
indicated in their report included elsewhere in this Prospectus. The selected
consolidated statement of operations data for the three months ended March 31,
1996 and 1995 and the consolidated balance sheet data at March 31, 1996 are
derived from unaudited consolidated financial statements included herein. In
the opinion of the Company, the unaudited information has been prepared on a
basis consistent with the audited information and includes all adjustments,
consisting solely of normal recurring adjustments, necessary to present fairly
information set forth herein. Results for the three months ended March 31, 1996
are not necessarily indicative of the results that may be expected for the full
fiscal year. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and notes thereto included
elsewhere in this Prospectus.
CONSOLIDATED STATEMENT OF OPERATIONS DATA
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEARS ENDED
MARCH 31, DECEMBER 31,
-------------------------- ---------------------------
1996 1995 1995 1994
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $ - $ 5,000 $ 5,000 $ 70,000
Operating expenses:
General and administrative 188,351 320,056 836,550 735,002
Research and development 59,610 59,489 248,523 43,835
----------- ----------- ------------ -----------
Total operating expenses 247,961 379,545 1,085,073 778,837
----------- ----------- ------------ -----------
Operating loss (247,961) (374,545) (1,080,073) (708,837)
Other income (expense):
Interest income 13,074 - 8,776 -
Gain (loss) on sale of property
and equipment - 585 789 (1,640)
Loss in joint-venture (15,000) - (23,900) -
Interest expense (100) - (1,597) (313)
Loss in litigation settlement - - - (75,456)
----------- ----------- ------------ -----------
Total other income (expense) (2,026) 585 (15,932) (77,409)
----------- ----------- ------------ -----------
Net loss $ (249,987) $ (373,960) $ (1,096,005) $ (786,246)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Net loss per share $ (.04) $ (.08) $ (.22) $ (.24)
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
Weighted average number of common
shares outstanding 6,075,132 4,666,623 5,075,014 3,312,721
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------
</TABLE>
18
<PAGE>
CONSOLIDATED BALANCE SHEET DATA:
MARCH 31,
1996
-----------
Current assets $ 897,873
Total assets $ 1,710,066
Current and total liabilities $ 312,168
Accumulated deficit $(4,015,399)
Total shareholders' equity $ 1,397,898
Working capital $ 585,705
________________________
Assuming the acquisition of Fab-Tech's assets and business operations
occurs on or before July 11, 1996, the following pro-forma statements of
operations and balance sheet for the three months ended March 31, 1996 give
effect to the acquisition as though it were effective at the beginning of such
period. The statements give effect to the acquisition under the purchase method
of accounting and the assumptions in the accompanying notes to the pro-forma
financial statements. The pro-forma statements may not be indicative of the
results that would have occurred if the acquisition had been effective on the
dates indicated or of the results that may be obtained in the future. The pro-
forma statements should be read in conjunction with the financial statements and
notes thereto of the Company and Fab-Tech included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1996
PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
-----------------------------------------------------------------------------
PRO-FORMA
DYNECO FAB-TECH PRO-FORMA DYNECO
CORPORATION INDUSTRIES OF CONSOLIDATING CORPORATION
CONSOLIDATED BREVARD, INC.(1) ENTRIES CONSOLIDATED
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales $ - $ 973,855 $ - $ 973,855
Cost of sales - (714,528) - (714,528)
Operating expenses (247,961) (141,800) (50,500)(2) (440,261)
----------- ----------- ---------- -----------
Income (loss) from operations (247,961) 117,527 (50,500) (180,934)
Other income (expense) (2,026) (35,893) - (37,919)
----------- ----------- ---------- -----------
Net income (loss) $ (249,987) $ 81,634 $ (50,500) $ (218,853)
----------- ----------- ---------- -----------
----------- ----------- ---------- -----------
Net loss per share $ (.04) $ (.02)
----------- -----------
----------- -----------
Weighted average number
of shares outstanding 6,075,132 9,075,132
----------- -----------
----------- -----------
</TABLE>
(1) Represents Fab-Tech unaudited activity for the period ended March 31, 1996.
(2) Represents amortization of intellectual property acquired in the Fab-Tech
acquisition for the period ended March 31, 1996.
19
<PAGE>
<TABLE>
<CAPTION>
MARCH 31, 1996 PRO-FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
------------------------------------------------------------------------
PRO-FORMA
DYNECO FAB-TECH PRO-FORMA DYNECO
CORPORATION INDUSTRIES OF CONSOLIDATING CORPORATION
CONSOLIDATED BREVARD, INC.(1) ENTRIES(2) CONSOLIDATED
------------ ---------------- ------------- ------------
<S> <C> <C> <C> <C>
Current assets $ 897,873 $ 972,463 $ 7,143,461 $ 9,013,797
Property and equipment 86,418 1,267,497 - 1,353,915
Intangible and other assets 725,775 - 1,742,750(3) 2,468,525
------------ ------------ ------------ ------------
Total assets $ 1,710,066 $ 2,239,960 $ 8,886,211 $ 12,836,237
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Current liabilities $ 312,168 $ 710,561 $ - $ 1,022,729
Long-term debt - 859,015 - 859,015
Equity 1,397,898 670,384 8,886,211 10,954,493
------------ ------------ ------------ ------------
Total liabilities and equity $ 1,710,066 $ 2,239,960 $ 8,886,211 $ 12,836,237
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
(1) Represents Fab-Tech unaudited balance sheet at March 31, 1996.
(2) Assumes the successful completion of the sale of 3,000,000 shares of Common
Stock offered by the Company hereby (assuming a purchase price of $3.25 per
share and net proceeds of $9,543,461) and $2,400,000 cash purchase of Fab-
Tech net assets.
(3) Represents fair market value adjustment for assets and amortization of
assets costs over their estimated useful lives.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements and notes thereto also contained in this
Prospectus.
GENERAL HISTORY
The Company was incorporated as a Minnesota corporation in December 1984
under the name TERTM, Inc. In 1989, the Company changed its corporate name to
TERTM Technology Corporation and changed its name again in December 1993 to
DynEco Corporation. Prior to 1991, the Company was engaged in the design,
development, manufacture and marketing of certain proprietary products using a
proprietary production process known as the Thermal Expansion Resin Transfer
Molding Process ("TERTM Process"). The Company also marketed and licensed its
design engineering and contract manufacturing capabilities for the design,
development and manufacture of products using the TERTM Process to third
parties. The Company discontinued its manufacturing operations in 1991, and
until the acquisition of the compressor assets and business of DynEco
International in March 1994, the Company only engaged in licensing the TERTM
Process and providing application engineering consulting with respect to
licenses.
Since its inception in 1984 and until its curtailment of manufacturing
operations in 1991, the Company incurred substantial research and development
expenses in connection with the development and refinement of its manufacturing
operations and the establishment of its management and manufacturing
organization with respect to the TERTM Process operations. As a result, the
Company incurred operating losses in each year since its inception. During
1991, the Company exhausted its working capital, and was unable to obtain
additional financing and could no longer support its manufacturing operations.
The Company responded to its weakening financial condition by curtailing all
manufacturing operations and began to focus on licensing the
21
<PAGE>
TERTM Process and providing application engineering consulting with respect to
existing licenses. The Company's initial business strategy was to realize
licensing revenues in order to reduce its outstanding liabilities. In January
1993, the Company's management was introduced to DynEco International, a
development stage company engaged in the development of proprietary compressor
technology intended to be commercially exploited primarily through licensing to
third parties. Although the Company's and DynEco International's technologies
were dissimilar, the Company had successfully negotiated licenses in the Asian
and European markets which experience could permit DynEco International to gain
Asian and European market entry contacts. DynEco International, however, was
unwilling to proceed with any serious discussions with the Company until the
Company restructured its obligations. As discussions ensued, the Company
concluded that a Chapter 11 reorganization was the only way the Company could
restructure its obligations and induce DynEco International to enter into an
acquisition agreement. The Company's Chapter 11 petition, the Plan of
Reorganization and a Disclosure Statement were filed with the United States
Bankruptcy Court for the District of Minnesota on July 12, 1993. The Plan of
Reorganization was subsequently confirmed by the Order of the Bankruptcy Court
on December 17, 1993. The Chapter 11 case was closed by the Order of the
Bankruptcy Court in June 1994, and the Bankruptcy Court has no further
jurisdiction over the Company and its affairs.
On March 31, 1994, the Company consummated the acquisition of DynEco
International's business for (a)(i) approximately 3,926,000 shares of the
Company's Common Stock and (ii) warrants to purchase approximately 392,600
shares of the Company's Common Stock for the purchase price of $7.00 per share
in exchange for all of the issued and outstanding DynEco International capital
stock, and (b) the assumption of DynEco International's two stock option plans
which reserve 1,500,000 shares of DynEco International common stock for purchase
by certain persons. Upon the effective date of the acquisition of DynEco
International, DynEco International became a wholly-owned subsidiary of the
Company, and DynEco International's security holders collectively became
majority shareholders of the Company. The Company's directors and officers
resigned their positions, and the directors and officers of DynEco International
became the directors and officers of the Company. The Company's business
operations were restructured into two principal divisions: (i) the DynEco
compressor business operated through the newly acquired wholly-owned subsidiary,
DynEco International, and (ii) the TERTM Process business operated through the
newly-organized wholly-owned subsidiary, TERTM. The Company is currently
primarily engaged in (1) the continuing improvement of its proprietary
compressor technology, and (2) the ongoing exploitation of its proprietary
compressor technology through licensing arrangements with third parties.
Further, the Company intends to engage in manufacturing activities in connection
with its compressor technology through the acquisition of suitable manufacturing
companies or, alternatively, enter into manufacturing alliances with third
parties with respect to product application of the Company's proprietary
compressor technology. The Company intends to sell its TERTM Process technology
and business once a suitable purchaser is identified. See "Business."
RESULTS OF OPERATIONS
The historical results of operations of the Company for the fiscal year
ending December 31, 1993 are not indicative of the Company's current operations
as such reflect an entity whose principal business operations have been
discontinued. Furthermore, the Company generated only nominal revenues of
$5,000 and $70,000 for the years ended December 31, 1995 and 1994, respectively,
and did not generate any revenues for the three months ended March 31, 1996. As
a result, comparison of results of operations would not be meaningful and,
therefore, is not included herein.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 1996, the Company's primary source of liquidity was
$759,953 in cash, and the Company's working capital was $585,705. Of the
Company's total assets of $1,710,066, $86,418 consisted of property and
equipment, $171,100 consisted of an investment in a joint-venture, $169,440
consisted of investment in technology and $385,235 consisted of patent and
license rights. Company liabilities totaling
22
<PAGE>
$312,168 included accounts payable of $14,592 and accrued expenses of $297,576.
Shareholders' total equity was $1,397,898. At March 31, 1996, the Company had
an accumulated deficit of $4,015,399.
Net cash used in operating activities was $693,756 during the year ended
December 31, 1995. The Company obtained $1,904,145 from financing activities
for the year ended December 31, 1995. The cash received from financing
activities was due to the issuance of Company Common Stock through various
private placements and the result of the exercise of Company Class B Warrants,
Class C Warrants and DynEco International Warrants.
The Company has financed its operations since April 1, 1994 primarily from
the issuance of Common Stock in connection with the exercise of Company Class A
Warrants, Class B Warrants and Class C Warrants which expired on December 31,
1994, March 31, 1995 and June 30, 1995, respectively, and the private placement
sale of Company Common Stock. Cash or cash equivalents received from the
exercise of Company Class A Warrants, Class B Warrants and Class C Warrants was
approximately $481,963. Proceeds from the private placement of the Company's
Common Stock in 1995 was approximately $1,784,580. As of March 31, 1996, and
the date of this Prospectus, the Company's sources of external and internal
financing were limited. It is not expected that the internal sources of
liquidity will improve until net cash is provided by operating activities, and
until such time, the Company will rely upon external sources for liquidity,
including the exercise of the Company's Class D Warrants, Class E Warrants and
various outstanding stock options for which the Company has no understandings or
commitments from anyone.
The Company believes that its working capital should satisfy its capital
requirements for approximately the next 4 to 7 months. There can be no
assurance, however, that the Company will be able to generate sufficient cash
from operations, if any, in future periods beyond this 4 to 7 month period to
satisfy the Company's capital requirements. Therefore, the Company may have to
continue to rely on external financing activities to satisfy the Company's
capital requirement for the foreseeable future. However, other than as
described in this Prospectus, the Company has no commitments for borrowings or
additional sales of equity, and there can be no assurance that the Company will
be successful in consummating any such future financing transactions on terms
satisfactory to the Company, if at all.
SEASONALITY AND INFLATION
The Company's business is not seasonal in nature, nor does management
believe that its operations have been materially affected by inflationary
forces.
23
<PAGE>
BUSINESS
The Company designs, develops, joint-ventures and licenses advanced
proprietary compressor technologies embodied in the DynEco Orbital Vane
Compressor for use in industrial, commercial and selected consumer-related
markets. The Company believes that its DynEco Orbital Vane Compressor can
provide end-users with a small, quiet, reliable and low-cost alternative to
traditional compressor designs. Until recently, the Company's business strategy
has been to develop and license its proprietary technology to third-parties for
product development applications initiated by such parties and to enter into
joint-venture arrangements. Although the Company presently intends to continue
joint-venturing and licensing its proprietary technology to third-parties, the
Company also intends to develop and manufacture compressor products directed to
selected consumer-related markets and to original equipment manufacturers in a
variety of industries such as air compression, automotive climate control,
vacuum pumps, mass transit and electric vehicle climate control systems,
commercial environmental systems and residential and light commercial hermetic
air conditioning systems. The Company believes that through a series of
strategic alliances and acquisitions it can assemble the resources to
manufacture and market air compressors, airends, air conditioner compressors and
vacuum pumps in the near future. The Company also intends to produce specialty
and niche applications of its patented DynEco Orbital Vane Compressor systems
through its own manufacturing facilities and market such products through
established industrial distribution channels.
INDUSTRY BACKGROUND
The industrial, commercial and consumer compressor markets are large and
varied. Industry experts estimate that the annual world-wide market for
compressor products exceeds $30 billion, of which an estimated $15 billion are
annually sold in the United States. Compressor product markets in which the
central system component is a compressor or compressor airend include:
- Industrial, Commercial and General Purpose Air Compressors
- Automotive Air Conditioners for Conventional Powered and Electrical-
Powered Vehicles
- Vacuum Pumps
- Light Commercial and Residential Air Conditioners
- Commercial Refrigeration Systems
- Transport Refrigeration Systems
- Military Applications
- Advanced Compressor Technologies
Each of these compressor product markets encompasses numerous manufacturers
of the several components and sub-components required for the complete system
that houses and drives the compressor. While many manufacturers in these
industries produce components, they are more generally characterized as system
packagers since they fabricate their proprietary system to a large degree
through the assembly of components produced by others. Because of the
comparative complexity of the heart of these products -- THE COMPRESSOR -- only
a relatively small number of manufacturers produce them. This industry
structure of packaging systems utilizing components manufactured by others is a
central aspect of the Company's compressor business commercialization strategy.
24
<PAGE>
DYNECO ORBITAL VANE COMPRESSOR
The Company's proprietary compressor design is a circular, non-contact
sealing rotary compressor with an integral lubricant system which management
believes can be sized and configured for numerous product applications,
including air compression systems, automotive air conditioning climate control
systems, vacuum pumps, commercial and residential building climate control
systems, consumer refrigeration systems, transport refrigeration systems,
military applications and other advanced compressor technologies.
Positive displacement compressors, no matter of what kind, achieve gas
compression by confining gases within dynamic chambers formed by close-fitting
mechanical parts. The energy efficiency of all such compressors is controlled
primarily by two opposing demands: (1) minimum mechanical friction; and
(2) optimal internal gas sealing. Thus, a compression volume consisting of
tight-fitting dynamic surfaces will yield excellent sealing but induce
significant mechanical friction and wear. On the other hand, loose moving parts
will decrease wear and friction but result in additional gas leakage.
Therefore, to one degree or another, all commercially successful compressors
have reached competitive efficiency by satisfactorily balancing adequate
internal sealing with tolerable mechanical friction and wear.
The ideal dynamic sealing surfaces, of course, would be ones that operate
in extremely close sealing proximity but do not actually rub against each other.
Such conditions would offer excellent gas sealing and essentially no friction or
wear. Furthermore, the ideal dynamic exchange of internal mechanical compressor
loads should take place across pure rolling elements or fully developed fluid
films. Management believes that all of these ideals are closely approximated by
the Company's patented small, lightweight and simple rotary compressor.
The Company believes that its DynEco Orbital Vane Compressor technology can
provide users with a small, quiet, reliable and low-cost alternative to
traditional reciprocating, rotary vane and rotary screw compressor designs. The
Company also believes that its DynEco Orbital Vane Compressor technology is
inherently different from current reciprocating, rotary vane and rotary screw
compressor airends with respect to reliability.
IDENTIFIED PRODUCT MARKETS
The Company has implemented a compressor industry entry strategy initially
focusing on four markets: (1) the industrial air compressor systems market;
(2) the air conditioning climate control systems aftermarket and replacement
market for automotive passenger cars and light trucks; (3) the vacuum pump
market; (4) the mass transit and electric vehicle climate control systems
market; (5) the commercial environmental systems market; and (6) the residential
and light commercial hermetic air conditioning compressor market.
INDUSTRIAL AIR COMPRESSOR SYSTEMS MARKET
Industrial air compressor airends are utilized in sophisticated air
compression systems which generally operate under severe operating conditions
with a continuous demand for the provision of high-quality compressed air.
Industry experts estimate the annual demand for 5 to 25hp industrial air
compressor systems in the United States exceeds 56,000 units annually at an
average cost of approximately $1,400 per unit. The Company believes that it can
enter this market through joint-ventures, strategic alliances and Company
product development, manufacturing and marketing strategies.
In December 1994, the Company entered into a joint-venture arrangement with
Kurt Manufacturing Company, a Minnesota corporation ("Kurt Manufacturing"), to
organize a new entity to develop and distribute 10 to 25hp industrial air
compressor systems featuring the Company's proprietary DynEco Orbital Vane
Compressor technology with respect to the air compressor systems' airend. Kurt
Manufacturing is a leading
25
<PAGE>
manufacturer of complex precision component parts and systems for
numerous industrial and commercial manufacturing companies and certain
proprietary industrial products of its own which it distributes through its
distribution channels. The joint business enterprise, "Kurt/DynEco Compressor
Company, LLC" also referred to herein as "Kurt/DynEco," is completing the
testing and development of the initial proposed air compressor system identified
as the Kurt/DynEco Compressor and exhibited a prototype of the 10hp Kurt/DynEco
Compressor to the industrial compressor market during March 1996 at the Plant
Engineering Show in Chicago, Illinois. Company management anticipates that
production and sales of the initial air compressor system will occur during the
end of the Company's current fiscal year. However, due to alterations to
certain engineering design specifications associated with the initial proposed
air compressor system, production efforts have experienced delays. Accordingly,
there can be no assurance that production and sales of the initial air
compressor system will occur during the end of the Company's current fiscal
year.
The Kurt/DynEco Compressors are to be initially marketed through the
facilities of Kurt Manufacturing's industrial products distribution channel
which has an established distributor organization with a network of
approximately 800 industrial products dealers. The initial products
contemplated by the joint-venture are 10hp and 25hp Kurt/DynEco Compressor
systems. The 25hp units are expected to enter the market during the second
quarter of 1997. The compressor airends will be initially manufactured by Kurt
Manufacturing, and the packaged air compressor systems may be fabricated by both
Kurt Manufacturing and Fab-Tech. All other components, including electric
motors, air tanks, tubing, coolers and electronic controls, are believed to be
readily available from vendors in sufficient quantities for the Company's
purposes. The Kurt/DynEco Compressor system product line is designed with a
distinctive appearance and appropriate logos to identify each compressor system
as a member of the Kurt/DynEco Compressor systems.
In addition to the joint-venture arrangement with Kurt Manufacturing, the
Company is exploring other opportunities that exist with respect to the
development of air compressor airends for air compressor systems that range
below 5hp and above 25hp.
AUTOMOTIVE AIR CONDITIONER CLIMATE CONTROL SYSTEMS MARKET
Industry experts estimate that the current annual United States market for
automotive air conditioner compressors is approximately 11,320,000 units selling
at an average price of $144 per unit. Approximately 85% of all vehicles sold in
the United States are delivered with factory-installed air conditioning systems.
The balance, estimated to use approximately 1,700,000 compressors annually,
represent the automotive replacement and aftermarket submarkets with estimated
sales of approximately $200 million.
The Company believes that the $200 million automotive replacement and
aftermarket submarkets provide the greatest opportunity for penetration into the
automotive air conditioner climate control systems market. While compressor
sales to original equipment manufacturers such as General Motors Corporation,
Ford Motor Company, Chrysler Corporation, Toyota Motor Corporation and the like
are substantial, Company management believes that penetration into the market
requires substantial investment of financial resources and a proven record of
near-perfect reliability in the automobile industry. Furthermore, Company
management believes that major automobile manufacturers manufacture many of
their own air conditioner products and would themselves require substantial
financial investments in order to incorporate other air compressors. The
automotive replacement and aftermarket submarkets, however, are more informal
and fragmented permitting easier, earlier and less costly submarket penetration.
Additionally, the submarkets provide the Company with a means of proving the
reliability of its Orbital Vane Compressor in the automobile industry, thereby
facilitating future licensing and sales to major automobile manufacturers.
The Company is currently negotiating a joint-venture arrangement with
SCS/Frigette Corp. ("SCS/Frigette") and has signed a letter of intent to
design, develop, manufacture and sell compressors for the automotive passenger
car and light truck air conditioner climate control system aftermarket and
26
<PAGE>
compressor replacement market using the Company's Orbital Vane Compressor
technology. SCS/Frigette is a significant packager, distributor and installer
of automotive air conditioner climate control systems for the aftermarket. The
current arrangement provides for the implementation of a joint business plan for
the combination and utilization of the Company's extensive know-how in the
design and development of automotive air conditioning compressors and its
exclusive rights to a patented design for automotive air conditioning
compressors and SCS/Frigette's manufacturing and marketing capabilities.
Company management believes that the initial compressor production and sales
will occur during the Company's 1997 fiscal year. However, there can be no
assurance that the Company's current negotiations with SCS/Frigette will result
in any definitive agreements and, further, that any such arrangement with
SCS/Frigette will be profitable or a financial benefit to the Company.
Regardless of the outcome of these negotiations, however, the Company intends to
proceed with the commercialization of the automotive air conditioning climate
control compressor.
The Company has also had discussions with several automotive aftermarket
and replacement air conditioning system manufacturers with respect to licensing
its Orbital Vane Compressor technology. However, such discussions are in the
preliminary stage, and the nature and scope of licensing arrangements, if
eventually effected, are presently unknown to the Company.
The Company also believes there may be an enhanced opportunity for entrance
into the automotive air conditioner climate control market because of
governmental regulations governing the production of certain refrigerants used
in air conditioners. Because of concerns with the adverse environmental damage
to the ozone layer caused in connection with the use of a chlorofluorocarbon
known as R-12 and produced under a variety of trade names, including Freon, most
governments, including the United States, have legislation which curtails the
production and use of R-12. Recently, the automotive industry decided to use a
compound known as HFC-134a (1,1,1,2-tetrafluoroethane) for automotive air
conditioner refrigerant. Although it appears that HFC-134a will not cause
stratospheric ozone damage, HFC-134a operates at slightly different pressures,
and its chemical properties can damage conventional air conditioning system
hoses, seals and lubricants presently designed for R-12 refrigerant. As a
result, although HFC-134a can be used in air conditioner climate control systems
currently designed for R-12, the Company believes that its use can adversely
impact the air conditioning system's operation and integrity.
The Company believes that its proprietary compressor technology is
compatible with HFC-134a refrigerant use, and, to date, the Company has received
favorable test results from the Oak Ridge National Laboratory (ORNL) Science and
Technology Partnership Office, a reputable industry laboratory, which identified
the DynEco Orbital Vane Compressor as a compact, lightweight and more efficient
automobile air conditioning compressor using HFC-134a refrigerant. As a result
of the governmental regulations on the production and use of current
refrigerants, the Company believes that annual automotive air-conditioner
compressor requirements may be significantly increased in the near future
because of the need for both the redesign of current compressors for new autos
and trucks and the replacement of air conditioner compressors in existing autos
and trucks.
VACUUM PUMP MARKET
The United States Department of Commerce estimates that the current annual
United States market for vacuum pumps is approximately $162,000,000.
Approximately 44% of all vacuum pumps sold in the United States are vacuum pumps
in the 0.5hp to 50hp range selling at an average price of $452 per unit. The
Company believes that its Orbital Vane Compressor technology is well-suited for
the vacuum pump market.
The Company is currently negotiating with the Quincy Compressor Division of
Coltec Industries, Inc. ("Coltec") a license royalty agreement pursuant to which
Coltec will manufacture vacuum pumps in the 0.5hp to 10hp range using the
Company's proprietary technology. The proposed
27
<PAGE>
agreement provides that the Company will grant Coltec an exclusive royalty-
bearing license to use the Company's patented technology for the manufacture,
use or sale of vacuum pumps having a rated horsepower between 0.5hp and 10hp,
inclusive, in North and South America and a portion of the Pacific Rim. The
Company will also provide Coltec four prototype units, each consisting of a full
set of drawings and a working prototype in consideration of a cash payment upon
acceptance of each prototype. Company management anticipates that the license
agreement will be signed during the third quarter of 1996, and that commercial
production should begin by the end of the third quarter of 1997. There can be
no assurance, however, that such licensing arrangement will be effected at all,
and if effected, that such licensing arrangement will be profitable or of a
financial benefit to the Company.
MASS TRANSIT AND ELECTRIC POWERED VEHICLE CLIMATE CONTROL SYSTEMS MARKET
Despite the substantial government and private industry interest in
electric-powered transportation, there presently is little information available
as to the estimated size of that market. However, in light of recent federal
and state regulatory initiatives with respect to electric-powered transportation
and the political environment favoring alternate power sources for
transportation, the Company perceives an emerging market opportunity for
utilization of the DynEco Orbital Vane Compressor technology with respect to
climate control cooling and heating applications. Although an operable
electric-powered vehicle climate control system utilizing the Company's
compressor technology has not been developed, the Company has recently delivered
for testing DynEco Orbital Vane Compressors to Trans/Air, Inc. ("Trans/Air"), a
manufacturer of bus air conditioning systems, that are both fossil fueled and
electric powered. To date, the compressors have received favorable test
results, and Trans/Air has requested that DynEco design and develop a compressor
with larger capacity for their high capacity mass-transit air conditioning
systems.
The Company has also been engaged and has performed development subcontract
work under the U.S. Department of Energy ("DOE") and the Advanced Research
Projects Agency ("ARPA") for preliminary development of vehicle climate control
systems.
Although the Company believes that the current worldwide market opportunity
is limited in numbers and principally related to passenger buses, the Company is
completing the design and development of a proprietary climate control system
for electric-powered passenger vehicles. However, there can be no assurance
that the Company's design efforts will be successful and if successful, that the
Company's design will be utilized by the electric-powered passenger vehicle
market.
COMMERCIAL ENVIRONMENTAL SYSTEMS MARKET
The Company has entered into preliminary discussions with Rotary Power
International, Inc. ("Rotary Power") contemplating the design, development and,
if testing is successful, licensing of an air conditioner compressor for the
commercial building HVAC system market. Rotary Power, a manufacturer of rotary
engines for commercial and military uses, is an emerging commercial building
HVAC system developer utilizing proprietary technology which meets federal and
state regulatory initiatives with respect to environmental concerns in large
commercial building HVAC system installations. The Company perceives an emerging
market opportunity for utilization of the DynEco Orbital Vane Compressor
technology with respect to building environmental systems involving both cooling
and heating applications. Although an environmental system utilizing the
Company's compressor technology has not been developed, the Company's electric-
powered vehicle climate control system work performed for Trans/Air, DOE and
ARPA has application to building HVAC environmental systems. Despite the
Company's inability to predict the market opportunity for commercial building
HVAC systems utilizing the Company's proprietary DynEco Orbital Vane Compressor
technology, the Company believes that such market opportunity justifies a
studied strategy and, accordingly, has commenced design development for an HVAC
air conditioner compressor. Regardless of whether Rotary Power decides to
utilize the Company's compressor for its air conditioner system, the Company
intends to
28
<PAGE>
proceed with the commercialization of the HVAC air conditioner compressor.
However, there can be no assurance that Rotary Power will utilize the Company's
compressor technology, and, further, if operations are commenced, that such
operations will be profitable or of any financial benefit to the Company.
RESIDENTIAL AND LIGHT COMMERCIAL HERMETIC AIR CONDITIONING COMPRESSOR MARKET
In May 1996, the Company entered into a Memorandum of Understanding with
the Energy and Resources Laboratories of Taiwan's Industrial Technology Research
Institute for the development of a mini-split air conditioning system centered
around the Company's Orbital Vane Compressor technology. The Industrial
Technology Research Institute is a Taiwanese research and development
organization employing nearly 6,000 persons under ten divisions serving a wide
range of new and traditional industries. The Industrial Technology Research
Institute functions as both a technical center for industry and an arm of
Taiwan's industrial development policies.
Under the Memorandum of Understanding, the Company will supply existing
technology, know-how and engineering resources for developing a workable
hermetic refrigerant compressor, and the Industrial Technology Research
Institute will provide engineering and resources to build and integrate the
compressor into the mini-split system. Once testing is complete, the Company
intends to negotiate a manufacturing, sales and distribution agreement with a
suitable company in Taiwan. However, there can be no assurance that the results
of such testing will be successful, and if successful, that a suitable company
in Taiwan for the commercialization of the system will be located.
The Company believes that the Orbital Vane Compressor technology is well-
suited for use as a hermetic compressor for residential and light commercial air
conditioning. The Company's compressor calorimeter testing indicates that the
energy efficiency of the Company's Orbital Vane Compressor is competitive with
or exceeds the performance of well-developed, reciprocating, rotary and scroll
compressors. Due to the favorable displacement-to-size ratio of orbital vane
compressors, they can be operated at one-half the speed of scroll or
reciprocating hermetic compressors. Lower operational speed inherently
increases compressor reliability while simultaneously lowering noise. In
addition, due to low speeds, smaller, more efficient and lower cost electric
motors can be used to power the compressor. Accordingly, the Company believes
that the hermetic compressor may offer the Company a significant business
opportunity.
MANUFACTURING FACILITIES ACQUISITION
The Company is currently negotiating an agreement for the acquisition of
the assets and business operations of Fab-Tech. Fab-Tech is an established
business engaged in the production of precision parts, components and sub-
assemblies and sheetmetal fabrication of mechanical components. Fab-Tech's
present plant facilities occupy a 12,500 square foot building located near the
Company's offices in Rockledge, Florida. Company management believes that Fab-
Tech's manufacturing operations, personnel, machinery and equipment are suitable
for the Company's planned business compressor manufacturing operations. The
Company's present strategy is to purchase Fab-Tech using a portion of the
proceeds, if any, from the sale of the shares of Common Stock offered by the
Company hereby, and expand Fab-Tech's capacity to permit the manufacture of
compressor products through the purchase of additional equipment and expansion
of Fab-Tech's physical plant, or relocation of the business to larger facilities
as justified. The purchase of additional equipment and expansion of Fab-Tech's
physical plant will require additional capital investment on the part of the
Company as well as additional working capital. The Company presently does not
know the extent or amount of any such additional capital investment, but
anticipates that such investment may be significant. In addition, the
negotiations with respect to the acquisition of Fab-Tech are still continuing,
and there can be no assurance that the Company's current negotiations will
result in any definitive agreement or that any arrangement with Fab-Tech will be
profitable or a financial benefit to the Company.
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<PAGE>
PATENT AND PROPRIETARY RIGHTS
In January 1992, the Company's subsidiary, DynEco International, entered
into a Patent and Know-How License Agreement with Dr. Edwards and a First
Amended Patent and Know-How License Agreement in March 1992 (collectively, the
"License Agreement"). Under the terms of the License Agreement, DynEco
International was granted an exclusive, world-wide license to manufacture, sell
and to sublicense licensed products derived from the DynEco Orbital Vane
Compressor technology. Under the terms of the License Agreement, Dr. Edwards is
entitled to receive royalty payments equal to one (1%) percent of the sales
value of the licensed products and ten (10%) percent of the royalty income
received from sublicenses of the licensed products. In addition, Dr. Edwards
received 2,200,000 shares of DynEco International's common stock (of which
700,000 shares were transferred to others at the direction of Dr. Edwards) which
shares were ultimately exchanged for shares of Company Common Stock. The
License Agreement is for a fifteen (15) year term, or, if Know-How is not used,
upon the expiration of the last to expire patent covered by the License
Agreement. DynEco International has the right to discontinue royalty payments
in the event the patent rights have irrevocably lapsed or become unenforceable.
In such an event, DynEco International, at its sole option, may repurchase all
of the shares of Company Common Stock issued to Dr. Edwards pursuant to the
License Agreement which are then owned by him at a price of $0.50 per share.
Dr. Edwards also agreed to enter into any sublicense agreement with any third
party at the request of DynEco International. The License Agreement is binding
upon the assigns, legal representatives and/or successors in business of the
parties. Prior to the commencement of the Offering, Dr. Edwards has agreed to
amend the License Agreement pursuant to which he will assign all of his rights
with respect to the DynEco Orbital Vane Compressor technology to the Company.
Pursuant to the License Agreement, the Company is the licensee of a series
of United States patents and patent applications with respect to the DynEco
Orbital Vane Compressor. The following information briefly describes the
current status of such patents and patent applications:
PATENTS ISSUED:
Patent #5087183
Issued to Dr. Edwards on February 11, 1992
Subtitled: "Rotary Vane Machine with Simplified Anti-Friction Positive
BiAxial Vane Motion Control"
Patent #5160252
Issued to Dr. Edwards on November 3, 1992
Subtitled: "Rotary Vane Machine with Anti-Friction Positive BiAxial Vane
Motion Control"
Patent #5374172
Issued to Dr. Edwards on December 20, 1994
Subtitled: "Rotary Univane Gas Compressor"
Patent #5452998
Issued to Dr. Edwards on September 26, 1995
Subtitled: "Non-Contact Vane-Type Fluid Displacement with Suction Flow
Check Valve Assembly"
Patent #5501586
Issued to Dr. Edwards on March 26, 1996
Subtitled: "Non-Contact Rotary Vane Gas Expanding Apparatus"
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<PAGE>
PATENT APPLICATIONS PENDING:
Patent Application #08/268074 filed June 28, 1994 (in-part continuation)
Subtitled: "Non-Contact Vane-Type Fluid Displacement Machine with
Consolidated Vane-Guide Assembly"
Patent Application #08/556234 filed November 9, 1995
Subtitled: "Non-Contact Vane-Type Fluid Displacement Machine with Multiple
Discharge Valving Arrangement" (continuation of Patent Application
#08/283471 filed June 28, 1994)
Patent Application #08/419976 filed April 10, 1995
Subtitled: "Non-Contact Vane-Type Fluid Displacement Machine with Lubricant
Separator and Sump Arrangement" (continuation in part of Patent Application
#08/267983 filed June 28, 1994)
The Company's success is dependent upon maintaining its patents and
proprietary rights. The Company intends to continue to rely upon a combination
of patent, copyrights, trademarks, trade secret protection and licensing,
confidentiality and nondisclosure agreements to establish and protect its
proprietary technology. The Company also intends to continue its policy of
obtaining patent protection in appropriate foreign jurisdictions. As a
practical matter, however, these approaches may provide only limited protection
and, notwithstanding these precautions, it may be possible for unauthorized
third parties to obtain and use information that the Company regards as
proprietary or copy certain portions of the Company's products or manufacturing
processes. In addition, the laws of some foreign countries may not protect the
Company's proprietary rights to the same extent as do the laws of the United
States. There can also be no assurance that competitors will not independently
develop other and more efficient technology than that developed by the Company.
The Company is not presently aware of any patents that would prohibit the use of
any technology developed by the Company. However, the future issuance of
patents to others may require modifications of the Company's operational plans.
The Company also holds four patents with respect to its TERTM Process.
However, the Company anticipates selling the TERTM Process technology and
business once a suitable purchaser is identified.
PROPERTIES
The Company currently leases on a month-to-month basis approximately 4,296
square feet of office and laboratory space in Rockledge, Florida for a monthly
rental, including operating reimbursements, of approximately $2,200. Assuming
the acquisition of Fab-Tech, the Company expects to relocate its offices,
laboratory and the Fab-Tech operations to a larger space in the Rockledge,
Florida area. The Company presently has no understandings or arrangements with
anyone to relocate and has not made any decision whether to lease or purchase
any space.
EMPLOYEES
At March 31, 1996, the Company had six (6) full-time employees. The Company
believes that its relationship with its employees is good.
LEGAL PROCEEDINGS
On June 5, 1996, a complaint was filed against the Company in the
District Court of Ramsey County, Minnesota (Case No. C4-96-6586), alleging
that the Company breached its contractual obligations to four of its former
directors in connection with the issuance of certain stock options in 1994.
The Company believes that the claims are without merit and that such claims
will not have a material adverse effect on the Company's financial condition
or results of operations.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below are the names, ages and positions of the directors and
executive officers of the Company.
NAME AGE POSITION
Richard D. Besser 61 Chairman of the Board, President
and Chief Executive Officer
Thomas C. Edwards, Ph.D. 53 Chief Technical Officer and
Director
Ralph E. Nelson, C.P.A. 39 Chief Financial Officer and
Secretary
Richard F. Galbraith, M.D. 65 Director
Gerald J. Kamman 58 Director
Dennis R. Longren 62 Director
Charles J. Tambornino 53 Director
Frederick M. Zimmerman, Ph.D. 61 Director
RICHARD D. BESSER has served as Chairman of the Board, President and Chief
Executive Officer of the Company and as Chief Executive Officer of the Company's
DynEco International and TERTM subsidiaries since September 1994. Prior to
joining the Company, Mr. Besser was retired from full-time employment and
engaged in periodic management consulting. From 1988 until his retirement in
1992, Mr. Besser served as Chief Executive Officer and President of Chicago
Pneumatic Tool Company, a $200 million international manufacturer of air tools,
compressors and related products. Prior to joining Chicago Pneumatic Tool
Company, Mr. Besser was a Divisional President of Warner-Swasey Corporation.
Mr. Besser has over 30 years of industrial management and executive experience,
including 17 years with Inland Steel Company. Mr. Besser is a graduate of the
University of Illinois and holds an MBA from the University of Chicago. Mr.
Besser is responsible for the Company's general business strategy, long-term
planning and day-to-day business operations.
THOMAS C. EDWARDS, PH.D. has served as Chief Technical Officer and as a
Director of the Company since March 1, 1994. Dr. Edwards co-founded DynEco
International and served as its President and Chief Executive Officer from its
inception in December 1991 until it was acquired by the Company in March 1994.
From February 1990 to December 1991, Dr. Edwards served as Chief Executive
Officer of Innovation Technologies, Inc., a predecessor of DynEco International.
From March 1985 to February 1990, Dr. Edwards served as Director, Product Design
Office, of the Rovac Corporation. Dr. Edwards holds a BSME and a MSME degree
from New Mexico State University and obtained a Ph.D. in Mechanical Engineering
from Purdue University in 1970. Dr. Edwards is the holder of many patents and
the author of numerous papers, reports and publications. Dr. Edwards is also a
member of several professional societies and organizations and has been the
recipient of several honors.
RALPH E. NELSON, C.P.A. has served as Chief Financial Officer and Secretary
of the Company since January 1996. Prior to joining the Company, Mr. Nelson, a
certified public accountant, worked privately as a consultant from April 1994 to
December 1995 and from January 1991 to November 1991. Mr. Nelson was Vice
President and Controller of Prosegur Inc., which provides domestic and
international transportation of valuables, from December 1991 to March 1994.
From 1987 to 1990, Mr. Nelson was the Chief Financial Officer for two start-up
and developmental stage high technology companies where he was involved in
various
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<PAGE>
private placements and public offerings to raise capital. Prior to 1987,
Mr. Nelson was employed by the international accounting firm of Deloitte &
Touche. Mr. Nelson graduated from Saint Leo College, Florida with a BA degree
in accounting and business management.
RICHARD F. GALBRAITH, M.D. has served as a Director of the Company since
September 1994. Dr. Galbraith, a neurologist, pioneered the concept of
neurological outreach programs in rural Minnesota and Wisconsin in 1966, and
since that time has managed the program for Minneapolis Clinic of Neurology
Ltd., a leading neurological and psychiatric clinic based in Minneapolis,
Minnesota. Dr. Galbraith is an active investor in start-up and developmental
stage companies. Dr. Galbraith is a graduate of Seattle University College of
Medicine and the Mayo Graduate School of Medicine.
GERALD J. KAMMAN has served as a Director of the Company since December
1995. Mr. Kamman recently retired as President of The Hoover European Appliance
Group, a $500 million wholly-owned subsidiary of the Maytag Corporation.
Mr. Kamman also served as President of three other Maytag units: Dixie-Narco
Group from 1989 to 1993; Diversified Productions Division from 1988 to 1989; and
Magic Chef Air Conditioning Company from 1980 to 1988. Mr. Kamman began his
career in sales and marketing in 1963 at the Whirlpool Corporation, then moved
up through increasing levels of responsibility at American Standard and General
Electric Company. He earned his first Presidency in 1978 at Friedrich Air
Conditioning & Refrigeration Company in San Antonio, Texas. Mr. Kamman
graduated from Hanover College in Hanover, Indiana with a BA degree in Business
and Economics.
DENNIS R. LONGREN has served as a Director of the Company since April 1994.
Prior to his retirement in June 1992, Mr. Longren served from September 1990 as
Group Vice President-Ordnance Systems of Alliant Techsystems, Inc., a $300
million manufacturer of ordnance systems for the Department of Defense, and was
employed in various management positions with its predecessor, Honeywell, Inc.,
from 1963 to September 1990, including Vice President and General Manager-
Ordnance Division. Mr. Longren is a graduate of the University of Minnesota
where he received a B of AE degree.
CHARLES J. TAMBORNINO has served as a Director of the Company since April
1994. From May 1994 to May 1996, Mr. Tambornino served as President of McQuay
International Corporation, a manufacturer of various industrial and commercial
products under the McQuay, American Air-Filter, Barry Blower, Jenn Fan and
Wesper brand names. From January 1990 to May 1994, Mr. Tambornino served as
Executive Vice President and General Manager of Snyder General, the predecessor
of McQuay International Corporation. Mr. Tambornino recently served as the
Chairman of the Air Conditioning and Refrigeration Institute, an industry
association. Mr. Tambornino is a graduate of the University of Minnesota where
he received his BSME degree.
FREDERICK M. ZIMMERMAN, PH.D. has served as a Director of the Company since
July 1995. Dr. Zimmerman is Professor of the Manufacturing Systems Engineering
and International Management School at the University of St. Thomas in St. Paul,
Minnesota. Prior to returning to academia in 1985, Dr. Zimmerman was engaged
for more than 25 years as an engineer, Manager, Vice President and President
primarily with IBM, National Computer Systems (NCS) and Camax, an NCS affiliate
company. He is a noted author of "The Turnaround Experience: Real World Lessons
in Revitalizing Corporations" as well as numerous professional and technical
articles. Dr. Zimmerman received a BA in Economics from the University of
Minnesota, and holds a Ph.D. in Strategic Management and Organizational Studies
from the University of Minnesota Carlson School of Management.
The Board of Directors has standing Audit, Compensation and Nomination
Committees. The Audit Committee is responsible for reviewing and making
recommendations to the Board of Directors regarding the Company's employment of
independent auditors, the annual audit of the Company's financial statements and
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<PAGE>
the Company's internal accounting practices and policies. The Audit Committee
is presently composed of Mr. Longren (Chairman), Dr. Galbraith and
Mr. Tambornino.
The Compensation Committee is responsible for reviewing, making
recommendations to the Board of Directors and, in some cases, determining the
remuneration and compensation arrangements for senior management. The
Compensation Committee is presently composed of Dr. Edwards, Dr. Galbraith and
Mr. Tambornino.
The Nominating Committee is responsible for making recommendations to the
Board of Directors regarding candidates for directorship positions to be filled
by the Company's shareholders or the Board of Directors. The Nominating
Committee also makes recommendations to the Board of Directors regarding
positions available on committees of the Board. The Nominating Committee is
presently composed of Mr. Besser, Dr. Edwards and Dr. Galbraith.
Members of the Board of Directors who are neither employees nor consultants
of the Company receive an annual retainer of $2,000 and a fee of $500 for each
Board meeting and $100 for each Committee meeting attended. All directors are
reimbursed for expenses incurred in connection with attendance at meetings of
the Board of Directors or committees thereof. All members of the Board of
Directors also participate in the Company's 1993 Corporate Stock Option Plan.
See "--Stock Options Plans--1993 Corporate Stock Option Plan."
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth all compensation
awarded to, earned by or paid for services rendered in all capacities to the
Company during the fiscal year ended December 31, 1995 by Mr. Richard D. Besser,
the Company's Chairman, President and Chief Executive Officer (the "Named
Executive Officer"). No other executive officer of the Company received
compensation in excess of $100,000 for services rendered during fiscal 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation All Other
Name and Principal Position Salary Bonus Compensation
- --------------------------- ------ ----- ------------
<S> <C> <C> <C>
Richard D. Besser
Chairman, President
and Chief Executive Officer. . . . . . . . . . . . . . . . $156,000 $ -0- $ -0-
</TABLE>
EMPLOYMENT AGREEMENTS
Effective as of September 22, 1994, the Company entered into a five-year
employment agreement with Mr. Besser which provides for an annual base salary
of $156,000, subject to any increase the Board of Directors may from time to
time approve. Mr. Besser's employment agreement is subject to successive one
year renewals at the end of the five-year employment term. Pursuant to
Mr. Besser's employment agreement, Mr. Besser also has the right to purchase
at any time during the term of his employment agreement, or any renewal
thereof, 250,000 shares of Common Stock of the Company for a purchase price
of $.01 per share. The 250,000 shares are subject to certain restrictions,
including Mr. Besser's right to transfer the shares prior to certain dates,
and the Company's ability to repurchase the shares in the event of
termination of Mr. Besser's
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<PAGE>
employment. The employment agreement provides that Mr. Besser will continue
to receive all benefits under his employment agreement throughout the
remainder of its term if his employment is terminated by him under certain
conditions, including failure of a successor to assent to his employment
agreement in the event of a change in control, or if his employment agreement
is terminated by the Company without "cause" (as defined in the employment
agreement). Mr. Besser is also prohibited from directly or indirectly
competing with the Company for one year after termination of his employment.
The Company has also entered into employment agreements with Mr. Nelson,
the Company's Chief Financial Officer and Secretary, Dr. Edwards, the Company's
Chief Technical Officer, and Thomas R. Reinarts, Ph.D., the Company's Director
of Product Development.
STOCK OPTION PLANS
1993 CORPORATE STOCK OPTION PLAN. In connection with the acquisition of
DynEco International, the Company adopted the DynEco International stock option
plan which provides for the grant of options to directors, officers and
employees to purchase up to an aggregate of 750,000 shares of Company authorized
but unissued Common Stock, subject to adjustment in certain cases, including
stock splits, recapitalization and reorganizations (the "1993 Corporate Stock
Option Plan" or "Corporate Stock Option Plan"). The purpose of the Corporate
Stock Option Plan is to attract, retain and motivate the Company's directors,
officers and employees. The Corporate Stock Option Plan is not qualified under
Section 401(a) of the Internal Revenue Code and is not subject to any provisions
of the Employee Retirement Income Security Act of 1974.
The Corporate Stock Option Plan is administered by the Compensation
Committee of the Board of Directors and provides for the granting of both
incentive stock options (as defined in Section 422 of the Internal Revenue Code)
("ISOs") and nonqualified stock options ("NSOs"). Options are granted under the
Corporate Stock Option Plan on such terms and at such prices as determined by
the Compensation Committee; provided, however, that the per share exercise price
of an ISO and a NSO cannot be less than 100% and 85%, respectively, of the fair
market value of the Company's Common Stock on the date of grant, and terms of an
ISO and a NSO cannot exceed ten years and five years, respectively. As of the
date of this Prospectus, the Company has granted only NSOs and such options
expire on December 31, 1998, unless terminated earlier pursuant to their terms.
Upon resignation, retirement or termination from the Company's Board of
Directors, or the Company (in the case of officers and employees), for any
reason other than death or disability, options granted will terminate unless
exercised by the optionee within ninety days after such event and twelve months
with respect to death or disability, but in no event after the option has
expired by its terms. If an option should expire or become unexercisable for
any reason without having been exercised in full, the unpurchased shares will
become available for further grant under the Corporate Stock Option Plan.
Options granted under the Corporate Stock Option Plan are assignable and
transferable by the holder subject to the consent of the Company and in
compliance with federal and state securities laws. The purchase price is
payable in cash, by check, other shares of Common Stock having a fair market
value on the date of surrender equal to the aggregate exercise price of the
shares being acquired upon exercise of the option, the surrender of options
representing shares of Company Common Stock having a fair market value on the
date of surrender equal to the aggregate exercise price of the shares being
acquired upon exercise of the option, or any combination of such methods of
payment. As of July 8, 1996, the Company had granted 685,000 options under the
Corporate Stock Option Plan.
1993 ADVISORS STOCK OPTION PLAN. In connection with the acquisition of
DynEco International, the Company also adopted the DynEco International stock
option plan which provides for the grant of options to certain advisors and
consultants of the Company to purchase up to an aggregate of 750,000 shares of
Company authorized but unissued Common Stock subject to adjustment in certain
cases, including stock splits,
35
<PAGE>
recapitalization and reorganizations (the "1933 Advisors Stock Option Plan" or
"Advisors Stock Option Plan"). The purpose of the Advisors Stock Option Plan is
to attract, retain and motivate certain of the Company's non-employee technical
advisors, advisory committee members and consultants. The Advisors Stock Option
Plan is not qualified under Section 401(a) of the Internal Revenue Code and is
not subject to any provisions of the Employee Retirement Income Security Act of
1974.
The Advisors Stock Option Plan is also administered by the Compensation
Committee of the Board of Directors and provides for the granting of
nonqualified stock options. Options are granted under the Advisors Stock Option
Plan on such terms and at such prices as determined by the Compensation
Committee; provided, however, that the per share exercise price cannot be less
than 85% of the fair market value of the Company's Common Stock on the date of
grant, and the term of the option cannot exceed five years. Options granted
under the Advisors Stock Option Plan expire on December 31, 1998.
Upon resignation or termination from a consulting arrangement, for any
reason, including death or disability, options granted will terminate unless
exercised by the optionee within twelve months after the date of such
termination, but in no event after the option has expired by its terms. If an
option should expire or become unexercisable for any reason without having being
exercised in full, the unpurchased shares will become available for further
grant under the Advisors Stock Option Plan. Options granted under the Advisors
Stock Option Plan are assignable and transferable by the holder subject to the
consent of the Company and in compliance with federal and state securities laws.
The purchase price is payable in cash, by check, other shares of Common Stock
having a fair market value on the date of surrender equal to the aggregate
exercise price of the shares being acquired upon exercise of the option, the
surrender of options representing shares of Company Common Stock having a fair
market value on the date of surrender equal to the aggregate exercise price of
the shares being acquired upon the exercise of the option, or any combination of
such methods of payment. As of July 8, 1996, the Company had granted 33,779
options under the Advisors Stock Option Plan for the purchase price of $1.00 per
share of the Company's Common Stock.
CERTAIN TRANSACTIONS
In connection with the organization in December 1994 of Kurt/DynEco
Compressor Company, LLC, a joint-venture between the Company and Kurt
Manufacturing, the Company issued 100,000 shares of its Common Stock valued
at $175,000 to Kurt Manufacturing in exchange for a license to utilize
certain patented technology developed by Kurt Manufacturing, whose majority
shareholder, Mr. William Kuban, is a shareholder and former director of the
Company. The Company later transferred the license to the joint-venture. In
July 1995, the Company also issued 200,000 shares of its Common Stock to Kurt
Manufacturing in exchange for certain tooling, dies and jigs and production
engineering services valued at $200,000, which the Company later transferred
to the joint-venture. The Company and Kurt Manufacturing also each contributed
$10,000 to Kurt/DynEco Compressor Company, LLC in exchange for their respective
fifty percent ownership interest in the joint-venture. See "Business -
Identified Product Markets - Industrial Air Compressor Systems Market."
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<PAGE>
PRINCIPAL SHAREHOLDERS AND SHARE OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of July 8, 1996 by (i) each person or
entity who is known by the Company to own beneficially more than 5% of the
outstanding shares of the Company's Common Stock, (ii) each of the Company's
directors, (iii) the Named Executive Officer and (iv) all directors and officers
of the Company as a group. Unless otherwise indicated, the shareholders
identified in this table have sole voting and investment power with respect to
the shares owned of record by them. The following table is based upon 6,075,132
shares of Common Stock outstanding as of July 8, 1996.
SHARES BENEFICIALLY
OWNED PRIOR TO OFFERING (2)
NAME AND ADDRESS OF ---------------------------
BENEFICIAL OWNERS(1) NUMBER PERCENT
-------------------- ------ -------
Kurt Manufacturing Company. . . . . . . . . . 320,000 5.27%
5280 Main Street, N.E.
Minneapolis, MN 55421 (3)
Julius Miller . . . . . . . . . . . . . . . . 321,500 5.29%
2814 Mourning Dove Way
Titusville, FL 32780 (4)
Richard D. Besser (5) . . . . . . . . . . . . 306,500 5.05%
Thomas C. Edwards, Ph.D (6) . . . . . . . . . 1,548,500 25.49%
Richard F. Galbraith, M.D. (7). . . . . . . . 234,500 3.86%
Gerald J. Kamman. (8) . . . . . . . . . . . . 25,000 * %
Dennis R. Longren (9) . . . . . . . . . . . . 60,000 * %
Charles J. Tambornino (10). . . . . . . . . . 60,000 * %
Frederick M. Zimmerman, Ph.D. (11). . . . . . 45,000 * %
All directors and executive officers
as a group (8) persons . . . . . . . . . . . 2,279,500 37.52%
- -------
*Less than 1%
(1) Unless otherwise indicated, the address of each of the beneficial owners
identified is 564 International Place, Rockledge, Florida 32955.
(2) Under the rules of the Commission, a person is deemed to be a beneficial
owner of a security if such person has or shares the power to vote or
direct the voting of such security or the power to dispose or direct the
disposition of such security. A person is also deemed to be a beneficial
owner of a security if that person has the right to acquire beneficial
ownership within 60 days.
(3) Includes 20,000 shares of Common Stock held by Mr. William Kuban, a
majority shareholder of Kurt Manufacturing Company.
(4) Includes 280,000 shares of Common Stock held jointly by Mr. Miller with
his wife and 40,000 shares of Common Stock held by Electronic Sheetmetal
Craftsmen, Inc., an affiliate of Mr. Miller.
(5) Includes 250,000 shares of Common Stock that may be purchased by Mr. Besser
for a purchase price of $.01 per share pursuant to his employment agreement
and 50,000 shares of Common Stock obtainable upon the exercise of an option
assigned to Mr. Besser by Dr. Edwards.
(6) Includes 425,000 shares of Common Stock held by Dr. Edward's wife as to
which Dr. Edwards may be deemed to share voting and dispositive power and
50,000 shares of Common Stock obtainable by Dr. Edwards upon the exercise
of options.
(7) Includes 144,500 shares of Common Stock held by Dr. Galbraith's wife as
to which Dr. Galbraith may be deemed to share voting and dispositive power
and 60,000 shares of Common Stock obtainable as of July 11, 1996 or
within 60 days thereof by Dr. Galbraith upon the exercise of options.
(8) Represents 25,000 shares of Common Stock obtainable by Mr. Kamman upon
the exercise of options.
(9) Represents 60,000 shares of Common Stock obtainable by Mr. Longren
upon the exercise of options.
(10) Represents 60,000 shares of Common Stock obtainable by Mr. Tambornino
upon the exercise of options.
(11) Represents 45,000 shares of Common Stock obtainable by Dr. Zimmerman
upon the exercise of options.
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<PAGE>
PLAN OF DISTRIBUTION
The securities covered hereby may be sold by the Company and the Selling
Shareholders from time to time at prices to be determined at the time of such
sales. The securities sold by the Selling Shareholders may be sold in
transactions (which may include block transactions by or for the account of the
Selling Shareholders) in the over-the-counter market, in negotiated
transactions, through a combination of such methods or otherwise. The Selling
Shareholders will act independently of the Company in making decision with
respect to such sales. The Selling Shareholders are not restricted as to the
price or prices at which they may sell their respective securities, and sales of
such securities at less than the market price may depress the market price of
the Company's Common Stock.
Selling Shareholders may effect sales of the securities by selling their
securities directly to purchasers, through broker-dealers acting as agents for
the Selling Shareholders or to broker-dealers who may purchase securities as
principals and thereafter sell the securities from time to time in the over-the-
counter market, in negotiated transactions or otherwise. Usual and customary or
specifically negotiated brokerage fees or commissions may be incurred in
connection with such sales and, if incurred, shall be borne by the Selling
Shareholders. The Company shall, however, pay all costs, expenses and fees in
connection with the registration of the securities covered hereby. The Company
will not receive any proceeds from any sales of the securities by the Selling
Shareholders.
With respect to the shares of Common Stock to be issued by the Company, the
Company intends to issue such shares for cash to certain purchasers within
ninety (90) days following the date of this Prospectus. However, the Company
has not entered into purchase agreements with respect to the shares of Common
Stock, and there can be no assurance that the Company will be able to effect
such sale. To the extent the Company does not sell such shares within the
ninety (90) day period, the Company will offer the remaining Common Stock on a
delayed or continuous basis in connection with one or more acquisitions pursuant
to Rule 415 under the Securities Act.
In offering the securities, the Company and the Selling Shareholders and
any broker-dealers and any other participating broker-dealers who execute sales
for the Selling Shareholders may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales, and any profits
realized by the Selling Shareholders and the compensation of such broker-dealer
may be deemed to be underwriting discounts and commissions.
The Company has advised the Selling Shareholders that during such time as
they may be engaged in a distribution of securities included herein they are
required to comply with Rules 10b-6 and 10b-7 under the Exchange Act (as those
Rules are described in more detail below) and, in connection therewith, that
they may not engage in any stabilization activity, except as permitted under the
Exchange Act, are required to furnish each broker-dealer through which
securities included herein may be offered copies of this Prospectus, and may not
bid for or purchase any securities of the Company or attempt to induce any
person to purchase any securities except as permitted under the Exchange Act.
Rule 10b-6 under the Exchange Act prohibits, with certain exceptions,
participants in a distribution from bidding for or purchasing, for an account in
which the participant has a beneficial interest, any of the securities that are
the subject of the distribution. Rule 10b-7 governs bids and purchases made in
order to stabilize the price of a security in connection with a distribution of
the security.
38
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 50,000,000 shares of
Common Stock, $.01 par value per share. As of July 8, 1996, the Company has
issued and outstanding 6,075,132 shares of Common Stock which are held of record
by 694 shareholders. An additional 940,305, 427,911 and 718,779 shares of
Common Stock are issuable upon exercise of the Class D Warrants, Class E
Warrants and various outstanding stock options of the Company, respectively.
The following brief description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Minnesota law and
the provisions of the Company's Amended and Restated Articles of Incorporation
(the "Articles of Incorporation") and By-laws, copies of which have been filed
as exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
The holders of the Company's Common Stock are entitled to one vote for each
share held on each matter submitted to a vote of shareholders. Cumulative
voting for the election of directors is not permitted; therefore, the holders of
a majority of the issued and outstanding shares of Company Common Stock can
elect all of the directors if they choose to do so. The holders of Common Stock
have no preemptive rights. There are no conversion rights or redemption or
sinking fund provisions with respect to the Common Stock and such shares are not
subject to further calls or assessments by the Company. Subject to the prior
rights of any shares of preferred stock then outstanding, the holders of Common
Stock are entitled to participate pro rata in any dividends, if and when
declared, and in distributions upon any liquidation of the Company. The Company
does not intend to pay any cash dividends in the foreseeable future. See
"Dividend Policy."
The rights of holders of the shares of Common Stock may become subject in
the future to prior and superior rights and preferences in the event the Board
of Directors establishes one or more additional classes of Common Stock, or one
or more series of preferred stock. See "Preferred Stock." The Board of
Directors has no present plan to establish any such additional classes or
series.
The outstanding shares of Common Stock are, and the shares of Common Stock
to be issued in connection with this Offering will be upon issuance, duly and
validly authorized and issued, fully paid and non-assessable.
PREFERRED STOCK
The Board of Directors of the Company may designate the terms and
preferences of one or more class or series of preferred stock, and issue such
stock at a price and on such terms (including terms relating to its voting,
dividend, redemption, sinking fund, liquidation, preemptive and conversion
rights and preferences) as it determines are appropriate. The rights and
preferences granted to preferred shares issued in the future may adversely
affect the rights of holders of Company Common Stock to the extent such
preferred shareholders convert preferred shares into Company Common Stock. The
Company has no immediate intention of creating any class or series of, or
issuing, any preferred stock.
STOCK WARRANTS
CLASS A, CLASS B AND CLASS C STOCK WARRANTS. In connection with the
Chapter 11 reorganization, the Company issued Class A Warrants to purchase
628,254 shares of Common Stock for the purchase price of $3.00 per share, Class
B Warrants to purchase 480,395 shares of Common Stock for the purchase price of
$5.00 per share, and Class C Warrants to purchase 68,995 shares of Common Stock
for the purchase price of $7.00 per share. The Company subsequently reduced the
exercise price for the Class B Warrants and Class C Warrants to $3.00 and $5.00
per share, respectively. As of the date of this Prospectus, 480,395 Class A
39
<PAGE>
Warrants, 68,995 Class B Warrants and 140 Class C Warrants were exercised
resulting in the issuance of 549,530 shares of Common Stock. The Class A
Warrants, Class B Warrants and Class C Warrants expired on December 31, 1994,
March 31, 1995 and June 30, 1995, respectively.
FORMER DYNECO INTERNATIONAL WARRANTS. In connection with the acquisition
of DynEco International, the Company assumed certain stock warrants pursuant to
their terms. The warrants to purchase shares of Company Common Stock issued to
former DynEco International shareholders, on the basis of one warrant for each
ten shares of DynEco International common stock, had an exercise price of $7.00
per share (the "DynEco International Warrants"). The Company subsequently
reduced the exercise price for the DynEco International Warrants to $2.50 per
share. As of the date of this Prospectus, 16,500 DynEco International Warrants
were exercised resulting in the issuance of 16,500 shares of Common Stock. The
DynEco International Warrants expired on December 31, 1995.
CLASS D WARRANTS AND CLASS E WARRANTS. In February 1996, the Company
issued 940,305 Class D Warrants and 427,911 Class E Warrants. Each Class D
Warrant and Class E Warrant entitles the registered holder to purchase one share
of Common Stock at an exercise price of $2.50 and $5.00 per share, respectively,
subject to adjustments in certain events. As of the date of this Prospectus,
none of the Class D Warrants and Class E Warrants have been exercised. The
Class D Warrants expire on April 10, 1999, and the Class E Warrants expire on
April 10, 2001, subject to earlier redemption by the Company.
The terms of the Class D Warrants and the Class E Warrants (collectively,
the "Warrants") are substantially similar with the exception of the purchase
price, expiration dates and the provisions relating to redemption. The Company
has the right to redeem the Class D Warrants and Class E Warrants at any time
prior to the expiration of such warrants at a redemption price of $.01 per
warrant upon thirty days prior written notice, provided that before any such
redemption can take place, the last price of the Company's Common Stock shall
have closed at or above $3.00 per share and $5.50 per share, respectively, for
ten consecutive trading days on the NASDAQ Small-Cap Market or on any other
national securities exchange registered under the Exchange Act.
The Warrants provide for adjustment of the exercise price and the number of
shares of Common Stock purchasable upon exercise to protect holders against
dilution in certain events, including stock dividends, stock splits,
reclassification, and any combination of Common Stock, or the merger,
consolidation or disposition of substantially all the assets of the Company.
Holders of the Warrants are not entitled to vote, receive dividends or
exercise any of the rights of holders of shares of the Company's Common Stock
for any purpose.
The Warrants were issued pursuant to the terms and conditions of a Warrant
Agreement between the Company and American Securities Transfer, Inc. The
foregoing summary of the Warrants is not complete and is qualified in its
entirety by reference to the Warrant Agreement.
CHANGE OF CONTROL PROVISIONS
The Company's Articles of Incorporation provide for three classes of
Directors: one class to hold office for a term expiring at the 1999 annual
meeting of shareholders; one class to hold office for a term expiring at the
1997 annual meeting of shareholders; and one class to hold office for a term
that expired at the 1995 annual meeting of shareholders. Presently, Mr. Richard
D. Besser and Thomas C. Edwards, Ph.D. hold office until 1999, and Frederick M.
Zimmerman, Ph.D. holds office until 1998. The remaining Directors of the
Company hold office until the next annual meeting of shareholders. Further,
certain provisions of the Company's Articles of Incorporation and By-laws
contain director nomination and removal provisions which may hinder or delay a
change in control of the Company.
40
<PAGE>
The Company is also governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. In general, Section
302A.671 provides that the shares of a corporation acquired in a "control share
acquisition" have no voting rights unless voting rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302A.673 prohibits a publicly-held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of transaction in which the person became an
interested shareholder, unless the business combination is approved in a
prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, of 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and at any time within
four years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's voting stock. Additionally,
certain provisions of the Company's Articles of Incorporation and By-laws
contain provisions which may hinder, delay or prevent a change in control of the
Company; generally, these provisions may not be amended without the affirmative
vote of at least 75% of the outstanding shares of Company voting stock.
Also in the event of a proposed merger, tender offer, proxy contest or
other attempt to gain control of the Company not approved by the Board of
Directors, it would be possible, subject to the limitations imposed by
applicable law, the Company's Articles of Incorporation and the applicable rules
of the securities exchanges upon which the Common Stock may be listed, for the
Board of Directors to authorize the issuance of one or more classes, or series
of the preferred stock with voting rights or other rights and preferences which
would impede the success of the proposed merger, tender offer, proxy contest or
other attempt to gain control of the Company. The consent of the holders of
Common Stock would not be required for any such issuance of preferred stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock and the Warrants is
American Securities Transfer, Inc., Denver, Colorado.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have outstanding
approximately 9,075,132 shares of Common Stock (assuming the sale of the
3,000,000 shares of Common Stock offered by the Company hereby and no exercise
of warrants or options to purchase Common Stock). In addition to the 3,000,000
shares offered hereby, there will be approximately __________ shares immediately
eligible for sale in the public market without restriction after completion of
the offering (excluding __________shares of Common Stock subject to the lock-up
agreements described in "Risk Factors -- Shares Eligible for Future Sale"). Of
the remaining outstanding shares of Common Stock, approximately _________shares
of Common Stock will be eligible for sale in the public market 90 days after the
date of this Prospectus (excluding __________ shares subject to the lock-up
agreements), subject in certain cases to compliance with the restrictions of
Rule 144 or Rule 701 promulgated under the Securities Act.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned "restricted" shares for
at least two years, including persons who may be deemed affiliates of the
Company, is entitled to sell within any three-month period a number of shares of
Common Stock that does not exceed the greater of 1% of the then-outstanding
shares of Common Stock of the Company,
41
<PAGE>
or the average weekly trading volume of Common Stock on the Nasdaq Stock Market
during the four calendar weeks preceding the date on which notice of the sale is
filed with the Commission. Sales under Rule 144 are subject to certain
restrictions relating to manner of sale, notice and the availability of current
public information about the Company. A person who is not an affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned shares for at least three years, would be entitled to sell
such shares immediately following the offering without regard to the volume
limitations, manner of sale provisions or notice or other requirements of
Rule 144. In addition, any employee, director or officer of, or consultant to,
the Company who purchased his shares pursuant to a written compensatory plan or
contract may be entitled to rely on the resale provisions of Rule 701, which
permit non-affiliates to sell their Rule 701 shares without having to comply
with the public information, holding period, volume limitation or notice
provisions of Rule 144, and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding period restrictions, in each
case commencing 90 days after the date of this Prospectus.
Certain of the Selling Shareholders, and all officers and directors of the
Company have agreed that, without the prior written consent of the Company's
Board of Directors, they will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the economic
consequences of ownership of the Common Stock, provided that the Company may
grant options under its existing stock option plans during such 180 day period
and provided that such restrictions shall not apply to shares of Common Stock
issued by the Company upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. Of such shares, a
total of __________ shares will be eligible for resale in the public market at
the expiration of such 180 day period subject in certain cases to compliance
with the restrictions of Rule 144 or Rule 701.
Prior to the offering, there has been only a limited public market for the
Common Stock, and no prediction can be made as to the effect, if any, that
future sales of Common Stock, or the availability of Common Stock for future
sale, will have on the market price of the Common Stock prevailing from time to
time. Sales of substantial amounts of Common Stock, or the perception that such
sales could occur, could adversely affect the prevailing market price of the
Common Stock.
42
<PAGE>
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Powell, Goldstein, Frazer & Murphy, Atlanta, Georgia.
EXPERTS
The consolidated balance sheets of the Company as of December 31, 1995 and
1994 and the related statements of income, shareholders' equity and cash flows
for the years ended December 31, 1995 and 1994 included in this Prospectus and
the related financial statement schedules included elsewhere in the Registration
Statement have been audited by Silverman Olson Thorvilson & Kaufmann LTD,
certified public accountants, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
43
<PAGE>
DYNECO CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
Consolidated Balance Sheet F-2
Consolidated Statement of Operations F-3
Consolidated Statement of Cash Flows F-4 - F-5
Selected Information F-6
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Independent Auditors' Report F-7
Consolidated Balance Sheet F-8
Consolidated Statement of Operations F-9
Consolidated Statement of Shareholders' Equity (Deficit) F-10
Consolidated Statement of Cash Flows F-11 - F-12
Notes to Consolidated Financial Statements F-13 - F-23
FAB-TECH INDUSTRIES OF BREVARD, INC.
INDEX TO FINANCIAL STATEMENTS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
Balance Sheet F-24
Statement of Income and Retained Earnings F-25
Statement of Cash Flows F-26
Selected Information F-27
FOR THE YEAR ENDED DECEMBER 31, 1995 AND 1994
Independent Auditors' Report F-28
Balance Sheet F-29
Statement of Income and Retained Earnings F-30
Statement of Cash Flows F-31
Notes to Financial Statements F-32 - F-35
F-1
<PAGE>
DYNECO CORPORATION
CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS
Current asset:
Cash $ 759,953
Other current assets 137,920
-----------
Total current assets 897,873
Property and equipment, net 86,418
Investment in joint venture 171,100
Intangible assets:
Patent/license rights, net 385,235
Technology acquired, net 169,440
-----------
Total intangible assets 554,675
-----------
Total assets $ 1,710,066
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 14,592
Accrued liabilities 297,576
-----------
Total current liabilities 312,168
Commitments and contingencies -
Shareholders' equity:
Common stock, $.01 par value; 6,075,132
shares issued and outstanding 60,751
Paid-in capital 5,352,546
Accumulated deficit (4,015,399)
-----------
Total shareholders' equity 1,397,898
-----------
Total liabilities and shareholders' equity $ 1,710,066
-----------
-----------
The accompanying selected information is
an integral part of the financial statements.
F-2
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
1996 1995
--------- ---------
Revenues $ - $ 5,000
Operating expenses:
General and administrative expenses 188,351 320,056
Research and development 59,610 59,489
--------- ---------
Total operating expenses 247,961 379,545
--------- ---------
Operating loss (247,961) (374,545)
--------- ---------
Other income (expense):
Investment income 13,074 -
Interest expense (100) -
Loss in joint venture (15,000) -
Gain on disposal of property and equipment - 585
--------- ---------
Total other income (expense) (2,026) 585
--------- ---------
Net loss $(249,987) $(373,960)
--------- ---------
--------- ---------
Per share information:
Net income (loss) per share $ (.04) $ (.08)
--------- ---------
--------- ---------
Weighted average number of
common shares outstanding 6,075,132 4,666,623
--------- ---------
--------- ---------
The accompanying selected information is
an integral part of the financial statements.
F-3
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (249,987) $(373,960)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 9,995 19,469
Loss in joint venture 15,000 -
Common stock issued for services - 200,000
Gain on sale of property and equipment - (585)
Decrease in current assets:
Other current assets (28,231) (4,725)
Increase (decrease) in current liabilities:
Accounts payable (190,421) (17,124)
Accrued expenses 120,076 11,483
---------- ---------
Net cash used in operating activities (323,568) (165,442)
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (14,499) (4,096)
Proceeds from sale of property and equipment - 1,200
Increase in patent/license rights (12,576) (1,930)
---------- ---------
Net cash used in financing activities (27,075) (4,826)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscriptions receivable - 37,400
Issuance of common stock - 179,396
---------- ---------
Net cash provided by financing activities - 216,796
---------- ---------
Net increase in cash (350,643) 46,528
Cash - beginning of period 1,110,596 3,823
---------- ---------
Cash - end of period $ 759,953 $ 50,351
---------- ---------
---------- ---------
</TABLE>
The accompanying selected information is
an integral part of the financial statements.
F-4
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the three month period for interest $100 $ -
---- ----
---- ----
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995:
The Company issued $124,060 of common stock in exchange for stock
subscriptions receivable.
</TABLE>
The accompanying selected information is
an integral part of the financial statements.
F-5
<PAGE>
DYNECO CORPORATION
SELECTED INFORMATION
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
DynEco Corporation ("DynEco" or the "Company") is engaged in
developing compressor technology and related products for use in
commercial, industrial, and consumer markets through its
wholly-owned subsidiary, DynEco International, Inc., and is engaged
in the licensing of its proprietary resin transfer molding process
and providing application engineering consultation with respect to
those licenses as a part of DynEco Corporation's activities prior
to incorporation of and transfer of related rights to its
wholly-owned subsidiary, Tertm Technology Corporation.
Basis of Presentation:
The accompanying unaudited consolidated balance sheets as of March
31, 1996, and the unaudited consolidated statements of operations
and cash flows for the three month periods ended March 31, 1996 and
1995, include the accounts of DynEco Corporation and its
wholly-owned subsidiaries, DynEco International, Inc. and Tertm
Technology Corporation. All references to the "Company" in these
financial statements related to the consolidated entity. All
significant intercompany accounts and transactions are eliminated
in consolidation.
These financial statements reflect all adjustments which, in the
opinion of management, are necessary for a fair presentation of the
Company's financial position, the results of operations and its
cash flows for the three months ended March 31, 1996 and 1995. The
results for the period ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. This report should be read in conjunction with
the Financial Statements and Notes contained in the Company's
Annual Report for the year ended December 31, 1995.
Net Income (Loss) Per Share:
Income (loss) per share is calculated based on the weighted average
number of common shares outstanding as the effect of including
common stock equivalents would be anti-dilutive.
F-6
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
DynEco Corporation and Subsidiaries
Rockledge, Florida
We have audited the accompanying consolidated balance sheet of DynEco
Corporation and its subsidiaries as of December 31, 1995 and 1994 and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of DynEco
Corporation as of December 31, 1995 and 1994 and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
February 2, 1996
F-7
<PAGE>
DYNECO CORPORATION
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995 AND 1994
ASSETS 1995 1994
----------- -----------
Current asset:
Cash $ 1,110,596 $ 3,823
Stock subscriptions receivable (Note 2) - 37,400
Other current assets 109,689 18,586
----------- -----------
Total current assets 1,220,285 59,809
Property and equipment, net (Note 3) 76,355 85,146
Investment in joint venture (Note 7) 186,100 -
Intangible assets (Note 4):
Patent/license rights, net 372,923 285,660
Technology acquired, net 174,735 195,915
----------- -----------
Total intangible assets 547,658 481,575
----------- -----------
Total assets $ 2,030,398 $ 626,530
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 205,013 $ 112,148
Accrued compensation and payroll taxes 174,500 20,236
Other accrued expenses 3,000 32,000
----------- -----------
Total current liabilities 382,513 164,384
----------- -----------
Commitments and contingencies (Note 5) - -
Shareholders' equity (deficit):
Common stock, $.01 par value; 6,075,132 and
4,523,960 shares issued and outstanding,
respectively (Note 6) 60,751 45,240
Paid-in capital 5,352,546 3,086,313
Accumulated deficit (3,765,412) (2,669,407)
----------- -----------
Total shareholders' equity 1,647,885 462,146
----------- -----------
Total liabilities and
shareholders' equity (deficit) $ 2,030,398 $ 626,530
----------- -----------
----------- -----------
The accompanying notes are an integral
part of the financial statements.
F-8
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
1995 1994
----------- -----------
Revenues (Note 8) $ 5,000 $ 70,000
Operating expenses:
General and administrative expenses 836,550 735,002
Research and development 248,523 43,835
----------- ---------
Total operating expenses 1,085,073 778,837
----------- ---------
Operating loss (1,080,073) (708,837)
Other income (expense):
Interest income 8,776 -
Gain (loss) on sale of property and equipment 789 (1,640)
Loss in joint venture (Note 7) (23,900) -
Interest expense (1,597) (313)
Loss on litigation settlement (Note 9) - (75,456)
----------- ---------
Total other income (expense) (15,932) (77,409)
----------- ---------
Net loss $(1,096,005) $(786,246)
----------- ---------
----------- ---------
Net loss per share $ (.22) $ (.24)
----------- ---------
----------- ---------
Weighted average number of common shares
outstanding 5,075,014 3,312,721
----------- ---------
----------- ---------
The accompanying notes are an integral
part of the financial statements.
F-9
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK STOCK SHAREHOLDERS'
---------------------- PAID-IN SUBSCRIPTION ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL RECEIVABLE DEFICIT (DEFICIT)
----------- --------- ------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1993 281,284 $ 2,813 $1,835,693 $(114,888) $(1,883,161) $ (159,543)
Settlement of stock
subscription receivable
(Note 9) - - - 114,888 - 114,888
Common stock issued in
acquisition of DynEco
International, Inc. (Note
11) 3,926,000 39,260 510,740 - - 550,000
Common stock issued for
cash 133,979 1,340 361,058 - - 362,398
Common stock issued for
services 66,897 669 167,580 - - 168,249
Common stock issued for
patent/license rights
(Note 7) 100,000 1,000 174,000 - - 175,000
Common stock issued
pursuant to stock
subscriptions receivable
(Note 2) 15,800 158 37,242 - - 37,400
Net loss - - - - (786,246) (786,246)
--------- ------- ---------- --------- ----------- ----------
Balance at December 31,
1994 4,523,960 45,240 3,086,313 - (2,669,407) 462,146
Common stock issued for
cash 1,212,839 12,128 1,854,617 - - 1,866,745
Common stock issued for
services 338,333 3,383 411,616 - - 414,999
Net loss - - - - (1,096,005) (1,096,005)
--------- ------- ---------- --------- ----------- -----------
Balance at December 31,
1995 6,075,132 $60,751 $5,352,546 $ - $(3,765,412) $ 1,647,885
--------- ------- ---------- --------- ----------- -----------
--------- ------- ---------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-10
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,096,005) $(786,246)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 37,113 51,445
(Gain) loss on sale of property and equipment (789) 1,640
Common stock issued for services 214,999 168,249
Loss in joint venture 23,900 -
Non-cash loss on litigation settlement - 75,456
(Increase) decrease in current assets:
Other current assets (91,103) 8,774
Increase in current liabilities:
Accounts payable 92,865 65,580
Accrued expenses 125,264 24,986
----------- ---------
Net cash used in operating activities (693,756) (390,116)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (6,498) (28,998)
Proceeds from the sale of property and equipment 1,200 -
Investment in joint venture (10,000) -
Increase in patent/license rights (88,318) (20,000)
Proceeds from note receivable - 28,600
----------- ---------
Net cash used in financing activities (103,616) (20,398)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from stock subscriptions receivable 37,400 -
Issuance of note payable - related party - 32,473
Issuance of common stock 1,866,745 362,398
----------- ---------
Net cash provided by financing activities 1,904,145 394,871
----------- ---------
Net increase (decrease) in cash 1,106,773 (15,643)
Cash - beginning of year 3,823 19,466
----------- ---------
Cash - end of year $ 1,110,596 $ 3,823
----------- ---------
----------- ---------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-11
<PAGE>
DYNECO CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- ---------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest $1,597 $ -
------ -----
------ -----
</TABLE>
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
During 1995:
The Company issued 200,000 shares of its common stock valued at
$200,000 in exchange for tooling and design, development and
manufacturing services which the Company subsequently contributed to
Kurt/DynEco Compressor Company, LLC in 1995 (Note 7).
During 1994:
In connection with the acquisition of DynEco International, Inc., the
Company acquired a $28,600 note receivable, $27,360 of other current
assets, $92,292 of property and equipment, $81,935 of patent/license
rights, net of $22,133 of accounts payable and cancellation of its
previous obligation on notes payable totalling $130,146 for 3,926,000
shares of common stock valued at $550,000. The $211,800 excess
purchase price was identified as technology acquired (Note 11).
The Company acquired patent/license rights through the issuance of
common stock valued at $175,000 (Note 7). Additionally, $37,400 of
common stock was issued in exchange for stock subscriptions receivable
(Note 2).
The accompanying notes are an integral
part of the financial statements.
F-12
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
DynEco Corporation ("DynEco" or the "Company") is engaged
in developing compressor technology and related products for use in
commercial, industrial, and consumer markets through its
wholly-owned subsidiary, DynEco International, Inc., and is engaged
in the licensing of its proprietary resin transfer molding process
and providing application engineering consultation with respect to
those licenses as a part of DynEco Corporation's activities prior
to incorporation of and transfer of related rights to its
wholly-owned subsidiary, Tertm Technology Corporation.
Basis of Presentation:
For the years ended December 31, 1995 and 1994, the financial
statements include the accounts of DynEco Corporation and its
wholly-owned subsidiaries, DynEco International, Inc. for the
period from its March 31, 1994 acquisition and Tertm Technology
Corporation for the period from its incorporation, May 27, 1994.
For the period from January 1, 1994 to March 31, 1994, the
financial statements include the accounts of DynEco Corporation on
a stand-alone basis. All references to "the Company" in these
financial statements relate to the consolidated entity. All
significant intercompany accounts and transactions are eliminated
in consolidation.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is computed
using the straight-line method and is expensed based upon the
estimated useful lives of the assets.
Expenditures for additions and improvements are capitalized, while
repairs and maintenance are expensed as incurred.
Intangible Assets:
Intangible assets consist of the costs associated with obtaining
patent/license rights and the cost of technology acquired in the
acquisition of DynEco International, Inc.
Net Income (Loss) Per Share:
Income (loss) per share is calculated based on the weighted average
number of common shares outstanding as the effect of including
common stock equivalents would be anti-dilutive.
F-13
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make certain estimates and assumptions about the future outcome of
current transactions which may affect the reporting and disclosure
of these transactions. Accordingly, actual results could differ
from those estimates used in the preparation of these financial
statements.
Reclassifications:
Certain reclassifications have been made in the 1994 financial
statements in order to conform with 1995 financial statement
presentation. These reclassifications have no effect on
accumulated deficit or net loss, as originally reported.
NOTE 2: STOCK SUBSCRIPTIONS RECEIVABLE
As of December 31, 1994, the Company had entered into agreements to
issue 15,800 shares of common stock at per share prices ranging
from $2 to $3 in exchange for subscriptions receivable aggregating
$37,400. In January 1995, the Company collected the subscriptions
receivable balance in full.
NOTE 3: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
<TABLE>
<CAPTION>
Estimated
Useful Life
1995 1994 In Years
--------- --------- -----------
<S> <C> <C> <C>
Machinery and equipment $ 78,181 $ 80,692 3-7
Office equipment 43,967 38,958 3-10
-------- ---------
Total property and equipment 122,148 119,650
Less accumulated depreciation (45,793) (34,504)
-------- ---------
Property and equipment, net $ 76,355 $ 85,146
-------- ---------
-------- ---------
</TABLE>
In 1994, the Company acquired $92,292 of property and equipment in
connection with the March 31, 1994 acquisition of DynEco
International, Inc. (Note 11).
Depreciation expense was $14,878 in 1995 and $34,504 in 1994.
F-14
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 4: INTANGIBLE ASSETS
Intangible assets consisted of the following at December 31:
<TABLE>
<CAPTION>
Estimated
Useful Life
1995 1994 In Years
--------- --------- -----------
<S> <C> <C> <C>
Patent/license rights $383,083 $294,765 17
Technology acquired (Note 13) 211,800 211,800 10
-------- --------
Total intangible assets 594,883 506,565
Less accumulated amortization (47,225) (24,990)
-------- --------
Intangible assets, net $547,658 $481,575
-------- --------
-------- --------
</TABLE>
Amortization expense was $22,235 in 1995 and $16,941 in 1994.
NOTE 5: COMMITMENTS AND CONTINGENCIES
Stock Warrants:
At December 31, 1995, the Company had warrants outstanding as
follows:
Common Exercise
Shares Under Price Expiration
Warrant Warrant Per Share Date
------- ------------ --------- ----------
Class D 940,305 $2.50 April 1999
Class E 427,911 $5.00 April 2001
---------
1,368,216
---------
---------
The warrants are redeemable by the Company for $.01 per warrant
after shares of the Company's common stock have closed at or above
$3.00 for ten consecutive trading days for the Class D warrants and
at or above $5.50 for the Class E warrants.
Stock Options:
At December 31, 1995, an aggregate of 1,500,000 shares
of common stock were reserved for issuance under the Company's 1993
corporate stock option plan and 1993 advisors stock option plan.
Pursuant to the plans, the board of directors may grant options to
key individuals at their discretion.
F-15
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 5: COMMITMENTS AND CONTINGENCIES (CONTINUED)
Stock Options (continued):
As of December 31, 1995, the Company had the following non-qualified
options outstanding:
Total Presently Exercise
Common Shares Exercisable Price Expiration
Under Option Options Per Share Date
------------- ----------- --------- -------------
178,779 178,779 $1.00 December 1998
180,000 135,000 $2.00 December 1998
250,000 250,000 $ .01 December 1999
------- -------
608,779 563,779
------- -------
------- -------
Various officers and directors have been granted a total of 525,000
options under the plans which were included in the table above.
NOTE 6: CAPITAL STOCK
The Company has authorized an aggregate of 50,000,000 shares of
capital stock, which it may designate at its option, as either
preferred stock at a specified par value or common stock at a $.01
par value. At December 31, 1995 or 1994, there were no shares of
preferred stock designated, issued or outstanding.
NOTE 7: RELATED PARTY TRANSACTIONS
Non-Royalty Patented-Technology License:
In December 1994, the Company issued 100,000 shares of its common
stock valued at $175,000 in exchange for a non-royalty license to
utilize certain patented technology developed by a privately held
corporation ("Licensor") whose majority shareholder is also a
shareholder in the Company.
Investment in Joint Venture:
During December 1994, the Company and the Licensor jointly
organized a new entity named Kurt/DynEco Compressor Company, LLC
(Kurt/DynEco) to design, develop, manufacture and market specific
use industrial air compressor systems. This new entity is owned 50%
by DynEco and 50% by the Licensor.
In exchange for its 50% interest in Kurt/DynEco, the Company paid
$10,000 in 1995. Additionally during 1995, the Company granted a
non-royalty limited technology license to Kurt/DynEco and
contributed certain tooling and design, development and
manufacturing services valued at $200,000 which the Company
acquired from the licensor through the issuance of 200,000 shares
of its common stock.
F-16
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 7: RELATED PARTY TRANSACTIONS (CONTINUED)
The following is a summary of the unaudited condensed financial
position and results of operations of Kurt/Dyneco as of December 31,
1995:
1995
(UNAUDITED)
-----------
Current assets $ 4,281
Non current assets 200,000
--------
Total assets $204,281
--------
--------
Current liabilities $ 32,082
Stockholders' equity 172,199
--------
Total liabilities and stockholders' equity $204,281
--------
--------
Revenues $ -
Operating expenses 47,801
--------
Net loss $(47,801)
--------
--------
The Company's share of Kurt/DynEco's loss was $23,900 in 1995.
Note Payable - Related Party
In 1993, the Company received $97,673 through the issuance of a
note payable to DynEco International, Inc. prior to its acquisition
by the Company. During 1994, the note balance was effectively
forgiven through the March 31, 1994 acquisition (Note 11).
NOTE 8: MAJOR CUSTOMERS
In 1995 and 1994, the Company received $5,000 and $70,000,
respectively, from one customer in exchange for engineering
services. During 1995, the Company completed its engineering
contract and does not expect to receive additional future revenues
from this customer.
NOTE 9: LOSS ON LITIGATION SETTLEMENT
In 1993, the Company was a named defendant in a lawsuit by a
shareholder and former officer which alleged that the Company did
not perform in accordance with certain conditions in the former
officer's employment agreement. The Company disputed this claim
and filed a counterclaim of its own against the shareholder.
During February 1994, both the lawsuit and Company's counterclaim
were settled. The effect of the settlement was the elimination of
the $114,888 stock subscription receivable and reduction of certain
accrued expenses by $39,432, resulting in a $75,456 loss on
litigation settlement.
F-17
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 10: INCOME TAXES
The effective tax rate varies from the maximum federal statutory rate
as a result of the following items:
1995 1994
---------- ----------
Tax benefit computed at the
maximum federal statutory rate (34.0)% (34.0)%
Net (increase) decrease due to various
temporary and permanent differences (.8) 3.5
Net operating loss carryforward 34.8 30.5
------ ------
Income tax provision - % - %
------ ------
------ ------
Deferred taxes consisted of the following at December 31:
1995 1994
----------- -----------
Asset:
Net operating loss carryforward $ 1,423,000 $ 1,032,000
Other 140,000 143,000
----------- -----------
Net deferred tax asset before
valuation allowance 1,563,000 1,175,000
Less valuation allowance (1,563,000) (1,175,000)
----------- -----------
Net deferred tax asset $ - $ -
----------- -----------
----------- -----------
For financial statement purposes, no tax benefit has been reported
in 1995 or 1994 as the Company has had significant losses in recent
years and realization of the tax benefits is uncertain. Accordingly,
a valuation allowance has been established for the full amount of the
deferred tax asset.
At December 31, 1995, the Company had net operating loss carryforwards
as follows for income tax purposes:
Carryforward Net Operating
Expires December 31: Loss Carryforwards
-------------------- ------------------
2001 $ 82,000
2002 404,000
2003 72,000
2004 522,000
2005 550,000
2006 206,000
2007 236,000
2008 274,000
2009 716,000
2010 1,118,000
----------
$4,180,000
----------
----------
F-18
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 10: INCOME TAXES (CONTINUED)
The utilization of the carryforwards is dependent upon the ability
to generate sufficient taxable income during the carryforward
period. In addition, utilization of these carryforwards is limited
due to ownership changes as defined in the Internal Revenue Code.
Furthermore, carryforwards relating to DynEco International, Inc.,
prior to its March 31, 1994 acquisition (approximately $400,000)
are subject to separate return limitation regulations.
NOTE 11: DYNECO INTERNATIONAL, INC. ACQUISITION
On March 31, 1994, the Company exchanged 3,926,000 shares of
Company common stock, representing a 93% interest in the Company,
for 3,926,000 shares of DynEco International, Inc. (DII),
representing all the issued and outstanding shares of DII. The
exchange resulted in DII becoming a wholly-owned subsidiary of the
Company.
The total DII purchase price consisted of 3,926,000 shares of
company common stock valued at $550,000, or $.14 per share by the
Company. This value was determined based on approximately 93% of
the total market value of all Company stock outstanding immediately
prior to this transaction less a discount to factor in the
reduction in value stemming from the restricted distribution rights
of these non-registered shares and the size of the newly issued
block.
The Company has accounted for the acquisition under the purchase
method whereby the assets and liabilities of DII are recorded at
their net book value, which approximated fair market value as of
the date of acquisition as estimated by management. The following
items represent the tangible assets acquired and liabilities
assumed:
Notes receivable $158,746
Other current assets 27,360
Property and equipment 92,292
Patent/license rights 81,935
Trade payable (22,133)
--------
Net tangible assets $338,200
--------
--------
The $211,800 excess purchase price over the fair market value of
tangible assets and liabilities acquired has been identified as
technology acquired and is being amortized over a ten-year period.
F-19
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 11: DYNECO INTERNATIONAL, INC. ACQUISITION (CONTINUED)
Summarized below is the 1994 unaudited condensed and proforma
DynEco Corporation consolidated statement of operations as if the
acquisition had taken place at the beginning of the year ended
December 31, 1994. It was assumed that the 3,926,000 shares issued
in connection with this acquisition were outstanding at the
beginning of the proforma period.
Revenues $ 95,000 (1)
Operating expenses (938,167)(1)(2)
---------
Operating loss (843,167)
Other expense (76,659)(1)
---------
Net loss $(919,826)
---------
---------
Net loss per share $ (.22)
---------
---------
Weighted average number of shares outstanding 4,270,020
---------
---------
(1) Includes DynEco International, Inc. unaudited Activity for the
period from January 1, 1994 to March 31, 1994 (date of
acquisition). During this three month period DynEco
International, Inc.'s statement of operations included revenues
of $25,000, operating expenses of $138,150 and other income of
$750.
(2) Includes $21,180 of amortization of Technology acquired in the
DynEco International, Inc. acquisition for the year ended
December 31, 1994.
NOTE 12: SUBSEQUENT EVENTS
Joint Venture Agreement:
In February 1996, the Company and a leading manufacturer of
automotive air conditioning systems headquartered in Texas
announced a preliminary agreement for the formation of a joint
venture to produce automotive air conditioning compressors using
the Company's proprietary compressor technology. The joint
venture's facilities will be located in Forth Worth, Texas and is
expected to be operational in 1997.
F-20
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 12: SUBSEQUENT EVENTS (CONTINUED)
Proposed Business Acquisition:
In November 1995, the Company entered into an agreement with an
investment banking firm, to assist the Company in obtaining up to
an additional $2,000,000 in equity and $1,000,000 of debt
financing. The Company believes that it will complete its
fund-raising efforts in the second or third quarter of 1996. Upon
successful completion, the proceeds from the offering will be used
to acquire the assets, liabilities and manufacturing operations of
Fab-Tech Industries of Brevard, Inc. (FTI), a privately-held
business engaged in the production of precision parts, components
and subassemblies.
The total FTI cash purchase price is estimated at $2,400,000, plus
the assumption of all FTI liabilities. The following items
represent the expected net tangible assets acquired, pending final
approval from the management of both parties:
Cash $ 164,805
Accounts receivable 470,126
Inventory 365,250
Other current assets 12,815
Property and equipment 1,089,797
Accounts payable (110,109)
Accrued liabilities 17,381)
Notes payable - shareholders (370,484)
Current maturities of long-term debt (314,831)
Long-term debt (683,238)
----------
Net tangible assets $ 606,750
----------
----------
The $1,793,250 excess purchase price over the fair market
value of net tangible assets assumed has been identified as the
value attributed to FTI's intellectual property and customer lists
acquired.
F-21
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 12: SUBSEQUENT EVENTS (CONTINUED):
Proposed Business Acquisition (Continued):
Summarized below is the unaudited condensed and proforma
consolidated balance sheet and statement of operations as if the
proposed $3,000,000 fund-raising and business acquisition had taken
place at the beginning of the year ended December 31, 1995.
<TABLE>
<CAPTION>
1995 PRO-FORMA CONSOLIDATED BALANCE SHEET (UNAUDITED)
---------------------------------------------------------------
PRO- FORMA
DYNECO FAB-TECH PRO-FORMA DYNECO
CORPORATION INDUSTRIES OF CONSOLIDATING CORPORATION
CONSOLIDATED BREVARD, INC. (1) ENTRIES (2) CONSOLIDATED
------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C>
Current assets $ 1,220,285 $1,012,996 $ 457,579 $ 2,690,860
Property and equipment 76,355 1,089,797 - 1,166,152
Intangible assets 733,758 - 1,816,984(3) 2,550,742
----------- ---------- ---------- -----------
Total assets $ 2,030,398 $2,102,793 $2,274,563 $ 6,407,754
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
Current liabilities $ 382,513 $ 812,805 $ - $ 1,195,318
Long-term debt - 683,238 1,000,000 1,683,238
Equity 1,647,885 606,750 1,274,563 3,529,198
----------- ---------- ---------- -----------
Total liabilities and deficit $ 2,030,398 $2,102,793 $2,274,563 $ 6,407,754
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
(1) Represents Fab-Tech Industries of Brevard, Inc. audited balance sheet at
December 31, 1995.
(2) Assumes successful completion of $3,000,000 fund-raising with estimated
commissions of $50,000 and $2,400,000 cash purchase of Fab-Tech Industries
of Brevard, Inc. net assets.
(3) Represents fair market value adjustment for assets and amortization of
asset costs over their estimated useful lives.
F-22
<PAGE>
DYNECO CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 12: SUBSEQUENT EVENTS (CONTINUED):
Proposed Business Acquisition (Continued):
<TABLE>
<CAPTION>
1995 PRO-FORMA CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
-------------------------------------------------------------------
PRO-FORMA
DYNECO FAB-TECH PRO-FORMA DYNECO
CORPORATION INDUSTRIES OF CONSOLIDATING CORPORATION
CONSOLIDATED BREVARD, INC. (1) ENTRIES CONSOLIDATED
------------ ----------------- ------------- ------------
<S> <C> <C> <C> <C>
Sales $ 5,000 $ 3,618,091 $ - $ 3,623,091
Cost of sales - (2,593,751) - (2,593,751)
Operating expenses (1,085,073) (497,027) (227,000)(2) (1,809,100)
----------- ----------- --------- -----------
Income (loss) from operations (1,080,073) 527,313 (227,000) (779,760)
Other income (expense) (15,932) (136,579) (95,000)(3) (247,511)
----------- ----------- --------- -----------
Net income (loss) $(1,096,005) $ 390,734 $(322,000) $(1,027,271)
----------- ----------- --------- -----------
----------- ----------- --------- -----------
Net loss per share $ (.22) $ (.17)
----------- -----------
----------- -----------
Weighted average number
of shares outstanding 5,075,014 6,075,014
----------- -----------
----------- -----------
</TABLE>
(1) Represents Fab-Tech Industries of Brevard, Inc. audited activity for the
year ended December 31, 1995.
(2) Represents amortization of intellectual property acquired in the Fab-Tech
Industries acquisition for the year ended December 31, 1995.
(3) Represents interest expense incurred on $1,000,000 of debt financing for
the year ended December 31, 1995.
F-23
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
BALANCE SHEET
MARCH 31, 1996
(UNAUDITED)
ASSETS
Current assets:
Cash $ 48,704
Accounts receivable 443,649
Inventory 472,000
Other current assets 8,110
----------
Total current assets 972,463
Property and equipment, net 1,267,497
----------
Total assets $2,239,960
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 174,823
Advances and notes payable - shareholders 230,662
Accrued liabilities 44,128
Current maturities of long-term debt 62,451
Current maturities of capital lease obligations 198,497
----------
Total current liabilities 710,561
Long-term debt 116,273
Capital lease obligations 742,742
----------
Total liabilities 1,569,576
Commitments -
Shareholders' equity:
Common stock, $1 par value; 7,500 shares authorized;
1,500 shares issued and outstanding 1,500
Paid in capital 118,500
Retained earnings 550,384
----------
Total shareholders' equity 670,384
----------
Total liabilities and shareholders' equity $2,239,960
----------
----------
The accompanying selected information is
an integral part of the financial statements.
F-24
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Sales $973,855 $780,192
Cost of goods sold 714,528 534,063
-------- --------
Gross profit 259,327 246,129
Operating expenses 141,800 122,364
-------- --------
Income from operations 117,527 123,765
Other income (expense):
Interest expense (38,607) (32,306)
Miscellaneous 2,714 3,708
-------- --------
Total other income (expense) (35,893) (28,598)
-------- --------
Net income 81,634 95,167
Retained earnings (accumulated deficit) - beginning of the period 486,750 236,016
Shareholder distributions (18,000) -
-------- --------
Retained earnings - end of the period $550,384 $331,183
-------- --------
-------- --------
</TABLE>
The accompanying selected information is
an integral part of the financial statements.
F-25
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
STATEMENT OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $ 81,634 $ 95,167
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 40,200 36,300
(Increase) decrease in assets:
Accounts receivable 26,477 (91,541)
Inventory (106,750) (114,200)
Other current assets 4,705 (703)
Increase (decrease) in liabilities:
Accounts payable 64,714 18,113
Accrued liabilities 26,747 6,985
--------- ---------
Net cash provided by (used in) operating activities 137,727 (49,879)
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Increase (decrease) in advances and notes payable -
shareholders (139,822) (82,812)
Repayment of long-term debt (24,024) (21,564)
Repayment of capital lease obligations (71,982) (44,554)
Shareholder distributions (18,000) -
--------- ---------
Net cash used in financing activities (253,828) (148,930)
--------- ---------
Net decrease in cash (116,101) (198,809)
Cash - beginning of period 164,805 230,859
--------- ---------
Cash - end of period $ 48,704 $ 32,050
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the period $ (38,607) $ 32,306
--------- ---------
--------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1996:
The Company issued $217,900 of capital lease obligations in exchange for property
and equipment.
During 1995:
The Company issued $36,159 of capital lease obligations in exchange for property
and equipment.
</TABLE>
The accompanying selected information is
an integral part of the financial statements.
F-26
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
SELECTED INFORMATION
FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
Fab-Tech Industries of Brevard, Inc. was incorporated in
the State of Florida in May 1989. The Company is engaged in
precision machining and sheet metal fabrication of mechanical
components.
Income Taxes:
The Company has elected to be treated as an S-corporation under
applicable federal and state tax regulations. Accordingly, no
provision for income taxes has been provided in these financial
statements, as any corporate earnings or losses will pass-through
to the Company shareholders' personal returns.
NOTE 2: NEGOTIATIONS FOR THE SALE OF THE BUSINESS
In 1995, the Company entered into negotiations to sell all of its
assets and manufacturing operations to DynEco Corporation, a
publicly-held business. The sale is anticipated to occur in the
second or third quarter of 1996 at an estimated sales price of
$2,400,000 plus the assumption of all Company liabilities.
F-27
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Fab-Tech Industries of Brevard, Inc.
Rockledge, Florida
We have audited the accompanying balance sheet of Fab-Tech Industries of
Brevard, Inc. as of December 31, 1995 and 1994 and the related statements of
income and retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conduced our audits in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the financial position of Fab-Tech Industries of Brevard,
Inc., as of December 31, 1995 and 1994, and the results of its operations and
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
February 9, 1996
F-28
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
BALANCE SHEET
DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
ASSETS 1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash $ 164,805 $ 230,859
Accounts receivable 470,126 381,848
Inventory 365,250 187,373
Other current assets 12,815 11,702
---------- ----------
Total current assets 1,012,996 811,782
Property and equipment, net (Note 2) 1,089,797 758,342
---------- ----------
Total assets $2,102,793 $1,570,124
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 110,109 $ 63,816
Distributions and notes payable - shareholders (Note 3) 370,484 317,040
Accrued liabilities 17,381 26,211
Current maturities of long-term debt (Note 4) 86,475 81,997
Current maturities of capital lease obligations (Note 5) 228,356 148,046
---------- ----------
Total current liabilities 812,805 637,110
Long-term debt (Note 4) 116,273 202,108
Capital lease obligations (Note 5) 566,965 374,890
---------- ----------
Total liabilities 1,496,043 1,214,108
---------- ----------
Commitments (Note 6) - -
Shareholders' equity:
Common stock, $1 par value; 7,500 shares authorized;
1,500 shares issued and outstanding 1,500 1,500
Paid in capital 118,500 118,500
Retained earnings 486,750 236,016
---------- ----------
Total shareholders' equity 606,750 356,016
---------- ----------
Total liabilities and shareholders' equity $2,102,793 $1,570,124
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-29
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Sales $3,618,091 $3,765,966
Cost of goods sold 2,593,751 2,834,991
---------- ----------
Gross profit 1,024,340 930,975
Operating expenses 497,027 416,714
---------- ----------
Income from operations 527,313 514,261
---------- ----------
Other income (expense):
Interest expense (143,918) (133,603)
Loss on sale of equipment (Note 2) (1,190) (3,690)
Miscellaneous 8,529 15,213
---------- ----------
Total other income (expense) (136,579) (122,080)
---------- ----------
Net income 390,734 392,181
Retained earnings (accumulated deficit) - beginning of year 236,016 (24,165)
Shareholder distributions (140,000) (132,000)
---------- ----------
Retained earnings - end of year $ 486,750 $ 236,016
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-30
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS USED IN OPERATING ACTIVITIES:
Net income $ 390,734 $ 392,181
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation 190,761 146,448
Loss on sale of property and equipment 1,190 3,690
(Increase) decrease in assets:
Accounts receivable (88,278) (142,760)
Inventory (177,877) 282,272
Other current assets (1,113) 734
Increase (decrease) in liabilities:
Accounts payable 46,293 (188,744)
Accrued liabilities (8,830) (4,285)
--------- ---------
Net cash provided by operating activities 352,880 489,536
--------- ---------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of equipment (22,541) -
Proceeds from the sale of equipment 5,000 500
--------- ---------
Net cash provided by (used in) investing
activities (17,541) 500
--------- ---------
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
Increase in distributions and notes payable -
shareholders 53,444 55,360
Issuance of long-term debt - 2,600
Repayment of long-term debt (95,830) (65,769)
Repayment of capital lease obligations (219,007) (141,367)
Shareholder distributions (140,000) (132,000)
--------- ---------
Net cash used in financing activities (401,393) (281,176)
--------- ---------
Net increase (decrease) in cash (66,054) 208,860
Cash - beginning of year 230,859 21,999
--------- ---------
Cash - ending of year $ 164,805 $ 230,859
--------- ---------
--------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for interest during the year $ 141,418 $ 133,603
--------- ---------
--------- ---------
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
During 1995:
The Company issued $14,473 of long-term debt and $491,392 of capital lease obligations
in exchange for $505,865 of property and equipment.
During 1994:
The Company issued $58,950 of long-term debt and $217,838 of capital lease obligations
in exchange for $270,820 of property and equipment and $5,968 of other current assets.
</TABLE>
The accompanying notes are an integral
part of the financial statements.
F-31
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization:
Fab-Tech Industries of Brevard, Inc. was incorporated in the
State of Florida in May 1989. The Company is engaged in
precision machining and sheet metal fabrication of mechanical
components.
Accounts Receivable:
The Company believes that all accounts receivable are fully
collectible as of year end; accordingly, no allowance for
doubtful accounts has been recorded. If management estimates
that there are collectibility issues, an appropriate amount will
be reserved and charged to operations when that determination is
made.
Inventory:
Work in progress inventory is recorded at the lower of cost
(determined on a first-in, first-out basis) or market value.
Property and Equipment:
Property and equipment is stated at cost. Depreciation is
computed using the straight-line method over estimated useful
lives of the assets. Expenditures for additions and improvements
are capitalized, while repair and maintenance are expensed as
incurred.
Concentration of Credit Risk:
Financial instruments that potentially subject the Company to
concentration of credit risk consist principally of accounts
receivable. Accounts receivable arise from sale of products to
the Company's customer base consisting of businesses in the
aerospace, medical and high-technology commercial industries,
which are located throughout the United States. The Company
performs ongoing credit evaluations of its customers' financial
condition, and generally requires no collateral from its
customers. The Company's credit losses are subject to general
economic conditions of the industries represented in its customer
base, including those commercial businesses operating under
governmental contracts.
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make certain estimates and assumptions about the future outcome
of current transactions which may affect the reporting and
disclosure of these transactions. Accordingly, actual results
could differ from those estimates used in the preparation of
these financial statements.
F-32
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes:
The Company has elected to be treated as an S-corporation under
applicable federal and state tax regulations. Accordingly, no
provision for income taxes has been provided in these financial
statements, as any corporate earnings or losses will pass-through
to the Company shareholders' personal returns.
NOTE 2: PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31:
Estimated
Useful
Life
1995 1994 in Years
----------- ------------ ----------
Machinery and equipment $ 370,462 $ 310,241 7
Office equipment 61,856 26,614 5-7
Leasehold improvements 3,618 3,618 5
Equipment under capital leases 1,192,705 767,762 7
---------- ----------
1,628,641 1,108,235
---------- ----------
Less accumulated depreciation (538,844) (349,893)
---------- ----------
Property and equipment, net $1,089,797 $ 758,342
---------- ----------
---------- ----------
Depreciation expense, including that on equipment under capital leases, was
$190,761 and $146,448 in 1995 and 1994, respectively. Accumulated depreciation
on the equipment under capital leases was $288,689 at December 31, 1995 and
$171,686 at December 31, 1994.
During 1995, the Company sold equipment with an original cost of $8,000 and a
net book value of $6,190 for $5,000, resulting in a $1,190 loss on sale. In
1994, the Company sold equipment with an original cost of $15,042 and a net book
value of $4,190 for $500, resulting in a $3,690 loss on sale.
NOTE 3: DISTRIBUTIONS AND NOTES PAYABLE - SHAREHOLDERS
Distributions and notes payable - shareholders are all due on demand
and unsecured; and consisted of the following at December 31:
1995 1994
-------- --------
Notes payable to shareholders - interest at
rates from 9.5% to 10.5% at December 31, 1995. $231,484 $236,040
Distributions payable to shareholders -
non-interest bearing. 139,000 81,000
-------- --------
Total distributions and notes payable -
shareholders $370,484 $317,040
-------- --------
-------- --------
F-33
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 4: LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Installment note payable - bank - variable interest
rate (10.75% at December 31, 1995), collateralized
by a first security interest in accounts receivable,
inventory, property and equipment and the personal
guarantee of two shareholders. The note is due in
August 1998. $174,840 $225,970
Installment note payable - equipment - interest
bearing at 14.4%, collateralized by equipment
and due in November 1996. 26,623 54,655
Other notes payable. 1,285 3,480
-------- --------
202,748 284,105
Less current maturities (86,475) (81,997)
-------- --------
Total long-term debt $116,273 $202,108
-------- --------
-------- --------
</TABLE>
Future maturities of long-term debt are as follows for years ending December 31:
<TABLE>
<S> <C>
1996 $ 86,475
1997 64,286
1998 51,987
--------
$202,748
--------
</TABLE>
NOTE 5: CAPITAL LEASE OBLIGATIONS
The Company leases certain machinery and office equipment under
capital leases with various expiration dates through August 2000.
Future minimum lease payments as of December 31, 1995 for each of the
next five years are as follows:
<TABLE>
<S> <C>
1996 $ 311,166
1997 286,116
1998 196,187
1999 118,561
2000 37,570
---------
Total minimum lease payments 949,600
Less amount representing interest (154,279)
---------
Present value of net minimum lease payments 795,321
Less current maturities (228,356)
---------
Long-term obligation $ 566,965
---------
---------
</TABLE>
F-34
<PAGE>
FAB-TECH INDUSTRIES OF BREVARD, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
NOTE 6: COMMITMENTS
Operating Lease:
The Company leases its corporate office and manufacturing facility
under a non-cancellable operating lease which expires in September
1998.
Future minimum lease payments are as follows for years ending December
31:
1996 $ 59,625
1997 59,625
1998 44,719
--------
$163,969
--------
--------
Rent expense totalled $59,625 in 1995 and 1994.
Significant Customers and Suppliers:
During 1995, the Company made sales to five significant customers
which represent 20%, 13%, 12%, 11% and 10% of net sales.
During 1994, the Company made sales to three significant customers
which represent 31%, 16% and 14% of net sales.
In 1994, the Company purchased materials aggregating approximately
$150,000 and $100,000 from two separate vendors which represents
approximately 18% and 12% of total material purchases during the year.
Financial Instruments:
At December 31, 1995, the Company had deposits in excess of federally
insured amounts of $21,621 at one financial institution.
NOTE 7: SUBSEQUENT EVENT
In 1995, the Company entered into negotiations to sell all of its
assets and manufacturing operations to DynEco Corporation, a publicly-
held business. The sale is anticipated to occur in the second or third
quarter of 1996 at an estimated sales price of $2,400,000 plus the
assumption of all Company liabilities.
F-35
<PAGE>
[OUTSIDE BACK COVER PAGE OF PROSPECTUS]
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
No person has been authorized to give any information or to make any
representations not contained in this Prospectus and, if given or made, such
other information or representations must not be relied upon as having been
authorized by the Company or the Selling Shareholders. Neither the delivery
of this Prospectus nor any sales made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the date hereof or that the information
contained herein is correct as of any time subsequent to its date. This
Prospectus does not constitute an offer to sell or a solicitation of an offer
to buy any securities other than the registered securities to which it
relates, nor does it constitute an offer to sell or a solicitation of an
offer to buy such securities in any circumstances in which such offer or
solicitation is unlawful.
__________
TABLE OF CONTENTS
PAGE
Available Information................................................... 2
Prospectus Summary...................................................... 3
Risk Factors............................................................ 6
Use of Proceeds......................................................... 14
Price Range of and Dividends on Common Stock............................ 15
Capitalization.......................................................... 16
Dilution................................................................ 17
Selected Consolidated Financial Information and Other Data.............. 18
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................. 21
Business................................................................ 24
Management.............................................................. 32
Certain Transactions.................................................... 36
Principal Shareholders and Share Ownership of Management................ 37
Plan of Distribution.................................................... 38
Description of Capital Stock............................................ 39
Shares Eligible for Future Sale......................................... 41
Legal Matters........................................................... 43
Experts................................................................. 43
__________
DYNECO CORPORATION
8,244,318 SHARES OF COMMON STOCK
940,305 CLASS D WARRANTS
427,911 CLASS E WARRANTS
PROSPECTUS
July ___, 1996
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company is organized under the laws of the State of Minnesota. The
Minnesota Statutes (the "Statutes"), provide that a Minnesota corporation shall
indemnify its directors, officers, employees and other agents (each, a
"Corporate Agent") against expenses and liabilities (including amounts paid in
settlement) in connection with any proceeding involving such person by reason of
his being a Corporate Agent if such person: (i) has not been indemnified by
another organization; (ii) acted in good faith; (iii) received no improper
personal benefit, and section 302A.255, if applicable, has been satisfied; and
(iv) in the case of a criminal proceeding, had no reasonable cause to believe
the conduct was unlawful. Expenses incurred by a Corporate Agent in connection
with a proceeding may, under certain circumstances, be paid by the corporation
in advance of the final disposition of the proceeding as authorized by the board
of directors.
Under the Statutes, a Minnesota corporation may maintain insurance on behalf
of the Corporate Agent against any liabilities asserted against and incurred by
him in such capacity, whether or not the corporation would have been required to
indemnify the Corporate Agent against the liabilities under the Statutes.
As permitted by the Statutes, the Company's Amended and Restated Articles
of Incorporation contains provisions which limit the personal liability of
directors for monetary damages for breach of their fiduciary duties as
directors except to the extent such limitation of liability is prohibited by
the Statutes. In accordance with the Statutes, these provisions do not limit
the liability of any director for any breach of the director's duty of
loyalty to the Company or its shareholders; for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
or for any transaction from which the director derives an improper personal
benefit. These provisions do not limit the rights of the Company or any
shareholder to seek an injunction or any other non-monetary relief in the
event of a breach of a director's fiduciary duty. In addition, these
provisions apply only to claims against a director arising out of his role as
a director and do not relieve a director form liability for violations of
statutory law, such as certain liabilities imposed on a director under the
federal securities laws.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses to be borne by the Company in
connection with the issuance and distribution of the securities being
registered:
ITEM AMOUNT
---- --------
Securities and Exchange Commission registration fee. . $10,239
NASD filing fee. . . . . . . . . . . . . . . . . . . . N/A
Nasdaq SmallCap Market listing fee . . . . . . . . . . N/A
Blue Sky fees and expenses . . . . . . . . . . . . . . 1,300
Printing expenses. . . . . . . . . . . . . . . . . . . 50,000
Legal fees and expenses. . . . . . . . . . . . . . . . 125,000
Accounting fees and expenses . . . . . . . . . . . . . 20,000
Transfer Agent and Registrar fee . . . . . . . . . . . N/A
Miscellaneous. . . . . . . . . . . . . . . . . . . . . --
--------
Total . . . . . . . . . . . . . . . . . . . . . . . $206,539
--------
--------
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
Set forth below in chronological order is information regarding the sales
of securities of the Company without registration under the Securities Act
during the past three years.
NUMBER
1994 OF SHARES AMOUNT
- ---- --------- ----------
Shares issued to acquire DynEco
International, Inc. 3,926,000 $ 550,000
Shares issued pursuant to Class A Warrants 280,395 686,526
Shares issued pursuant to Class B Warrants 60 300
Shares issued pursuant to the December 1994
Private Placement Memorandum 20,000 40,000
Miscellaneous shares issued pursuant to
options 16,221 16,221
--------- ----------
Total 4,242,676 1,293,047
1995
- ----
Shares issued pursuant to Class A Warrants 200,000 200,000
Shares issued pursuant to Class B Warrants 68,935 206,805
Shares issued pursuant to Class C Warrants 140 700
Shares issued pursuant to the December 1994
Private Placement Memorandum 175,000 139,400
Shares issued pursuant to the February 1995
Private Placement Memorandum 135,000 121,420
Shares issued pursuant to DynEco
International, Inc. warrants 16,500 41,250
Shares issued pursuant to the May 1995
Private Placement Memorandum 855,822 1,472,169
Miscellaneous shares issued pursuant to
stock options 100,000 100,000
Miscellaneous correction to shares
outstanding ( 225) -
1996
- ----
None
--------- ----------
Total 1,551,172 2,281,744
--------- ----------
--------- ----------
II-2
<PAGE>
All issuances of securities described above were made in reliance on
the exemption from registration provided by Section 4(2) of the Securities
Act as transactions by an issuer not involving a public offering or Rule 701
promulgated under the Securities Act; provided, however, that shares issued
pursuant to the Class A Warrants, Class B Warrants and Class C Warrants were
made in reliance on Rule 148 promulgated under the Securities Act. All of
the securities were acquired by the recipients for investment and with no
view toward the resale or distribution thereof. In each instance, the
recipient was either an employee of the Company or a sophisticated investor,
the offers and sales were made without any public solicitation and the stock
certificates bear restrictive legends. No underwriter was involved in the
transactions and no commissions were paid.
II-3
<PAGE>
ITEM 27. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
EXHIBIT
NO. DESCRIPTION OF EXHIBIT
3.1 -- Amended and Restated Articles of Incorporation of DynEco
Corporation.
3.2 -- Amended and Restated Bylaws of DynEco Corporation.
4.1* -- Form of Common Stock certificate of DynEco Corporation.
4.2* -- Form of Class D Warrant Certificate of DynEco Corporation.
4.3* -- Form of Class E Warrant Certificate of DynEco Corporation.
5.1* -- Opinion of Powell, Goldstein Frazer & Murphy.
10.1 -- Warrant Purchase Agreement dated July 1, 1994 between DynEco
International, Inc. shareholders and DynEco Corporation.
10.2 -- Warrant Agreement between DynEco Corporation and American
Securities Transfer, Inc. to issue Class D and Class E Warrants.
10.3* -- Patent and Know-How License Agreement dated January 14, 1992 between
CNS Compressor Corporation and Thomas C. Edwards, Ph.D.
10.4* -- First Amended Patent and Know-How License Agreement dated March 9,
1992 between CNS Compressor Corporation and Thomas C. Edwards, Ph.D.
10.5* -- TERTM Technology Corporation Plan of Reorganization pursuant to
Title 11 of the United States Code.
10.6* -- TERTM Technology Corporation Amended Plan of Reorganization pursuant
to Title 11 of the United States Code.
10.7* -- TERTM Technology Corporation Second Amended Plan of Reorganization
pursuant to Title 11 of the United States Code.
10.8 -- TERTM Technology Corporation Articles of Exchange included in
Exhibit 3.1 filed herewith.
10.9 -- TERTM Technology Corporation Agreement and Plan of Exchange
included in Exhibit 3.1 filed herewith.
10.10 -- Product Development and Manufacturing Agreement dated December 30,
1994 between Kurt/DynEco Compressor Corporation, Kurt Manufacturing
Company, and DynEco International, Inc.
10.11 -- Product Development and Technology Confidentiality Agreement dated
November 2, 1995 between Quincy Compressor Division, Coltec
Industries, Inc. and DynEco Corporation.
10.12 -- 1993 Employee Stock Option Plan of DynEco International, Inc.
II-4
<PAGE>
10.13 -- Form of 1993 Corporate Stock Option Agreement.
10.14 -- 1993 Advisor's Stock Option Plan of DynEco International, Inc.
10.15 -- Form of 1993 Advisors Stock Option Agreement.
10.16 -- Letter of Intent dated March 8, 1995 between Fab-Tech Industries
of Brevard, Inc. and DynEco Corporation.
10.17 -- Employment Agreement dated March 1, 1994 between DynEco Corporation
and Thomas C. Edwards, Ph.D.
10.18 -- Employment Agreement dated September 22, 1994 between DynEco
Corporation and Richard D. Besser.
10.19 -- Employment Agreement dated June 3, 1996 between DynEco Corporation
and Thomas R. Reinarts, Ph.D.
10.20 -- Employment Agreement dated January 2, 1996 between DynEco
Corporation and Ralph E. Nelson.
10.21 -- Employment Agreement dated January 14, 1992 between CNS Compressor
Corporation and Thomas C. Edwards, Ph.D.
10.22 -- Lease Agreement dated February 20, 1995 between B&D Trust and
DynEco International, Inc.
21.1 -- Subsidiaries of Registrant.
23.1 -- Consent of Silverman Olson Thorvilson & Kaufmann Ltd.
23.2(*) -- Consent of Powell, Goldstein, Frazer & Murphy appears in its opinion
to be filed as Exhibit 5.1.
24.1 -- Power of Attorney appears on page II-7.
27.1 -- Financial Data Schedule.
_______________
* To be filed by Amendment.
(b) Financial Statement Schedules:
All of the financial statement schedules for which provision is made in the
applicable accounting regulation of the Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
II-5
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration
Statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the Registration Statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) That, for determining liability under the Securities Act,
to treat each such post-effective amendment as a new registration
statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
(3) To file a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the offering.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company,
the Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the Company
of expenses incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding) is asserted
by such director, officer or controlling person in connection with the
securities being registered, the Company will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Rockledge, State of Florida on July 11, 1996.
DYNECO CORPORATION
By: /s/ Richard D. Besser
___________________________________
Richard D. Besser,
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Richard D. Besser or Ralph E. Nelson the true and lawful attorneys-in-fact and
agents of the undersigned, with full power of substitution and resubstitution,
for and in the name, place and stead of the undersigned, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, and hereby grants to such attorneys-in-fact and agents full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, as fully to all intents and purposes as the undersigned
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE TITLE DATE
--------- ----- ----
/s/ Richard D. Besser
- -----------------------------
Richard D. Besser Chairman of the Board, June 24, 1996
President and Chief Executive
Officer (Principal Executive
Officer)
/s/ Ralph E. Nelson, C.P.A.
- -----------------------------
Ralph E. Nelson, C.P.A. Chief Financial Officer and
Secretary (Principal Financial
and Accounting Officer) July 11, 1996
/s/ Thomas C. Edwards, Ph.D.
- -----------------------------
Thomas C. Edwards, Ph.D. Chief Technical Officer and
Director July 11, 1996
/s/ Richard F. Galbraith, M.D.
- -----------------------------
Richard F. Galbraith, M.D. Director June 25, 1996
/s/ Gerald J. Kamman
- -----------------------------
Gerald J. Kamman Director June 25, 1996
II-7
<PAGE>
/s/ Dennis R. Longren
- -----------------------------
Dennis R. Longren Director June 24, 1996
/s/ Charles J. Tambornino
- -----------------------------
Charles J. Tambornino Director July 11, 1996
- -----------------------------
Frederick M. Zimmerman, Ph.D. Director July __, 1996
II-8
<PAGE>
[MINNESOTA FORM SC-00009-03 NOT RECREATED HERE]
<PAGE>
ARTICLES OF INCORPORATION
OF
TERTM, INC.
In order to form a corporation as codified in Chapter 302A of the
Minnesota Statutes, the following Articles of Incorporation are hereby
adopted:
ARTICLE I
NAME
The name of this corporation shall be "TERTM, INC.".
ARTICLE II
REGISTERED OFFICE
The registered office of this corporation in the State of Minnesota
shall be 1252 Bundy Boulevard, Winona, Minnesota 55987.
ARTICLE III
SHARES OF STOCK
The total authorized shares of this corporation shall be Ten Million of
One Cent par value which shall be known as common stock. There shall be no
pre-emptive rights or cumulative voting rights.
ARTICLE IV
INCORPORATORS
The name and address of each incorporator, who is a natural person of
full age, is as follows:
NAME ADDRESS
---- -------
Maximilan Ware Route Four, Box 149
Winona, Minnesota 55987
IN WITNESS WHEREOF, the above-named incorporator has executed these
Articles of Incorporation as of this 28th day of December, 1984.
/s/ Maximilan Ware
----------------------------
Maximilan Ware
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF WINONA )
BE IT KNOWN, that on this 28th day of December, 1984, before me a Notary
Public, personally appeared Maximilan Ware to me known to be the person named
and described as incorporator and who executed the foregoing Articles of
Incorporation, having been first duly sworn and under oath, did acknowledge
and say that he executed the foregoing Articles of Incorporation as his free
act and deed for the uses and purposes therein expressed.
Illegible
------------------------------------
Notary Public, Winona, Minnesota
My Commission Expires:
-2-
<PAGE>
State of Minnesota
Office of the Secretary of State
MODIFICATION OF STATUTORY REQUIREMENTS
OR AMENDMENT OF ARTICLES
Corporate Name: TERTM, INC.
Date of Adoption of Amendments/Modifications: May 15, 1987
Effective Date, if any, of Amendments/Modifications:
Amendments/Modifications Approved by Corporate: Shareholders
Pursuant to the provisions of the Minnesota Statutes, Sections 302A.133 and
302A.135, the following amendments of articles or modifications to the
statutory requirements regulating the above corporation were adopted:
The Articles of Incorporation of the Corporation are amended by adding a
new Article V, as follows:
A director of the corporation, including a person deemed to be a
director under applicable law, shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, except to the extent provided by
applicable law for (i) liability based on a breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) liability
for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) liability under
Sections 302A.559 or 80A.23 of Minnesota Statutes, (iv) liability for
any transaction from which the director derived an improper personal
benefit, or (v) liability for any act or omission occurring prior to
the date when this Article V becomes effective. If the Minnesota
Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the
liability of a director of the corporation, in addition to the
limitation and elimination on personal liability provided herein,
shall be eliminated or limited to the fullest extent permitted by the
Minnesota Business Corporation Act, as so amended. Any amendment or
repeal of this Article V by the shareholders of the corporation shall
not adversely affect any right or protection of a director of the
corporation existing at the time of such repeal or amendment.
<PAGE>
I swear that the foregoing is true and accurate and that I have the authority
to sign this document on behalf of the corporation.
Signed: /s/ Maximilan Ware
----------------------------------
Position: President
--------------------------------
STATE OF MINNESOTA )
) SS.
COUNTY OF WINONA )
The foregoing instrument was acknowledged before me on this _____ day of
October, 1987.
Illegible
-------------------------------
Notary Public
-2-
<PAGE>
[MINNESOTA FORM SC-00014-06 NOT RECREATED HERE]
<PAGE>
[MINNESOTA FORM SC-00175-03 (9.88) NOT RECREATED HERE]
<PAGE>
AMENDMENT OF THE ARTICLES OF INCORPORATION
OF
TERTM TECHNOLOGY CORPORATION
The following Amendments of the Articles of the above corporation were adopted:
"ARTICLE I
NAME
The name of the Corporation is DynEco Corporation.
ARTICLE II
REGISTERED OFFICE AND AGENT
The registered office of this Corporation is 5151 industrial Boulevard,
Suite 105, Minneapolis, Minnesota 55439, and the name of the registered
agent at that address is Arnold J. Ryden. The registered office may be
changed from time to time as provided by the Corporation's bylaws.
ARTICLE III
CAPITAL
CLASSIFICATION OF CAPITAL STOCK. The aggregate number of shares of
Capital Stock which the Corporation has the authority to issue is 12,000,000
shares, which shall consist of 10,000,000 shares of Common Stock with par
value of $.01 (the "Common Stock"), and 2,000,000 shares of Preferred Stock
with par value of $.01 per share (the "Preferred Stock").
The Corporation does not have the authority to issue nonvoting shares of
Common Stock or Preferred Stock. If the Board of Directors issues one or
more classes of voting capital stock, the Corporation shall provide for an
appropriate distribution of voting power among each class of capital stock,
including, in the case of any class of capital stock having a preference over
another class with respect to the payment of dividends, adequate provisions
for the election of directors representing such class in the event of a
default in the payment of such dividends.
DESCRIPTION OF CAPITAL. The following is a description of each of the
classes of capital stock which the Corporation has authority to issue with
designations, preferences, voting powers and participating, optional or other
special rights and the qualifications, limitations or restrictions thereof:
<PAGE>
1. COMMON STOCK. Each share of Common Stock shall be equal to every
other share of Common Stock and the holders hereof shall be entitled to one
vote to each share of stock on all questions presented to the shareholders.
2. PREFERRED STOCK. Authority is hereby expressly vested in the Board
of Directors of the Corporation, subject to the provisions of this Article
III and to the limitations described by law, to authorize the issue from time
to time of one or more series of Preferred Stock and with respect to each
series to fix by resolution or resolutions adopted by the Board of Directors
providing for the issue of such series the voting powers, full or limited, if
any, of the shares of such series and the designations, preferences and
relative, participating, optional or other special rights and the
qualifications, limitations or restrictions thereof."
This amendment has been approved pursuant to chapter 302A, Minnesota Statutes.
I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in section 609.48 as if I had signed this
amendment under oath.
Dated: December 27, 1993. /s/ Donald W. Hewitt
-----------------------------------
Donald W. Hewitt, President
-2-
<PAGE>
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DYNECO CORPORATION
ARTICLE I
NAME
The name of the Corporation is DynEco Corporation.
ARTICLE II
REGISTERED OFFICE
The address of the registered office of the Corporation is Suite 105,
5151 Edina Industrial Boulevard, Minneapolis, MN 55439. Registered Agent:
Arnold J. Ryden.
ARTICLE III
CAPITAL
A. The Corporation is authorized to issue fifty million (50,000,000)
shares of capital stock, having a par value of $0.01 in the case of common
stock, and having a par value as determined by the Board of Directors in the
case of the preferred stock, to be held, sold and paid for at such times and
in such manner as the Board of Directors may from time to time determine in
accordance with the laws of the State of Minnesota.
B. In addition to any and all powers conferred upon the Board of
Directors by the laws of the State of Minnesota, the Board of Directors shall
have the authority to establish by resolution more than one class or series
of shares, either preferred or common, and to fix the relative rights,
restrictions and preferences of any such different classes or series, and the
authority to issue shares of a class or series to another class or series to
effectuate share dividends, splits or conversion of the Corporation's
outstanding shares.
C. The Board of Directors shall also have the authority to issue
rights to convert any of the Corporation's securities into shares of stock of
any class or classes, the authority to issue options to purchase or subscribe
for shares of stock of any class or classes, and the authority to issue share
purchases or subscription warrants or any other evidence of such option
rights which set forth the terms, provisions and conditions thereof,
including the price or prices at which such shares may be subscribed for or
purchased. Such options, warrants and rights may be transferable or
nontransferable and separable or nonseparable from other securities of the
Corporation. The Board
<PAGE>
of Directors is authorized to fix the terms, provisions and conditions of
such options, warrants and rights, including conversion basis or bases and
the option price or prices at which shares may be subscribed for or purchased.
ARTICLE IV
SHAREHOLDER RIGHTS
A. NO PREEMPTIVE RIGHTS. No shareholder of the Corporation shall have
preemptive rights.
B. NO CUMULATIVE RIGHTS. No shareholder of the Corporation shall have
any cumulative voting rights.
C. SPECIAL MEETINGS OF SHAREHOLDERS. Special meetings of shareholders
of the Corporation may be called only in the manner provided in the bylaws.
D. ACTION OF SHAREHOLDERS. Any action required or permitted to be
taken by the shareholders of the Corporation must be effected at a duly
called annual or special meeting of such holders and may not be effected by
any consent in writing by such holders other than a written consent at such
meeting. At any regular or special 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
who complies with the notice procedures set forth in this subparagraph D.
For business to be properly brought before any regular or special meeting by
a shareholder, the shareholder must give timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal offices of the
Corporation not less than thirty (30) days nor (except for shareholder
proposals subject to Rule 14a-8(a)(3)(i) of the Securities Act of 1934, as
amended) more than fifty (50) days prior to the meeting; provided, however,
that in the event less than thirty (30) days' notice or prior public
disclosure of the date of the meeting is given or made to the shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of
the date of the meeting was mailed or public disclosure was made. Such
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the regular or special meeting (a) a
brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting; (b) as to the
shareholder giving notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder, and (ii) the class and number of
shares of the Corporation which are beneficially owned by such shareholder;
and (c) any material interest of the shareholder in such business.
Notwithstanding anything in the Corporation's bylaws to the contrary, no
business shall be conducted at any regular or special meeting of the
Corporation except in accordance with the procedures set forth above in this
subparagraph D. The Chairman of the Meeting of the Shareholders shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with the procedures
prescribed in this subparagraph D and if he should
-2-
<PAGE>
so determine and declare to the meeting, any such business not properly
brought before the meeting shall not be transacted.
E. AMENDMENT, REPEAL, ETC. Notwithstanding the fact that a lesser
percentage may be specified by law, the Articles of Incorporation and bylaws
of the Corporation, the affirmative vote of the holders of seventy-five (75%)
percent of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend or repeal, or
adopt any provision inconsistent with, subparagraphs A through E of this
Article IV.
ARTICLE V
WRITTEN ACTION BY LESS THAN ALL OF THE DIRECTORS
Any action required or permitted to be taken at a Board meeting, other
than action requiring shareholder approval, may be taken by written action of
the Board of Directors if signed by the number of directors that would be
required to take the same action at a meeting at which all directors were
present.
ARTICLE VI
LIMITED LIABILITY OF DIRECTORS
To the fullest extent possible permitted by law, a director shall have
no personal liability to the Corporation or its shareholders for breach of
fiduciary duty as a director. Any amendment to or repeal of this Article VI
shall not adversely affect any right to protection of a director of the
Corporation for or with respect to any acts or omissions of such director
occurring prior to such amendment or repeal.
ARTICLE VII
BOARD OF DIRECTORS
The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors.
A. NUMBER, ELECTION AND TERMS OF DIRECTORS. Except as otherwise fixed
pursuant to the provisions relating to the rights of holders of any class or
series of stock having a preference over the Corporation's common stock as to
dividends or upon liquidation to elect additional directors under specified
circumstances, the number of directors of the Corporation shall be fixed from
time to time by or pursuant to the bylaws but in no event shall be less than
three (3) or more than seven (7) in number. The directors, other than those
who may be elected by the holders of any class or series of stock having a
preference over the common stock as to dividends or upon liquidation, shall
-3-
<PAGE>
be classified with respect to the time for which they may severally hold
office, into three classes, as nearly equal in number as possible, as shall
be provided in the manner specified in the bylaws, one class to hold office
initially for a term expiring at the 1999 Annual Meeting of Shareholders,
another class to hold office initially for a term expiring at the 1997 Annual
Meeting of Shareholders, and another class to hold office initially for a
term expiring at the 1995 Annual Meeting of Shareholders, with the members of
each class to hold office until their successors have been duly elected and
qualified. At each Annual Meeting of Shareholders, the successors to the
class of directors whose term expires at that meeting shall be elected to
hold office for a term expiring at the Annual Meeting of Shareholders held in
the year following the year of their election and until their successors have
been duly elected and qualified.
B. SHAREHOLDER NOMINATION OF DIRECTOR CANDIDATES. Only persons who
are nominated in accordance with the procedures set forth in this
subparagraph shall be eligible for election as directors. Advance notice of
nomination for the election of directors, other than by the Board of
Directors or a duly authorized committee thereof or any authorized officer of
the Corporation to whom the Board of Directors shall have delegated such
authority, and information concerning nominees, shall be given in the manner
provided in this subparagraph B. Nominations by shareholders shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice shall be delivered to or mailed and
received at the principal offices of the Corporation not less than thirty
(30) days nor more than fifty (50) days prior to the meeting; provided,
however, that in the event less than thirty (30) days' notice or prior public
disclosure of the date of the meeting is given or made to the shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of
the date of the meeting was mailed or public disclosure was made. Such
shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election, all information
relating to such person that is required to be disclosed in solicitation of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director if elected); and (b) as
to the shareholder giving notice (i) the name and address, as they appear on
the Corporation's books, of such shareholder, and (ii) the class and number
of shares of the Corporation which are beneficially owned by such shareholder.
No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set
forth above in this subparagraph B. The Chairman of the Meeting of
the Shareholders shall, if the facts warrant, determine and declare to
the meeting that a nomination was not made in accordance with the
procedures prescribed in this subparagraph B and, if he should so
determine, he shall so declare to the meeting and the defective
nomination shall be disregarded.
C. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Except as otherwise
fixed pursuant to the provisions relating to the rights of holders of any
class or series of stock having a preference over the common stock as to
dividends or upon liquidation to elect additional directors under
-4-
<PAGE>
specified circumstances, newly created directorships resulting from any
increase in the authorized number of directors and any vacancies on the Board
of Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause shall be filled by a majority vote of the
directors then in office, and directors so chosen shall hold office for a
term expiring at the next Annual Meeting of Shareholders at which term of the
class to which they have been elected expires. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
D. REMOVAL. Subject to the rights of holders of any class or series
of stock having a preference over the common stock as to dividends or upon
liquidation to elect additional directors under specified circumstances, any
director or directors may be removed from office at any time, but only for
cause and only by the affirmative vote of (i) the holders of at least
seventy-five (75%) percent of the voting power of the then outstanding shares
of capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class, or (ii) the
majority of the Board of Directors. Except as may otherwise be provided by
law, cause for removal shall be construed to exist only if the director whose
removal is proposed has been convicted of a felony by a court of competent
jurisdiction and such conviction is no longer subject to direct appeal or has
been adjudged by a court of competent jurisdiction to be liable for
negligence or misconduct in the performance of his duty to the Corporation in
a matter of substantial importance to the Corporation, and such adjudication
is no longer subject to direct appeal.
E. AMENDMENT, REPEAL, ETC. Notwithstanding the fact that a lesser
percentage may be specified by law, the Articles of Incorporation and bylaws
of the Corporation, the affirmative vote of the holders of seventy-five (75%)
percent of the voting power of the then outstanding shares of capital stock
of the Corporation entitled to vote generally in the election of directors,
voting together as a single class, shall be required to amend or repeal, or
adopt any provision inconsistent with, subparagraphs A through E of this
Article VII.
ARTICLE VIII
SUPERMAJORITY SHAREHOLDER APPROVAL OF BUSINESS COMBINATIONS
A. In addition to any affirmative vote required by law or these
Articles of Incorporation, and except as otherwise expressly provided in
Section B of this Article VIII, a Business Combination (as hereinafter
defined) shall require the affirmative vote of not less than seventy-five
(75%) percent of the votes entitled to be cast by holders of all then
outstanding shares of Voting Stock (as hereinafter defined), voting together
as a single class. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage or
separate class vote may be specified, by law or by any other provision of
these Articles of Incorporation or in any agreement with any national
securities exchange or otherwise.
B. The provisions of Section A of this Article VIII shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such affirmative
-5-
<PAGE>
vote, if any, as is required by law or by any other provision of these
Articles of Incorporation or in any agreement with any national securities
exchange or otherwise, if the conditions specified in either of the following
subparagraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority of the
Continuing Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of cash and the Fair Market Value (as hereinafter
defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share
by holders of common stock in such Business Combination shall be at
least equal to the higher amount determined under clauses (i) and (ii)
below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Shareholder (as hereinafter
defined) for any share of common stock in connection with the
acquisition by the Interested Shareholder of beneficial ownership of
shares of common stock (a) within the two-year period immediately
prior to the date of the first public announcement of the proposed
Business Combination (the "Announcement Date") or (b) in the
transaction in which it became an Interested Shareholder, whichever is
higher and
(ii) the Fair Market Value per share of common stock on the
Announcement Date or on the date on which the Interest Shareholder
became an Interested Shareholder (such later date being referred to
herein as the "Determination Date"), whichever is higher.
b. The aggregate amount of cash and the Fair Market Value as of the date
of the consummation of the Business Combination of consideration other
than cash to be received per share by holders of shares of any class
or series of outstanding capital stock (as hereinafter defined), other
than common stock, shall be at least equal to the highest amount
determined under clauses (i), (ii) and (iii) below:
(i) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Interested Shareholder for any share of
such class or series of capital stock in connection with the
acquisition by the Interested Shareholder of beneficial ownership of
shares of such class or series of capital stock (a) within the two-
year period immediately prior to the Announcement Date or (b) in the
transaction in which it became an Interested Shareholder, whichever is
higher.
-6-
<PAGE>
(ii) the Fair Market Value per share of such class or series of
capital stock on the Announcement Date or on the Determination Date,
whichever is higher, and
(iii) (if applicable) the highest preferential amount per share to
which the holders of shares of such class or series of capital stock
would be entitled in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation, regardless of whether the Business Combination to be
consummated constitutes such an event.
The provisions of this Paragraph 2.b shall be required to be met with
respect to every class or series of outstanding Capital Stock, whether
or not the Interested Shareholder has previously acquired beneficial
ownership of any shares of a particular class or series of Capital
Stock.
c. The consideration to be received by holders of a particular class or
series of outstanding Capital Stock shall be in cash or in the same
form as previously has been paid by or on behalf of the Interested
Shareholder in connection with its direct or indirect acquisition of
beneficial ownership of shares of such class or series of Capital
Stock. If the consideration so paid for shares of any class or series
of Capital Stock varied as to form, the form of consideration for such
class or series of Capital Stock shall be either cash or the form used
to acquire beneficial ownership of the largest number of shares of
such class or series of Capital Stock previously acquired by the
Interested Shareholder.
The price determined in accordance with Paragraphs 2.a and 2.b of
Section B of this Article VIII shall be subject to appropriate
adjustments in the event of any stock dividend, stock split,
combination of shares or similar event.
d. After such Interested Shareholder has become an Interested Shareholder
and prior to the consummation of such Business Combination: (i) there
shall have been no failure to declare and pay at the regular date
therefor any full quarterly dividends (whether or not cumulative)
payable in accordance with the terms of any outstanding Capital Stock,
expect as approved by a majority of the Continuing Directors;
(ii) there shall have been no reduction in the annual rate of
dividends paid on the Common Stock (except as necessary to reflect any
stock dividend, stock split, combination of shares or similar event),
except as approved by a majority of the Continuing Directors;
(iii) there shall have been an increase in the annual rate of
dividends paid on the Common Stock as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction that has
the effect of reducing the number of outstanding shares of Common
Stock, unless the failure to increase such annual rate is approved by
a majority of the Continuing Directors; and (iv) except as approved
by a majority of the Continuing Directors, such Interested Shareholder
shall not have become the beneficial owner of any
-7-
<PAGE>
additional shares of Capital Stock except as part of the transaction
that results in such Interested Shareholder becoming an Interested
Shareholder and except in a transaction that, after giving effect
thereto, would not result in any increase in the Interested
Shareholder's percentage beneficial ownership of any class or series
of Capital Stock.
e. After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a
shareholder of the Corporation), of any loans, advances, guarantees,
pledges or other financial assistance or any tax credits or other tax
advantages provided by the Corporation, whether in anticipation of or
in connection with such Business Combination or otherwise.
f. A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities
Exchange Act of 1934 and the rules and regulations thereunder (the
"Act") (or any subsequent provisions replacing such Act, rules or
regulations) shall be mailed to all shareholders of the Corporation at
least 30 days prior to the consummation of such Business Combination
(whether or not such proxy or information statement is required to be
mailed pursuant to the Act or subsequent provisions). The proxy or
information statement shall contain on the first page thereof, in a
prominent place, any statement as to the advisability (on
inadvisability) of the Business Combination that a majority of the
Continuing Directors may choose to make and, if deemed advisable by a
majority of the Continuing Directors, the opinion of an investment
banking firm selected by a majority of the Continuing Directors as to
the fairness (or lack of fairness) of the terms of the Business
Combination from a financial point of view to the holders of the
outstanding shares of Capital Stock other than the Interested
Shareholder and its Affiliates (as hereinafter defined) or Associates
(as hereinafter defined).
g. Such Interested Shareholder shall not have made or caused to be made
any major change in the Corporation's business or equity capital
structure without the approval of a majority of the Continuing
Directors.
C. For the purposes of this Article VIII:
1. The term "Business Combination" shall mean:
a. any merger, consolidation or statutory exchange of shares of the
Corporation or any Subsidiary (as hereinafter defined) with (i) any
Interested Shareholder or (ii) any other corporation (whether or not
itself an Interested Shareholder) which is or after such merger,
consolidation or statutory share exchange would be an Affiliate or
Associate of an Interested Shareholder provided, however, that the
foregoing shall not include the merger of a wholly-owned Subsidiary of
the Corporation into the
-8-
<PAGE>
Corporation or the merger of two or more wholly-owned Subsidiaries of
the Corporation; or
b. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with an Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder of any assets of the Corporation or any
Subsidiary equal to or greater than ten (10%) percent of the book
value of the consolidated assets of the Corporation; or
c. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with the Corporation or any Subsidiary of any assets of any Interested
Shareholder or any Affiliate or Associate of any Interested
Shareholder equal to or greater than ten (10%) percent of the book
value of the consolidated assets of the Corporation; or
d. the issuance or transfer by the Corporation or any Subsidiary (in one
transaction or a series of transactions) to any Interested Shareholder
or any Affiliate or Associate of any Interested Shareholder of any
securities of the Corporation (except pursuant to stock dividends,
stock splits, or similar transactions which would not have the effect,
directly or indirectly, of increasing the proportionate share of any
class or series of Capital Stock, or any securities convertible into
Capital Stock or into equity securities of any Subsidiary that is
beneficially owned by an Interested Shareholder or any Affiliate or
Associate of any Interested Shareholder) or of any securities of a
Subsidiary (except pursuant to a pro rata distribution to all holders
of Common Stock of the Corporation); or
e. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
f. any transaction (whether or not with or otherwise involving an
Interested Shareholder) that has the effect, directly or indirectly,
of increasing the proportionate share of any class or series of
Capital Stock, or any securities convertible into Capital Stock or
into equity securities of any Subsidiary, that is beneficially owned
by any Interested Shareholder or any Affiliate or Associate of any
Interested Shareholder, including without limitation any
reclassification of securities (including any reverse stock split), or
recapitalization of the Corporation, or any merger, consolidation or
statutory exchange of shares of the Corporation with any of its
Subsidiaries; or
g. any agreement, contract or other arrangement or understanding
providing for any one or more of the actions specified in the
foregoing clauses (a) to (f).
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2. The term "Capital Stock" shall mean all capital stock of the
Corporation authorized to be issued from time to time under Article III of
these Articles of Incorporation. The term "Voting Stock" shall mean all
Capital Stock of the Corporation entitled to vote generally, in the
election of directors of the Corporation.
3. The term "person" shall mean any individual, firm, corporation or
other entity and shall include any group comprised of any person and any
other person with whom such person or any Affiliate or Associate of such
person has any agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or disposing of
Capital Stock.
4. The term "Interested Shareholder" shall mean any person (other than
the Corporation or any Subsidiary and other than any profit-sharing,
employee stock ownership or other employee benefit plan of the Corporation
or any Subsidiary or any trustee of or fiduciary with respect to any such
plan when acting in such capacity) who (a) is the beneficial owner of
Voting Stock representing ten (10%) percent or more of the votes entitled
to be cast by the holders of all then outstanding shares of Voting Stock;
or (b) is an Affiliate or Associate of the Corporation and at any time
within the two-year period immediately prior to the date in question was
the beneficial owner of Voting Stock representing ten (10%) percent or more
of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock; or (c) is an assignee of or has otherwise succeeded
to any shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially owned by any
Interested Shareholder, if such assignment or succession shall have
occurred in the course of a transaction or series of transactions not
involving a public offering within the meaning of the Securities Act of
1933.
5. A person shall be a "beneficial owner" of any Capital Stock (a) which
such person or any of its Affiliates or Associates beneficially owns,
directly or indirectly, (b) which such person or any of its Affiliates or
Associates has, directly or indirectly (i) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon the
exercise of conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement, arrangement
or understanding, or (iii) the right to dispose or direct the disposition
of, pursuant to any agreement, arrangement or understanding, or (c) which
are beneficially owned, directly or indirectly, by any other person with
which such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
or disposing of any shares of Capital Stock. For the purposes of
determining whether a person is an Interested Shareholder pursuant to
Paragraph 4 of this Section C, the number of shares of Capital Stock deemed
to be outstanding shall include shares deemed beneficially owned by such
person through application of this Paragraph 5, but shall not include any
other shares of Capital Stock that may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of conversion
rights, exchange rights, warrants or options, or otherwise.
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<PAGE>
6. The term "Affiliate," used to indicate a relationship with a specified
person, shall mean a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, such specified person. The term "Associate," used to
indicate a relationship with a specified person, shall mean (a) any person
(other than the Corporation or a Subsidiary) of which such specified person
is an officer or partner or is, directly or indirectly, the beneficial
owner of ten (10%) percent or more of any class of equity securities,
(b) any trust or other estate in which such specified person has a
substantial beneficial interest or as to which such specified person serves
as trustee or in a similar fiduciary capacity, (c) any relative or spouse
of such specified person or any relative of such spouse, who has the same
home as such specified person or who is a director or officer of the
Corporation or any Subsidiary, and (d) any person who is a director or
officer of such specified person or nay of its parents or subsidiaries
(other than the Corporation or a Subsidiary).
7. The term "Subsidiary" shall mean any corporation of which a majority
of any claim of equity security is beneficially owned, directly or
indirectly, by the Corporation provided, however, that for the purposes of
Paragraph 4 of this Section C, the term "Subsidiary" shall mean only a
corporation of which a majority of each claim of equity security is
beneficially owned, directly or indirectly, by the Corporation.
8. The term "Continuing Director" shall mean any member of the Board of
Directors of the Corporation, while such person is a member of the Board of
Directors, who was a member of the Board of Directors prior to the time
that the Interested Shareholder involved in the Business Combination in
question became an Interested Shareholder, and any member of the Board of
Directors, while such person is a member of the Board of Directors, whose
election, or nomination for election by the Corporation's shareholders, was
approved by a vote of the majority of the Continuing Directors; provided,
however, that in no event shall an Interested Shareholder involved in the
Business Combination in question or any Affiliate, Associate or
representative of such Interested Shareholder, be deemed to be a Continuing
Director.
9. The term "Fair Market Value" shall mean (a) in the case of cash, the
amount of such cash; (b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock Exchange-
Listed Stocks, or, if such stock is not quoted on the Composite Tape on the
New York Stock Exchange, or, if such stock is not listed on such Exchange,
on the principal United States securities exchange registered under the Act
on which such stock is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a share of such
stock during the 30-day period preceding the date in question on the
National Association of Securities Dealers, Inc. Automated Quotations
System or any similar system then in use, or if no such quotations are
available, the fair market value on the date in question of a share of such
stock as determined by a majority of the Continuing Directors in good
faith; and (c) in the case of property other than
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<PAGE>
cash or stock, the fair market value of such property, on the date in
question as determined in good faith by a majority of the Continuing
Directors.
10. In the event of any Business Combination in which the Corporation
survives, the phrase "consideration other than cash to be received" as used
in Paragraphs 2.a and 2.b of Section B of this Article VIII shall include
the shares of Common Stock and/or the shares of any other class or series
of Capital Stock retained by the holders of such shares.
D. The Continuing Directors by majority vote shall have the power to
determine for the purposes of this Article VIII, on the basis of information
known to them after reasonable inquiry, (a) whether a person is an Interested
Shareholder, (b) the number of shares of Capital Stock (including Voting
Stock) or other securities beneficially owned by any person, (c) whether a
person is an Affiliate or Associate of another, (d) whether the assets that
are the subject of any Business Combination equal or exceed ten (10%) percent
of the book value of the consolidated assets of the Corporation, (e) whether
a proposed plan of dissolution or liquidation is proposed by or on behalf of
an Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder, (f) whether any transaction has the effect, directly or
indirectly, of increasing the proportionate share of any class or series of
Capital Stock, or any securities convertible into Capital Stock or into
equity securities of any Subsidiary, that is beneficially owned by an
Interested Shareholder or any Affiliate or Associate of an Interested
Shareholder, (g) whether any Business Combination satisfies the conditions
set forth in Paragraph 2 of Section B of this Article VIII, and (h) such
other matters with respect to which a determination is required under this
Article VIII. Any such determination made in good faith shall be binding and
conclusive on all parties.
E. Nothing contained in this Article VIII shall be construed to
relieve any Interested Shareholder from any fiduciary obligation imposed by
law.
F. The fact that any Business Combination complies with the provisions
of Section B of this Article VIII shall not be construed to impose any
fiduciary duty, obligation or responsibility on the Board of Directors, or
any member thereof, or the Continuing Directors, or any of them, to approve
such Business Combination or recommend its adoption or approval to the
shareholders of the Corporation, nor shall such compliance limit, prohibit or
otherwise restrict in any manner the Board of Directors, or any member
thereof, or the Continuing Directors, or any of them, with respect to
evaluations of or actions and responses taken with respect to such Business
Combination.
G. Notwithstanding the fact that a lesser percentage or separate class
vote may be specified by law or these Articles of Incorporation, the
affirmative vote of the holders of not less than seventy-five (75%) percent
of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock, voting together as a single class, shall be required
to amend or repeal, or adopt any provisions inconsistent with, this Article
VIII.
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ARTICLE IX
EVALUATION DIRECTIVES
The Board of Directors shall not approve, adopt or recommend any
proposal to enter into a Business Combination, or any offer of any person,
other than the Corporation, to make a tender or exchange offer for any
capital stock of the Corporation, unless and until the Board of Directors
shall first establish a procedure for evaluating, and shall have evaluated,
the proposal or offer, and determined that it would be in compliance with all
applicable laws and in the best interests of the Corporation and its
shareholders. In connection with its evaluation, the Board of Directors may
seek and obtain the advice of independent investment counsel, may seek and
rely upon an opinion of legal counsel and other independent advisors, and may
test such compliance with laws in any state or federal court or before any
state or federal administrative agency that may have appropriate
jurisdiction. In connection with its evaluation as to the best interests of
the Corporation and its shareholders, the Board of Directors shall consider
all factors that it deems relevant or the shareholders may deem relevant,
including without limitation: (a) the adequacy and fairness of the
consideration to be received by the Corporation and/or its shareholders
considering the future prospects of the Corporation and its business,
historical trading prices of the Corporation's capital stock, the price that
might be achieved in a negotiated sale of the Corporation as whole, and
premiums over trading prices that have been proposed or offered with respect
to securities of other companies in the past in connection with similar
offers; (b) the business, financial condition and earnings prospects of the
acquiring person or entity and the competence, experience, and integrity of
the acquiring person or entity and their or its management; and (c) the
potential social and economic impact of the offer and its consummation on the
communities in which the Corporation and its subsidiaries operate or are
located and upon the Corporation, its subsidiaries, and their employees, and
customers.
ARTICLE X
STOCK REDEMPTION
A. In the event that any person becomes the beneficial owner, directly
or indirectly, of thirty (30%) percent or more of the outstanding shares of
the common stock and any of such shares of common stock were acquired
pursuant to a tender offer (such person hereinafter referred to as an
"Acquiring Person"), each holder of shares of common stock, other than the
Acquiring Person or a transferee of the Acquiring Person, shall have the
right until and including the forty-fifth (45th) day following the date of
mailing the notice to holders of shares of common stock referred to in
Section C herein to tender the shares of common stock held by such holder to
the Corporation for repurchase by the Corporation at the Repurchase Price
determined as provided in Section E herein, and each holder, other than the
Acquiring Person or a transferee of the Acquiring Person, of securities
convertible into shares of common stock or of options, warrants, or rights
exercisable to acquire shares of common stock, shall have the right
simultaneously with the conversion of such securities or exercise of such
options, warrants, or rights to tender the shares of common stock to
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<PAGE>
be received thereupon by such holder to the Corporation for repurchase by the
Corporation at the Repurchase Price; provided that no holder of shares of
common stock shall have any right to tender shares of common stock redeemed
by the Corporation pursuant to this Article X if the Corporation, acting
pursuant to the action of two-thirds (2/3rds) of the members of its Board of
Directors, shall within ten (10) days following the announcement or
publication of such tender offer or following any amendment to such tender
offer recommend to the holders of shares of common stock that such tender
offer be accepted by such holders.
B. For purposes of this Article X:
1. The term "person" shall include an individual, a corporation,
partnership, trust or other entity. When two or more persons act as a
partnership, limited partnership, syndicate, or other group or otherwise in
concert for the purpose of acquiring shares of Common Stock, such
partnership, syndicate or group shall be deemed a "person."
2. For the purpose of determining whether a person is an Acquiring
Person, such person shall be deemed to own beneficially (i) all shares of
common stock the voting power of which such person controls or shares,
(ii) all shares of common stock which such person has the immediate or
future right to acquire, directly or indirectly, pursuant to agreements,
through the exercise of options, warrants or rights or through the
conversion of convertible securities or otherwise; and all shares of common
stock which such person has the right to acquire in such manner shall be
deemed to be outstanding shares, but shares of common stock which any other
unaffiliated person has the right to acquire in such manner shall not be
deemed to be outstanding shares.
3. The acquisition of shares of common stock by the Corporation or by any
person controlled by the Corporation shall not give rise to the right in
any person to have shares of common stock redeemed pursuant to this
Article X.
4. The right to tender shares of common stock to the Corporation for
repurchase pursuant to this Article X shall attach to such shares and shall
not be personal to the holder thereof.
5. The term "tender offer" shall mean an offer to acquire or an
acquisition of shares of common stock pursuant to a request or invitation
for tenders or an offer to purchase such shares for cash, securities or any
other consideration.
6. The term "market purchase" shall mean the acquisition of shares of
common stock from holders of such shares in privately negotiated
transactions or in transactions effected through a broker or dealer.
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<PAGE>
7. Subject to the provisions of Subparagraph B.2 herein, "outstanding
shares" shall mean shares of common stock which at the time in question
have been issued by the Corporation and not reacquired and held or retired
by it or held by any Subsidiary of the Corporation.
C. Procedure:
1. Not later than twenty days following the date on which the Corporation
receives credible notice that any person has become an Acquiring Person
whereupon the rights shall be engendered to tender shares of common stock
to the Corporation for repurchase by the Corporation under this Article X,
the Corporation shall give written notice, by first class mail, postage
prepaid, at the addresses shown on the records of the Corporation, to each
holder of record of shares of common stock (and to any other person known
by the Corporation to have rights so to tender pursuant to Paragraph A of
this Article) as of a date not more than ten (10) days prior to the date of
the mailing pursuant to this Paragraph C and shall advise each such holder
of the right to tender shares for repurchase by the Corporation and the
procedures for such tender and repurchase. In the event that the
Corporation fails to give notice as required by this Paragraph C, any
holder entitled to receive such notice may serve written demand upon the
Corporation to give such notice. If within ten days after the receipt of
written demand the Corporation fails to give the required notice, such
holder may at the expense and on behalf of the Corporation take such
reasonable action as may be appropriate to give notice or to cause notice
to be given pursuant to this Paragraph C.
2. In the event shares of common stock become subject to rights of
repurchase in accordance with this Article X, the Directors of the
Corporation shall designate a Repurchase Agent, which shall be a
corporation or association (i) organized and doing business under the laws
of the United States or any State, (ii) subject to supervision or
examination by Federal or State authority, (iii) having combined capital
and surplus of at least $5,000,000 and (iv) having the power to exercise
corporate trust powers.
3. For a period of forty-five (45) days from the date of the mailing of
the notice to holders of shares of common stock referred to in this
Paragraph C, holders of shares of common stock and other persons entitled
to tender shares of common stock to the Corporation for repurchase pursuant
to this Article X may, at their option, deposit certificates representing
all or less than all of the shares of common stock held of record by them
with the Repurchase Agent, together with written notice that the holder is
tendering such shares for repurchase pursuant to this Article X.
4. The Corporation shall promptly deposit in trust with the Repurchase
Agent cash in an amount equal to the aggregate Repurchase Price of all of
the shares of common stock deposited with the Repurchase Agent for purposes
of repurchase.
5. As soon as practicable after receipt by the Repurchase Agent of the
cash deposit by the Corporation referred to in this Paragraph C, the
Repurchase Agent shall issue its checks
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payable to the order of the persons entitled to receive the Repurchase
Price of all of the shares of common stock in respect of which such cash
deposit was made.
D. All shares of common stock with respect to which repurchase has
been effected pursuant to this Article X shall thereupon be retired.
E. The Repurchase Price shall be the amount payable by the Corporation
in respect of each share of common stock tendered for repurchase pursuant to
this Article X and shall be the greater amount determined on either of the
following bases:
(i) The highest price per share of common stock, including any
commission paid to brokers or dealers for solicitation or whatever, at
which shares of common stock held by the Acquiring Person were
acquired pursuant to a tender offer regardless of when such tender
offer was made, or were acquired pursuant to any market purchase or
otherwise within eighteen months prior to the notice to holders of
shares of common stock referred to in Paragraph C herein. For
purposes of this subsection (i), if the consideration paid in any such
acquisition of shares of common stock consisted, in whole or part, of
consideration other than cash, the Board of Directors of the
Corporation shall take such action, as in its judgment it deems
appropriate, to establish the cash value of such consideration, but
such valuation shall not be less than the cash value, if any, ascribed
to such consideration by the Acquiring Person; or
(ii) The highest sale price per share of common stock for any trading
day during the eighteen months prior to the notice to holders of
shares of common stock referred to in Paragraph C herein. For
purposes of this subsection (ii), the sale price for any trading day
shall be the mean of the closing high bid and low asked price per
share of common stock, or if the shares of common stock are traded on
a national securities exchange, the last sale price per share of
common stock.
The determinations to be made pursuant to this Paragraph E shall be made
by the Board of Directors not later than the date of the notice to holders of
shares of common stock referred to in Paragraph C herein. In making such
determinations the Board of Directors may engage such persons and utilize
employees and agents of the Corporation, who will, in the judgment of the
Board of Directors, be of assistance to the Board of Directors.
The determinations to be made pursuant to this Paragraph E, when made by
the Board of Directors acting in good faith, shall be conclusive and binding
upon the Corporation and its shareholders, including any person referred to
herein.
F. No amendment or repeal of this Article X adopted after the notice
to holders of shares of common stock referred to in Paragraph C.3 herein
shall affect the holders' rights of tender for repurchase as to any shares of
common stock theretofore or thereafter deposited with the Repurchase
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Agent for repurchase by the Corporation under this Article X pursuant to such
notice or any subsequent notice given pursuant to Paragraph G of this Article
X.
G. In the event that repurchase pursuant to this Article X of all or
any part of the shares of common stock is prohibited or prevented by
Minnesota Business Corporation Act, Chapter 302A of Minnesota Statutes or any
similar provision hereafter enacted or by the business combinations and
securities or similar subject matter statutes or regulations of the State of
Minnesota:
1. The Corporation shall so advise the holders of shares of common stock
entitled to the rights of tender for repurchase provided in this Article X
and shall advise them of their modified rights of tender for repurchase as
provided in this Paragraph in the notice required by Paragraph C of this
Article;
2. The Corporation shall take all of the actions required by this
Article to be taken with respect to a repurchase of all of the shares of
common stock deposited with the Repurchase Agent for purposes of
repurchase, provided that it shall determine the number of shares of common
stock which may legally be repurchased at the Repurchase Price and cause
the repurchase only of such number of shares by any reasonable method of
allotment selected by the Repurchase Agent, and provided further that the
Corporation shall not repurchase a fraction of a share. After the
Corporation's deposit in trust with the Repurchase Agent of the cash
deposit provided for in Paragraph C in an amount equal to the aggregate
Repurchase Price of all of the shares of common stock to be repurchased at
the time pursuant to this Paragraph G, the Repurchase Agent shall issue its
checks as provided in Paragraph C and return certificates evidencing shares
of common stock not repurchased to the record holders thereof;
3. The Corporation shall have a continuing obligation to repurchase
shares of common stock deposited with the Repurchase Agent at times and
from time to time by record holders other than the Acquiring Person or an
assignee of the Acquiring Person pursuant to notices issued by the
Corporation in each year succeeding the year in which the first notice of
rights to tender for repurchase is given pursuant to this Article until all
shares so deposited are repurchased. In each such year the Corporation
shall determine the number of shares of common stock which may legally be
repurchased at the Repurchase Price, which price for each such year shall
be the Repurchase Price originally established for the first repurchase
pursuant to this Article provided that, such Repurchase Price shall be
increased by eight percent (8%) per year compounded, and all of the actions
required to be taken by this Paragraph G by the Corporation and the
Repurchase Agent for the first repurchase shall be repeated. Said
repurchase notices shall be issued annually no later than 120 days after
the close of the Corporation's fiscal year commencing with the first full
fiscal year after the first notice of rights to tender for repurchase
pursuant to this Article X, provided that repurchases may be effected more
frequently at the election of the corporation should funds be legally
available therefor; and
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4. Until all of the shares of common stock deposited with the Repurchase
Agent pursuant to the last notice of repurchase are repurchased pursuant to
this Article, the Corporation shall pay no dividends on any of its
outstanding capital stock, whether outstanding at the time the Corporation
issues its first notice pursuant to Paragraph C or at any time thereafter.
H. The provision of this Article X shall control with respect to the
price, terms, times, and means of repurchase of shares in circumstances to
which it is applicable, notwithstanding any provision of Article VIII of
these Amended and Restated Articles.
These Amended and Restated Articles of Incorporation have been approved
pursuant to Chapter 302A, Minnesota Statutes.
I certify that I am authorized to execute this amendment and I further
certify that I understand that by signing this amendment, I am subject to the
penalties of perjury as set forth in Section 609.48 as if I had signed this
amendment under oath.
Dated: March 23, 1994. /s/ Donald W. Hewitt
-------------------------------------
Donald W. Hewitt, President
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[MINNESOTA FORM "CERTIFICATE OF EXCHANGE" NOT RECREATED HERE]
<PAGE>
ARTICLES OF EXCHANGE
KNOW ALL MEN BY THESE PRESENTS:
These Articles of Exchange are executed and entered into as of the 23rd
day of March, 1994 by and between DynEco International, Inc., a Minnesota
corporation (hereinafter referred to as "DI") and DynEco Corporation, a
Minnesota corporation (hereinafter referred to as "DYNECO").
WITNESSETH:
ARTICLE I
PLAN OF EXCHANGE
Pursuant to these Articles of Exchange, it is intended and agreed that
DYNECO will acquire at least ninety (90%) percent of all the issued and
outstanding shares of DI Common Stock in exchange for shares of Common Stock
of DYNECO. The terms, conditions, and understandings of the exchange are set
forth in the Plan of Exchange between DI and DYNECO, dated as of March 23,
1994, a copy of which is attached hereto as Exhibit A and incorporated herein
by this reference.
ARTICLE II
APPROVAL OF DYNECO
The Board of Directors of DYNECO duly adopted the Plan of Exchange as
required by applicable statutes.
ARTICLE III
APPROVAL OF SHAREHOLDERS OF DI
Of the issued and outstanding shares of DI Common Stock, 3,497,667 of
such shares were voted in favor of entering into the Plan of Exchange, with
no shares of DI Common Stock dissenting. Such shares were voted individually
and not as a class.
<PAGE>
IN WITNESS WHEREOF, the undersigned corporations, acting by their
respective presidents and secretaries, have executed these Articles of
Exchange as of the date first above written.
DYNECO INTERNATIONAL, INC.
By: /s/ Arnold J. Ryden
-------------------------------
Arnold J. Ryden
Chairman
DYNECO CORPORATION
By: /s/ Donald W. Hewitt
-------------------------------
Donald W. Hewitt
President
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PLAN OF EXCHANGE
THIS PLAN OF EXCHANGE, dated as of March 23, 1994, is made and entered
into by and between DynEco Corporation, a Minnesota corporation ("DYNECO"),
also known as the acquiring corporation, and DynEco International, Inc., a
Minnesota corporation ("DI").
WITNESSETH:
WHEREAS, DYNECO is a corporation duly organized and existing under the
laws of the State of Minnesota, having an authorized capital of 10,000,000
shares of Common Stock, $0.01 Par Value, of which 282,184 shares are issued
and outstanding as of the date hereof; and
WHEREAS, DI is a corporation duly organized and existing under the laws
of the State of Minnesota, having an authorized capital of 10,000,000 shares
of capital stock of which 3,762,167 shares are issued and outstanding as of
the date hereof; and
WHEREAS, the respective boards of directors of DYNECO and DI have each
duly approved this Plan of Exchange (the "Plan") providing for the exchange
of shares of DYNECO for shares of capital stock of DI on the terms set forth
herein;
WHEREAS, DYNECO and DI have entered into an Agreement and Plan of
Exchange (the "Agreement"), the terms and conditions of which Agreement is
incorporated by reference and made a part hereof, dated as of June 18, 1993,
setting forth certain representations, warranties, covenants, agreements, and
conditions in connection with said Exchange.
NOW, THEREFORE, based on the foregoing premises and in consideration of
the mutual covenants and agreements herein contained, and for the purpose of
setting forth the terms and conditions of said exchange and the manner and
basis of causing the shares of DI Common Stock to be converted into shares of
Common Stock of DYNECO (the "Common Stock of DYNECO"), and such other
provisions as are deemed necessary or desirable, the parties hereto have
agreed and do hereby agree, subject to the approval and adoption of this Plan
by the requisite vote of the securities holders of DI, and subject to the
conditions hereinafter set forth, as follows:
ARTICLE I
TERMS, MANNER, AND BASIS OF EXCHANGING SHARES
The terms, manner, and basis of exchanging the shares of Common Stock of
DI for shares of the Common Stock of DYNECO, and the mode of carrying the
Exchange into effect are as follows:
<PAGE>
(a) Each one share of the Common Stock of DI outstanding on the Effective
Date of the Exchange shall, without any action on the part of the holder
thereof, be converted into one (1) fully paid and nonassessable restricted
share of Common Stock of DYNECO, which share of Common Stock of DYNECO
shall thereupon be duly and validly issued and outstanding, fully paid, and
nonassessable, and shall not be liable to any further call, nor shall the
holder thereof be liable for any further payments with respect thereto.
After the Effective Date of the Exchange, each holder of an outstanding
certificate prior thereto represented shares of the Common Stock of DI
shall be entitled, on surrender thereof to the transfer and exchange agent
of DYNECO and on execution and delivery of a representation letter in a
form acceptable to DYNECO, to receive in exchange therefor a certificate or
certificates representing the number of whole shares of the Common Stock of
DYNECO into which the shares of Common Stock of DI so surrendered shall
have been converted as set forth above, of such denominations and
registered in such names as such holder may request. Until so surrendered,
each such outstanding certificate that, prior to the Effective Date of the
Exchange, represented shares of the Common Stock of DI shall for all
purposes evidence the ownership of the shares of Common Stock of DYNECO
into which shares of Common Stock of DI shall have been converted; provided
that dividends or other distributions that are payable in respect to shares
of Common Stock of DYNECO shall be set aside by DYNECO and shall not be
paid to holders of certificates, representing such shares of Common Stock
of DI until such certificates shall have been surrendered in exchange for
certificates representing shares of Common Stock of DYNECO, and on such
surrender, holders of such shares shall be entitled to receive such
dividends or other distributions without interest. DYNECO shall not issue
any fractional interest in shares of Common Stock of DYNECO in connection
with the aforesaid exchange and the number of shares of DYNECO to which DI
shares will be exchanged shall be rounded to the nearest whole number of
shares. DYNECO shall be entitled to exchange the certificates representing
shares of DI so acquired for a certificate or certificates representing a
like number of shares of DI registered in the name of DYNECO on the books
and records of DI.
(b) All shares of Common Stock of DYNECO for which shares of the Common
Stock of DI shall have been exchanged pursuant to this Article shall be
issued in full satisfaction of all rights pertaining to the shares of
Common Stock of DI.
(c) If any certificate for shares of Common Stock of DYNECO is to be
issued in a name other than that in which the certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance
thereof that the certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer and that the person requesting such
exchange pay to DYNECO or any agent designated by it any transfer or other
taxes required by reason of the issuance of a certificate for shares of
Common Stock of DYNECO in any name other than that of the registered holder
of the certificate surrendered, or establish to the satisfaction of DYNECO
or any agent designated by it that such tax has been paid or is not
payable.
-2-
<PAGE>
(d) There are no options, warrants, or conversion rights outstanding with
respect to the shares of Common Stock of DI except those identified in DI's
Schedules appended to the Agreement.
ARTICLE II
OTHER PROVISIONS WITH RESPECT TO EXCHANGE
This Plan shall be submitted to a vote of a meeting of securities
holders of DI as provided by the laws of the State of Minnesota. After the
approval or adoption thereof by the securities holders of DI in accordance
with the requirements of the laws of the State of Minnesota, all required
documents shall be executed, filed, and recorded in accordance with all
requirements of the State of Minnesota and subject to the terms and
conditions of the Agreement.
ARTICLE III
APPROVAL AND EFFECTIVE DATE OF THE MERGER; MISCELLANEOUS MATTERS
1. The Exchange shall become effective as of March 31, 1994, subject
to performance of the following:
(a) This Plan shall be authorized, adopted, and approved on behalf of DI
and DYNECO in accordance with the laws of the State of Minnesota; and
(b) Articles of Exchange (with this Plan attached as part thereof),
setting forth the information required by, and executed and certified in
accordance with, the laws of the State of Minnesota shall be filed in the
office of the Secretary of State of Minnesota.
The term "Effective Date" as used herein shall mean and refer to such
meaning stated in Section 3.4 of the Agreement.
2. For the convenience of the parties and to facilitate the filing and
recording of this Plan, any number of counterparts hereof may be executed,
and each such counterpart shall be deemed to be an original instrument and
all such counterparts together shall be considered one instrument.
3. This Plan cannot be altered or amended except pursuant to an
instrument in writing signed on behalf of the parties hereto.
-3-
<PAGE>
IN WITNESS WHEREOF, each Constituent Corporation has caused this Plan of
Exchange to be executed, all as of the date first above written.
DYNECO INTERNATIONAL, INC.
By /s/ Arnold J. Ryden
-------------------------------
Arnold J. Ryden
Chairman
DYNECO CORPORATION
By /s/ Donald W. Hewitt
-------------------------------
Donald W. Hewitt
President
-4-
<PAGE>
[MINNESOTA FORM SC-00014-06 NOT RECREATED HERE]
<PAGE>
[MINNESOTA FORM SC-00014-06 NOT RECREATED HERE]
<PAGE>
BYLAWS
OF
TERTM, INC.
ARTICLE I.
OFFICES.
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
required by Chapter 302A of the Minnesota Statutes to be maintained in the State
of Minnesota is as designated in the Articles of Incorporation. The Board of
Directors of the Corporation may, from time to time, change the location of the
registered office. On or before the day that such change is to become
effective, a certificate of such change and of the new address of the new
registered office shall be filed with the Secretary of State of the State of
Minnesota.
SECTION 2. OTHER OFFICES. The Corporation may establish and maintain
such other offices, within or without the State of Minnesota, as are from time
to time authorized by the Board of Directors.
ARTICLE II.
MEETINGS OF SHAREHOLDERS.
SECTION 1. PLACE OF MEETING. All meetings of the shareholders shall be
held at the registered office of the Corporation in the State of Minnesota or at
such place within or without the state as may be fixed from time to time by the
Board of Directors, provided that a meeting called by or at the demand of a
shareholder shall be held in the county where the principal executive office of
the Corporation is located.
SECTION 2. DATE OF MEETING. A regular meeting of shareholders may be
held for the purpose of electing directors or for the transaction of any other
business as may come before the meeting. It shall be the duty of the President
or Treasurer, upon demand of any shareholder holding three percent (3%) or more
of all voting shares, to call such meeting if a regular meeting of shareholders
has not been held during the immediately preceding fifteen (15) months. If said
officers fail to call and hold such meeting within ninety (90) days after
receipt of the demand, the shareholder making the demand shall have the right
and power to call such meeting.
SECTION 3. NOTICE OF REGULAR MEETINGS. Written notice of the time and
place of each regular shareholder meeting shall be mailed, postage prepaid, at
least ten (10) but not more than sixty (60) days before such meeting, to each
shareholder entitled to vote thereat at his address as the same appears upon the
books of the Corporation.
SECTION 4. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the President or Treasurer and shall
be called by the President or Treasurer at the
<PAGE>
request in writing of two or more members of the Board of Directors, or at
the request in writing of shareholders owning ten percent (10%) or more of
the voting power of all outstanding voting shares. Such request, which shall
be by registered mail or delivered in person to the President or Treasurer,
shall state the purpose or purposes of the proposed meeting.
SECTION 5. NOTICE OF SPECIAL MEETINGS. Written notice of the time,
place and purpose or purposes of a special meeting shall be mailed, postage
prepaid, at least five (5) but not more than sixty (60) days before such
meeting, to each shareholder entitled to vote at such meeting at his address as
the same appears upon the books of the Corporation.
SECTION 6. BUSINESS TO BE TRANSACTED. No business shall be transacted
at any special meeting of shareholders except that stated in the notice of the
meeting.
SECTION 7. WAIVER OF NOTICE. A shareholder may waive notice of a
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at, or after the meeting, and whether given
in writing, orally, or by attendance. Attendance by a shareholder at a meeting
is a waiver of notice of that meeting, except where the shareholder objects at
the beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened, or objects before a vote on an item of
business because the item may not lawfully be considered at that meeting and
does not participate in the consideration of the item at that meeting.
SECTION 8. QUORUM AND ADJOURNMENT. The holders of a majority of the
voting power of the shares present in person or by proxy entitled to vote at a
meeting shall constitute a quorum at all meetings of the shareholders for the
transaction of business, except as otherwise provided by statute or by the
Articles of Incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
noticed. The shareholders present at a duly called or held meeting at which a
quorum is present may continue to transact business until adjournment, even
though the withdrawal of a number of shareholders originally present leaves less
than the proportion or number otherwise required for a quorum.
SECTION 9. VOTING RIGHTS. A shareholder may cast his vote in person or
by proxy. When a quorum is present at the time a meeting is convened, the vote
of the holders of a majority of the shares entitled to vote on any question
present in person or by proxy shall decide such question unless the question is
one upon which, by express provision of the applicable statute or the Articles
of Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
2
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SECTION 10. MANNER OF VOTING. Each shareholder shall at every meeting
of the shareholders be entitled to one vote in person or by proxy for each share
of the capital stock having voting power held by such shareholder, but no proxy
shall be valid after eleven (11) months from its date, unless the proxy
expressly provides for a longer period, and, except where the transfer books of
the Corporation have been closed or a date has been fixed as a record date for
the determination of its shareholders entitled to vote, no share of stock that
has been transferred on the books of the Corporation within twenty (20) days
next preceding any election of directors shall be voted on at such election for
directors.
SECTION 11. RECORD DATE. The Board of Directors may fix a date, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of
and to vote at such meeting, and in such case only shareholders of record on the
date so fixed, or their legal representatives, shall be entitled to notice of
and to vote at such meeting, notwithstanding any transfer of any shares on the
books of the Corporation after any record date so fixed. The Board of Directors
may close the books of the Corporation against transfers of shares during the
whole or any part of such period.
SECTION 12. ORGANIZATION OF MEETINGS. The Chairman shall preside at all
meetings of the shareholders, and in his or her absence the President shall act
as Chairman. The Secretary shall act as secretary of all meetings of the
shareholders, or in his or her absence, or if the person acting as Chairman is
also the Secretary, any person appointed by the Chairman shall act as secretary.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at a shareholders' meeting may be taken without a meeting if
authorized by a writing or writings signed by all of the holders of shares who
would be entitled to vote on that action. Such action shall be effective at the
time the last signature is placed on such writing or writings, unless a
different effective time is provided in the written action. If any action so
taken requires a certificate to be filed in the office of the Secretary of
State, the officer signing such certificate shall state therein that the action
was effected in the manner aforesaid.
ARTICLE III.
BOARD OF DIRECTORS.
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these Bylaws required to be
exercised or done by the shareholders.
SECTION 2. NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole board shall be at least one (1), or such other number
as may be determined by the Board of Directors or by the shareholders at a
regular meeting. Except as otherwise
3
<PAGE>
permitted by statute, the directors shall be elected at each regular meeting
of the Corporation's shareholders (or at any special meeting of the
shareholders called for that purpose) by a majority of the voting power of
the shares represented and voting, and each director shall be elected to
serve until the next regular meeting of the shareholders or until his or her
successor shall have been duly elected and qualified.
SECTION 3. RESIGNATION AND REMOVAL. Any director may resign at any
time by giving written notice to the Corporation. Such resignation shall take
effect at the date of the receipt of such notice, or at any later time specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any director may be
removed at any time, with or without cause, by the affirmative vote of the
holders of a majority of the voting shares entitled to elect such director.
SECTION 4. VACANCIES. If the office of any director becomes vacant by
reason of death, resignation, removal, disqualification, or otherwise, the
directors then in office, although less than a quorum, by a majority vote, may
choose a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred. With respect to the initial election of a director
to fill a newly created directorship resulting from an increase in the number of
directors by action of the Board of Directors in the manner permitted by
statute, such vacancy shall be filled by the affirmative vote of a majority of
the directors serving at the time of the increase.
SECTION 5. MEETINGS OF DIRECTORS. The Board of Directors of the
Corporation may hold meetings, from time to time, either within or without the
State of Minnesota, at such place as a majority of the members of the Board of
Directors may from time to time appoint. If the Board of Directors fails to
select a place for the meeting, the meeting shall be held at the principal
executive office of the Corporation.
SECTION 6. CALLING MEETINGS. Meetings of the Board of Directors may be
called by (i) the Chairman on two (2) days' notice or (ii) any director on ten
(10) days' notice, to each director, either personally, by telephone or by mail
or telegram. Every such notice shall state the date, time and place of the
meeting. Notice of a meeting called by a person other than the President shall
state the purpose of the meeting.
SECTION 7. PARTICIPATION BY CONFERENCE TELEPHONE. Directors of the
Corporation may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by that means shall constitute presence in person at the meeting.
SECTION 8. WAIVER OF NOTICE. A director may waive notice of a meeting
of the Board of Directors. A waiver of notice by a director entitled to notice
is effective whether given before, at, or after the meeting, and whether given
in writing, orally, or by attendance. Attendance by a director at a meeting is
a waiver of notice of that meeting, except where the
4
<PAGE>
director objects at the beginning of the meeting to the transaction of
business because the meeting was not lawfully called or convened and does not
participate thereafter in the meeting.
SECTION 9. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors by actual delivery prior to the meeting of such advance written
consent or opposition to the Chairman, President or Treasurer or a director who
is present at the meeting. If the director is not present at the meeting,
advance written consent or opposition to a proposal shall not constitute
presence for purposes of determining the existence of a quorum, but consent or
opposition shall be counted as a vote in favor of or against the proposal and
shall be entered in the minutes or other record of action at the meeting, if the
proposal acted on at the meeting is substantially the same or has substantially
the same effect as the proposal to which the director has consented or objected.
SECTION 10. QUORUM. At all meetings of the Board of Directors a
majority of the directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by applicable statute or by the Articles
of Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present. If a quorum is present at the call of a meeting, the directors may
continue to transact business until adjournment notwithstanding the withdrawal
of enough directors to leave less than a quorum.
SECTION 11. ORGANIZATION OF MEETINGS. The Chairman shall preside at all
meetings of the Board of Directors, and in his or her absence the President
shall act as Chairman. The Secretary shall act as secretary of all meetings of
the Board of Directors, and in his or her absence, or if the person acting as
Chairman is also the Secretary, any person appointed by the Chairman shall act
as secretary.
SECTION 12. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if a written consent thereto is signed by all members of the Board of
Directors and such written consent is filed with the minutes of proceedings of
the Board of Directors. If the proposed action need not be approved by the
shareholders and the Articles of Incorporation so provide, action may be taken
by written consent signed by the number of directors that would be required to
take the same action at a meeting of the Board of Directors at which all
directors were present. Such action shall be effective on the date on which the
last signature is placed on such writing or writings, or such other effective
date as is set forth therein.
SECTION 13. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, each director may be paid his or her expenses, if any, of attendance
at each meeting of the Board of Directors, and may be paid a stated amount as a
director or a fixed sum for attendance at each
5
<PAGE>
meeting of the Board of Directors, or both. No such payment shall preclude a
director from serving the Corporation in any other capacity and receiving
compensation therefor.
ARTICLE IV.
OFFICERS.
SECTION 1. NUMBER. The officers of the Corporation shall be chosen
by the Board of Directors and shall include a Chairman of the Board, a
President, a Secretary, and a Treasurer. The Board of Directors may also
choose one or more Vice Presidents, and one or more Assistant Secretaries and
Assistant Treasurers. Any number of offices or functions of those offices may
be held or exercised by the same person.
SECTION 2. ELECTION. The Board of Directors at its first meeting after
each regular meeting of shareholders shall choose a Chairman, a President, a
Secretary and a Treasurer.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 4. SALARIES. The salaries of all officers of the Corporation
shall be fixed by the Board of Directors.
SECTION 5. TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed with or without cause at any
time by the affirmative vote of a majority of the Board of Directors. Any
officer may resign at any time by giving written notice to the Chairman of the
Board or the Secretary of the Corporation. Any vacancy occurring in any office
of the Corporation shall be filled by the Board of Directors.
SECTION 6. THE CHAIRMAN OF THE BOARD. POWERS AND DUTIES. The Chairman
of the Board shall preside at all meetings of the shareholders and the Board of
Directors and shall see that all orders and resolutions of the Board of
Directors are carried into effect. In addition, he shall have such other duties
as may from time to time be prescribed by the Board of Directors.
SECTION 7. THE PRESIDENT. POWERS AND DUTIES. The President shall be
the chief executive officer of the Corporation, shall have general active
management of the business of the Corporation and shall perform such other
duties prescribed by the Board of Directors. He or she shall execute bonds,
mortgages, and other contracts of the Corporation, except where required or
permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation, and shall maintain
records of and, whenever necessary, certify all proceedings of the Board of
Directors and the shareholders. Except as otherwise
6
<PAGE>
prescribed by these Bylaws or the Board of Directors, he or she shall
prescribe duties of other officers other than Chairman of the Board.
SECTION 8. THE VICE PRESIDENT. POWERS AND DUTIES. The Vice President,
if any, or if there shall be more than one, the Vice Presidents in the order
determined by the Board of Directors, shall, in the absence or disability of the
President, perform the duties and exercise the powers of the President and shall
perform such other duties and have such other powers as the Board of Directors
or the President may from time to time prescribe.
SECTION 9. THE SECRETARY. POWERS AND DUTIES. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
shareholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose. He or she
shall give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he or she shall be.
SECTION 10. ASSISTANT SECRETARY. The Assistant Secretary or, if there
be more than one, the Assistant Secretaries, in the order determined by the
Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors or the
President may from time to time prescribe.
SECTION 11. THE TREASURER. POWERS AND DUTIES. The Treasurer shall be
the chief financial officer, shall have custody of the Corporation's funds and
securities, shall keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation, shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors' and shall perform
such other duties prescribed by the Board of Directors or by the President.
SECTION 12. TREASURER'S ACCOUNTING. He or she shall disburse such funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the Board
of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
SECTION 13. TREASURER'S BOND. If required by the Board of Directors, he
or she shall give the Corporation a bond (which shall be renewed every six (6)
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his or her
office and for the restoration to the Corporation, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his or her possession or under his
or her control belonging to the Corporation.
7
<PAGE>
SECTION 14. ASSISTANT TREASURER. The Assistant Treasurer or, if there
shall be more than one, the Assistant Treasurers, in the order determined by the
Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors or the
President may from time to time prescribe.
ARTICLE V.
CERTIFICATES OF STOCK.
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by the President and the Secretary or an Assistant Secretary
of the Corporation, if there be one, certifying the number of shares owned by
him or her in the Corporation. The certificates of stock of each class shall be
numbered in the order of their issue.
SECTION 2. FACSIMILE SIGNATURES. Where a certificate is signed (1) by
a transfer agent or an assistant transfer agent, or (2) by a transfer clerk
acting on behalf of the Corporation and a registrar, the signature of any such
President, Secretary or Assistant Secretary may be facsimile. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on any such certificate or certificates shall cease to be such
officer or officers of the Corporation before such certificate or certificates
have been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
SECTION 3. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or to give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
8
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SECTION 5. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall be
entitled to hold liable for calls and assessments a person so registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by applicable statute.
ARTICLE VI.
GENERAL PROVISIONS.
SECTION 1. DIVIDENDS. Subject to the provisions of the applicable
statute and the Articles of Incorporation, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
capital stock.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purposes as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
SECTION 5. SEAL. The Corporation shall not have a corporate seal.
ARTICLE VII.
AMENDMENTS.
SECTION 1. AMENDMENTS. The power to make, alter, amend or rescind
these Bylaws is vested in the Board of Directors, subject to the power of the
shareholders to adopt, amend or repeal these Bylaws, as permitted by applicable
statute.
January 1, 1985
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[LETTERHEAD]
July 22, 1994
To former DynEco International, Inc shareholders:
Effective March 31, 1994, the shares of DynEco International, Inc. were
exchanged for shares of DynEco Corporation. In this exchange, DynEco
Corporation assumed certain outstanding Warrants of DynEco International,
Inc. The Warrants assumed included a Warrant to all DynEco International,
Inc. shareholders to purchase one (1) additional common share of DynEco
International, Inc. share at $7.00 per share until December 31, 1995, subject
to the terms and conditions of the Warrant, for each ten (10) shares held.
Upon your exercise and return of the enclosed Warrant Purchase Agreement
(no payment required), a DynEco Corporation Warrant certificate will promptly
be forwarded to you.
If you have any questions regarding the Warrant, please call me at
612-633-1501.
Also enclosed for your information is a Research Report on DynEco
Corporation issued by Mathews, Holmquist & Associates, Inc.
Respectfully,
/s/ Donald Hewitt
Donald Hewitt
Assistant Secretary
Enclosures:
<PAGE>
WARRANT PURCHASE AGREEMENT
DYNECO CORPORATION
July 1, 1994
TOTAL Shares
Dear Sir/Madam:
On May 1, 1993, DynEco International, Inc. ("DII") issued you a Warrant
to purchase up to 392,600 shares of common stock of DII for the purchase
price of $7.00 per share (the "DII Warrant"). On March 31, 1994 (the
"Effective Date"), the shareholders of DII exchanged all of their shares of
DII common stock for the common stock of DynEco Corporation (the "Exchange")
pursuant to the terms and provisions of that certain Agreement and Plan of
Exchange dated June 18, 1993. On the Effective Date of the Exchange, DynEco
Corporation (the "Company") assumed the DII Warrant and, in connection
therewith, the Company and you agree to enter into this Warrant Purchase
Agreement, which incorporates all of the terms and provisions of the DII
Warrant previously issued to you.
The Company hereby agrees with you as follows:
1. Concurrently with the execution of the Warrant Purchase Agreement
(the "Agreement"), the Company will sell and deliver to you for one ($1.00)
Dollar and other good and valuable consideration, a Warrant to purchase up to
392,600 shares of Common Stock of the Company for the purchase price of Seven
Dollars ($7.00) per share of Common Stock (the "Warrant").
2. The Warrant purchase right may be exercised at any time after May
1, 1993, and up until 5:00 o'clock p.m. on December 31, 1995 except that if
the Company at any time after the Warrant first becomes exercisable and prior
to December 31, 1995 proposes to register any of its securities, either for
its own account or the account of security holders, other than a registration
on Forms S-8 or S-14, or any registration on a form which does not permit
secondary sales, the Company shall give written notice of such intention to
each holder of Warrants ("Holder"), and, said Holder must exercise the
Warrant purchase right within thirty (30) days of such notice or the Warrant
shall expire with no further action taken on the part of the company.
3. The Company covenants that all shares that may be issued upon the
exercise of the Warrant will, upon issuance, be validly issued, fully paid
and non assessable and free from all taxes, liens and charges with respect to
the issuance thereof. The Company further covenants that during the period
within which the Warrant may be exercised, the Company will at all times have
authorized and reserved a sufficient number of shares of Common Stock to
permit the exercise of the Warrant.
4. Neither the Warrant nor your right under this Agreement shall be
transferable except (i) by consent of the Company and (ii) in compliance with
all applicable federal and state securities laws to the satisfaction of the
Company. The provisions of this Section 4 shall be binding upon any
transferee of the Warrant. The Warrant and shares issued upon the exercise
of the Warrant shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THIS WARRANT OR THE SHARES
PURCHASABLE HEREUNDER SHALL BE MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED. TRANSFER OF THIS
Page 1 of 4
<PAGE>
WARRANT IS ALSO RESTRICTED BY AN AGREEMENT DATED MAY 1, 1993. A COPY OF WHICH
IS AVAILABLE FROM THE ISSUER.
5.
(a) The provision of this Section 5 shall be binding upon any
transferee of the Warrant and upon each holder of shares of Common
Stock or other Company securities issued upon exercise of the Warrant
(the "Shares") until such Shares shall have been sold to the public
pursuant to either an effective registration statement under the
Securities Act of 1933, as amended (the 1933 Act") or an exemption
from registration established to the satisfaction of the Company. You
and each transferee will cause any proposed transferee of the Shares
to agree to take and hold the Shares subject to the provisions of this
Section 5. As used in this Section 5, the term "Shares" includes any
shares of the Company's Common Stock or other securities issued in
respect of the Shares pursuant to any stock split, stock dividend,
recapitalization or otherwise; and the term "Warrant" includes any
warrant or warrants issued in exchange for the original Warrant.
(b) Prior to any proposed transfer of the Warrant or of the Shares,
the holder thereof shall give written notice to the Company stating
such holder's intention to effect such transfer and describing the
circumstances of the proposed transfer in sufficient detail,
accompanied by either (i) an opinion of counsel reasonably
satisfactory to the Company to the effect that the proposed transfer
may be effected without registration under the Securities Act, or (ii)
a "no action" letter from the staff of the Securities and Exchange
Commission to the effect that the staff will not recommend that
enforcement action be taken if the proposed transfer is effected
without registration. Subject to evidence of compliance with any
applicable state securities or "blue sky" law or laws, the Company
shall promptly notify the holder in writing that such holder may
proceed with its transfer as described, and, if the transfer is of
Shares, shall instruct its transfer agent to remove any stop-transfer
restrictions against the Shares when transferred as proposed.
(c) If the Company at any time after the Warrant first becomes
exercisable and prior to December 31, 1995 proposes to register any of
its securities, either for its own account or the account of security
holders, other than a registration on Forms S-8 or S-14, or any
registration on a form which does not permit secondary sales, the
Company shall, each such time, give written notice of such intention
to each holder of Warrants or Shares ("Holder"), and, upon written
request of any Holder received by the company within twenty (20) days
after the Company has given such notice, include in such registration
(and all related qualifications under state securities laws) all
Shares (whether issued or issuable) specified in such written request.
If the registration involves any underwriting, the Company shall so
advise the Holders in the notice, and the right of each Holder to have
its Shares included in the registration shall be conditioned upon such
Holder's Shares being included in the underwriting arrangements with
underwriters (selected by the Company) on the same terms as other
persons selling common stock or other Company securities to the
underwriters. Notwithstanding the foregoing, if the underwriters
determine that marketing factors require a limitation of the number of
shares to be underwritten, the number of Shares to be registered for
the account of all Holders may be limited in proportion to limitations
imposed on other holders of Company Common Stock or other Company
securities seeking to have their securities included in the
registration pursuant to registration rights similar to those
conferred upon Holders by this paragraph (c); provided, however, that
priority may be given to securities to be sold for the account of the
Company. The allocation shall be made in proportion, as nearly as
practicable, to the respective number of shares requested to be
included in such registration by each person selling Company Common
Stock or other company securities to the underwriters, including
Holders. Any Holder disapproving of the terms of the underwriting may
withdraw therefrom by written notice to the Company, and such Holder's
Shares shall be withdrawn from registration.
Page 2 of 4
<PAGE>
(d) All expenses of registration and qualification incurred in
connection with a registration under paragraph (c) of this Section 5
shall be borne by the Company, except that each Holder whose Shares
are being registered shall bear the fees and expenses of its own
counsel, if any, and the underwriting commission or discount
applicable to its Shares being sold. The Company will keep the
Holders participating in a registration advised of the status of the
registration and will furnish such number of preliminary and final
prospectuses as such Holders may reasonably request; and such Holders
will furnish to the Company such information regarding such Holders as
may be required in connection with the registration.
(e) The following provisions shall apply to any registration effected
pursuant to paragraph (c) of this Section 5:
(i) The Company shall indemnify and hold harmless such Holder
and each underwriter of the Shares so registered or qualified
(including any broker or dealer through whom such securities may
be sold) and each person, if any, who controls any such Holder or
any such underwriter within the meaning of the Securities Act
from and against any and all losses, claims, damages, expenses or
liabilities, joint and several, to which they or any of them may
become subject under the Securities Act or under any other
statute or at common law or otherwise, and, except as hereinafter
provided, will reimburse each Holder and each of the underwriters
and each such controlling person, if any, for any legal or other
expenses reasonably incurred by any of them in connection with
investigating or defending any actions, whether or not resulting
in any liability, insofar as such losses, claims, damages,
expenses, liabilities or actions arise out of or are based upon
any untrue statement or alleged untrue statement of a material
fact contained in the registration statement, any preliminary
prospectus or the final prospectus (or the registration statement
or prospectus as from time to time amended or supplemented by the
Company) or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading, unless such untrue statement or omission
was made in reliance upon and in conformity with information
furnished in writing to the Company in connection therewith by
such Holder or underwriter expressly for use therein. Promptly
after receipt by any Holder or any underwriter or any person
controlling such Holder or such underwriter of notice of the
commencement of any action in respect of which indemnity may be
sought against the Company, such Holder or such underwriter, as
the case may be, will notify the Company in writing of the
commencement thereof, and, subject to the provisions hereinafter
stated, the Company shall assume the defense of such action
(including the employment of counsel, who shall be counsel
satisfactory to such Holder or such underwriter or such person,
as the case may be, and the payment of legal expenses) insofar as
such action shall relate to any alleged liability in respect of
which indemnity may be sought against the Company. Any Holder or
any underwriter or any such controlling person shall have the
right to employ separate counsel in any such action and to
participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Company unless
the employment of such counsel has been specifically authorized
by the Company, which authorization shall be given whenever the
party seeking indemnity has been advised by its counsel that one
or more legal defenses may be available to it that are not
available to the Company or that for other reasons separate
representation may be necessary, to avoid a conflict. The
Company shall not be liable to indemnify any person for any
settlement of any such action effected without the consent of the
Company.
(ii) Any Holder will indemnify and hold harmless the Company,
each of its directors and each of its officers who have signed
the registration statement and each person, if any, who controls
the Company within the meaning of the Securities Act from and
against any and all losses, claims, damages, expenses of
liabilities, joint and several, to which they are or any of them
may become subject under the
Page 3 of 4
<PAGE>
Securities Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse
the Company and each such director, officer or controlling
person for any legal and other expenses reasonably incurred by
any of them in connection with investigating or defending any
actions, whether or not resulting in any liability, insofar as
such losses, claims, damages, expenses, liabilities or actions
arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact contained in the
registration statement, in any preliminary prospectus or in
the final prospectus (or the registration statement or
prospectus as from time to time amended or supplemented) or
arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary in order to make the statements
therein not misleading, but only insofar as any such statement
or omission was made in reliance upon and in conformity with
information furnished in writing to the Company in connection
therewith by such Holder expressly for use therein. Promptly
after receipt of notice of the commencement of any action in
respect of which indemnity may be sought against any Holder,
the Company will notify such Holder in writing of the
commencement thereof, and such Holder shall, subject to the
provisions hereinafter stated, assume the defense of such
action (including the employment of counsel, who shall be
counsel satisfactory to the Company, and the payment of legal
expenses) insofar as such action shall relate to an alleged
liability in respect of which indemnity may be sought against
such Holder. The Company and each such director, officer or
controlling person shall have the right to employ separate
counsel in any such action and to participate in the defense
thereof but the fees and expenses of such counsel shall not be
at the expense of such Holder unless the employment of such
counsel has been specifically authorized by such Holder, which
authorization shall be given whenever separate representation
may be necessary to avoid a conflict. No Holder shall be
liable to indemnify any person or any settlement of any such
action effected without the consent of such Holder.
(iii) The indemnity provisions of this paragraph (e) shall be
in addition to any liability the indemnitor may otherwise have.
If the foregoing correctly sets forth our understanding, please sign below.
Very truly yours,
DYNECO CORPORATION,
By /s/ Donald Hewitt
----------------------------------
Donald Hewitt, Assistant Secretary
Accepted as of the date written above:
- -----------------------------------
- -----------------------------------
Warrant Holder(s)
DYNECO CORPORATION
5151 Edina Industrial Blvd - Suite 105
Minneapolis, MN 55439
612-832-0832
Donald Hewitt 612-633-1501
Page 4 of 4
<PAGE>
WARRANT AGREEMENT
DYNECO CORPORATION, 564 International Place, Rockledge, Florida 32955, a
Minnesota corporation ("Company"), and AMERICAN SECURITIES TRANSFER, INC.,
1825 Lawrence Street, Suite 444, Denver, Colorado 80202, a Colorado corporation
("Warrant Agent"), hereby agree as follows:
1. PURPOSE. The Company proposes to issue:
a. 926,692 Class D Warrants ("Class D Warrant"); and
b. 427,911 Class E Warrants ("Class E Warrants").
c. The Class D Warrants and Class E Warrants are sometimes referred
to herein collectively as the "Warrants."
2. WARRANTS.
a. Each Class D Warrant will entitle the registered holder thereof
("Class D Warrant Holder") to purchase from the Company one (1)
share of the Company's Common Stock at a purchase price of $2.50
per share ("Class D Exercise Price").
b. Each Class E Warrant will entitle the registered holder thereof
("Class E Warrant Holder") to purchase from the Company one (1)
share of the Company's Common Stock at a purchase price of $5.00
per share ("Class E Exercise Price").
c. The Class D Warrant Holders and Class E Warrant Holders are
sometimes referred to herein collectively as "Warrant Holders."
Warrant Holders may exercise all or any number of Warrants
resulting in the purchase of a whole number of shares of Common
Stock.
3. EXERCISE PERIODS.
a. The Class D Warrants may be exercised at any time during the
period commencing April 10, 1996 and ending at 3:00 p.m., Denver,
Colorado time on February 23, 1999 ("Class D Expiration Date")
except as provided under Section 13 of this Agreement. After the
Class D Expiration Date, any unexercised Class D Warrants will be
void and all rights of Class D Warrant Holders shall cease.
b. The Class E Warrants may be exercised at any time during the
period commencing April 10, 1996 and ending 3:00 p.m., Denver,
Colorado time on February 23, 2001 ("Class E Expiration Date")
except as provided under
<PAGE>
Section 13 of this Agreement. After the Class E Expiration Date,
any unexercised Class E Warrants will be void and all rights of
Class E Warrant Holders shall cease.
4. REDEMPTION.
a. Commencing April 10, 1996, on not less than thirty (30) days
prior written notice, the Class D Warrants may be redeemed at
anytime and from time to time, at the option of the Company, at a
redemption price of $0.01 ("Redemption Price") per Class D
Warrant; provided, however, the Company shall not be entitled to
make any such redemption until the bid price of the Company's
Common Stock has closed at or above $3.00 per share for ten (10)
consecutive trading days on the NASDAQ Small Cap Market or on any
other national securities exchange.
b. Commencing April 10, 1996, on not less than thirty (30) days
written notice, the Class E Warrants may be redeemed at any time
and from time to time, at the option of the Company, at the
Redemption Price; provided, however, the Company shall not be
entitled to make any such redemption until the bid price of the
Company's Common Stock has closed at or above $5.50 per share for
ten (10) consecutive trading days on the NASDAQ Small Cap Market
or on any other national securities exchange.
c. In case the Company shall desire to exercise its right to so
redeem the Warrants, it shall request the Warrant Agent to mail a
notice of redemption to each of the registered holders of the
Warrants to be redeemed, first class, postage pre-paid, not later
than the thirtieth (30th) day before the date fixed for
redemption, at their last address as shall appear on the records
of the Warrant Agent. Any notice mailed in the manner provided
herein shall be conclusively presumed to have been duly given
whether or not the registered holder receives such notice.
d. The notice of redemption shall specify (i) the Redemption Price,
(ii) the date fixed for redemption, (iii) the place where the
Warrant Certificate(s) shall be delivered and the redemption
price paid, and (iv) that the right to exercise the Warrants
shall terminate at 3:00 p.m. (Denver, Colorado time) on the
business day immediately preceding the date fixed for redemption.
The date fixed for the redemption of the Warrants that have been
called for redemption shall be the Redemption Date. No failure
to mail such notice nor any defect therein or in the mailing
thereof shall affect the validity of the proceedings for such
redemption except as to a holder (A) to whom notice was not
mailed or (B) whose notice was defective. An affidavit of the
Warrant Agent or of the Secretary or an Assistant Secretary of
the Company that notice of redemption has been mailed shall, in
the absence of fraud, be prima facie evidence of the facts stated
therein.
-2-
<PAGE>
e. Any right to exercise a Warrant that has been called for
redemption shall terminate at 3:00 p.m. (Denver, Colorado time)
on the business day immediately preceding the Redemption Date.
On or after the Redemption Date, holders of the redeemed Warrants
shall have no further rights except to receive, upon surrender of
the redeemed Warrants, the Redemption Price.
f. From and after the date specified for redemption, the Company
shall, at the place specified in the notice for redemption, upon
presentation and surrender to the Company by or on behalf of the
registered holder thereof one or more Warrants to be redeemed,
deliver or cause to be delivered to or upon the written order of
such holder a sum in cash equal to the Redemption Price of each
such Warrant. From and after the date fixed for redemption and
upon the deposit or setting aside by the Company of a sum
sufficient to redeem all of the Warrants called for redemption,
such Warrants shall expire and become void and all rights
hereunder and under the Warrant Certificates, except the right to
receive payment of the Redemption Price, shall cease.
5. NONTRANSFERABILITY.
a. The Warrants (and the shares of Common Stock issuable upon the
exercise thereof) have not been registered under federal or state
securities laws and, therefore, cannot be transferred except
(i) by consent of the Company; and (ii) in compliance with all
applicable federal and state securities laws to the satisfaction
of the Company. The provisions of this Section 5 shall be
binding upon any transferee of a Warrant and upon each holder of
shares of Common Stock issued thereunder or other securities
issued by the Company upon exercise of the Warrants until such
shares or other securities have been registered under an
effective registration statement under the Securities Act of
1933, as amended, and all applicable state securities laws, or an
exemption from such registration is established to the
satisfaction of the Company.
b. Prior to any proposed transfer of a Warrant (or of the Common
Stock issued thereunder), the holder thereof shall give written
notice to the Company stating such holder's intention to effect
such transfer describing the circumstances of the proposed
transfer in sufficient detail, accompanied by, if requested by
the Company, an opinion of counsel reasonably satisfactory to the
Company to the effect that the proposed transfer may be effected
without registration under the Securities Act of 1933, as
amended. Subject to evidence of compliance under any applicable
state securities or "blue sky" laws, the Company shall promptly
notify the holder in writing that such holder may proceed with
the transfer as described, and the Company shall so instruct the
Warrant Agent. All Warrant Certificates evidencing the Warrants
(and share certificates issued upon the exercise of the
Warrants), whether upon initial issuance or from any transfer
thereof, shall bear a legend restricting transferability.
-3-
<PAGE>
6. CERTIFICATES. The Warrant Certificates shall be in registered form
only and shall be substantially in the form set forth in EXHIBIT A
attached to this Agreement and may have such letters, numbers or other
marks of identification or designation and such legends, summaries or
endorsements printed, lithographed or engraved thereon as the Company
may deem appropriate and as are not inconsistent with the provisions
of this Agreement or as may be required to comply with any law or with
any rule or regulation made pursuant thereto or under any rule or
regulation of any stock exchange on which the Warrants may be listed,
or to conform to usage. The Warrant Certificates shall be dated the
date of issuance thereof (whether upon initial issuance, transfer,
exchange or in lieu of mutilated, lost, stolen, or destroyed Warrant
Certificates). Warrants shall be numbered serially with the letter W
on the Warrants. Warrant Certificates shall be signed by, or shall
bear the facsimile signature of, the President of the Company and the
Secretary or an Assistant Secretary of the Company and shall bear a
facsimile of the Company's corporate seal. If any person, whose
facsimile signature has been placed upon any Warrant Certificate as
the signature of an officer of the Company, shall have ceased to be
such officer before such Warrant Certificate is countersigned, issued
and delivered, such Warrant Certificate shall be countersigned, issued
and delivered with the same effect as if such person had not ceased to
be such officer. Any Warrant Certificate may be signed by, or made to
bear the facsimile signature of, any person who at the actual date of
the preparation of such Warrant Certificate shall be a proper officer
of the Company to sign such Warrant Certificate even though such
person was not such an officer upon the date of this Agreement.
7. COUNTERSIGNING. Warrant Certificates shall be manually countersigned
by the Warrant Agent and shall not be valid for any purpose unless so
countersigned. The Warrant Agent hereby is authorized subject to the
terms of this Agreement to countersign and deliver to, or in
accordance with the instructions of, any Warrant Holder any Warrant
Certificate which is properly issued.
8. REGISTRATION OF TRANSFERS AND EXCHANGES. Subject to the provisions of
Section 5, the Warrant Agent shall from time to time register the
transfer of any outstanding Warrant Certificate upon records
maintained by the Warrant Agent for such purpose upon surrender of
such Warrant Certificate to the Warrant Agent for transfer,
accompanied by appropriate instruments of transfer in form
satisfactory to the Company and the Warrant Agent and duly executed by
the Warrant Holder or a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued in
the name of and to the transferee and the surrendered Warrant
Certificate shall be cancelled. A service charge may be imposed by
the Warrant Agent for any exchange or registration of transfer of
Warrant Certificates. In addition, the Company may require payment by
such holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed thereon.
-4-
<PAGE>
9. EXERCISE OF WARRANTS.
a. Each Warrant may be exercised by the Warrant Holder at any time
on or after the Exercise Date, and on or before the Expiration
Date upon the terms and subject to the conditions set forth
herein and in the applicable Warrant Certificate. A Warrant
shall be exercised by the Warrant Holder by surrendering to the
Warrant Agent the Warrant Certificate evidencing such Warrant
with the exercise form on the reverse of such Warrant Certificate
duly completed and executed and delivering to the Warrant Agent,
by check or bank draft payable to the order of the Company, the
Exercise Price for each share of Common Stock to be purchased.
b. Upon receipt of a Warrant Certificate with the exercise form
thereon duly executed together with payment in full of the
Exercise Price for the Common Stock for which Warrants are then
being exercised, the Warrant Agent shall requisition from the
Company or any transfer agent, as the case may be, for the shares
and upon receipt shall make delivery of such certificates
evidencing the total number of whole shares for which Warrants
are then being exercised in such names and denominations as are
required for delivery to, or in accordance with the instructions
of, the Warrant Holder. A Warrant shall be deemed to have been
exercised immediately prior to the close of business on the
Exercise Date and the person entitled to receive the shares shall
be deemed to have become a holder of record of such shares, as of
the date of the surrender of such Warrant Certificate and payment
in full of the Exercise Price, whichever shall last occur.
c. If less than all the Warrants evidenced by a Warrant Certificate
are exercised upon a single occasion, a new Warrant Certificate
for the balance of the Warrants not so exercised shall be issued
and delivered to, or in accordance with, transfer instructions
properly given by the Warrant Holder.
d. All Warrant Certificates surrendered upon exercise of Warrants
shall be cancelled.
e. Upon the exercise, or conversion of any Warrant, the Warrant
Agent shall promptly deposit the payment into an escrow account
established by mutual agreement between the Company and the
Warrant Agent at a federally insured commercial bank. All funds
deposited in the escrow account will be disbursed on a weekly
basis to the Company once such funds have been determined by the
Warrant Agent to be collected funds. Once the funds are
determined to be collected, the Warrant Agent shall cause the
share certificate(s) representing the exercised warrants to be
issued.
-5-
<PAGE>
f. Expenses incurred by American Securities Transfer, Inc. while
acting in the capacity as Warrant Agent will be paid by the
Company. These expenses, including delivery of exercised share
certificates to the holders, will be deducted from the exercise
fee submitted prior to distribution of funds to the Company. A
detailed accounting statement relating to the number of shares
exercised, names of registered Warrant Holders and the net amount
of exercised funds remitted will be given to the Company with the
payment of each exercise amount.
10. TAXES. The Company will pay all taxes, if any, attributable to the
initial issuance of the shares of Common Stock upon exercise of the
Warrants. The Company shall not, however, be required to pay any tax
which may be payable in respect to any transfer involved in any issue
of Warrant Certificates or in the issue of any share certificates in
the name other than that of the Warrant Holder upon the exercise of
any Warrant.
11. MUTILATED OR LOST WARRANT CERTIFICATES. If any Warrant Certificate is
mutilated, lost, stolen or destroyed, the Company and the Warrant
Agent may, on such terms as to indemnify or otherwise as they may in
their discretion impose (which shall, in the case of a mutilated
Warrant Certificate, include the surrender thereof), and upon receipt
of evidence satisfactory to the Company and the Warrant Agent of such
mutilation, loss, theft or destruction, issue a substitute Warrant
Certificate of like denomination and tenor as the Warrant Certificate
so mutilated, lost, stolen or destroyed. Applicants for substitute
Warrant Certificates shall comply with such other reasonable
regulations and pay any reasonable charges as the Company or the
Warrant Agent may prescribe.
12. RESERVATION OF SHARES. For the purpose of enabling the Company to
satisfy its obligation to issue shares of its Common Stock upon
exercise of the Warrants, the Company will at all times reserve and
keep available out of its authorized shares, such number of shares as
shall then be issuable upon the exercise of all outstanding Warrants,
which upon issue will be fully paid and nonassessable and free from
all taxes, liens, charges and security interests with respect to the
issue thereof (other than those which the Company shall pay or
discharge).
13. GOVERNMENTAL RESTRICTIONS. If any shares issuable upon the exercise
of Warrants require registration or approval of any governmental
authority under any federal or state securities laws, the Company will
endeavor to secure such registration or approval. In no event,
however, shall any such shares of Common Stock be issued, and the
Company shall have the authority to suspend the exercise of all
Warrants, until such registration or approval shall have been
obtained; provided, however, all Warrants, the exercise of which is
requested during any such suspension, shall be exercisable at the
Exercise Price. If any such period of suspension continues past the
Expiration Date, all Warrants, the exercise of which have been
requested on or prior to the Expiration Date, shall be exercisable
upon the removal of such suspension until the close of business on the
business day immediately following the expiration of such suspension.
-6-
<PAGE>
14. ADJUSTMENTS. If the Company shall pay a dividend in shares of its
Common Stock, subdivide (split) its outstanding shares of Common
Stock, combine (reverse split) its outstanding shares of Common Stock,
issue by reclassification of its shares of Common Stock any shares or
other securities of the Company, or distribute to holders of its
Common Stock any securities of the Company or of another entity, the
number of shares of Common Stock or other securities the registered
holder is entitled to purchase pursuant to this Warrant Agreement
immediately prior thereto shall be adjusted so that the holder shall
be entitled to receive upon exercise the number of shares of Common
Stock or other securities which he or she would have owned or would
have been entitled to receive after the happening of any of the events
described above had the Warrant been exercised immediately prior to
the happening of such event, and the Exercise Price shall be
correspondingly adjusted; provided, however, that no adjustment in the
number of shares and/or the Exercise Price shall be required unless
such adjustment would require an increase or decrease of at least one
percent (1%) in such number and/or price; and provided further,
however, that any adjustments which by reason of this Section 14 are
not required to be made shall be carried forward and taken into
account in any subsequent adjustment. An adjustment made pursuant to
this Section 14 shall become effective immediately after the record
date in the case of the stock dividend or other distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If the Company is
consolidated or merged with or into another corporation or if all or
substantially all of its assets are conveyed to another corporation
each Warrant shall thereafter be exercisable for the purchase of the
kind and number of shares of stock or other securities or property, if
any, receivable upon such consolidation, merger or conveyance, by a
holder of the number of shares of Common Stock of the Company which
could have been purchased on the exercise of a Warrant immediately
prior to such consolidation, merger or conveyance; and, in any such
case, appropriate adjustment (as determined by the Board of Directors
of the Company) shall be made in the application of the provisions
herein set forth with respect to the rights and interests thereafter
of the holder of a Warrant to the end that the provisions set forth
herein (including provisions with respect to changes in and other
adjustments of the number of shares of Common Stock the holder of a
Warrant is entitled to purchase) shall thereafter be applicable, as
nearly as possible, in relation to any shares of Common Stock or other
securities or other property thereafter deliverable upon the exercise
of a Warrant. Upon any adjustment of the number of shares of Common
Stock or other securities the holder of a Warrant is entitled to
purchase, and of any change in Exercise Price, then in each such case
the Company shall give written notice thereof to the then registered
holders of the Warrants at the address of such holder as shown on the
books of the Company, which notice shall state such change and set
forth in reasonable detail the method of calculation and the facts
upon which such calculation is based. No failure to mail such notice
nor any defect therein or in the mailing thereof shall affect the
validity thereof except as to the holder to whom the Company failed to
mail such notice or except as to the holder whose notice was
defective.
-7-
<PAGE>
15. NO FRACTIONAL WARRANTS OR SHARES. The Company shall not be required
to issue fractions of Warrants upon the reissue of Warrants, any
adjustments as described in Section 14 or otherwise; but the Company
in lieu of issuing any such fractional interest, shall round up or
down to the nearest full Warrant. If the total Warrants surrendered
by exercise would result in the issuance of a fractional share, the
Company shall not be required to issue a fractional share but rather
the aggregate number of shares issuable will be rounded up or down to
the nearest full share.
16. NO RIGHTS AS SHAREHOLDER. No Warrant Holder shall have any rights of
a shareholder of the Company, either at law or equity, and the rights
of the Warrant Holders, as such, are limited to those rights expressly
provided in this Agreement or in the Warrant Certificate. The Company
and the Warrant Agent may treat the registered Warrant Holder in
respect of any Warrant Certificate as the absolute owner thereof for
all purposes notwithstanding any notice to the contrary.
17. WARRANT AGENT. The Company hereby appoints the Warrant Agent to act
as the agent of the Company and the Warrant Agent hereby accepts such
appointment upon the following terms and conditions by all of which
the Company and every Warrant Holder, by acceptance of such Warrants,
shall be bound:
a. Statements contained in this Agreement and in the Warrant
Certificates shall be taken as statements of the Company. The
Warrant Agent assumes no responsibility for the correctness of
any of the same except such as describes the Warrant Agent or for
action taken or to be taken by the Warrant Agent.
b. The Warrant Agent shall not be responsible for any failure of the
Company to comply with any of the Company's covenants contained
in this Agreement or in the Warrant Certificates.
c. The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the
Warrant Agent shall incur no liability or responsibility to the
Company or to any Warrant Holder in respect of any action taken,
suffered or omitted by it hereunder in good faith and in
accordance with the opinion or the advice of such counsel,
provided the Warrant Agent shall have exercised reasonable care
in the selection and continued employment of such counsel.
d. The Warrant Agent shall incur no liability or responsibility to
the Company or to any Warrant Holder for any action taken in
reliance upon any notice, resolution, waiver, consent, order,
certificate or other paper, document or instrument believed by it
to be genuine and to have been signed, sent or presented by the
proper party or parties.
-8-
<PAGE>
e. The Company agrees to pay to the Warrant Agent reasonable
compensation for its services hereunder and to reimburse the
Warrant Agent for all reasonable expenses hereunder; it further
agrees to indemnify the Warrant Agent and save it harmless
against any and all liabilities, including judgments, costs and
counsel fees, for anything done or omitted by the Warrant Agent
in the execution of its duties and powers hereunder except
losses, expenses and liabilities arising out of the Warrant
Agent's negligence or willful misconduct.
f. The Warrant Agent and any shareholder, director, officer or
employee of the Warrant Agent may buy, sell or deal in any of the
Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be
interested, or contract with or lend money to the Company or
otherwise act as fully and freely as though it were not Warrant
Agent under this Agreement. Nothing herein shall preclude the
Warrant Agent from acting in any other capacity for the Company
or for any other legal entity.
18. SUCCESSOR WARRANT AGENT. Any corporation into which the Warrant Agent
or any new warrant agent may be merged or converted or with which it
may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Warrant Agent or any new
warrant agent shall be a party, or any corporation succeeding to the
corporate trust business of the Warrant Agent, shall be a successor
warrant agent hereunder without the execution or filing of any paper
or any further act of a party or the parties hereto. In any such
event or if the name of the Warrant Agent or any new warrant agent is
changed, the Warrant Agent or such successor may adopt the
countersignature of the original Warrant Agent and may countersign
such Warrant Certificates either in the name of the predecessor
Warrant Agent or in the name of the successor warrant agent. Any such
successor warrant agent shall promptly cause notice of its succession
as warrant agent to be mailed to the Company and the registered
holders of each Warrant Certificate.
19. CHANGE OF WARRANT AGENT. The Warrant Agent may resign its duties and
be discharged from all further duties and liabilities hereunder
(except liabilities arising as a result of the Warrant Agent's own
negligence or wilful misconduct), after giving thirty (30) days prior
written notice to the Company or the Warrant Agent, as the case may
be. At least fifteen (15) days prior to the date such resignation is
to become effective, the Warrant Agent shall cause a copy of such
notice of resignation to be mailed to the registered holder of each
Warrant Certificate at the Company's expense. Upon such resignation,
or any inability of the Warrant Agent to act as such hereunder, the
Company shall appoint a new warrant agent in writing. If the Company
shall fail to make such appointment within a period of fifteen (15)
days after it has been notified in writing of such resignation by the
resigning Warrant Agent, then the registered holder of any Warrant
Certificate may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. After acceptance in writing of
such appointment by the new warrant agent is received by
-9-
<PAGE>
the Company, such new warrant agent shall be vested with the same
powers, rights, duties and responsibilities as if it had been
originally named herein as the Warrant Agent, without any further
assurance, conveyance, act or deed; but if for any reason it shall
be necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed
and delivered by the resigning Warrant Agent. Not later than the
effective date of any such appointment the Company shall file
notice thereof with the resigning Warrant Agent and shall forthwith
cause a copy of such notice to be mailed to the registered holder
of each Warrant Certificate. Failure to give any notice provided
for in this section, however, or any defect therein, shall not
affect the legality or validity of the resignation or removal of
the Warrant Agent or the appointment of the successor warrant
agent, as the case may be.
20. NOTICES. Any notice or demand authorized by this Agreement to be
given or made by the Warrant Agent or by any Warrant Holder to or on
the Company shall be sufficiently given or made if sent by mail, first
class, certified or registered, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant
Agent), as follows:
Mr. Richard D. Besser
Dyneco Corporation
564 International Place
Rockledge, Florida 32955
with a copy to:
Scott D. Smith, Esq.
Powell, Goldstein, Frazer & Murphy
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, Georgia 30303
Any notice or demand authorized by this Agreement to be given or made
by any Warrant Holder or by the Company to or on the Warrant Agent
shall be sufficiently given or made if sent by mail, first class,
certified or registered, postage prepaid, addressed (until another
address is filed in writing by the Warrant Agent with the Company), as
follows:
American Securities Transfer, Inc.
1825 Lawrence Street, #444
Denver, CO 80202
-10-
<PAGE>
Any distribution, notice or demand required or authorized by this
Agreement to be given or made by the Company or the Warrant Agent to
or on the Warrant Holders shall be sufficiently given or made if sent
by mail, first class, certified or registered, postage prepaid,
addressed to the Warrant Holders at their last known addresses as they
shall appear on the registration books for the Warrant Certificates
maintained by the Warrant Agent.
21. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may
from time to time supplement or amend this Agreement without the
approval of any Warrant Holders in order to cure any ambiguity or to
correct or supplement any provision contained herein which may be
defective or inconsistent with any other provisions herein, or to make
any other provision with regard to matters or questions arising
hereunder which the Company and the Warrant Agent may deem necessary
or desirable.
22. SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company or the Warrant Agent shall bind and
inure to the benefit of their respective successors and assigns
hereunder.
23. TERMINATION. This Agreement shall terminate at the close of business
on the Class E Expiration Date or such earlier date upon which all
Warrants have been exercised; provided, however, that if exercise of
the Warrants is suspended pursuant to Section 13 and such suspension
continues past the Class E Expiration Date, this Agreement shall
terminate at the close of business on the business day immediately
following the expiration of such suspension. The provisions of
Section 17 shall survive such termination.
24. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the
State of Minnesota and for all purposes shall be construed in
accordance with the laws of said State.
25. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give any person or corporation other than the Company,
the Warrant Agent and the Warrant Holders any legal or equitable
right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Warrant
Agent and the Warrant Holders.
-11-
<PAGE>
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together
constitute but one and the same instrument.
Date: January __, 1996
Dyneco Corporation,
A Minnesota corporation
By:
---------------------------------
Richard D. Besser,
Chief Executive Officer
SEAL
ATTEST:
- ------------------------------------------
Donald Hewitt, Assistant Secretary
American Securities Transfer, Inc.,
A Colorado Corporation
By:
----------------------------------
Gregory D. Tubbs, Vice President
SEAL
ATTEST:
- -------------------------------------------
Bruce E. Hall, Secretary
-12-
<PAGE>
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together
constitute but one and the same instrument.
Date: January 31, 1996
Dyneco Corporation,
A Minnesota corporation
By:
---------------------------------
Richard D. Besser,
Chief Executive Officer
SEAL
ATTEST:
- ------------------------------------------
Donald Hewitt, Assistant Secretary
American Securities Transfer, Inc.,
A Colorado Corporation
By: /s/ Gregory D. Tubbs
----------------------------------
Gregory D. Tubbs,
Senior Vice President
SEAL
ATTEST:
/s/ Bruce E. Hall
- -------------------------------------------
Bruce E. Hall, Secretary
-12-
<PAGE>
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together
constitute but one and the same instrument.
Date: January 31, 1996
Dyneco Corporation,
A Minnesota corporation
By: /s/ Richard D. Besser
---------------------------------
Richard D. Besser,
Chief Executive Officer
SEAL
ATTEST:
/s/ Donald Hewitt
- ------------------------------------------
Donald Hewitt, Assistant Secretary
American Securities Transfer, Inc.,
A Colorado Corporation
By:
----------------------------------
Gregory D. Tubbs, Vice President
SEAL
ATTEST:
- -------------------------------------------
Bruce E. Hall, Secretary
-12-
<PAGE>
Exhibit A
The form of Warrant Certificates have been agreed to by the parties to
this Agreement and the specimens of such certificates are in the possession
of Gemisys Corporation, Inglewood, Colorado.
<PAGE>
26. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of such counterparts shall for all purposes be
deemed to be an original and all such counterparts shall together
constitute but one and the same instrument.
Date: January 31, 1996
Dyneco Corporation,
A Minnesota corporation
By:
---------------------------------
Richard D. Besser,
Chief Executive Officer
SEAL
ATTEST:
- ------------------------------------------
Donald Hewitt, Assistant Secretary
American Securities Transfer, Inc.,
A Colorado Corporation
By: /s/ Gregory D. Tubbs
----------------------------------
Gregory D. Tubbs,
Senior Vice President
SEAL
ATTEST:
/s/ Bruce E. Hall
- -------------------------------------------
Bruce E. Hall, Secretary
-12-
<PAGE>
PRODUCT DEVELOPMENT AND MANUFACTURING AGREEMENT
AGREEMENT made as of this 30th day of December, 1994, by and between
Kurt/DynEco Compressor Corporation, a Minnesota corporation ("Kurt/DynEco"),
Kurt Manufacturing Company, a Minnesota corporation ("Kurt"), and DynEco
International, Inc., a Minnesota corporation ("DynEco").
WHEREAS, Kurt/DynEco has technology licensed from DynEco for the
manufacture of an air compressor air end for industrial air compressors and
systems but has no manufacturing facilities and desires Kurt to manufacture
industrial air compressors and systems for purchase and resale by
Kurt/DynEco; and
WHEREAS, Kurt has extensive know-how in the design, development and
manufacture of various precision parts, components and machines and has
facilities capable of manufacturing or being adapted to manufacture air
compressor air ends and air compressor systems and has agreed to manufacture
Kurt/DynEco's requirements by an arrangement whereby Kurt is compensated; and
WHEREAS, the parties to this Agreement desire to reduce their agreement
to a writing which set forth the purpose, policy, aims and understandings
between the parties hereto and each such party agrees to promote and adhere
thereto;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants contained herein, the parties intending to be legally bound by this
Agreement, agree as follows:
A. DEFINITIONS
"INTELLECTUAL PROPERTY" means any patent, copyright, registered or
unregistered design right or trade mark, license, sublicense, know-how,
show-how or the like owned by any party hereto.
"KNOW-HOW" means any information owned by any party hereto not available
other than from such party.
"SHOW-HOW" means any information not available other than from any party
hereto, and most effectively and/or conveniently transmitted by
demonstration and/or explanation by such party.
"TECHNICAL KNOWLEDGE" means any knowledge of a party hereto which is or is
intended to be confidential and any information that is protected by any
Intellectual Property right or sufficiently secret to be either or both of
Know-how or Show-how as defined herein.
1
<PAGE>
"PROJECT" means the design, development and manufacture of air compressor
air ends and industrial air compressor systems related to the Products
contemplated by this Agreement.
"PRODUCT" OR "PRODUCTS" means industrial air compressors air ends and/or
industrial air compressor systems intended to bear the tradename or other
identification "Kurt/DynEco Compressor" and/or "Kurt/DynEco Compressor
System" or other such similar designation as designated or otherwise
described in Schedule A attached hereto.
"PROJECT INTELLECTUAL PROPERTY" means any patent, registered or
unregistered design right know-how, show-how or the like relating to the
Products or any element of or of the conduct of the project research and
development not available other than from the parties, or any of them.
"PROJECT KNOW-HOW" means the method of production of the Products and/or
Products according to information and methods devised by Kurt.
"PROJECT SHOW-HOW" means any information relating to the Products or any
element of or of the conduct of the project research and development not
available other than from the parties, or any of them, and most
effectively and/or conveniently transmitted by demonstration and/or
explanation.
"PROJECT TECHNICAL KNOWLEDGE" means any knowledge which is or is intended
to be confidential and any information that is protected by any Project
Intellectual Property right or sufficiently secret to be either or both of
Project Know-how or Project Show-how as defined herein.
"TERRITORY" means North America (the geo-political boundaries of the
United States, Canada and Mexico).
SECTION 1
INTELLECTUAL PROPERTY
1.1 Upon Kurt/DynEco disclosing Intellectual Property to Kurt in
sufficient detail to enable Kurt to design, develop and produce the Products,
Kurt shall make immediate arrangements to procure adequate production
machinery and equipment or allocate existing machinery and/or equipment for
the purpose of production of the Products and shall commence design,
development and manufacture of the Products. In the absence of any other
agreement the costs of such Product design and development shall be borne by
Kurt on behalf of itself and Kurt/DynEco.
1.2 Should Kurt deem it necessary or desirable to arrange trial runs of
the Products for evaluation of quality, such trial runs shall be conducted
without delay and all data thereon made
2
<PAGE>
available to Kurt/DynEco. In the absence of other agreement the costs of
such trial run shall be borne by Kurt on behalf of itself and Kurt/DynEco.
1.3 DynEco shall arrange for the attendance at Kurt's plant suitably
qualified technicians on a reasonable basis who shall advise and guide those
employees of Kurt so far as is necessary in or relating to the use and
application of Kurt/DynEco Intellectual Property for the development and
production of the Products.
1.4 DynEco warrants that the DynEco Intellectual Property rights are
the property of DynEco.
1.5 Subject to the provisions and/or limitations set forth in Sections
1.6, 1.7. 1.8, and 2.2 hereinafter, all of the parties shall be free to use
each and every item of Project Intellectual Property and Project Technical
Knowledge as shall result from the Project even in the event this Agreement
is terminated.
1.6 In respect of all Project Intellectual Property rights as require
registration or application for letters patent, the parties shall collaborate
to insure that: (i) all such registrations or applications are made promptly
and accurately; and (ii) all necessary payments are made and all necessary
formalities are timely complied with preserve the validity and integrity of
such rights; and (iii) neither Kurt, Kurt/DynEco or DynEco acquires superior
rights therein or thereunder.
1.7 In respect of all Project Intellectual Property rights which do not
require registration or application for grant, the parties shall collaborate
to insure that such rights vest either: (i) in Kurt, Kurt/DynEco, and DynEco
jointly; or (ii) in Kurt, Kurt/DynEco, and DynEco individually.
1.8 In respect of all Project Intellectual Property rights provided for
in Sections 1.6 and 1.7 above:
(a) each party is hereby granted unrestricted rights to use that Project
Intellectual Property without payment of any royalty or other fee for
the duration of the subsistence of that right; and
(b) each party may license any third party outside of the Territory to
use that Project Intellectual Property provided that payment of any
royalty or other fee to such party shall be shared equally with the
other parties.
1.9 No party shall cause whether directly or indirectly any
Intellectual Property of the other(s) and provided pursuant to this Agreement
to be released into the public domain without the prior written consent of
the party owning such Intellectual Property.
3
<PAGE>
1.10 In the event that any party becomes aware of or suspects any
infringement of jointly owned Project Intellectual Property rights or
Intellectual Property rights vested in any other party, then the party so
discovering or suspecting infringement shall notify the other party and all
parties shall collaborate:
(a) in the event that the Intellectual Property rights are the exclusive
property of the other provide all such nonpecuniary assistance as it
is able to;
(b) in the event that the Intellectual Property rights are jointly owned
cooperate in the taking and funding of legal advice; further, the
parties shall if so advised take such legal action as in the view of
their legal counsel is necessary to cause the alleged infringer(s) or
some of them to desist from further infringement.
SECTION 2
PRODUCT DESIGN, DEVELOPMENT AND MANUFACTURING
2.1 Kurt undertakes to design, develop and manufacture the Products for
purchase and resale by Kurt/DynEco in the Territory in accordance with the
provisions hereof and to the specification of Kurt/DynEco. In furtherance
thereof:
(a) DynEco shall prepare or have prepared general drawings in sufficient
detail to enable Kurt to produce a prototype, after testing and
work-out of which Kurt will be in position to prepare or have
prepared a final set of drawings for the production of the
Product(s);
(b) Kurt shall be responsible for constructing or procuring to be
constructed a prototype and such further prototypes as the parties
agree ought to be constructed so as to be satisfied that the final
prototype adequately demonstrates the capabilities of the Product(s)
and further settles the details of the first production or
preproduction model of the Product(s).
2.2 Kurt shall be responsible for checking, monitoring and matching the
quality of raw materials as purchased by it for the manufacture of the
Products.
2.3 (a) Kurt warrants that the Products provided shall be of
merchantable quality and that every item thereof shall be
suitable for the purposes for which it is designed to fulfil
and does fulfil.
(b) If Kurt/DynEco requires the Products to be subjected to any test
or inspection other than Kurt's usual or routine test or
inspection, Kurt/DynEco shall notify Kurt in good time and Kurt
4
<PAGE>
shall allow such special test or inspection to be carried out at
a time and place mutually convenient to both parties. Such test
or inspection may be postponed for reasonable cause at the
request of either party. Kurt shall afford all reasonable
facilities and assistance to Kurt/DynEco or its authorized agent
free of cost for such tests or inspections. The results of such
tests or inspections shall be supplied to both parties.
2.4 The volume of Products to be manufactured hereunder shall be
settled between Kurt and Kurt/DynEco from time to time taking in to account
(i) other demands upon Kurt in its other manufacturing activities and (ii)
suitable arrangements for the payment for the Products by Kurt/DynEco.
2.5 Advance notice shall be given by Kurt/DynEco to Kurt from time to
time (which shall be at least 30 days) of the quantities which Kurt/DynEco
will wish to call down and for this purpose a minimum quantity production run
with respect to air compressor airends and industrial air compressor systems,
shall be subject to mutual adjustment between the parties from time to time.
2.6 Kurt agrees that it will maintain adequate inventory control of
spare parts to insure prompt supply of needed items and that such spare parts
shall be of a high standard.
2.7 It is agreed that the Product shall be packaged by Kurt in
accordance with Kurt/DynEco's specification the cost of which shall be a part
of the Product sales price to Kurt/DynEco.
2.8 Products shall be held by Kurt in its facilities to the delivery
instructions of Kurt/DynEco. Products shall be delivered by Kurt to such
carriers as designated by Kurt/DynEco. In the absence of other agreement the
costs of such delivery shall be borne by Kurt/DynEco.
2.9 Ownership of the Products shall vest in Kurt/DynEco upon receipt of
payment therefore by Kurt.
2.10 During the term of this Agreement, neither Kurt/DynEco or DynEco or
its affiliates shall purchase any product which is a Product other than from
Kurt.
SECTION 3
PRODUCT PAYMENT
3.1 Kurt and Kurt/DynEco agree that in consideration of the obligations
undertaken by Kurt hereunder, Kurt/DynEco shall pay to Kurt the Product(s)
purchase price(s) set forth in Schedule A attached hereto and incorporated in
this Agreement, which Product(s) purchase price(s) may be revised from time
to time on
5
<PAGE>
thirty (30) days' advance written notice given by Kurt to Kurt/DynEco.
3.2 Payment arrangements shall be in accordance with prior agreement of
the parties.
SECTION 4
PRODUCT LIABILITIES
4.1 Kurt/DynEco shall be indemnified by Kurt and be held harmless from
any and all claims and liabilities for damages, losses or costs resulting
from or caused by defective Products manufactured by Kurt under this
Agreement.
4.2 Kurt shall replace free of charge any Products which prove
defective through faulty manufacture within ____________ (__) months from the
date of resale delivery to Kurt/DynEco's customer (or in the case of
Kurt/DynEco's resale of the Product to a Kurt/DynEco reseller, the delivery
of the Product to the customer of such reseller).
SECTION 5
TERM, TERMINATION AND FORCE MAJEURE
5.1 This Agreement shall endure for a period of _________ (__) years
from the date upon which a Product is first made commercially available for
resale by Kurt/DynEco.
5.2 Should the quantity called down by Kurt/DynEco in any one calendar
year fall below _____ industrial air compressor systems, Kurt shall be
entitled to terminate this Agreement by notice forthwith.
5.3 If either Kurt or Kurt/DynEco fail to observe and perform any
promise herein contained, and, where such failure is remediable, fails to so
remedy the nonobservance or nonperformance within thirty (30) days of a
written notice from the aggrieved party to do so, then the aggrieved party
may forthwith (or where the aggrieved party has given a notice as aforesaid,
on expiration thereof unremedied):
(a) in the case where Kurt/DynEco is the aggrieved party, give a written
notice that Kurt's rights (including, but not limited to those rights
granted in Section 1.8 hereof) under this Agreement are terminated;
(b) in the case where Kurt is the aggrieved party, give a written notice
that Kurt/DynEco's rights (including, but not limited to those rights
granted in Section 1.8 hereof) under this Agreement are terminated.
5.4 If either Kurt or Kurt/DynEco has a receiver appointed of its
assets, or bankruptcy proceedings are initiated, or if
6
<PAGE>
liquidation proceedings are commenced, and such proceeding is not dismissed
or otherwise vacated within sixty (60) days of initiation or commencement
thereof, the other party may forthwith by notice in writing terminate this
Agreement.
5.5 In the event of any delay affecting due performance of this
Agreement by Kurt by reason of any cause arising from acts, events, failure
of expected events, omissions, or other accidents or incidents beyond the
reasonable control of Kurt to perform, including but not limited to the
following:
(a) strikes, lockouts, shortage of labor, or any other labor trouble
(regardless of the reasonableness of the demands of labor or
management);
(b) civil commotion, riots, invasion, piracy, war, or a warlike state
(whether was be declared or not);
(c) fire, explosion, storm, flood, earthquake, fog, subsidence, severe
epidemics substantially affecting the carrying on of a business;
(d) voluntary or mandatory compliance with any directions or orders of
any person having or appearing to have authority of the government,
whether local or national, for defense or other statutory or national
purpose; or
(e) inability to obtain suitable raw materials, equipment, fuel, power,
components, or transportation;
Kurt shall be under no liability for loss or injury suffered by Kurt/DynEco
thereby, and the Agreement shall be suspended during such delay; upon the
cessation of the cause of the delay, the Agreement shall again become
operative.
SECTION 6
MISCELLANEOUS
6.1 This Agreement shall be governed by, enforced, and construed under
and in accordance with the laws of the United States of America and, with
respect to matters of state law, with the laws of the State of Minnesota.
6.2 Any notices or other communications required or permitted hereunder
solely for the purposes of effecting the agreement to incorporate shall be
sufficiently given if personally delivered to it or sent by registered mail
or certified mail, postage prepaid, addressed as follows:
7
<PAGE>
If to Kurt/DynEco Corporation to:
Kurt/DynEco Corporation
564 International Place
Rockledge, Florida 32955
Attn: Richard D. Besser, Chief Executive Officer
If to Kurt Manufacturing Company, to:
Kurt Manufacturing Company
5280 Main Street N.E.
Minneapolis, MN 55421-1594
Attn: William G. Kuban, President
If to DynEco International, Inc., to:
DynEco International, Inc.
564 International Place
Rockledge, Florida 32955
Attn: Richard D. Besser, Chief Executive Officer
or such other addresses as shall be furnished in writing by any party in the
manner for giving notices hereunder, and such notice or communication shall
be deemed to have been given as of the date so delivered or mailed.
6.3 This Agreement is solely between the parties, and, except as
specifically provided, no director, officer, stockholder, employee, agent,
independent contractor, or any other person or entity shall be deemed to be a
third party beneficiary of this Agreement.
6.4 This Agreement may not be assigned by any party hereto except with
the prior written consent of the other party hereto.
6.5 This Agreement represents the entire agreement between the parties
relating to the subject matter hereof. This Agreement alone fully and
completely expresses the agreement of the parties relating to the subject
matter hereof. There are no other courses of dealing, understandings,
agreements, representations, or warranties, written or oral, except as set
forth herein.
6.6 The representations, warranties, and covenants of the respective
parties shall survive the consummation of the transactions herein
contemplated.
6.7 This Agreement may be executed in multiple counterparts, each of
which shall be deemed a original and all of which taken together shall be but
a single instrument.
6.8 Every right and remedy provided herein shall be cumulative, with
every other right and remedy, whether conferred
8
<PAGE>
herein at law, or in equity, and may be enforced concurrently herewith, and
no waiver by any party of the performance of any obligation by the other
shall be construed as a waiver of the same or any other default then,
theretofore, or thereafter occurring or existing. At any time prior to the
incorporation of the corporation, this Agreement may be amended by a writing
signed by all parties hereto, with respect to any of the terms contained
herein, and any term or condition of this Agreement may be waived or the time
of performance thereof may be extended by a writing signed by the party or
parties for whose benefit the provision is intended.
IN WITNESS WHEREOF, the corporate parties to this Agreement To
Incorporate have caused this Agreement to be executed by their respective
officers, hereunto duly authorized, at Minneapolis, Minnesota on the date
above-stated.
KURT/DYNECO CORPORATION
a Minnesota corporation
By /s/ Richard D. Besser
-------------------------------------
Richard D. Besser
Chief Executive Officer
and President
KURT MANUFACTURING COMPANY
a Minnesota corporation
By /s/ W. G. Kuban
-------------------------------------
W. G. Kuban
Chief Executive Officer
and President
DYNECO INTERNATIONAL, INC.
a Minnesota corporation
By /s/ Richard D. Besser
-------------------------------------
Richard D. Besser
Chief Executive Officer
and President
9
<PAGE>
PRODUCT DEVELOPMENT AND TECHNOLOGY
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made this 2nd day of November 1995, between Dyneco
Corporation, a Minnesota corporation (the "Company"), and Quincy Compressor
Division, Coltec Industries, Inc. ("Coltec").
The parties acknowledge the following facts:
The Company desires to disclose to Coltec proprietary information
concerning its products and technology so that the parties can proceed with
their business discussions (the "Project").
In consideration of the above premises and the covenants hereinafter set
forth, the parties agree as follows:
1. (a) "COMPANY INFORMATION" means Confidential Information and Trade
Secrets.
(b) "CONFIDENTIAL INFORMATION" means data and information relating to the
business of the Company (which does not rise to the status of a Trade Secret)
which is or has been disclosed to Coltec or of which Coltec became aware as a
consequence of or through its relationship to the Company and which has value
to the Company and is not generally known to its competitors. Confidential
Information shall not include any data or information that has been
voluntarily disclosed to the public by the Company (except where such public
disclosure has been made by Coltec without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means. The provisions in this Agreement
restricting the use of Confidential Information shall survive for so long as
the data and information relating to the business of the Company remains
Confidential Information.
(c) "TRADE SECRETS" means information including, but not limited to,
formulas, patterns, compilations, programs, devices, methods, techniques or
processes which (i) derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its disclosure or use;
and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. The provisions in this Agreement
restricting the use of Trade Secrets shall survive termination of this
Agreement for so long as is permitted by the Florida Uniform Trade Secrets
Act, F.S.A. Section 688.001, ET SEQ.
2. Coltec (a) must receive and hold the Company Information in trust and
in strict confidence; (b) must protect the Company Information from
disclosure and in no event take any action causing, or fail to take the
action necessary in order to prevent, any Company Information disclosed to
Coltec by the Company, or developed by Coltec for the Company, to lose its
character as Company Information; and (c) must not use, reproduce,
distribute, disclose or otherwise disseminate the Company Information except
to perform the Project. Any and all reproductions of the Company Information
must prominently contain a confidentiality legend.
<PAGE>
3. Disclosures of the Company Information may be made only to employees,
agents or independent contractors of Coltec (a) who are directly involved in
performing the Project and have a specific need to know such information; and
(b) whom Coltec has obligated under a written agreement to hold the Company
Information in trust and in strictest confidence and otherwise to comply with
the terms of this Agreement. Coltec agrees to diligently monitor each such
employee, agent or independent contractor and, upon request by the Company,
promptly to furnish to the Company a certified list of the Coltec's
employees, agents and independent contractors having had access to the
Company Information.
4. Within ten (10) days following the receipt of a written request from
the Company, Coltec must deliver to the Company all tangible materials
containing or embodying the Company Information, together with a certificate
executed by a duly authorized officer of Coltec certifying that all such
materials in Coltec's possession have been delivered to the Company.
5. If Coltec should breach or threaten to breach any of the provisions
of this Agreement, the Company, in addition to any other remedies it may have
at law or in equity, will be entitled to a restraining order, injunction or
other similar remedy in order to specifically enforce the provisions of this
Agreement. Coltec specifically acknowledges that money damages alone would be
an inadequate remedy for the injuries and damage that would be suffered and
incurred by the Company as a result of a breach of any of the provisions of
this Agreement. In the event that the Company should seek an injunction
hereunder, Coltec hereby waives any requirement that the Company submit proof
of the economic value of any Company Information or that the Company post a
bond or any other security.
6. This Agreement and the rights and obligations of the parties under
this Agreement may be assigned only upon the prior written approval of the
parties. The rights and obligations of the parties will inure to the benefit
of, will be binding upon and will be enforceable by the parties and their
lawful successors and representatives.
7. No modifications of this Agreement or waiver of any of its terms will
be effective unless set forth in a writing signed by the party against whom
it is sought to be enforced. This Agreement will be governed by and construed
in accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COLTEC: COMPANY:
Quincy Compressor Division, Dyneco Corporation
Coltec Industries, Inc.
By: By:
---------------------------- -------------------------------
Title: Title:
---------------------------- -------------------------------
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SCHEDULE I
DESCRIPTION OF PROPRIETARY INFORMATION
<PAGE>
PRODUCT DEVELOPMENT AND TECHNOLOGY
CONFIDENTIALITY AGREEMENT
THIS AGREEMENT is made this 2nd day of November 1995, between Dyneco
Corporation, a Minnesota corporation (the "Company"), and Quincy Compressor
Division, Coltec Industries, Inc. ("Coltec").
The parties acknowledge the following facts:
The Company desires to disclose to Coltec proprietary information
concerning its products and technology so that the parties can proceed with
their business discussions (the "Project").
In consideration of the above premises and the covenants hereinafter set
forth, the parties agree as follows:
1. (a) "COMPANY INFORMATION" means Confidential Information and Trade
Secrets.
(b) "CONFIDENTIAL INFORMATION" means data and information relating to the
business of the Company (which does not rise to the status of a Trade Secret)
which is or has been disclosed to Coltec or of which Coltec became aware as a
consequence of or through its relationship to the Company and which has value
to the Company and is not generally known to its competitors. Confidential
Information shall not include any data or information that has been
voluntarily disclosed to the public by the Company (except where such public
disclosure has been made by Coltec without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means. The provisions in this Agreement
restricting the use of Confidential Information shall survive for so long as
the data and information relating to the business of the Company remains
Confidential Information.
(c) "TRADE SECRETS" means information including, but not limited to,
formulas, patterns, compilations, programs, devices, methods, techniques or
processes which (i) derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper means
by, other persons who can obtain economic value from its disclosure or use;
and (ii) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. The provisions in this Agreement
restricting the use of Trade Secrets shall survive termination of this
Agreement for so long as is permitted by the Florida Uniform Trade Secrets
Act, F.S.A. Section 688.001, ET SEQ.
2. Coltec (a) must receive and hold the Company Information in trust and
in strict confidence; (b) must protect the Company Information from
disclosure and in no event take any action causing, or fail to take the
action necessary in order to prevent, any Company Information disclosed to
Coltec by the Company, or developed by Coltec for the Company, to lose its
character as Company Information; and (c) must not use, reproduce,
distribute, disclose or otherwise disseminate the Company Information except
to perform the Project. Any and all reproductions of the Company Information
must prominently contain a confidentiality legend.
<PAGE>
3. Disclosures of the Company Information may be made only to employees,
agents or independent contractors of Coltec (a) who are directly involved in
performing the Project and have a specific need to know such information; and
(b) whom Coltec has obligated under a written agreement to hold the Company
Information in trust and in strictest confidence and otherwise to comply with
the terms of this Agreement. Coltec agrees to diligently monitor each such
employee, agent or independent contractor and, upon request by the Company,
promptly to furnish to the Company a certified list of the Coltec's
employees, agents and independent contractors having had access to the
Company Information.
4. Within ten (10) days following the receipt of a written request from
the Company, Coltec must deliver to the Company all tangible materials
containing or embodying the Company Information, together with a certificate
executed by a duly authorized officer of Coltec certifying that all such
materials in Coltec's possession have been delivered to the Company.
5. If Coltec should breach or threaten to breach any of the provisions
of this Agreement, the Company, in addition to any other remedies it may have
at law or in equity, will be entitled to a restraining order, injunction or
other similar remedy in order to specifically enforce the provisions of this
Agreement. Coltec specifically acknowledges that money damages alone would be
an inadequate remedy for the injuries and damage that would be suffered and
incurred by the Company as a result of a breach of any of the provisions of
this Agreement. In the event that the Company should seek an injunction
hereunder, Coltec hereby waives any requirement that the Company submit proof
of the economic value of any Company Information or that the Company post a
bond or any other security.
6. This Agreement and the rights and obligations of the parties under
this Agreement may be assigned only upon the prior written approval of the
parties. The rights and obligations of the parties will inure to the benefit
of, will be binding upon and will be enforceable by the parties and their
lawful successors and representatives.
7. No modifications of this Agreement or waiver of any of its terms will
be effective unless set forth in a writing signed by the party against whom
it is sought to be enforced. This Agreement will be governed by and construed
in accordance with the laws of the State of Florida.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
COLTEC: COMPANY:
Quincy Compressor Division, Dyneco Corporation
Coltec Industries, Inc.
By: /s/ [ILLEGIBLE] By: /s/ RICHARD D. BESSER
-------------------------- ------------------------------
Title: Director of Eng. Title: President
---------------------- --------------------------
2
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DYNECO INTERNATIONAL, INC.
1993 CORPORATE STOCK OPTION PLAN
PURPOSE; EFFECTIVENESS OF THE PLAN
The purpose of the DYNECO INTERNATIONAL, INC. 1993 CORPORATE STOCK
OPTION PLAN (the "Plan") is to advance the interests of DynEco International,
Inc. (the "Company") and its stockholders by helping the Company obtain and
retain the services of employees, officers and directors upon whose judgment,
initiative and efforts the Company is substantially dependent, and to provide
those persons with further incentives to advance the interests of the Company.
This Plan will become effective as of May 1, 1993, the date of its
adoption by the Board, subject to the approval of the Plan by the majority
vote of the stockholders of the Company entitled to vote (excluding holders
of shares of Stock issued by the Company pursuant to the exercise of options
granted under this Plan) prior to April 30, 1994. If the Plan is not so
approved by the stockholders of the Company, any options granted under this
Plan will be rescinded and will be void. This Plan will remain in effect
until it is terminated by the Board or the Committee (as defined hereafter)
under Section IX hereof except that no ISO (as defined herein) will be
granted after the tenth anniversary of the date of this Plan's adoption by
the Board. This Plan will be governed by, and construed in accordance with,
the laws of the State of Minnesota.
I. CERTAIN DEFINITIONS
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan) will
govern the construction of this Plan, and of any stock option agreements
entered into pursuant to this Plan:
A. "10% STOCKHOLDER" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth
in Section 424(d) of the Code at the time he or she is granted an
Option, stock possessing more than ten percent (10%) of the total
combined voting power or value of all classes of stock of the Company
and/or of its subsidiaries;
B. "1933 ACT" means the Securities Act of 1933, as amended;
C. "1934 ACT" means the Securities Exchange Act of 1934, as amended;
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D. "BOARD" means the Board of Directors of the Company;
E. "CALLED FOR UNDER AN OPTION," or words to similar effect, means
issuable pursuant to the exercise of an Option;
F. "CODE" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to
Sections of the Code as enacted at the time of this Plan's adoption
by the Board and as subsequently amended, or to any substantially
similar successor provisions of the Code resulting from recodification,
renumbering or otherwise);
G. "COMMITTEE" means a committee of two or more individuals, appointed
by the Board, to administer and interpret this Plan; provided that the
term "Committee" will refer to the Board during such times as no
Committee is appointed by the Board;
H. "COMPANY" means DynEco International, Inc., a Minnesota corporation;
I. "DISABILITY" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code;
J. "ELIGIBLE PARTICIPANTS" means persons who, at a particular time, are
employees, officers, or directors of the Company or its subsidiaries;
K. "FAIR MARKET VALUE" means, with respect to the Common Stock, the
following:
1. If the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the
NASDAQ National Market System, the last sale price of the Common Stock
on such exchange or reported by the NASDAQ National Market System as
of such date (or, if no shares were traded on such day, as of the next
preceding day on which there was such a trade); or
2. If the Common Stock is not listed or admitted to unlisted trading
privileges or reported on the NASDAQ National Market System, and bid
and asked prices therefor in the over-the-counter market are reported
by the NASDAQ System or the National Quotation Bureau, Inc. (or any
comparable reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by the NASDAQ System, or, if
not so reported thereon, as
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<PAGE>
reported by the National Quotation Bureau, Inc. (or such comparable
reporting service).
3. If the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the NASDAQ National Market System,
and such bid and asked prices are not so reported, such price as the
Committee determines in good faith in the exercise of its reasonable
discretion.
L. "ISO" has the same meaning as "incentive stock option," as
defined in Section 422 of the Code;
M. "JUST CAUSE TERMINATION" means a termination by the Company of an
Optionee's employment by and/or service to the Company (or if the
Optionee is a director, removal of the Optionee from the Board by
action of the stockholders or, if permitted by applicable law and the
by-laws of the Company, the other directors), in connection with the
good faith determination of the Company's Board of Directors (or of
the Company's stockholders if the Optionee is a director and the
removal of the Optionee from the Board is by action of the
stockholders, but in either case excluding the vote of the Optionee if
he or she is a director or a stockholder) that the Optionee has engaged
in any acts involving dishonesty or moral turpitude or in any acts that
materially and adversely affect the business, affairs or reputation of
the Company or its subsidiaries;
N. "NSO" means any option granted under this Plan whether designated
by the Committee as a "non-qualified stock option," a "non-statutory
stock option" or otherwise, other than an option designated by the
Committee as an ISO, or any option so designated but which, for any
reason, fails to qualify as an ISO pursuant to Section 422 of the Code
and the rules and regulations thereunder;
O. "OPTION" means an option granted pursuant to this Plan entitling
the option holder to acquire shares of Stock issued by the Company
pursuant to the valid exercise of the option;
P. "OPTION AGREEMENT" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Committee in its
sole discretion, consistent with this Plan;
Q. "OPTION PRICE" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the
Option Stock called for under such Option;
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<PAGE>
R. "OPTION STOCK" means Common Stock issued or issuable by the
Company pursuant to the valid exercise of an Option;
S. "OPTIONEE" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a Transfer
authorized under this Plan;
T. "PLAN" means this 1993 Corporate Stock Option Plan of the Company;
U. "PREVIOUSLY ACQUIRED SHARES" means shares of Company Common Stock
that are already owned by the Eligible Participant;
V. "STOCK" means shares of the Company's Common Stock, no par value;
W. "SUBSIDIARY" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code;
X. "TRANSFER," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer,
conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift,
attachment or levy of such Option Stock, including without limitation
an assignment for the benefit of creditors of the Optionee, a transfer
by operation of law, such as a transfer by will or under the laws of
descent and distribution, an execution of judgment against the Option
Stock or the acquisition of record or beneficial ownership thereof by a
lender or creditor, a transfer pursuant to a QDRO, or to any decree of
divorce, dissolution or separate maintenance, any property settlement,
any separation agreement or any other agreement with a spouse (except
for estate planning purposes) under which a part or all of the shares
of Option Stock are transferred or awarded to the spouse of the
Optionee or are required to be sold; or a transfer resulting from the
filing by the Optionee of a petition for relief, or the filing of an
involuntary petition against such Optionee, under the bankruptcy laws
of the United States or of any other nation.
II. ELIGIBILITY
Participants in the Plan shall be those Eligible Participants who, in
the judgment of the Committee, are performing, or during the term of an
option will perform, services in management, operation and development of the
Company or any Subsidiary, and significantly contributed, are significantly
contributing or are expected to significantly contribute to the achievement
of corporate objectives. Eligible Participants may be granted from
4
<PAGE>
time to time one or more Options, as may be determined by the Committee in
its sole discretion. The number, type, terms and conditions of the Options
granted to various Eligible Participants need not be uniform, consistent or
in accordance with any plan, regardless of whether such Eligible Participants
are similarly situated. Upon determination by the Committee that an Option is
to be granted to an Eligible Participant, written notice shall be given such
person, specifying the terms, conditions, rights and duties related thereto.
Each Eligible Participant to whom an Option is to be granted shall enter into
an agreement with the Company, in such form as the Committee shall determine
and which is consistent with the provisions of the Plan, specifying such
terms, conditions, rights and duties. Options shall be deemed to be granted
as of the date specified in the grant resolution of the Committee, and the
related option agreements shall be dated as of such date.
III. ADMINISTRATION
A. COMMITTEE. The Committee, if appointed by the Board, will
administer this Plan. If the Board, in its discretion, does not appoint such
a Committee, the Board itself will administer this Plan and take such other
actions as the Committee is authorized to take hereunder; provided that the
Board may take such actions hereunder in the same manner as the Board may
take other actions under the Company's articles of incorporation and by-laws
generally.
A majority of the Committee shall constitute a quorum. Action of such
Committee may be taken without a meeting if unanimous written consent is
given. Such Committee shall act by majority approval of the members, shall
keep minutes of its meetings and written action, and shall provide copies of
such minutes to the Board. Copies of the minutes and written action shall be
kept with the written records of the Company.
From and after the date on which the Company first registers a class of
its equity securities under Section 12 of the 1934 Act, the Plan shall be
administered by the Board, all of whom shall be "disinterested persons"
within the meaning of Rule 16b-3 under the 1934 Act, or a committee
consisting solely of not fewer than two members of the Board who are such
"disinterested persons."
B. AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have full
and final authority in its discretion, at any time and from time to time,
subject only to the express terms, conditions and other provisions of the
Company's articles of incorporation, by-laws and this Plan, and the specific
limitations on such discretion set forth herein:
1. to select and approve the persons who will be granted Options under
this Plan from among the Eligible Participants,
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<PAGE>
and to grant to any person so selected one or more Options to purchase
such number of shares of Option Stock as the Committee may determine;
2. to determine the period or periods of time during which options may
be exercised, the Option Price and the duration of such Options, and other
matters to be determined by the Committee in connection with specific
Option grants and Option Agreements as specified under this Plan;
3. to interpret this Plan, to prescribe, amend and rescind rules and
regulations relating to this Plan, and to make all other determinations
necessary or advisable for the operation and administration of this Plan;
and
4. to delegate all or a portion of its authority under subsections 1, 2
and 3 of this Section III to one or more directors of the Company who are
executive officers of the Company, but only in connection with Options
granted to Eligible Participants who are not subject to the reporting and
liability provisions of Section 16 of the 1934 Act, and the rules and
regulations thereunder, and subject to such restrictions and limitations
(such as the aggregate number of shares of Option Stock called for by such
Options that may be granted) as the Committee may decide to impose on such
delegate directors.
C. LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any
other provision of this Plan, the Committee will have no authority:
1. to grant options to any of its members, whether or not approved by the
Board; and
2. to determine any matters, or exercise any discretion, in connection
with the Options, to the extent that the power to make such determinations
or to exercise such discretion would cause one or more members of the
Committee no longer to be "disinterested persons" within the meaning of
Section III.A. above.
D. DESIGNATION OF OPTIONS. Except as otherwise provided herein, the
Committee will designate any Option granted hereunder either as an ISO or as
an NSO. To the extent that the Fair Market Value (determined at the time the
Option is granted) of Stock with respect to which all ISOs are exercisable
for the first time by any individual during any calendar year (pursuant to
this Plan and all other plans of the Company and/or its Subsidiaries) exceeds
$100,000, such option will be treated as an NSO. Notwithstanding the general
eligibility provisions of Section II hereof, the Committee may grant ISOs
only to persons who are employees of the Company and/or its Subsidiaries.
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E. OPTION AGREEMENTS. Options will be deemed granted hereunder only
upon the execution and delivery of an Option Agreement by the optionee and a
duly authorized executive officer of the Company. Options will not be deemed
granted hereunder merely upon the authorization of such grant by the
Committee.
IV. SHARES RESERVED FOR OPTIONS
A. OPTION POOL. The aggregate number of shares of Option Stock that
may be issued pursuant to the exercise of Options granted under this Plan
shall be Seven Hundred Fifty Thousand (750,000) (the "Option Pool"), provided
that such number will be increased by the number of shares of Option Stock
that the Company subsequently may reacquire through repurchase or otherwise.
Shares of Option Stock that would have been issuable pursuant to Options, but
that are no longer issuable because all or part of those Options have
terminated or expired, will be deemed not to have been issued for purposes of
computing the number of shares of Option Stock remaining in the Option Pool
and available for issuance.
The maximum number of shares authorized may also be increased from time
to time by approval of the Board and, if required pursuant to Rule 16b-3
under the 1934 Act, Section 422 of the Code, or the applicable rules of any
securities exchange or NASDAQ and/or NASD, the shareholders of the Company.
B. ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change in
the outstanding Stock of the Company as a result of a stock split, reverse
stock split, stock dividend, recapitalization, combination or
reclassification, reorganization, merger, consolidation, liquidation, rights
offering, extraordinary dividend or divesture (including a spin-off) or any
other change in the corporate structure or shares of the Company, appropriate
proportionate adjustments will be made (in order to prevent dilution or
enlargement of Eligible Participants) in: (1) the aggregate number of shares
of Option Stock in the Option Pool that may be issued pursuant to the
exercise of Options granted hereunder; (2) the Option Price and the number of
shares of Option Stock called for in each outstanding Option granted
hereunder; and (3) other rights and matters determined on a per share basis
under this Plan or any Option Agreement hereunder. Any such adjustments will
be made only by the Board (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), and when so made will be effective, conclusive and binding for
all purposes with respect to this Plan and all Options then outstanding. No
such adjustments will be required by reason of the issuance or sale by the
Company for cash or other consideration of additional shares of its Stock or
securities convertible into or exchangeable for shares of its Stock.
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<PAGE>
V. TERMS OF STOCK OPTION AGREEMENTS
Each Option granted pursuant to this Plan will be evidenced by an
agreement (an "Option Agreement") between the Company and the person to whom
such Option is granted, in form and substance satisfactory to the Committee
in its sole discretion, consistent with this Plan. Without limiting the
foregoing, each Option Agreement (unless otherwise stated therein) will be
deemed to include the following terms and conditions:
A. COVENANTS OF OPTIONEE. At the discretion of the Committee, the
person to whom an Option is granted hereunder, as a condition to the granting
of the Option, must execute and deliver to the Company a confidential
information agreement approved by the Committee. Nothing contained in this
Plan, any Option Agreement or in any other agreement executed in connection
with the granting of an Option under this Plan will confer upon any Optionee
any right with respect to the continuation of his or her status as an
employee of, officer of, or director of, the Company or its subsidiaries.
B. VESTING. An Option shall become exercisable at such times and in
such installments (which may be cumulative) as shall be determined by the
Committee in its sole discretion at the time the Option is granted. Upon the
completion of its exercise period, an Option, to the extent not then
exercised, shall expire.
C. EXERCISE OF THE OPTION.
1. MECHANICS AND NOTICE. An Option may be exercised to the extent
exercisable (a) by giving written notice of exercise to the Company,
specifying the number of full shares of Option Stock to be purchased and
accompanied by full payment of the Option Price thereof and the amount of
withholding taxes pursuant to subsection V.C.2 below; and (b) by giving
assurances satisfactory to the Company that the shares of Option Stock to
be purchased upon such exercise are being purchased for investment and not
with a view to resale in connection with any distribution of such shares
in violation of the 1933 Act; provided, however, that in the event the
Option Stock called for under the Option is registered under the 1933 Act,
or in the event resale of such Option Stock without such registration
would otherwise be permissible, this second condition will be inoperative
if, in the opinion of counsel for the Company, such condition is not
required under the 1933 Act, or any other applicable law, regulation or
rule of any governmental agency.
2. WITHHOLDING TAXES. As a condition to the issuance of the shares of
Option Stock upon full or partial exercise of an Option granted under this
Plan, the Optionee will pay to the Company in cash, or in such other form
as the Committee may
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determine in its discretion, the amount of the Company's tax withholding
liability required in connection with such exercise. For purposes of this
subsection V.C.2, "tax withholding liability" will mean all federal and
state income taxes, social security tax, and any other taxes applicable to
the compensation income arising from the transaction required by
applicable law to be withheld by the Company.
3. PAYMENT OF OPTION PRICE. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder, to
be fixed by the Committee in its discretion, but in no event will the
Option Price for an ISO granted hereunder be less than one hundred
(100%) percent of the Fair Market Value (or, in case the Optionee is a
10% Stockholder, one hundred ten (110%) percent of such Fair Market Value)
of the Option Stock at the time such ISO is granted, and in no event will
the Option Price for an NSO granted hereunder be less than eighty-five
(85%) percent of Fair Market Value. The Option Price will be payable to
the Company in United States dollars in cash or by check or, such other
form of consideration as may be approved by the Committee, in its
discretion.
In determining whether or upon what terms and conditions an Eligible
Participant will be permitted to pay the purchase price of an Option in a
form other than cash, the Committee may consider all relevant facts and
circumstances, including, without limitation, the tax and securities law
consequences to the Company. In the event the Eligible Participant is
permitted to pay the purchase price of an Option in whole or in part with
Previously Acquired Shares and/or the surrender of Options, the value of
such Previously Acquired Shares and/or the shares covered by such Options
shall be equal to their Fair Market Value on the date of exercise of the
Option.
D. TERMINATION OF THE OPTION. Except as otherwise provided herein,
each Option Agreement will specify the period of time, to be fixed by the
Committee in its discretion, during which the Option granted therein will be
exercisable, not to exceed ten years from the date of grant in the case of an
ISO (the "Option Period"); provided that the Option Period will not exceed
five years from the date of grant in the case of an ISO granted to a 10%
Stockholder. To the extent not previously exercised, each Option will
terminate upon the expiration of the Option Period specified in the Option
Agreement; provided, however, that each such Option will terminate, if
earlier: (i) ninety days after the date that the Optionee ceases to be an
Eligible Participant for any reason, other than by reason of death or
disability; (ii) twelve months after the date that the Optionee ceases to be
an Eligible Participant by reason of such person's death or disability; or
(iii) immediately as of the date that the Optionee ceases to be an Eligible
Participant by reason of a Just Cause Termination. In the event of a sale or
all
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or substantially all of the assets of the Company, or a merger or
consolidation or other reorganization in which the Company is not the
surviving corporation, or in which the Company becomes a subsidiary of
another corporation (any of the foregoing events, a "Corporate Transaction"),
then notwithstanding anything else herein, the right to exercise all then
outstanding Options will vest immediately prior to such Corporate Transaction
and will terminate immediately after such Corporate Transaction; provided,
however, that if the Board, in its sole discretion, determines that such
immediate vesting of the right to exercise outstanding Options is not in the
best interests of the Company, then the successor corporation must agree to
assume the outstanding Options or substitute therefor comparable options of
such successor corporation or a parent or subsidiary of such successor
corporation.
Unless the committee shall otherwise determine in its sole discretion,
an Eligible Participant's employment or other service shall, for purposes of
the Plan, be deemed to have terminated on the date such Eligible Participant
ceases to perform services for the Company and all Subsidiaries, as
determined in good faith by the Committee.
E. OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by will or the laws of descent and distribution, or
in the case of an NSO, pursuant to a qualified domestic relations order (as
defined by the Code). During the lifetime of the Optionee, the Option will be
exercisable only by him or her, or the transferee of an NSO if it was
transferred pursuant to a qualified domestic relations order.
F. QUALIFICATION OF STOCK. The right to exercise an Option will be
further subject to the requirement that if at any time the Board determines,
in its discretion, that the listing, registration or qualification of the
shares of Option Stock called for thereunder upon any securities exchange or
under any state or federal law, or the consent or approval of any
governmental regulatory authority, is necessary or desirable as a condition
of or in connection with the granting of such Option or the purchase of
shares of Option Stock thereunder, the Option may not be exercised, in whole
or in part, unless and until such listing, registration, qualification,
consent or approval is effected or obtained free of any conditions not
acceptable to the Board, in its discretion.
G. ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options and/or
Option Stock under this Plan, the Optionee will be deemed to represent,
warrant and agree as follows:
1. SECURITIES ACT OF 1933. The Optionee understands that the shares of
Option Stock have not been registered under the 1933 Act, and that such
shares are not freely tradeable and must be
10
<PAGE>
held indefinitely unless such shares are either registered under the
1933 Act or an exemption from such registration is available. The
Optionee understands that the Company is under no obligation to register
the shares of Option Stock.
2. OTHER APPLICABLE LAWS. The Optionee further understands that Transfer
of the Option Stock requires full compliance with the provisions of all
applicable laws.
3. INVESTMENT INTENT. Unless a registration statement is in effect with
respect to the sale of Option Stock obtained through exercise of Options
granted hereunder: (a) Upon exercise of any Option, the Optionee will
purchase the Option Stock for his or her own account and not with a view
to distribution within the meaning of the 1933 Act, other than as may be
effected in compliance with the 1933 Act and the rules and regulations
promulgated thereunder; (b) no one else will have any beneficial interest
in the Option Stock; and (c) he or she has no present intention of
disposing of the Option Stock at any particular time.
H. COMPLIANCE WITH LAW. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, and Option Stock may be
issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state securities laws, and
all of the same will be subject to this overriding condition. The Company
will not be required to register or qualify Option Stock with the Securities
and Exchange Commission or any State agency, except that the Company will
register with, or as required by local law, file for and secure an exemption
from such registration requirements from, the applicable securities
administrator and other officials of each jurisdiction in which an Eligible
Participant would be granted an Option hereunder prior to such grant.
I. STOCK CERTIFICATES. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all legends required by
law and necessary to effectuate this Plan's provisions. The Company may place
a "stop transfer" order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan have been complied with.
Unless a registration statement under the 1933 Act and applicable state
securities laws is in effect with respect to the issuance or transfer of the
shares of Stock under the Plan, each certificate representing any such shares
shall be endorsed with a legend in substantially the following form, unless
counsel for the Company is of the opinion as to any such certificate that
such legend is unnecessary:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
APPLICABLE STATE SECURITIES LAWS. THESE
11
<PAGE>
SECURITIES HAVE ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, OR ENCUMBERED OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
AND SUCH STATE LAWS OR PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER
THE ACT AND SUCH STATE LAWS, THE AVAILABILITY OF WHICH IS TO BE
ESTABLISHED TO THE SATISFACTION OF THE COMPANY.
J. NOTICES. Any notice to be given to the Company under the terms of
an Option Agreement will be addressed to the Company at its principal
executive office, Attention: Corporate Secretary, or at such other address as
the Company may designate in writing. Any notice to be given to an Optionee
will be addressed to the Optionee at the address provided to the Company by
the Optionee. Any such notice will be deemed to have been duly given if and
when enclosed in a properly sealed envelope, addressed as aforesaid,
registered and deposited, postage and registry fee prepaid, in a post office
or branch post office regularly maintained by the United States Government.
K. OTHER PROVISIONS. The Option Agreement may contain such other
terms, provisions and conditions, including such special forfeiture
conditions, rights of repurchase, rights of first refusal and other
restrictions on Transfer of Option Stock issued upon exercise of any Options
granted hereunder, not inconsistent with this Plan, as may be determined by
the Committee in its sole discretion.
L. RIGHTS AS A SHAREHOLDER. The Eligible Participant shall have no
rights as a shareholder with respect to any shares of Company Common Stock
covered by an Option until the Optionee shall have become the holder of
record of such shares.
M. EMPLOYMENT OF SERVICE. Nothing in this Plan shall interfere with or
limit in any way the right of the Company or any Subsidiary to terminate the
employment or service of any Eligible Participant at any time, nor confer
upon any Eligible Participant any right to continue in the employ or service
of the Company or any Subsidiary.
N. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation
plans or programs entered into by the Company. The Plan will be construed to
be in addition to any and all other plans or programs. Neither the adoption
of the plan nor the submission of the Plan to the shareholders of the Company
for approval will be construed as creating any limitations on the power or
authority of the Board to adopt such additional or other compensation
arrangements as the Board may deem necessary or desirable.
12
<PAGE>
VI. PROCEEDS FROM SALE OF STOCK
Cash proceeds from the sale of shares of Option Stock issued from time
to time upon the exercise of Options granted pursuant to this Plan will be
added to the general funds of the Company and as such will be used from time
to time for general corporate purposes.
VII. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS
Subject to the terms and conditions and within the limitations of this
Plan, the Committee may modify, extend or renew outstanding Options granted
under this Plan, or accept the surrender of outstanding Options (to the
extent not theretofore exercised) and authorize the granting of new Options
in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of any Option will,
without the consent of the holder of the Option, alter or impair any rights
or obligations under any Option theretofore granted under this Plan.
VIII. AMENDMENT AND DISCONTINUANCE
The Board may amend, suspend or discontinue this Plan at any time or
from time to time; provided that no action of the Board will cause ISOs
granted under this Plan not to comply with Section 422 of the Code unless the
Board specifically declares such action to be made for that purpose and
provided further that no such action may, without the approval of the
stockholders of the Company, materially increase (other than by reason of an
adjustment pursuant to Section IV.B hereof) the maximum aggregate number of
shares of Option Stock in the Option Pool that may be issued under Options
granted pursuant to this Plan or materially increase the benefits accruing to
Plan participants or materially modify eligibility requirements for the
participants. Moreover, no such action may alter or impair any Option
previously granted under this Plan without the consent of the holder of such
Option.
IX. PLAN COMPLIANCE WITH RULE 16B-3
With respect to persons subject to Section 16 of the 1934 Act,
transactions under this plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the 1934 Act. To the extent
any provision of the Plan or action by the Plan administrators fails so to
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Plan administrators.
13
<PAGE>
X. MISCELLANEOUS
A. CONSTRUCTION AND HEADINGS. The use of the masculine gender shall
also include within its meaning the feminine, and the singular may include
the plural and the plural may include the singular, unless the context
clearly indicates to the contrary. The headings of the Sections and subparts
of the Plan are for convenience of reading only and are not meant to be of
substantive significance and shall not add or detract from the meaning of
such Section or subpart.
B. GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed
by and construed exclusively and solely in accordance with the laws of the
State of Minnesota without regard to the conflict of laws provisions of any
jurisdiction. All parties agree to submit to the jurisdiction of the state
and federal courts of Minnesota with respect to matters relating to the Plan
and agree not to raise or assert the defense that such forum is not
convenient for such party.
C. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon and inure
to the benefit of the successors and permitted assigns of the Company,
including without limitation, whether by way of merger, consolidation,
operation of law, assignment, purchase or other acquisition of substantially
all of the assets or business of the Company, and any and all such successors
and assigns shall absolutely and unconditionally assume all of the Company's
obligations under the Plan.
D. SURVIVAL OF PROVISIONS. The rights, remedies, agreements,
obligations and covenants contained in or made pursuant to the plan, any
agreement evidencing an Option and any other notices or agreements in
connection therewith, including, without limitation, any notice of exercise
of an Option, shall survive the execution and delivery of such notices and
agreements and the delivery and receipt of shares of Common stock and shall
remain in full force and effect.
XI. COPIES OF PLAN
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
_______________________
14
<PAGE>
[SPECIMEN FORM]
DYNECO INTERNATIONAL, INC.
1993 CORPORATE STOCK OPTION PLAN
Stock Option Agreement
Form DYNCASH
THIS AGREEMENT is made as of ______________, 199___, between DynEco
International, Inc., a Minnesota corporation (the "Company"), and
_________________________ (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. OPTION GRANT. The Company hereby grants to the Optionee an option
(the "Option") to purchase the number of shares of the Company's Common Stock
(the "Shares"), for an exercise price per share (the "Option Price") and
based upon a Grant Date, all as set forth below:
Shares under option: __________
Option Price per Share: $_________
Grant Date: __________, 199___
The Option will be subject to all of the terms and conditions set forth
herein and in the Company's 1993 Corporate Stock Option Plan (the "Option
Plan"), a copy of which is attached hereto and incorporated by reference. The
Option granted hereunder will be a nonstatutory or nonqualified option for
tax purposes.
2. STOCKHOLDER RIGHTS. No rights or privileges of a stockholder in the
Company are conferred by reason of the granting of the Option. Optionee will
not become a stockholder in the Company with respect to the Shares unless and
until the Option has been properly exercised and the Option Price fully paid
as to the portion of the Option exercised.
3. TERMINATION. Subject to earlier termination as provided in the
Option Plan, this Option will expire, unless previously exercised in full, on
December __, 199__.
4. TERMS OF THE OPTION PLAN. The Optionee understands that the Option
Plan includes important terms and conditions that apply to this Option. Those
terms include (without limitation): important conditions to the right of the
Optionee to exercise the Option; important restrictions on the ability of the
Optionee to transfer the Option or to transfer Shares received upon exercise
of the Option; and early termination of the Option following the occurrence
of certain events, including the Optionee no longer
15
<PAGE>
being an officer, director or employee to or of the Company or its
subsidiaries. The Optionee acknowledges that he or she has read the Option
Plan, agrees to be bound by its terms, and makes each of the representations
required to be made by the Optionee under it.
5. MISCELLANEOUS. This Agreement (together with the Option Plan) sets
forth the complete agreement of the parties concerning the subject matter
hereof, superseding all prior agreements, negotiations and understandings.
This Agreement will be governed by the substantive law of the State of
Minnesota, and may be executed in counterparts.
The parties hereby have entered into this Agreement as of the date set
forth above.
DYNECO INTERNATIONAL, INC.
By_____________________________________
An Authorized Officer
OPTIONEE
_______________________________________
Address:
_______________________________________
_______________________________________
_______________________________________
Attachments: (1) Spousal Consent
(2) 1993 Corporate Stock Option Plan
16
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in the
attached DynEco International, Inc. 1993 Corporate Stock Option Plan
Agreement (the "Agreement"). The undersigned acknowledges that he or she:
1. has received, reviewed and understands the terms of the Agreement
(including its attachments);
2. consents to the Agreement, and agrees to be bound by its terms to the
extent that he or she now has or may obtain any interest in the Option or
Shares covered by the Agreement; and
3. understands that the Company is relying upon this consent in entering
into the Agreement and in not taking further steps to protect its
interests.
Date: ____________, 199___
_______________________________________
Print Name:
_______________________________________
<PAGE>
[SPECIMEN FORM]
DYNECO INTERNATIONAL, INC.
1993 CORPORATE STOCK OPTION PLAN
Stock Option Agreement
Form DYNNOCASH
THIS AGREEMENT is made as of __________, 199___, between DynEco
International, Inc., a Minnesota corporation (the "Company"), and
____________________ (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. OPTION GRANT. The Company hereby grants to the Optionee an option
(the "Option") to purchase the number of shares of the Company's Common Stock
(the "Shares"), for an exercise price per share (the "Option Price") and
based upon a Grant Date, all as set forth below:
Shares under option: ________________
Option Price Per Share: $ __________
Grant Date: __________, 199___
The Option will be subject to all of the terms and conditions set forth
herein and in the Company's 1993 Corporate Stock Option Plan (the "Option
Plan"), a copy of which is attached hereto and incorporated by reference. The
Option granted hereunder will be a nonstatutory or nonqualified option for
tax purposes.
2. EXERCISE PRICE. The Optionee may pay the Option Price for Shares,
in his or her sole discretion, by either:
(a) by paying the Option Price in cash; or
(b) by paying with Previously Acquired Shares; or
(c) by paying the Option Price through surrendering that number
of Options covering the number of underlying shares of
Common Stock the fair market value of which shares equal the
Option Price.
3. STOCKHOLDER RIGHTS. No rights or privileges of a stockholder in the
Company are conferred by reason of the granting of the Option. Optionee will
not become a stockholder in the Company with respect to the Shares unless and
until the Option has been properly exercised and the Option Price fully paid
as to the portion of the Option exercised.
4. TERMINATION. Subject to earlier termination as provided in the
Option Plan, this Option will expire, unless previously exercised in full, on
December ___, 199___.
<PAGE>
5. TERMS OF THE OPTION PLAN. The Optionee understands that the Option
Plan includes important terms and conditions that apply to this Option. Those
terms include (without limitation): important conditions to the right of the
Optionee to exercise the Option; important restrictions on the ability of the
Optionee to transfer the Option or to transfer Shares received upon exercise
of the Option; and early termination of the Option following the occurrence
of certain events, including the Optionee no longer being an officer,
director or employee to or of the Company or its subsidiaries. THE OPTIONEE
ACKNOWLEDGES THAT HE OR SHE HAS READ THE OPTION PLAN, AGREES TO BE BOUND BY
ITS TERMS, AND MAKES EACH OF THE REPRESENTATIONS REQUIRED TO BE MADE BY THE
OPTIONEE UNDER IT.
6. MISCELLANEOUS. This Agreement (together with the Option Plan) sets
forth the complete agreement of the parties concerning the subject matter
hereof, superseding all prior agreements, negotiations and understandings.
This Agreement will be governed by the substantive law of the State of
Minnesota, and may be executed in counterparts.
The parties hereby have entered into this Agreement as of the date set
forth above.
DYNECO INTERNATIONAL, INC.
By _______________________________________
An Authorized Officer
OPTIONEE
_______________________________________
Address:
_______________________________________
_______________________________________
_______________________________________
Attachments: (l) Spousal Consent
(2) 1993 Corporate Stock Option Plan
2
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in the
attached DynEco International, Inc. 1993 Corporate Stock Option Plan
Agreement (the "Agreement"). The undersigned acknowledges that he or she:
1. has received, reviewed and understands the terms of the Agreement
(including its attachments);
2. consents to the Agreement, and agrees to be bound by its terms to the
extent that he or she now has or may obtain any interest in the Option or
Shares covered by the Agreement; and
3. understands that the Company is relying upon this consent in entering
into the Agreement and in not taking further steps to protect its
interests.
Date: __________, 199__
_______________________________________
Print Name:
_______________________________________
<PAGE>
[SAMPLE FORM OF NOTICE TO OPTIONEE]
MEMORANDUM
Date:__________
To: _________________________
From: A.J. Ryden
Chairman
DynEco International, Inc.
Subject: 1993 CORPORATE STOCK OPTION PLAN
I am pleased to inform you that the Board of Directors recently awarded
you a non-statutory stock option to purchase __________ shares of the
Company's common stock at an exercise price of $_____ per share. This option
was granted on _____________, 199___ under the 1993 Corporate Stock Option
Plan and vests as of the grant date.
Please enter your address on the enclosed Stock Option Agreement, sign
the original copy of the Agreement and return it to me as soon as
practicable. Attached to the Agreement is a Spousal Consent which your spouse
should sign and date. A duplicate copy of the Agreement is included for your
files. Attached to your copy of the agreement as Exhibit A is a copy of the
1993 Corporate Stock Option Plan.
If you desire to exercise a vested portion of your option, I will assist
you in arranging for the execution of the necessary papers. If you have any
questions regarding your option, please contact me. CONGRATULATIONS!
Enclosure
<PAGE>
NOTICE OF EXERCISE OF OPTION
To: DynEco International, Inc.
Office of the Corporate Secretary
From: _________________________________
( Optionee )
Address:
_________________________________
_________________________________
_________________________________
Social Security Number: ______________________
1. EXERCISE OF OPTION. I am the holder of an option or options granted
under the 1993 Corporate Stock Option Plan (the "Plan") and that certain
Stock Option Agreement dated _____________, 199__. I hereby irrevocably elect
to exercise the purchase rights represented by such option, and to purchase
thereunder ________ (____) shares of Common Stock of DynEco International,
Inc. (the "Company") at $____ per share, for an aggregate exercise price of
$______, to be paid by me in one or more of the following forms (indicate the
amount for each form that applies):
[ ] $__________ by delivering herewith cash or a check made payable
to DynEco International, Inc.; or
[ ] $__________ by the delivering herewith of certificate(s) numbered
__________ representing shares of Common Stock of the Company
with a fair market value on the date hereof equal to $____ per
share (and, if such certificate represents shares in excess of
the number required to achieve the amount indicated in the left
margin, requesting that the Company or its transfer agent deliver
to me a certificate or certificates for the balance of the shares
represented thereby), together with a stock power executed in
blank; or
[ ] $__________ by delivering to _________________________________
("Broker") an irrevocable direction (two copies of which I have
completed, executed and attached hereto), to sell that number of
shares of the stock to be acquired hereby and to deliver the proceeds
thereof to the Company in the amount indicated in the left margin; or
[ ] $__________ by the delivering herewith of the Stock Option Agreement
dated , 199___,
1
<PAGE>
representing Options to purchase shares of Common Stock of the
Company with the shares having a fair market value on the date hereof
equal to $_________ per share (and, if such Stock Option Agreement
represents shares in excess of the number required to achieve the
amount indicated in the left margin, requesting that the Company or
its transfer agent deliver to me a Stock Option Agreement for the
balance of the Options represented thereby).
I request that certificate(s) for such shares be registered and issued in the
name set forth above. The certificate(s) issued upon exercise of the
aforesaid option should be mailed to my address indicated above via first
class mail. I acknowledge that the Option Exercise Date is the date upon
which this notice and the required payment are received in the Office of the
Secretary of the Company.
2. OTHER ACKNOWLEDGEMENTS.
(a) I acknowledge receipt of copies of the Company's most recent 10K
and/or Annual Report to Shareholders, and 10Q.
(b) I am aware that the Securities Act of 1933, as amended, and the
regulations and requirements of the Securities and Exchange Commission
thereunder, may impose limitations on the resale of Company stock acquired
pursuant to this option exercise. I hereby certify that any resale of such
stock will be made in compliance with the Act and those regulations and
requirements.
(c) I hereby appoint ______________________ as my agent to accept
delivery of the shares of Company stock being purchased on my behalf
pursuant to this option exercise, and request _______________________
to forward the certificates representing those shares to me at the address
shown above.
Dated: __________, 199___
______________________________________
Optionee
2
<PAGE>
DYNECO INTERNATIONAL, INC.
1993 CORPORATE STOCK OPTION PLAN
STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of May 1, 1993, between DynEco International,
Inc., a Minnesota corporation (the "Company"), and Thomas C. Edwards (the
"Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. OPTION GRANT. The Company hereby grants to the Optionee an option
(the "Option") to purchase the number of shares of the Company's Common Stock
(the "Shares"), for an exercise price per share (the "Option Price") and
based upon a Grant Date, all as set forth below:
Shares under option: 100,000
Option Price per Share: $1.00
Grant Date: May 1, 1993
The Option will be subject to all of the terms and conditions set forth
herein and in the Company's 1993 Corporate Stock Option Plan (the "Option
Plan"), a copy of which is attached hereto and incorporated by reference.
The Option granted hereunder will be a nonstatutory or nonqualified option
for tax purposes.
2. EXERCISE PRICE. The Optionee may pay the Option Price for Shares,
in his or her sole discretion, by either:
(a) by paying the Option Price in cash; or
(b) by paying with Previously Acquired Shares; or
(c) by paying the Option Price through surrendering that number of
Options covering the number of underlying shares of Common Stock
the fair market value of which shares equal the Option Price.
3. STOCKHOLDER RIGHTS. No rights or privileges of a stockholder in
the Company are conferred by reason of the granting of the Option. Optionee
will not become a stockholder in the Company with respect to the Shares
unless and until the Option has been properly exercised and the Option Price
fully paid as to the portion of the Option exercised.
1
<PAGE>
4. TERMINATION. Subject to earlier termination as provided in the
Option Plan, this Option will expire, unless previously exercised in full, on
December 31, 1998.
5. TERMS OF THE OPTION PLAN. The Optionee understands that the Option
Plan includes important terms and conditions that apply to this Option.
Those terms include (without limitation): important conditions to the right
of the Optionee to exercise the Option; important restrictions on the ability
of the Optionee to transfer the Option or to transfer Shares received upon
exercise of the Option; and early termination of the Option following the
occurrence of certain events, including the Optionee no longer being an
officer, director or employee to or of the Company or its subsidiaries. THE
OPTIONEE ACKNOWLEDGES THAT HE OR SHE HAS READ THE OPTION PLAN, AGREES TO BE
BOUND BY ITS TERMS, AND MAKES EACH OF THE REPRESENTATIONS REQUIRED TO BE MADE
BY THE OPTIONEE UNDER IT.
6. MISCELLANEOUS. This Agreement (together with the Option Plan) sets
forth the complete agreement of the parties concerning the subject matter
hereof, superseding all prior agreements, negotiations and understandings.
This Agreement will be governed by the substantive law of the State of
Minnesota, and may be executed in counterparts.
The parties hereby have entered into this Agreement as of the date set
forth above.
DYNECO INTERNATIONAL, INC.
By ________________________________________
An Authorized Officer
OPTIONEE:
___________________________________________
Thomas C. Edwards
Address:
___________________________________________
___________________________________________
___________________________________________
Attachments: (1) Spousal Consent
(2) 1993 Corporate Stock Option Plan
2
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in the
attached DynEco International, Inc. 1993 Corporate Stock Option Plan
Agreement (the "Agreement"). The undersigned acknowledges that he or she:
1. has received, reviewed and understands the terms of the Agreement
(including its attachments);
2. consents to the Agreement, and agrees to be bound by its terms to the
extent that he or she now has or may obtain any interest in the Option or
Shares covered by the Agreement; and
3. understands that the Company is relying upon this consent in entering
into the Agreement and in not taking further steps to protect its
interests.
Date: May __, 1993
_________________________________________
Print Name:
_________________________________________
<PAGE>
DYNECO INTERNATIONAL, INC.
1993 ADVISORS STOCK OPTION PLAN
PURPOSE; EFFECTIVENESS OF THE PLAN
The purpose of the DYNECO INTERNATIONAL, INC. 1993 CORPORATE STOCK
OPTION PLAN (the "Plan") is to advance the interests of DynEco International,
Inc. (the "Company") and its stockholders by helping the Company obtain and
retain the services of advisors and consultants upon whose judgment,
initiative and efforts the Company is substantially dependent, and to provide
those persons with further incentives to advance the interests of the Company.
This Plan will become effective as of May 1, 1993, the date of its
adoption by the Board. This Plan will remain in effect until it is
terminated by the Board or the Committee (as defined hereafter) under Section
VIII hereof, or December 31, 1998.
I. Certain Definitions
Unless the context otherwise requires, the following defined terms
(together with other capitalized terms defined elsewhere in this Plan) will
govern the construction of this Plan, and of any stock option agreements
entered into pursuant to this Plan:
A. "1933 ACT" means the Securities Act of 1933, as amended;
B. "1934 ACT" means the Securities Exchange Act of 1934, as amended;
C. "BOARD" means the Board of Directors of the Company;
D. "CALLED FOR UNDER AN OPTION," or words to similar effect, means
issuable pursuant to the exercise of an Option;
E. "CODE" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections
of the Code as enacted at the time of this Plan's adoption by the Board and
as subsequently amended, or to any substantially similar successor provisions
of the Code resulting from recodification, renumbering or otherwise);
F. "COMMITTEE" means a committee of two or more individuals, appointed
by the Board, to administer and interpret this Plan; provided that the term
"Committee" will refer to the Board during such times as no Committee is
appointed by the Board;
G. "COMPANY" means DynEco International, Inc., a Minnesota corporation;
H. "DISABILITY" has the same meaning as "permanent and total
disability," as defined in section 22(e)(3) of the Code;
<PAGE>
I. "ELIGIBLE PARTICIPANTS" means persons who, at a particular time, are
advisors or consultants to the Company or its subsidiaries;
J. "FAIR MARKET VALUE" means, with respect to the Common Stock, the
following:
1. If the Common Stock is listed or admitted to unlisted trading
privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the
NASDAQ National Market System, the last sale price of the Common Stock
on such exchange or reported by the NASDAQ National Market System as
of such date (or, if no shares were traded on such day, as of the next
preceding day on which there was such a trade); or
2. If the Common Stock is not listed or admitted to unlisted trading
privileges or reported on the NASDAQ National Market System, and bid
and asked prices therefor in the over-the-counter market are reported
by the NASDAQ System or the National Quotation Bureau, Inc. (or any
comparable reporting service), the mean of the closing bid and asked
prices as of such date, as so reported by the NASDAQ System, or, if
not so reported thereon, as reported by the National Quotation Bureau,
Inc. (or such comparable reporting service).
3. If the Common Stock is not so listed or admitted to unlisted
trading privileges, or reported on the NASDAQ National Market System,
and such bid and asked prices are not so reported, such price as the
Committee determines in good faith in the exercise of its reasonable
discretion.
K. "NSO" means any option granted under this Plan whether designated by
the Committee as a "non-qualified stock option," a "non-statutory stock option"
or otherwise;
L. "OPTION" means an option granted pursuant to this Plan entitling the
option holder to acquire shares of Stock issued by the Company pursuant to the
valid exercise of the option;
M. "OPTION AGREEMENT" means an agreement between the Company and an
Optionee, in form and substance satisfactory to the Committee in its sole
discretion, consistent with this Plan;
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<PAGE>
N. "OPTION PRICE" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the Option
Stock called for under such Option;
O. "OPTION STOCK" means Common Stock issued or issuable by the Company
pursuant to the valid exercise of an Option;
P. "OPTIONEE" means an Eligible Participant to whom Options are
granted hereunder, and any transferee thereof pursuant to a Transfer
authorized under this Plan:
Q. "PLAN" means this 1993 Advisors Stock Option Plan of the Company;
R. "PREVIOUSLY ACQUIRED SHARES" means shares of Company Common Stock
that are already owned by the Eligible Participant;
S. "STOCK" means shares of the Company's Common Stock, no par value;
T. "SUBSIDIARY" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code;
U. "TRANSFER," with respect to Option Stock, includes, without
limitation, a voluntary or involuntary sale, assignment, transfer,
conveyance, pledge, hypothecation, encumbrance, disposal, loan, gift,
attachment or levy of such Option Stock, including without limitation an
assignment for the benefit of creditors of the Optionee, a transfer by
operation of law, such as a transfer by will or under the laws of descent and
distribution, an execution of judgment against the Option Stock or the
acquisition of record or beneficial ownership thereof by a lender or
creditor, a transfer pursuant to a QDRO, or to any decree of divorce,
dissolution or separate maintenance, any property settlement, any separation
agreement or any other agreement with a spouse (except for estate planning
purposes) under which a part or all of the shares of Option Stock are
transferred or awarded to the spouse of the Optionee or are required to be
sold; or a transfer resulting from the filing by the Optionee of a petition
for relief, or the filing of an involuntary petition against such Optionee,
under the bankruptcy laws of the United States or of any other nation.
II. Eligibility
Participants in the Plan shall be those Eligible Participants who, in
the judgment of the Committee, are performing, or during the term of an
option will perform, services in advising or
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<PAGE>
consulting with respect to the management, operation and development of the
Company or any Subsidiary, and significantly contributed, are significantly
contributing or are expected to significantly contribute to the achievement
of corporate objectives. Eligible Participants may be granted from time to
time one or more Options, as may be determined by the Committee in its sole
discretion. The number, type, terms and conditions of the Options granted to
various Eligible Participants need not be uniform, consistent or in
accordance with any plan, regardless of whether such Eligible Participants
are similarly situated. Upon determination by the Committee that an Option
is to be granted to an Eligible Participant, written notice shall be given
such person, specifying the terms, conditions, rights and duties related
thereto. Each Eligible Participant to whom an Option is to be granted shall
enter into an agreement with the company, in such form as the Committee shall
determine and which is consistent with the provisions of the Plan, specifying
such terms, conditions, rights and duties. Options shall be deemed to be
granted as of the date specified in the grant resolution of the Committee,
and the related option agreements shall be dated as of such date.
III. Administration
A. COMMITTEE. The Committee, if appointed by the Board, will
administer this Plan. If the Board, in its discretion, does not appoint such
a committee, the Board itself will administer this Plan and take such other
actions as the Committee is authorized to take hereunder; provided that the
Board may take such actions hereunder in the same manner as the Board may
take other actions under the Company's articles of incorporation and by-laws
generally.
A majority of the Committee shall constitute a quorum. Action of such
Committee may be taken without a meeting if unanimous written consent is
given. Such committee shall act by majority approval of the members, shall
keep minutes of its meetings and written action, and shall provide copies of
such minutes to the Board. Copies of the minutes and written action shall be
kept with the written records of the Company.
From and after the date on which the Company first registers a class of
its equity securities under Section 12 of the 1934 Act, the Plan shall be
administered by the Board, all of whom shall be "disinterested persons"
within the meaning of Rule 16b-3 under the 1934 Act, or a committee
consisting solely of not fewer than two members of the Board who are such
"disinterested persons."
B. AUTHORITY AND DISCRETION OF COMMITTEE. The Committee will have
full and final authority in its discretion, at any time
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<PAGE>
and from time to time, subject only to the express terms, conditions and
other provisions of the Company's articles of incorporation, by-laws and this
Plan, and the specific limitations on such discretion set forth herein:
1. to select and approve the persons who will be granted Options under
this Plan from among the Eligible Participants, and to grant to any person
so selected one or more Options to purchase such number of shares of Option
Stock as the Committee may determine;
2. to determine the period or periods of time during which Options may be
exercised, the Option Price and the duration of such Options, and other
matters to be determined by the Committee in connection with specific
Option grants and Option Agreements as specified under this Plan;
3. to interpret this Plan, to prescribe, amend and rescind rules and
regulations relating to this Plan, and to make all other determinations
necessary or advisable for the operation and administration of this Plan;
and
4. to delegate all or a portion of its authority under subsections 1, 2
and 3 of this Section III to one or more directors of the Company who are
executive officers of the Company, but only in connection with Options
granted to Eligible Participants who are not subject to the reporting and
liability provisions of Section 16 of the 1934 Act, and the rules and
regulations thereunder, and subject to such restrictions and limitations
(such as the aggregate number of shares of Option Stock called for by such
Options that may be granted) as the Committee may decide to impose on such
delegate directors.
C. LIMITATION ON AUTHORITY. Notwithstanding the foregoing, or any
other provision of this Plan, the Committee will have no authority:
1. to grant Options to any of its members, whether or not approved by the
Board; and
2. to determine any matters, or exercise any discretion, in connection
with the Options, to the extent that the power to make such determinations
or to exercise such discretion would cause one or more members of the
Committee no longer to be "disinterested persons" within the meaning of
Section III.A. above.
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<PAGE>
D. DESIGNATION OF OPTIONS. Except as otherwise provided herein, the
Committee will designate any Option granted hereunder as an NSO.
E. OPTION AGREEMENTS. Options will be deemed granted hereunder only
upon the execution and delivery of an Option Agreement by the Optionee and a
duly authorized executive officer of the Company. Options will not be deemed
granted hereunder merely upon the authorization of such grant by the
Committee.
IV. Shares Reserved for Options
A. OPTION POOL. The aggregate number of shares of Option Stock that
may be issued pursuant to the exercise of Options granted under this Plan
shall be Seven Hundred Fifty Thousand (750,000) (the "Option Pool"), provided
that such number will be increased by the number of shares of Option Stock
that the Company subsequently may reacquire through repurchase or otherwise.
Shares of Option Stock that would have been issuable pursuant to Options, but
that are no longer issuable because all or part of those Options have
terminated or expired, will be deemed not to have been issued for purposes of
computing the number of shares of Option Stock remaining in the Option Pool
and available for issuance.
The maximum number of shares authorized may also be increased from time
to time by approval of the Board and, if required pursuant to Rule 16b-3
under the 1934 Act, Section 422 of the Code, or the applicable rules of any
securities exchange or NASDAQ and/or NASD, the shareholders of the Company.
B. ADJUSTMENTS UPON CHANGES IN STOCK. In the event of any change in
the outstanding Stock of the Company as a result of a stock split, reverse
stock split, stock dividend, recapitalization, combination or
reclassification, reorganization, merger, consolidation, liquidation, rights
offering, extraordinary dividend or divesture (including a spin-off) or any
other change in the corporate structure or shares of the Company, appropriate
proportionate adjustments will be made (in order to prevent dilution or
enlargement of Eligible Participants) in: (1) the aggregate number of shares
of Option Stock in the Option Pool that may be issued pursuant to the
exercise of Options granted hereunder; (2) the Option Price and the number of
shares of Option Stock called for in each outstanding Option granted
hereunder; and (3) other rights and matters determined on a per share basis
under this Plan or any Option Agreement hereunder. Any such adjustments will
be made only by the Board (or, if the Company is not the surviving
corporation in any such transaction, the board of directors of the surviving
corporation), and when so made will be effective, conclusive and binding for
all purposes with respect to
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<PAGE>
this Plan and all options then outstanding. No such adjustments will be
required by reason of the issuance or sale by the Company for cash or other
consideration of additional shares of its Stock or securities convertible
into or exchangeable for shares of its Stock.
V. Terms of Stock Option Agreements
Each Option granted pursuant to this Plan will be evidenced by an
agreement (an "Option Agreement") between the Company and the person to whom
such Option is granted, in form and substance satisfactory to the Committee
in its sole discretion, consistent with this Plan. Without limiting the
foregoing, each Option Agreement (unless otherwise stated therein) will be
deemed to include the following terms and conditions:
A. COVENANTS OF OPTIONEE. At the discretion of the Committee, the
person to whom an Option is granted hereunder, as a condition to the granting
of the Option, must execute and deliver to the Company a confidential
information agreement approved by the Committee. Nothing contained in this
Plan, any Option Agreement or in any other agreement executed in connection
with the granting of an Option under this Plan will confer upon any Optionee
any right with respect to the continuation of his or her status as an
employee of, officer of, or director of, the Company or its subsidiaries.
B. VESTING. An Option shall become exercisable at such times and in
such installments (which may be cumulative) as shall be determined by the
Committee in its sole discretion at the time the Option is granted. Upon the
completion of its exercise period, an Option, to the extent not then
exercised, shall expire.
C. EXERCISE OF THE OPTION.
1. MECHANICS AND NOTICE. An Option may be exercised to the extent
exercisable (a) by giving written notice of exercise to the Company,
specifying the number of full shares of Option Stock to be purchased and
accompanied by full payment of the Option Price thereof and the amount of
withholding taxes pursuant to subsection V.C.2 below; and (b) by giving
assurances satisfactory to the Company that the shares of Option Stock to
be purchased upon such exercise are being purchased for investment and not
with a view to resale in connection with any distribution of such shares in
violation of the 1933 Act; provided, however, that in the event the Option
Stock called for under the Option is registered under the 1933 Act, or in
the event resale of such Option Stock
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<PAGE>
without such registration would otherwise be permissible, this second
condition will be inoperative if, in the opinion of counsel for the
Company, such condition is not required under the 1933 Act, or any other
applicable law, regulation or rule of any governmental agency.
2. WITHHOLDING TAXES. As a condition to the issuance of the shares of
Option Stock upon full or partial exercise of an Option granted under this
Plan, the Optionee will pay to the Company in cash, or in such other form
as the Committee may determine in its discretion, the amount of the
Company's tax withholding liability required in connection with such
exercise. For purposes of this subsection V.C.2, "tax withholding
liability" will mean all federal and state income taxes, social security
tax, and any other taxes applicable to the compensation income arising from
the transaction required by applicable law to be withheld by the Company.
3. PAYMENT OF OPTION PRICE. Each Option Agreement will specify the
Option Price with respect to the exercise of Option Stock thereunder, to be
fixed by the Committee in its discretion, but in no event will the Option
Price for an NSO granted hereunder be less than eighty-five (85%) percent
of Fair Market Value. The Option Price will be payable to the Company in
United States dollars in cash or by check or, such other form of
consideration as may be approved by the Committee, in its discretion.
In determining whether or upon what terms and conditions an Eligible
Participant will be permitted to pay the purchase price of an Option in a
form other than cash, the Committee may consider all relevant facts and
circumstances, including, without limitation, the tax and securities law
consequences to the Company. In the event the Eligible Participant is
permitted to pay the purchase price of an Option in whole or in part with
Previously Acquired Shares and/or the surrender of Options, the value of
such Previously Acquired Shares and/or the shares covered by such Options
shall be equal to their Fair Market Value on the date of exercise of the
Option.
D. TERMINATION OF THE OPTION. Except as otherwise provided herein,
each Option Agreement will specify the period of time, to be fixed by the
Committee in its discretion, during which the Option granted therein will be
exercisable, not to exceed ten years from the date of grant in the case of an
NSO (the "Option Period"). To the extent not previously exercised, each
Option will terminate upon the expiration of the Option Period specified in
the Option Agreement; provided, however, that each such Option will
terminate, if earlier: (i) ninety days after the date that the Optionee
ceases
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<PAGE>
to be an Eligible Participant for any reason, other than by reason of death
or disability; (ii) twelve months after the date that the Optionee ceases to
be an Eligible Participant by reason of such person's death or disability; or
(iii) twelve months after the date that the Optionee ceases to be an Eligible
Participant by reason of such person termination of service as a advisor or
consultant. In the event of a sale or all or substantially all of the assets
of the Company, or a merger or consolidation or other reorganization in which
the Company is not the surviving corporation, or in which the Company becomes
a subsidiary of another corporation (any of the foregoing events, a
"Corporate Transaction") , then notwithstanding anything else herein, the
successor corporation must agree to assume the outstanding Options or
substitute therefor comparable options of such successor corporation or a
parent or subsidiary of such successor corporation.
Unless the committee shall otherwise determine in its sole discretion,
an Eligible Participant's service shall, for purposes of the Plan, be deemed
to have terminated on the date such Eligible Participant ceases to perform
services for the Company and all Subsidiaries, as determined in good faith by
the Committee.
E. OPTIONS NONTRANSFERABLE. No Option will be transferable by the
Optionee otherwise than by (i) will or the laws of descent and distribution,
(ii) pursuant to a qualified domestic relations order (as defined by the
Code), or (iii) if the Optionee is a corporation, limited liability company,
or partnership, distribution to the shareholders or partners thereof. During
the lifetime of the Optionee, the Option will be exercisable only by
him/her/it, or the transferee if it was transferred pursuant to this subpart.
F. QUALIFICATION OF STOCK. The right to exercise an Option will be
further subject to the requirement that if at any time the Board determines,
in its discretion, that the listing, registration or qualification of the
shares of Option Stock called for thereunder upon any securities exchange or
under any state or federal law, or the consent or approval of any
governmental regulatory authority, is necessary or desirable as a condition
of or in connection with the granting of such Option or the purchase of
shares of Option Stock thereunder, the Option may not be exercised, in whole
or in part, unless and until such listing, registration, qualification,
consent or approval is effected or obtained free of any conditions not
acceptable to the Board, in its discretion.
G. ADDITIONAL RESTRICTIONS ON TRANSFER. By accepting Options and/or
Option Stock under this Plan, the Optionee will be deemed to represent,
warrant and agree as follows:
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<PAGE>
1. SECURITIES ACT OF 1933. The Optionee understands that the shares of
Option Stock have not been registered under the 1933 Act, and that such
shares are not freely tradeable and must be held indefinitely unless such
shares are either registered under the 1933 Act or an exemption from such
registration is available. The Optionee understands that the Company is
under no obligation to register the shares of Option Stock.
2. OTHER APPLICABLE LAWS. The Optionee further understands that Transfer
of the Option Stock requires full compliance with the provisions of all
applicable law.
3. INVESTMENT INTENT. Unless a registration statement is in effect with
respect to the sale of Option Stock obtained through exercise of Options
granted hereunder: (a) Upon exercise of any Option, the Optionee will
purchase the Option Stock for his/her/its own account and not with a view
to distribution within the meaning of the 1933 Act, other than as may be
effected in compliance with the 1933 Act and the rules and regulations
promulgated thereunder; (b) no one else will have any beneficial interest
in the Option Stock; and (c) he/ she/it has no present intention of
disposing of the Option Stock at any particular time.
H. COMPLIANCE WITH LAW. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, and Option Stock may be
issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state securities laws, and
all of the same will be subject to this overriding condition. The Company
will not be required to register or qualify Option Stock with the Securities
and Exchange Commission or any State agency, except that the Company will
register with, or as required by local law, file for and secure an exemption
from such registration requirements from, the applicable securities
administrator and other officials of each jurisdiction in which an Eligible
Participant would be granted an Option hereunder prior to such grant.
I. STOCK CERTIFICATES. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all legends required by
law and necessary to effectuate this Plan's provisions. The Company may
place a "stop transfer" order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan have been complied with.
Unless a registration statement under the 1933 Act and applicable state
securities laws is in effect with respect to the issuance or transfer of the
shares of Stock under the Plan, each
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<PAGE>
certificate representing any such shares shall be endorsed with a legend in
substantially the following form, unless counsel for the Company is of the
opinion as to any such certificate that such legend is unnecessary:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, OR
ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE
COMPANY.
J. NOTICES. Any notice to be given to the Company under the terms of
an Option Agreement will be addressed to the Company at its principal
executive office, Attention: Corporate Secretary, or at such other address as
the Company may designate in writing. Any notice to be given to an Optionee
will be addressed to the Optionee at the address provided to the Company by
the Optionee. Any such notice will be deemed to have been duly given if and
when enclosed in a properly sealed envelope, addressed as aforesaid,
registered and deposited, postage and registry fee prepaid, in a post office
or branch post office regularly maintained by the United States Government.
K. OTHER PROVISIONS. The Option Agreement may contain such other
terms, provisions and conditions, including such special forfeiture
conditions, rights of repurchase, rights of first refusal and other
restrictions on Transfer of Option Stock issued upon exercise of any Options
granted hereunder, not inconsistent with this Plan, as may be determined by
the Committee in its sole discretion.
L. RIGHTS AS A SHAREHOLDER. The Eligible Participant shall have no
rights as a shareholder with respect to any shares of Company Common Stock
covered by an Option until the Optionee shall have become the holder of
record of such shares.
M. EMPLOYMENT OF SERVICE. Nothing in this Plan shall interfere with
or limit in any way the right of the Company or any Subsidiary to terminate
the service of any Eligible Participant at any time, nor confer upon any
Eligible Participant any right to continue in the service of the Company or
any Subsidiary.
N. NON-EXCLUSIVITY OF THE PLAN. Nothing contained in the Plan is
intended to amend, modify or rescind any previously approved compensation plans
or programs entered into by the
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<PAGE>
Company. The Plan will be construed to be in addition to any and all other
plans or programs. Neither the adoption of the plan nor the submission of
the Plan to the shareholders of the Company for approval will be construed as
creating any limitations on the power or authority of the Board to adopt such
additional or other compensation arrangements as the Board may deem necessary
or desirable.
VI. Proceeds from Sale of Stock
Cash proceeds from the sale of shares of Option Stock issued from time
to time upon the exercise of Options granted pursuant to this Plan will be
added to the general funds of the Company and as such will be used from time
to time for general corporate purposes.
VII. Modification, Extension and Renewal of Options
Subject to the terms and conditions and within the limitations of this
Plan, the Committee may modify, extend or renew outstanding Options granted
under this Plan, or accept the surrender of outstanding Options (to the
extent not theretofore exercised) and authorize the granting of new Options
in substitution therefor (to the extent not theretofore exercised).
Notwithstanding the foregoing, however, no modification of any Option will,
without the consent of the holder of the Option, alter or impair any rights
or obligations under any Option theretofore granted under this Plan.
VIII. Amendment and Discontinuance
The Board may amend, suspend or discontinue this Plan at any time or
from time to time; provided further that no such action may, without the
approval of the stockholders of the Company, materially increase (other than
by reason of an adjustment pursuant to Section IV.B hereof) the maximum
aggregate number of shares of Option Stock in the option Pool that may be
issued under Options granted pursuant to this Plan or materially increase the
benefits accruing to Plan participants or materially modify eligibility
requirements for the participants. Moreover, no such action may alter or
impair any Option previously granted under this Plan without the consent of
the holder of such Option.
IX. Plan Compliance with Rule 16b-3
With respect to persons subject to Section 16 of the 1934 Act,
transactions under this plan are intended to comply with all applicable
conditions of Rule 16b-3 or its successors under the
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<PAGE>
1934 Act. To the extent any provision of the Plan or action by the Plan
administrators fails so to comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable by the Plan administrators.
X. Miscellaneous
A. CONSTRUCTION AND HEADINGS. The use of the masculine gender shall
also include within its meaning the feminine, and the singular may include
the plural and the plural may include the singular, unless the context
clearly indicates to the contrary, the headings of the Sections and subparts
of the Plan are for convenience of reading only and are not meant to be of
substantive significance and shall not add or detract from the meaning of
such Section or subpart.
B. GOVERNING LAW. The place of administration of the Plan shall be
conclusively deemed to be within the State of Minnesota, and the rights and
obligations of any and all persons having or claiming to have had an interest
under the Plan or under any agreements evidencing Options shall be governed
by and construed exclusively and solely in accordance with the laws of the
State of Minnesota without regard to the conflict of laws provisions of any
jurisdiction. All parties agree to submit to the jurisdiction of the state
and federal courts of Minnesota with respect to matters relating to the Plan
and agree not to raise or assert the defense that such forum is not
convenient for such party.
C. SUCCESSORS AND ASSIGNS. This Plan shall be binding upon and inure
to the benefit of the successors and permitted assigns of the Company,
including without limitation, whether by way of merger, consolidation,
operation of law, assignment, purchase or other acquisition of substantially
all of the assets or business of the Company, and any and all such successors
and assigns shall absolutely and unconditionally assume all of the Company's
obligations under the Plan.
D. SURVIVAL OF PROVISIONS. The rights, remedies, agreements,
obligations and covenants contained in or made pursuant to the plan, any
agreement evidencing an Option and any other notices or agreements in
connection therewith, including, without limitation, any notice of exercise
of an Option, shall survive the execution and delivery of such notices and
agreements and the delivery and receipt of shares of common stock and shall
remain in full force and effect.
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<PAGE>
XI. Copies of Plan
A copy of this Plan will be delivered to each Optionee at or before the
time he or she executes an Option Agreement.
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<PAGE>
[SPECIMEN FORM]
DYNECO INTERNATIONAL, INC .
1993 ADVISORS STOCK OPTION PLAN
Stock Option Agreement
Form DYNCASH
THIS AGREEMENT is made as of ___________________, 199_, between DynEco
International, Inc., a Minnesota corporation (the "Company"), and
________________________ (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. OPTION GRANT. The Company hereby grants to the Optionee an option
(the "Option") to purchase the number of shares of the Company's Common Stock
(the "Shares"), for an exercise price per share (the "Option Price") and
based upon a Grant Date, all as set forth below:
Shares under option: ______________
Option Price per Share: $_________
Grant Date: ________________, 199_
The Option will be subject to all of the terms and conditions set forth
herein and in the Company's 1993 Advisors Corporate Stock Option Plan (the
"Option Plan"), a copy of which is attached hereto and incorporated by
reference. The Option granted hereunder will be a nonstatutory or
nonqualified option for tax purposes.
2. STOCKHOLDER RIGHTS. No rights or privileges of a stockholder in
the Company are conferred by reason of the granting of the Option. Optionee
will not become a stockholder in the Company with respect to the Shares
unless and until the Option has been properly exercised and the Option Price
fully paid as to the portion of the Option exercised.
3. TERMINATION. Subject to earlier termination as provided in the
Option Plan, this Option will expire, unless previously exercised in full, on
December ___, 199_.
4. TERMS OF THE OPTION PLAN. The Optionee understands that the Option
Plan includes important terms and conditions that apply to this Option.
Those terms include (without limitation): important conditions to the right
of the Optionee to exercise the Option; important restrictions on the ability
of the Optionee to transfer the Option or to transfer Shares received upon
exercise of the Option; and early termination of the Option following the
occurrence of certain events, including the Optionee no longer being an
advisor or consultant to or of the Company or its subsidiaries. The Optionee
acknowledges that he/she/it has read the Option Plan, agrees to be bound by
its terms, and makes each of the representations required to be made by the
Optionee under it.
<PAGE>
5. MISCELLANEOUS. This Agreement (together with the Option Plan) sets
forth the complete agreement of the parties concerning the subject matter
hereof, superseding all prior agreements, negotiations and understandings.
This Agreement will be governed by the substantive law of the State of
Minnesota, and may be executed in counterparts.
The parties hereby have entered into this Agreement as of the date set
forth above.
DYNECO INTERNATIONAL, INC.
By
--------------------------------------
An Authorized Officer
OPTIONEE
------------------------------------------
------------------------------------------
Address:
------------------------------------------
------------------------------------------
Attachments: (1) Spousal Consent
(2) 1993 Advisors Stock Option Plan
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in the
attached DynEco International, Inc. 1993 Advisors Stock Option Plan Agreement
(the "Agreement"). The undersigned acknowledges that he or she:
1. has received, reviewed and understands the terms of the Agreement
(including its attachments);
2. consents to the Agreement, and agrees to be bound by its terms to the
extent that he or she now has or may obtain any interest in the Option or
Shares covered by the Agreement; and
3. understands that the Company is relying upon this consent in entering
into the Agreement and in not taking further steps to protect its
interests.
Date: _________________, 199_
----------------------------------------------
Print Name:
----------------------------------------------
<PAGE>
[SPECIMEN FORM]
DYNECO INTERNATIONAL, INC.
1993 ADVISORS STOCK OPTION PLAN
Stock Option Agreement
Form DYNNOCASH
THIS AGREEMENT is made as of ____________________, 199_, between DynEco
International, Inc., a Minnesota corporation (the "Company"), and
_____________________________, (the "Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. OPTION GRANT. The Company hereby grants to the Optionee an option
(the "Option") to purchase the number of shares of the Company's Common Stock
(the "Shares"), for an exercise price per share (the "Option Price") and
based upon a Grant Date, all as set forth below:
Shares under option: ______________
Option Price per Share: $_________
Grant Date: ____________________, 199__
The Option will be subject to all of the terms and conditions set forth
herein and in the Company's 1993 Advisors Corporate Stock Option Plan (the
"Option Plan"), a copy of which is attached hereto and incorporated by
reference. The Option granted hereunder will be a nonstatutory or
nonqualified option for tax purposes.
2. EXERCISE PRICE. The Optionee may pay the Option Price for Shares,
in his or her sole discretion, by either:
(a) by paying the Option Price in cash; or
(b) by paying with Previously Acquired Shares; or
(c) by paying the Option Price through surrendering that number of options
covering the number of underlying shares of Common Stock the fair
market value of which shares equal the Option Price.
3. STOCKHOLDER RIGHTS. No rights or privileges of a stockholder in
the Company are conferred by reason of the granting of the Option. Optionee
will not become a stockholder in the Company with respect to the Shares
unless and until the Option has been properly exercised and the Option Price
fully paid as to the portion of the Option exercised.
4. TERMINATION. Subject to earlier termination as provided in the
Option Plan, this Option will expire, unless previously exercised in full, on
December _______________, 199_.
<PAGE>
5. TERMS OF THE OPTION PLAN. The Optionee understands that the Option
Plan includes important terms and conditions that apply to this Option.
Those terms include (without limitation): important conditions to the right
of the Optionee to exercise the Option; important restrictions on the ability
of the Optionee to transfer the Option or to transfer Shares received upon
exercise of the Option; and early termination of the Option following the
occurrence of certain events, including the Optionee no longer being an
advisor or consultant to or of the Company or its subsidiaries. The optionee
acknowledges that he/she/it has read the Option Plan, agrees to be bound by
its terms, and makes each of the representations required to be made by the
Optionee under it.
6. MISCELLANEOUS. This Agreement (together with the Option Plan) sets
forth the complete agreement of the parties concerning the subject matter
hereof, superseding all prior agreements, negotiations and understandings.
This Agreement will be governed by the substantive law of the State of
Minnesota, and may be executed in counterparts.
The parties hereby have entered into this Agreement as of the date set
forth above.
DYNECO INTERNATIONAL, INC.
By
--------------------------------------
An Authorized Officer
OPTIONEE
------------------------------------------
Address:
------------------------------------------
------------------------------------------
Attachments: (1) Spousal Consent
(2) 1993 Advisors Stock Option Plan
<PAGE>
SPOUSAL CONSENT
The undersigned is the spouse of the Optionee referred to in the
attached DynEco International, Inc. 1993 Advisors Stock Option Plan Agreement
(the "Agreement"). The undersigned acknowledges that he or she:
1. has received, reviewed and understands the terms of the Agreement
(including its attachments);
2. consents to the Agreement, and agrees to be bound by its terms to the
extent that he or she now has or may obtain any interest in the Option or
Shares covered by the Agreement; and
3. understands that the Company is relying upon this consent in entering
into the Agreement and in not taking further steps to protect its
interests.
Date: ______________, 199_
----------------------------------------------
Print Name:
----------------------------------------------
<PAGE>
[Sample Form of Notice to Optionee]
MEMORANDUM
Date:
-------------------------
To:
-------------------------
From: A.J. Ryden
Chairman
DynEco International, Inc.
Subject: 1993 ADVISORS STOCK OPTION PLAN
I am pleased to inform you that the Board of Directors recently awarded
you a non-statutory stock option to purchase __________ shares of the
Company's common stock at an exercise price of $______ per share. This
option was granted on _________, 199_ under the 1993 Advisors Stock Option
Plan and vests as of the grant date.
Please enter your address on the enclosed Stock Option Agreement, sign
the original copy of the Agreement and return it to me as soon as
practicable. Attached to the Agreement is a Spousal Consent which your spouse
should sign and date. A duplicate copy of the Agreement is included for your
files. Attached to your copy of the agreement as Exhibit A is a copy of the
1993 Advisors Stock Option Plan.
If you desire to exercise a vested portion of your option, I will assist
you in arranging for the execution of the necessary papers. If you have any
questions regarding your option, please contact me. CONGRATULATIONS!
Enclosure
<PAGE>
NOTICE OF EXERCISE OF OPTION
To: DynEco International, Inc.
Office of the Corporate Secretary
From:
--------------------------
(Optionee)
Address:
--------------------------
--------------------------
--------------------------
Social Security Number:
------------------------
1. EXERCISE OF OPTION. I am the holder of an option or options
granted under the 1993 Advisors Stock Option Plan (the "Plan") and that
certain Stock Option Agreement dated __________, 199_. I hereby irrevocably
elect to exercise the purchase rights represented by such option, and to
purchase thereunder __________ _________ (_________) shares of Common Stock
of DynEco International, Inc. (the "Company") at $________ per share, for an
aggregate exercise price of $____________, to be paid by me in one or more of
the following forms (indicate the amount for each form that applies):
[ ] $____________ by delivering herewith cash or a check made payable to
DynEco International, Inc.; or
[ ] $____________ by the delivering herewith of certificate(s) numbered
_________ representing shares of Common Stock of the Company with a
fair market value on the date hereof equal to $___________ per share
(and, if such certificate represents shares in excess of the number
required to achieve the amount indicated in the left margin,
requesting that the Company or its transfer agent deliver to me a
certificate or certificates for the balance of the shares represented
thereby), together with a stock power executed in blank; or
[ ] $____________ by delivering to ________________________ ("Broker") an
irrevocable direction (two copies of which I have completed, executed
and attached hereto), to sell that number of shares of the stock to be
acquired hereby and to deliver the proceeds thereof to the Company in
the amount indicated in the left margin; or
[ ] $____________ by the delivering herewith of the Stock Option Agreement
dated ____________________, 199_, representing Options to purchase
____________ shares of Common Stock of the Company with the shares
having a fair market value on the date hereof equal to $_________ per
share (and, if such Stock Option
<PAGE>
Agreement represents shares in excess of the number required to
achieve the amount indicated in the left margin, requesting that the
Company or its transfer agent deliver to me a Stock Option Agreement
for the balance of the Options represented thereby).
I request that certificate(s) for such shares be registered and issued in the
name set forth above. The certificate(s) issued upon exercise of the
aforesaid option should be mailed to my address indicated above via first
class mail. I acknowledge that the Option Exercise Date is the date upon
which this notice and the required payment are received in the Office of the
Secretary of the Company.
2. OTHER ACKNOWLEDGEMENTS.
(a) I acknowledge receipt of copies of the Company's most recent 10K
and/or Annual Report to Shareholders, and 10Q.
(b) I am aware that the Securities Act of 1933, as amended, and the
regulations and requirements of the Securities and Exchange Commission
thereunder, may impose limitations on the resale of Company stock acquired
pursuant to this option exercise. I hereby certify that any resale of such
stock will be made in compliance with the Act and those regulations and
requirements.
(c) I hereby appoint ____________________ as my agent to accept delivery
of the shares of Company stock being purchased on my behalf pursuant to
this option exercise, and request _______________________ to forward the
certificates representing those shares to me at the address shown above.
Dated: ___________________, 199_
--------------------------------------------
Optionee
<PAGE>
DYNECO INTERNATIONAL, INC.
1993 ADVISORS STOCK OPTION PLAN
Stock Option Agreement
THIS AGREEMENT is made as of May 1, 1993, between DynEco International,
Inc., a Minnesota corporation (the "Company"), and Maxima Ventures, Inc. (the
"Optionee").
THE PARTIES AGREE AS FOLLOWS:
1. OPTION GRANT. The Company hereby grants to the Optionee an option
(the "Option") to purchase the number of shares of the Company's Common Stock
(the "Shares"), for an exercise price per share (the "Option Price") and based
upon a Grant Date, all as set forth below:
Shares under option: 100,000
Option Price per Share: $1.00
Grant Date: May 1, 1993
The Option will be subject to all of the terms and conditions set forth herein
and in the Company's 1993 Corporate Stock Option Plan (the "Option Plan"), a
copy of which is attached hereto and incorporated by reference. The Option
granted hereunder will be a nonstatutory or nonqualified option for tax
purposes.
2. EXERCISE PRICE. The Optionee may pay the Option Price for Shares, in
his/her/its sole discretion, by either:
(a) by paying the Option Price in cash; or
(b) by paying with Previously Acquired Shares; or
(c) by paying the Option Price through surrendering that number of Options
covering the number of underlying shares of Common Stock the fair
market value of which shares equal the Option Price.
3. STOCKHOLDER RIGHTS. No rights or privileges of a stockholder in the
Company are conferred by reason of the granting of the Option. Optionee will
not become a stockholder in the Company with respect to the Shares unless and
until the Option has been properly exercised and the Option Price fully paid as
to the portion of the Option exercised.
4. TERMINATION. Subject to earlier termination as provided in the Option
Plan, this Option will expire, unless previously exercised in full, on
December 31, 1998.
<PAGE>
5. TERMS OF THE OPTION PLAN. The Optionee understands that the Option
Plan includes important terms and conditions that apply to this Option. Those
terms include (without limitation): important conditions to the right of the
Optionee to exercise the Option; important restrictions on the ability of the
Optionee to transfer the Option or to transfer Shares received upon exercise of
the Option; and early termination of the Option following the occurrence of
certain events, including the Optionee no longer being an advisor or consultant
to or of the Company or its subsidiaries. The Optionee acknowledges that
he/she/it has read the Option Plan, agrees to be bound by its terms, and makes
each of the representations required to be made by the Optionee under it.
6. MISCELLANEOUS. This Agreement (together with the Option Plan) sets
forth the complete agreement of the parties concerning the subject matter
hereof, superseding all prior agreements, negotiations and understandings. This
Agreement will be governed by the substantive law of the State of Minnesota, and
may be executed in counterparts.
The parties hereby have entered into this Agreement as of the date set
forth above.
DYNECO INTERNATIONAL, INC.
By:
-------------------------------------
An Authorized Officer
OPTIONEE:
MAXIMA VENTURES, INC.
-----------------------------------------
A.J. Ryden
Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
Attachments: (1) 1993 Advisors Stock Option Plan
-2-
<PAGE>
March 8, 1995
Fab-Tech Industries of Brevard, Inc.
515 Gus Hipp Boulevard
Rockledge, Florida 32955
Gentlemen:
This will confirm our understanding concerning the proposed acquisition of
the assets and the business operations of Fab-Tech Industries of Brevard, Inc.
("Fab-Tech") by a subsidiary of DynEco Corporation to be organized (collectively
"DynEco") (hereinafter referred to as the "Transaction"). This letter does not
contain all matters upon which agreement must be reached in order for the
Transaction to be consummated, but is intended solely as an outline of certain
material provisions. The essential terms of our understanding are as follows:
(a) ASSETS TO BE PURCHASED. All Fab-Tech assets necessary to conduct the
business of Fab-Tech in the manner in which it is presently conducted
(the "Fab-Tech Assets"). Such categories of Fab-Tech Assets include,
but are not limited to, the assets disclosed in the Fab-Tech "For
management purposes only" Financial Statements for the Fab-Tech fiscal
year ended December 31, 1994, a copy of which is appended hereto as
"Appendix A" (herein the "Fab-Tech Financial Statements").
(b) PURCHASE PRICE. The purchase price for the Fab-Tech Assets shall be
paid as follows:
(i) cash in the amount of $2,250,000 ($U.S.) paid as follows:
(a) $750,000 cash paid at Closing, and
(b) $1,500,000 represented by the delivery of a nonnegotiable
promissory note bearing six (6%) percent annual interest due
and payable on November 30, 1995 (the "Buyer Note"), which
Buyer Note will be secured by the Fab-Tech Assets in a
manner and form acceptable to Fab-Tech; and
1
<PAGE>
(ii) assumption and payment according to their terms certain Fab-Tech
liabilities identified in the Fab-Tech Financial Statements,
namely:
(a) accounts payable - trade,
(b) payroll taxes payable,
(c) accrued expenses,
(d) SBA loan, and
(e) leases and notes payable; and
(iii) payment of (a) note(s) payable stockholders in the amount of
$93,549 and (b) note(s) payable K. Huber in the amount of
$142,490.69 identified in the Fab-Tech Financial Statements,
in cash or shares of DynEco Common Stock (at an agreed fair
market value at Closing) at the sole option of Fab-Tech;
collectively the "Purchase Price." The "Purchase Price" amount is
based upon the premise that at Closing, the total dollar amount of the
Fab-Tech Assets shall not be less than $1,609,826 and the total dollar
amount of Fab-Tech liabilities shall not be more than $1,142,846. To
the extent that the total dollar amount of the Fab-Tech Assets and/or
liabilities is greater or less than such respective amounts, the cash
amount paid at Closing by DynEco will be adjusted to reflect such
increase or decrease.
(c) CLOSING. Closing of the Transaction shall occur no later than June
30, 1995 (herein the "Closing").
(d) TRANSITIONAL CORPORATE SERVICES. At DynEco's sole option, Fab-Tech
will agree to provide certain transitional services (including, but to
limited to information, centralized procurement, transportation,
personnel) with respect to Fab-Tech for a time period up to three (3)
months after consummation of the Transaction.
(e) KEY EMPLOYEES. At DynEco's sole option but as a requirement with
respect to the Transaction, DynEco will cause its wholly-owned
subsidiary organized to acquire the Fab-Tech Assets and operate the
Fab-Tech business so acquired (the "Subsidiary") to enter into 5-year
employment agreements with Robert Huber, Karl Huber and Jane Huber the
terms and conditions of which shall contemplate that (i) Messrs.
Hubers' and Ms. Huber's annual salaries shall commence at $78,000 and
$49,400, respectively, with annual salary increases of eight (8%)
percent per year of employment; (ii) that Messrs. Huber and Ms. Huber
shall participate in a Subsidiary bonus
2
<PAGE>
plan which will pay them an annual amount equal to four (4%) percent
and two (2%) percent, respectively, of the gross operating profit
(before income taxes) in excess of $200,000 annually with respect
to the business operations of the Subsidiary; and (iii) DynEco will
adopt a stock option plan and grant stock options as follows: to
Robert and Jane Huber, and Karl Huber, respectively, an option to
purchase 10,000 restricted shares of DynEco Common Stock at Closing
and an additional 10,000 shares at the first, second, third and
fourth anniversary of their employment priced at $1.00 per share.
1. Upon your signing this letter, DynEco and Fab-Tech shall jointly
prepare and cause the issuance of a press release briefly describing the
intention of the parties contained herein.
2. Following the execution of this letter, DynEco and Fab-Tech will cause
their respective officers, employees, counsel, agents, investment bankers,
accountants, and other representatives working on the Transaction to cooperate
with each other with respect to the Transaction until the Transaction is
consummated or negotiations with respect thereto are terminated.
3. Following the execution of this letter, Fab-Tech agrees that until the
Transaction is consummated or negotiations with respect thereto are terminated,
to conduct the Fab-Tech business and operations in all respects only in the
ordinary course unless otherwise consented to in writing by DynEco. The
financial operations and condition of Fab-Tech shall not materially and
substantially differ at the time of Closing from that disclosed in the Fab-Tech
Financial Statements except as may be necessary to operate the Fab-Tech business
operations during its continued growth determined in the sole discretion by Fab-
Tech.
4. Following the execution of this letter, Fab-Tech agrees that until the
Transaction is consummated or negotiations with respect thereto are terminated,
Fab-Tech will afford to the officers, employees, counsel, agents, accountants,
and other representatives of DynEco working on the Transaction and lenders,
investment bankers, and prospective lenders and investment bankers of DynEco
free and full access to the Fab-Tech plant, properties, books, and records, and
will permit them to make extracts from and copies of such books and records, and
will from time to time furnish them with such additional financial and operating
data and other information as to Fab-Tech's financial condition, results of
operations, business, properties, assets, liabilities, or future prospects as
they from time to time may request.
5. The parties acknowledge that DynEco may finance the consummation of
the Transaction through the offer and sale of securities which may be required
to be registered under the provisions of the Securities Act of 1933,
as amended. In order for
3
<PAGE>
DynEco to file a registration statement with respect to such securities with
the Securities and Exchange Commission ("SEC"), the SEC may require the
filing of up to three (3) years of audited financial statements relating to
Fab-Tech. Further, DynEco may be required to register a class of its
securities under the provisions of the Securities Exchange Act of 1934, as
amended, which registration may require the filing of up to three (3) years
of audited financial statements relating to Fab-Tech. Accordingly, Fab-Tech
agrees to the publication of such Fab-Tech financial statements as may be
required by the SEC in connection with such registrations filed with the SEC.
6. In the event Fab-Tech does not have three (3) years of audited
financial statements relating to Fab-Tech, Fab-Tech agrees to permit DynEco's
independent certified accountants to perform a three (3) year audit of Fab-Tech
the cost of which shall be solely borne by DynEco. In the event Fab-Tech's
fiscal year or any quarter thereof ends at December 31, 1994, Fab-Tech shall
permit such accountants to immediately prepare an audited balance sheet relating
to Fab-Tech the cost of which shall be reimbursed to Fab-Tech by DynEco.
Further, such accountants shall assist Fab-Tech management to prepare such
interim financial statements of Fab-Tech as may be required to be filed with the
SEC in connection with such registrations referred to in paragraph 6 above, the
cost of which shall be borne by DynEco.
7. Each party shall insure that all confidential information which such
party or any of its respective officers, directors, employees, counsel, agents,
or accountants and, in the case of DynEco, its lenders, investment bankers, or
prospective lenders and investment bankers may now possess or may hereafter
create or obtain relating to the financial condition, results of operations,
business, properties, assets, liabilities, or future prospects of the other
party, any affiliate of the other party, or any customer or supplier of such
other party or any such affiliate shall not be published, disclosed, or made
accessible by any of them to any other person or entity at any time or used by
any of them, in each case without the prior written consent of the other party;
provided, however, that the restrictions of this paragraph 7 shall not apply (a)
as may otherwise be required by law, (b) as may be necessary or appropriate in
connection with the enforcement of this letter of intent, (c) to the extent such
information shall have otherwise become publicly available, (d) as to DynEco, to
disclose by or on its behalf to lenders, investment bankers or to others whose
consent may be required or desirable in connection with obtaining the financing
or consents which are required or desirable to consummate the Transaction. Each
party shall, and shall cause all of such other persons and entities who received
confidential information and data from it to, deliver to the other party all
tangible evidence of such confidential information to which the restrictions of
the foregoing sentence apply at such time as negotiations with respect to the
Transaction are terminated
4
<PAGE>
before the parties enter into any formal agreement as contemplated by this
letter of intent. For purposes of implementation of the confidentiality
requirement of this paragraph 7 with respect to DynEco, DynEco represents
that all Fab-Tech confidential information and data will be kept under the
joint custody and control of Mark J. Vieno, Esq. and Perry Silverman, CPA.
8. It is understood that this is a letter of intent only and while the
parties hereto agree in principle to the contents hereof and agree to proceed in
good faith to work out the details of the Transaction, neither of them shall
have any legal obligation to the other as result of this letter of intent (other
than those obligations contained in this paragraph or paragraph 7, and the
obligations contained in paragraph 7 and the last sentence of this paragraph
shall continue to apply after negotiations with respect to the Transaction are
terminated). Accordingly, except as set forth in the preceding sentence, this
letter of intent does not constitute a binding agreement nor does it constitute
an agreement to enter an agreement and the terms hereof are subject to the
execution and delivery of formal agreements. However in consideration of
DynEco, during the pendency of the execution and delivery of the formal writing
which shall constitute the binding agreement with respect to the Transaction,
Fab-Tech agrees that it will not enter into any discussions and/or negotiations
whatever with any person with respect to the sale.
9. This letter of intent may not be assigned by either of the parties
hereto.
10. Neither party shall be responsible for any of the other's expenses in
connection with the negotiations, investigation, documents, or transactions
contemplated hereby.
11. Upon execution and delivery of this Letter of Intent, DynEco shall
diligently proceed with its due diligence investigation of the Fab-Tech Assets
and business operations.
If this letter accurately reflects our understanding, please so indicate by
a signing the original and duplicate of this letter, and returning a fully
executed copy to me, so that we can promptly commence work on the formal
documents relating to the Transaction.
Very truly yours,
DYNECO CORPORATION
By: /s/ RICHARD D. BESSER
------------------------------------
Richard D. Besser
Chief Executive Officer and President
5
<PAGE>
-Acceptance-
Accepted and agreed to March 10, 1995.
FAB-TECH INDUSTRIES OF BREVARD, INC.
By /s/ JANE E. VELLUTO
-------------------------------------
President
6
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT effective as of March 1, 1994, between DYNECO CORPORATION, a
Minnesota corporation (the "Company"), and Thomas C. Edwards (the
"Executive").
The Executive is presently employed by DynEco International, Inc. as its
President and Chief Executive Officer. The Company and DynEco International,
Inc. have entered into a stock exchange agreement (the "Exchange Agreement")
whereby it is anticipated that DynEco International, Inc. will become a
wholly-owned subsidiary of the Company on or before February 28, 1994. In
connection with the Exchange Agreement, the Company will, and hereby assumes
the current DynEco International, Inc. employment agreement with the
Executive according to its terms and conditions subject to such changes set
forth herein.
The Board of Directors of the Company (the "Board") recognizes that the
Executive's contribution to the growth and success of DynEco International,
Inc. during the past years has been substantial. The Board desires to
provide for the employment of the Executive by the Company and to make
certain changes in the Executive's employment arrangements with the Company
which the Board has determined will reinforce and encourage the continued
attention and dedication to the Company of the Executive as a member of the
Company's management, in the best interest of the Company and its
shareholders. The Executive is willing to commit himself to continue to
serve the Company, on the terms and conditions herein provided.
In order to effect the foregoing, the Company and the Executive wish to
enter into an employment agreement on the terms and conditions set forth
below. Accordingly, in consideration of the promises and the respective
covenants and agreements of the parties herein contained, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to continue to employ the
Executive, and the Executive hereby agrees to continue to serve the Company,
on the terms and conditions set forth herein.
2. TERM. The employment of the Executive by the Company as provided
in Section 1 will commence on the date hereof and end on February 28, 1999,
unless further extended or sooner terminated as hereinafter provided. On
February 28, 1999, and on the last day of February of each year thereafter,
the term of the Executive's employment shall be automatically extended one
(1) additional year unless, prior to such last day of February, the Company
shall have delivered to the Executive or the Executive shall have delivered
to the Company written notice that the term of the Executive's employment
hereunder will not be extended. In no event, however,
1
<PAGE>
shall the term of the Executive's employment extend beyond the end of the
calendar month in which the Executive's seventieth (70th) birthday occurs.
3. POSITION AND DUTIES. The Executive shall serve as a senior
executive officer of the Company and shall have such responsibilities and
authority as may from time to time be assigned to the Executive by the Board
or the Chief Executive Officer of the Company. The Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company.
4. PLACE OF PERFORMANCE. In connection with the Executive's
employment by the Company, the Executive shall be based at the engineering
and design offices of the Company located in the State of Florida except for
required travel on the Company's business to an extent substantially
consistent with present business travel obligations. The Company agrees at
all time during the term of this Agreement to maintain adequate engineering
and design offices within the State of Florida for his occupancy.
5. COMPENSATION AND RELATED MATTERS.
(a) SALARY. During the period of the Executive's employment hereunder,
the Company shall pay to the Executive a salary at a rate of not less than
$000,000 per annum in equal installments as nearly as practicable on the
fifteenth and last days of each month in arrears. This salary may be
increased from time to time in accordance with normal business practices of
the Company and, if so increased, shall not thereafter during the term of
this Agreement be decreased. Compensation of the Executive by salary
payments shall not be deemed exclusive and shall not prevent the Executive
from participating in any other compensation or benefit plan of the
Company. The salary payments (including any increased salary payments)
hereunder shall not in any way limit or reduce any other obligation of the
Company hereunder, and no other compensation, benefit or payment hereunder
shall in any way limit or reduce the obligation of the Company to pay the
Executive's salary hereunder.
(b) EXPENSES. During the term of the Executive's employment hereunder,
the Executive shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in performing services
hereunder, including all expenses of travel and living expenses while away
from home on business or at the request of and in the service of the
Company, provided that such expenses are incurred and accounted for in
accordance with the policies and procedures presently established by the
Company.
(c) OTHER BENEFITS. The Company shall maintain in full force and effect,
and the Executive shall be entitled to
2
<PAGE>
continue to participate in, all of its employee benefit plans and
arrangements in effect on the date hereof in which the Executive
participates or plans or arrangements providing the Executive with at
least equivalent benefits thereunder (including without limitation each
pension and retirement plan and arrangement, supplemental pension and
retirement plan and arrangement, stock option plan, life insurance and
health-and-accident plan and arrangement, medical insurance plan,
disability plan, survivor income plan, relocation plan and vacation
plan); provided, however, that this provision shall not apply to the
Company's Incentive Compensation Plan. The Company shall not make any
changes in such plans or arrangements which would adversely affect the
Executive's rights or benefits thereunder, unless such change occurs
pursuant to a program applicable to all executives of the Company and does
not result in a proportionately greater reduction in the rights of or
benefits to the Executive as compared with any other executive of the
Company. The Executive shall be entitled to participate in or receive
benefits under any employee benefit plan or arrangement made available by
the Company in the future to its executives and key management employees,
subject to and on a basis consistent within the terms, conditions and
overall administration of such plans and arrangements. Nothing paid to the
Executive under any plan or arrangement presently in effect or made
available in the future shall be deemed to be in lieu of the salary payable
to the Executive pursuant to paragraph (a) of this Section. Any payments
or benefits payable to the Executive hereunder in respect of any calendar
year during which the Executive is employed by the Company for less than
the entire such year shall, unless otherwise provided in the applicable
plan or arrangement, be prorated in accordance with the number of days in
such calendar year during which he is so employed.
(d) VACATIONS. The Executive shall be entitled to the number of vacation
days in each calendar year, and to compensation in respect of earned but
unused vacation days, determined in accordance with the Company's vacation
plan. The Executive shall also be entitled to all paid holidays given by
the Company to its executives.
(e) SERVICES FURNISHED. The Company shall furnish the Executive with
office space, stenographic assistance and such other facilities and
services as shall be suitable to the Executive's position and adequate for
the performance of his duties as set forth in Section 3 hereof.
6. OFFICES. The Executive agrees to serve without additional
compensation, if elected or appointed thereto, as a director of the Company
and any of its subsidiaries and in one or more executive offices of any of
the Company's subsidiaries,
3
<PAGE>
provided that the Executive is indemnified for serving in any and all such
capacities on a basis no less favorable than is currently provided by the
Company's Articles of Incorporation and/or By-laws.
7. IMPROVEMENTS; CONFIDENTIAL INFORMATION. Attached hereto as Annex I
is a form of Employee Agreement being entered into concurrently herewith
between the Executive and the Company, concerning the treatment of
Improvements and Confidential Proprietary Information (as defined therein)
and related matters.
8. TERMINATION. The Executive's employment hereunder may be
terminated without any breach of this Agreement only under the following
circumstances:
(a) Death. The Executive's employment hereunder shall terminate upon his
death.
(b) Disability. If, as a result of the Executive's incapacity due to
physical or mental illness, the Executive shall have been absent from his
duties hereunder on a full-time basis for the entire period of twelve (12)
consecutive months, and within thirty (30) days after written notice of
termination is given (which may occur before or after the end of such
twelve-month period) shall not have returned to the performance of his
duties hereunder on a full-time basis, the Company may terminate the
Executive's employment hereunder.
(c) Cause. The Company may terminate the Executive's employment hereunder
for Cause. For purposes of this Agreement, the Company shall have "Cause"
to terminate the Executive's employment hereunder upon (i) the willful and
continued failure by the Executive to substantially perform his duties
hereunder (other than any such failure resulting from the Executive's
incapacity due to physical or mental illness), after demand for substantial
performance is delivered by the Company that specifically identifies the
manner in which the Company believes the Executive has not substantially
performed his duties, or (ii) the willful engaging by the Executive in
misconduct which is materially injurious to the Company, monetarily or
otherwise, or (iii) the willful violation by the Executive of the
provisions of the Employee Agreement executed concurrently herewith in the
form of Annex I hereto. For purposes of this paragraph, no act, or failure
to act, on the Executive's part shall be considered "willful" unless done,
or omitted to be done, by him not in good faith and without reasonable
belief that his action or omission was in the best interest of the Company.
Notwithstanding the foregoing, the Executive shall not be deemed to have
been terminated for Cause without [1] reasonable notice to the Executive
setting forth the reasons for the Company's intention to terminate for
Cause, [2] an
4
<PAGE>
opportunity for the Executive, together with his counsel, to be heard
before the Board, and [3] delivery to the Executive of a Notice of
Termination as defined in subsection (e) hereof from the Board finding that
in the good faith opinion of such Board the Executive was guilty of conduct
set forth above in clause (i), (ii), or (iii) of the preceding sentence,
and specifying the particulars thereof in detail.
(d) Termination by the Executive. The Executive may terminate his
employment hereunder (i) for Good Reason or (ii) if his health should
become impaired to an extent that makes his continued performance of his
duties hereunder hazardous to his physical or mental health or his life,
provided that the Executive shall have furnished the Company with a written
statement from a qualified doctor to such effect and provided, further,
that, at the Company's request, the Executive shall submit to an
examination by a doctor selected by the Company and such doctor shall have
concurred in the conclusion of the Executive's doctor.
For purposes of this Agreement, "Good Reason" shall mean (A) a change in
control of the Company (as defined below), (B) a failure by the Company to
comply with any material provision of this Agreement which has not been
cured within ten (10) days after notice of such noncompliance has been
given by the Executive to the Company, or (C) any purported termination of
the Executive's employment which is not effected pursuant to a Notice of
Termination satisfying the requirements of paragraph (e) hereof (and for
purposes of this Agreement no such purported termination shall be
effective).
For purposes of this Agreement, a "change in control of the Company" shall
mean a change in control of a nature that would be required to be reported
in response to Item 5(f) of Schedule 14A of Regulation 14A promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act"); provided
that, without limitation, such a change in control shall be deemed to have
occurred if [1] any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than the Company or any "person" who on
the date hereof is a director or officer of the Company, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing 20% or
more of the combined voting power of the Company's then outstanding
securities, or [2] during any period of two consecutive years during the
term of this Agreement, individuals who at the beginning of such period
constitute the Board cease for any reason to constitute at least a majority
thereof, unless the election of each director who was not a director at the
beginning of such period has been approved in advance by directors
representing at least two-thirds of the directors then in office who were
directors
5
<PAGE>
at the beginning of the period.
(e) Any termination of the Executive's employment by the Company or by the
Executive (other than termination pursuant to subsection (a) above) shall
be communicated by written Notice of Termination to the other party hereto.
For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated.
(f) "Date of Termination" shall mean (i) if the Executive's employment is
terminated by his death, the date of his death, (ii) if the Executive's
employment is terminated pursuant to subsection (b) above, thirty (30) days
after Notice of Termination is given (provided that the Executive shall not
have returned to the performance of his duties on a full-time basis during
such thirty (30) day period), (iii) if the Executive's employment is
terminated pursuant to subsection (e) above, the date specified in the
Notice of Termination, and (iv) if the Executive's employment is terminated
for any other reason, the date, on which a Notice of Termination is given;
provided that if within thirty (30) days after any Notice of Termination is
given the party receiving such Notice of Termination notifies the other
party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined,
either by mutual written agreement of the parties, by a binding and final
arbitration award or by a final judgment, order or decree of a court of
competent jurisdiction (the time for appeal therefrom having expired and no
appeal having been perfected).
9. COMPENSATION UPON TERMINATION OR DURING DISABILITY.
(a) During any period that the Executive fails to perform his duties
hereunder as a result of incapacity due to physical or mental illness
("disability period"), the Executive shall continue to receive his full
salary at the rate then in effect for such period until his employment is
terminated pursuant to Section 8(b) hereof, provided that payments so made
to the Executive during the first 180 days of the disability period shall
be reduced by the sum of the amounts, if any, payable to the Executive at
or prior to the time of any such payment under disability benefit plans of
the Company and which were not previously applied to reduce any such
payment.
(b) If the Executive's employment is terminated by his death, the Company
shall pay to the Executive's spouse, or if he leaves no spouse, to his
estate, commencing on the next
6
<PAGE>
succeeding day which is the fifteenth day or last day of the month, as
the case may be, and semimonthly thereafter on the fifteenth and last
days of each month, until a total of twenty-four (24) payments has been
made, an amount on each payment date equal to the semimonthly salary
payment payable to the Executive pursuant to Section 5(a) hereof at the
time of his death.
(c) If the Executive's employment shall be terminated for Cause, the
Company shall pay the Executive his full salary through the Date of
Termination at the rate in effect at the time Notice of Termination is
given and the Company shall have no further obligations to the Executive
under this Agreement.
(d) If (i) in breach of this Agreement, the Company shall terminate the
Executive's employment other than pursuant to Section 8(b) or 8(c) hereof
(it being understood that a purported termination pursuant to Section 8(b)
or 8(c) hereof which is disputed and finally determined not to have been
proper shall be a termination by the Company in breach of this Agreement)
or (ii) the Executive shall terminate his employment for Good Reason, then
[1] the Company shall pay the Executive his full salary through the Date
of Termination at the rate in effect at the time Notice of Termination
is given;
[2] in lieu of any further salary payments to the Executive for periods
subsequent to the Date of Termination, the Company shall pay as
severance pay to the Executive an amount equal to the product of [i]
the Executive's annual salary rate in effect as of the Date of
Termination, multiplied by [ii] the greater of the number of years
(including partial years) remaining in the term of employment
hereunder or the number three (3), such payment to be made [a] if
resulting from a termination based on a change of control of the
Company, in a lump sum on or before the fifth day following the Date
of Termination, or [b] if resulting from any other cause, in
substantially equal semimonthly installments on the fifteenth and last
days of each month commencing with the month in which the Date of
Termination occurs and continuing for the number of consecutive
semimonthly payment dates (including the first such date as aforesaid)
equal to the product obtained by multiplying the number of years
(including partial years) applicable under [2][ii] above by
twenty-four (24); and
[3] if termination of the Executive's employment arises out of a breach by
the Company of this Agreement, the Company shall pay all other damages
to which the Executive may be entitled as a result of such breach,
7
<PAGE>
including damages for any and all loss of benefits to the Executive
under the Company's employee benefit plans (other than the Company's
Incentive Compensation Plan) which the Executive would have received
if the Company had not breached this Agreement and had the Executive's
employment continued for the full term provided in Section 2 hereof
(including specifically but without limitation the benefits which the
Executive would have been entitled to receive had his employment
continued for the full term provided in Section 2 hereof at the rate
of compensation specified herein), and including all legal fees and
expenses incurred by him as a result of such termination.
(e) If the Executive shall terminate his employment under clause (ii) of
Section 8(d) hereof, the Company shall pay the Executive his full salary
through the Date of Termination at the rate in effect at the time Notice of
Termination is given.
(f) Unless the Executive is terminated for Cause, the Company shall
maintain in full force and effect, for the continued benefit of the
Executive for the greater of the number of years (including partial years)
remaining in the term of employment hereunder or the number three (3), all
employee benefit plans and programs in which the Executive was entitled to
participate immediately prior to the Date of Termination provided that the
Executive's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Executive's
participation in any such plan or program is barred, the Company shall
arrange to provide the Executive with benefits substantially similar to
those which the Executive would otherwise have been entitled to receive
under such plans and programs from which his continued participation is
barred.
(g) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 9 by seeking other employment or
otherwise.
10. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company, by agreement in form and
substance satisfactory to the Executive, to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken
place. Failure of the Company to obtain such agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement
and shall entitle the
8
<PAGE>
Executive to compensation from the Company in the same amount and on the
same terms as he would be entitled to hereunder if he terminated his
employment for Good Reason, except that for purposes of implementing the
foregoing, the date on which any such succession becomes effective shall
be deemed the Date of Termination. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which executes and delivers the
agreement provided for in this Section 10 or which otherwise becomes
bound by all the terms and provisions of this Agreement by operation of
law.
(b) This Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by the Executive's personal or legal
representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Executive should die while any
amounts would still be payable to him hereunder if he had continued to
live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the
Executive's estate.
11. NOTICE. For the purposes of this Agreement, notices, demands and
all other communications provided for in the Agreement shall be in writing
and shall be deemed to have been duly given when delivered or (unless
otherwise specified) mailed by United States registered mail, return receipt
requested, postage prepaid, addressed as follows:
If to the Executive:
Dr. Thomas C. Edwards
_____________________
_____________________
If to the Company:
DynEco Corporation
Suite 105
5151 Edina Industrial Boulevard
Minneapolis, MN 55439
Attn: General Counsel
or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of change of address
shall be effective only upon receipt.
12. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed
to in writing signed by the Executive and the Company's Chief Executive
Officer or such other officer as may be
9
<PAGE>
specifically designated by the Board. No waiver by either party hereto at any
time of any breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not set forth
expressly in this Agreement and the Employee Agreement executed concurrently
herewith in the form of Annex I hereto. The validity, interpretation,
construction and performance of this Agreement shall be governed by the laws
of the State of Minnesota.
13. VALIDITY. The invalidity or unenforceability of any provision or
provisions of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement, which shall remain in full force
and effect.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of
which together will constitute one and the same instrument.
15. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration,
conducted before a panel of three arbitrators, in Jacksonville, Florida, in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court
having jurisdiction; provided, however, that the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction
to prevent any continuation of any violation of the Employee Agreement
executed concurrently herewith in the form of Annex I hereto, and the
Executive hereby consents that such restraining order or injunction may be
granted without the necessity of the Company posting any bond. The expense
of such arbitration shall be borne by the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
DYNECO CORPORATION
By ________________________
Its Authorized Officer
EXECUTIVE
___________________________
10
<PAGE>
EMPLOYMENT AGREEMENT
EFFECTIVE DATE: September 22, 1994
EMPLOYER: DYNECO CORPORATION, a Minnesota corporation.
EMPLOYEE: RICHARD D. BESSER
PURPOSE: Employer is in the business of compressors and the
technology pertaining thereto and Employer desires to employ Employee for the
purposes and subject to the terms and conditions set out hereafter.
AGREEMENTS: Employer and Employee hereby mutually agree as follows:
1. EMPLOYMENT: DUTIES.
1.1 EMPLOYMENT. Employer employs Employee and Employee accepts
employment with Employer. During the term of employment hereunder, Employee
shall serve as the Chairman, Chief Executive Officer and President of Employer
and shall perform such services not inconsistent with his position and hold such
offices in Employer to which from time to time he may be elected or appointed.
1.2 DUTIES. The scope of Employee's duties and responsibilities
shall be the following:
(a) Subject to Section 1.3 hereof, Employee's principal area of
responsibility shall be to perform as the Chairman, Chief Executive Officer and
President of Employer, and he shall perform for Employer such duties as are
mutually agreed by Employee and the Board of Directors of Employer from time to
time.
(b) Employee's duties shall be performed at whatever location
Employee deems appropriate.
1.3 PARTIAL RELINQUISHMENT OF DUTIES. During the term of employment
hereunder, Employee in his sole discretion and at his sole election, may
relinquish his duties of President of Employer in favor of a person selected by
Employee and hired and appointed by Employer's Board of Directors, which hiring
and appointment shall not be unreasonably withheld or declined.
1.4 NON-EMPLOYER ACTIVITIES. During the term of this Agreement,
Employee may, without limitation, serve on corporate, civic or charitable boards
or committees, deliver lectures, fulfill speaking engagements or teach at
educational institutions, serve as an officer or
<PAGE>
manager of one or more entities, and manage personal investments. None of
such activities shall be prohibited by this Agreement.
2. TERM. This Agreement shall become effective on the Effective Date set
forth above and continue for a period ending December 31, 1999, unless
terminated sooner by either of the parties hereto, or by mutual agreement of the
parties, pursuant to Section 6 of this Agreement.
3. COMPENSATION. As his compensation during the term of this Agreement,
Employee shall have and receive, subject to applicable tax withholding, the
following:
3.1 SALARY. Employee's base salary under this Agreement will be One
Hundred Fifty-Six Thousand Dollars ($156,000.00) per annum gross pay, payable in
substantially equal regular periodic payments in accordance with Employer's
regular payroll practices. Such base salary may be increased (but not
decreased) by the Board of Directors of Employer from time to time during the
term hereof with each increase becoming Employee's new base salary under this
Agreement for the remainder of the term hereof or until the next increase in
base salary, if any. Notwithstanding the foregoing, in the event Employee
relinquishes his duties of President of Employer pursuant to Section 1.3 hereof,
Employee's base salary during any period in which Employee is not serving as
President shall be automatically reduced to two-thirds of his base salary then
in effect but never less than One Hundred Four Thousand Dollars ($104,000.00)
per annum. During the period September 22, 1994 through June 30, 1995, one
third of Employee's base salary (i.e., $52,000.00) shall be paid in the form of
fully paid and nonassessable shares of common stock of Employer, based upon an
agreed value of Three Dollars ($3.00) per share, and the remaining two-thirds of
such base salary (i.e., $104,000.00) shall be paid in the form of cash.
Commencing July 1, 1995, Employee's base salary shall be paid solely in the form
of cash.
3.2 RESTRICTED STOCK.
(a) SALE AND PURCHASE. Employer agrees to sell and Employee
agrees to purchase from Employer, at such time(s) during the term of this
Agreement as Employee shall specify to Employer, Two Hundred Fifty Thousand
(250,000) shares of common stock of Employer at a price of $.01 per share
(hereinafter referred to as the "Restricted Shares" or, with respect to a single
share thereof, "Restricted Share").
(b) GENERAL RESTRICTIONS. In the event EITHER Employer
terminates Employee's employment for Cause pursuant to Section 6.2 hereof OR
Employee terminates his employment for any reason other than death, disability,
mutual agreement with Employer, or those reasons specified in Section 6.3
hereof, then Employer may, at any time within the one hundred twenty (120) day
period following Employee's termination of employment, purchase from Employee at
the "Restricted Share Price" (as hereafter defined), the applicable number of
Restricted Shares determined as follows:
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<PAGE>
Number of Restricted Shares
If Employee's Termination that May Be Purchased from
of Employment Occurs Employee by Employer
---------------------------- -----------------------------
Before September 23, 1996 150,000
After September 22, 1996, but
before September 23, 1997 75,000
After September 22, 1997, but
before September 23, 1998 25,000
After September 22, 1998 0
As used herein, the term "Restricted Share Price" means with respect to each
Restricted Share the greater of (i) $.01 or (ii) fifty percent (50%) of the last
quoted ask price per share of common stock of Employer as reported by the NASDAQ
on the date of Employee's termination of employment.
(c) RESTRICTIONS ON TRANSFER. The Restricted Shares issued
herein have not been registered under the Securities Act of 1933. These Shares
may not be transferred by Employee (i) unless there is an effective registration
covering the Restricted Shares under the Securities Act of 1933 and applicable
state securities laws, (ii) unless Employer receives an opinion of legal
counsel, acceptable to Employer, that the transfer of the Restricted Shares
complies with the requirements of the Securities Act of 1933 and any relevant
state securities law, or (iii) unless the transfer is made pursuant to Rule 144
under the Securities Act of 1933. Subject to the foregoing, Employee is
permitted to transfer the following number of Restricted Shares with respect to
each of the following dates:
Number of Restricted Shares
Permitted to be
Date Transferred by Employee
---- ---------------------------
Before September 23, 1996 100,000 shares
After September 22, 1996, but
before September 23, 1997 175,000 shares
After September 22, 1997, but
before September 23, 1998 200,000 shares
After September 22, 1998 All shares
(d) ENDORSEMENT OF CERTIFICATES. Each certificate representing
Restricted Shares now, or hereafter, held by Employee shall be inscribed
substantially as follows:
-3-
<PAGE>
THE TRANSFER OF THE SHARES OF DYNECO CORPORATION COMMON
STOCK REPRESENTED BY THIS CERTIFICATE IS RESTRICTED UNDER
THE TERMS OF AN EMPLOYMENT AGREEMENT EFFECTIVE SEPTEMBER 22,
1994, A COPY OF WHICH IS ON FILE AT THE OFFICES OF DYNECO
CORPORATION.
THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. DYNECO CORPORATION WILL
NOT TRANSFER THIS CERTIFICATE UNLESS (I) THERE IS AN
EFFECTIVE REGISTRATION COVERING THE SHARES REPRESENTED BY
THIS CERTIFICATE UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND ALL APPLICABLE STATE SECURITIES LAWS, OR (II)
IT FIRST RECEIVES A LETTER FROM LEGAL COUNSEL, ACCEPTABLE TO
THE CORPORATION, STATING THAT IN THE OPINION OF SUCH LEGAL
COUNSEL THE PROPOSED TRANSFER IS EXEMPT FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND UNDER ALL
APPLICABLE STATE SECURITIES LAWS, OR (III) THE TRANSFER IS
MADE PURSUANT TO RULE 144 UNDER THE SECURITIES ACT OF 1933,
AS AMENDED.
(e) VOTING RIGHTS. The Restricted Shares shall be considered to
be issued and outstanding shares and Employee shall enjoy all voting rights
accorded to all other issued and outstanding shares of Employer.
(f) PARTICIPATION IN DISTRIBUTIONS. The Restricted Shares shall
be considered to be issued and outstanding shares and Employee shall enjoy all
distribution privileges accorded to all other issued and outstanding shares of
Employer.
(g) DISTRIBUTIONS ON DISSOLUTION OR LIQUIDATION. In the event
of dissolution of Employer, or the partial or complete liquidation of all or
substantially all of Employer's assets, or in the event of bankruptcy or
insolvency of Employer, the Restricted Shares shall enjoy all of the rights and
privileges accorded to all other issued and outstanding shares of Employer.
(h) SHARE SPLITS OR OTHER RECLASSIFICATION. Any shares issued
to Employee pursuant to a share split or reclassification of Restricted Shares
shall also be subject to the terms and conditions hereof. Similarly, any and
all distributions of shares issued by the reason of ownership of such Restricted
Shares, shall likewise be subject to the terms and conditions hereof.
(i) ADDITIONAL REQUIREMENTS. In order to ensure performance
hereunder and to implement the provisions hereof, Employer and Employee shall
take whatever action and do such things as may be required or necessary so to
do, which may include, but shall not be limited to, the registration of the
Restricted Shares under the Securities Act of 1933 upon Employee's written
request, issuance of additional shares, surrender of shares, and making such
reports and furnishing such information as shall be deemed advisable or
necessary.
4. BENEFITS AND VACATIONS. During the term of this Agreement Employee
shall be entitled to participate in all tax-qualified retirement plans and other
employee benefit plans, practices, policies and programs (including holidays)
provided by Employer to the extent
<PAGE>
applicable generally to other employees of Employer. In addition, during the
term of this Agreement Employee shall be entitled to participate in and
receive benefits under any plan, program, or arrangement made available by
Employer to Employer's other executives and key management employees, subject
to the terms and conditions of such plans, programs, and arrangements
applicable to all such employees.
For the 1995 calendar year and each subsequent calendar year (or fraction
thereof) during this Agreement, Employee shall be entitled to fifteen (15) paid
vacation days. The time or times at which such vacation days are to be taken
shall be reasonably determined by Employee consistent with Employee's duties and
obligations under this Agreement. Any such vacation days with respect to a
calendar year that are unused as of the last day of such calendar year shall
automatically be carried over to the next calendar year unless Employer and
Employee otherwise agree in writing.
5. FACILITIES; EXPENSE REIMBURSEMENT.
5.1 FACILITIES. Employer shall provide and maintain (or cause to be
provided and maintained) at Employer's sole cost such facilities, equipment,
offices, secretarial and other support staff help, and other services and
supplies as are reasonably required by Employee for Employee's performance of
his duties under this Agreement. Employer shall promptly reimburse Employee for
any expenditures for such that are incurred by Employee.
5.2 EXPENSE REIMBURSEMENT. Employee is authorized to incur
reasonable expenses for promoting the business of Employer, including, without
limitation, expenses for entertainment, travel, home telephone, and similar
items. Employer will promptly reimburse Employee for such expenses upon the
presentation by Employee from time to time of an itemized account of such
expenditures with vouchers and such other supporting information which Employer
may from time to time request in accordance with Employer's accounting
procedures.
6. TERMINATION OF EMPLOYMENT.
6.1 DEATH OR DISABILITY OR MUTUAL AGREEMENT. Employee's employment
shall terminate automatically upon Employee's death during the term of this
Agreement. Also, if Employee is absent for work as a result of incapacity due
to mental or physical illness during a period encompassing more than one hundred
eighty (180) business days during any calendar year, Employee's employment with
Employer shall terminate upon the expiration of such 180 business day period.
Employee's employment may be terminated at any time by the mutual written
agreement of Employer and Employee.
6.2 TERMINATION FOR CAUSE. Employer's Board of Directors may
terminate Employee's employment for "Cause." As used herein, "Cause" means (a)
an act or acts of willful personal dishonesty taken by Employee and intended to
result in substantial personal enrichment of Executive to the detriment of
Employer; or (b) the willful engaging by Employee in illegal conduct that is
materially demonstrably injurious to Employer. For purposes hereof, no act on
Employee's part shall be considered "dishonest," "willful" or "deliberate"
unless done by Employee in bad faith and without reasonable belief that
Employee's action was in, or not
-5-
<PAGE>
opposed to, the best interest of Employer. Any act based upon authority
given pursuant to a resolution duly adopted by the Employer's Board of
Directors or based upon the advice of legal counsel shall be conclusively
presumed to be done, or omitted to be done, by Employee in good faith and in
the best interests of Employer.
6.3 COMPENSABLE TERMINATION BY EMPLOYEE. Employee may, in his sole
discretion, terminate his employment under this Agreement for any one or more of
the following reasons and be entitled to compensation pursuant to Section 6.5
hereof:
(a) An adverse change in Employee's status or position as an
executive officer of Employer, including, without limitation, any adverse change
in Employee's status or position as a result of a material diminution in
Employee's duties, responsibilities or authority as of the date of this
Agreement (or any status or position to which Employee may be promoted after the
date hereof) or the assignment to Employee of any duties or responsibilities
which, in Employee's reasonable judgment, are inconsistent with Employee's
status or position, or any removal of Employee from or any failure to reappoint
or reelect Employee to such positions (except in connection with the termination
of Employee's employment for Cause in accordance with Section 6.2 hereof or
disability or death in accordance with Section 6.1 hereof);
(b) A reduction by Employer in Employee's base salary (other
than as provided in Section 3.1 hereof) as in effect as of the date of this
Agreement or as the same may be increased from time to time or a change in the
eligibility requirements or performance criteria under any plan under which
Employee is covered as of the date of this Agreement, which adversely affects
Employee;
(c) Without replacement by plan-provided benefits to Employee
equal to or greater than those discontinued, the failure by the Employer to
continue in effect, within its maximum stated term, any plan in which Employee
is participating immediately as of the date of Employee's execution of this
Agreement or the taking of any action by Employer that would adversely affect
Employee's participation or materially reduce Employee's benefits under any
plan;
(d) The taking of any action by Employer that would materially
adversely affect the physical conditions existing immediately prior to the date
of this Agreement in or under which Employee performs his employment duties;
(e) Employer's requiring Employee to be based anywhere other
than Savannah, Georgia, except for required travel on Employer's business to an
extent substantially consistent with the business travel obligations which
Employee undertook on behalf of Employer prior to the date of this Agreement;
(f) The failure by Employer to obtain from any "Successor" to
assent to this Agreement contemplated by Section 10.2 hereof; or
(g) Any purported termination by Employer of this Agreement or
the employment of Employee by Employer which is not expressly authorized by this
Agreement or any breach of this Agreement by Employer other than an isolated,
insubstantial and inadvertent
-6-
<PAGE>
failure not occurring in bad faith and which is remedied by Employer within a
reasonable period after Employer's receipt of notice thereof from Employee.
(h) Any refusal by Employer to continue to allow Employee to
attend to matters or engage in activities not directly related to the business
of Employer which, prior to the date of this Agreement or any time thereafter
but prior to such refusal, Employee attended to or engaged in.
6.4 NON-COMPENSABLE TERMINATION BY EMPLOYEE. Employee may, in his
sole discretion, terminate his employment under this Agreement for any reason
whatsoever upon ninety (90) days advance written notice to Employer.
6.5 COMPENSATION UPON TERMINATION, DEATH OR DURING DISABILITY.
(a) During any period that Employee fails to perform Employee's
duties hereunder as a result of incapacity due to physical or mental illness,
Employee shall continue to receive all base salary and other compensation and
benefits to which Employee is otherwise entitled under this Agreement and any
plan until Employee's date of termination.
(b) If Employee's employment under this Agreement is terminated
(i) on account of death, (ii) for Cause, (iii) by mutual agreement, or (iv) by
Employee pursuant to Section 6.4 hereof, Employer shall, within ten (10)
calendar days following the date of termination, pay any amounts due to Employee
for base salary through the date of termination, together with any other unpaid
and pro rata amounts to which Employee is entitled as of the date of termination
pursuant to Sections 3 and 4 hereof, including, without limitation, amounts
which Employee is entitled under any plan in accordance with the terms of such
plan, and further, including, without limitation, a pro rata portion (prorated
through the date of termination) of any annual or long-term bonus or incentive
payments (for performance periods in effect at the date of termination) to which
Employee would have been entitled had Employee remained continuously employed
through the end of such performance periods and continued to perform Employee's
duties in the same manner as performed immediately prior to such termination.
(c) If, in breach of this Agreement, Employer terminates
Employee's employment hereunder (it being understood that a purported
termination for disability or for Cause which is disputed and finally determined
not to have been proper shall be a termination by Employer in breach of this
Agreement) or if Employee terminates his employment hereunder pursuant to
Section 6.3 for the unexpired term of this Agreement as determined in accordance
with Section 2.3, Employer shall, as damages for such breach:
(1) continue to pay any amounts due to Employee for base salary
in accordance with Section 3.1. at the annual rate in effect
thereunder immediately prior to Employee's termination of
employment (but determined without regard to any purported
reduction in base salary which gave rise to such termination
of employment) in the same manner as if Employee had
remained continuously employed through December 31, 1999;
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<PAGE>
(2) cause Employee's continued participation in all plans in
accordance with Section 4 hereof as if Employee remained
continuously employed with Employer through December 31,
1999 for all purposes, including without limitation grants,
awards, accruals and vesting thereunder; provided, that, if
such continued participation is not permissible under
applicable law, Employer shall provide Employee with
benefits substantially similar to those to which Employee
would have been entitled under those plans in which
Employee's continued participation is not permissible; and
(3) continue to (i) provide Employee with paid vacation in
accordance with Section 4 hereof, (ii) bear business
expenses of Employee in accordance with Section 5.2 with
respect to matters reasonably undertaken by Employee on
behalf of Employer, and (iii) provide Employee with offices
and facilities in accordance with Section 5.1 hereof, in the
same manner as if Employee had remained continuously
employed throughout the period described above,
The damages determined pursuant to this Section 6.5(c) shall be mitigated to the
extent of Employee's "earned income" (within the meaning of section 911(d)(2)(A)
of the Internal Revenue Code of 1986, as amended) derived from Employee's
subsequent employment by an employer in the same product line of business as
Employer with Employee having executive duties, officer positions, and
responsibilities substantially the same as provided for herein during the
remainder of the period with respect to which such damages are required to be
paid by Employer.
7. NONEXCLUSIVITY OF RIGHTS. Except as provided in Section 6, nothing in
this Agreement shall prevent or limit the Employee's continuing or future
participation in any plan, program, policy or practice provided by Employer and
for which the Employee may qualify, nor shall anything herein limit or otherwise
affect such rights as the Employee may have under any contract or agreement with
Employer. Amounts which are vested benefits or which the Employee is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Employer at or subsequent to the date of
termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement, except as explicitly modified by this
Agreement.
8. NON-COMPETITION; COVENANT NOT TO RECRUIT. During the term of this
Agreement and for a period of twelve (12) months following Employee's
termination of employment with Employer, Employee shall refrain from competing
(directly or indirectly, alone or as a partner, officer, director, shareholder,
or employee of any other firm or entity) with Employer with respect to
Employer's business as conducted during the term of this Agreement or as of the
date of Employee's termination of employment. For purposes hereof,
"shareholder" shall not include Employee's ownership of the Restricted Shares or
other stock of Employer or ownership of less than five percent (5%) of the
combined voting power of all issued and outstanding voting securities of a
publicly-held corporation whose stock is traded on a major stock exchange or
quoted on NASDAQ.
-8-
<PAGE>
Employee recognizes that Employer's workforce constitutes an important
and vital aspect of its business on a world-wide basis. Employee agrees that
for a period of one (1) following the termination of this Agreement for any
reason whatsoever, Employee shall not solicit, or assist anyone else in the
solicitation of, any of the Employer's then-current employees to terminate their
employment with Employer and to become employed by any business enterprise with
which Employee may then be associated, affiliated or connected.
9. CONFIDENTIAL INFORMATION; PROPRIETARY INFORMATION.
9.1 "Confidential Information" means information that is proprietary
to Employer or proprietary to others and entrusted to Employer, whether or not
trade secrets. Confidential Information includes, but is not limited to,
information relating to business plans and to business as conducted or
anticipated to be conducted, and to past or current or anticipated products.
Confidential Information also includes, without limitation, information
concerning research, inventions, works of authorship, development, engineering,
purchasing, accounting, marketing, selling and services. All information that
Employee has a reasonable basis to consider confidential is Confidential
Information, whether or not originated by Employee and without regard to the
manner in which Employee obtains access to this and any other proprietary
information.
9.2 CERTAIN PROPRIETARY INFORMATION. If Employee possesses any
proprietary information of another person or entity as a result of prior
employment or relationship, Employee shall honor any legal obligation that
Employee has with that person or entity with respect to such proprietary
information.
9.3 RETURN OF PROPRIETARY PROPERTY. Employee agrees that all
property in Employee's possession belonging to Employer, including without
limitation, all documents, reports, manuals, memoranda, computer print-outs,
customer lists, credit cards, keys, identification, products, access cards,
automobiles and all other property relating in any way to the business of
Employer are the exclusive property of Employer, even if Employee authored,
created or assisted in authoring or creating, such property. Employee shall
return to the Employer all such documents and property immediately upon
termination of employment or at such earlier time as Employer may reasonably
request.
9.4 PROHIBITIONS AGAINST USE OF CONFIDENTIAL INFORMATION. Employee
will not during or subsequent to the termination of Employee's employment under
this Agreement use or disclose, other than in connection with Employee's
employment with Employer, any Confidential Information to any person not
employed the Employer or not authorized by Employer to receive such Confidential
Information, without the prior written consent of Employer. Employee will use
reasonable and prudent care to safeguard and protect and prevent the
unauthorized use and disclosure of Confidential Information. The obligations
contained in this Section 9.4 will survive for as long as Employer in its sole
judgment considers the information to be Confidential Information. The
obligations under this Section 9.4 will not apply to any Confidential
Information that is now or becomes generally available to the public through no
fault of Employee or to Employee's disclosure of any Confidential Information
required by law or judicial or administrative process.
-9-
<PAGE>
10. MISCELLANEOUS.
10.1 NOTICE. Notices required or permitted to be given hereunder
shall be sufficient if in writing and delivered or deposited in the U.S. Mails,
postage prepaid, certified mail, return receipt requested, to the following
addresses or to such other address as may be designated in writing hereafter by
either party hereto:
To the Employer:
DynEco Corporation
564 International Place
Rockledge, Florida 32955
Attention: Board of Directors
To the Employee:
Richard D. Besser
5A Skidaway Village Walk, Suite 137
Savannah, Georgia 31411
10.2 BURDEN; BENEFIT; ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of any "Successor" of the Employer and any such
"Successor" shall be deemed substituted for the Employer under the terms of this
Agreement. As used in this Agreement, Employer shall mean the Employer as
hereinbefore defined and any "Successor" to its business and/or assets as
aforesaid, which assumes and agrees to perform this Agreement by operation of
law or otherwise. This Agreement is personal to Employee and without the prior
written consent of Employer, Employee shall not assign or delegate any of his
rights or obligations hereunder other than by testamentary disposition or the
laws of descent and distribution. Employer may not assign or delegate any of
its rights or obligations hereunder unless such assignment is to a "Successor"
(as hereafter defined) and such "Successor" by agreement in form and substance
satisfactory to Employee assets to the fulfillment of Employer's obligations
under this Agreement. As used herein, the term "Successor" means any
corporation, individual, group, association, partnership, firm, venture or other
entity or person that, subsequent to the date hereof, succeeds to the actual or
practical ability to control (either immediately or with the passage of time),
all or substantially all of Employer's business and/or assets, directly or
indirectly, by merger, consolidation, recapitalization, purchase, liquidation,
redemption, assignment, similar corporate transaction, operation of law or
otherwise.
10.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement
and understanding by and between Employer and Employee with respect to the
employment of Employee and no representations, promises, agreements, or
understandings written or oral, not contained herein shall be of any force or
effect. No change or modification of this Agreement shall be valid or binding
unless it is in writing and signed by the parties intended to be bound. No
waiver of any provision of this Agreement shall be valid unless it is in writing
and signed by the parties against whom the waiver is sought to be enforced. No
valid waiver of any provision of this Agreement at any time shall be deemed a
waiver of any other provision of this Agreement at such time or any other time.
-10-
<PAGE>
10.4 GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Florida (without regard to the conflict of laws
or statutes of any jurisdiction), and any and every legal proceeding arising out
of or in connection with this Agreement shall be brought in the appropriate
courts of the State of Florida, each of the parties hereby consenting to the
exclusive jurisdiction of said courts for this purpose.
10.5 DISPUTES. Any dispute, controversy or claim for damages arising
under or in connection with this Agreement shall be settled exclusively by
arbitration in Jacksonville, Florida by a panel of three (3) arbitrators in
accordance with the Commercial Rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrators' award in any court
having jurisdiction; provided, however, that Employee shall be entitled to seek
specific performance of Employee's right to be paid until the date of
termination of employment during the pendency of any dispute or controversy
arising under or in connection with this Agreement. Employer shall bear all
costs and expenses, including attorney's fees, arising in connection with any
arbitration proceeding pursuant hereto. Employer shall be entitled to seek an
injunction or restraining order in a court of competent jurisdiction to enforce
the provisions of Sections 8 and 9.
10.6 NO OFFSETS. In no event shall any amount payable to Employee
pursuant to this Agreement be reduced for purposes of offsetting, either
directly or indirectly, any indebtedness or liability of Employee to Employer.
10.7 COUNTERPARTS. This Agreement may be executed in one (1) or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one (1) and the same instrument.
10.8 SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement which by their express or implied terms extend
beyond the termination of Employee's employment hereunder including, without
limitation, the provisions of Section 6.5 (relating to compensation) or beyond
the termination of this Agreement including, without limitation, the provisions
of Section 9 (relating to confidential information) and Section 8 (relating to
non-competition), shall continue in full force and effect notwithstanding
Employee's termination of employment hereunder or the termination of this
Agreement, respectively.
10.9 SEPARATE COUNSEL. The parties acknowledge that Employer has been
represented in this transaction by Mark J. Vieno, P.A., that Employee has not
been represented in this transaction by Employer's attorneys.
10.10 PRESUMPTION. This Agreement or any section thereof shall
not be construed against any party due to the fact that said Agreement or any
section thereof was drafted by said party.
10.11 NO ADEQUATE REMEDY. Notwithstanding anything contained
herein to the contrary, the parties declare that it is impossible to accurately
measure in money the damages
-11-
<PAGE>
which will accrue to either party by reason of a failure to perform any of
the obligations under this Agreement. Therefore, if either party shall
institute any action or proceeding to enforce the provisions hereof, the
party against whom such action or proceeding is brought hereby waives the
claim or defense that such party has an adequate remedy at law, and such
party shall not assert in any such action or proceeding the claim or defense
that such party has an adequate remedy at law.
10.12 WITHHOLDING. To the extent required by any applicable law,
including, without limitation, any federal or state income tax or excise tax law
or laws, the Federal Insurance Contributions Act, the Federal Unemployment Tax
Act or any comparable federal, state or local laws, Employer retains the right
to withhold such portion of any amount or amounts payable to Employee under this
Agreement as Employer (on the written advice of counsel) deems necessary.
10.13 SEVERABILITY. The provisions of this Agreement shall be
deemed severable and the invalidity or unenforceability of any one or more of
the provisions of this Agreement shall not affect the validity and
enforceability of the other provisions.
EXECUTED in multiple counterparts on the dates set forth below but
effective as of the Effective Date.
EMPLOYER: DynEco Corporation
By /s/ Thomas C. Edwards
---------------------------------
Its Chief Technical Officer
--------------------------------
Date: March 21 , 1995
-----------------------
EMPLOYEE: /s/ Richard D. Besser
-------------------------
Richard D. Besser
Date: 3-23 , 1995
-------------
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<PAGE>
Sent
FED-X
6-9-96
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as the "Agreement") is
made as of the ___ day of June 1996, between DYNECO CORPORATION, a Minnesota
corporation (hereinafter referred to as the "Company") and THOMAS R. REINARTS,
Ph.D., an individual resident of the State of Florida (hereinafter referred to
as the "Employee").
W I T N E S S E T H :
WHEREAS, the Company is in the business of designing, developing,
manufacturing, marketing and licensing air compressors and related technology;
and
WHEREAS, the Company believes that Employee's employment with the Company
under the terms of this Agreement will be beneficial to the success of the
Company's business; and
WHEREAS, the Company and Employee are entering into this Agreement to set
forth the terms and conditions relating to Employee's employment with the
Company.
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Employee hereby agree as follows:
Section 1. EMPLOYMENT. Subject to the terms hereof, the Company hereby
employs Employee, and the Employee hereby accepts such employment for the term
of this Agreement.
Section 2. TERM. The term of this Agreement shall commence on the date
hereof and continue for a period of three (3) years, unless sooner terminated as
provided in this Agreement.
Section 3. DUTIES AND RESPONSIBILITIES OF EMPLOYEE. Employee is being
employed in a management capacity for the development of the Company's products,
and for such other assignments as the Board of Directors of the Company may,
from time to time, assign to Employee. Employee shall serve as Manager of
Product Development and shall be responsible for overall development of the
Company's products. Employee shall work in cooperation with the Company's Chief
Technical Officer and provide technical advice and assistance reasonably
requested from time to time by such officer.
Section 4. CASH COMPENSATION. For all services to be rendered by the
Employee under this Agreement, the Company shall pay Employee an annual gross
salary in the amount of Forty Four Thousand and No/100 Dollars ($44,000) payable
in accordance with the payroll payment practices from time to time adopted by
the Company. Employee's cash compensation shall be increased by Two Thousand
and No/100 Dollars ($2,000) after completing six (6) months of employment with
the Company and an additional Two Thousand and No/100 Dollars ($2,000) after
completing twelve (12) months of employment with the Company. Thereafter,
Employee's cash compensation shall be increased on the second and third
anniversary date of this Agreement in an amount not less than six percent (6%)
of Employees current annual cash compensation.
<PAGE>
Section 5. NONCASH COMPENSATION. In addition to the cash compensation
payable to Employee under Section 4 above, Employee shall be entitled to
purchase 10,000 shares of the Company's $.01 par value common stock at a
purchase price of $2.00 per share. Employee may exercise his right to purchase
said shares at any time and from time to time after the ratification and
adoption by the Board of Directors of the terms of this Agreement which is
expected to occur at the next Board of Directors meeting scheduled to be held on
July 12, 1996.
Section 6. WORKING FACILITIES. Employee shall be furnished with such
office space, office equipment, secretarial help and such other facilities,
equipment and services as may be reasonably needed or beneficial for the
performance by Employee of the duties contemplated hereunder. All costs of same
shall be borne by the Company.
Section 7. EXPENSES. The Company recognizes that in the performance of
duties by Employee in the furtherance of the business of the Company, Employee
will incur expenses. Employee shall be reimbursed for such reasonable and
necessary expenditures when so incurred.
Section 8. VACATION AND EMPLOYEE BENEFITS. Employee shall be entitled
to such Employee health and disability insurance and other employee fringe
benefits as the Board of Directors deems appropriate. Employee shall also be
entitled to paid vacations as follows: 6 months of full time service - 1 week
of vacation; 1 year or more of full time service - 2 weeks of vacation.
Section 9. TERMINATION. This Agreement shall be terminated prior to
the end of the term provided in Section 2 above, upon the occurrence of any one
of the following events:
(a) Company shall have the right to immediately terminate Employee's
employment under this Agreement if:
(i) Employee shall continue to violate any of the provisions of
this Agreement after thirty (30) days immediately following his
receipt of a written notice from Company setting forth the
violations;
(ii) Employee is convicted of (from which no appeal may be taken)
or pleads guilty or nolo contendre to or confesses to any act of
fraud, misappropriation or embezzlement or to any felony or to
any misdemeanor involving moral turpitude;
(iii) Employee, in the judgment of Company, has engaged in a
dishonest act to the damage or prejudice of Company or any
affiliate of Company or in conduct or activities materially
damaging to the business or reputation of Company or any
affiliate of Company; or
(iv) Employee has failed without reasonable cause to devote
adequate business time and best efforts to its duties hereunder.
(b) Employee and Company each shall have the right to terminate his
employment on sixty (60) days written notice to the other.
2
<PAGE>
Section 10. EFFECT OF TERMINATION. Upon termination of this Agreement,
Employee shall be entitled to receive only that compensation accrued but unpaid
pursuant to Section 4 above as of the date of termination and his rights to
purchase the Company's common stock as provided in Section 5 above. The Company
shall not have any further liability to Employee.
Section 11. CONFIDENTIAL INFORMATION. Employee agrees that he will not
directly or indirectly use, publish, disclose or divulge any confidential
information or trade secrets or anything relating thereto to any person or
entity not in the employ of Company, except in the course of performing his
duties and (a) with respect to confidential information for a period of two (2)
years immediately following any termination of his employment and (b) with
respect to trade secrets for so long as the trade secret remains a trade secret.
For purposes of this Agreement, the term "trade secret" means trade secrets as
defined by Florida law and "confidential information" means data and information
relating to the business of the Company (which does not rise to the status of a
trade secret) which will be disclosed to Employee or of which Employee becomes
aware as a consequence of or through his relationship to the Company and which
has value to the Company and is not generally known to its competitors. The
provisions in this Agreement restricting the use of confidential information
shall survive for a period of two (2) years following termination of employment
and those restricting the use of trade secrets shall survive for so long as is
permitted by law. Upon termination of employment, Employee immediately shall
surrender to the Company, in good condition, any and all material containing
confidential information and trade secrets provided to or obtained directly or
indirectly by Employee, and Employee shall not keep any copies, summaries or
photocopies thereof.
Section 12. NON-COMPETITION. Employee agrees that during the term of
his employment with the Company and for a period of two (2) years immediately
thereafter, he will not engage in any "Competitive Business Activity" within the
"Non-Compete Territory."
(a) For purposes of this Agreement, the term "Competitive Business
Activity" shall mean any activity which Employee directly or indirectly
owns, manages, operates, controls, is employed by (either as an employee or
independent contractor) or participates in the ownership, management,
operation or control of any business that is engaged in the sale of
products or services that are the same as or similar to the products or
services of the type offered or provided by the Company.
(b) For purposes of this Agreement, the term "Non-Compete Territory"
shall mean the States of Florida and Minnesota and each of the other states
located in the continental United States in which the Company is engaged in
business, it being agreed and stipulated that the Company has customers and
substantial services and marketing efforts in each of these states and has
conducted substantial business therein.
Section 13. SOLICITATION OF CUSTOMERS. Employee agrees that during the
term of his employment with the Company, and for a period of two (2) years
immediately thereafter, he shall not, directly or indirectly, through one or
more intermediaries or otherwise, solicit, direct or appropriate, or attempt to
solicit, direct or appropriate any person or entity which is at the time a
customer of the Company with which the Company or any affiliate thereof has an
existing
3
<PAGE>
relationship for the sale of products or services that are the same or
similar to the products or services of the type offered by the Company.
Section 14. SOLICITATION OF EMPLOYEES. Employee agrees that during the
period of this Agreement and for a period of two (2) years immediately
thereafter, Employee shall not, directly or indirectly, through one or more
intermediaries or otherwise, employ, induce, solicit for employment, or assist
others in employing, inducing or soliciting for employment any person who is at
the time an agent or employee of Company or any affiliate thereof.
Section 15. SPECIFIC PERFORMANCE. Employee agrees that the nature of
Company's business is unique and that, therefore, Employee's knowledge in and
with respect to Company's business will be special and not generally known by
many companies or individuals in any industry in which compressor or vacuum pump
technology is applicable. In addition, Employee agrees that it will be
difficult to measure damages to Company from any breach of Employee's promises
in paragraphs 11, 12, 13 and 14 hereof and that money damages alone will
therefore be an inadequate remedy for such breach. Accordingly and without
limiting the right of Company to pursue other legal and equitable rights
available to it for violation of said paragraphs and because Company has relied
on the undertakings of Employee in giving Employee this Agreement, Employee
hereby agrees that Company shall be entitled to specific performance of this
Agreement and that Employee shall not urge in any action at law or in equity
that Company has an adequate remedy at law.
Section 16. AGREEMENT TO INDEMNIFY. In addition to, and not in lieu of,
any other rights or remedies which Company may possess at law, in equity or
otherwise by virtue of this Agreement, Employee agrees to indemnify, defend and
hold harmless Company, from and against any and all claims, actions or causes of
action, assessments, investigations, arbitrations, proceedings of an
administrative nature, suits, awards, judgments, decrees, settlements, court
costs at both trial and appellate levels, losses, damages, liabilities, costs
and expenses of any nature whatsoever, including, without limitation, interest,
taxes, penalties, and attorneys' fees and expenses, asserted against, resulting
to, imposed upon or incurred by Company or any member thereof, directly or
indirectly, by reason of or resulting from a breach by Employee of any term or
condition of this Agreement.
Section 17. MISCELLANEOUS.
(a) All questions with respect to the construction of this Agreement
and the rights, duties, obligations and liabilities of the parties under
said documents shall be determined in accordance with the applicable
provisions of the laws of the State of Florida.
(b) This Agreement shall be binding upon all parties hereto, their
heirs, successors, guardians and personal and legal representatives.
(c) This Agreement sets forth all of the promises, agreements,
conditions and understandings among the parties hereto with respect to
Employee's employment and there are no promises, agreements, conditions, or
understandings, oral or written, expressed or implied, other than as set
forth in this Agreement.
4
<PAGE>
(d) In the event there is any conflict between any provision of this
Agreement and any statute, law, ordinance or regulation, the latter shall
prevail, but in such event the provisions of this Agreement thus affected
shall be curtailed and limited only to the extent necessary to conform with
said requirement of law. In the event that any part of this Agreement
shall be held to be indefinite, invalid or otherwise unenforceable, the
entire Agreement shall not fail on account thereof, and the balance of the
Agreement shall continue in full force and effect.
(e) Should either party be required to engage legal counsel for the
purpose of enforcing or preventing the breach of any of the provisions of
this Agreement, then the prevailing party to such action shall be entitled
to be reimbursed by the losing party for all costs and expenses incurred
thereby, including, but not limited to, reasonable attorneys' fees,
expenses and all other costs incurred as a result of the losing party's
conduct.
IN WITNESS WHEREOF, the corporate party hereto has caused this Agreement to
be executed by its duly authorized officer, and the individual party has
hereunto affixed his hand, as of the day and year first above written.
COMPANY:
DYNECO CORPORATION
By: _______________________________________
Richard D. Besser
Chief Executive Officer
EMPLOYEE:
______________________________________ (Seal)
Thomas R. Reinarts, Ph.D.
5
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement (hereinafter referred to as the "Agreement") is
made as of the 2nd day of January 1996, between DYNECO CORPORATION, a Minnesota
corporation (hereinafter referred to as the "Company") and RALPH E. NELSON, an
individual resident of the State of Florida (hereinafter referred to as the
"Employee").
W I T N E S S E T H :
WHEREAS, the Company is in the business of designing, developing,
manufacturing, marketing and licensing air compressors and related technology;
and
WHEREAS, the Company believes that Employee's employment with the Company
under the terms of this Agreement will be beneficial to the success of the
Company's business; and
WHEREAS, the Company and Employee are entering into this Agreement to set
forth the terms and conditions relating to Employee's employment with the
Company.
NOW, THEREFORE, for and in consideration of the premises, the mutual
promises and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Company and Employee hereby agree as follows:
Section 1. EMPLOYMENT. Subject to the terms hereof, the Company hereby
employs Employee, and the Employee hereby accepts such employment for the term
of this Agreement.
Section 2. TERM. The term of this Agreement shall commence on the date
hereof and continue for a period of five (5) years, unless sooner terminated as
provided in this Agreement.
Section 3. DUTIES AND RESPONSIBILITIES OF EMPLOYEE. Employee is being
employed in an executive management capacity for the conduct of the business of
Company, and for such other assignments as the Board of Directors of the Company
may, from time to time, assign to Employee. Employee shall serve as Vice
President and Chief Financial Officer of Company and shall be responsible for
overall management of the Company's financial condition. Employee covenants
that he will use his best efforts, on a full time basis, to enhance the business
of the Company at all times as required or deemed appropriate.
Section 4. CASH COMPENSATION. For all services to be rendered by the
Employee under this Agreement, the Company shall pay Employee an annual gross
salary in the amount of Sixty Five Thousand and No/100 Dollars ($65,000) payable
in accordance with the payroll payment practices from time to time adopted by
the Company. Employee's cash compensation may be increased by the Board of
Directors of the Company from time to time during the term hereof; provided,
however, that the Board of Directors shall review the cash compensation payable
to Employee hereunder on at least an annual basis.
Section 5. NONCASH COMPENSATION. In addition to the cash compensation
payable to Employee under Section 4 above, Employee shall be entitled to
purchase 10,000 shares of the Company's $.01 par value common stock ("Common
Stock") at a purchase price of $1.00 per share
<PAGE>
upon the first anniversary date of this Agreement. Upon the second, third,
fourth and fifth anniversary dates of this Agreement, respectively, Employee
shall be entitled to purchase 10,000 shares of the Company's Common Stock at
a purchase price of $2.00 per share. Employee's right to purchase the Common
Stock of the Company as provided in this Section 5 shall vest as of the last
day of each applicable anniversary date. If this Agreement is terminated at
any time during the five year period during which the rights of Employee to
purchase shares of the Company's Common Stock shall vest, all such rights of
Employee that have not vested shall be forfeited on the date the Agreement is
terminated.
Section 6. WORKING FACILITIES. Employee shall be furnished with such
office space, office equipment, secretarial help and such other facilities,
equipment and services as may be reasonably needed or beneficial for the
performance by Employee of the duties contemplated hereunder. All costs of same
shall be borne by the Company.
Section 7. EXPENSES. The Company recognizes that in the performance of
duties by Employee in the furtherance of the business of the Company, Employee
will incur expenses. Employee shall be reimbursed for such reasonable and
necessary expenditures when so incurred.
Section 8. VACATION AND EMPLOYEE BENEFITS. Employee shall be entitled
to such Employee health and disability insurance and other employee fringe
benefits as the Board of Directors deems appropriate; PROVIDED, however, that
the Company shall pay one-half of Employee's monthly payment obligations when
due under COBRA. Employee shall also be entitled to paid vacations as follows:
6 months of full time service - 1 week of vacation; 1 year of full time service
- - 2 weeks of vacation; 5 years of full time service - 3 weeks of vacation; 7
years of full time service - 4 weeks of vacation.
Section 9. TERMINATION. This Agreement shall be terminated prior to
the end of the term provided in Section 2 above, upon the occurrence of any one
of the following events:
(a) Company shall have the right to immediately terminate Employee's
employment under this Agreement if:
(i) Employee shall continue to violate any of the provisions of
this Agreement after thirty (30) days immediately following his
receipt of a written notice from Company setting forth the
violations;
(ii) Employee is convicted of (from which no appeal may be taken)
or pleads guilty or nolo contendre to or confesses to any act of
fraud, misappropriation or embezzlement or to any felony or to
any misdemeanor involving moral turpitude;
(iii) Employee, in the judgment of Company, has engaged in a
dishonest act to the damage or prejudice of Company or any
affiliate of Company or in conduct or activities materially
damaging to the business or reputation of Company or any
affiliate of Company; or
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(iv) Employee has failed without reasonable cause to devote
adequate business time and best efforts to its duties hereunder.
(b) Employee and Company each shall have the right to terminate his
employment on sixty (60) days written notice to the other.
Section 10. EFFECT OF TERMINATION. Upon termination of this Agreement,
Employee shall be entitled to receive only that compensation accrued but unpaid
pursuant to Section 4 above as of the date of termination and his rights to
purchase the Company's Common Stock as provided in Section 5 above. The Company
shall not have any further liability to Employee.
Section 11. CONFIDENTIAL INFORMATION. Employee agrees that he will not
directly or indirectly use, publish, disclose or divulge any confidential
information or trade secrets or anything relating thereto to any person or
entity not in the employ of Company, except in the course of performing his
duties and (a) with respect to confidential information for a period of two (2)
years immediately following any termination of his employment and (b) with
respect to trade secrets for so long as the trade secret remains a trade secret.
For purposes of this Agreement, the term "trade secret" means trade secrets as
defined by Florida law and "confidential information" means data and information
relating to the business of the Company (which does not rise to the status of a
trade secret) which will be disclosed to Employee or of which Employee becomes
aware as a consequence of or through his relationship to the Company and which
has value to the Company and is not generally known to its competitors. The
provisions in this Agreement restricting the use of confidential information
shall survive for a period of two (2) years following termination of employment
and those restricting the use of trade secrets shall survive for so long as is
permitted by law. Upon termination of employment, Employee immediately shall
surrender to the Company, in good condition, any and all material containing
confidential information and trade secrets provided to or obtained directly or
indirectly by Employee, and Employee shall not keep any copies, summaries or
photocopies thereof.
Section 12. NON-COMPETITION. Employee agrees that during the term of
his employment with the Company and for a period of two (2) years immediately
thereafter, he will not engage in any "Competitive Business Activity" within the
"Non-Compete Territory."
(a) For purposes of this Agreement, the term "Competitive Business
Activity" shall mean any activity which Employee directly or indirectly
owns, manages, operates, controls, is employed by (either as an employee or
independent contractor) or participates in the ownership, management,
operation or control of any business that is engaged in the sale of
products or services that are the same as or similar to the products or
services of the type offered or provided by the Company.
(b) For purposes of this Agreement, the term "Non-Compete Territory"
shall mean the States of Florida and Minnesota and each of the other states
located in the continental United States in which the Company is engaged in
business, it being agreed and stipulated that the Company has customers and
substantial services and marketing efforts in each of these states and has
conducted substantial business therein.
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Section 13. SOLICITATION OF CUSTOMERS. Employee agrees that during the
term of his employment with the Company, and for a period of two (2) years
immediately thereafter, he shall not, directly or indirectly, through one or
more intermediaries or otherwise, solicit, direct or appropriate, or attempt to
solicit, direct or appropriate any person or entity which is at the time a
customer of the Company with which the Company or any affiliate thereof has an
existing relationship for the sale of products or services that are the same or
similar to the products or services of the type offered by the Company.
Section 14. SOLICITATION OF EMPLOYEES. Employee agrees that during the
period of this Agreement and for a period of two (2) years immediately
thereafter, Employee shall not, directly or indirectly, through one or more
intermediaries or otherwise, employ, induce, solicit for employment, or assist
others in employing, inducing or soliciting for employment any person who is at
the time an agent or employee of Company or any affiliate thereof.
Section 15. SPECIFIC PERFORMANCE. Employee agrees that the nature of
Company's business is unique and that, therefore, Employee's knowledge in and
with respect to Company's business will be special and not generally known by
many companies or individuals in any industry in which compressor or vacuum pump
technology is applicable. In addition, Employee agrees that it will be
difficult to measure damages to Company from any breach of Employee's promises
in paragraphs 11, 12, 13 and 14 hereof and that money damages alone will
therefore be an inadequate remedy for such breach. Accordingly and without
limiting the right of Company to pursue other legal and equitable rights
available to it for violation of said paragraphs and because Company has relied
on the undertakings of Employee in giving Employee this Agreement, Employee
hereby agrees that Company shall be entitled to specific performance of this
Agreement and that Employee shall not urge in any action at law or in equity
that Company has an adequate remedy at law.
Section 16. AGREEMENT TO INDEMNIFY. In addition to, and not in lieu of,
any other rights or remedies which Company may possess at law, in equity or
otherwise by virtue of this Agreement, Employee agrees to indemnify, defend and
hold harmless Company, from and against any and all claims, actions or causes of
action, assessments, investigations, arbitrations, proceedings of an
administrative nature, suits, awards, judgments, decrees, settlements, court
costs at both trial and appellate levels, losses, damages, liabilities, costs
and expenses of any nature whatsoever, including, without limitation, interest,
taxes, penalties, and attorneys' fees and expenses, asserted against, resulting
to, imposed upon or incurred by Company or any member thereof, directly or
indirectly, by reason of or resulting from a breach by Employee of any term or
condition of this Agreement.
Section 17. MISCELLANEOUS.
(a) All questions with respect to the construction of this Agreement
and the rights, duties, obligations and liabilities of the parties under
said documents shall be determined in accordance with the applicable
provisions of the laws of the State of Florida.
(b) This Agreement shall be binding upon all parties hereto, their
heirs, successors, guardians and personal and legal representatives.
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(c) This Agreement sets forth all of the promises, agreements,
conditions and understandings among the parties hereto with respect to
Employee's employment and there are no promises, agreements, conditions, or
understandings, oral or written, expressed or implied, other than as set
forth in this Agreement.
(d) In the event there is any conflict between any provision of this
Agreement and any statute, law, ordinance or regulation, the latter shall
prevail, but in such event the provisions of this Agreement thus affected
shall be curtailed and limited only to the extent necessary to conform with
said requirement of law. In the event that any part of this Agreement
shall be held to be indefinite, invalid or otherwise unenforceable, the
entire Agreement shall not fail on account thereof, and the balance of the
Agreement shall continue in full force and effect.
(e) Should either party be required to engage legal counsel for the
purpose of enforcing or preventing the breach of any of the provisions of
this Agreement, then the prevailing party to such action shall be entitled
to be reimbursed by the losing party for all costs and expenses incurred
thereby, including, but not limited to, reasonable attorneys' fees,
expenses and all other costs incurred as a result of the losing party's
conduct.
IN WITNESS WHEREOF, the corporate party hereto has caused this Agreement to
be executed by its duly authorized officer, and the individual party has
hereunto affixed his hand, as of the day and year first above written.
COMPANY:
DYNECO CORPORATION
By: /s/ Richard D. Besser
-----------------------------------
Richard D. Besser
Chief Executive Officer
EMPLOYEE:
/s/ Ralph E. Nelson
--------------------------------------(Seal)
Ralph E. Nelson
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EMPLOYMENT AGREEMENT
AGREEMENT dated as of Jan. 14, 1992, between CNS Compressor Corporation,
a Minnesota corporation (the "Company"), Suite 255, Southgate Office Plaza,
5001 West 80th Street, Minneapolis, MN 55437, and Thomas C. Edwards, 1426
Gleneagles Way, Rockledge, FL 32955 (the "Executive").
WITNESSETH:
The parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby employs the Executive and the Executive
hereby accepts employment upon the terms and conditions hereinafter set forth.
2. TERM. This Agreement shall commence on the date hereof and shall
terminate as of the earlier of:
(a) Five (5) years from the date hereof (the "Initial Term") unless
the Company notifies the Executive that it elects to extend the term hereof for
an additional One (1) year (the "Renewal Period"), such notice to be given
within sixty (60) days before the end of the Initial Term hereof or within sixty
(60) days before the end of each successive Renewal Period;
(b) the death of the Executive;
(c) thirty (30) days after notice is given by the Company to the
Executive after a material breach hereof; or
(d) thirty (30) days after notice is given by the Executive to the
Company after a material breach hereof by the Company.
(e) in the event that all of the patents which relate to, and are
used by the Company in the manufacture, use, lease or sale of, the Licensed
Products included in Patent Rights and Foreign Patent Rights under that certain
Patent And Know-How License Agreement between the Company and the Executive have
become unenforceable due to a final adverse judgment by a court of competent
jurisdiction which cannot or has not been appealed, the Company at its sole
option may terminate this Agreement thirty (30) days after notice is given by
the Company to the Executive of its intention to do so.
(f) in the event the Executive shall for any reason whatever
terminate that certain Patent And Know-How License Agreement between the Company
and the Executive, the Company at its sole option may terminate this Agreement
thirty (30) days after notice is given by the Company to the Executive of its
intention to do so.
The exercise of the Company's or the Executive's right to
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terminate this Agreement pursuant to clause (c), (d), (e) or (f) hereof, as
the case may be, shall not abrogate the rights and remedies of the
terminating party in respect of the breach giving rise to such termination.
The Company shall only be deemed to have materially breached this Agreement
and the terms of the Executive's employment if it fails to comply with Section 3
hereof.
3. COMPENSATION. For all services rendered under this Agreement:
(a) (i) The Company shall pay the Executive a base salary of Seventy
Two Thousand ($72,000.00) Dollars per annum in equal bimonthly installments.
Such salary shall be annually adjusted at each anniversary date of this
Agreement for (1) any change from the preceding year in the cost-of-living index
for the appropriate State of Florida region compiled by the United States
Department of Labor and/or (2) any increase in the rate of base salary solely
approved by the Company board of directors by its decision.
(ii) In the event the Company elects to extend the Initial Term
of this Agreement, such salary for any Renewal Period shall be adjusted at the
anniversary date of this Agreement as provided above.
(iii) If the Executive has been disabled for a period of at least
ninety (90) consecutive days, the Company may elect, upon notice to the
Executive, to pay the Executive fifty (50%) percent of the compensation the
Executive would otherwise be entitled to pursuant to clause (i) or (ii) above
and shall thereupon have no further obligation under Section 3 hereof.
Disability shall mean the Executive's inability, due to sickness or injury, to
perform effectively his duties hereunder.
(b) During the term of his employment, the Executive shall be
entitled to participate in employee benefit plans or programs of the Company, if
any, to the extent that his position, tenure, salary, age, health and other
qualifications make him eligible to participate, subject to the rules and
regulations applicable thereto. Such benefits shall include, and subject to the
approval of the Board of Directors, twenty-one (21) days paid vacation and
qualified pension and profit sharing plans.
(c) The Executive shall be entitled to reimbursement of all direct
expenses incurred by him in the performance of his duties, subject to the
presenting of appropriate vouchers in accordance with the Company's policy.
4. DUTIES. So long as the Company has not notified the Executive of his
disability pursuant to Section 3(a)(iii), the Executive is engaged with the
title and functions of Chief
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Executive Officer and President of the Company and, subject to the direction
of Company Board of Directors, shall perform and discharge well and
faithfully the duties which may be assigned to him from time to time by the
Company in connection with the conduct of its business. Nothing herein shall
preclude the Board of Directors of the Company from changing the Executive's
title and duties if such Board of Directors has concluded in its reasonable
judgment that such change is in the Company's best interests; provided,
however, that at all times during the term of this Agreement, the Executive
shall be employed as a senior executive of the Company. If the Executive is
elected or appointed a director of the Company or an officer or director of
any subsidiary thereof during the term of this Agreement, the Executive will
serve in such capacity without further compensation.
5. EXTENT OF SERVICES.
(a) So long as the Company has not notified the Executive of his
disability pursuant to Section 3(a)(iii) hereof, the Executive shall devote his
entire time, attention and energies to the business of the Company and shall not
during the term of this Agreement be engaged (whether or not during normal
business hours) in any other business or professional activity, whether or not
such activity is pursued for gain, profit or other pecuniary advantage, unless
the Board of Directors of the Company approves of such activities prior to the
Executive's engaging in them; but this shall not be construed as preventing the
Executive from (1) investing his personal assets in businesses which do not
compete with the Company in such form or manner as will not require any services
on the part of the Executive in the operation or the affairs of the companies in
which such investments are made and in which his participation is solely that of
an investor, (2) purchasing securities in any corporation whose securities are
regularly traded provided that such purchase shall not result in his
collectively owning beneficially at any time one (1%) percent or more of the
equity securities of any corporation engaged in a business competitive to that
of the Company, and (3) participating in conferences, preparing or publishing
papers or books or teaching, so long as the Chief Executive Officer of the
Company approves of such activities prior to the Executive's engaging in them.
(b) Prior to commencing any activity described in subparagraph 3(a)
above, the Executive shall inform the Board of Directors of the Company in
writing of such activity.
6. DISCLOSURE OF INFORMATION. (a) The Executive represents and warrants
to the Company that Exhibit A hereto sets forth (i) all rights, in respect of
the Executive's engaging in any business activity (whether or not for
profit), of former employers, clients, principals, partners or others with
whom or for whom the Executive has performed services since January 1, 1986,
and (ii) all of the
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business activities (whether or not for profit) of the Executive applicable
to periods after the time such services were performed.
(b) The Executive recognizes and acknowledges that the Company's or
subsidiary trade secrets and proprietary information and processes, as they may
exist from time to time, are valuable, special unique assets of the Company's
business, access to and knowledge of which are essential to the performance of
the Executive's duties hereunder. The Executive will not, during or after the
term of his employment with the Company, in whole or in part, disclose such
secrets, information or processes to any person, firm, corporation, association
or other entity for any reason or purpose whatsoever, nor shall the Executive
make use of any such property for his own purposes or the benefit of any person,
firm, corporation, association or other entity (except the Company) under any
circumstances during the term of his employment, provided that after the term of
his employment these restrictions shall not apply to such secrets, information
and processes which are then in the public domain (provided that the Executive
was not responsible, directly or indirectly, for such secrets, information or
processes entering the public domain without the Company's consent). The
Executive agrees to hold as the Company's property, all memoranda, books,
papers, letters, formulas and other data, and all copies thereof and therefrom,
in any way relating to the Company's business and affairs, whether made by him
or otherwise coming into his possession, and on termination of his employment,
or on demand of the Company, at any time, to deliver the same to the Company.
In addition to this Agreement, the Executive agrees to execute and deliver
to the Company a CNS Compressor Corporation Employee Confidential Information
and Inventions Agreement which agreement is incorporated herein by reference.
7. The Executive hereby sells, transfers and assigns to the Company or to
any person, or entity designated by the Company, all of the entire right, title
and interest of the Executive in and to all inventions, ideas, disclosures and
improvements, whether patented or unpatented, and copyrightable material, made
or conceived by the Executive, solely or jointly, or in whole or in part, during
or before the terms hereof (but after December 11, 1991) which (i) related to
methods, apparatus, designs, products, processes or devices sold, leased, used
or under construction or development by the Company or any subsidiary or (ii)
otherwise relate or pertain to the business, functions or operations of the
Company or any subsidiary. The Executive shall communicate promptly and disclose
to the Company, in such form as the Company requests, all information, details
and data pertaining to the aforementioned inventions, ideas, disclosures and
improvements; and, whether during the term hereof or thereafter, the Executive
shall execute and deliver to the Company such formal transfers and assignments
and such other papers and documents as may be required
4
<PAGE>
of the Executive to permit the Company or any person or entity designated by
the Company to file and prosecute the patent application and, as to
copyrightable material, to obtain copyright thereon. Any invention by the
Executive within three (3) years following the termination of this Agreement
shall be deemed to fall within the provisions of this paragraph unless proved
by the Executive to have been first conceived and made following such
termination.
8. COVENANT NOT TO COMPETE. (a) During the term hereof and, unless this
Agreement is terminated pursuant to Section 2(d) hereof, for a period of two (2)
years thereafter, the Executive shall not compete, directly or indirectly, with
the Company or any subsidiary, interfere with, disrupt or attempt to disrupt the
relationship, contractual or otherwise, between the Company and any customer,
client, supplier, consultant or employee of the Company, including, without
limitation, employing or being an investor (representing more than a one (1%)
percent equity interest) in, or an officer, director or consultant to, any
person or entity which employs any former key or technical employee whose
employment with the Company was terminated after the date which is one (1) year
prior to the date of termination of the Executive's employment therewith. An
activity competitive with an activity engaged in by the Company shall mean
performing services (whether as an employee, officer, consultant, director,
partner or sole proprietor) for any person or entity engaged in the business
then engaged in by the Company, which services involve (i) developing joint
selling alliances, and (ii) developing and implementing market plans involving
lead generation, responses to proposals, closing strategies, pricing strategies,
and promotions.
(b) It is the desire and intent of the parties that the provisions of
this Section 8 shall be enforced to the fullest extent permissible under the
laws and public policies applied in any jurisdiction in which enforcement is
sought. Accordingly, if any particular portion of this Section 8 shall be
adjudicated to be invalid or unenforceable, this Section 8 shall be deemed
amended to delete therefrom the portion thus adjudicated to be invalid or
unenforceable, such deletion to apply only with respect to the operation of this
Section in the particular jurisdiction in which such adjudication is made.
(c) Nothing in this Section 8 shall reduce or abrogate the
Executive's obligations during the term of this Agreement under Sections 4 and 5
hereof.
9. REMEDIES. If there is a breach or threatened breach of the provisions
of Section 5, 6(b), 7 or 8 of this Agreement, the Company shall be entitled to
an injunction restraining the Executive from such breach. Nothing herein shall
be construed as prohibiting the Company from pursuing any other remedies for
such breach or threatened breach.
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<PAGE>
10. INSURANCE. The Company may, at its election and for its benefit,
insure the Executive against accidental loss or death and the Executive shall
submit to such physical examination and supply such information as may be
required in connection therewith.
11. ASSIGNMENT. This Agreement may not be assigned by any party hereto,
provided that the Company may assign this Agreement: (a) to an affiliate so long
as such affiliate assumes the Company's obligations hereunder provided that no
such assignment shall discharge the Company of its obligations herein, or (b) in
connection with a merger or consolidation involving the Company or a sale of
substantially all its assets to the surviving corporation or purchaser as the
case may be, so long as such assignee assumes the Company's obligations
hereunder.
12. NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by registered mail to the
Executive at his residence at 1426 Gleneagles Way, Rockledge, FL 32955, or to
the Company at its address set forth above, Attention: Arnold J. Ryden, Board
Chairman.
In the event the Executive or Company change their respective addresses for
the purpose of giving notice hereunder, they shall advise the other in writing.
13. WAIVER OF BREACH. A waiver by the Company or the Executive of a breach
of any provision of this Agreement by the other party shall not operate or be
construed as a waiver of any subsequent breach by the other party.
14. ENTIRE AGREEMENT. This instrument contains the entire agreement of the
parties. It may be changed only by an agreement in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first hereinabove written.
CNS COMPRESSOR CORPORATION
By
--------------------------------
A.J. Ryden
Its Chairman
By
---------------------------------
Thomas C. Edwards
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EXHIBIT A
I represent that I have indicated on this Exhibit A (i) all rights, in
respect of my engaging in any business activity (whether or not for profit), of
former employers, clients, principals, partners or others with whom or for whom
I have performed services since January 1, 1986, and (ii) all of the business
activities (whether or not for profit) of mine applicable to periods after the
time such services were performed.
BRIEF DESCRIPTION OF ACTIVITIES
- Corporate -
March 1985 - 19 January 1991: Member, Board of Directors, the Rovac Corporation.
March 1985 - 2 February 1990: Product Design Office Director, the Rovac Corp.;
Engineering applications involving the use of the Rovac roller-constrained vane
gas-handling machine.
3 February 1990 - Present: Chairman of the Board of Directors, INNOVATION
Technologies, Inc.
3 February 1990 - Present: CEO of INNOVATION Technologies, Inc.; Inventing,
patenting, designing, analyzing, building, and testing of advanced anti-friction
compressor/expander devices; ITI originally conceived as a platform for
technical consulting and business counseling.
- Consulting -
February - March 1990: Prime Mfg. Co., Inc., Milwaukee WS; Technical consulting
regarding manufacturing design of Rovac roller-constrained refrigerant
compressor for roof-top locomotive air conditioning systems.
February - April 1990: Autocam Corp., Grand Rapids MI; Technical consulting
regarding manufacturing design of Rovac roller-constrained refrigerant
compressor for automotive air conditioners; bench test system design.
April 1990: DGI, Inc., Farmingdale NY; Technical consulting regarding
comparative energy performance of various air conditioning thermodynamic cycles;
conceptual system design.
BRIEF DESCRIPTION OF RIGHTS
March 1985 - 2 February 1990/The Rovac Corp.: No blanket rights were issued
to Rovac*; however, specific rights were to be granted regarding a Rankine
power system patent in return for converting/issuing Rovac common stock to
Edwards. Transaction never completed by Rovac. Rights of Edwards in respect
to Rovac activities are presumed to be inconsequential because rights
generated during Rovac activities are not required by INNOVATION
Technologies, Inc./CNS Compressor Corporation.
<PAGE>
Rights to advanced CNS machine technology were generated after employment with
Rovac was terminated. Contents of first current Edwards patent application
generated more than a month after Rovac employment.
February - March 1990/Prime Mfg. Co., Inc.: Engineering activity confined to the
Rovac roller-constrained vane compressor; no rights were generated or solicited.
February - April 1990/Autocam Corp.: Engineering activity confined to the Rovac
roller-constrained vane compressor; no rights were generated or solicited.
April 1990/DGI, Inc.: content of engineering consulting services confined to
conventional analysis of well-known air conditioning thermodynamic cycles. No
rights generated or solicited.
- -------------------------
* On two occasions (1985 and 1988), formal employment contracts that would have
involved issuing/transferring patent rights were submitted to Rovac's CEO. On
both occasions, the Rovac CEO rejected negotiations for such rights.
Dated Jan. 14, 1992. /s/ [ILLEGIBLE]
--------------- ------------------------------
Executive
PAGE -2-
<PAGE>
REAL ESTATE LEASE
This Lease Agreement is made effective as of the 20th day of February
1995, by and between B&D Trust ("Landlord") and DynEco International, Inc.
("Tenant"). The parties agree as follows:
1. PREMISES. Landlord, in consideration of the lease payments
provided in this Agreement, leases to Tenant 4,172 Square Feet in a Building
located at International Place, Lot #9, Rockledge, Brevard County, Florida for a
lease rate of $4.50 square foot plus 6% sales tax, triple net.
2. PARKING. Tenant shall be entitled to use fifteen (15) parking
spaces adjacent to the Building for the parking of the Tenant's (or the Tenant's
customers') motor vehicles.
3. TERM. The lease term shall commence on approximately
February 20, 1995 and shall terminate on February 20, 1996. In the event
construction delays occupancy of the Tenant, then the term of the lease shall
commence on the day that the Tenant occupies the Premises when it is
substantially ready for occupancy by Tenant (with rent to be prorated for any
partial month) but no such delay shall extend the lease termination date.
4. This lease is automatically renewed for an additional one (1)
year period unless agreed otherwise by the tenant and owner in writing thirty
(30) days prior to the end of the lease. If tenant agrees to move to a newer
larger facility, on International Place provided and constructed by B & D Trust
with mutual acceptable terms and conditions then a new lease shall be written.
Rent for the additional period shall be calculated based on the percentage
change in the U.S. Department of Labor Cost of Living Index for the period of
the lease, but in no case, more than 3% per year.
5. LEASE PAYMENTS. This Lease is for one (1) year at Eighteen
Thousand Seven Hundred Seventy Four Dollars ($18,774.00) per year plus sales
tax. Tenant shall pay to Landlord monthly lease payments of One Thousand Five
Hundred Sixty Four Dollars and Fifty Cents ($1,564.50) plus sales tax, payable
in advance, on the first (1st) day of each month.
6. SECURITY DEPOSIT. Tenant has previously paid security deposit of
Two Thousand Seven Hundred ($2,700.00) for the initial 1,800 square feet. This
security deposit will be used for the entire 4,172 square feet. Sales tax of
$162.00 previously paid to the Landlord will be refunded to the Tenant.
Security deposit shall be refunded provided there are no Tenant caused damages,
less normal wear and tear, after vacation of the premises by the Tenant and
inspection by the Landlord. Landlord shall not be obligated to segregate such
deposit and may commingle same with landlord's own funds.
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7. POSSESSION. Tenant shall be entitled to possession on the first
(1st) day of the term of this Lease, and shall yield possession to Landlord on
the last day of the term of this Lease, unless otherwise agreed by both parties
in writing or delayed by construction.
8. MAINTENANCE. Landlord shall have the obligation to maintain the
foundations, all external and all load bearing walls, roof, heating and air
conditioning systems and parking areas in good repair at all times. All other
maintenance of Tenant's area by Tenant.
9. ACCESS BY LANDLORD TO PREMISES. Subject to Tenant's consent
(which shall not be unreasonably withheld), Landlord shall have the right to
enter the Premises to make inspections, make repairs, provide necessary services
or show the unit to prospective buyers, mortgagees, tenants or workmen. As
provided by law, in the case of an emergency, Landlord may enter the Premises
without Tenant's consent.
10. UTILITIES AND SERVICES. Tenant shall be responsible for all
utilities and services in connection with Tenant's area of the Building,
including janitorial maintenance for the 4,172 square foot area leased by the
Tenant. The lease is an absolute net lease and all property taxes, water,
sewer, interior maintenance, exterior nonstructural maintenance (grounds care,
etc.), impact fees and insurance will be paid by the Tenant to the extent
attributable to Tenant's leased space. The Tenant agrees to pay his pro-rata
share of the estimated costs for the above on a monthly basis or as the bills
are received and due from the municipalities. This will be adjusted as bills
are received. In addition, the Tenant will pay for one hundred percent (100%)
of the cost to repair damage caused by Tenant, unless covered by the hazard
insurance described below. All other utility bills will be paid directly by the
Tenant. All triple net expenses are subject to 6% sales tax.
11. LIABILITY INSURANCE. Tenant shall maintain public liability
insurance with personal injury limits of at least One Million Dollars
($1,000,000.00) for injury to one person and One Million Dollars ($1,000,000.00)
for any one occurrence, and a limit of at least Five Hundred Thousand Dollars
($500,000.00) for damage to property. Tenant shall deliver appropriate evidence
to Landlord as to proof that adequate insurance is in force. Landlord shall
have the right to require that the Landlord receive notice of any termination of
such insurance policies. Landlord shall obtain allrisk hazard insurance
covering the Building on a replacement cost basis with a deductible not to
exceed Five Hundred Dollars ($500.00), which insurance shall provide for waiver
of subrogation against Tenant (and Landlord does so waive recovery rights
against Tenant to the extent of such insurance). Tenant shall pay his
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<PAGE>
proportionate share of such hazard insurance (based on square footage).
12. TAXES. Taxes attributable to the Building or the use of the
Building shall be allocated as follows: Tenant shall pay all real estate,
personal property taxes and assessments including impact fees which are
attributable to its leased portion of the Building. Real estate taxes shall be
apportioned between Landlord and Tenant, based on square footage of the Building
occupied by Tenant and square footage occupied by others or vacant. These taxes
are subject to 6% sales tax.
13. INDEMNITY REGARDING USE OF PREMISES. Tenant agrees to indemnify,
hold harmless and defend Landlord from and against any and all losses, claims,
liabilities and expenses, including reasonable attorney fees, if any, which
Landlord may suffer or incur in connection with Tenant's use of the Building,
other than as resulting from landlord's negligence, wilful misconduct or breach
of this Lease or as otherwise provided by this Lease.
14. DANGEROUS MATERIALS. Tenant shall not keep or have on the
Premises any article or thing of an unreasonably dangerous, inflammable or
explosive character that might substantially increase the danger of fire on the
Premises, or that might be considered hazardous by a responsible insurance
company, unless prior written consent of Landlord is obtained and proof of
adequate insurance protection is provided by Tenant to Landlord.
15. The Tenant shall not assign this Lease, or sublet, or under such,
lease the Premises or any part thereof, except to an affiliate of Tenant, or
occupy or permit or suffer the same to be occupied for any business or purpose
deemed disreputable or extra hazardous on account of fire.
16. No alterations, additions or improvements shall be made in or to
the Premises without the consent of the Landlord in writing and all additions
and improvements made by the Tenant shall belong to the Landlord, unless agreed
to in writing beforehand by the Landlord.
17. The Tenant shall neither place, nor allow to be placed, any sign
or signs in or about Premises, except in or at such place or places as may be
approved by the Landlord in writing.
18. It is expressly agreed and understood by and between the parties
of this Lease, that the Landlord shall not be liable for any damage or injury to
person or property caused by or resulting from steam, electricity, gas, water,
rain, ice or any leak or flow from or into any part of the Building, or from any
damage or injury resulting or arising from any other cause or happening
whatsoever, unless due to the negligence, wilful misconduct or breach of this
Lease by the Landlord.
3
<PAGE>
19. The failure of the Landlord to insist upon strict performance of
any of the covenants or conditions of this Lease or to exercise any option
herein conferred in any one or more instances, shall not be construed as a
waiver or relinquishment for the future of any such covenants, conditions or
options, but the same shall be and remain in full force and effect.
20. MECHANICS' LIEN. Neither the Tenant nor anyone claiming through
the Tenant, shall have the right to file mechanics' liens or any other kind of
lien on the Premises. Further, Tenant agrees to give actual advance notice to
any contractors, subcontractors or suppliers of goods, labor or services that
such liens will not be valid.
21. DEFAULTS. Tenant shall be in default of this Lease if Tenant
fails to fulfill any obligation or term under this Lease by which Tenant is
bound. Subject to any governing provisions of law to the contrary, if Tenant
fails to cure any financial obligation within ten (10) days (or any other
obligation within thirty (30) days) after written notice of such default is
proved by Landlord to Tenant, Landlord may take possession of the Premises
without further notice and without prejudicing Landlord's rights to damages. In
the alternative, Landlord may elect to cure any default and the cost of such
action shall be added to Tenant's financial obligations under this Lease. Each
party shall pay all costs, damages and expenses suffered by the other party by
reason of such party's defaults, including reasonable attorneys' fees.
22. ASSIGNABILITY/SUBLETTING. Tenant may not assign or sublease any
interest in the Premises, except to an affiliate of Tenant, without the prior
written consent of Landlord, which shall not be unreasonably withheld. The
owner, B & D Trust, reserves the right to assign this lease at its discretion.
23. NOTICE. Notices under this Lease shall not be deemed valid
unless given or served in writing and forwarded by certified mail, postage
prepaid, addressed as follows:
If to Landlord, to: B&D Trust or assigned
P. O. Box 561251
Rockledge, FL 32956-1251
If to Tenant, to: DynEco International, Inc.
564 International Place
Rockledge, FL 32955
Such addresses may be changed from time to time by either party by providing
notice as set forth above.
24. ENTIRE AGREEMENT/AMENDMENT. This Lease contains the entire
agreement of the parties and there are no other promises or
4
<PAGE>
conditions in any other agreement whether oral or written. The Lease may be
modified or amended in writing, if the writing is signed by the party
obligated under the amendment.
25. SEVERABILITY. If any portion of this Lease shall be held to be
invalid or unenforceable for any reason, the remaining provisions shall continue
to be valid and enforceable. If a court finds that any provision of this Lease
is invalid or unenforceable, but that by limiting such provision it would become
valid and enforceable, then such provision shall be deemed to be written,
construed and enforced as so limited.
26. SUBORDINATION OF LEASE. This Lease is subordinate to any
mortgage that now exists, or may be given later by Landlord, with respect to the
Premises, and Tenant shall execute subordination agreements as requested by
Landlord, provided, the mortgagee agrees to not disturb Tenant's possession and
rights under this Lease so long as Tenant is not in default under this Lease.
27. Tenant's occupancy or moving into the premises constitutes
Tenant's acceptance of the premises.
28. DESTRUCTION/CONDEMNATION. Should the Building suffer any
material damage or destruction or be taken through condemnation or eminent
domain and Tenant's use of the Premises is adversely affected, Tenant may, by
written notice delivered to Landlord on or before thirty (30) days after the
damage, destruction or taking, terminate this Lease with Tenant to vacate the
premises within thirty (30) days of such termination and rent to be paid on a
pro rata basis through the date of vacating.
29. This lease is contingent upon the owner receiving and approving
financing for the project with terms, conditions and rates acceptable to the
owner.
30. All of the tenant's obligations pursuant to this lease shall be
joint and several, and all rights and remedies of the parties shall be
cumulative and non-exclusive of any other remedy.
31. IMPROVEMENTS. Landlord will construct a privacy wall in the
warehouse space between DynEco and Sonman, Inc. Landlord will pay for this
construction.
Landlord will construct a reception area wall in the front lobby.
This wall will be 47" long by 48" high with a 16" end. It is agreed between the
Landlord and Tenant that the cost for this reception wall will be equally shared
by both parties. The quote to complete this work including labor and materials
is $447.84.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date first shown above.
Witnessed in the Presence of: Landlord:
/s/ Elizabeth L. Gordinin B&D Trust
- ---------------------------------
/s/ Tamara D. Neal By /s/ Linda Haney
- --------------------------------- ---------------------------------
Linda Haney, Trustee [COPY ILLEGIBLE]
Date 2/10/95
-------------------------------
Tenant:
/s/ Patricia G. Besser DynEco International, Inc.
- ---------------------------------
/s/ Tracie Powell By /s/ Richard Besser
- --------------------------------- ---------------------------------
Richard Besser, Chairman of the Board
Date 2-7-95
6
<PAGE>
Exhibit 23.1
CONSENT OF SILVERMAN OLSON THORVILSON & KAUFMANN LTD
We hereby consent to the use of our report dated February 2, 1996,
accompanying the consolidated financial statements of DynEco Corporation for
the years ended December 31, 1995 and 1994, and to the use of our report
dated February 9, 1996, accompanying the financial statements of Fab-Tech
Industries of Brevard, Inc. for the years ended December 31, 1995 and 1994,
included in the DynEco Corporation's Registration Statement on Form SB-2 and
to the reference made to our firm under the captions "Selected Consolidated
Financial Information and Other Data" and "Experts" in the Registration
Statement on Form SB-2 expected to be filed by DynEco Corporation on or about
July 9, 1996.
SILVERMAN OLSON THORVILSON & KAUFMANN LTD
CERTIFIED PUBLIC ACCOUNTANTS
Minneapolis, Minnesota
July 9, 1996
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