<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 8, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7399 34-1824770
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification
Incorporation or Organization) Classification Code Number)
Number)
</TABLE>
810 CHICAGO STREET
TOLEDO, OHIO 43611
(419) 729-0495
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
JOSEPH KLOBUCHAR, JR.
810 CHICAGO STREET
TOLEDO, OHIO 43611
(419) 729-0495
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Lawrence M. Bell, Esq. Felice F. Mischel, Esq.
Ross H. Pollock, Esq. Joshua B. Gillon, Esq.
Benesch, Friedlander, Coplan & Aronoff Schneck Weltman Hashmall & Mischel LLP
P.L.L.
2300 BP America Building 1285 Avenue of the Americas
200 Public Square New York, New York 10019
Cleveland, Ohio 44114
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE 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, check the following box: /X/
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. /X/
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
OFFERING PRICE PER AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO BE SHARE OR OFFERING
SECURITIES TO BE REGISTERED REGISTERED WARRANT (1) PRICE (1)
<S> <C> <C> <C>
Shares of Common Stock, par value $.01 per share ("Common
Stock") (2) 1,380,000 $5.50 $7,590,000.00
Redeemable Warrants to purchase Common Stock ("Warrants") (3) 1,380,000 $.10 $138,000.00
Underwriter's Warrant to purchase Common Stock and Warrants 1 $10.00 $10.00
Shares of Common Stock underlying Warrants (4) 1,380,000 $4.50 $6,210,000.00
Shares of Common Stock underlying Underwriter's Warrant (4) 120,000 $6.60 $792,000.00
Warrants underlying Underwriter's Warrant 120,000 $.12 $14,400.00
Shares of Common Stock underlying Warrants issuable upon
exercise of Underwriter's Warrant (4) 120,000 $4.50 $540,000.00
Total $15,284,410.00
<CAPTION>
TITLE OF EACH CLASS OF AMOUNT OF
SECURITIES TO BE REGISTERED REGISTRATION FEE
<S> <C>
Shares of Common Stock, par value $.01 per share ("Common
Stock") (2) $2,617.24
Redeemable Warrants to purchase Common Stock ("Warrants") (3) $47.59
Underwriter's Warrant to purchase Common Stock and Warrants $0
Shares of Common Stock underlying Warrants (4) $2,141.38
Shares of Common Stock underlying Underwriter's Warrant (4) $273.10
Warrants underlying Underwriter's Warrant $4.97
Shares of Common Stock underlying Warrants issuable upon
exercise of Underwriter's Warrant (4) $186.21
Total $5,270.49
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
(2) Includes 180,000 shares of Common Stock which may be purchased by the
Underwriter to cover overallotments.
(3) Includes 180,000 Warrants which may be purchased by the Underwriter to cover
overallotments.
(4) Pursuant to Rule 416 there are also being registered such additional shares
of Common Stock as may be required for issuance pursuant to the antidilution
provisions of the 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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS,
FILED AS PART OF REGISTRATION STATEMENT,
OF INFORMATION REQUIRED BY FORM S-1
<TABLE>
<CAPTION>
ITEM NUMBER
IN FORM S-1 ITEM CAPTION IN FORM S-1 LOCATION IN PROSPECTUS
- ------------ ------------------------------------------------- -------------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus.......... Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus...................................... Inside Front Cover Page; Outside Back Cover Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges....................... Prospectus Summary; Risk Factors
4. Use of Proceeds.................................. Use of Proceeds
5. Determination of Offering Price.................. Front Cover Page; Risk Factors; Underwriting
6. Dilution......................................... Dilution
7. Selling Security Holders......................... Inapplicable
8. Plan of Distribution............................. Front Cover Page; Underwriting
9. Description of Securities to be Registered....... Dividend Policy; Description of Securities
10. Interests of Named Experts and Counsel........... Inapplicable
11. Information With Respect to the
Registrant...................................... Front Cover Page; Prospectus Summary; Use of
Proceeds; Dividend Policy; Capitalization;
Selected Combined Financial Data; Management's
Discussion and Analysis of Financial Condition
and Results of Operations; Business; Management;
Principal Stockholders; Relationships Between
the Company and Meridian; Description of
Securities; Index to Financial Statements
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..................................... Inapplicable
</TABLE>
<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>
PRELIMINARY PROSPECTUS DATED JULY 8, 1996
SUBJECT TO COMPLETION
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
1,200,000 SHARES OF COMMON STOCK AND
1,200,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering ("Offering") by Environmental
Purification Industries, Inc. (the "Company") of 1,200,000 shares of Common
Stock, $.01 par value ("Common Stock"), and 1,200,000 redeemable Common Stock
purchase warrants ("Warrants"), through Rickel & Associates, Inc. (the
"Underwriter"). The shares of Common Stock and the Warrants may be purchased
separately and will be transferable separately after issuance.
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an exercise price of $4.50 per share, subject to adjustment in
certain events, at any time on or before the third anniversary of the date of
this Prospectus. The Warrants are subject to redemption by the Company at $.10
per Warrant at any time commencing 12 months after the date of this Prospectus
(or earlier with the Underwriter's prior written consent) on at least 30 days
prior written notice to the holders of the Warrants, provided the average
closing sale price (or, if none, the average of the closing bid and asked
quotations) of the Common Stock as reported on The Nasdaq Stock Market or a
national securities exchange has been at least 150% of the then current exercise
price of the Warrants (initially $6.75 per share) on any 20 trading days in any
30 trading day period ending not more than 20 days prior to the date on which
the Company gives notice of redemption. The Warrants will be exercisable until
the close of business on the day immediately preceding the date fixed for
redemption. See "Description of Securities -- Warrants."
Prior to this Offering, there has been no public market for the Common Stock
or the Warrants, and there can be no assurance that any such market for the
Common Stock or the Warrants will develop after the completion of this Offering,
or that, if developed, it will be sustained. It is anticipated that the initial
public offering price per share of the Common Stock will be $5.50 per share and
that the initial public offering price of the Warrants will be $.10 per Warrant.
The offering price of the Common Stock and the Warrants and the initial
exercise price and other terms of the Warrants were established by negotiation
between the Company and the Underwriter and do not necessarily bear any direct
relationship to the Company's assets, earnings, book value per share or other
generally accepted criteria of value. See "Underwriting." The Company has
applied for quotation of the Common Stock and the Warrants on The Nasdaq
SmallCap Market ("Nasdaq") under the trading symbols " " and " ,"
respectively. Application has also been made to list the Common Stock and the
Warrants on the Boston Stock Exchange under the trading symbols " " and
" ," respectively. Prior to this Offering, all of the Company's Common
Stock has been owned by Meridian National Corporation ("Meridian"). See
"Principal Stockholders" and "Relationships Between the Company and Meridian."
FOR A DESCRIPTION OF CERTAIN RISKS REGARDING AN INVESTMENT IN THE COMPANY AND
IMMEDIATE SUBSTANTIAL DILUTION, SEE "RISK FACTORS" (PAGE 7) AND "DILUTION" (PAGE
17).
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION (THE "COMMISSION") OR ANY STATE SECURITIES COMMISSION
NOR HAS THE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
Per Share......................... $ $ $
Per Warrant....................... $ $ $
Total (3)......................... $ $ $
</TABLE>
(FOOTNOTES APPEAR ON P. 2)
------------------------
RICKEL & ASSOCIATES, INC.
---------------
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE>
(1) Does not include additional compensation to the Underwriter consisting of
(a) a non-accountable expense allowance equal to 3% of the gross proceeds
from this Offering, $50,000 of which has been paid by the Company; (b) a
warrant (the "Underwriter's Warrant") entitling the Underwriter to purchase
up to 120,000 shares of Common Stock and 120,000 Warrants, at a price of
$6.60 per share of Common Stock and $.12 per Warrant for a period of four
years commencing one year after the date of this Prospectus; and (c) a
financial consulting agreement with the Underwriter for 30 months from the
date of this Prospectus at the rate of $2,500 per month (the "Consulting
Fee"), payable quarterly in advance, with the first payment due at the
completion of this Offering. The Company also has agreed under certain
circumstances to pay to the Underwriter a warrant solicitation fee of 5% of
the exercise price for each Warrant exercised. The Company has agreed to
indemnify the Underwriter against certain liabilities, including those
arising under the Securities Act of 1933, as amended (the "Securities Act").
See "Underwriting."
(2) After deducting discounts and commissions payable to the Underwriter, but
before payment of the Underwriter's non-accountable expense allowance
($201,600, or $231,840 if the Underwriter's Overallotment Option (defined
below) is exercised in full) or the other expenses of this Offering
(estimated at $ ) payable by the Company, including the total
Consulting Fee ($75,000). See "Underwriting."
(3) The Company has granted the Underwriter an option, exercisable for 45 days
after the completion of this Offering, to purchase from the Company up to an
additional 180,000 shares of Common Stock and 180,000 Warrants upon the same
terms and conditions solely for the purpose of covering overallotments, if
any (the "Underwriter's Overallotment Option"). If the Underwriter's
Overallotment Option is exercised in full, the total Price to Public,
Underwriting Discounts and Commissions, and Proceeds to Company will be
$ , $ and $ , respectively. See "Underwriting."
------------------------
The Common Stock and the Warrants are being offered by the Underwriter on a
firm commitment basis, subject to prior sale, when, as and if delivered to the
Underwriter and subject to certain conditions. The Underwriter reserves the
right to withdraw, cancel or modify this Offering and to reject any order in
whole or in part. It is expected that delivery of certificates will be made
against payment therefor at the office of the Underwriter, 875 Third Avenue, New
York, New York 10022, on or about , 1996.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVERALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AND THE WARRANTS AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED IN THE OVER-THE-COUNTER MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
The Company intends to furnish its stockholders with annual reports
containing financial statements audited and reported upon by its independent
certified public accountants after the end of each fiscal year, commencing with
its fiscal year ending February 28, 1997, and will make available such other
periodic reports as the Company may deem to be appropriate or as may be required
by law. The Company has registered the Common Stock and the Warrants under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and,
commencing on the date of this Prospectus, will be subject to the reporting
requirements of the Exchange Act and will file proxy statements and other
information with the Commission.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY MUST BE READ IN CONJUNCTION WITH THE MORE DETAILED
INFORMATION (INCLUDING THE RISK FACTORS) AND COMBINED FINANCIAL STATEMENTS OF
THE COMPANY, INCLUDING THE NOTES THERETO, INCLUDED ELSEWHERE IN THIS PROSPECTUS.
UNLESS OTHERWISE INDICATED, INFORMATION IN THIS PROSPECTUS, INCLUDING SHARE AND
PER SHARE DATA, ASSUMES (I) NO EXERCISE OF THE UNDERWRITER'S OVERALLOTMENT
OPTION, THE WARRANTS OR THE UNDERWRITER'S WARRANT, AND (II) AN INITIAL OFFERING
PRICE OF $5.50 PER SHARE OF COMMON STOCK AND $.10 PER WARRANT.
THE COMPANY
The Company is one of the first commercial paint waste recyclers in the
United States. Since 1991, the Company has processed over 62,000,000 pounds of
paint waste through its recycling facility. The Company processes hazardous and
non-hazardous industrial paint waste for its customers and creates a raw
material that can be used in commercial industrial products. In addition to
offering its customers an alternative that the Company believes provides the
best commercially available technology to eliminate the "cradle to grave"
disposal liability otherwise associated with the generation of hazardous paint
waste, the Company's recycling technologies protect the environment, conserve
vital resources and offer a responsible solution to many of today's paint waste
disposal problems. The Company currently is in the process of installing a
Polymeric Recovery System, a second generation of paint waste recycling
technology that will not only increase the Company's processing capacity, but
will also produce a recycled product that can be sold by the Company for use in
a broad range of industrial applications and that, overall, will offer
generators of paint waste a more cost-effective method of managing paint waste.
The Company markets its paint waste recycling services to businesses that
have spray painting operations that collect paint overspray (wastes) in
waterfall spray booths. The Company's marketing activities are concentrated in
the midwest region of the United States where over 80% of its revenues are
generated, with the majority of annual revenues derived from customers in the
automotive assembly business. The Company's customers generally are
environmentally conscientious and demand that the Company maintain stringent
quality controls. The Company has established a reputation in the industry of
consistent customer service by addressing these customer needs. Because the
Company provides an alternative to the potential long-term liability associated
with landfill disposal of paint waste, many customers conduct thorough reviews
and audits of the Company's operations, including the Company's compliance with
environmental laws and regulations.
Since the Company began marketing its services in 1991, the major barrier to
successfully selling the Company's services has been the cost of the Company's
recycling services compared to the cost of the two main disposal alternatives,
landfill and incineration. Using the Company's current technology (the
DryPure-TM- system), paint waste generators pay two to four times more to
recycle paint waste as compared to landfill and incineration. The major
difference between the Company's services and the disposal alternatives is that
the disposal alternatives pose the potential for significant, long-term costs.
Over the past five years, the Company has been successful in convincing many
paint waste generators to select the environmentally sound alternative of the
Company's recycling services which substantially eliminates their potential
long-term liability.
The Company's current business strategy is to grow its business by
commercializing the Polymeric Recovery System technology through the following
steps: (i) installation of an estimated $2,200,000 Polymeric Recovery System at
its Toledo, Ohio facility to provide a 50% capacity increase to the Company's
existing paint waste processing operations; (ii) construction and operation of
five Polymeric Recovery Systems on-site at automotive assembly plants in the
United States ("on-site facilities"); (iii) construction of a second facility
using the Polymeric Recovery System in the southeast region of the United States
to serve the market of small and medium size automotive assembly plants; and
(iv) selling EPI-MER-TM- (the recycled product produced by the Polymeric
Recovery System) for use as a low-cost replacement of raw materials that are
used in the formulation of a wide range of industrial products. The Company
believes that as a result of the implementation of its business strategy to
commercialize the Polymeric Recovery System (a) generators
3
<PAGE>
of paint waste will now be able to purchase and use materials that incorporate
EPI-MER-TM- in the manufacture of their finished products, and (b) the increased
revenue generated by EPI-MER-TM- sales will allow the Company to provide more
favorable and competitive pricing for paint waste recycling.
Meridian, a publicly-traded holding company located in Toledo, Ohio with
businesses in steel distribution and processing operations, formed the Company
under Delaware law in February 1996 as a wholly-owned subsidiary to hold all of
the outstanding stock and partnership interests of the subsidiaries of Meridian
that comprised Meridian's paint waste recycling unit. These subsidiaries, which
are now wholly-owned subsidiaries of the Company, are National Purification,
Inc., an Ohio corporation ("NPI"), and MEPI Corp., an Ohio corporation ("MEPI"),
the sole general partners of Environmental Purification Industries Company, an
Ohio general partnership ("EPIC"). The Company issued 1,200,000 shares of Common
Stock to Meridian in exchange for all of the issued and outstanding capital
stock of NPI and MEPI. In addition, Meridian contributed an aggregate of
approximately $1,373,000 of intercompany advances to the capital of NPI and
MEPI. As a result of this Offering, Meridian's beneficial ownership of the
Company's Common Stock will be reduced from 100% to 50% (or 46.5% if the
Underwriter's Overallotment Option is exercised in full).
Unless the context otherwise requires, as used herein the term "Company"
means Environmental Purification Industries, Inc. and its consolidated
subsidiaries, and references to the Company for periods prior to February 1996
mean NPI, MEPI and EPIC, the subsidiaries of the Company and their partnership
that comprised Meridian's paint waste recycling unit. The Company's principal
executive offices are located at 810 Chicago Street, Toledo, Ohio 43611 and its
telephone number is (419) 729-0495.
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED............ 1,200,000 shares of Common Stock and 1,200,000 Warrants.
Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock. The Common Stock and the
Warrants are separately tradeable and transferable
immediately upon issuance. See "Description of Securities"
and "Underwriting."
OFFERING PRICE................ $5.50 per share of Common Stock and $.10 per Warrant.
COMMON STOCK OUTSTANDING:
PRIOR TO THIS OFFERING...... 1,200,000 shares of Common Stock
AFTER THIS OFFERING (1)..... 2,400,000 shares of Common Stock
WARRANTS OUTSTANDING:
PRIOR TO THIS OFFERING...... None
AFTER THIS OFFERING (2)..... 1,200,000 Warrants
EXERCISE PRICE OF WARRANTS.... $4.50 per share, subject to adjustment in certain
circumstances. See "Description of Securities -- Warrants."
EXERCISE PERIOD OF WARRANTS... The period commencing , 1996 (the date of this
Prospectus) and expiring , 1999 (three years after
the date of this Prospectus).
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
REDEMPTION.................... Redeemable by the Company at any time commencing 12 months
(or earlier with the Underwriter's prior written consent)
after the date of this Prospectus at a price of $.10 per
Warrant, on at least 30 days prior written notice to the
holders of the Warrants, provided the average closing sale
price (or, if none, the average of the closing bid and asked
quotations) of the Common Stock as reported on The Nasdaq
Stock Market or a national securities exchange has been at
least 150% of the then current exercise price of the
Warrants (initially $6.75 per share) on any 20 trading days
in any 30 trading day period ending not more than 20 days
prior to the date on which the Company gives notice of
redemption. The Warrants will be exercisable until the close
of business on the day immediately preceding the date fixed
for redemption. See "Description of Securities -- Warrants."
USE OF PROCEEDS............... The Company plans to apply the net proceeds to the Company
from this Offering, estimated to aggregate $5,382,000, as
follows: (i) $1,300,000 to repay advances from Meridian;
(ii) $1,000,000 for the installation of five customer
on-site recycling systems; (iii) $600,000 for the
construction of a new facility in the southeast region of
the United States; (iv) $440,000 for the installation of the
Polymeric Recovery System at the Company's Toledo, Ohio
facility; (v) $350,000 for the repayment of a short-term
bank note; and (vi) $1,692,000 for working capital and
general corporate purposes. See "Use of Proceeds" and
"Business."
RISK FACTORS.................. The securities offered hereby involve a high degree of risk
and substantial immediate dilution to investors. See "Risk
Factors" and "Dilution."
PROPOSED NASDAQ SYMBOLS....... Common Stock --
Warrants --
PROPOSED BOSTON STOCK EXCHANGE
SYMBOLS...................... Common Stock --
Warrants --
</TABLE>
- --------------
(1) Excludes (i) a maximum of 1,200,000 shares of Common Stock issuable upon
exercise of the Warrants offered hereby, (ii) a maximum of 240,000 shares of
Common Stock issuable upon exercise of the Underwriter's Warrant (including
Warrants underlying the Underwriter's Warrant), (iii) an aggregate of
249,000 shares of Common Stock reserved for issuance pursuant to options
available for grant under the Company's Stock Option Plans, 248,250 of which
have been granted effective upon the completion of this Offering, and (iv)
5,000 shares of Common Stock reserved for issuance pursuant to an option
granted to a consultant to the Company. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Management -- Stock Option Plans" and "Underwriting."
(2) Excludes (i) the Underwriter's Warrant, and (ii) an additional 120,000
Warrants issuable upon exercise of the Underwriter's Warrant.
5
<PAGE>
SUMMARY SELECTED COMBINED FINANCIAL DATA
The summary selected combined financial data set forth in the following
table has been derived from the Combined Financial Statements of the Company,
including the notes thereto. The statement of operations data for each of the
three fiscal years ended February 29, 1996 and balance sheet data as of February
29, 1996 and February 28, 1995 are derived from the Combined Financial
Statements of the Company, which have been audited by Ernst & Young LLP,
independent auditors, and are included elsewhere in this Prospectus. The data
set forth below should be read in conjunction with, and is qualified by
reference to, "Management's Discussion and Analysis of Financial Condition and
Results of Operations," the Combined Financial Statements of the Company,
including the notes thereto, and the other financial information included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29,
------------------------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
FEBRUARY 29, ---------------- ------------ ------------ ------------ ------------
1996
AS ADJUSTED
----------------
(BALANCE SHEET
ONLY)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 3,533,514 $ 3,459,107 $ 2,530,066 $ 1,390,695 $ --
Operating costs and expenses:
Costs of operations........... 2,196,322 2,023,815 1,496,040 999,447 --
Selling, general and
administrative expense....... 1,045,036 941,812 851,546 534,913 437
---------------- ------------ ------------ ------------ ------------
3,241,358 2,965,627 2,347,586 1,534,360 437
---------------- ------------ ------------ ------------ ------------
Income (loss) from operations... 292,156 493,480 182,480 (143,665) (437)
Other income (expense):
Interest income............... 36,185 30,009 20,192 13,019 133,598
Interest expense.............. (467,983) (445,903) (398,911) (311,247) (167,214)
Equity in operations of
affiliate.................... -- -- -- (194,154) (1,101,551)
---------------- ------------ ------------ ------------ ------------
(431,798) (415,894) (378,719) (492,382) (1,135,167)
---------------- ------------ ------------ ------------ ------------
Net income (loss)............... $ (139,642) $ 77,586 $ (196,239) $ (636,047) $ (1,135,604)
---------------- ------------ ------------ ------------ ------------
---------------- ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
Total assets.................... 6,697,108 $ 2,965,708 $ 2,949,563 $ 2,725,612 $ 2,824,341 $ 815,723
Property and equipment, net..... 1,650,415 1,650,415 1,754,582 1,940,295 1,947,801 2,048,927
Advances from Meridian.......... -- 2,672,929 2,448,752 1,884,509 1,635,059 --
Long-term debt less current
portion........................ 1,358,625 2,036,847 2,345,334 2,591,692 2,770,230 --
Shareholder's equity (net
capital deficiency)............ 4,564,651 (2,540,400) (2,400,758) (2,478,344) (2,282,105) (1,646,559)
Cash dividends declared per
common share................... N/A $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
OTHER OPERATING DATA:
Depreciation and amortization... $ 254,586 $ 257,141 $ 249,580 $ 163,739 $ 266
Capital expenditures............ $ 140,294 $ 63,510 $ 114,856 $ 99,086 $ 256,358
</TABLE>
- ----------------
N/A -- Not applicable.
(1) As described in note 1 to the Combined Financial Statements included
elsewhere in this Prospectus, effective July 1, 1992 Meridian became the
sole owner of the corporate general partners of EPIC. Prior to July 1, 1992,
Meridian accounted for its 50% investment in EPIC by the equity method of
accounting and, subsequent to July 1, 1992, Meridian consolidated EPIC into
its accounts.
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED HEREBY INVOLVE CERTAIN RISKS. EACH PROSPECTIVE
INVESTOR SHOULD CAREFULLY CONSIDER, ALONG WITH OTHER MATTERS REFERRED TO HEREIN,
THE FOLLOWING FACTORS IN EVALUATING AN INVESTMENT IN THE SECURITIES OFFERED
HEREBY:
1. COMMERCIAL VIABILITY OF THE POLYMERIC RECOVERY SYSTEM. The Company is
in the process of constructing and installing the Polymeric Recovery System
under a license agreement with Aster, Inc., a privately held company ("Aster").
This new patented technology recycles paint waste and produces a recycled
product which the Company believes can be used to formulate a broader range of
materials than the DryPure-TM- system, including adhesives, sealants, caulks,
cements, coatings and other related products. To date, the Polymeric Recovery
System has only been operated at a pilot facility. There can be no assurance
that the Company will be able to construct and operate the Polymeric Recovery
System at its Toledo, Ohio facility in a way that will enable it to recycle
paint waste in a commercially viable manner or that it will be able to sell,
construct and operate on-site Polymeric Recovery Systems. Additionally, the
Company estimates that two years will be required to develop the market for
on-site Polymeric Recovery Systems and construct the second facility using the
Polymeric Recovery System. There are no current commitments for installation of
on-site Polymeric Recovery Systems and the Company has not selected a site in
the southeastern region of the United States or developed plans for the
construction of the second facility. Furthermore, the Company is dependent on
the technical services of the inventor of the Polymeric Recovery System, the
loss of which during the start-up phase of the Polymeric Recovery System at the
Company's Toledo, Ohio facility could have a material adverse effect on the
Company's ability to operate the Polymeric Recovery System in a commercially
viable manner. Failure of the Company to successfully implement the Polymeric
Recovery System would have a material adverse effect on the future prospects and
growth of the Company. See "Use of Proceeds" and "Business."
2. ACCUMULATED NET LOSSES; WORKING CAPITAL DEFICIENCY. At February 29,
1996, the Company had accumulated losses of $2,541,000, which include losses
incurred while the Company was 50% owned by another company, and had a working
capital deficiency of approximately $2,862,000 (or approximately $189,000
excluding advances from Meridian). The Company has experienced operating losses
in four of its five years of operations. Although the Company has substantially
increased its revenue since it began operating in 1991, there can be no
assurance that the Company will be profitable in the future. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
3. SALE OF EPI-MER-TM-. The future success of the Company will be
substantially dependent on its ability to sell EPI-MER-TM-, the product that
results from processing paint waste through the Polymeric Recovery System. To
date, the Company has not sold any EPI-MER-TM-. Although the Company believes a
commercial market exists for EPI-MER-TM-, no assurance can be given that the
Company will be able to successfully market and sell EPI-MER-TM- on a commercial
and profitable basis. See "Business -- Recycled Product Market," "-- Marketing
Strategy" and "-- Description of Processes."
4. LICENSED TECHNOLOGY. The Company's business depends on the use of
certain patented technology licensed from Aster and Haden Environmental
Corporation ("Haden Environmental"). Although the Company is not aware of any
claims challenging the validity of the patents licensed by Aster or Haden
Environmental to the Company, there can be no assurance that a patent
infringement claim will not be filed and successfully pursued against either
Aster or Haden Environmental. If such a claim is successfully pursued against
either licensor, the Company could lose its rights to use the licensed
technology. A successful patent infringement claim against either Aster or Haden
Environmental could have a material adverse effect on the financial condition,
operations and liquidity of the Company. See "Business -- License Agreements."
5. COMPETITION. Approximately 99% of all paint waste in the United States
is disposed of through either landfill or incineration, both of which generally
offer substantially lower costs to generators of paint waste. Landfill and
incineration are provided by national, regional and local companies, many of
which have substantially greater resources than the Company. The Company's
competitive advantage over landfill and
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incineration is dependent on the current stringent environmental regulatory
scheme. In the event of a relaxation of these environmental regulations, the
Company could lose its competitive advantage which would have a material adverse
effect on the financial condition, operations and liquidity of the Company.
Additionally, the Company's business is dependent on the continued use of
waterfall spray booths by companies that have spray painting operations. The
introduction of new technology that replaces waterfall spray booths would have a
material adverse effect on the financial condition, operations and liquidity of
the Company. See "Business -- Competition."
The Company is aware of three other companies, including Haden
Environmental, that compete directly with the Company in the paint waste
recycling business. These competitors have substantially greater financial,
marketing and other resources than the Company. There can be no assurance that
one of the Company's competitors or a new competitor will not develop a method
of recycling paint waste which is more efficient and profitable than the
Polymeric Recovery System or the methods currently employed by the Company.
Additionally, there can be no assurance that large industrial customers or other
waste management companies will not attempt to develop their own methods of
recycling or otherwise minimizing, treating or disposing of paint wastes. See
"Business -- Customers and Marketing" and "-- Competition."
6. ENVIRONMENTAL REGULATIONS. The Company's business currently consists of
the recycling of paint waste. Each aspect of this business is subject to
significant federal, state and local environmental regulations. Based upon
current laws and regulations, the Company believes that its policies, practices
and procedures substantially comply with current applicable environmental laws
and regulations. No assurance can be given that future changes in such laws,
regulations, or interpretations thereof, or changes in the nature of the
Company's operations, will not have a material adverse effect on the financial
condition, operations and liquidity of the Company. See "Business --
Environmental Standards and Government Regulation."
7. U.S. EPA PERMIT. In July 1994, the Company submitted an application
with the U.S. Environmental Protection Agency ("U.S. EPA") for an operating
permit identified as a "Part B" permit, which, as a processor of hazardous paint
waste, the Company is required to obtain. In connection with its Part B permit
application, the Company has requested authorization to store hazardous paint
waste which will enhance its operating efficiencies. The Company currently is
operating under interim status until a final resolution of its application for a
Part B permit is reached. Historically, the U.S. EPA has taken several years to
review submitted applications for permits of this type. There can be no
assurance that the U.S. EPA will issue a Part B permit to the Company, or, if
such a permit is issued, whether the operational and control conditions of the
permit will allow the Company to continue operations in a profitable manner. The
U.S. EPA's denial of a Part B permit could also adversely impact the Company's
relations with its customers. Although the Company continually evaluates its
alternatives in the event that its application for a Part B permit is denied,
denial of such permit could have a material adverse effect on the financial
condition, operations and liquidity of the Company. See "Business -- Development
of the Paint Waste Recycling Business" and "-- Environmental Standards and
Government Regulation."
8. BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $1,692,000,
or 31.4%, of the estimated $5,382,000 net proceeds from this Offering will be
used for working capital and other general corporate purposes. Accordingly, the
Company will have broad discretion as to the application of such proceeds
without prior stockholder approval. In addition, management of the Company has
broad discretion to adjust the application and allocation of the net proceeds
from this Offering, including funds received upon exercise of the Warrants, to
address changed circumstances and take advantage of future business
opportunities. By reason of these factors, the success of the Company will be
substantially dependent upon the discretion and judgment of management of the
Company with respect to the application and allocation of the net proceeds from
this Offering. See "Use of Proceeds."
9. DEPENDENCE ON THE AUTOMOTIVE INDUSTRY AND CERTAIN CUSTOMERS. Sales to
companies involved in the automotive industry, which is directly impacted by
overall economic cycles, represent approximately 75% of the Company's annual
sales revenue. Accordingly, the Company is substantially dependent on the
continued success of the automotive industry and an economic downturn which
adversely affects the automotive industry likely would have a direct negative
impact on the Company's results of operations. Additionally, for
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the fiscal year ended February 29, 1996, two of the Company's customers
aggregated approximately 27% of the Company's sales revenue. The loss of either
of these customers could have a materially adverse effect on the Company's
results of operations. See "Business -- Customers and Marketing."
10. CAPITAL REQUIREMENTS; POTENTIAL UNAVAILABILITY OF ADDITIONAL
FINANCING. The Company intends to use a significant portion of the net proceeds
from this Offering to implement a portion of its proposed expansion program. The
Company plans to seek a substantial amount of additional financing through
industrial development revenue bonds from government sources (or, in the event
that industrial development revenue bond financing is not available on favorable
economic terms, from conventional financing sources) to fund the balance of its
proposed expansion program not covered by the net proceeds from this Offering.
The Company has no current commitments or arrangements for such financing and
there can be no assurance that such financing will be available or, if
available, that it will be available on acceptable terms. Without additional
financing, the Company will be unable to complete its proposed expansion
program. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business."
11. DEBT SERVICE. The Company will be dependent on cash on hand and cash
flow from operations to repay its indebtedness. The Company has issued a
mortgage note to the Toledo-Lucas County (Ohio) Port Authority which had a
principal balance of approximately $3,304,000 at February 29, 1996. Haden
Purification, Inc. ("Haden Purification") has assumed liability for one-half of
the remaining principal and interest payments under the mortgage note.
Accordingly, the Company has recorded a liability of approximately $1,652,000 at
February 29, 1996 for the portion of the mortgage note not assumed by Haden
Purification even though the Company remains liable for the entire outstanding
mortgage note debt. The mortgage note is secured by substantially all of the
property and equipment of the Company, which had a net book value of
approximately $1,650,000 at February 29, 1996. If the Company is unable to meet
its debt service obligations on the portion of the mortgage note not assumed by
Haden Purification, the Company will be required to restructure the mortgage
note or seek additional debt or equity financing. There can be no assurance that
additional financing will be available or, if available, that it will be
available on acceptable terms. Additionally, in the event that Haden
Purification defaults on the debt it assumed, the Company will be liable for
repayment of the entire outstanding mortgage note principal balance of
approximately $3,304,000, which would have a materially adverse impact on the
financial condition and liquidity of the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
12. ABSENCE OF CONTINUING FINANCIAL SUPPORT FROM MERIDIAN; DEPENDENCE ON
GUARANTY. Since its inception, the Company has been dependent on Meridian for
substantial financial support, as well as for various services. At February 29,
1996, the Company owed Meridian approximately $2,670,000. Meridian does not
intend to continue to provide financial support to the Company following this
Offering. However, Meridian will remain a guarantor of (i) one-half of the
Company's obligations under a mortgage note which had an outstanding principal
balance of approximately $3,304,000 at February 29, 1996, (ii) the Company's
obligations under an employment agreement between the Company and Bruce F.
Maison, President and Chief Executive Officer of the Company, and (iii) the
payment of $40,000 to Aster. In the event that Meridian declares bankruptcy, the
entire balance of the mortgage note debt will become due and payable.
Accordingly, the Company is substantially dependent on the continuation of
Meridian as a going concern. See "Management -- Employment Contract" and
"Relationships Between the Company and Meridian."
13. CONTROL BY MERIDIAN. On completion of this Offering, Meridian will
beneficially own, in the aggregate, 50% of the then issued and outstanding
shares of Common Stock. Accordingly, Meridian will be in a position to
significantly influence the election of the Company's directors and other
stockholder actions, including certain fundamental corporate transactions such
as a merger or sale of substantially all the assets of the Company. In addition,
Meridian's control could have the effect of depressing the market price of the
Company's securities because it could adversely affect the ability of other
stockholders to effect changes in management of the Company. See "Management,"
"Relationships Between the Company and Meridian," and "Principal Stockholders."
14. ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants are subject to
redemption by the Company at a price of $.10 per Warrant, at any time commencing
12 months after the date of this Prospectus (or
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earlier with the Underwriter's written consent), on at least 30 days prior
written notice to the holders of the Warrants, provided the average closing sale
price (or, if none, the average of the closing bid and asked quotations) of the
Common Stock as reported on The Nasdaq Stock Market or a national securities
exchange, has been at least 150% of the then current exercise price of the
Warrants (initially $6.75 per share) on any 20 trading days in any 30 trading
day period ending not more than 20 days prior to the date on which the Company
gives notice of redemption. Upon the giving of such notice of redemption,
holders of the Warrants will lose their right to exercise the Warrants, except
during such 30-day notice of redemption period. Upon the receipt of a notice of
redemption of the Warrants, the holders thereof would be required to (i)
exercise the Warrants and pay the exercise price at a time when it may be
disadvantageous for them to do so, (ii) sell the Warrants at the then market
price, if any, when they might otherwise wish to hold the Warrants, or (iii)
accept the redemption price which could be substantially less than the market
value of the Warrants at the time of redemption. See "Description of Securities
- -- Warrants."
15. EFFECT OF OFFERING ON TAX NET OPERATING LOSSES. The consummation of
this Offering will result in an "ownership change" of the Company within the
meaning of Sections 382 and 383 of the Internal Revenue Code of 1986, as amended
(the "Code"). Consequently, the Company's ability to use its net operating loss
carryforwards and "pre-change" deductions, losses and tax credits to offset
income generated subsequent to this Offering will generally be subject to an
annual limitation equal to the value of the Company's equity immediately before
this Offering (which will generally be reduced by any capital contributions made
to the Company or any of its subsidiaries during the two-year period immediately
before the change date) multiplied by the then applicable long-term tax exempt
rate applicable to ownership changes occurring during the month this Offering
occurs. See "Certain Federal Income Tax Considerations -- Ownership Change and
Limitation of Losses, Credits and Deductions."
16. DEPENDENCE ON KEY PERSONNEL. The Company's success is highly dependent
on the efforts and abilities of Bruce F. Maison, its President and Chief
Executive Officer. Mr. Maison is a party to an employment agreement with the
Company and the Company carries key man life insurance on Mr. Maison. The loss
of the services of Mr. Maison could have a material adverse effect on the
financial condition, operations and liquidity of the Company. See "Management."
17. ANTI-TAKEOVER PROVISIONS. The Company's Restated Certificate of
Incorporation restricts the ability of stockholders to call stockholders'
meetings, provides that the Company's stockholders may not change the number of
directors and classifies the Company's Board of Directors (the "Board"). These
provisions may have the effect of deterring or delaying certain transactions in
which its stockholders might otherwise receive a premium for their shares over
the then current market prices, and may limit the ability of its stockholders to
approve transactions that they may deem to be in their best interests. In
addition, the Board has the authority to fix the rights and preferences of and
issue shares of the Company's Preferred Stock, which may have the effect of
delaying or preventing a change in control of the Company without action by its
stockholders. See "Management" and "Description of Securities -- Preferred
Stock," and "-- Certain Provisions of Delaware Law and of the Company's Restated
Certificate of Incorporation and By-laws."
18. DILUTION. Investors purchasing shares of Common Stock in this Offering
will incur immediate and substantial dilution in the net tangible book value per
share of the Common Stock from the initial public offering price as compared to
the increase in net tangible book value per share that will accrue to Meridian,
the existing sole stockholder. Such dilution is estimated to be $3.91 per share
(or approximately 71.1%), based on certain assumptions. See "Dilution."
19. ABSENCE OF DIVIDENDS. The Company has never paid cash dividends on the
Common Stock and does not anticipate paying any cash dividends in the
foreseeable future. The payment of dividends by the Company on the Common Stock
will depend on its earnings and financial condition and such other factors as
the Board may consider relevant. The Company currently intends to retain its
earnings to assist in financing the development of its business. See "Dividend
Policy."
20. DETERMINATION OF PUBLIC OFFERING PRICE; NO ASSURANCE OF PUBLIC
MARKET. Prior to this Offering, there has been no public trading market for the
Common Stock or the Warrants. Consequently, the initial public offering price of
the Common Stock and the Warrants and the exercise price and other terms of the
Warrants were determined through negotiations between the Company and the
Underwriter and do not
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necessarily bear any relationship to the Company's assets, operating results,
book value per share or other generally accepted criteria of value. The offering
price of the Common Stock and the Warrants, as well as the exercise price of the
Warrants, should not be construed as indicative of their value. Furthermore,
there can be no assurance that an active public market for the Common Stock or
the Warrants will develop after this Offering or that, if developed, it will be
sustained. As a result, purchasers of the Common Stock and the Warrants will be
exposed to a risk of decline in the market price and liquidity of the Common
Stock and the Warrants after this Offering. See "Underwriting."
21. INSURANCE AND POTENTIAL LIABILITY. The Company maintains insurance,
including insurance relating to pollution legal liability, personal injury and
product liability, in amounts that the Company considers adequate and customary
for its industry (and intends to continue to do so in the future). Nevertheless,
a partially or completely uninsured claim against the Company, if successful and
of sufficient magnitude, could have a material adverse effect on the financial
condition, operations and liquidity of the Company.
22. BENEFIT OF OFFERING TO MERIDIAN. The Company will use $1,300,000, or
24.2%, of the estimated $5,382,000 net proceeds from this Offering to repay
advances to the Company from Meridian. The Company has also granted Meridian
certain demand and "piggyback" registration rights with respect to the shares of
Common Stock owned by Meridian which may be exercised by Meridian beginning 18
months after the date of this Prospectus. In the event that Meridian registers
and sells a significant portion of its shares of Common Stock, the market value
of the Common Stock could be negatively impacted. See "Relationships Between the
Company and Meridian -- Stock Ownership."
23. SHARES ELIGIBLE FOR FUTURE SALE. No assurance can be given as to the
effect, if any, that future sales of Common Stock, or the availability of shares
of Common Stock for future sale, will have on the market price of the Common
Stock from time to time. Sales of substantial amounts of Common Stock (including
shares issued upon the exercise of warrants or stock options), or the
possibility that such sales could occur, could adversely affect the market price
of the Common Stock and could also impair the Company's ability to raise capital
through an offering of its equity securities in the future. Upon the completion
of this Offering, the Company will have outstanding 2,400,000 shares of Common
Stock (2,580,000 shares if the Underwriter's Overallotment Option is exercised
in full). The 1,200,000 shares of Common Stock and 1,200,000 Warrants sold in
this Offering (1,380,000 shares of Common Stock and 1,380,000 Warrants if the
Underwriter's Overallotment Option is exercised in full) and the 1,200,000
shares of Common Stock issuable upon exercise of the Warrants (1,380,000 shares
if the Underwriter's Overallotment Option is exercised in full) will be freely
tradeable without restrictions under the Securities Act, except for any shares
purchased by an "affiliate" of the Company (as that term is defined in the rules
and regulations under the Securities Act) that will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 1,200,000 shares
of Common Stock owned by Meridian that will be outstanding upon the completion
of this Offering are treated as "restricted securities" for purposes of Rule
144; therefore, such shares may not be resold in a public distribution except in
compliance with the registration requirements of the Securities Act or pursuant
to Rule 144 under the Securities Act.
In addition to the restrictions under the Securities Act, Meridian and the
Company's officers and directors have agreed that, subject to certain limited
exceptions, for a period of 12 months following the date of this Prospectus they
will not offer, sell or dispose of any Common Stock or any securities
convertible into, or exchangeable for, or warrants to purchase or acquire,
shares of Common Stock without the consent of the Underwriter. See
"Relationships Between the Company and Meridian -- Registration Rights."
24. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK. The Company's
Restated Certificate of Incorporation authorizes the issuance of shares of
"blank check" Preferred Stock, with designations, rights and preferences
determined from time to time by the Board. Accordingly, the Board is empowered,
without further stockholder approval, to issue Preferred Stock with dividend,
liquidation, conversion, voting or other rights that could adversely affect the
voting power or other rights of the holders of the Common Stock. Although the
Company has no current plans to issue any shares of Preferred Stock, in the
event of issuance, the Preferred Stock could be used, under certain
circumstances, as a method of discouraging, delaying or preventing a change in
control of the Company. However, there can be no assurance that shares of
Preferred Stock will not be issued at some time in the future. See
"Relationships Between the Company and Meridian -- Stock Ownership" and
"Description of Securities -- Preferred Stock."
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25. POSSIBLE DELISTING AND RISK OF LOW-PRICED SECURITIES. The Common Stock
and Warrants will be quoted on Nasdaq and the Boston Stock Exchange, both of
which require the satisfaction of certain maintenance criteria in order to
continue the listing of the Common Stock and Warrants. There can be no assurance
that the Company will continue to satisfy such maintenance criteria following
this Offering. If the Company is unable to satisfy such criteria in the future,
the Common Stock and the Warrants may be delisted from trading on Nasdaq and the
Boston Stock Exchange, as the case may be. If the Common Stock and the Warrants
were to be delisted from trading on both Nasdaq and the Boston Stock Exchange,
trading, if any, would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or on the "Electronic Bulletin Board" of the
National Association of Securities Dealers, Inc., and consequently an investor
could find it more difficult to dispose of, or to obtain accurate quotations as
to the price of, the Company's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Regulations enacted by the
Commission generally define a penny stock to be an equity security that has a
market price of less than $5.00 per share, subject to certain exceptions. Such
exceptions include any equity security listed on Nasdaq or a national securities
exchange (such as the Boston Stock Exchange) and any equity security issued by
an issuer that has (i) net tangible assets of at least $2,000,000 if such issuer
has been in continuous operation for three years or more, (ii) net tangible
assets of at least $5,000,000 if such issuer has been in continuous operation
for less than three years, or (iii) average annual revenue of at least
$6,000,000 if such issuer has been in continuous operation for less than three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
In addition, if the Company's securities are not quoted on Nasdaq or the
Boston Stock Exchange, or the Company does not meet the other exceptions to the
penny stock regulations cited above, trading in the Company's securities could
be covered by Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and
non-exchange listed securities. Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities also are exempt from this rule if the market price is at
least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Company's securities could be
adversely affected. In such an event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Company's securities and thus
the ability of purchasers of the Company's securities to sell their securities
in the secondary market.
26. EFFECT OF ISSUANCE OF COMMON STOCK ON EXERCISE OF WARRANTS AND OPTIONS;
POSSIBLE ISSUANCE OF ADDITIONAL OPTIONS. Immediately after this Offering,
assuming full exercise of the Underwriter's Overallotment Option, the Company
will have outstanding options and warrants to purchase an aggregate of up to
1,873,250 shares of Common Stock, including the Warrants and the Underwriter's
Warrant (including the Warrants issuable upon the exercise of the Underwriter's
Warrant). In addition, up to 750 shares of Common Stock may be issued upon the
exercise of options that may be granted pursuant to the Option Plan (defined
below). Unless registered for sale, any shares of Common Stock acquired upon the
exercise of such warrants or options would be "restricted securities" for
purposes of Rule 144, subject to the two-year holding period (which commences
when shares are issued upon exercise of a warrant or option), volume and other
resale restrictions of Rule 144. The Company has agreed to use its reasonable
efforts to file and maintain, so long as the Warrants are exercisable, a current
Registration Statement with the Commission relating to the Warrants and the
shares of Common Stock underlying the Warrants. In addition, the Underwriter has
certain demand and "piggyback" registration rights with respect to the shares of
Common Stock underlying the Underwriter's Warrant (and the Warrants underlying
the Underwriter's Warrant).
The exercise of such warrants or options and the sale of the underlying
shares of Common Stock (or even the potential of such exercise or sale) may have
a depressive effect on the market price of the Company's securities. The
exercise of the options and warrants also may have a dilutive effect on the
interests of investors in this Offering. Moreover, the terms upon which the
Company will be able to obtain additional equity capital may be adversely
affected because the holders of the outstanding warrants and
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options can be expected to exercise them, to the extent they are able to, at a
time when the Company would, in all likelihood, be able to obtain any needed
capital on terms more favorable to the Company than those provided in the
warrants and options. See "Management -- Stock Option Plans," "Description of
Securities" and "Underwriting."
27. DEPRESSIVE EFFECT OF THE WARRANT EXERCISE PRICE. The Warrants will be
sold in this Offering at a price of $.10 per Warrant and will have an exercise
price of $4.50 per share. Thus, purchasers of Warrants in this Offering could
acquire a share of Common Stock of the Company for an aggregate purchase price
of $4.60 per share which is significantly below the $5.50 per share offering
price of the Common Stock. The exercise of such Warrants may have a depressive
effect on the market price of the Common Stock. This risk is in addition to
those described immediately above under the heading "-- Effect of Issuance of
Common Stock on Exercise of Warrants and Options; Possible Issuance of
Additional Options."
28. NECESSITY OF FUTURE REGISTRATION OF WARRANTS AND STATE BLUE SKY
REGISTRATION; EXERCISE OF WARRANTS. The Warrants will trade separately upon the
completion of this Offering. Although the Warrants will not knowingly be sold to
purchasers in jurisdictions in which the Warrants are not registered, qualified
for sale or exempt, purchasers may buy Warrants in the after-market or may move
to jurisdictions in which the Warrants and the Common Stock underlying the
Warrants are not so registered or qualified or exempt. In this event, the
Company would be unable lawfully to issue Common Stock to those persons desiring
to exercise their Warrants (and the Warrants will not be exercisable by those
persons) unless and until the Warrants and the underlying Common Stock are
registered or qualified for sale in jurisdictions in which such purchasers
reside, or an exemption from such registration or qualification requirements
exists in such jurisdictions. There can be no assurance that the Company will be
able to effect any such required registration or qualification.
The Warrants will not be exercisable unless the Company maintains a current
Registration Statement on file with the Commission either by filing
post-effective amendments to the Registration Statement of which this Prospectus
is a part or by filing a new registration statement with respect to the exercise
of the Warrants. The Company has agreed to use its reasonable efforts to file
and maintain, so long as the Warrants are exercisable, a current registration
statement with the Commission relating to the Warrants and the shares of Common
Stock underlying the Warrants. However, there can be no assurance that it will
do so or that the Warrants or such underlying Common Stock will be or continue
to be so registered.
The value of the Warrants could be adversely affected if a then current
prospectus covering the Common Stock issuable upon exercise of the Warrants is
not available pursuant to an effective registration statement or if such Common
Stock is not registered or qualified for sale or exempt from registration or
qualification in the jurisdictions in which the holders of Warrants reside. See
"Description of Securities -- Warrants."
29. LIMITATION ON LIABILITY OF DIRECTORS FOR MONETARY DAMAGES. The
Company's Restated Certificate of Incorporation contains a provision limiting,
to the fullest extent permitted by Delaware law, personal liability of the
Company's directors for monetary damages for breach of fiduciary duty. By virtue
of this provision, under current Delaware law, a director of the Company will
not be personally liable for monetary damages for breach of his fiduciary duty
as a director, except for liability for (i) any breach of his duty of loyalty to
the Company or to its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
dividends or stock purchases or redemptions that are unlawful under Delaware law
and (iv) any transaction from which he derives an improper personal benefit.
30. RELATIONSHIP OF UNDERWRITER TO TRADING; POSSIBLE LIMITATIONS ON MARKET
MAKING ACTIVITIES. The Underwriter may act in a brokerage capacity with respect
to the purchase or sale of the Common Stock and the Warrants in the
over-the-counter market where each will trade. Unless granted an exemption by
the Commission from Rule 10b-6 under the Exchange Act, the Underwriter and any
other soliciting broker/ dealers will be prohibited from engaging in any market
making activities or solicited brokerage activities with regard to the Company's
securities during the periods prescribed by exemption (xi) to Rule 10b-6 before
the solicitation of the exercise of any Warrant until the later of the
termination of such solicitation activity or the termination of any right the
Underwriter may have to receive a fee for the solicitation of the Warrants. As a
result, the Underwriter and soliciting broker/dealers may be unable to continue
to make a market for the Company's securities during certain periods while the
Warrants are exercisable. Such a limitation, while in effect, could impair the
liquidity and market price of the Company's securities. See "Underwriting."
13
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
and Warrants, after deduction of underwriting discounts and other offering
expenses, are estimated to aggregate $5,382,000 (or $6,259,000 if the
Underwriter's Overallotment Option is exercised in full), assuming an initial
public offering price of $5.50 per share of Common Stock and $.10 per Warrant.
The Company anticipates that the net proceeds from this Offering will be used as
follows:
<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE OF
AMOUNT NET PROCEEDS
------------ --------------
<S> <C> <C>
Repayment of advances from Meridian (1)............................................ $ 1,300,000 24.2%
Five customer on-site processing equipment installations (2)....................... 1,000,000 18.6%
Southeastern U.S. facility and equipment expansion (3)............................. 600,000 11.1%
Toledo, Ohio facilities and equipment expansion (4)................................ 440,000 8.2%
Repayment of short-term bank note (5).............................................. 350,000 6.5%
Working capital and general corporate purposes (6)................................. 1,692,000 31.4%
------------ -------
$ 5,382,000* 100.0%
------------ -------
------------ -------
</TABLE>
- --------------
* After giving effect to the total Consulting Fee ($75,000) payable by the
Company to the Underwriter quarterly in advance, with the first payment due
upon the completion of this Offering, and without giving effect to the
exercise of the Underwriter's Overallotment Option. See "Underwriting."
(1) The Company will use $1,300,000 of the net proceeds from this Offering to
repay advances from Meridian. At February 29, 1996, total advances from
Meridian to the Company were approximately $2,673,000. The remaining
advances from Meridian were contributed to the capital of NPI and MEPI in
anticipation of this Offering. See "Risk Factors -- Benefit of Offering to
Meridian," "Relationships Between the Company and Meridian -- Stock
Ownership," and " -- Prior Intercompany Arrangements."
(2) The Company intends to purchase and install processing equipment at five
customer plant facilities. Management currently estimates that the first
on-site facility will be developed within the next two years and that the
cost of constructing and installing five customer on-site processing
equipment installations will be approximately $5,000,000. The Company plans
to obtain the remaining approximately $4,000,000 through industrial
development revenue bond financing or, in the event that industrial
development revenue bond financing is not available on favorable terms, from
conventional financing sources. See "Risk Factors -- Capital Requirements;
Potential Unavailability of Additional Financing," "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Liquidity
and Capital Resources" and "Business -- General" and "-- Marketing
Strategy."
(3) The Company intends to build a second paint waste processing facility in the
southeast region of the United States. Management currently estimates that
this new facility including equipment will cost approximately $3,000,000
(exclusive of start-up costs) and will be developed by the end of 1998. The
Company plans to obtain the remaining approximately $2,400,000 through
industrial development revenue bond financing or, in the event that
industrial development revenue bond financing is not available on favorable
terms, from conventional financing sources. See "Risk Factors -- Capital
Requirements; Potential Unavailability of Additional Financing,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- General" and
"-- Marketing Strategy."
(4) The Company is installing an estimated $2,200,000 Polymeric Recovery System
at its Toledo, Ohio facility. Management currently estimates that the
installation will be completed and operational in November 1996. The Company
plans to obtain the approximately $1,760,000 balance required to fund the
installation through industrial development revenue bond financing or, in
the event that industrial development revenue bond financing is not
available on favorable terms, from conventional financing sources. See "Risk
Factors -- Capital Requirements; Potential Unavailability of Additional
Financing," "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" and "Business --
General" and "-- Marketing Strategy."
(5) The Company executed an agreement and paid off a note to Haden Purification,
a former partner in EPIC (the "Compromise Agreement"). The terms of the
Compromise Agreement include, among
14
<PAGE>
other things, a $350,000 payment by the Company to Haden Purification to
settle the note (including accrued interest) which had a principal balance
of $700,722 at February 29, 1996. The interest rate on the note issued to
Haden Purification was 1% above the prime interest rate. Haden Purification
remains liable for debt that had a principal balance of approximately
$1,652,000 at February 29, 1996 that it previously assumed from the Company.
On July , 1996, the Company and Meridian issued a short-term note to
National Canada Finance Corp. for $350,000 to fund the repayment of the
Haden Purification note. In addition, on February 29, 1996, the Company and
Meridian issued a short-term note to National Canada Finance Corp. for
$300,000 (which was not funded until March 1996) for the purpose of
satisfying the Company's financing needs prior to the completion of this
Offering. The $650,000 aggregate principal balance of both short-term notes
is due July 31, 1996 and interest, calculated at 1 1/2% above the prime
interest rate, is payable monthly through July 31, 1996. Each short-term
note may be prepaid at any time without penalty. The Company intends to
repay the $650,000 aggregate principal balance of both short-term notes with
net proceeds from this Offering. For purposes of presentation in this Use of
Proceeds section, only the repayment of the $350,000 short-term note has
been shown as a use of net proceeds because substantially all of the
$300,000 short-term note has been used to pay construction costs associated
with the Toledo, Ohio facilities and equipment expansion. See "Risk Factors
-- Debt Service."
(6) The Company expects to use the balance of the net proceeds from this
Offering for working capital and general corporate purposes.
------------------------
The Company plans to seek significant additional financing through the use
of industrial development revenue bonds from government sources (or, in the
event that industrial development revenue bond financing is not available on
favorable terms, from conventional financing sources) to fund the balance of its
proposed expansion program not covered by the net proceeds from this Offering.
The Company has no current commitments or arrangements for such financing and
there can be no assurance that such financing will be available or, if
available, that it will be available on acceptable terms. Without such
additional financing, the Company will not be able to complete its proposed
expansion program. See "Risk Factors -- Capital Requirements; Potential
Unavailability of Additional Financing."
The foregoing uses of proceeds are estimates only and there could be
significant variations in the anticipated uses of the net proceeds due to
changes in business or economic circumstances. Accordingly, the Company reserves
the right to reallocate the foregoing uses of proceeds depending upon any such
change of circumstances.
The Company anticipates that the net proceeds from this Offering, together
with projected cash flow from operations and proceeds from anticipated
industrial development revenue bond financing or other conventional financing,
will be sufficient to fund the Company's operations, including its proposed
Toledo, Ohio expansion, for the next three years. If the Company's assumptions
change or prove to be inaccurate or the net proceeds from this Offering prove to
be insufficient, the Company may be required to curtail its expansion activities
or seek additional financing. There can be no assurance that additional
financing will be available or, if available, that it will be available on terms
acceptable to the Company. In the event that the Company is unable to obtain
appropriate industrial development revenue bond financing or other conventional
financing for the planned Toledo, Ohio expansion, the Company may be unable to
fund its proposed expansion program.
Pending specific application, the net proceeds from this Offering will be
invested in interest-bearing savings accounts, certificates of deposit, money
market accounts, United States government obligations or other short-term
interest-bearing obligations.
DIVIDEND POLICY
The Company has never paid dividends on the Common Stock and it does not
anticipate that it will pay dividends or alter its dividend policy in the
foreseeable future. The payment of dividends by the Company on the Common Stock
will depend on its earnings and financial condition and such other factors as
the Board may consider relevant. The Company currently intends to retain any
earnings to assist in financing the development of its business. See "Risk
Factors -- Absence of Dividends."
15
<PAGE>
CAPITALIZATION
The following table sets forth, as of February 29, 1996, (i) the actual
capitalization of the Company as derived from the Combined Financial Statements
and (ii) the capitalization of the Company as adjusted to reflect (a) the
issuance of 1,200,000 shares of Common Stock to Meridian in exchange for all of
the issued and outstanding capital stock of NPI and MEPI, (b) the contribution
by Meridian of an aggregate of approximately $1,373,000 of intercompany advances
to the capital of NPI and MEPI, (c) the issuance and sale of 1,200,000 shares of
Common Stock and 1,200,000 Warrants pursuant to this Offering, (d) the
incurrence of debt from two short-term bank notes aggregating $650,000, (e) the
settlement of a note to Haden Purification with a balance of $700,722 at
February 29, 1996 for $350,000, (f) the repayment of $1,300,000 of outstanding
advances from Meridian, and (g) the repayment of the two short-term bank notes
aggregating $650,000. This table should be read in conjunction with the Combined
Financial Statements, including notes thereto, included elsewhere in this
Prospectus. See "Use of Proceeds" and "Relationships Between the Company and
Meridian."
<TABLE>
<CAPTION>
FEBRUARY 29, 1996
--------------------------------
ACTUAL AS ADJUSTED
------------- -----------------
<S> <C> <C>
Advances from Meridian.......................................................... $ 2,672,929 $ --
Long-term debt due within one year.............................................. 315,750 293,250(1)
Long-term debt, net of current portion (1)...................................... 2,036,847 1,358,625
Short-term bank notes (2)....................................................... -- --
Stockholders' equity (net capital deficiency):
Common Stock.................................................................. 600 24,000
Capital in excess of par value................................................ -- 6,730,929
Deficit....................................................................... (2,541,000) (2,190,278)
------------- -----------------
Total stockholders' equity (net capital deficiency)............................. (2,540,400) 4,564,651
------------- -----------------
Total capitalization............................................................ $ 2,485,126 $ 6,216,526
------------- -----------------
------------- -----------------
</TABLE>
- --------------
(1) The Company executed the Compromise Agreement with Haden Purification, a
former partner in EPIC. The terms of the Compromise Agreement include, among
other things, a $350,000 payment by the Company to Haden Purification to
settle a note (including accrued interest) which had a principal balance of
$700,722 at February 29, 1996. The interest rate on the note issued to Haden
Purification was 1% above the prime interest rate. Haden Purification
remains liable for debt that had a principal balance of approximately
$1,652,000 at February 29, 1996 that it previously assumed from the Company.
(2) On July , 1996, the Company and Meridian issued a short-term note to
National Canada Finance Corp. for $350,000 to fund the repayment of the
Haden Purification note. In addition, on February 29, 1996, the Company and
Meridian issued a short-term note to National Canada Finance Corp. for
$300,000 (which was not funded until March 1996) for the purpose of
satisfying the Company's financing needs prior to the completion of this
Offering. The $650,000 aggregate principal balance of both short-term notes
is due July 31, 1996 and interest, calculated at 1 1/2% above the prime
interest rate, is payable monthly through July 31, 1996. Each short-term
note may be prepaid at any time without penalty. The Company intends to
repay the $650,000 aggregate principal balance of both short-term notes with
net proceeds from this Offering. See "Risk Factors -- Debt Service."
16
<PAGE>
DILUTION
The net tangible book value of the Company at February 29, 1996 on a pro
forma basis, after giving effect to the issuance of 1,200,000 shares of Common
Stock to Meridian and the capital contribution of an aggregate of approximately
$1,373,000 of advances by Meridian to the capital of NPI and MEPI, was
$(1,560,846) or $(1.30) per share of Common Stock, determined by dividing the
pro forma negative net tangible book value of the Company (total tangible assets
less total liabilities) by 1,200,000 shares of Common Stock owned by Meridian
immediately prior to the date of this Offering. After giving effect to the
receipt of the estimated net proceeds from this Offering (at an assumed initial
public offering price of $5.50 per share of Common Stock and $.10 per Warrant,
and after deduction of underwriting discounts and commissions and estimated
offering expenses) but without taking into account any changes in net tangible
book value after February 29, 1996 (other than the issuance of Common Stock to
Meridian and the capital contribution by Meridian), the pro forma net tangible
book value of the Company as of February 29, 1996 would have been $3,821,154 or
$1.59 per share of Common Stock. This represents an immediate increase in pro
forma net tangible book value per share of $2.89 to Meridian, as the existing
sole stockholder, and an immediate dilution of $3.91 per share (or approximately
71.1% to purchasers of shares of Common Stock in this Offering). The following
table illustrates this dilution on a per share basis:
<TABLE>
<CAPTION>
Assumed public offering price per share........................... $ 5.50
<S> <C> <C>
Pro forma net tangible book value per share before Offering..... $ (1.30)
Increase in net pro forma tangible book value per share
attributable to this Offering.................................. 2.89
---------
Pro forma net tangible book value per share after Offering........ 1.59
---------
Dilution per share to new investors............................... $ 3.91(1)
---------
---------
</TABLE>
- --------------
(1) The computations set forth in this table assume that the Underwriter's
Overallotment Option is not exercised. If the Underwriter's Overallotment
Option is exercised in full, the pro forma net tangible book value per share
at February 29, 1996, as adjusted for this Offering, would have been
approximately $4,698,154 or $1.82 per share and the dilution per share to
new investors would have been approximately $3.68. See "Underwriting."
------------------------
The following table compares the shares of Common Stock acquired by Meridian
through the date of this Prospectus, the total cash consideration paid by
Meridian and the average cash price per share paid by Meridian to the price to
be paid by purchasers of shares of Common Stock in this Offering:
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OF OUTSTANDING TOTAL CASH PERCENTAGE OF AVERAGE CASH
COMMON SHARES OF CONSIDERATION TOTAL CASH PRICE PER SHARE
STOCK COMMON STOCK PAID CONSIDERATION OF COMMON STOCK
----------- -------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Meridian........................... 1,200,000 50.0% $ 1,373,000(1) 17.2% $ 1.14
New Investors...................... 1,200,000 50.0% $ 6,600,000 82.8% $ 5.50
----------- ------- --------------- ------------- -----
2,400,000 100.0% $ 7,973,000 100.0% $ 3.32
----------- ------- --------------- ------------- -----
----------- ------- --------------- ------------- -----
</TABLE>
- --------------
(1) Represents the contribution by Meridian of an aggregate of approximately
$1,373,000 of intercompany advances to the capital of NPI and MEPI.
17
<PAGE>
SELECTED COMBINED FINANCIAL DATA
The selected combined financial data set forth in the following table has
been derived from the Combined Financial Statements of the Company, including
the notes thereto. The statement of operations data for each of the three fiscal
years ended February 29, 1996 and balance sheet data as of February 29, 1996 and
February 28, 1995 are derived from the Combined Financial Statements of the
Company, which have been audited by Ernst & Young LLP, independent auditors, and
are included elsewhere in this Prospectus. The data set forth below should be
read in conjunction with, and is qualified by reference to, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Combined Financial Statements of the Company, including the notes thereto, and
the other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED FEBRUARY 28 OR 29,
------------------------------------------------------------------------
1996 1995 1994 1993(1) 1992(1)
FEBRUARY 29, ---------------- ------------ ------------ ------------ ------------
1996
AS ADJUSTED
----------------
(BALANCE SHEET
ONLY)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 3,533,514 $ 3,459,107 $ 2,530,066 $ 1,390,695 $ --
Operating costs and expenses:
Costs of operations........... 2,196,322 2,023,815 1,496,040 999,447 --
Selling, general and
administrative expense....... 1,045,036 941,812 851,546 534,913 437
---------------- ------------ ------------ ------------ ------------
3,241,358 2,965,627 2,347,586 1,534,360 437
---------------- ------------ ------------ ------------ ------------
Income (loss) from operations... 292,156 493,480 182,480 (143,665) (437)
Other income (expense):
Interest income............... 36,185 30,009 20,192 13,019 133,598
Interest expense.............. (467,983) (445,903) (398,911) (311,247) (167,214)
Equity in operations of
affiliate.................... -- -- -- (194,154) (1,101,551)
---------------- ------------ ------------ ------------ ------------
(431,798) (415,894) (378,719) (492,382) (1,135,167)
---------------- ------------ ------------ ------------ ------------
Net income (loss)............... $ (139,642) $ 77,586 $ (196,239) $ (636,047) $ (1,135,604)
---------------- ------------ ------------ ------------ ------------
---------------- ------------ ------------ ------------ ------------
BALANCE SHEET DATA:
Total assets.................... $ 6,697,108 $ 2,695,708 $ 2,949,563 $ 2,725,612 $ 2,824,341 $ 815,723
Property and equipment, net..... 1,650,415 1,650,415 1,754,582 1,940,295 1,947,801 2,048,927
Advances from Meridian.......... -- 2,672,929 2,448,752 1,884,509 1,635,059 --
Long-term debt less current
portion........................ 1,358,625 2,036,847 2,345,334 2,591,692 2,770,230 --
Shareholders' equity (net
capital deficiency)............ 4,564,651 (2,540,400) (2,400,758) (2,478,344) (2,282,105) (1,646,559)
Cash dividends declared per
common share................... N/A $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
OTHER OPERATING DATA:
Depreciation and amortization... $ 254,586 $ 257,141 $ 249,580 $ 163,739 $ 266
Capital expenditures............ $ 140,294 $ 63,510 $ 114,856 $ 99,086 $ 256,358
</TABLE>
- ----------------
N/A -- Not applicable.
(1) As described in note 1 to the Combined Financial Statements included
elsewhere in this Prospectus, effective July 1, 1992 Meridian became the
sole owner of the corporate general partners of EPIC. Prior to July 1, 1992,
Meridian accounted for its 50% investment in EPIC by the equity method of
accounting and, subsequent to July 1, 1992, Meridian consolidated EPIC into
its accounts.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
Combined Financial Statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.
OVERVIEW
From September 25, 1989 (inception) through February 28, 1991, the Company
was considered a development stage company during which its principal business
activities were constructing a paint waste recycling plant, hiring personnel and
commencing initial operations of the plant. During the next four fiscal years,
the Company increased its revenues and level of operations each fiscal year by
identifying generators of processible paint wastes and convincing them to use
the Company's environmentally sound services instead of using the more
traditional, short-term, lower cost methods of disposal. The Company's revenues
increased from approximately $2,500,000 in the fiscal year ended February 28,
1994 ("Fiscal 1994") to approximately $3,500,000 in each of the fiscal years
ended February 28, 1995 ("Fiscal 1995") and February 29, 1996 ("Fiscal 1996").
In these last two fiscal years, the Company operated at or near its paint waste
processing capacity. The Company plans to install an estimated $2,200,000
Polymeric Recovery System at its Toledo, Ohio facility to provide a 50% capacity
increase to the Company's existing paint waste processing operations. See
"Business."
Although the Company reported net income for the first time in Fiscal 1995,
in Fiscal 1996 the Company reported a net loss of $139,642. However, the Company
incurred $296,000 of license related fees for the Polymeric Recovery System
during Fiscal 1996, compared to $63,000 of such fees in Fiscal 1995. Because the
Company's addition to its Toledo, Ohio facility utilizing the Polymeric Recovery
System is not expected to be operational until November 1996, there were no
revenues derived from the Polymeric Recovery System to offset this expense. See
"Business -- License Agreements" and "-- Description of Processes."
RESULTS OF OPERATIONS
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUE. Net sales increased 2% in Fiscal 1996 compared to Fiscal 1995.
This modest sales increase is the result of the Company operating at or near
capacity for the past two fiscal years compared to much larger revenue increases
in prior periods. The Company's operating costs as a percentage of revenues were
62.2% in Fiscal 1996 compared to 58.5% in Fiscal 1995. This percentage increase
in operating costs primarily relates to a substantial increase in expenses
related to the Polymeric Recovery System in Fiscal 1996 (described above) as
well as increases in wages and benefits. These operating cost increases were
partially offset by a decrease in DryPure-TM- powder processing costs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In Fiscal 1996, the Company's
selling, general and administrative expenses increased $103,000 (or 11%)
compared to Fiscal 1995 primarily due to increases in salaries, wages and
benefits.
INTEREST EXPENSE. Interest expense increased $22,000 (or 5%) in Fiscal 1996
compared to Fiscal 1995. This increase resulted from higher average outstanding
advances from Meridian during the period but was partially offset by a decrease
in interest expense related to the Company's mortgage note payable to the
Toledo-Lucas County (Ohio) Port Authority due to principal payments decreasing
the outstanding mortgage note payable balance.
INCOME TAXES. The Company had, as of February 29, 1996, net operating loss
carryforwards for federal tax purposes of approximately $2,288,000. These net
operating loss carryforwards, to the extent not utilized in Meridian's
consolidated federal income tax return for its taxable year ending February 28,
1997, will be available for the reduction of future federal income tax. The
Company's ability to utilize such net operating loss carryforwards will be
limited by Section 382 of the Code. The net operating loss carryforwards begin
19
<PAGE>
expiring in fiscal 2005. See "Risk Factors -- Effect of Offering on Tax Net
Operating Losses" and "Certain Federal Income Tax Considerations -- Ownership
Change and Limitation of Losses, Credits and Deductions."
FISCAL 1995 COMPARED TO FISCAL 1994
REVENUE. Net sales increased $929,000 (or 37%) in Fiscal 1995 compared to
Fiscal 1994. The sales increase was mainly due to the continued increases in
volume of and prices charged for paint wastes processed by the Company. The
Company operated near capacity for most of Fiscal 1995, sustaining this
operating achievement for the first time in its history. The Company's operating
costs as a percentage of revenues were 58.5% in Fiscal 1995 compared to 59.1% in
Fiscal 1994. This percentage improvement in operating costs in Fiscal 1995
compared to Fiscal 1994 primarily reflects the Company operating at or near
capacity through Fiscal 1995 and the resultant positive effect of spreading
fixed costs over higher processing volumes.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In Fiscal 1995, the Company's
selling, general and administrative expenses increased $90,000 (or 11%) compared
to Fiscal 1994 primarily due to increases in salaries, wages and benefits
reflective of the growth of the business.
INTEREST EXPENSE. Interest expense increased $47,000 (or 12%) in Fiscal
1995 compared to Fiscal 1994. This increase resulted from higher average
outstanding advances from Meridian during Fiscal 1995 but was partially offset
by a decrease in interest expense related to the Company's mortgage note payable
to the Toledo-Lucas County (Ohio) Port Authority due to principal payments
decreasing the outstanding mortgage note payable balance.
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has satisfied its operating cash requirements
through a combination of: (i) advances from Meridian; (ii) borrowings from Haden
Purification; and (iii) its operating activities. As the Company's business
developed and expanded and as operating results improved correspondingly, the
Company was able to meet a greater portion of its cash needs from operations.
The Company generated positive cash flow from operating activities of
$230,000 for Fiscal 1996 compared to negative cash flow of $1,000 for Fiscal
1995. A significant increase in accounts payable in Fiscal 1996 and a
significant increase in accounts receivable in Fiscal 1995 resulted in this cash
flow fluctuation. In general, the cash flow from operations fluctuates based on
the timing of cash receipts and payments, especially accounts receivable and
accounts payable.
On December 15, 1989 the Company issued a mortgage note to the Toledo-Lucas
County (Ohio) Port Authority. The mortgage note had a principal balance of
approximately $3,304,000 at February 29, 1996. Haden Purification has assumed
liability for one-half of the remaining principal and interest payments under
the mortgage note. Accordingly, the Company has recorded a liability of
approximately $1,652,000 at February 29, 1996 for the portion of the mortgage
note not assumed by Haden Purification even though the Company remains liable
for the entire outstanding mortgage note debt. The mortgage note bears interest
at 8 1/2% and is secured by substantially all of the property and equipment of
the Company, which had a net book value of approximately $1,650,000 at February
29, 1996. The Company's monthly principal and interest payments on the portion
of the mortgage note not assumed by Haden Purification are $36,500.
Additionally, under the terms of the mortgage note approximately $300,000 of the
Company's assets are held in a primary reserve fund by a trustee to meet debt
service requirements in certain circumstances. Meridian is a guarantor of
one-half of the outstanding mortgage note debt. In the event that Haden
Purification defaults on the debt it assumed, the Company will be liable for
repayment of the entire outstanding mortgage note principal balance of
approximately $3,304,000, which would have a materially adverse impact on the
financial condition and liquidity of the Company. See "Risk Factors -- Debt
Service" and "-- Absence of Continuing Financial Support from Meridian;
Dependence on Guaranty."
Net purchases of property and equipment for Fiscal 1996 aggregated $140,294.
The Company anticipates that the net proceeds from this Offering, together
with projected cash flow from operations and proceeds from anticipated
industrial development revenue bond financing, will be
20
<PAGE>
sufficient to fund the Company's operations, including its proposed Toledo, Ohio
expansion, for the next three years. If the Company's assumptions change or
prove to be inaccurate or the net proceeds from this Offering prove to be
insufficient, the Company may be required to curtail its expansion activities or
seek additional financing through the sale of additional debt or equity
securities or borrowing from banks or other sources. There can be no assurance
that such financing would be available or, if available, that it will be
available on terms acceptable to the Company. In the event that the Company is
unable to obtain appropriate industrial development revenue bond financing or
other conventional financing for the planned Toledo, Ohio expansion, the Company
may be unable to fund its proposed expansion program. See "Risk Factors -- Debt
Service" and "Use of Proceeds."
The Company has agreed, for a period of 18 months after the date of this
Prospectus, not to issue any shares of Common Stock or convertible Preferred
Stock or any warrants, options or other rights to purchase Common Stock or
convertible Preferred Stock without the prior written consent of the
Underwriter, except (i) options to purchase up to 254,000 shares of Common
Stock, 253,250 of which have been granted effective upon the completion of this
Offering, (ii) shares issuable upon exercise of such options, and (iii) shares
issuable upon exercise of any warrants or options outstanding on the date of
this Prospectus or to be outstanding upon the completion of this Offering as
described herein. See "Underwriting."
The use by the Company of a portion of the net proceeds from this Offering
to (i) pay-off an aggregate of $650,000 principal balance of two short-term
notes payable, and (ii) repay $1,300,000 of advances from Meridian will not
negatively impact the Company's ability to pay its debts as they become due. See
"Use of Proceeds."
21
<PAGE>
BUSINESS
GENERAL
The Company is one of the first commercial paint waste recyclers in the
United States. Since 1991, the Company has processed over 60,000,000 pounds of
paint waste through its recycling facility. The Company processes hazardous and
non-hazardous industrial paint waste for its customers and creates a raw
material that can be used in commercial industrial products. In addition to
offering its customers an alternative that the Company believes provides the
best commercially available technology to eliminate the "cradle to grave"
disposal liability otherwise associated with the generation of hazardous paint
waste, the Company's recycling technologies protect the environment, conserve
vital resources and offer a responsible solution to many of today's paint waste
disposal problems. The Company currently is in the process of installing a
Polymeric Recovery System, a second generation of paint waste recycling
technology that will not only increase the Company's processing capacity, but
will also produce a recycled product that can be sold by the Company for use in
a broad range of industrial applications and that, overall, will offer
generators of paint waste a more cost-effective method of managing paint waste.
The Company markets its paint waste recycling services to businesses that
have spray painting operations that collect paint overspray (wastes) in
waterfall spray booths. The Company's marketing activities are concentrated in
the midwest region of the United States where over 80% of its revenues are
generated, with the majority of annual revenues derived from customers in the
automotive assembly business. The Company's customers generally are
environmentally conscientious and demand that the Company maintain stringent
quality controls. The Company has established a reputation in the industry of
consistent customer service by addressing these customer needs. Because the
Company provides an alternative to the potential long-term liability associated
with landfill disposal of paint waste, many customers conduct thorough reviews
and audits of the Company's operations, including the Company's compliance with
environmental laws and regulations.
Since the Company began marketing its services in 1991, the major barrier to
successfully selling the Company's services has been the cost of the Company's
recycling services compared to the cost of the two main disposal alternatives,
landfill and incineration. Using the Company's current technology (the
DryPure-TM- system), paint waste generators pay two to four times more to
recycle paint waste as compared to landfill and incineration. The major
difference between the Company's services and the disposal alternatives is that
the disposal alternatives pose the potential for significant, long-term costs.
Over the past five years, the Company has been successful in convincing many
paint waste generators to select the environmentally sound alternative of the
Company's recycling services which substantially eliminates their potential
long-term liability.
The Company's current business strategy is to grow its business by
commercializing the Polymeric Recovery System technology through the following
steps: (i) installation of an estimated $2,200,000 Polymeric Recovery System at
its Toledo, Ohio facility to provide a 50% capacity increase to the Company's
existing paint waste processing operations; (ii) construction and operation of
five Polymeric Recovery Systems on-site at automotive assembly plants in the
United States; (iii) construction of a second facility using the Polymeric
Recovery System in the southeast region of the United States to serve the market
of small and medium size automotive assembly plants; and (iv) selling
EPI-MER-TM- (the recycled product produced by the Polymeric Recovery System) for
use as a low-cost replacement of raw materials that are used in the formulation
of a wide range of industrial products. The Company believes that as a result of
the implementation of its business strategy to commercialize the Polymeric
Recovery System (a) generators of paint waste will now be able to purchase and
use materials that incorporate EPI-MER-TM- in the manufacture of their finished
products and (b) the increased revenue generated by EPI-MER-TM- sales will allow
the Company to provide more favorable and competitive pricing for paint waste
recycling.
DEVELOPMENT OF THE PAINT WASTE RECYCLING BUSINESS
Increased public awareness of the harmful effects on the environment and
public health due to the unmonitored disposal of wastes has resulted in
extensive federal, state and local laws and regulations governing the handling
and disposal of waste products. These laws and regulations impose stringent
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standards on the management of wastes and provide substantial liabilities for
violators who knowingly or unknowingly fail to comply with applicable regulatory
requirements. Generators of hazardous wastes such as hazardous paint waste are
faced with continuing liability without regard to fault for certain past and
present disposal practices. Additionally, in the event that a landfill is
declared a Superfund clean-up site, generators of paint waste that was disposed
of in the landfill may be targeted as "potentially responsible parties" and, as
a result, incur significant litigation expense defending themselves. Recycling,
as opposed to other disposal alternatives, greatly reduces, if not eliminates,
the continuing liability of the waste generator. In response to the federal,
state and local regulatory environment, a market has developed for companies
with appropriate recycling facilities and the expertise necessary to comply with
existing regulatory requirements.
Paint wastes, because of their stickiness and leaching characteristics, are
one of the most difficult wastes to legally dispose of and therefore pose a
significant disposal problem for their generators. Approximately 40% to 60% of
the paint used in industrial spray painting processes becomes waste that
requires disposal or recycling. Currently, the only legal disposal methods
available for paint wastes are landfill and incineration. While the short-term
costs associated with landfilling (currently the most widely-used disposal
method) are less than the short-term costs of incineration, generators using
this method of paint waste disposal could be "potentially responsible parties"
for liabilities associated with remediation of landfills where their paint waste
has been disposed. Additionally, there continues to be a trend in the regulatory
environment toward greater restrictions and liabilities associated with
landfilling, including the disposal of paint wastes. As a result, many
generators are electing to use incineration which is a more expensive disposal
process than direct disposal into landfills. Incineration involves either (i)
directly consolidating paint wastes into a concentrated form (ash) which
contains the hazardous constituents (heavy metals) of the paint waste, which
must then be disposed of in a landfill, and accordingly involves, similar to
direct landfilling, potential long-term costs, or (ii) fuel blending, in which
solvent laden paint waste is blended into specific fuel mixtures for
incineration in cement kilns. However, fuel blending cannot be used for a
majority of paint wastes and is more expensive than direct incineration.
Recycling of waste materials is considered by the U.S. EPA to be a desirable
means of reducing waste. According to the U.S. EPA's definition, recycle is a
broad term that includes "to use, reuse, or reclaim." A material is reclaimed if
it is processed to recover a useful product or if it is regenerated. When
customers send paint waste to the Company's facility, the Company reclaims the
paint waste by processing it to recover a useful product. The U.S. EPA
encourages this type of waste management because it preserves limited landfill
space. Avoiding the need to place hazardous paint waste in landfills also allows
generators to significantly reduce the threat of incurring liability under the
Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA"), also known as Superfund liability.
In early 1989, Meridian became aware of the magnitude of the disposal
problems facing generators of paint wastes and learned of a unique process for
the handling of these wastes. The process, known as DryPure-TM- and patented by
Haden Environmental, heats the paint wastes, driving off liquids and volatile
organic compounds, resulting in a dry, inert powder that represents a reduction
in the volume of paint waste by up to 90%.
Originally DryPure-TM- systems were sold directly to automobile
manufacturers which disposed of the resultant dry powder from the process in
landfills. Meridian recognized that small and mid-size paint waste generators
presented a market for the DryPure-TM- system. In addition, Meridian began
exploring the possibility of selling the resultant dry powder, EPI-PURE-TM-, and
was successful in finding commercial applications for it. In 1989, as a result
of Meridian's success in finding applications and markets for EPI-PURE-TM-,
Meridian and Haden Purification formed EPIC as a general partnership for the
purpose of constructing commercial facilities to recycle paint wastes. EPIC
commenced commercial operations at its newly-constructed paint waste recycling
facility in Toledo, Ohio in March 1991. In 1992, Haden Purification terminated
its 50% partnership interest in EPIC and NPI and MEPI, wholly-owned subsidiaries
of Meridian, became the sole general partners of EPIC.
In September 1995, EPIC entered into a license agreement with Aster which
developed a new paint waste recycling process known as the Polymeric Recovery
System. In the Polymeric Recovery System,
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patented technology is used to process paint waste in a reaction vessel under
low heat to drive off the volatile organic compounds and moisture. The resin,
pigment and fillers that remain are not cured but are further compounded with
proprietary additives producing a putty-like material known as EPI-MER-TM-, a
recycled product that can be formulated as an additive, plasticizer, resin
extender or filler in vinyl or butyl adhesive and sealant applications. The
formulated material has the performance characteristics of virgin materials but
has a substantially lower formulation cost. The Company is currently
implementing an estimated $2,200,000 facilities and equipment expansion of its
Toledo, Ohio facility to commercialize the Polymeric Recovery System.
PAINT WASTE PROCESSING MARKET
The Company believes that the annual worldwide generation of paint waste
exceeds 3.7 billion pounds, approximately 2.8 billion pounds of which are
generated in the United States. The Company anticipates processing approximately
22,000,000 pounds of paint waste in fiscal 1997, which represents less than 1%
of the paint waste generated in the United States. The Company plans to continue
to increase its market share of paint waste processing and recycling through the
expansion of processing capacity at its Toledo, Ohio facility and installing and
operating Polymeric Recovery Systems at the Company's customers' plants. The
Company believes that on-site facilities will be attractive to large quantity
paint waste generators due to transportation and other cost savings. In
addition, the Company plans to build an additional stand-alone plant in the
southeast region of the United States similar to the Company's Toledo, Ohio
facility utilizing the Polymeric Recovery System to expand the Company's
capacity in new geographic areas. The Company believes that its presence in the
industry provides it the ability to seek out and assess new paint waste
recycling technologies that could enable it to even further expand its
processing capability. See "Risk Factors -- Commercial Viability of the
Polymeric Recovery System."
The Company intends to target the domestic automobile market for the sale of
on-site facilities. This market represents approximately 10% of the total U.S.
paint waste market. There are 68 automotive assembly plants in the United
States, 34 of which each generate from 2,775,000 to 7,400,000 pounds of paint
waste annually. The Company plans to initially target these 34 automotive
assembly plants for its on-site facilities and, secondarily, target the paint
and coating market, which produces approximately 950,000,000 gallons of paint
annually. See "Risk Factors -- Commercial Viability of the Polymeric Recovery
System."
Besides domestic automobile manufacturers, substantial quantities of paint
waste is generated by companies that manufacture automotive sub-assemblies,
consumer durable goods, furniture, airplanes, buses, recreation vehicles, boats
and trains. In addition, paint manufacturers and paint waste brokers also
provide paint waste to the market.
RECYCLED PRODUCT MARKET
Paints and coatings are compounded polymeric materials that have chemical
composition similar to other classes of compounded polymeric materials such as
sealants, adhesives, plastics and rubbers. Because paints are used as decorative
and protective coatings, they must possess durability properties under various
aging conditions. The same is true for the other compounded polymeric materials
mentioned above. Therefore, the ingredients in paints are useful in other
classes of materials that require superior aging resistance. The materials which
comprise paints, resins, pigments, stabilizers, flow modifiers, plasticizers,
curing agents, adhesion promoters and fillers can be recovered from paint waste
so long as the paint has not cured.
The Polymer Recovery System recovers certain materials from the paint waste
to produce EPI-MER-TM- which can re-utilized as a replacement for formulated
virgin materials that typically cost from two to five times more than the
projected selling price for EPI-MER-TM-. The initial target markets for
EPI-MER-TM- are manufacturers of the following compounded polymer products:
vinyl plastisols, hot melts, adhesives, pressure sensitive adhesives, caulks,
mastics, paint and coatings. EPI-MER-TM- sales will be concentrated in the
sealants, adhesives and plastics markets, which collectively have an annual
market volume in the United States of approximately 8 billion pounds. See "Risk
Factors -- Sale of EPI-MER-TM-."
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MARKETING STRATEGY
Since the Company began marketing its services in 1991, the major barrier to
successfully selling the Company's services has been the cost of the Company's
recycling services compared to the cost of the two main disposal alternatives,
landfill and incineration. Using the Company's current technology (the
DryPure-TM- system), paint waste generators pay two to four times more to
recycle paint waste as compared to landfill and incineration. The major
difference between the Company's services and the disposal alternatives is that
the disposal alternatives pose the potential for significant long-term costs.
Over the past five years, the Company has been successful in convincing many
paint waste generators to select the environmentally sound alternative of the
Company's recycling services and substantially eliminating their potential
long-term costs.
The Company has been operating near capacity for the past two fiscal years.
Therefore, the Company has focused its overall marketing efforts on customer
satisfaction and maintenance of relationships instead of primarily targeting new
customers, which was the focus of the Company's marketing efforts during the
first three fiscal years of its operations.
The installation of the Polymeric Recovery System in the Toledo, Ohio
facility, which is scheduled to be operational in November 1996, will provide a
50% increase in the Company's existing paint waste processing operations. In
order to fill this capacity, the Company will increase its marketing efforts
towards obtaining new customers while maintaining its current customer base. The
Company's expanded marketing focus will also encompass the sale of EPI-MER-TM-
that the Company plans to market as a low-cost raw material substitute for
numerous industrial use products. As a result of the Polymeric Recovery System,
generators will now be able to purchase and use materials that incorporate
EPI-MER-TM- in the manufacture of their finished products. Additionally, the
Company believes that the increased revenue generated by the EPI-MER-TM- sales
will allow it to provide more favorable and competitive pricing for paint waste
recycling. However, the Company has yet to sell any EPI-MER-TM- for use in
industrial products and there can be no assurance that the Company will be able
to sell EPI-MER-TM- on a profitable basis. See "Risk Factors -- Sale of
EPI-MER-TM-" and "-- Commercial Viability of the Polymeric Recovery System."
The Company plans to sell, construct, install and operate the Polymeric
Recovery System equipment on-site at generators' facilities. Management believes
this marketing strategy will be attractive to the Company's customers because
the on-site facilities will enable generators of paint waste to significantly
decrease their cost of processing paint waste through the elimination of
transportation costs. The on-site installation of Polymeric Recovery System
facilities is economically feasible because the cost of equipment to process
paint waste using the Polymeric Recovery System is about 50% less than the
DryPure-TM- system. Management plans to initially market the on-site Polymeric
Recovery System facilities to larger automotive assembly plants in the
midwestern region of the United States where the Company has an established
market relationship and several existing customers in this market category.
Management currently estimates that two years will be required to develop the
market for on-site Polymeric Recovery Systems. In addition to charging a fee for
processing paint waste at on-site facilities, the Company plans to sell the
EPI-MER-TM- generated by the Polymeric Recovery System. However, there can be no
assurance that the Company will be able to construct and operate the Polymeric
Recovery System in a way that will allow it to recycle paint waste in a
commercially viable manner. See "Risk Factors -- Commercial Viability of the
Polymeric Recovery System."
In addition to the installation of the estimated $2,200,000 Polymeric
Recovery System in the Company's Toledo, Ohio facility and the marketing of
on-site facilities, the Company plans to increase its revenue through the
construction of a second Polymeric Recovery System processing and recycling
plant in the southeastern region of the United States to accommodate that
geographic market which includes smaller and medium sized automotive assembly
plants generating approximately 925,000 to 3,700,000 pounds of paint waste
annually. Management estimates a cost of $3,000,000 (excluding start-up costs)
to build this second plant which management projects will increase the Company's
annual processing and recycling capacity by approximately 12,000,000 pounds.
Management currently estimates that construction of the second plant will
commence during 1997 and be completed in late 1998. The Company has not selected
a
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location in the southeast region of the United States or developed plans for the
construction of the second facility. Management projects that the second plant
will be operating at full capacity within two years of the completion of
construction. See "Risk Factors -- Commercial Viability of the Polymeric
Recovery System."
The sales of EPI-MER-TM- will be handled through direct selling efforts and
manufacturer's representatives who specialize in selling raw materials to
formulators. Currently, the Company is interviewing two such organizations and
expects to finalize sales agreements by the end of August 1996. Direct sales
personnel and manufacturers' representatives will be sufficient to provide sales
coverage across a full line of potential formulators that would use 100% of the
EPI-MER-TM- produced. The Company believes that individual sales to formulators
will typically involve large quantities of EPI-MER-TM-. Because formulation and
acceptance of a reformulated compound takes time for testing and acceptance, the
Company will build an inventory of EPI-MER-TM-, which will demonstrate that the
EPI-MER-TM- is available for use.
CUSTOMERS AND MARKETING
The Company markets its paint waste recycling services to businesses that
have spray painting operations that collect paint overspray (wastes) in
waterfall spray booths. The Company's marketing activities are concentrated in
the midwest region of the United States where over 80% of its revenues are
generated, with the majority of annual revenues derived from customers in the
automotive assembly business. The Company's customers generally are
environmentally conscientious and demand that the Company maintain stringent
quality controls. The Company has established a reputation in the industry of
consistent customer service by addressing these customer needs. Because the
Company provides an alternative to the potential long-term liability associated
with landfill disposal of paint waste, many customers conduct thorough reviews
and audits of the Company's operations, including the Company's compliance with
environmental laws and regulations.
The Company utilizes a direct sales force to market its services. In
addition, the Company generates sales through the use of manufacturer
representatives and waste management brokers. Typically, the Company enters into
one-year agreements with its customers to process and recycle their paint waste.
Because generators of paint waste and the Company need to carefully control the
shipment and processing of paint waste, upon execution of an agreement the
Company establishes a long-term schedule for delivery and processing of the
customer's paint waste at the Company's Toledo, Ohio facility. For the fiscal
year ended February 29, 1996, ARK, Inc. (American Recycling of Kentucky) and
Subaru-Isuzu Automotive, Inc. represented approximately 16% and 11% of the
Company's sales revenue, respectively.
COMPETITION
Presently, approximately 99% of paint waste nationally is disposed of
through landfills or by incineration, and approximately 1% is processed and
recycled by methods utilized by the Company and its competitors. The Company is
aware of three other companies, including Haden Environmental, that compete
directly with the Company by providing processing and recycling services to
generators of paint waste. These competitors utilize similar methods of thermal
drying to those of the Company; however, over the years the Company has
developed the capability to process a broader range of paint waste than its
competitors. In addition, management believes that the implementation of the
Polymeric Recovery System and sales of EPI-MER-TM- will give the Company a
competitive advantage by providing a higher value, recycled product for use as a
raw material in industrial products. Furthermore, the Company believes that the
increased revenue generated by EPI-MER-TM- sales will allow it to provide more
favorable and competitive pricing for paint waste recycling. See "Risk Factors
- -- Sale of EPI-MER-TM-."
Competitive factors in paint waste processing or disposal include price,
service and the potential long-term costs associated with paint waste generation
and disposal. While paint wastes generally can be landfilled or incinerated at a
lower initial cost than recycling, these disposal methods expose the generators
to potential long-term liability or litigation expense under stringent federal
and state regulations. On the other hand, although the costs of the Company
initially are greater than landfill or incineration, the Company's recycling
process substantially eliminates continuing generator costs. Landfill and
incineration are provided by national, regional and local companies, many of
which have substantially greater resources than the Company. In addition, the
Company's direct recycling competitors have substantially greater
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financial, marketing and other resources than the Company. There can be no
assurance that one of the Company's competitors or a new competitor will not
develop a method of recycling paint waste which is more efficient and profitable
than the methods currently employed by the Company. Additionally, there can be
no assurance that large industrial customers or other waste management companies
will not attempt to develop their own methods of recycling or otherwise
minimizing, treating or disposing of wastes. See "Risk Factors -- Competition."
The Company's business is dependent on the continued use of waterfall spray
booths by companies that perform spray painting. The introduction of new
technology that replaces waterfall spray booths would have a material adverse
effect on the financial condition, operations and liquidity of the Company. See
"Risk Factors -- Competition."
LICENSE AGREEMENTS
DRYPURE-TM- SYSTEM. EPIC has a non-exclusive, perpetual license from Haden
Environmental to use the DryPure-TM- system for recycling paint waste at its
Toledo, Ohio facility. Haden Environmental is not permitted to grant a license
for the DryPure-TM- system to any third party paint waste processor through June
1998 within 200 miles of Toledo, Ohio, which encompasses the industrial center
of the midwestern region of the United States and a significant portion of the
Company customer base. Additionally, through June 1998 Haden Environmental is
not permitted to grant a license for the DryPure-TM- system outside the 200-mile
exclusivity radius to any third party paint waste processor without first
offering EPIC a 30-day right of first refusal on the location (but not price) of
the proposed new facility. The exclusivity provisions only apply to third-party
paint waste processors such as EPIC, and do not apply to the sale or lease of
the DryPure-TM- system to businesses which use the DryPure-TM- system to process
paint waste or other wastes which they generate (E.G., Chrysler, Ford, Toyota,
Caterpillar). As a result, Haden Environmental may directly compete with the
Company's plans for on-site Polymeric Recovery Systems. The Company is required
to pay, through June 1998, Haden Environmental a throughput charge of $10 per
cubic yard of paint waste processed through the DryPure System-TM-. The
throughput charges are estimated to aggregate $170,000.
POLYMERIC RECOVERY SYSTEM. EPIC has an exclusive, world-wide (except for
Mexico) perpetual license for the use of patented mechanical and chemical
technology from Aster which comprise the Polymeric Recovery System. EPIC pays
royalties to Aster based on pounds of paint waste processed annually. The
license agreement requires EPIC to pay royalties on a minimum of 1,850,000
pounds of raw paint waste for the year ended September 1996, 3,700,000 pounds
for the year ended September 1997, 5,000,000 pounds for the year ended September
1998 and 7,000,000 pounds for each year thereafter. The royalty fees are subject
to an adjustment in September 1998 based on the consumer price index. EPIC also
pays hourly fees to Aster for technical and manufacturing services, and is
required to pay $40,000 to Aster in March 1997 in settlement of a third party
claim to the technology licensed by EPIC. Although the term of the license
agreement is perpetual, EPIC may terminate the license agreement at any time
after August 21, 1996 if it determines that profits on the licensed technology
are insufficient. Aster may terminate the license agreement if EPIC fails to
meet its financial obligations or violates any term of the license agreement and
fails to remedy such breach within 30 days after written notification by Aster.
Total payments by the Company to Aster may not fall below a minimum of $20,000
per month unless the Company first provides Aster with six months advance
notice. At the end of the six-month notice period, the Company's license of the
Polymeric Recovery System becomes non-exclusive.
EPIC has a right of first refusal to match any offer to purchase either
Aster or the Polymeric Recovery System. The license agreement also provides for
a decrease in the royalty payments made by EPIC in the event that the inventor
of the licensed technology is either no longer affiliated with Aster or is
unable to provide technical services to EPIC. EPIC is permitted to grant
sublicenses of the Polymeric Recovery System after obtaining the written consent
of Aster. EPIC and Aster will share equally in the proceeds from sub-licensed
operations outside the United States (other than Mexico).
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DESCRIPTION OF PROCESSES
DRYPURE-TM- SYSTEM.
The Company currently processes over 95% of its paint waste using the
DryPure-TM- system. After testing all incoming paint waste from customers for
unacceptable contaminants, the paint waste is off-loaded into hoppers for
transfer to the DryPure-TM- system. At the beginning of the DryPure-TM- process,
the paint waste is pumped into a thermal fluid dryer where dual Holo-flite
screws filled with 600-degree Fahrenheit oil, indirectly heat the paint waste to
450 degrees Fahrenheit. This heating reaction drives off volatile compounds,
leaving solids consisting of cured cross-linked resins in the form of a powder.
The solids are then passed through a screen separating the cured powder from
uncured paint waste, which is then returned to the dryer for further processing.
Liquids that flash off during the process are captured in a vapor dome and are
routed to the DryPure-TM- waste heat boiler. In this boiler, captured vapors are
combusted as a supplemental fuel with natural gas at 1,400 to 1,600 degrees
Fahrenheit for a dwell time of two seconds and the thermal energy is recycled
back into the system to heat the dryer. From dryer to heat exchanger, the entire
closed-loop process is carefully monitored by the Company's computer system and
a continuous emissions monitor checks the stack emissions to verify and record
that the vapors have been completely destroyed.
Within the DryPure-TM- system, stack emissions comply with U.S. EPA
standards and EPI-PURE-TM-, the resultant powder from the DryPure-TM- system,
tests below the U.S. EPA's allowable level for leachates. With the Company's two
continuous-process DryPure-TM- units in operation, nearly 72,000 pounds of paint
waste can be processed in a 24-hour period. In the last five fiscal years, the
Company has processed over 62,000,000 pounds of paint waste into approximately
12,000,000 pounds of EPI-PURE-TM-. The Company has sold over 10,000,000 pounds
of EPI-PURE-TM- to the construction industry for use as a raw material in roof
mastic, concrete block, control-low-strength materials and other construction
products.
POLYMERIC RECOVERY SYSTEM.
The Polymeric Recovery System, the Company's new licensed technology, is
considered by the Company to be a significant advance in industrial paint waste
recycling technology. Certain paint wastes, once considered non-recyclable, such
as epoxy resins, latex paints and inks, can be processed and reused by the same
industries that produced them. In the Polymeric Recovery System, quality
analysis tests are performed to determine the necessary ingredients that must to
be added to the paint waste to control its final stage physical properties.
After consolidating the additives and the paint waste in a 2,000-gallon
pre-conditioning vessel, the mixture is pumped into a 3,000-gallon reactor which
resembles a pressure cooker and is processed for several hours under vacuum and
lower heat than utilized under the DryPure-TM- system (less than 300 degrees
Fahrenheit) to drive off the volatile organic compounds and moisture. The resin,
pigment and fillers that remain are not cured but are further compounded with
proprietary additives producing a putty-like material known as EPI-MER-TM-, a
recycled product which can be formulated as an additive, plasticizer, resin
extender or filler in vinyl or butyl adhesive and sealant applications. The
formulated material has the performance characteristics of virgin materials but
has a substantially lower formulation cost. Although the Company has not sold
any EPI-MER-TM-, over ten manufacturers of sealants and adhesives are currently
testing samples of EPI-MER-TM- in order to analyze the compatibility of
EPI-MER-TM- for formulation into their final products. See "Risk Factors -- Sale
of EPI-MER-TM-."
A pilot facility using the Polymeric Recovery System is currently being
operated in Dayton, Ohio. The installation of the Polymeric Recovery System at
the Company's Toledo, Ohio facility is expected to be completed in November
1996. The Company has designed the addition to its Toledo, Ohio facility and
ordered all the equipment and parts required to build the Polymeric Recovery
System. Construction commenced in June 1996. The Company's Polymeric Recovery
System, which will be approximately five times larger than the pilot facility,
will use approximately 8,000 square feet of plant space in the Company's Toledo,
Ohio facility. The pilot facility has been used to recycle approximately
1,170,000 pounds of paint waste and has produced approximately 520,000 pounds of
EPI-MER-TM-.
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For the past two fiscal years, the Company has been operating its Toledo,
Ohio plant near its capacity using three shifts which represents an annual
processing capability of approximately 18,500,000 pounds of paint waste. Annual
paint waste processing capacity should approximate 27,750,000 pounds after the
Company completes the estimated $2,200,000 Polymeric Recovery System
installation.
RAW MATERIALS
In the DryPure-TM- system, trap rock (a small, inexpensive stone) is used to
facilitate heat transfer, to keep paint waste from adhering to the equipment and
to reduce the size of the EPI-PURE-TM- particles. In the Polymeric Recovery
System, a plasticizer and potassium hydroxide are added to the paint waste to
control the final stage physical properties of the EPI-MER-TM-. Each of these
additives is readily available at reasonable prices.
BACKLOG
The Company's operations typically process shipments within a relatively
short time of receipt. Accordingly, no large volume of paint waste is stored at
the Company's Toledo, Ohio facility at any time. Because the generators and the
Company need to carefully control the shipment and processing of paint waste,
upon execution of a sales contract the Company establishes a long-term schedule
for delivery and processing of the customer's paint waste at the Company's
Toledo, Ohio facility. Accordingly, the Company normally has its maximum
processing capacity scheduled for one to three months in advance.
ENVIRONMENTAL STANDARDS AND GOVERNMENT REGULATION
The Company's business currently consists of the recycling of paint waste.
Each aspect of this business is subject to significant federal, state and local
environmental regulations. Based upon current laws and regulations, the Company
believes that its policies, practices and procedures substantially comply with
current applicable environmental laws and regulations. No assurance can be given
that future changes in such laws, regulations, or interpretations thereof, or
changes in the nature of the Company's operations, will not have a material
adverse effect on the financial condition, operations and liquidity of the
Company.
Recycling of hazardous paint wastes currently comprises from 25% to 40% of
the Company's sales volume, with remaining volume consisting of non-hazardous
paint wastes. Volatile gases are generated from hazardous waste in the recycling
process and are used as a supplemental fuel in the Company's waste heat boilers.
In July 1994, the Company submitted an application with the U.S. EPA for an
operating permit identified as a "Part B" permit, which, as a processor of
hazardous paint waste, the Company is required to have. In connection with its
Part B permit application, the Company has requested authorization to store
hazardous paint waste which will enhance its operating efficiencies. The Company
currently is operating under interim status until a final resolution of its
application for a Part B permit is reached. Historically, the U.S. EPA has taken
several years to review submitted applications for permits of this type. There
can be no assurance that the U.S. EPA will issue a Part B permit to the Company,
or, if such a permit is issued, whether the operational and control conditions
of the permit will allow the Company to continue operations in a profitable
manner. The U.S. EPA's denial of a Part B permit could also adversely impact the
Company's relations with its customers. Although the Company continually
evaluates its alternatives in the event that its application for a Part B permit
is denied, denial of such permit could have a material adverse effect on the
financial condition, operations and liquidity of the Company. See "Risk Factors
- -- U.S. EPA Permit."
The Company's comprehensive recycling program meets the objectives of the
federal Resource, Conservation and Recovery Act ("RCRA") by processing a
hazardous paint waste stream into a new raw material for beneficial reuse in a
manufacturing process, thereby ending a generator's potential long-term
liability. Equipment that is used to recycle solid and hazardous wastes are not
subject to hazardous waste permits or other management standards, except air
emissions controls under RCRA. However, paint wastes which meet the hazardous
waste listing criteria or exhibit one or more hazardous waste characteristics
must be managed as a hazardous waste prior to the recycling activities. The
Company is not required to have a storage permit for hazardous waste because it
does not currently store any such material at its Toledo, Ohio facility.
Additionally, a water discharge permit is not currently required because the
DryPure-TM- system does not
29
<PAGE>
result in the discharge of fluids to a sewer system or outside the facility. The
Company intends to obtain a water discharge permit in connection with the
operation of the Polymeric Recovery System. There can be no assurance that the
Company will be able to obtain a water discharge permit.
After a generator's waste paint has been processed, the Company issues a
Recycle Certificate evidencing the Company's comprehensive manifesting and
tracking system and including the paint waste's original manifest number, dates
of processing and ultimate disposition. The information becomes a permanent
record of the Company and can be recalled/supplied if and when the generator has
a need to validate its recycle program in the future.
Environmental legislation and regulations have changed rapidly in recent
years, and it is possible that the Company will be subject to increasingly
stringent environmental standards in the future. The Company may be required to
make significant additional expenditures relating to the environmental matters
on an ongoing basis in order to maintain its current and future operations.
There can be no assurance that any such expenditures, or other expenditures and
penalties resulting from unforeseen circumstances, administrative actions or
liabilities relating to environmental matters, will not have a material adverse
effect on the financial condition, operations and liquidity of the Company.
Furthermore, there can be no assurance that new government regulations will not
have a material adverse effect on the financial condition, operations and
liquidity of the Company.
CORPORATE HISTORY
Meridian, a publicly-traded holding company located in Toledo, Ohio with
businesses in steel distribution and processing operations, formed the Company
under Delaware law in February 1996 as a wholly-owned subsidiary to hold all of
the outstanding stock and partnership interests of the subsidiaries of Meridian
that comprised Meridian's paint waste recycling unit. These subsidiaries, which
are now wholly-owned subsidiaries of the Company, are NPI, and MEPI, the sole
general partners of EPIC. The Company issued 1,200,000 shares of Common Stock to
Meridian in exchange for all of the issued and outstanding capital stock of NPI
and MEPI. In addition, Meridian contributed an aggregate of approximately
$1,373,000 of intercompany advances to the capital of NPI and MEPI. As a result
of this Offering, Meridian's beneficial ownership of the Company's Common Stock
will be reduced from 100% to 50% (or 46.5% if the Underwriter's Overallotment
Option is exercised in full). See "Risk Factors -- Control by and Dependence on
Meridian" and "Relationships Between the Company and Meridian."
EMPLOYEES
As of June 30, 1996, the Company had 27 full-time employees. None of the
Company's employees are covered by a collective bargaining agreement. The
Company believes that its employee relations are satisfactory.
LITIGATION
There are no material legal proceedings pending against the Company.
PROPERTIES
The Company owns a 17,000 square foot building located in Toledo, Ohio where
it conducts its paint waste recycling operations. This property and the
Company's recycling equipment are subject to a mortgage securing repayment of a
mortgage note issued by the Company in connection with industrial development
revenue bonds issued by the Toledo-Lucas County (Ohio) Port Authority to fund
the initial construction of the Company's Toledo, Ohio facility. As of February
29, 1996, the outstanding principal balance of the mortgage note was
approximately $3,304,000, one-half of which Haden Purification has assumed
liability for. Meridian is a guarantor of one-half of the mortgage note debt.
The Company has subleased 1,000 square feet of administrative and sales
office space on the second floor of an office building located at 810 Chicago
Street in Toledo, Ohio from Ottawa River Steel Co. Ottawa River Steel Co., a
wholly-owned subsidiary of Meridian, leases the property from Chicago Investors.
In addition, the Company has leased a 14,000 square foot building and land
located at 805 Chicago Street in Toledo, Ohio from Chicago Investors where it
screens, packages and warehouses EPI-PURE-TM- product.
30
<PAGE>
Chicago Investors is a general partnership in which Champlain Investors, a
general partnership, has a 50% interest. William D. Feniger, Chairman of the
Company's Board and Chairman, President and Chief Executive Officer of Meridian,
owns a one-third interest in Champlain Investors.
Both leases commenced March 1, 1996 and terminate February 28, 1998, with
options permitting the Company to extend the lease term for three additional
one-year periods. Rent payments for the 810 Chicago Street property are $585 per
month for the initial two-year term, $625 per month during the first option
period, $675 per month during the second option period and $725 per month during
the third option period. Rent payments for the 805 Chicago Street property are
$1,375 per month during the initial two-year term, $1,550 per month during the
first option period, $1,700 per month during the second option period and $1,800
per month during the third option period. After the expiration of the initial
lease term or, if applicable, any additional renewal term, the Company may
retain possession of each property as a month-to-month tenant at the monthly
rent in effect during the most recent rental period, with each lease cancelable
on 60 days prior notice by either the landlord or the Company.
The Company believes that its existing facilities are adequate in all
material respects for the needs of the Company's current business operations and
that the monthly rental payments are at market values that are at least as
favorable to the Company as those that could be obtained from independent third
parties. See "Relationships Between the Company and Meridian."
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth information with respect to the executive
officers and directors of the Company as of the date of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------- --- -------------------------------------------
<S> <C> <C>
Bruce F. Maison............................ 53 President, Chief Executive Officer and
Director (Class I)
Real P. Remillard.......................... 64 Chief Financial Officer, Secretary and
Director (Class II)
Joseph D. Van Brackel...................... 34 Treasurer and Principal Accounting Officer
Charles E. Craig........................... 53 Director (Class III)
William D. Feniger......................... 49 Chairman of the Board and Director (Class
III)
Wayne Gardenswartz......................... 49 Director (Class I)
Robert L. Hinkle........................... 57 Director (Class II)
</TABLE>
Set forth below is a brief background of the executive officers and
directors of the Company, based on information supplied by them.
BRUCE F. MAISON has been President and Chief Executive Officer of the
Company since its inception in February 1996 and a director since June 1996. Mr.
Maison has served as President of EPIC since April 1990. From 1981 to February
1990, Mr. Maison served as Vice President of International Operations for the
DeVilbiss Company's Industrial and Commercial Division, a manufacturer of
coating application equipment. Mr. Maison has also served as a director of the
Toledo Employers Association since April 1996. Mr. Maison earned a B.S. in
Business Administration from Wayne State University and is a graduate of the
Executive Development Programs in Finance and New Product Development at the
University of Michigan.
31
<PAGE>
REAL P. REMILLARD has been Chief Financial Officer, Secretary and a director
of the Company since June 1996. Mr. Remillard was Chief Financial Officer and
Vice President -- Finance of Meridian from August 1985 through February 1995,
Secretary of Meridian from January 1986 through May 1996 and Treasurer of
Meridian from February 1989 through May 1996. Mr. Remillard earned a B.S. from
Bryant College in Accounting and Finance.
JOSEPH D. VAN BRACKEL has been Treasurer and Principal Accounting Officer of
the Company since June 1996. From June 1995 to May 1996, Mr. Van Brackel served
as Corporate Accounting Manager of Meridian. From January 1994 to June 1995, Mr.
Van Brackel served as Assistant Controller of Chase Brass and Copper Co. and
from February 1988 to December 1993 served as Manager of Consolidations and
Reporting of Vickers Inc. Mr. Van Brackel earned a B.B.A. from the University of
Notre Dame.
CHARLES E. CRAIG has been a director of the Company since June 1996. Mr.
Craig has been Chairman, Chief Executive Officer and President of Tiara
Motorcoach Corporation since 1990. Tiara Motorcoach Corporation is an
international automotive aftermarket van, sport utility, pick-up truck and
recreational vehicle conversion company. Mr. Craig is a director of Schrader,
Inc. and has served on numerous charitable boards in Toledo, Ohio. Mr. Craig
earned a B.S. and a M.S. in Engineering from The Ohio State University and
earned a M.S. in Business from The Massachusetts Institute of Technology.
WILLIAM D. FENIGER has been a director of the Company since February 1996
and Chairman of the Board since June 1996. Mr Feniger is Chairman of the Board
of Directors and Chief Executive Officer of Meridian and has served as such
since August 1985. Mr. Feniger also currently serves as President of Meridian
and has served as such since 1991. Mr. Feniger earned a B.S. in Finance from the
University of Denver.
WAYNE GARDENSWARTZ has been a director of the Company since June 1996. Mr.
Gardenswartz has also served as a director of Meridian since August 1985. Mr.
Gardenswartz is a certified public accountant and has been the Senior Managing
Partner of Gardenswartz & Suber, P.C., in Denver, Colorado, for more than the
past five years. Prior to becoming a partner with Gardenswartz & Suber, P.C.,
Mr. Gardenswartz served as Chief Financial Officer, Treasurer and Director of
MDC Holdings, Inc. and, prior to being employed by MDC Holdings, Inc., as an
audit partner with Touche Ross & Company. Mr. Gardenswartz is a member of the
American Institute of Certified Public Accountants and the Colorado Society of
Certified Public Accountants.
ROBERT L. HINKLE has been a director of the Company since June 1996. Mr.
Hinkle has been President of Hinkle Manufacturing, Inc. for the past 25 years.
Hinkle Manufacturing, Inc. is a fabricator of packaging materials, including
design, engineering and fabricating of returnable and disposable packaging
products. Mr. Hinkle is a member of the boards of KeyBank, The Toledo Symphony,
Clark-Snodgrass, Toledo Molding & Die, Toledo Automobile Club and the Advisory
Board of the Northwest Ohio Center for Labor Management Cooperation. Mr. Hinkle
attended Ohio State University.
The Board consists of six directors divided into three classes: Class I
Directors, Class II Directors and Class III Directors. The Company's current
Class I Directors, Class II Directors and Class III Directors will serve until
the annual meeting of the Company's stockholders to be held in 1997, 1998 and
1999, respectively, and until their respective successors are duly elected and
qualified or until their earlier resignation or removal. Directors of each Class
will be elected for a full term of three years (or any lesser period
representing the balance of the previous term of such Class) and until their
respective successors are duly elected and qualified or until their earlier
resignation or removal. Officers are appointed by and serve at the discretion of
the Board. Mr. Maison serves as President and Chief Executive Officer of the
Company pursuant to an employment agreement. See "-- Executive Compensation."
The Company has agreed that upon the completion of this Offering it will,
for a period of not less than three years, engage a designee of the Underwriter
as an advisor to the Board. In addition and in lieu of the Underwriter's right
to designate an advisor, the Company has agreed, if requested by the Underwriter
during such three-year period, to nominate and use its best efforts to cause the
election of a designee of the Underwriter as a director of the Company. A person
to be designated by the Underwriter has not been identified. See "Underwriting."
32
<PAGE>
COMMITTEE OF THE BOARD OF DIRECTORS
The Board has established an Audit Committee, a Compensation Committee and a
Stock Option Committee.
The general functions of the Audit Committee include selecting the
independent auditors (or recommending such action to the Board), evaluating the
performance of the independent auditors and their fees for services, reviewing
the scope of the annual audit with the independent auditors and the results of
the audit with management and the independent auditors, consulting with
management, internal auditors and the independent auditors as to the systems of
internal accounting controls and reviewing the nonaudit services performed by
the independent auditors and considering the effect, if any, on their
independence. The members of the Audit Committee are Mr. Gardenswartz
(Chairman), Mr. Craig and Mr. Hinkle.
The Compensation Committee is authorized and directed to (i) review and
approve the compensation and benefits of the Company's executive officers, (ii)
review and approve the annual salary budgets, (iii) review management
organization and development, (iv) review and advise management regarding the
benefits, including bonuses, and other terms and conditions of employment of
other employees, and (v) review and recommend for the approval of the Board the
compensation of directors. The members of the Compensation Committee are Mr.
Hinkle (Chairman), Mr. Craig and Mr. Gardenswartz.
The Stock Option Committee is authorized and directed to administer the
Option Plan and the Directors' Plan (both as defined below), grant options under
the Option Plan and the Directors' Plan and administer any other plans that may
be established by the Company. The members of the Stock Option Committee are Mr.
Craig (Chairman), Mr. Gardenswartz and Mr. Hinkle.
EXECUTIVE COMPENSATION
The following table sets forth the amount of all compensation paid by the
Company for services rendered during the fiscal years ended February 29, 1996
and February 28, 1995 and 1994 to the Company's Chief Executive Officer. None of
the Company's other most highly compensated executive officers received total
salary and bonus compensation exceeding $100,000 during the fiscal year ended
February 29, 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
-------------
SECURITIES
UNDERLYING
ANNUAL COMPENSATION OPTIONS/SARS
-------------------------------- OTHER ANNUAL (NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) SHARES) COMPENSATION
- ---------------------------------- --------- ---------- --------- ---------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bruce F. Maison ..................
President and Chief
Executive Officer (2) 1996 $ 125,000 $ 23,000 $ 2,611 -- --
1995 111,077 10,000 2,295 -- --
1994 100,000 6,000 35,327(3) -- --
</TABLE>
- --------------
(1) The aggregate amounts of personal benefits not included in the Summary
Compensation Table do not exceed the lesser of either $50,000 or 10% of the
total annual salary and bonus reported for the named executive officer.
(2) All compensation shown for Mr. Maison was paid to him as President of EPIC.
(3) $33,300 of such Other Annual Compensation represents compensation from the
exercise of 14,400 incentive stock options to purchase shares of Meridian
common stock. Compensation was determined based on the difference between
the market value of the shares at the date of exercise and the option
exercise price.
EMPLOYMENT CONTRACT
Mr. Maison is employed as President and Chief Executive Officer of the
Company under an employment agreement expiring July 2002, with automatic one
year extensions upon expiration unless either the
33
<PAGE>
Company or Mr. Maison notifies the other party of its intention to terminate the
agreement. The employment agreement provides for an initial base salary of
$131,250, subject to an increase for each fiscal year of at least 5% of the
annual base salary for the prior fiscal year. The employment agreement also
provides a deferred compensation benefit of up to $190,000 and a bonus
arrangement based on the Company's performance. Mr. Maison is entitled to
hospitalization, insurance, disability and retirement plan benefits and such
other benefits as are provided to executives of Meridian. In the event of the
termination of Mr. Maison by the Company other than for cause within two years
of a "change of control" of the Company, Mr. Maison will receive an amount equal
to the sum of three times his base salary and all amounts due to him through the
term of the employment agreement. A "change of control" occurs for purposes of
the employment agreement upon the occurrence of a substantial change of control
of the Company, including, without limitation, a transaction in which shares
representing greater than 40% of the voting power of the Company are acquired by
a person, entity or group other than Meridian.
Meridian has guaranteed the Company's obligations under the employment
agreement with Mr. Maison and agreed to vote the shares of Common Stock which it
owns in favor of the election of Mr. Maison to the Board. Additionally, Meridian
has agreed to pay Mr. Maison up to a maximum of 5% of the net proceeds received
by Meridian from the sale of its shares of Common Stock and a bonus of $65,000
upon the completion of this Offering.
DIRECTOR COMPENSATION
Directors of the Company do not currently receive compensation for their
services. It is expected that, upon completion of this Offering, the Company
will adopt a plan to compensate the directors based on their attendance at
meetings. The designee of the Underwriter who will serve as an advisor to the
Board will receive the same fee for attendance at meetings as the directors of
the Company.
STOCK OPTION PLANS
1996 NON-QUALIFIED AND INCENTIVE STOCK OPTION PLAN
The Company's 1996 Non-Qualified and Incentive Stock Option Plan (the
"Option Plan") was adopted by the Board in June 1996, subject to approval by the
Company's stockholders. An aggregate of 209,000 shares of Common Stock have been
reserved for issuance under the Option Plan, subject to adjustment upon the
occurrence of certain specified capitalization events.
The Option Plan is intended to encourage ownership of Common Stock by
officers and other employees of the Company, to encourage their continued
employment with the Company, and to provide them with additional incentives to
promote the continued growth and success of the Company. The Option Plan will
become effective as of the completion of this Offering and will terminate ten
years from that date, but such termination will not affect any outstanding
options previously granted.
The Option Plan provides that the Company's Stock Option Committee may grant
options and otherwise administer the Option Plan. Options granted under the
Option Plan may be (i) incentive stock options, (ii) non-qualified stock
options, or (iii) a combination of the foregoing. The exercise price for
incentive stock options and, unless otherwise determined by the Stock Option
Committee, the exercise price for non-qualified stock options granted under the
Option Plan must be at least equal to the fair market value of the Common Stock
on the date of the grant; however, in the event that an incentive stock option
is granted to an employee who owns more than 10% of the total combined voting
power of all classes of stock of the Company or, if applicable, a subsidiary or
parent corporation of the Company, the exercise price per share for such
incentive stock options cannot be less than 110% of the fair market value of the
Common Stock on the date of grant. The exercise price of options granted under
the Option Plan is payable in cash or, at the discretion of the Stock Option
Committee, in whole or in part, in shares of Common Stock, valued at their fair
market value at the date of exercise; however, the Company may establish
"cashless exercise" procedures, subject to applicable laws, rules and
regulations, pursuant to which a holder of an option may exercise an option and
arrange for a simultaneous sale of the underlying Common Stock, with the
exercise price being paid from the proceeds of such sale. Options expire on the
dates determined by the Stock Option Committee, in its sole discretion, but not
later than ten years from the date of grant.
34
<PAGE>
The Option Plan also provides that in the event of the occurrence of a
Change in Control (as defined in the Option Plan), an employee would be entitled
to exercise his or her options in full, regardless of any vesting requirement
set forth in such options, but each such option would terminate 90 days after
the occurrence of the Change in Control.
The Option Plan may be amended at any time by the Board, but no amendment
can be made without the approval of the Company's stockholders if stockholder
approval is required under Section 422 of the Code, or Rule 16b-3 under the
Exchange Act. No amendment may, however, impair the rights or obligations of the
holder of any option granted under the Option Plan without his or her consent.
Effective upon the completion of this Offering, the Company granted options,
subject to approval of the Option Plan by the Company's stockholders, to
purchase 208,250 shares of Common Stock under the Option Plan, including options
to purchase 130,000 shares granted to Bruce F. Maison, the Company's President
and Chief Executive Officer, and options to purchase 10,000 shares granted to
Real P. Remillard, the Company's Secretary and Chief Financial Officer. The per
share exercise price of all such options is the initial price at which shares of
Common Stock are sold pursuant to this Offering. All options granted to Mr.
Maison and Mr. Remillard are fully vested. One-third of all other options
granted under the Option Plan vest each year, with the options becoming fully
exercisable at the end of three years. The term of the options is ten years from
the date of grant.
1996 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company's 1996 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board in June 1996. An aggregate of 40,000
shares of Common Stock have been reserved for issuance under the Directors'
Plan, subject to adjustment upon the occurrence of certain specified
capitalization events.
The Directors' Plan is intended to encourage non-employee directors of the
Company to acquire or increase their ownership of Common Stock on reasonable
terms to foster a strong incentive for non-employee directors to put forth
maximum effort for the continued success and growth of the Company. The
Directors' Plan will become effective as of the completion of this Offering and
will terminate five years from that date.
Each of the Company's non-employee directors serving at the time of the
completion of this Offering (I.E., Messrs. Feniger, Craig, Gardenswartz and
Hinkle) will be granted an option on the closing date of this Offering to
purchase 10,000 shares of Common Stock. Any non-employee director who becomes a
member of the Board subsequent to the closing of this Offering, will be granted
an option to purchase 10,000 shares of Common Stock, but only to the extent
shares are available under the Directors' Plan to cover any such grant. Since
options for all 40,000 shares of Common Stock subject to the Directors' Plan
will be granted on the date of the closing of this Offering, absent either the
lapse of previously granted options or an amendment to increase the number of
shares of Common Stock subject to the Directors' Plan, no shares of Common Stock
will be available for the granting of options to persons who become non-employee
directors of the Company subsequent to the closing of this Offering. The per
share exercise price of options granted under the Directors' Plan will be the
fair market value of the Common Stock on the date of grant. For Options granted
on, or as of, the closing of this Offering, fair market value is defined as the
initial price at which shares of Common Stock are sold pursuant to this
Offering. The exercise price of options granted under the Directors' Plan is
payable in cash or in shares of Common Stock valued at fair market value at the
time of exercise, or a combination of cash and shares; however, the Company may
establish "cashless exercise" procedures, subject to applicable laws, rules and
regulations, pursuant to which a director may exercise an option and arrange for
a simultaneous sale of the underlying Common Stock, with the exercise price
being paid from the proceeds of such sale. Options may be exercised at any time
after the six-month anniversary of the date of grant. Options granted under the
Directors' Plan will expire ten years after the date of grant, subject to
earlier termination.
In the event that a director ceases to be a member of the Board (other than
by reason of death or disability), an option may be exercised by the director
(to the extent the director was entitled to do so at the
35
<PAGE>
time he or she ceased to be a member of the Board) at any time within seven
months after he or she ceases to be a member of the Board, but not beyond the
term of the option. If the director dies or becomes disabled while he or she is
a member of the Board of Directors, or within seven months after he or she
ceases to be a member of the Board, the option may be exercised in full by his
or her personal representative or distributees at any time within one year after
his or her death or disability, but not beyond the term of the option. In the
event of the occurrence of a Change in Control (as defined in the Directors'
Plan) a director would be entitled to exercise the option in full, but such
option would terminate 90 days after the Change in Control.
The Directors' Plan may be amended at any time by the Board. In certain
cases, the Directors' Plan may not be amended more than once every six months.
No amendment may, however, impair the rights or obligations of the holder of any
option granted under the Directors' Plan without his or her consent.
LIMITATION ON DIRECTORS' LIABILITY; INDEMNIFICATION; INSURANCE
Pursuant to the Company's Restated Certificate of Incorporation, the Company
must, to the fullest extent permitted by the General Corporation Law of the
State of Delaware (the "Delaware Law"), as amended from time to time, indemnify
all persons (E.G., directors and officers) whom it may indemnify pursuant
thereto and advance expenses incurred in defending any proceeding for which such
right to indemnification is applicable, but, if the Delaware Law so requires (as
it presently does), the indemnitee must provide the Company with an undertaking
to repay all amounts advanced if it is determined by a final judicial decision
that the indemnitee is not entitled to be indemnified by the Company. The
Company's Restated Certificate of Incorporation contains a provision
eliminating, to the fullest extent permitted by Delaware Law, the personal
liability of the Company's directors for monetary damages for breach of a
fiduciary duty. By virtue of this provision, under current Delaware Law, a
director of the Company will not be personally liable for monetary damages for
breach of his fiduciary duty as a director, except for (i) any breach of his
duty of loyalty to the Company or to its stockholders, (ii) acts or omissions
not in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) dividends or stock purchases or redemptions that are unlawful
under Delaware Law, and (iv) any transaction from which he derives an improper
personal benefit. This provision of the Company's Restated Certificate of
Incorporation pertains only to breaches of duty by directors as directors and
not in any other corporate capacity such as officers, and limits liability only
for breaches of fiduciary duties under Delaware Law and not for violations of
other laws such as the federal securities laws. As a result of the inclusion of
such provision, stockholders may be unable to recover monetary damages against
directors for actions taken by them that constitute negligence or gross
negligence or that are in violation of their fiduciary duties, although it may
be possible to obtain injunctive or other equitable relief with respect to such
actions. The inclusion of this provision in the Company's Restated Certificate
of Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefitted
the Company and its stockholders.
The Company maintains directors' and officers' liability insurance covering
certain liabilities that may be incurred by directors and officers of the
Company in connection with the performance of their duties.
36
<PAGE>
PRINCIPAL STOCKHOLDERS
THE COMPANY
The following table sets forth certain information, effective as of the
completion of this Offering, with respect to the beneficial ownership of the
Common Stock by (i) each beneficial owner of more than 5% of the issued and
outstanding shares thereof, (ii) each director, (iii) each executive officer
named in the Summary Compensation Table, and (iv) all executive officers and
directors of the Company as a group, both before and after giving effect to this
Offering. See "Relationships Between the Company and Meridian."
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------
PERCENT
NUMBER OF ----------------------------
SHARES BEFORE
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING AFTER OFFERING
- ------------------------------------------------------------------------ -------------- ------------ --------------
<S> <C> <C> <C>
Meridian National Corporation
805 Chicago Street
Toledo, OH 43611....................................................... 1,200,000 100% 50.0%(2)
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Bruce F. Maison
810 Chicago Street
Toledo, OH 43611....................................................... 130,000(3) * 5.1%
Real P. Remillard
810 Chicago Street
Toledo, OH 43611....................................................... 10,000(4) * *
Charles E. Craig
29618 County Road 12 West
Elkhart, IN 46514...................................................... --(5) * *
William D. Feniger
805 Chicago Street
Toledo, OH 43611....................................................... --(5) * *
Wayne Gardenswartz
400 S. Colorado Boulevard, Suite 900
Denver, CO 80222....................................................... --(5) * *
Robert L. Hinkle
6711 Monroe Street
Sylvania, OH 43580..................................................... --(5) * *
All executive officers and directors as a group (7 persons)............. 140,000(6) * 5.5%
</TABLE>
- --------------
* Less than 1%
(1) Under the rules of the Commission, a person is deemed to be the 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 any securities if that person has the right to acquire beneficial
ownership of such securities within 60 days. Accordingly, more than one
person may be deemed to be a beneficial owner of the same securities. Unless
otherwise indicated by footnote, the named entities or individuals have sole
voting and investment power with respect to the shares of Common Stock
beneficially owned.
(2) Meridian will beneficially own 46.5% of the then issued and outstanding
shares of Common Stock if the Underwriter's Overallotment Option is
exercized in full.
(3) Consists of 130,000 shares of Common Stock subject to stock options granted
pursuant to the Option Plan that will become exercisable on approval of the
Option Plan by the Company's Stockholders.
(4) Consists of 10,000 shares of Common Stock subject to stock options granted
pursuant to the Option Plan that will become exercisable on approval of the
Option Plan by the Company's Stockholders.
(5) Does not include 10,000 shares of Common Stock subject to stock options that
become exercisable six months after the completion of this Offering.
(6) Consists of the stock options granted to Messrs. Maison and Remillard.
37
<PAGE>
MERIDIAN
After the completion of this Offering, Meridian will beneficially own, in
the aggregate, 50% of the then issued and outstanding shares of Common Stock (or
46.5% if the Underwriter's Overallotment Option is exercised in full).
Accordingly, the following table sets forth certain information, as of May 31,
1996, with respect to the beneficial ownership of Meridian's common stock and
non-voting $100 Series A Preferred Stock by (i) each director of the Company,
(ii) each executive officer named in the Summary Compensation Table, and (iii)
all executive officers and directors of the Company as a group. None of such
persons beneficially owns any of Meridian's Series B Preferred Stock. See
"Relationships Between the Company and Meridian."
<TABLE>
<CAPTION>
COMMON STOCK SERIES A PREFERRED STOCK
------------------------- ------------------------
NUMBER OF NUMBER OF
SHARES SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED (1) PERCENT OWNED (1) PERCENT
- -------------------------------------------------------------------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Bruce F. Maison
810 Chicago Street
Toledo, OH 43611................................................... 14,200(2) * -- *
Real P. Remillard
810 Chicago Street
Toledo, OH 43611................................................... 15,839(3) * -- *
Charles E. Craig
29618 County Road 12 West
Elkhart, IN 46514.................................................. -- * -- *
William D. Feniger
805 Chicago Street
Toledo, OH 43611................................................... 775,252(4) 22.7% 1,334 33.4%
Wayne Gardenswartz
400 S. Colorado Boulevard, Suite 900
Denver, CO 80222................................................... 25,365(5) * -- *
Robert L. Hinkle
6711 Monroe Street
Sylvania, OH 43580................................................. -- * -- *
All executive officers and directors of the Company as a group (7
persons)........................................................... 830,656 24.0% 1,334 33.4%
</TABLE>
- --------------
* Less than 1%
(1) Under the rules of the Commission, a person is deemed to be the 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 any securities if that person has the right to acquire beneficial
ownership of such securities within 60 days. Accordingly, more than one
person may be deemed to be a beneficial owner of the same securities. Unless
otherwise indicated by footnote, the named entities or individuals have sole
voting and investment power with respect to the shares of common stock or
Series A Preferred Stock beneficially owned.
(2) Consists of 14,200 shares of Meridian common stock subject to currently
exercisable stock options.
(3) Consists of 2,439 shares of Meridian common stock beneficially owned by Mr.
Remillard and 13,400 shares of Meridian common stock subject to currently
exercisable stock options.
(4) Consists of 710,609 shares of Meridian common stock beneficially owned by
Mr. Feniger, 17,643 shares of Meridian common stock issuable upon conversion
of a convertible promissory note, 7,500 shares of Meridian common stock held
by Mr. Feniger as trustee pursuant to a voting trust agreement over which he
has no investment power, 5,500 shares of Meridian common stock purchase
warrants which expire June 22, 1999, 500 shares of Meridian common stock
held by Mr. Feniger's wife, as to which he disclaims beneficial interest,
1,500 shares of Meridian common stock held by Mr. Feniger as custodian for
his minor children and currently exercisable options to purchase 32,000
shares of Meridian common stock.
(5) Consists of 2,365 shares of Meridian common stock beneficially owned by Mr.
Gardenswartz and 23,000 shares of Meridian common stock subject to currently
exercisable stock options.
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RELATIONSHIPS BETWEEN THE COMPANY AND MERIDIAN
GENERAL
Prior to the completion of this Offering, the Company was a wholly-owned
subsidiary of Meridian. As a result of this Offering, Meridian's ownership of
the Common Stock will be reduced from 100% to 50% (or 46.5% if the Underwriter's
Overallotment Option is exercised in full). Meridian is a guarantor of (i)
one-half of the Company's obligations under a mortgage note which had an
outstanding principal balance of approximately $3,304,000 at February 29, 1996,
(ii) an employment agreement between the Company and Bruce F. Maison, President
and Chief Executive Officer of the Company, and (iii) the payment of $40,000 to
Aster. With the exception of William D. Feniger and Wayne Gardenswartz, none of
the executive officers and the present directors of the Company are present
officers or directors of Meridian. See "Risk Factors -- Absence of Continuing
Financial Support from Meridian; Dependence on Guaranty," "-- Control by
Meridian," "Management" and "Principal Stockholders."
Meridian is a publicly-traded holding company located in Toledo, Ohio with
assets in steel distribution and processing operations. Meridian's shares of
common stock, Series B preferred stock, common stock purchase warrants and
redeemable common stock purchase warrants are currently listed on Nasdaq under
the symbols "MRCO," "MRCOP," "MRCOZ" and "MRCOL," respectively.
PRIOR INTERCOMPANY ARRANGEMENTS
Prior to the completion of this Offering, the Company participated in a cash
arrangement with Meridian pursuant to which Meridian managed the Company's cash.
Under the arrangement, cash was remitted to Meridian as collected by the Company
and transferred as needed to meet its cash requirements. Meridian charged
interest by allocating the interest charges borne by Meridian back to the
Company based upon the average daily balances of net advances by Meridian to the
Company. Meridian also provided other management services to the Company,
including compensation and benefits administration, payroll processing, use of
certain general accounting systems and income tax compliance. Meridian allocates
costs to the Company on the basis of specific services provided. The Company's
management believes that the allocations by Meridian do not materially differ
from the actual expenses which would have been incurred had the Company not
received such services from Meridian.
REAL ESTATE LEASES
The Company has subleased 1,000 square feet of administrative and sales
office space on the second floor of an office building located at 810 Chicago
Street in Toledo, Ohio from Ottawa River Steel Co. Ottawa River Steel Co., a
wholly-owned subsidiary of Meridian, leases the property from Chicago Investors.
In addition, the Company has leased a 14,000 square foot building and land
located at 805 Chicago Street in Toledo, Ohio from Chicago Investors where it
screens, packages and warehouses EPI-PURE-TM- product. Chicago Investors is a
general partnership in which Champlain Investors, a general partnership, has a
50% interest. William D. Feniger, Chairman of the Company's Board and Chairman,
President and Chief Executive Officer of Meridian, owns a one-third interest in
Champlain Investors. The Company believes that monthly rental payments are at
market rates that are at least as favorable to the Company as those that could
be obtained in dealings with third parties on an arm's length basis. See
"Business -- Properties."
TAX SHARING AGREEMENT
The Company and Meridian have entered into a tax sharing agreement (the "Tax
Sharing Agreement") that defines the parties' rights and obligations with
respect to certain federal and state income or franchise tax matters relating to
Meridian's business for tax years or tax periods prior to the completion of this
Offering. In general, with respect to taxable periods ending on or before the
last day of the taxable year in which this Offering occurs, Meridian will
continue to be responsible for (i) filing consolidated federal income tax
returns for the Meridian affiliated group, including in each case the Company
and its subsidiaries for the relevant periods that such companies were members
of such group, (ii) filing unitary, combined or consolidated state income tax
returns for any unitary, combined or consolidated group that includes the
Company or any of its subsidiaries and Meridian or any of its other
subsidiaries, and (iii) paying the taxes (including any subsequent adjustments
resulting from the re-determination of such tax liabilities by the applicable
taxing authorities) relating to such returns except to the extent attributable
to the Company's
39
<PAGE>
business, which will be paid by the Company to Meridian who will in turn pay
such taxes to the applicable taxing authorities. The Company will be responsible
for separate state income tax returns, audits and tax payments of the Company
and its subsidiaries for periods prior to this Offering, unless otherwise
specifically provided in the Tax Sharing Agreement. The Company will also be
responsible for audits, filing returns and paying taxes related to the Company's
business for subsequent periods. The Company and Meridian have agreed to
cooperate with each other and to share information in preparing such tax returns
and in dealing with other tax matters.
REGISTRATION RIGHTS
The Company and Meridian have entered into a Registration Rights Agreement
pursuant to which Meridian will have the unlimited right to require the Company
to use its best efforts to register, at Meridian's expense, pursuant to the
Securities Act, shares of Common Stock beneficially owned by Meridian at any
time and from time to time. Meridian may exercise these registration rights
beginning 18 months following the date of this Prospectus, as long as Meridian
owns 15% or more of the issued and outstanding Common Stock. In addition,
Meridian has "piggyback" registration rights that are subject to certain
limitations.
TRANSITIONAL AGREEMENT
Meridian provides certain corporate management and administrative services
to the Company, including corporate accounting, tax, legal and employee benefit
services. The Company and Meridian have entered into a Transitional Agreement
which will be effective upon the completion of this Offering for a period of one
year and provides, among other things, for Meridian to provide such services on
a cost basis to the Company.
Future arrangements between the Company and Meridian, if any, will be
determined through negotiation between Meridian and the Company. Any such future
arrangements are also expected to be on terms no less favorable to the Company
than could be obtained in dealings with third parties on an arm's length basis.
STOCK OWNERSHIP
Upon completion of this Offering, Meridian will beneficially own, in the
aggregate, 50% of the then issued and outstanding shares of Common Stock (or
46.5% if the Underwriter's Overallotment Option is exercised in full).
Accordingly, Meridian will have significant influence on the election of the
Company's directors and other stockholder actions, including approving or
disapproving certain material corporate transactions such as a merger or sale of
substantially all of the assets of the Company. The Company has also granted
Meridian certain demand and "piggyback" registration rights with respect to the
shares of Common Stock owned by Meridian.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue an aggregate of shares of Common
Stock, $.01 par value per share and shares of Preferred Stock, $.01 par
value per share (the "Preferred Stock").
COMMON STOCK
Immediately prior to the completion of this Offering, 1,200,000 shares of
Common Stock were issued and outstanding, all of which were held by Meridian.
Immediately following the completion of this Offering (assuming the
Underwriter's Overallotment Option is not exercised), 2,400,000 shares of Common
Stock will be issued and outstanding. See "Prospectus Summary -- The Offering."
Holders of the Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Holders of the
Common Stock do not have cumulative voting rights, so that holders of more than
50% of the shares of Common Stock (subject to the voting rights that the holders
of Preferred Stock may then possess) are able to elect all of the Company's
directors eligible for election in a given year. For a description of the
classification of the Board, see "Management -- Executive Officers and
Directors." Subject to the preferences that may be applicable to any class of
Preferred Stock then outstanding, holders of Common Stock are entitled to
receive ratably such dividends, if any, as may be
40
<PAGE>
declared and paid from time to time by the Board out of funds legally available
therefor. See "Dividend Policy." Upon any liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary, holders of Common Stock are
entitled to receive PRO RATA all assets of the Company available for
distribution to its stockholders after payment or provision for payment of the
debts and other liabilities of the Company and the liquidation preferences of
any then outstanding Preferred Stock. There are no preemptive or other
subscription rights, conversion rights, or redemption or sinking fund provisions
with respect to shares of Common Stock. All issued and outstanding shares of
Common Stock are, and all shares of Common Stock to be outstanding upon
consummation of this Offering will be, fully paid and nonassessable.
PREFERRED STOCK
The Company is authorized by its Restated Certificate of Incorporation to
issue a maximum of shares of Preferred Stock, in one or more series and
containing such rights, privileges and limitations, including voting rights,
conversion privileges and redemption rights, as may, from time to time, be
determined by the Board as to any such series. Although the Company has no
current plans to issue any shares of Preferred Stock, in the event of issuance,
the Preferred Stock could be used, in certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
However, there can be no assurance that shares of Preferred Stock will not be
issued at some time in the future. Preferred Stock may be issued in the future
in connection with acquisitions, financings or such other matters as the Board
deems to be appropriate. In the event that any such shares of Preferred Stock
are issued, a Certificate of Designation, setting forth the series of such
Preferred Stock and the relative rights, privileges and designations with
respect thereto, will be filed with the Secretary of the State of Delaware. The
effect of such Preferred Stock is that the Board alone, within the bounds of and
subject to the federal securities laws and Delaware Law, may be able to
authorize the issuance of Preferred Stock which could have the effect of making
a takeover of the Company unpalatable to potential bidders for the hostile
acquisition of the Company. See "Risk Factors -- Possible Adverse Effect of
Issuance of Preferred Stock."
WARRANTS
The Warrants will be issued pursuant to a Warrant Agent Agreement between
the Company and Continental Stock Transfer & Trust Company, as warrant agent,
and will be in registered form. Each of the Warrants will entitle the registered
holder to purchase one share of Common Stock at a price of $4.50 per share at
any time on or before the third anniversary of the date of this Prospectus.
Unless exercised, the Warrants will automatically expire on the third
anniversary of the date of this Prospectus. The Warrants are subject to
redemption by the Company at $.10 per Warrant at any time commencing 12 months
after the date of this Prospectus (or earlier with the Underwriter's written
consent) on at least 30 days prior written notice to the holders of the
Warrants, provided the average closing sale price (or, if none, the average of
the closing bid and asked quotations) of the Common Stock as reported on The
Nasdaq Stock Market or a national securities exchange has been at least 150% of
the then current exercise price of the Warrants (initially $6.75 per share) on
any 20 trading days in any 30 trading day period ending not more than 20 days
prior to the date on which the Company gives notice of redemption. The Warrants
will be exercisable until the close of business on the day immediately preceding
the date fixed for redemption. See "Risk Factors -- Adverse Effect of Redemption
of Warrants."
The holders of the Warrants have certain anti-dilution protection upon the
occurrence of certain events, including stock dividends, stock splits,
reclassifications, mergers and stock issuances at a price below both the then
current market price of the Common Stock and the exercise price of the Warrants.
The holders of the Warrants have no right to vote on matters submitted to the
stockholders of the Company and have no right to receive dividends. The holders
of the Warrants are not entitled to share in the assets of the Company in the
event of liquidation, dissolution or the winding up of the Company's affairs.
The Company is required to use its reasonable efforts to have a current
registration statement on file with the Commission at all times when the
Warrants may be exercised and to effect appropriate qualifications under the
laws and regulations of the states in which the Common Stock and Warrants are
sold in this Offering in order to comply with applicable laws in connection with
such exercise. There is no assurance that the Registration Statement which
includes this Prospectus can or will be kept current or that the Company
41
<PAGE>
will file any other registration statement covering the Common Stock underlying
the Warrants, that such other registration statement, if filed, will become
effective as soon as the Warrants are exercisable or that such registration
statement can or will be kept current. In any of such events, or if such Common
Stock is not registered or qualified for sale in the state in which a Warrant
holder resides, the exercise of the Warrants and the resale or other disposition
of Common Stock issued upon such exercise could be unlawful and the Warrants
will not be exercisable until such time as the Common Stock is registered or
qualified.
REGISTRATION RIGHTS
The Company has granted certain registration rights to the holders of the
Underwriter's Warrant and to Meridian. See "Relationships Between the Company
and Meridian -- Registration Rights" and "Underwriting."
CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S RESTATED CERTIFICATE OF
INCORPORATION AND BY-LAWS
GENERAL
The Restated Certificate of Incorporation and the By-laws of the Company
contain certain provisions that could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest or otherwise. These
provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company first to negotiate with the Company. Although
such provisions may have the effect of delaying, deferring or preventing a
change in control of the Company, the Company believes that the benefits of
increased protection of the Company's potential ability to negotiate with the
proponent of an unfriendly or unsolicited proposal to acquire or restructure the
Company outweigh the disadvantages of discouraging such proposals because, among
other things, negotiation of such proposals could result in an improvement of
their terms. The description set forth below is intended as a summary only and
is qualified in its entirety by reference to the Restated Certificate of
Incorporation and By-laws of the Company.
BOARD OF DIRECTORS
The Company's Restated Certificate of Incorporation provides that the Board
is divided into three classes of directors, with each class having a number of
directors as nearly equal as possible and with the term of each class expiring
in a different year. The Company's Restated Certificate of Incorporation and
By-laws provide that the Board will consist of not less than two members, the
exact number to be determined from time to time by the Board. The Board has set
the number of directors at six. A majority of the Board then in office has the
sole authority to fill any vacancies on the Board. Stockholders may remove
members of the Board at any time only for cause. See "Management -- Executive
Officers and Directors."
SPECIAL MEETINGS
Special Meetings of the stockholders may only be called by the President or,
if requested by a majority of the Board or by stockholders owning shares
representing at least a majority of the entire capital stock of the Company
issued and outstanding and entitled to vote, by the President or Secretary.
ANTI-TAKEOVER STATUTE
The Company is a Delaware corporation and subject to Section 203 of the
Delaware Law, an anti-takeover law. In general, Section 203 of the Delaware Law
prevents an "interested stockholder" (defined generally as a person owning 15%
or more of a corporation's outstanding voting stock) from engaging in a
"business combination" (as defined) with a Delaware corporation for three years
following the date such person became an interested stockholder, subject to
certain exceptions such as the approval of the Board of Directors and the
holders of at least 66 2/3% of the issued and outstanding shares of voting stock
not owned by the interested stockholder. The existence of this provision would
be expected to have the effect of discouraging takeover attempts, including
attempts that might result in a premium over the market price for the shares of
Common Stock held by stockholders. The provisions of Section 203 of the Delaware
Law do not apply to Meridian.
TRANSFER AGENT/WARRANT AGENT
The Transfer Agent and Warrant Agent for the Company's Common Stock and
Warrants is Continental Stock Transfer & Trust Company, 2 Broadway, New York,
New York 10004.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
TAX BASIS IN COMMON STOCK AND/OR WARRANTS
A holder's tax basis in Common Stock or Warrants will generally be the price
paid for such Common Stock or Warrants. However, if a holder acquires both
Common Stock and Warrants pursuant to this Offering, then, even though the
Common Stock and the Warrants are being sold as separate securities, such holder
may be required to allocate the aggregate purchase price paid for Common Stock
and Warrants in a different manner (i.e., based on the respective fair market
values of the Common Stock and Warrants purchased) for purposes of determining
his or her respective tax bases in such Common Stock and Warrants. Purchasers of
both Common Stock and Warrants pursuant to this Offering should consult their
own tax advisors as to their respective tax bases in the Common Stock and
Warrants purchased.
SALE, EXERCISE OR LAPSE OF WARRANTS
The sale of a Warrant by a holder will generally result in the recognition
of capital gain or loss to such holder, provided the Warrant is a capital asset
in the hands of the holder on the date of sale. Upon the expiration of an
unexercised Warrant, a holder will generally recognize capital loss in an amount
equal to the holder's tax basis in the Warrant, provided the Warrant is a
capital asset in the hands of the holder on such date.
As a general rule, no gain or loss will be recognized by a holder of a
Warrant on the purchase of Common Stock for cash on the exercise of the Warrant.
Gain may be recognized, however, to the extent a holder receives cash in lieu of
fractional shares of Common Stock. The tax basis of a share of Common Stock
received upon exercise of a Warrant will be equal to the sum of the holder's tax
basis in the exercised Warrant and the exercise price. The holding period for
Common Stock received upon exercise of a Warrant will commence with the date of
exercise of the Warrant.
The Company will not be required to recognize income, gain or loss on the
exercise or lapse of the Warrants.
OWNERSHIP CHANGE AND LIMITATION OF LOSSES, CREDITS AND DEDUCTIONS
Section 382 of the Code imposes limitations on the amount of "pre-change"
losses and deductions (including, in certain instances, unrealized losses and
deductions attributable to periods prior to an "ownership change") that may be
used to offset "post-change" taxable income of a corporation which undergoes an
"ownership change." Similarly, Section 383 of the Code limits the amount of
"pre-change" tax credits that may be used to reduce the "post-change" tax
liability of a corporation which undergoes an "ownership change."
The consummation of this Offering will result in an "ownership change" of
the Company within the meaning of Code Sections 382 and 383. Consequently, the
Company's ability to use its net operating loss carryforwards and other
"pre-change" deductions, losses and tax credits to offset income generated
subsequent to this Offering will generally be limited to the value of the
Company's equity immediately before this Offering (which will generally be
reduced by any capital contributions made to the Company or any of its
subsidiaries during the two-year period immediately before the change date)
multiplied by the then applicable long-term tax exempt rate applicable to
ownership changes occurring during the month this Offering occurs (the
applicable long-term tax-exempt rate for ownership changes occurring in June
1996 is 5.78%). In certain instances, this limitation may be increased by
certain unrealized gains attributable to periods prior to this Offering to the
extent such gains are recognized in the five-year period following this
Offering. See "Risk Factors -- Effect of Offering on Tax Net Operating Losses."
It is possible that the Company could undergo another "ownership change" in
the future and, as a result, be subject to further limitations under Code
Sections 382 and 383.
THE FOREGOING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS, WHICH
IS BASED ON THE LAW AS IN EFFECT AS OF THE DATE HEREOF, IS INCLUDED HEREIN FOR
GENERAL INFORMATION ONLY (I.E., IS NOT INTENDED AS TAX ADVICE) AND DOES NOT
PURPORT TO ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT
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<PAGE>
MAY BE RELEVANT TO A PARTICULAR HOLDER OF COMMON STOCK OR WARRANTS, IN LIGHT OF
SUCH HOLDER'S PERSONAL INVESTMENT CIRCUMSTANCES, OR TO CERTAIN HOLDERS SUBJECT
TO SPECIAL TREATMENT UNDER THE FEDERAL INCOME TAX LAWS, NOR DOES IT DEAL WITH
ANY ASPECTS OF STATE, LOCAL OR FOREIGN TAX LAWS. POTENTIAL INVESTORS ARE URGED
TO CONSULT THEIR OWN TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO THEM OF
AN INVESTMENT IN COMMON STOCK OR WARRANTS UNDER APPLICABLE FEDERAL, STATE, LOCAL
AND FOREIGN INCOME AND OTHER TAX LAWS.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have outstanding
2,400,000 shares of Common Stock (or 2,580,000 shares if the Underwriter's
Overallotment Option is exercised in full). The 1,200,000 shares of Common Stock
and 1,200,000 Warrants sold in this Offering (or 1,380,000 shares of Common
Stock and 1,380,000 Warrants if the Underwriter's Overallotment Option is
exercised in full) and the 1,200,000 shares of Common Stock issuable upon
exercise of the Warrants (or 1,380,000 shares if the Underwriter's Overallotment
Option is exercised in full) will be freely tradeable without restrictions under
the Securities Act except for any shares purchased by an "affiliate" of the
Company (as that term is defined in the rules and regulations under the
Securities Act), which affiliate will be subject to the resale limitations of
Rule 144 under the Securities Act. The remaining 1,200,000 shares of Common
Stock owned by Meridian and which will be outstanding after the completion of
this Offering are treated as "restricted securities" for purposes of Rule 144;
therefore, such shares may not be resold in a public distribution except in
compliance with the registration requirements of the Securities Act or pursuant
to Rule 144 under the Securities Act.
Meridian and the Company's officers and directors have agreed that, subject
to certain limited exceptions, for a period of 12 months following the date of
this Prospectus, they will not offer, sell or dispose of any Common Stock or any
securities convertible into, or exchangeable for, or warrants to purchase or
acquire, shares of Common Stock without the consent of the Underwriter. In
addition, the Company has granted certain demand and "piggyback" registration
rights to Meridian. See "Relationships Between the Company and Meridian --
Registration Rights."
Prior to this Offering, there has been no market for the Common Stock or
Warrants. The Company can make no predictions as to the effect, if any, that
sales of shares of Common Stock or the availability of shares for sale will have
on the market prices prevailing from time to time. Nevertheless, sales of
substantial amounts of the Common Stock in the public market could adversely
affect prevailing market prices.
UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed to purchase
from the Company, 1,200,000 shares of Common Stock and 1,200,000 Warrants. The
Underwriting Agreement provides that the obligations of the Underwriter are
subject to certain conditions precedent. The Underwriter is committed to
purchase all of the securities offered hereby, if any are purchased.
The Underwriter has advised that it proposes initially to offer the
1,200,000 shares of Common Stock and 1,200,000 Warrants to the public at the
initial public offering prices set forth on the cover page of this Prospectus
and that it may allow to selected dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") concessions not in excess of
$ per share of Common Stock and $
per Warrant, of which not more than $ per share of Common Stock and $ per
Warrant may be re-allowed to certain other dealers.
The Underwriting Agreement provides further that the Underwriter will
receive a non-accountable expense allowance of 3% of the gross proceeds of this
Offering. The Company has also agreed to pay all expenses in connection with
qualifying the shares of Common Stock and Warrants offered hereby for sale under
the laws of such states as the Underwriter may designate, including expenses of
counsel retained for such purpose by the Underwriter.
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The Company has granted to the Underwriter the Underwriter's Overallotment
Option, which is exercisable once during a period of 45 days after the
completion of this Offering, to purchase up to an additional number of shares of
Common Stock and Warrants equal to 15% of the total number of shares of Common
Stock and Warrants offered hereby, solely to cover overallotments.
The Company has agreed to sell to the Underwriter for nominal consideration
the Underwriter's Warrant to purchase 120,000 shares of Common Stock and 120,000
Warrants. The Underwriter's Warrant will be non-exercisable for one year after
the date of this Prospectus. Thereafter, for a period of four years, the
Underwriter's Warrant will be exercisable at $6.60 per share of Common Stock and
$.12 per Warrant. The Underwriter's Warrant is not transferable for a period of
one year after the date of this Prospectus, except to officers and directors of
the Underwriter, co-underwriters, if any, of the Underwriter and to members of
the selling group and their officers and partners. The Company has also granted
certain demand and "piggyback" registration rights to the holders of the
Underwriter's Warrant.
For the life of the Underwriter's Warrant, the holders thereof are given, at
nominal cost, the opportunity to profit from a rise in the market price of the
Common Stock with a resulting dilution in the interest of other stockholders.
Further, the holders may be expected to exercise the Underwriter's Warrant at a
time when the Company would in all likelihood be able to obtain equity capital
on terms more favorable than those provided in the Underwriter's Warrant.
The Company has agreed, for a period of 18 months after the date of this
Prospectus, not to issue any shares of Common Stock or convertible Preferred
Stock or any warrants, options or other rights to purchase Common Stock or
convertible Preferred Stock without the prior written consent of the
Underwriter, except (i) options to purchase up to 254,000 shares of Common
Stock, (ii) shares issuable upon exercise of such options, and (iii) shares
issuable upon exercise of any warrants or options outstanding on the date of
this Prospectus or to be outstanding upon the completion of this Offering as
described herein. Meridian and each officer and director of the Company have
agreed not to sell or otherwise dispose of any shares of Common Stock for a
period of 12 months following the date of this Prospectus, without the consent
of the Underwriter.
The Underwriting Agreement provides for reciprocal indemnification between
the Company and the Underwriter against liabilities in connection with this
Offering, including liabilities under the Securities Act.
The Company has agreed that upon the completion of this Offering it will,
for a period of not less than three years, engage a designee of the Underwriter
as an advisor to the Board. The designee of the Underwriter will receive the
same fees for attendance at meetings as the directors of the Company. In
addition and in lieu of the Underwriter's right to designate an advisor, the
Company has agreed, if requested by the Underwriter during such three-year
period, to nominate and use its best efforts to cause the election of a designee
of the Underwriter as a director of the Company. A person to be designated by
the Underwriter has not been identified.
The Underwriter intends to act as a market maker for the Common Stock and
Warrants after the completion of this Offering.
Until five years after the date of this Prospectus, the Company will pay the
Underwriter a fee of 5% of the exercise price of each Warrant exercised,
provided (i) the market price of the Common Stock on the date the Warrant was
exercised was greater than the Warrant exercise price on that date, (ii) the
exercise of the Warrant was solicited by a member of the NASD, (iii) the Warrant
was not held in a discretionary account, (iv) the disclosure of compensation
arrangements was made both at the time of this Offering and at the time of
exercise of the Warrant, (v) the solicitation of the exercise of the Warrant was
not a violation of Rule 10b-6 promulgated under the Exchange Act, and (vi) the
Underwriter is designated in writing as the soliciting NASD member. Unless
granted an exemption by the Commission from Rule 10b-6 under the Exchange Act,
the Underwriter and any other soliciting broker/dealers will be prohibited from
engaging in any market making activities or solicited brokerage activities with
regard to the Company's securities during the periods
45
<PAGE>
prescribed by exemption (xi) to Rule 10b-6 before the solicitation of the
exercise of any Warrant until the later of the termination of such solicitation
activity or the termination of any right the Underwriter and any other
soliciting broker/dealer may have to receive a fee for the solicitation of the
exercise of the Warrants.
The Company has agreed to retain the Underwriter at a Consulting Fee of
$2,500 per month for a 30-month period commencing on the date of this
Prospectus. The fee is payable quarterly in advance, with the first payment due
upon the completion of this Offering. Pursuant to the consulting agreement, the
Underwriter will be obligated to provide general financial advisory services to
the Company on an as-needed basis with respect to possible future financing or
acquisitions by the Company and related matters. The consulting agreement does
not require the Underwriter to provide any minimum number of hours of consulting
services to the Company. In addition, during the term of the consulting
agreement, the Company has agreed to pay a finder's fee based on the transaction
value of any merger, acquisition, joint venture or other similar transaction
that is originated by the Underwriter and to which the Company is a party.
The Company has granted the Underwriter a right of first refusal to act as
its intermediary in connection with any public or private offering of securities
by the Company during a period of three years after the date of this Prospectus.
The initial public offering price of the shares of Common Stock and Warrants
offered hereby and the exercise price and other terms of the Warrants have been
determined by negotiation between the Company and the Underwriter. Factors
considered in determining the offering price of the shares of Common Stock and
Warrants and the exercise price of the Warrants included the business in which
the Company is engaged, the Company's financial condition, an assessment of the
Company's management, the general condition of the securities markets and the
demand for similar securities of comparable companies.
LEGAL MATTERS
The legality of the Common Stock and Warrants offered hereby will be passed
on for the Company by Benesch, Friedlander, Coplan & Aronoff P.L.L., Cleveland,
Ohio. Schneck Weltman Hashmall & Mischel LLP, New York, New York, has acted as
counsel to the Underwriter in connection with this Offering. Benesch,
Friedlander, Coplan & Aronoff P.L.L. provides legal services to Meridian.
EXPERTS
The Combined Financial Statements of the Company at February 29, 1996 and
February 28, 1995 and for each of the three fiscal years in the period ended
February 29, 1996, included elsewhere in this Prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
appearing elsewhere in this Prospectus, and are included in reliance upon such
reports given upon the authority of said firm as experts in auditing and
accounting.
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement under the Securities Act with respect to the securities
offered hereby. This Prospectus, filed as a part of the Registration Statement,
does not contain certain information set forth in or annexed as exhibits to the
Registration Statement. For further information regarding the Company and the
securities offered hereby, reference is made to the Registration Statement and
to the exhibits filed as a part thereof, which may be inspected at the office of
the Commission without charge or copies of which may be obtained therefrom upon
request to the Commission and payment of the prescribed fee. Statements
contained in this Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
Reports filed by the Company with the Commission pursuant to the information
requirements of the Exchange Act may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
46
<PAGE>
New York Regional Office, 7 World Trade Center, 13th Floor, New York, New York,
and Chicago Regional Office, The Northwestern Atrium Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois. Copies of such material may be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The Commission maintains a web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission. The
Commission's web site may be accessed at (http://www.sec.gov).
47
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.:
Report of Independent Auditors.......................................................................... F-2
Balance Sheet at February 29, 1996...................................................................... F-3
Notes to Balance Sheet.................................................................................. F-4
EPI (ENTITIES TO BECOME WHOLLY-OWNED SUBSIDIARIES OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.):
Report of Independent Auditors.......................................................................... F-5
Combined Balance Sheets at February 29, 1996 and February 28, 1995...................................... F-6
For the Years Ended February 29, 1996 and February 28, 1995 and 1994:
Combined Statements of Operations..................................................................... F-7
Combined Statements of Net Capital Deficiency......................................................... F-8
Combined Statements of Cash Flows..................................................................... F-9
Notes to Combined Financial Statements.................................................................. F-10
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Environmental Purification Industries, Inc.
We have audited the accompanying balance sheet of Environmental Purification
Industries, Inc. as of February 29, 1996. The balance sheet is the
responsibility of management. Our responsibility is to express an opinion on
this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Environmental Purification
Industries, Inc. at February 29, 1996 in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
Toledo, Ohio
April 26, 1996,
except for Note 2, as to which the date is June 11, 1996
F-2
<PAGE>
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
FEBRUARY 29,
1996
---------------
<S> <C>
ASSET
Receivable from parent company...................................................................... $ 100
-----
-----
EQUITY (3,000 SHARES AUTHORIZED)
Common Stock, $0.01 par value; authorized,
100 shares issued and outstanding................................................................. $ 1
Capital in excess of par value...................................................................... 99
-----
$ 100
-----
-----
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
NOTES TO BALANCE SHEET
1. FORMATION AND BASIS OF PRESENTATION
Environmental Purification Industries, Inc. (the "Company"), a wholly-owned
subsidiary of Meridian National Corporation ("Meridian"), was incorporated in
Delaware on February 26, 1996 and was organized for the purpose of becoming the
parent company of certain wholly-owned subsidiaries of Meridian in anticipation
of a public offering of common stock.
2. NOTE PAYABLE TO BANK
On February 29, 1996 the Company entered into an agreement with a bank to
borrow $300,000 to pay costs related to the proposed public offering.
Borrowings, which occurred on March 8, 1996, bear interest at the bank's prime
rate plus 1 1/2% and are due on July 31, 1996. Meridian co-signed the note with
the Company.
F-4
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Boards of Directors
National Purification, Inc.
MEPI Corp.
We have audited the combined balance sheets of EPI (see Note 1) as of February
29, 1996 and February 28, 1995, and the related combined statements of
operations, net capital deficiency and cash flows for each of the three years in
the period ended February 29, 1996. These financial statements are the
responsibility of the companies' 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 combined financial statements referred to above present
fairly, in all material respects, the combined financial position of EPI at
February 29, 1996 and February 28, 1995, and the combined results of their
operations and their cash flows for each of the three years in the period ended
February 29, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Toledo, Ohio
April 26, 1996
F-5
<PAGE>
EPI
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 26,014 $ 6,936
Accounts receivable............................................................... 525,081 595,855
Other current assets.............................................................. 56,482 37,079
------------- -------------
Total current assets................................................................ 607,577 639,870
Funds limited as to use, held by trustee............................................ 314,270 309,331
Property and equipment, at cost less accumulated depreciation and amortization...... 1,650,415 1,754,582
Other assets........................................................................ 393,446 245,780
------------- -------------
Total assets........................................................................ $ 2,965,708 $ 2,949,563
------------- -------------
------------- -------------
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable.................................................................. $ 394,363 $ 197,054
Other accrued liabilities......................................................... 86,219 64,586
Advances from parent company...................................................... 2,672,929 2,448,752
Long-term debt due within one year................................................ 315,750 294,595
------------- -------------
Total current liabilities........................................................... 3,469,261 3,004,987
Long-term debt...................................................................... 2,036,847 2,345,334
Commitments and contingencies
Net capital deficiency:
Common Stock:
NPI -- $1 stated value; 750 shares authorized; 100 shares issued and
outstanding.................................................................... 100 100
MEPI -- $100 stated value; 750 shares authorized; 5 shares issued and
outstanding.................................................................... 500 500
Deficit........................................................................... (2,541,000) (2,401,358)
------------- -------------
Total net capital deficiency........................................................ (2,540,400) (2,400,758)
------------- -------------
Total liabilities and net capital deficiency........................................ $ 2,965,708 $ 2,949,563
------------- -------------
------------- -------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-6
<PAGE>
EPI
COMBINED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED FEBRUARY 28
FEBRUARY 29, --------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... $ 3,533,514 $ 3,459,107 $ 2,530,066
Operating costs and expenses:
Costs of operations................................................... 2,196,322 2,023,815 1,496,040
Selling, general and administrative................................... 1,045,036 941,812 851,546
------------ ------------ ------------
3,241,358 2,965,627 2,347,586
------------ ------------ ------------
Income from operations.................................................. 292,156 493,480 182,480
Other income (expense):
Interest expense...................................................... (467,983) (445,903) (398,911)
Interest income....................................................... 36,185 30,009 20,192
------------ ------------ ------------
(431,798) (415,894) (378,719)
------------ ------------ ------------
Net income (loss)....................................................... $ (139,642) $ 77,586 $ (196,239)
------------ ------------ ------------
------------ ------------ ------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-7
<PAGE>
EPI
COMBINED STATEMENTS OF NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK
----------------------
NPI MEPI DEFICIT TOTAL
--------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Balance at February 28, 1993........................................ $ 100 $ 500 $ (2,282,705) $ (2,282,105)
Net loss.......................................................... (196,239) (196,239)
--------- ----- ------------- -------------
Balance at February 28, 1994........................................ 100 500 (2,478,944) (2,478,344)
Net income........................................................ 77,586 77,586
--------- ----- ------------- -------------
Balance at February 28, 1995........................................ 100 500 (2,401,358) (2,400,758)
Net loss.......................................................... (139,642) (139,642)
--------- ----- ------------- -------------
Balance at February 29, 1996........................................ $ 100 $ 500 $ (2,541,000) $ (2,540,400)
--------- ----- ------------- -------------
--------- ----- ------------- -------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-8
<PAGE>
EPI
COMBINED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED FEBRUARY 28
FEBRUARY 29, ------------------------
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................................... $ (139,642) $ 77,586 $ (196,239)
Adjustments to reconcile net income (loss) to net cash provided by (used
in) operating activities:
Depreciation and amortization........................................... 254,586 257,141 249,580
Noncash interest expense................................................ -- 50,055 33,222
Equity in earnings of affiliate......................................... -- -- --
Changes in operating assets and liabilities:
Accounts receivable................................................... 70,774 (307,275) 36,061
Other current assets.................................................. (16,689) 19,242 2,867
Accounts payable and accrued liabilities.............................. 61,446 (97,418) (37,622)
------------ ----------- -----------
Net cash provided by (used in) operating activities....................... 230,475 (669) 87,869
INVESTING ACTIVITIES
Additions to property and equipment....................................... (140,294) (63,510) (114,856)
Increase in funds limited as to use, held by trustee...................... (4,939) (7,061) (6,420)
Changes in other assets................................................... (3,009) (186,899) 266
Advances to affiliate..................................................... -- -- --
Cash acquired in acquisition of affiliated company........................ -- -- --
------------ ----------- -----------
Net cash used in investing activities..................................... (148,242) (257,470) (121,010)
FINANCING ACTIVITIES
Payments on long-term debt................................................ (287,332) (370,514) (338,966)
Net advances from parent company.......................................... 224,177 569,333 249,450
Proceeds from long-term borrowings........................................ -- -- 251,895
Decrease in notes payable................................................. -- -- (95,000)
------------ ----------- -----------
Net cash provided by (used in) financing activities....................... (63,155) 198,819 67,379
------------ ----------- -----------
Increase (decrease) in cash and cash equivalents.......................... 19,078 (59,320) 34,238
Cash and cash equivalents at beginning of period.......................... 6,936 66,256 32,018
------------ ----------- -----------
Cash and cash equivalents at end of period................................ $ 26,014 $ 6,936 $ 66,256
------------ ----------- -----------
------------ ----------- -----------
SEE ACCOMPANYING NOTES.
</TABLE>
F-9
<PAGE>
EPI
NOTES TO COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying combined financial statements include the accounts of
National Purification, Inc. ("NPI"), MEPI Corp. ("MEPI") and Environmental
Purification Industries Company ("EPIC"), an Ohio general partnership whose sole
general partners are NPI and MEPI. NPI and MEPI are wholly-owned subsidiaries of
Meridian National Corporation ("Meridian") and are collectively referred to as
"EPI". EPI and EPIC are collectively referred to as the "Company." EPIC was
formed in September 1989 with two partners: NPI and Haden Purification, Inc. (a
wholly-owned subsidiary of Haden, Inc.) ("Haden Purification"). Effective July
1, 1992, MEPI was admitted as a partner and Haden Purification terminated its
partnership interest.
Meridian is considering a public offering of common stock of its
wholly-owned subsidiary, Environmental Purification Industries, Inc., to which
it intends to transfer its ownership interests in EPI.
The Company operates a paint waste recycling facility. The Company's
revenues have increased each year since its inception, and is operating at or
near its paint waste capacity. While the Company has had recurring losses, the
amounts of such losses have decreased significantly. Operating cash flows are
expected to be sufficient to cover debt service and anticipated capital
expenditure requirements; however, unless the proposed public offering is
completed, the Company may continue to rely on Meridian for financial support.
Meridian does not intend to continue to provide financial support to the Company
if the proposed public offering is successfully completed.
Meridian provides certain services to the Company, including compensation
and benefits administration, payroll processing, use of certain general
accounting systems and income tax compliance. Meridian allocates costs to the
Company on the basis of specific services provided. In the opinion of
management, such allocations do not materially differ from the actual costs
which would have been incurred had the Company not received such services from
Meridian.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
AMORTIZATION
Deferred financing costs are being amortized over the term of the loan based
on the straight-line method.
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided over the estimated useful lives
of the various classes of assets using the straight-line method, based on the
following estimated useful lives:
<TABLE>
<S> <C>
Machinery and equipment........................................... 10 years
Land improvements................................................. 15 years
Buildings and building improvements............................... 40 years
Office furniture and equipment.................................... 5 years
</TABLE>
F-10
<PAGE>
EPI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on the Company's financial condition, the collateral securing its
outstanding long-term debt and the frequently redetermined interest rates
associated with advances from Meridian and with certain long-term debt, the
Company estimates that the fair values of its debt obligations do not materially
differ from the carrying values.
INCOME TAXES
For federal and state income tax purposes, the taxable income or loss of the
companies are included in consolidated income tax returns of Meridian and income
taxes are allocated to the companies on a basis consistent with separate
returns. Deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse.
3. CONCENTRATION OF CREDIT RISK
Accounts receivable as of February 29, 1996 and February 28, 1995 are
principally due from companies which operate in the automotive industries and
which are principally located in the midwestern region of the United States. For
the year ended February 29, 1996, sales to two customers represented an
aggregate of 27% of net sales. Credit is extended based on an evaluation of
credit reports and payment practices. Collateral or letters of credit are not
required. Credit losses are provided for in the financial statements and
consistently have been within management's expectations.
4. FUNDS LIMITED AS TO USE, HELD BY TRUSTEE
A primary reserve fund was established pursuant to the terms of the loan
agreement between the Company and the Toledo-Lucas County (Ohio) Port Authority
(the "Port Authority") (see Note 7). Additionally, the Company has established a
closure fund as required under regulations issued by the U.S. Environmental
Protection Agency (the "U.S. EPA"). The fund balances are as follows:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
Primary reserve................................................... $ 297,328 $ 296,557
Closure........................................................... 16,942 12,774
------------ ------------
$ 314,270 $ 309,331
------------ ------------
------------ ------------
</TABLE>
The trustee may use funds from the primary reserve fund to meet debt service
requirements under certain circumstances. The trustee, at the direction of the
U.S. EPA, would use the funds from the closure fund to pay costs of closure or
post-closure care of the Company's paint waste recycling facility.
These funds are held by a trustee, are valued at cost which approximates
market and consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
U.S. Government securities........................................ $ 561,706 $ 563,888
Pooled U.S. Government obligation funds........................... 1,016 13,700
Other............................................................. 38,798 18,993
Amount assigned to former partner................................. (287,250) (287,250)
------------ ------------
$ 314,270 $ 309,331
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
EPI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
FEBRUARY 29, ----------------------
1996 1995 1994
------------ ---------- ----------
Machinery and equipment...................................................................... $ 2,916,383 $2,822,627 $2,803,890
<S> <C> <C> <C>
Land and land improvements................................................................... 119,825 119,825 119,825
Building and building improvements........................................................... 306,400 306,400 282,000
Office furniture and equipment............................................................... 50,115 46,340 36,468
Construction in progress..................................................................... 71,568 32,250 32,250
------------ ---------- ----------
3,464,291 3,327,442 3,274,433
Less accumulated depreciation and amortization............................................... 1,813,876 1,572,860 1,334,138
------------ ---------- ----------
Net property and equipment................................................................... $ 1,650,415 $1,754,582 $1,940,295
------------ ---------- ----------
------------ ---------- ----------
</TABLE>
6. ADVANCES FROM PARENT COMPANY
Meridian provides funding to the Company. Interest is charged on
intercompany advances and outstanding borrowings at 1% over the prime rate and
amounted to $224,000, $187,000 and $127,000 in 1996, 1995 and 1994,
respectively.
7. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 29, FEBRUARY 28,
1996 1995
------------ ------------
<S> <C> <C>
8 1/2% mortgage note payable to trustee bank, due in monthly installments, including interest, of
approximately $36,500 until final maturity in November 2000......................................... $ 1,651,875 $ 1,925,625
Note payable to former partner (Haden Purification), due in monthly installments commencing July 1,
1994 based on the volume of paint waste recycled by the Company, with interest (9.25% at February
29, 1996) at 1% over prime.......................................................................... 700,722 713,459
Other................................................................................................. -- 845
------------ ------------
2,352,597 2,639,929
Less amounts due in one year.......................................................................... 315,750 294,595
------------ ------------
$ 2,036,847 $ 2,345,334
------------ ------------
------------ ------------
</TABLE>
The mortgage note payable to trustee bank was incurred in connection with
development revenue bonds issued by the Port Authority. The note is secured by
substantially all property and equipment of EPIC, which has a net book value of
$1,650,000 at February 29, 1996. The Company is required to pay fees to the Port
Authority and to the trustee bank aggregating 0.435% per annum based on the
outstanding principal balance.
Haden Purification assumed 50% of the remaining principal, interest and fee
payments due under the mortgage note and was assigned 50% of the amount held in
trust to meet future debt service requirements. The $1,651,875 due under the
mortgage note excludes the amount assumed by Haden Purification. Should Haden
Purification be unable to meet its assumed obligations, the Company would be
required to pay such obligations. The balance of the note not assumed by Haden
Purification has been guaranteed by Meridian.
F-12
<PAGE>
EPI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
7. LONG-TERM DEBT -- (CONTINUED)
Accrued but unpaid interest under the note payable to Haden Purification
through June 30, 1994 was added to the principal balance outstanding and bears
interest. At June 30, 1994 and 1993, $50,055 and $33,222, respectively, of
accrued but unpaid interest was added to the principal balance. In addition to
monthly payments, the Company is required to make quarterly installments based
on a percentage of its net cash flow for the quarter as outlined in the loan
agreement. The partnership interests in EPIC are pledged as security for the
note payable to Haden Purification.
Maturities of long-term debt in each of the five years subsequent to
February 29, 1996 are approximately as follows: 1997 -- $316,000; 1998 --
$320,000; 1999 -- $346,000; 2000 -- $377,000; 2001 -- $410,000.
8. COMMITMENTS AND CONTINGENCIES
The Company has entered into a license agreement with Aster, Inc. ("Aster")
whereby Aster has granted the Company the exclusive right, except in Mexico, to
use certain patented processes and technology in the Company's paint recycling
process. The Company has agreed to pay Aster royalties and other fees for
ongoing work performed by Aster to commercialize and to continue to refine the
processes, formulae and technology. Minimum monthly payments required under the
agreement are $20,000.
As part of the agreement, the Company agreed to fund an $80,000 settlement
between Aster and a third party under which the third party will relinquish all
rights to Aster technology. Settlement payments, which have been guaranteed by
Meridian, due subsequent to February 29, 1996 are as follows: $30,000 on March
1, 1996 and $40,000 on March 1, 1997.
The Company has begun planning for the construction of facilities which will
utilize the Aster technology. Planned expenditures for property and equipment
amount to approximately $2,200,000, of which $594,000 was committed as of April
26, 1996.
Haden Purification is entitled to receive 10% of the proceeds realized by
EPI or Meridian from any sale, refinancing or similar transactions relative to
EPI's interests in EPIC. The agreement specifically permits, without payment to
Haden Purification, the repayment of certain loans or distribution of profits to
EPI or Meridian from the ordinary business operations of the Company. Management
believes the likelihood of any such distribution to Haden Purification is
remote. Accordingly, no liability for the contingent interest of Haden
Purification has been recorded in the Company's combined balance sheet.
9. RELATED PARTY TRANSACTIONS
Meridian provides management services to the Company. Such services include
compensation and benefits administration, payroll processing, use of certain
general accounting systems, income tax compliance, and treasury services.
Charges for such services and any other costs not otherwise allocated were
approximately $22,200, $22,600 and $19,900 in 1996, 1995 and 1994, respectively.
10. INCOME TAXES
The Company has allocated net operating loss carryforwards for federal tax
purposes of approximately $2,288,000 available for the reduction of future
federal income tax. Net operating loss carryforwards begin expiring in fiscal
2005.
F-13
<PAGE>
EPI
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
10. INCOME TAXES -- (CONTINUED)
A reconciliation of the provision for income taxes based on the statutory
U.S. federal tax rate of 34% to the combined provision for income taxes is as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ----------- -----------
<S> <C> <C> <C>
Tax (benefit) based on statutory U.S. federal income tax rate............... $ (47,478) $ 26,379 $ (66,721)
Effects of use of losses by consolidated group.............................. 4,282 179,752 234,188
State deferred taxes........................................................ (7,000) 38,000 30,000
Change in valuation allowance............................................... 47,000 (250,000) (200,000)
Other....................................................................... 3,196 5,869 2,533
---------- ----------- -----------
Combined provision for income taxes......................................... $ -- $ -- $ --
---------- ----------- -----------
---------- ----------- -----------
</TABLE>
Significant components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Allocated net operating loss carryforwards............................. $ 915,000 $ 715,000 $ 790,000
Property and equipment................................................. 58,000 191,000 333,000
Other.................................................................. 11,000 31,000 64,000
----------- ----------- -------------
Total deferred tax assets................................................ 984,000 937,000 1,187,000
Valuation allowance...................................................... (984,000) (937,000) (1,187,000)
----------- ----------- -------------
Net deferred tax assets.................................................. $ -- $ -- $ --
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
The change in the valuation allowance equals the change in net deferred tax
assets. There are no deferred tax liabilities.
11. SUBSEQUENT EVENTS (UNAUDITED)
A Registration Statement is proposed to be filed in July 1996 registering
the common shares of Environmental Purification Industries, Inc. for sale to the
public. NPI and MEPI will become, prior to the effective date of the
Registration Statement, wholly-owned subsidiaries of Environmental Purification
Industries, Inc.
The Company has executed an agreement (the "Compromise Agreement") to repay
the note payable to Haden Purification. The terms of the Compromise Agreement
include, among other things, settlement of the note payable in exchange for a
$350,000 payment. Additionally, the Company is required to pay, through June
1998, Haden Environmental Corporation, an affiliate of Haden Purification, a
throughput charge of $10 per cubic yard of paint waste processed through the
DryPure System-TM-. The throughput charges are estimated to aggregate $170,000.
F-14
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO UNDERWRITER, DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS, OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS, IN CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THERE HAS NOT BEEN ANY CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE SECURITIES OFFERED HEREBY, OR AN OFFER TO SELL OR SOLICITATION OF
AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Use of Proceeds................................ 14
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Combined Financial Data............... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 19
Business....................................... 22
Management..................................... 31
Principal Stockholders......................... 37
Relationships Between the Company and
Meridian...................................... 39
Description of Securities...................... 40
Certain Federal Income Tax Considerations...... 43
Shares Eligible for Future Sale................ 44
Underwriting................................... 44
Legal Matters.................................. 46
Experts........................................ 46
Additional Information......................... 46
Index to Financial Statements.................. F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
ENVIRONMENTAL
PURIFICATION
INDUSTRIES, INC.
1,200,000 SHARES OF
COMMON STOCK
AND
1,200,000 WARRANTS
-------------------------
P R O S P E C T U S
-------------------------
RICKEL & ASSOCIATES, INC.
, 1996
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses payable by the Company in connection with the
registration of the Common Stock and Warrants offered hereby, other than
underwriting discounts and commissions, are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.................................................. $ 5,270
Boston Stock Exchange Filing Fee......................................
NASD Filing Fee....................................................... 2,027
Nasdaq Filing Fee.....................................................
Printing and Engraving Expenses.......................................
Legal Fees and Expenses...............................................
Underwriter's Nonaccountable Expense Allowance........................ 201,600
Underwriter's Consulting Fee.......................................... 75,000
Accounting Fees and Expenses..........................................
"Blue Sky" Fees and Expenses..........................................
Transfer Agent, Warrant Agent and Registrar Fees......................
Miscellaneous.........................................................
---------
Total........................................................... $
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation contains a provision
requiring indemnification of directors and officers to the fullest extent
authorized by Delaware Law. The Delaware Law permits a corporation to indemnify
its directors and officers (among others) against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by them in connection with any action, suit or proceeding brought (or
threatened to be brought) by third parties, if such directors or officers acted
in good faith and in a manner they reasonably believed to be in or not opposed
to the best interests of the corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe their conduct was
unlawful. In a derivative action, I.E., one by or in the right of the
corporation, indemnification may be made for expenses (including attorneys'
fees) actually and reasonably incurred by directors and officers in connection
with the defense or settlement of such action if they acted in good faith and in
a manner they reasonably believed to be in or not opposed to the best interests
of the corporation, except that no indemnification will be made in respect of
any claim, issue or matter as to which such person has been adjudged liable to
the corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or such other court deems proper. The
Delaware Law further provides that, to the extent any director or officer has
been successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in this paragraph, or in defense of any claim issue or
matter therein, such person will be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith. In addition, the Company's Restated Certificate of Incorporation
contains a provision eliminating the personal liability of the Company's
directors for monetary damages for certain breaches of their fiduciary duty.
The Company maintains directors' and officers' liability insurance covering
certain liabilities that may be incurred by the directors and officers of the
Company in connection with the performance of their duties.
Reference is made to Section 10 of the proposed form of Underwriting
Agreement between the Company and the Underwriter, filed as Exhibit 1.1 hereto,
for a description of the indemnification arrangements with respect to this
Offering.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Except as described in this Item, no securities of the Company have been
sold by the Company within the past three years without registration under the
Securities Act of 1933, as amended (the "Securities Act"). In the past three
years, the Company has made the following sale of unregistered securities, which
was exempt from the registration requirements of the Securities Act:
In connection with the formation of the Company in 1996, an aggregate of
1,200,000 shares of the Company's Common Stock were issued to Meridian National
Corporation.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter Consulting Agreement.
*3.1 Certificate of Incorporation of the Company, dated February 26, 1996.
*3.2 Form of Restated Certificate of Incorporation of the Company.
*3.3 By-laws of the Company.
*4.1 Specimen Stock Certificate.
4.2 Form of Warrant Agent Agreement (including Form of Redeemable Warrant).
4.3 Proposed Form of Underwriter's Warrant.
5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff P.L.L.
*10.1 Lease dated March 1, 1996 between EPIC, as tenant, and Chicago Investors, as
landlord.
*10.2 Sublease dated March 1, 1996 between EPIC, as subtenant, and Ottawa River Steel
Co., as sublandlord.
*10.3 Form of Tax Sharing Agreement between the Company and Meridian.
*10.4 Form of Registration Rights Agreement between the Company and Meridian.
*10.5 Form of Transitional Agreement between the Company and Meridian.
*10.6 Form of 1996 Non-Qualified and Incentive Stock Option Plan.
*10.7 Form of 1996 Non-Employee Directors' Stock Option Plan.
*10.8 License Agreement dated September 7, 1995 between Aster and EPIC and amendment
dated September 7, 1995.
10.9 Employment Agreement dated July , 1996 between Bruce F. Maison and the Company.
*10.10 Loan Agreement dated as of December 15, 1989 between Toledo-Lucas County Port
Authority and EPIC.
*10.11 Open-End Mortgage and Security Agreement dated as of December 15, 1989 from EPIC to
Society Bank & Trust, as Trustee.
10.12 Compromise Agreement dated as of June 28, 1996 among Haden MacLellan Holdings,
PLC., Haden, Inc., Haden Environmental, Haden Purification, Meridian, NPI, MEPI,
EPIC and the Company.
*10.13 $300,000 Term Note Payable dated February 29, 1996 by the Company and Meridian in
favor of National Canada Finance Corp., as amended.
10.14 $350,000 Term Note Payable dated , 1996 by the Company and Meridian in
favor of National Canada Finance Corp.
*21.1 List of Subsidiaries.
*23.1 Consent of Ernst & Young LLP.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
23.2 Consent of Benesch, Friedlander, Coplan & Aronoff P.L.L. (included in their opinion
filed as Exhibit 5.1 to this Registration Statement).
*24.1 Power of Attorney is set forth on the signature page of this Registration
Statement.
*27.1 Financial Data Schedule
</TABLE>
- --------------
* Filed herewith.
B. FINANCIAL STATEMENT SCHEDULES
All schedules required pursuant to the requirements of Item 16(b) are
omitted because they are not applicable, not material, not required or the
required information is included in the applicable financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii)To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreement, certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
(5) That for the purpose 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 Company under Rule 424(b)(1),
or (4) or 497(h) under the Securities Act shall be deemed as a part of this
registration statement as of the time it was declared effective.
(6) That 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-3
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, 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.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Toledo, State of Ohio on
July 8, 1996.
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
By: /s/ BRUCE F. MAISON
-----------------------------------
Bruce F. Maison
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Bruce F. Maison and Real P. Remillard, or any of
them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement on Form S-1, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact, agent, or their substitutes may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ --------------------------------------- ----------------------
<C> <S> <C>
/s/ BRUCE F. MAISON President, Chief Executive Officer and
-------------------------------------- Director July 8, 1996
Bruce F. Maison
/s/ REAL P. REMILLARD Chief Financial Officer, Secretary and
-------------------------------------- Director July 8, 1996
Real P. Remillard
/s/ WILLIAM D. FENIGER Chairman of the Board and Director
-------------------------------------- July 8, 1996
William D. Feniger
/s/ CHARLES E. CRAIG Director
-------------------------------------- July 8, 1996
Charles E. Craig
/s/ WAYNE GARDENSWARTZ Director
-------------------------------------- July 8, 1996
Wayne Gardenswartz
/s/ ROBERT L. HINKLE Director
-------------------------------------- July 8, 1996
Robert L. Hinkle
</TABLE>
II-5
<PAGE>
DRAFT
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
1,200,000 Shares of Common Stock and
1,200,000 Redeemable
Common Stock Purchase Warrants
UNDERWRITING AGREEMENT
, 1996
Rickel & Associates, Inc.
875 Third Avenue
New York, New York 10022
Dear Sirs:
Environmental Purification Industries, Inc., a Delaware corporation
(the "Company"), hereby confirms its agreement with Rickel & Associates, Inc.
("you" or the "Underwriter"), as follows:
1. DESCRIPTION OF THE SECURITIES.
The Company proposes to issue and sell to the Underwriter 1,200,000
shares (the "Shares") of common stock, $.01 par value per share ("Common
Stock"), and 1,200,000 redeemable common stock purchase warrants ("Warrants") of
the Company (the Shares, together with such Warrants, being sometimes referred
to as the "Securities"). The Company proposes to grant to the Underwriter an
option to purchase up to 180,000 additional shares of Common Stock and up to an
additional 180,000 Warrants (the "Additional Securities"). The offering of
Securities and Additional Securities contemplated hereby may sometimes be
referred to as the "Offering."
(a) THE WARRANTS.
Pursuant to and subject to certain conditions set forth in the
agreement (the "Warrant Agreement") between the Company, the Underwriter and
Continental Stock Transfer & Trust Company, each Warrant will be exercisable
during the period commencing on the effective date of the Registration
Statement, as defined in Paragraph 2(a) hereof (the "Effective Date"), and
expiring three years thereafter, subject to prior redemption by the Company (as
described below), at an initial exercise price (subject to adjustment as set
forth in the Warrant Agreement) equal to $4.50 per share. The shares of Common
Stock issuable upon the exercise of Warrants are hereinafter referred to as
"Warrant Shares."
As more fully provided in the Warrant Agreement, the Warrants will be
redeemable at a price of $.10 per Warrant, commencing 12 months after the
Effective Date (or earlier with your
<PAGE>
prior written consent) and prior to their expiration upon not less than 30 days'
prior written notice to the holders of the Warrants, provided the average
closing sales price (or, if none, the average of the closing bid and asked
quotations) of the Common Stock as reported on The Nasdaq Stock Market or a
national securities exchange has been at least 150% of the then current Warrant
exercise price (initially $4.50 per share), on any 20 trading days in a 30
trading day period ending no later than 20 days prior to the date on which the
Company gives notice of redemption, subject to the right of the holder to
exercise his purchase rights thereunder until redemption. The exercise price
and the number of Warrants will be subject to adjustment in the event of (i) a
merger or acquisition of the Company in which the stock of the Company is
changed or reclassified, (ii) a recapitalization or split-up of Shares of the
Company or (iii) the issuance by the Company of a stock dividend.
(b) UNDERWRITER'S SECURITIES.
The Company will sell to the Underwriter, for a total of $10.00,
warrants to purchase up to 10% of the number of Securities sold to the public
(excluding the Additional Securities) at an exercise price equal to 120% of the
offering price of the Securities sold in the Offering (the "Underwriter's
Warrants"). The Underwriter's Warrants, shares of Common Stock and Warrants
underlying the Underwriter's Warrants and shares of Common Stock issuable upon
exercise of the Warrants underlying the Underwriter's Warrants are hereinafter
referred to collectively as the "Underwriter's Securities." The Underwriter's
Warrants shall be non-exercisable and non-transferable (other than to officers
and directors of the Underwriter, co-underwriters, selling group members and
their officers or partners) for a period of 12 months following the Effective
Date. Thereafter, the Underwriter's Warrants shall be exercisable and
transferable for a period of four years (provided such transfer is in accordance
with the Securities Act and any other applicable securities laws). If the
Underwriter's Warrants are not exercised during their term, they shall, by their
terms, automatically expire. The Underwriter's Securities shall be registered
for sale to the public and shall be included in the Registration Statement filed
in connection with the Offering.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Underwriter that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission"), a registration statement, and one or more
amendments thereto, on Form S-1 (File No. 33- ), including in each
such registration statement and each such amendment any related preliminary
prospectus ("Preliminary
2
<PAGE>
Prospectus"), for the registration of the Securities under the Securities Act of
1933 (the "Act"). The Company will, if required, file a further amendment to
said registration statement in the form to be delivered to you and will not,
before the registration statement becomes effective, file any other amendment
thereto to which you have reasonably objected in writing after having been
furnished with a copy thereof. Except as the context may otherwise require,
such registration statement, as amended, on file with the Commission at the time
such registration statement becomes effective (including the prospectus,
financial statements, exhibits and all other documents, as amended, filed as a
part thereof), is hereinafter called the "Registration Statement," and the
prospectus, in the form filed with the Commission pursuant to Rule 424(b) of the
General Rules and Regulations of the Commission under the Act (the
"Regulations") or, if no such filing is made, the definitive prospectus used in
the Offering, is hereinafter called the "Prospectus." The Company has delivered
to you copies of each Preliminary Prospectus as filed with the Commission and
has consented to the use of such copies for purposes permitted by the Act.
(b) The Commission has not issued any orders preventing or
suspending the use of any Preliminary Prospectus, and, as of the date filed with
the Commission, each Preliminary Prospectus conformed in all material respects
with the requirements of the Act and did not include any untrue statement of a
material fact or omit to state any material fact required to be stated therein
and necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by or on your behalf for use in such Preliminary Prospectus and except
that this representation and warranty does not apply to statements or omissions
that have been cured in a subsequent preliminary prospectus or in the
Prospectus.
(c) When the Registration Statement becomes effective under the
Act, and at all times subsequent thereto up to and including the Closing Date
(hereinafter defined) and the Option Closing Date (hereinafter defined) and for
such longer periods as a Prospectus is required to be delivered in connection
with the sale of the Securities by the Underwriter, the Registration Statement
and Prospectus, and any amendment thereof or supplement thereto, will contain
all material statements which are required to be stated therein in accordance
with the Act and the Regulations, and will in all material respects conform to
the requirements of the Act and the Regulations, and neither the Registration
Statement nor the Prospectus, nor any amendment or supplement thereto, will
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under
3
<PAGE>
which they were made, not misleading; provided, however, that this
representation and warranty does not apply to statements or omissions made in
reliance upon and in conformity with written information furnished to the
Company by you for use in the Registration Statement or Prospectus, or in any
amendment thereof or supplement thereto. It is understood that the statements
set forth in the Prospectus with respect to (i) the amounts of the selling
concession and reallowance; (ii) the identity of counsel to the Underwriter
under the heading "Legal Matters"; (iii) the statements with respect to the
public offering of the Securities set forth under the heading "Underwriting,"
including the information concerning the National Association of Securities
Dealers, Inc. ("NASD") affiliation of the Underwriter; and (iv) the
stabilization legend in the Prospectus constitute the only information supplied
by you for use in the Registration Statement or Prospectus.
(d) The Company and each of its wholly-owned subsidiaries,
National Purification, Inc., MEPI Corp. and Environmental Purification
Industries Company (such subsidiaries collectively, the "Subsidiaries"), are,
and at the Closing Date and the Option Closing Date will be, corporations duly
organized, validly existing and in good standing under the laws of the
jurisdiction of their incorporation. The Company and each of the Subsidiaries
are duly qualified and in good standing as foreign corporations in each
jurisdiction in which their ownership or leasing of any properties or the
character of their operations require such qualification, except those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the business or operations of the Company and the Subsidiaries
taken as a whole (a "Material Adverse Effect"). The Company and each of the
Subsidiaries has all requisite corporate powers and authority, and all necessary
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies to own or lease their
properties and conduct their business as described in the Prospectus except
where the failure to have any such authorizations, approvals, orders, licenses,
certificates or permits would not have a Material Adverse Effect, and the
Company and each of the Subsidiaries are doing business and have been doing
business during the period described in the Registration Statement in compliance
with all such material authorizations, approvals, orders, licenses, certificates
and permits and all material federal, state and local laws, rules and
regulations concerning the business in which the Company and the Subsidiaries
are engaged, except where the failure to comply with any such authorizations,
approvals, orders, licenses, certificates or permits or any such laws, rules or
regulations would not have a Material Adverse Effect. The disclosures in the
Registration Statement concerning the effects of federal, state and local
regulation on the Company's and the Subsidiaries' business as currently
conducted and as contemplated are correct in all material respects and do not
omit to state a material fact required to be
4
<PAGE>
stated therein in light of the circumstances under which such disclosures were
made. The Company has all corporate power and authority to enter into this
Agreement and carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained or will have been obtained prior to the Closing Date.
(e) This Agreement has been duly and validly authorized and
executed by the Company. The Securities (including the Shares and the
Warrants), the Warrant Shares underlying such Warrants, and the Underwriter's
Securities have been duly authorized (and, in the case of the Shares and such
Warrant Shares, have been duly reserved for issuance) and, when issued and paid
for in accordance with this Agreement (and, in the case of such Warrant Shares,
upon exercise of such Warrants and payment to the Company of the exercise price
therefor pursuant to the terms of the Warrant Agreement), the Shares and such
Warrant Shares will be validly issued, fully paid and non-assessable; the
Securities, Additional Securities, Warrant Shares (other than Underwriter's
Securities), and Underwriter's Securities are not and will not be subject to the
preemptive rights of any stockholder of the Company and conform and at all times
up to and including their issuance will conform in all material respects to all
statements with regard thereto contained in the Registration Statement and
Prospectus; and all corporate action required to be taken for the authorization,
issuance and sale of the Securities, the Additional Securities, Warrant Shares
and Underwriter's Securities has been taken, and this Agreement constitutes a
valid and binding obligation of the Company, enforceable in accordance with its
terms, to issue and sell, upon exercise in accordance with the terms thereof,
the number and kind of securities called for thereby.
(f) The consummation of the transactions contemplated by this
Agreement and the fulfillment of the terms hereof will not result in a breach or
violation of any of the terms or provisions of, or constitute a default under,
the Certificate of Incorporation or by-laws, in each case as amended, of the
Company or of any evidence of indebtedness, lease, contract or other agreement
or instrument to which the Company is a party or by which the Company or any of
its properties or any properties of the Subsidiaries is bound, or under any
applicable law, rule, regulation, judgment, order or decree of any government,
professional advisory body, administrative agency or court, domestic or foreign,
having jurisdiction over the Company or its properties, in each case except for
any breach, violation or default that would not have a Material Adverse Effect,
or result in the creation or imposition of any material lien, charge or
encumbrance upon any of the properties or assets of the Company; and no consent,
approval, authorization or order of any court or governmental or other
regulatory agency or body is required for the consummation by the Company of the
transactions on its part herein contemplated, except such as may be required
under the Act or under
5
<PAGE>
state securities or blue sky laws or under the rules and regulations of the
NASD, and except where the breach, violation or failure to obtain such consent,
approval, authorization or order would not have a Material Adverse Effect.
(g) Subsequent to the date hereof, and prior to the Closing Date
and the Option Closing Date, except as otherwise described in or contemplated by
the Prospectus, the Company will not issue or acquire any equity securities.
(h) The consolidated financial statements and notes thereto
included in the Registration Statement and the Prospectus fairly present the
consolidated financial position and the results of operations of the Company at
the respective dates and for the respective periods to which they apply; and
such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved.
(i) Except as set forth in the Registration Statement, neither
the Company nor any of the Subsidiaries is, and at the Closing Date and at the
Option Closing Date neither the Company nor any of the Subsidiaries will be, in
violation or breach of, or default in, the due performance and observance of any
term, covenant or condition of any indenture, mortgage, deed of trust, note,
loan or credit agreement, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company or any of the Subsidiaries is a party or by which the Company or any of
the Subsidiaries may be bound or to which any of the property or assets of the
Company or any of the Subsidiaries is subject, which violations, breaches,
default or defaults, singularly or in the aggregate, would have a Material
Adverse Effect. The Company does not have and at the Closing Date or Option
Closing Date the Company will not have taken any action in violation of the
provisions of the Certificate of Incorporation or by-laws, in each case as
amended, of the Company, or any statute or any order, rule or regulation of any
court or regulatory authority or governmental body having jurisdiction over or
application to the Company or its business or properties, except for any
violations that, singularly or in the aggregate, would not have a Material
Adverse Effect.
(j) The Company and each of the Subsidiaries have, and at the
Closing Date and at the Option Closing Date will have, good and marketable title
to all properties and assets described in the Prospectus as owned by it, free
and clear of all liens, charges, encumbrances, claims, security interests,
restrictions and defects of any material nature whatsoever, except such as are
described or referred to in the Prospectus and liens for taxes not yet due and
payable or such as in the aggregate will not have a Material Adverse Effect.
All of the material leases and subleases under which the Company or any of the
Subsidiaries is the lessor or
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sublessor of properties or assets or under which the Company or any Subsidiary
holds properties or assets as lessee as described in the Prospectus are, and
will on the Closing Date and the Option Closing Date be, in full force and
effect, and except as described in the Prospectus, neither the Company nor any
of the Subsidiaries is or will be in default in respect of any of the terms or
provisions of any of such leases or subleases (except for defaults which would
not have a Material Adverse Effect), and no claim has been asserted by anyone
adverse to rights of the Company or the Subsidiaries as lessor, sublessor,
lessee or sublessee under any of the leases or subleases mentioned above, or
affecting or questioning the right of the Company or any of the Subsidiaries to
continue possession of the leased or subleased premises or assets under any such
lease or sublease, except as described or referred to in the Prospectus or such
as in the aggregate would not have a Material Adverse Effect, and the Company
(including through the Subsidiaries) owns or leases all such properties as are
necessary to its operations as now conducted and, except as otherwise stated in
the Prospectus, as proposed to be conducted as set forth in the Prospectus
(except where the failure to own or lease such properties would not have a
Material Adverse Effect).
(k) The authorized, issued and outstanding capital stock of the
Company as of the date referenced in the Prospectus is, and the authorized,
issued and outstanding capital stock of the Company on the Closing Date will be,
as set forth in the Prospectus under "Capitalization" (in each case based on the
assumptions set forth therein and except that issuance and sale of the
Additional Securities will not be reflected therein); the shares of issued and
outstanding capital stock of the Company set forth thereunder have been (or as
of the Closing Date will be) duly authorized and validly issued and are (or as
of the Closing Date will be) fully paid and non-assessable; except as set forth
in the Prospectus, no options, warrants or other rights to purchase, agreements
or other obligations to issue, or agreements or other rights to convert any
obligation into, any shares of capital stock of the Company have been granted or
entered into by the Company; and the Common Stock, the Warrants and all such
options and warrants conform in all material respects, to all statements
relating thereto contained in the Registration Statement and Prospectus.
(l) Except as described in the Prospectus, the Company does not
own or control any capital stock or securities of, or have any proprietary
interest in, or otherwise participates in any other corporation, partnership,
joint venture, firm, association or business organization; PROVIDED, HOWEVER,
that this provision shall not be applicable to the investment, if any, of the
net proceeds from the sale of the Securities sold by the Company or other funds
thereof in interest-bearing savings accounts, certificates of deposit, money
market accounts, United States government obligations or other short-term
obligations.
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(m) Ernst & Young LLP, who have reported on the financial
statements of the Company which have been filed with the Commission as a part of
the Registration Statement, are independent accountants with respect to the
Company as required by the Act and the Regulations.
(n) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money; (ii) entered into any transaction other than in
the ordinary course of business; or (iii) declared or paid any dividend or made
any other distribution on or in respect of its capital stock; PROVIDED, HOWEVER,
that this provision shall not be applicable to any transaction between or among
the Company and the Subsidiaries.
(o) There is no litigation or governmental proceeding pending or
to the knowledge of the Company or the Subsidiaries threatened against, or
involving the properties or business of the Company which might have a Material
Adverse Effect, except as referred to in the Prospectus. Further, except as
referred to in the Prospectus, there are no pending actions, suits or
proceedings related to environmental matters or related to discrimination on the
basis of age, sex, religion or race, nor is the Company charged with or, to its
knowledge, under investigation with respect to any violation of any statutes or
regulations of any regulatory authority having jurisdiction over its business or
operations, which violations might have a Material Adverse Effect, and no labor
disturbances by the employees of the Company exist or, to the knowledge of the
Company, have been threatened.
(p) The Company has, and at the Closing Date and at the Option
Closing Date will have, filed all necessary federal, state and foreign income
and franchise tax returns or has requested extensions thereof (except in any
case where the failure so to file would not have a Material Adverse Effect), and
has paid all taxes which it believes in good faith were required to be paid by
it except for any such taxes that currently, or on the Closing Date or Option
Closing Date, as the case may be, are being contested in good faith or as
described in the Prospectus.
(q) The Company has not at any time (i) made any contribution to
any candidate for political office, or failed to disclose fully any such
contribution, in violation of law, or (ii) made any payment to any state,
federal, foreign governmental or professional regulatory agency, officer or
official or other person charged with similar public, quasi-public or
professional regulatory duties, other than payments or contributions required or
allowed by applicable law.
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(r) Except as set forth in the Registration Statement, neither
the Company nor any officer, director, employee or agent of the Company has made
any payment or transfer of any funds or assets of the Company or conferred any
personal benefit by use of the Company's assets or received any funds, assets or
personal benefit in violation of any law, rule or regulation, which is required
to be stated in the Registration Statement or necessary to make the statements
therein not misleading.
(s) On the Closing Date and on the Option Closing Date, all
transfer or other taxes, if any (other than income tax), which are required to
be paid, and are due and payable, in connection with the sale and transfer of
the Securities by the Company to the Underwriter will have been fully paid or
provided for by the Company as the case may be, and all laws imposing such taxes
will have been fully complied with in all material respects.
(t) There are no contracts or other documents of the Company
which are of a character required to be described in the Registration Statement
or Prospectus or filed as exhibits to the Registration Statement which have not
been so described or filed.
(v) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (1) transactions are
executed in accordance with management's general or specified authorizations;
(2) transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; and (3) access to assets is permitted only
in accordance with management's general or specific authorizations.
(w) Except as set forth in the Prospectus, no holder of any
securities of the Company has the right (which has not been effectively waived
or terminated) to require registration of any securities because of the filing
or effectiveness of the Registration Statement.
(x) The Company has not taken and at the Closing Date will not
have taken, directly or indirectly, any action designed to cause or result in,
or which has constituted or which might reasonably be expected to constitute,
the stabilization or manipulation of the price of the Common Stock or the
Warrants to facilitate the sale or resale of such securities.
(y) To the Company's knowledge, there are no claims for services
in the nature of a finder's origination fee with respect to the sale of the
Securities hereunder, except as set forth in the Prospectus.
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<PAGE>
(z) No right of first refusal exists with respect to any sale of
securities by the Company.
(aa) No statement, representation, warranty or covenant made by
the Company in this Agreement or made in any certificate or document required by
this Agreement to be delivered to the Underwriter was, when made, or as of the
Closing Date or as of the Option Closing Date will be materially inaccurate,
untrue or incorrect.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriter that:
(a) It will deliver to the Underwriter, without charge, two
conformed copies of each Registration Statement and of each amendment or
supplement thereto, including all financial statements and exhibits.
(b) The Company has delivered to the Underwriter, and each of
the Selected Dealers (as hereinafter defined) without charge, as many copies as
have been reasonably requested of each Preliminary Prospectus heretofore filed
with the Commission in accordance with and pursuant to the Commission's Rule 430
under the Act and will deliver to the Underwriter and to others whose names and
addresses are furnished by the Underwriter or a Selected Dealer, without charge,
on the Effective Date, and thereafter from time to time during such reasonable
period as you may request if, in the reasonable opinion of counsel for the
Underwriter, the Prospectus is required by law to be delivered in connection
with sales by the Underwriter or a dealer, as many copies of the Prospectus
(and, in the event of any amendment of or supplement to the Prospectus, of such
amended or supplemented Prospectus) as the Underwriter may reasonably request
for the purposes contemplated by the Act. The Company will take all necessary
actions to furnish to whomever directed by the Underwriter, when and as
requested by the Underwriter, all necessary documents, exhibits, information,
applications, instruments and papers as may be reasonably required in order to
permit or facilitate the sale of the Securities.
(c) The Company has authorized the Underwriter to use, and make
available for use by prospective dealers, the Preliminary Prospectus, and
authorizes the Underwriter, all dealers selected by you in connection with the
distribution of the Securities (the "Selected Dealers") to be purchased by the
Underwriter and all dealers to whom any of such Securities may be sold by the
Underwriter or by any Selected Dealer, to use the Prospectus, as from time to
time amended or supplemented, in connection with the sale of the Securities in
accordance with the applicable provisions of the Act, the applicable Regulations
and applicable state law, until completion of the distribution of the
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<PAGE>
Securities and for such longer period as you may reasonably request if the
Prospectus is required under the Act, the applicable Regulations or applicable
state law to be delivered in connection with sales of the Securities by the
Underwriter or the Selected Dealers.
(d) The Company will use its best efforts to cause the
Registration Statement to become effective and will notify the Underwriter
immediately, and confirm the notice in writing: (i) when the Registration
Statement or any post-effective amendment thereto becomes effective; (ii) of the
receipt of any comments from the Commission or of the receipt of any stop order
or of the initiation, or to the best of the Company's knowledge, the
threatening, of any proceedings for that purpose; or (iii) the suspension of the
qualification of the Securities and the Underwriter's Warrants, or underlying
securities, for offering or sale in any jurisdiction or of the initiating, or to
the best of the Company's knowledge the threatening, of any proceeding for that
purpose. If the Commission shall enter a stop order at any time, the Company
will make every reasonable effort to obtain the lifting of such order as
promptly as practicable.
(e) During the time when a prospectus relating to the Securities
is required to be delivered under the Act, the Company will use its best efforts
to comply with all requirements imposed upon it by the Act and the Securities
Exchange Act of 1934 (the "Exchange Act"), as now and hereafter amended and by
the Regulations, as from time to time in force, as necessary to permit the
continuance of sales of or dealings in the Securities in accordance with the
provisions hereof and the Prospectus and the Company shall use its best efforts
to keep the Registration Statement effective so long as a Prospectus is required
to be delivered in connection with the sale of the Securities or Additional
Securities by the Underwriter or by dealers effecting transactions therein in
connection with the initial public offering thereof. If at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the reasonable opinion of
counsel for the Company or counsel for the Underwriter, the Prospectus as then
amended or supplemented (or the prospectus contained in a new registration
statement filed by the Company pursuant to Paragraph 3(q)), includes an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if, in the
reasonable opinion of either such counsel, it is necessary at any time to amend
the Prospectus (or the prospectus contained in such new registration statement)
to comply with the Act, the Company will notify you promptly and prepare and
file with the Commission an appropriate amendment or supplement in accordance
with Section 10 of the Act and will furnish to you copies thereof.
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<PAGE>
(f) The Company will endeavor in good faith, in cooperation with
you, at or prior to the time the Registration Statement becomes effective, to
qualify the Securities for offering and sale under the securities laws or blue
sky laws of such jurisdictions as you may reasonably designate; PROVIDED,
HOWEVER, that in connection therewith the Company shall not be required to
qualify as a foreign corporation or to file a general consent to service of
process in any jurisdiction or to make any changes in its capital structure or
certificate of incorporation or in any other material aspects of its business or
to enter into any material agreement with any Blue Sky commissioner. In each
jurisdiction where such qualification shall be effected, the Company will,
unless you agree that such action is not at the time necessary or advisable, use
it best efforts to file and make such statements or reports at such times as are
or may reasonably be required by the laws of such jurisdiction to continue such
qualification until none of the Warrants are outstanding.
(g) The Company will make generally available (within the
meaning of Section 11(a) of the Act and the Regulations) to its security
holders, as soon as practicable, but in no event later than the first day of the
eighteenth full calendar month following the Effective Date, an earnings
statement of the Company, which will be in reasonable detail but which need not
be audited, covering a period of at least twelve months beginning after the
Effective Date, which earnings statements shall satisfy the requirements of
Section 11(a) of the Act and the Regulations as then in effect. The Company may
discharge this obligation in accordance with Rule 158 of the Regulations.
(h) For so long as the Securities are registered under the
Exchange Act, the Company will (i) furnish to its stockholders an annual report
(including financial statements audited by its independent public accountants)
within 150 days after the end of each of the Company's fiscal years, in
accordance with Rule 14a-3 under the Exchange Act, (ii) hold an annual meeting
of shareholders for the election of directors within 180 days after the end of
the each of the Company's fiscal years and (iii) at its expense, furnish to the
Underwriter (A) within 90 days after the end of each fiscal year of the Company,
a consolidated balance sheet of the Company and its consolidated subsidiaries
and a separate balance sheet of each Subsidiary the accounts of which are not
included in such consolidated balance sheet as of the end of such fiscal year,
and consolidated statements of operations, stockholder's equity and cash flows
of the Company and its consolidated subsidiaries and separate statements of
operations, stockholder's equity and cash flows of each of the Subsidiaries the
accounts of which are not included in such consolidated statements, for the
fiscal year then ended all in reasonable detail and all certified by independent
accountants (within the meaning of the Act and the Regulations), (B) within 45
days after the end of each of the first three fiscal quarters of each fiscal
year, similar
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balance sheets as of the end of such fiscal quarter and similar statements of
operations, stockholder's equity and cash flows for the fiscal quarter then
ended, all in reasonable detail, and subject to year end adjustment, all
certified by the Company's principal financial officer or the Company's
principal accounting officer as having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, (C) as
soon as available, each report furnished to or filed with the Commission or any
securities exchange and each report and financial statement furnished to the
Company's stockholders generally, and (D) as soon as available, such other
material as the Underwriter may from time to time reasonably request regarding
the financial condition and operations of the Company; PROVIDED, HOWEVER, that
the Underwriter shall use such other material only in connection with its
activities as Underwriter hereunder and shall otherwise keep such other material
confidential.
(i) For a period of eighteen months from the Closing Date, the
Company, at its expense, shall cause its regularly engaged independent certified
public accountants to review (but not audit), the Company's financial statements
for each of the first three quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing, if any, of quarterly financial information to stockholders.
(j) Prior to the Closing Date or the Option Closing Date (if
any), the Company will not, directly or indirectly, without your prior written
consent, which shall not be unreasonably withheld or delayed, issue any press
release or other public announcement or hold any press conference with respect
to the Company or its activities with respect to the Offering (other than trade
releases issued in the ordinary course of the Company's business consistent with
past practices with respect to the Company's operations).
(k) The Company will deliver to you prior to filing, any
amendment or supplement to the Registration Statement or Prospectus proposed to
be filed after the Effective Date and will not file any such amendment or
supplement to which you shall reasonably object after being furnished such copy.
(l) During the period of 120 days commencing on the date hereof,
the Company will not at any time take, directly or indirectly, any action
designed to, or which will constitute or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of the Securities
to facilitate the sale or resale of any of the Securities.
(m) The Company will apply the net proceeds from the Offering
received by it substantially in the manner set forth under "Use of Proceeds" in
the Prospectus.
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<PAGE>
(n) Counsel for the Company, the Company's accountants, and the
officers and directors of the Company will, respectively, furnish the opinions,
the letters and the certificates referred to in subsections of Paragraph 9
hereof, and, if the Company shall file any amendment to the Registration
Statement relating to the offering of the Securities or any amendment or
supplement to the Prospectus relating to the offering of the Securities
subsequent to the Effective Date, such counsel, such accountants, and such
officers and directors, respectively, will, at the time of such filing or at
such subsequent time as you shall specify, so long as Securities being
registered by such amendment or supplement are being underwritten by the
Underwriter, furnish to you such opinions, letters and certificates, each dated
the date of its delivery, of the same nature as the opinions, the letters and
the certificates referred to in said Paragraph 9, as you may reasonably request,
or, if any such opinion or letter or certificate cannot be furnished by reason
of the fact that such counsel or such accountants or any such officer or
director believes that the same would be inaccurate, such counsel or such
accountants or such officer or director will furnish an accurate opinion or
letter or certificate with respect to the same subject matter.
(o) The Company will comply in all material respects with all of
the provisions of any undertakings contained in the Registration Statement.
(p) The Company will reserve and keep available for issuance
that maximum number of its authorized but unissued shares of Common Stock which
are issuable upon exercise of the Warrants and issuable upon exercise of the
Underwriter's Warrants (including the underlying securities) outstanding from
time to time.
(q) The Company will timely prepare and file at its sole cost
and expense one or more post-effective amendments to the Registration Statement
or a new registration statement as required by law as will permit Warrant
holders to be furnished with a current prospectus in the event and at such time
as the Warrants are exercised, and the Company will use its best efforts and due
diligence to have the same be declared effective (with the intent that the same
be declared effective as soon as the Warrants become exercisable) and to keep
the same effective so long as the Warrants are outstanding. The Company will
deliver a draft of each such post-effective amendment or new registration
statement to the Underwriter at least ten days prior to the filing of such post-
effective amendment or registration statement.
(r) So long as any of the Warrants remain outstanding, the
Company will timely deliver and supply to its Warrant agent sufficient copies of
the Company's current Prospectus, as will enable such Warrant agent to deliver a
copy of
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<PAGE>
such Prospectus to any Warrant or other holder where such Prospectus delivery is
by law required to be made.
(s) So long as any of the Warrants remain outstanding, the
Company shall continue to employ the services of a firm of independent certified
public accountants reasonably acceptable to the Underwriter in connection with
the preparation of the financial statements to be included in any registration
statement to be filed by the Company hereunder, or any amendment or supplement
thereto. During the same period, the Company shall employ the services of a law
firm(s) reasonably acceptable to the Underwriter in connection with all legal
work of the Company, including the preparation of a registration statement to be
filed by the Company hereunder, or any amendment or supplement thereto.
(t) So long as any of the Warrants remain outstanding, the
Company shall continue to appoint a Warrant agent for the Warrants, who shall be
reasonably acceptable to the Underwriter.
(u) The Company agrees that it will, upon the Effective Date,
for a period of no less than three years, engage a designee of the Underwriter
as an advisor (the "Advisor") to its Board of Directors where such Advisor shall
attend meetings of the Board, receive all notices and other correspondence and
communications sent by the Company to members of its Board of Directors and
receive compensation equal to the entitlement of other non-officer Directors.
In addition, such Advisor shall be entitled to receive reimbursement for all
reasonable costs incurred in attending such meetings including, but not limited
to (if reasonably required in connection with any meeting held outside the New
York City metropolitan area), food, lodging and transportation. The Company
further agrees that, during said three year period, it shall schedule no less
than four (4) formal and "in person" meetings of its Board of Directors in each
such year and such meetings shall be held quarterly each year and advance notice
of such meetings identical to the notice given to directors shall be given to
the Advisor. Further, during such three year period, the Company shall give
notice to the Underwriter with respect to any proposed acquisitions, mergers,
reorganizations or other similar transactions. In lieu of the Underwriter's
right to designate an Advisor, the Underwriter shall have the right during such
three-year period, in its sole discretion, to designate one person for election
as a Director of the Company and the Company will utilize its best efforts to
obtain the election of such person who shall be entitled to receive the same
compensation, expense reimbursements and other benefits set forth above.
The Company agrees to indemnify and hold the Underwriter and such
Advisor or Director harmless against any and all claims, actions, damages, costs
and expenses, and judgments arising out of the attendance and participation of
your designee at
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any such meeting described herein. In the event the Company maintains a
liability insurance policy affording coverage for the acts of its officers and
directors, it agrees, if possible, to include the Underwriter's designee as an
insured under such policy.
(v) Upon the Closing Date, the Company shall have entered into
an agreement with the Underwriter in form reasonably satisfactory to the
Underwriter (the "Consulting Agreement"), pursuant to which (i) the Underwriter
will be retained as a management and financial consultant for a 30 month period
commencing as of the Closing Date, and will be paid a fee of $2,500 a month,
payable quarterly in advance with the first payment due on the Closing Date and
(ii) the Company will pay the Underwriter a finder's fee for certain
transactions all as more specifically set forth in Section 16 of that certain
letter agreement dated August , 1996 between you and the Company.
(w) The Common Stock and Warrants shall be quoted on the Nasdaq
SmallCap Market ("Nasdaq") not later than the Closing Date. Thereafter, (unless
the Company is acquired) the Company will effect and use its best efforts to
maintain such listing or cause such securities to be listed on a national
securities exchange or in a comparable inter-dealer quotation system for at
least five years from the date of this Agreement (or until such earlier date on
which no Warrants remain outstanding).
(x) The Company will apply for listing in Standard and Poors
Corporation Reports or Moodys OTC Guide and shall use its best efforts to have
the Company included in such publications for at least five years from the
Closing Date (unless the Common Stock is listed on the New York Stock Exchange
or the American Stock Exchange or unless the Company shall no longer have a
class of equity securities registered under Section 12(b) or 12(g) of the
Exchange Act).
(y) The Company has obtained from each person who is currently
an officer or director of the Company or a stockholder, warrant holder or option
holder of the Company, a written agreement, in form and substance reasonably
satisfactory to you and your counsel, to the effect that such person shall not
offer, sell or contract to sell, or otherwise dispose of, directly or
indirectly, without your prior written consent (or pursuant to such other
agreement with respect to the sale of capital stock as may be required by state
"Blue Sky" laws in order to qualify the Offering in any such State), any shares
of the Common Stock owned by such person or any securities convertible into, or
exchangeable for, or warrants to purchase or acquire, shares of Common Stock,
for a period of twelve months from the Effective Date, except as otherwise set
forth in the Prospectus. For a period of eighteen months from the Effective
Date, the Company shall not issue any shares of Common Stock or convertible
preferred stock or any warrants, options or other rights to purchase Common
Stock or
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convertible preferred stock without the prior written consent of the
Underwriter, except for (i) the Securities and the Additional Securities, (ii)
the Underwriter's Securities, (iii) Warrant Shares, (iv) securities issuable
upon the exercise of other options or warrants outstanding as of the Closing
Date, (v) options to purchase shares of Common Stock pursuant to the Company's
stock option plan and shares of Common Stock issuable upon the exercise of such
options.
(z) The Company will use its best efforts to obtain, as soon
after the Closing Date as is reasonably possible, liability insurance covering
its officers and directors.
(aa) The Company agrees that it will employ the services of a
financial public relations firm reasonably acceptable to the Underwriter for a
period of at least twelve months following the Effective Date.
4. SALE, PURCHASE AND DELIVERY OF SECURITIES; CLOSING DATE; PUBLIC
OFFERING.
(a) On the basis of the warranties, representations and
agreements herein contained, and subject to the satisfaction of all the terms
and conditions of this Agreement, the Company agrees to issue and sell to the
Underwriter, and the Underwriter agrees to purchase from the Company, the
Securities at a price of $5.50 per share of Common Stock and $.10 per Warrant,
less, in the case of each such Security, an underwriting discount of ten percent
(10%) of the price for such Security. The Underwriter may allow a concession
not exceeding $. per share of Common Stock and $. per Warrant to
Selected Dealers who are members of the NASD, and to certain foreign dealers,
and such dealers may reallow to NASD members and to certain foreign dealers a
concession not exceeding $. per share of Common Stock and $ per Warrant.
(b) Delivery of the Securities and payment therefor shall be
made at 10:00 a.m., New York time on the Closing Date, as hereinafter defined,
at the offices of the Underwriter or such other location as may be agreed upon
by you and the Company. Delivery of certificates for the Common Stock and
Warrants (in definitive form and registered in such names and in such
denominations as you shall request by written notice to the Company delivered at
least four business days' prior to the Closing Date), shall be made to you for
the account of the Underwriter against payment of the purchase price therefor by
certified or bank check or wire transfer payable in New York Clearing House
funds to the order of the Company. The Company will make such certificates
available for inspection at least one business day prior to the Closing Date at
such place as you shall designate.
(c) The "Closing Date" shall be , 1996, or such other
date not later than five business days following the
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effective date of the Registration Statement as you shall determine and advise
the Company by at least three full business days' notice.
(d) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Securities by the Company to the
Underwriter shall be borne by the Company. The Company will pay and hold the
Underwriter, and any subsequent holder of the Securities, harmless from any and
all liabilities with respect to or resulting from any failure or delay in paying
federal and state stamp taxes, if any, which are payable in connection with the
original issuance or sale to the Underwriter of the Securities or any portions
thereof.
(e) As soon, on or after the Effective Date, as the Underwriter
deems advisable, the Underwriter shall make a public offering of the Securities
(other than to residents of or in any jurisdiction in which qualification of the
Securities is required and has not become effective) at the initial public
offering prices and upon the other terms set forth in the Prospectus. The
Underwriter may from time to time increase or decrease the public offering
prices of the Securities after the distribution thereof has been completed to
such extent as the Underwriter, in its sole discretion, deems advisable.
5. SALE, PURCHASE AND DELIVERY OF ADDITIONAL SECURITIES; OPTION
CLOSING DATE.
(a) Upon the basis of the representations, warranties and
agreements herein contained, and subject to the satisfaction of all the terms
and conditions of this Agreement, the Company agrees to sell to the Underwriter,
and the Underwriter shall have the option (the "Option") to purchase from the
Company, the Additional Securities at the same price per Security as set forth
in Paragraph 4(a) above. Additional Securities may be purchased solely for the
purpose of covering over-allotments made in connection with the distribution and
sale of the Securities as contemplated by the Prospectus.
(b) The Option to purchase all or part of the Additional
Securities covered thereby is exercisable by you at any time and from time to
time before the expiration of a period of 45 calendar days from the date of the
Effective Date (the "Option Period") by written notice to the Company setting
forth the number of Additional Securities for which the Option is being
exercised, the name or names in which the certificates for such Additional
Securities are to be registered and the denominations of such certificates.
Upon each exercise of the Option, the Company shall sell to the Underwriter the
aggregate number of Additional Securities specified in the notice exercising
such Option.
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(c) Delivery of the Additional Securities with respect to which
Options shall have been exercised and payment therefor shall be made at 10:00
a.m., New York time on the Option Closing Date, as hereinafter defined, at the
offices of the Underwriter or at such other locations as may be agreed upon by
you and the Company. Delivery of certificates for Additional Securities shall
be made to you for the account of the Underwriter against payment of the
purchase price therefor by certified or bank check or wire transfer in New York
Clearing House Funds to the order of the Company. The Company will make
certificates for Additional Securities to be purchased at the Option Closing
Date available for inspection at least one business day prior to such Option
Closing Date at such place as you shall designate.
(d) The "Option Closing Date" shall be the date not later than
three business days after the end of the Option Period as you shall determine
and advise the Company by at least three full business days' notice, unless some
other time is agreed upon between you and the Company.
(e) The obligations of the Underwriter to purchase and pay for
Additional Securities at such Option Closing Date shall be subject to compliance
as of such date with all the conditions specified in Paragraph 9 herein and the
delivery to you of opinions, certificates and letters, each dated such Option
Closing Date, substantially similar in scope to those specified in Paragraph 9
herein.
(f) The cost of original issue tax stamps, if any, in connection
with the issuance and delivery of the Additional Securities by the Company to
the Underwriter shall be borne by the Company. The Company will pay and hold
the Underwriter, and any subsequent holder of Additional Securities, harmless
from any and all liabilities with respect to or resulting from any failure or
delay in paying federal and state stamp taxes, if any, which are payable in
connection with the original issuance or sale to the Underwriter of the
Additional Securities or any portion thereof.
6. WARRANT SOLICITATION FEE.
The Company agrees to pay the Underwriter a fee of five percent (5%)
of the aggregate exercise price of the Warrants if: (i) the market price of the
Common Stock is greater than the exercise price of the Warrants on the date of
exercise; (ii) the exercise of the Warrants is solicited by a member of the
NASD; (iii) the Warrants are not held in a discretionary account; (iv) the
disclosure of compensation arrangements was made both at the time of the
Offering and at the time of the exercise of the Warrant; (v) the solicitation of
the Warrant is not in violation of Rule 10b-6 promulgated under the Exchange Act
and (vi) the Underwriter is designated in writing as the soliciting NASD member.
The Company agrees not to solicit the exercise of any Warrants
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other than through the Underwriter and will not authorize any other dealer to
engage in such solicitation without the prior written consent of the Underwriter
which will not be unreasonably withheld. The Warrant solicitation fee will not
be paid in a non-solicited transaction. Any request for exercise will be
presumed to be unsolicited unless the customer states in writing that the
transaction was solicited and designates in writing the broker/dealer to receive
compensation for the exercise. No Warrant solicitation by the Underwriter will
occur for a period of 12 months from the Effective Date.
7. REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITER.
The Underwriter represents and warrants to the Company that:
(a) The Underwriter is a member in good standing of the NASD,
and has complied with all NASD requirements concerning net capital and
compensation to be received in connection with the Offering.
(b) To the Underwriter's knowledge, there are no claims for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder, which the Company is, or may become, obligated to
pay.
8. PAYMENT OF EXPENSES.
(a) The Company shall pay and bear all expenses directly and
necessarily incurred in connection with the proposed financing, including: (i)
the preparation, printing and filing and distribution (except for mailing) of
the offering documents and amendments thereto, including NASD, SEC and filing
fees, preliminary and final Prospectus and the printing of the Underwriting
Agreement, the Agreement Among Underwriters and the Selected Dealer's Agreement,
a Blue Sky Memorandum, material to be circulated to any underwriter by the
Underwriter and other incidental material; (ii) the issuance and delivery of
certificates representing the Securities, including original issue and transfer
taxes, if any; (iii) the qualification of the Securities and any shares of
Company's Common Stock underlying the Securities under state securities or Blue
Sky Laws, including counsel fees of the Underwriter relating thereto which shall
not exceed $40,000 ($15,000 of which shall be due and payable upon the
commencement of Blue Sky filings together with appropriate state filing fees),
plus disbursements relating to, but not limited to, long-distance telephone
calls, photocopying, messengers, excess postage, overnight mail and courier
services; (iv) the fees and disbursements of counsel for the Company and the
accountants for the Company; (v) all reasonable traveling and lodging expenses
incurred by us and/or our counsel in connection with visits to, and examination
of, the Company's premises, not to exceed $5,000; and
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(vi) advertising costs and expenses, including, but not limited to, the costs
and expenses in connection with memorabilia and "tombstones" in publications
selected by the Underwriter, not to exceed $14,500, as well as the cost of one
"road show" in the City of New York which shall be in addition to the foregoing
expenses. Expenses related to any other "road shows" will be paid by the
Underwriter. Upon the commencement of the necessary state Blue Sky filings by
our counsel, the Company shall supply such counsel at its request, all necessary
state filing fees. Blue Sky applications shall be made in such states and
jurisdictions as shall be requested by the Underwriter. In addition to the
expenses set forth above, the Company shall engage the Underwriter's counsel to
provide the Underwriter, at the closing of the Offering and quarterly
thereafter, with an opinion, setting forth those states in which the Common
Stock may be traded in non-issuer transactions under the blue sky laws of the 50
states and the Company shall pay such counsel a one-time fee of $10,000 on the
Closing Date for such opinions.
The Underwriter shall not be responsible for any expense of the
Company or others for any charges or claims related to the proposed financing or
otherwise if the sale of Securities is not consummated and the Underwriter is
not in breach of the Underwriting Agreement or otherwise in breach of contract
with the Company.
(b) In addition to the expenses to be paid and borne by the
Company referred to in Paragraph 8(a) above, the Company shall reimburse you at
closing for expenses incurred by you in connection with the Offering (for which
you need not make any accounting), in the amount of 3% of the price to the
public of the Securities and Additional Securities sold in the Offering. This
3% non-accountable expense allowance shall cover the fees of your legal counsel,
but shall not include any expenses for which the Company is responsible under
Paragraph 8(a) above, including the reasonable fees and disbursements of your
legal counsel with respect to Blue Sky matters.
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS.
The obligations of the Underwriter to consummate the transactions
contemplated by this Agreement shall be subject to the continuing accuracy in
all material respects of the representations and warranties of the Company
contained herein (except those representations and warranties that speak as of a
specific date) and the accuracy in all material respects of the statements of
the Company and its officers and directors made pursuant to the provisions
hereof, as of the date hereof and as of the Closing Date, and to the performance
by the Company in all material respects of its covenants and agreements
hereunder and to the following additional conditions:
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(a) The Registration Statement shall have become effective not
later than 5:00 p.m., New York time, on the date following the date of this
Agreement, or such later date and time as shall be consented to in writing by
you and, on or prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement and no proceedings for that purpose
shall have been instituted or to your knowledge or the knowledge of the Company,
shall be pending or contemplated by the Commission and any request on the part
of the Commission for additional information shall have been complied with to
the reasonable satisfaction of counsel to the Underwriter and after the date
hereof no amendment or supplement shall have been filed to the Registration
Statement or Prospectus without your prior consent, which shall not have been
unreasonably withheld or delayed.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or the Prospectus or any amendment thereof or supplement
thereto contains an untrue statement of a fact which, in the Underwriter's
reasonable opinion, is material, or omits to state a fact which, in the
Underwriter's reasonable opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) Between the time of the execution and delivery of this
Agreement and the Closing Date, there shall be no litigation instituted against
the Company or any of its officers or directors and between such dates there
shall be no proceeding instituted or, to the Company's knowledge, threatened
against the Company or any of its officers or directors before or by any
federal, state or county commission, regulatory body, administrative agency or
other governmental body, domestic or foreign, in which litigation or proceeding
an unfavorable ruling, decision or finding would have a Material Adverse Effect.
(d) The representations and warranties of the Company contained
herein and in each certificate and document contemplated under this Agreement to
be delivered to you shall be true and correct in all material respects at the
Closing Date as if made at the Closing Date, and all covenants and agreements
contained herein to be performed on the part of the Company, and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
the Closing Date shall be fulfilled or complied with in all material respects.
(e) At the Closing Date, you shall have received the opinion of
Benesch, Friedlander, Coplan & Aronoff P.L.L., counsel to the Company, dated as
of such Closing Date, addressed to the Underwriter and in form and substance
satisfactory to counsel to the Underwriter, to the effect that:
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(i) The Company and each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its jurisdiction of incorporation, with all requisite corporate power and
authority to own its properties and to conduct its business as described in the
Registration Statement. The Company and each Subsidiary is duly qualified to do
business as a foreign corporation and is in good standing in all jurisdictions
where its ownership, leasing, licensing or use of property and assets or the
conduct of its business makes such qualification necessary, except where failure
to be so qualified or in good standing will not have a Material Adverse Effect;
(ii) The Company has all requisite corporate power and
authority to execute, deliver and perform the Underwriting Agreement, the
Consulting Agreement (to be entered into as of the Closing Date), the Warrant
Agreement and the Underwriter's Warrants and to consummate the transactions
contemplated thereby. The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrants by the Company, the consummation by the Company of the
transactions therein contemplated and the compliance by the Company with the
terms of the Underwriting Agreement, the Consulting Agreement, the Warrant
Agreement and the Underwriter's Warrants have been duly authorized by all
necessary corporate action, the Underwriting Agreement has been duly executed
and delivered by the Company, and each of the Consulting Agreement, the Warrant
Agreement and the Underwriter's Warrants will have been duly executed and
delivered by the Company as of the Closing Date. The Underwriting Agreement is,
and, as of the Closing Date each of the Consulting Agreement, the Warrant
Agreement and the Underwriter's Warrants will be, a valid and binding obligation
of the Company, enforceable in accordance with its terms, except insofar as
enforceability of indemnification and contribution provisions may be limited by
applicable law or policy or equitable principles, and except as enforceability
may be limited by bankruptcy, reorganization, moratorium, insolvency or other
laws affecting the enforceability of creditors' rights generally and rules of
law governing specific performance, injunctive relief and other equitable
remedies.
(iii) The execution, delivery and performance of the
Underwriting Agreement, the Consulting Agreement, the Warrant Agreement and the
Underwriter's Warrants by the Company, and the consummation by the Company of
the transactions therein or herein contemplated will not, with or without the
giving of notice or the lapse of time, or both, (A) result in a violation of the
Certificate of Incorporation or by-laws of the Company, in each case as the same
may be amended, (B) result in a breach of, or conflict with, any terms or
provisions of or constitute a default under, or result in the modification or
termination of, or result in the creation or imposition of any lien, security
interest,
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charge or encumbrance upon any of the properties or assets of the Company or any
Subsidiary pursuant to, any indenture, mortgage, note, contract, commitment or
other material agreement or instrument known to such counsel to which the
Company is a party or by which the Company, any Subsidiary or any of their
properties or assets are bound or affected, except where any of the foregoing
would not have a Material Adverse Effect; (C) violate any existing applicable
law, rule or regulation or judgment, order or decree known to such counsel of
any governmental agency or court, domestic or foreign, having jurisdiction over
the Company, any Subsidiary or any of their properties or business, which
judgment, order or decree is binding on the Company or any Subsidiary or to
which any of their business or operations is subject, except where any such
violation would not have a Material Adverse Effect; or (D) to the best of such
counsel's knowledge, have any material adverse effect on any permit,
certification, registration, approval, consent, license or franchise necessary
for the Company or any Subsidiary to own or lease and operate their properties
and to conduct their business or the ability of the Company or any Subsidiary to
make use thereof;
(iv) No authorization, approval, consent, order,
registration, license or permit of any court or governmental agency or body
(other than under the Act, the Regulations and applicable state securities or
Blue Sky laws) is required for the authorization, issuance, sale and delivery of
the Securities, the Additional Securities, the Warrant Shares or the
Underwriter's Warrants, and the consummation by the Company of the transactions
contemplated by the Underwriting Agreement, the Consulting Agreement, the
Warrant Agreement or the Underwriter's Warrants;
(v) Such counsel has been advised by the staff of the
Commission that the Registration Statement was declared effective under the Act
by the Commission on , 1996; to the best of such counsel's knowledge,
no stop order suspending the effectiveness of the Registration Statement has
been issued by the Commission, and no proceedings for that purpose have been
instituted or are pending or threatened under the Act;
(vi) The Registration Statement and the Prospectus, as of
the Effective Date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which such counsel need express no
opinion), comply as to form in all material respects with the requirements of
the Act and Regulations and, to the best of such counsel's knowledge, the
conditions for use of a registration statement on Form S-1 have been satisfied
by the Company;
(vii) The description in the Registration Statement and the
Prospectus of statutes, regulations, contracts and other documents have been
reviewed by us, and, based upon such review, are accurate summaries of such
statutes, regulations,
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contracts and other documents in all material respects and, to the best of such
counsel's knowledge, there are no material contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement, which are not so described
or filed as required.
(viii) Each share of Common Stock outstanding as of the date
of the Prospectus or immediately prior to the Closing Date has been duly
authorized and validly issued and is fully paid and nonassessable. To the best
of such counsel's knowledge, none of the Common Stock outstanding as of either
such date or time has been issued in violation of the preemptive rights of any
stockholder of the Company. The authorized Common Stock conforms in all
material respects to the description thereof contained in the Registration
Statement and Prospectus. To the best of such counsel's knowledge, except as
set forth in the Prospectus, no holders of any of the Company's securities has
any rights, "demand," "piggyback" or otherwise (which has not been waived or
terminated), to have such securities registered under the Act, except as set
forth in the Prospectus;
(ix) The issuance and sale of the Securities, the Additional
Securities, the Warrants, the Warrant Shares and the Underwriter's Warrants have
been duly authorized and, when issued, paid for and delivered in accordance with
the terms hereof and thereof, the Common Stock comprising the Securities and,
Additional Securities and the Warrant Shares will be validly issued, fully paid
and nonassessable. Neither the Securities nor the Additional Securities are
subject to statutory preemptive rights of any stockholder of the Company. The
certificates representing the Securities are in proper legal form;
(x) The Warrants and the Underwriter's Warrants constitute,
and the Warrants underlying the Underwriter's Warrants, when issued and
delivered upon exercise of the Underwriter's Warrants, will constitute valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, to issue and sell, upon exercise thereof and payment pursuant
to the terms thereof, the numbers and types of securities of the Company called
for thereby. All corporate action required to be taken for the authorization,
issuance and sale of the Securities has been duly and validly taken. The
Warrants and the Underwriter's Warrants conform in all material respects to the
descriptions thereof contained in the Registration Statement and Prospectus;
(xi) Good title to the Securities, free and clear of all
liens, encumbrances, equities, security interests and claims (except those that
may arise from actions or inactions of the Underwriter), has been transferred to
the Underwriter, provided that the Underwriter purchased the Securities in good
faith and
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without notice of any such lien, encumbrance, equity, security or claim or any
other adverse claim within the meaning of the New York Uniform Commercial Code;
(xii) Assuming that the Underwriter exercises the Option to
purchase the Additional Securities and makes payments therefor in accordance
with the terms of the Underwriting Agreement, upon issuance of the Additional
Securities to the Underwriter pursuant hereto, good title to the Additional
Securities, free and clear of any liens, encumbrances, equities, security
interests and claims (except those that may arise from actions or inactions of
the Underwriter), will have been transferred to the Underwriter, provided that
the Underwriter purchased the Additional Securities in good faith and without
notice of any such lien, encumbrance, equity, security or claim or any other
adverse claim within the meaning of the New York Uniform Commercial Code;
(xiii) To the best of such counsel's knowledge, other than
as set forth or contemplated in the Prospectus, there are no claims, actions,
suits, proceedings, arbitrations, investigations or inquiries before any
governmental agency, court or tribunal, or before any private arbitration
tribunal, pending or threatened against the Company or to which its properties
or business is subject, which, individually or in the aggregate, would have a
Material Adverse Effect.
In addition, such counsel shall state that during the course
of the preparation of the Registration Statement and the Prospectus, such
counsel participated in conferences with officers of the Company, and, while
such counsel are not passing upon, has not verified or independently
investigated, and does not assume any responsibility for the accuracy,
completeness or fairness of the statements or documents contained in the
Registration Statement or the Prospectus, during the course of such preparation
and the foregoing conferences, no facts came to such counsel's attention which
caused such counsel to believe that (A) the Registration Statement (except as to
the financial statements and other financial data contained therein, as to which
such counsel need express no opinion), as of the Effective Date, contained any
untrue statement of a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading, or that (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
such counsel need express no opinion), as of its date, contained any untrue
statement or a material fact or omitted to state any material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
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In rendering such opinions, such counsel may limit their
opinions to matters governed by the federal laws of the United States, the laws
of the State of New York and the general corporation laws of the State of
Delaware, and may rely as to matters of fact, to the extent they deem proper, on
certificates and written statements of officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to counsel to the Underwriter.
(f) On or prior to the Closing Date, counsel for the Underwriter
shall have been furnished such documents, certificates and opinions as they may
reasonably require for the purpose of enabling them to review the matters
referred to in subparagraph (e) of this Paragraph 9, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions herein contained.
(g) Prior to the Closing Date:
(i) There shall have been no material adverse change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus;
(ii) There shall have been no transaction, outside the
ordinary course of business, entered into by the Company from the latest date as
of which the financial condition of the Company is set forth in the Registration
Statement and Prospectus which is material to the Company, which is (x) required
to be disclosed in the Prospectus or Registration Statement and is not so
disclosed or (y) likely to have a Material Adverse Effect;
(iii) The Company shall not be in default under any material
provision of any instrument relating to any outstanding indebtedness, except as
described in the Prospectus and except such as will not have a Material Adverse
Effect;
(iv) No material amount of the assets of the Company shall
have been pledged, mortgaged or otherwise encumbered, except as set forth in the
Registration Statement and Prospectus;
(v) No action, suit or proceeding, at law or in equity,
shall have been pending or to its knowledge threatened against the Company or
affecting any of its properties or businesses before or by any court or federal
or state commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding would have a Material Adverse Effect, except as set
forth in the Registration Statement and Prospectus;
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(vi) No stop order shall have been issued under the Act and
no proceedings therefor shall have been initiated or, to the Company's
knowledge, threatened by the Commission; and
(vii) Each of the representations and warranties of the
Company contained in this Agreement and in each certificate and document
contemplated under this Agreement to be delivered to you was, when originally
made and is at the time such certificate is dated, true and correct in all
material respects.
(h) Concurrently with the execution and delivery of this
Agreement and at the Closing Date, you shall have received a certificate of the
Company signed by the Chief Executive Officer of the Company and the principal
financial officer of the Company, dated as of the Closing Date, to the effect
that the conditions set forth in subparagraph (g) above have been satisfied in
all material respects and that, as of the Closing Date, the representations and
warranties of the Company set forth in Paragraph 2 herein are true and correct,
as if made on and as of the Closing Date, in all material respects. Any
certificate signed by any officer of the Company and delivered to you or to
counsel for the Underwriter shall be deemed a representation and warranty by the
Company to the Underwriter as to the statements made therein.
(i) At the time this Agreement is executed, and at the Closing
Date, you shall have received a letter, addressed to the Underwriter and in form
and substance reasonably satisfactory in all material respects to you and
counsel for the Underwriter, from Ernst & Young LLP dated as of the date of this
Agreement and as of the Closing Date, substantially in the form of EXHIBIT A
hereto.
(j) All proceedings taken in connection with the authorization,
issuance or sale of the Securities, Warrant Shares, Additional Securities and
the Underwriter's Securities as herein contemplated shall be reasonably
satisfactory in form and substance to you and to counsel to the Underwriter, and
the Underwriter shall have received from such counsel an opinion, dated as the
Closing Date with respect to such of these proceedings as you may reasonably
require.
(l) The obligation of the Underwriter to purchase Additional
Securities hereunder is subject to the accuracy of the representations and
warranties of the Company contained herein on and as of the Option Closing Date
in all material respects and to the satisfaction on and as of the Option Closing
Date of the conditions set forth herein in all material respects.
(m) On the Closing Date there shall have been duly tendered to
you for your account the appropriate number of shares of Common Stock and
Warrants constituting the Securities.
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10. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the conditions set forth below, the Company
agrees to indemnify and hold harmless the Underwriter, each of its agents and
counsel and each person, if any, who controls the Underwriter ("controlling
person") within the meaning of either Section 15 of the Act or Section 20 of the
Exchange Act, against any and all losses, liabilities, claims, damages, actions
and expenses or liability, joint or several, whatsoever (including but not
limited to any and all expense whatsoever reasonably incurred in investigating,
preparing or defending against any litigation, commenced or threatened, or any
claim whatsoever), joint or several, to which it or such controlling persons may
become subject under the Act, the Exchange Act or under any other statute or at
common law or otherwise, arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any Preliminary Prospectus or the Prospectus (as from time to time
amended and supplemented); in any post-effective amendment or amendments or any
new registration statement and prospectus in which is included the Warrant
Shares of the Company issued or issuable upon exercise of the Warrants, or
Warrant Shares issued or issuable upon exercise of the Underwriter's Warrants;
or in any application or other document or written communication (in this
Paragraph 10 collectively called "application") executed by the Company or based
upon written information furnished by the Company filed in any jurisdiction in
order to qualify the Securities, Warrant Shares, Additional Securities,
Underwriter's Warrants and Underwriter's Securities under the securities laws
thereof or filed with the Commission or any securities exchange; or the omission
or alleged omission therefrom of a material fact required to be stated therein
or necessary to make the statements therein not misleading (in light of the
circumstances under which they were made), unless such statement or omission was
made in reliance upon or in conformity with written information furnished to the
Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in any Preliminary Prospectus, the Registration Statement or
Prospectus, or any amendment or supplement thereof, or in any application, as
the case may be. Notwithstanding the foregoing, the Company shall have no
liability under this Paragraph 10(a) if any such untrue statement or omission
made in a Preliminary Prospectus, is corrected in the Prospectus and the
Underwriter failed to deliver to the person or persons alleging the liability
upon which indemnification is being sought, at or prior to the written
confirmation of such sale, a copy of the Prospectus. This indemnity will be in
addition to any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company and each of the officers and directors of the Company who have signed
the Registration Statement, each of its agents and counsel, and each other
person, if any, who controls the
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Company within the meaning of Section 15 of the Act or Section 20(a) of the
Exchange Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter in Paragraph 10(a), but only with respect to any untrue
statement or alleged untrue statement of any material fact contained in or any
omission or alleged omission to state a material fact required to be stated in
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereof or necessary to make the statements therein not
misleading or in any application made in reliance upon, and in conformity with,
written information furnished to the Company by you expressly for use in the
preparation of such Preliminary Prospectus, the Registration Statement or
Prospectus with respect to the Underwriter or directly relating to the
transactions effected or to be effected by the Underwriter in connection with
the Offering. This indemnity agreement will be in addition to any liability
which the Underwriter may otherwise have.
(c) If any action is brought against any indemnified party (the
"Indemnitee") in respect of which indemnity may be sought against another party
pursuant to the foregoing (the "Indemnitor"), the Indemnitor shall assume the
defense of the action, including the employment and fees of counsel (reasonably
satisfactory to the Indemnitee) and payment of expenses. Any Indemnitee shall
have the right to employ its or their own counsel in any such case, but the fees
and expenses of such counsel shall be at the expense of such Indemnitee unless
the employment of such counsel shall have been authorized in writing by the
Indemnitor in connection with the defense of such action. If the Indemnitor
shall have employed counsel to have charge of the defense or shall previously
have assumed the defense of any such action or claim, the Indemnitor shall not
thereafter be liable to any Indemnitee in investigating, preparing or defending
any such action or claim. Each Indemnitee shall promptly notify the Indemnitor
of the commencement of any litigation or proceedings or any other action against
the Indemnitee in respect of which indemnification is to be sought.
(d) In order to provide for just and equitable contribution
under the Act in any case in which: (i) the Underwriter makes a claim for
indemnification pursuant to Paragraph 10 hereof, but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the time to appeal has expired or the last right of appeal has been denied)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 10 provides for indemnification of such case; or (ii)
contribution under the Act may be required on the part of the Underwriter in
circumstances for which indemnification is provided under this Paragraph 10,
then, and in each such case, the Company and the Underwriter shall contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after any contribution from others)
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in such proportion so that the Underwriter is responsible for the portion
represented by dividing the total compensation received by the Underwriter
herein or in connection with the Offering by the total purchase price of all
Securities sold in the public offering and the Company is responsible for the
remaining portion; provided, that in any such case, no person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
The foregoing contribution agreement shall in no way affect the
contribution liabilities of any persons having liability under Section 11 of the
Act other than the Company and the Underwriter. As used in this Paragraph 10,
the term "Underwriter" includes any officer, director, or other person who
controls the Underwriter within the meaning of Section 15 of the Act, and the
word "Company" includes any officer, director or person who controls the Company
within the meaning of Section 15 of the Act. If the full amount of the
contribution specified in this paragraph is not permitted by law, then the
Underwriter and each person who controls the Underwriter shall be entitled to
contribution from the Company to the full extent permitted by law. No
contribution shall be requested with regard to the settlement of any matter from
any party who did not consent in writing to the settlement.
(e) Within fifteen (15) days after receipt by any party to this
Agreement (or its representative) of notice of the commencement of any action,
suit or proceeding, such party will, if a claim for contribution in respect
thereof is made against another party (the "contributing party"), notify the
contributing party of the commencement thereof, but the omission so to notify
the contributing party will not relieve it from any liability it may have to any
other party other than for contribution hereunder.
In case any such action, suit or proceeding is brought against any
party, and such party notifies a contributing party or his or its representative
of the commencement thereof within the aforesaid fifteen (15) days, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution without the written consent of such contributing
party. The indemnification provisions contained in this Paragraph 11 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
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<PAGE>
11. REPRESENTATIONS, WARRANTIES, AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnity and contribution agreements by the
Underwriter and the Company contained in Paragraph 10 hereof, and the covenants,
representations and warranties of the Company and the Underwriter set forth in
this Agreement, shall remain operative and in full force and effect regardless
of (i) any investigation made by the Underwriter or on its behalf or by or on
behalf of any person who controls the Underwriter, or by the Company or any
controlling person of the Company or any director or any officer of the Company,
(ii) acceptance of any of the Securities and payment therefor, or (iii) any
termination of this Agreement, and shall survive the delivery of the Securities;
and any successor of the Underwriter or the Company, or of any person who
controls you or the Company or any other indemnified party, as the case may be,
shall be entitled to the benefit of such respective indemnity and contribution
agreements. The respective indemnity and contribution agreements by the
Underwriter and the Company contained in Paragraph 10 above shall be in addition
to any liability which the Underwriter and the Company may otherwise have.
12. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
(a) This Agreement shall become effective at 10:00 a.m.,
New York time, on the first full business day following the day on which you and
the Company receive notification that the Registration Statement became
effective.
(b) This Agreement may be terminated by the Underwriter by
notifying the Company at any time on or before the Closing Date, if any domestic
or international event or act or occurrence has materially disrupted, or in your
reasonable opinion will in the immediate future materially disrupt, securities
markets in the United States; or if trading in securities generally on the New
York Stock Exchange, the American Stock Exchange, or in the over-the-counter
market in the United States shall have been suspended, or minimum or maximum
prices for trading in securities generally shall have been fixed, or maximum
ranges for prices for securities shall have been required, on the over-the-
counter market by the NASD or NASDAQ or by order of the Commission or any other
governmental authority having jurisdiction; or if a moratorium in foreign
exchange trading by major international banks or persons has been declared in
the United States; or if the Company shall have sustained a loss material or
substantial to the Company taken as a whole by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in your reasonable opinion, make it
inadvisable to proceed with the offering, sale and delivery of the Securities;
or war or act of God or other calamity that would have a substantial adverse
effect or loss to the
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<PAGE>
Company; or if there shall have been a material adverse change in the conditions
of the United States securities market in general, as in your reasonable
judgment would make it inadvisable to proceed with the offering, sale and
delivery of the Securities.
(c) If you elect to terminate this Agreement as provided in this
Paragraph 12, the Company shall be notified promptly by you by telephone or
facsimile, confirmed by letter.
(d) Anything in this Agreement to the contrary notwithstanding,
if this Agreement shall terminate or shall not be carried out within the time
specified herein by reason of any failure on the part of the Company to perform
any undertaking, or to satisfy any condition of this Agreement by it to be
performed or satisfied, the sole liability of the Company to the Underwriter, in
addition to the obligations assumed by the Company pursuant to Paragraph 8
herein, will be to reimburse the Underwriter on an accountable basis for the
following: (i) reasonable Blue Sky counsel fees and expenses to the extent set
forth in Paragraph 8(a)(iv); (ii) Blue Sky filing fees to that same extent; and
(iii) such other reasonable out-of-pocket expenses actually incurred by the
Underwriter (including the reasonable fees and disbursements of their counsel),
to the extent set forth in Paragraph 8(a), in connection with this Agreement and
the proposed offering of the Securities, but in no event to exceed the sum of
$125,000 less such amounts as shall have already been paid pursuant to Section
8(b) or otherwise. The Company shall not in any event be liable to the
Underwriter for the loss of anticipated profits from the transactions covered by
this Agreement.
Anything in this Agreement to the contrary notwithstanding, if
this Agreement shall be terminated by you because you have exercised your rights
pursuant to Paragraph 12(b) above, the Company shall not be under any liability
to you except, on an accountable basis, for the portion of the non-accountable
expense allowance referred to in Paragraph 8(b) for which expenses have actually
been paid or incurred by you, and any balance will be returned by you to the
Company.
13. NOTICES.
All communications hereunder, except as herein otherwise specifically
provided, shall be in writing and, if sent to the Underwriter, shall be mailed,
delivered or telegraphed and confirmed to the Underwriter at Rickel &
Associates, Inc., 875 Third Avenue, New York, New York 10022, Attention: Elliot
J. Smith, with a copy thereof to Felice F. Mischel, Esq., Schneck Weltman
Hashmall & Mischel LLP, 1285 Avenue of the Americas, New York, New York 10019,
and, if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed to the Company at 810 Chicago Street, Toledo, Ohio 43611, Attention:
Bruce Maison, President, with a copy thereof to Lawrence M. Bell, Esq., Benesch,
Priedlander, Coplan &
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Aronoff P.L.L., 2300 BP America Building, 200 Public Square, Cleveland, Ohio
44114.
14. PARTIES.
This Agreement shall inure solely to the benefit of and shall be
binding upon, the Underwriter, the Company and the controlling persons,
directors and officers referred to in Paragraph 10 hereof, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained. No
purchaser of any of the Securities or Additional Securities from the Underwriter
shall be deemed a successor or assign by reason merely of such purchase.
15. CONSTRUCTION.
This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without giving effect to the
rules governing conflict of laws, and shall supersede any agreement or
understanding, oral or in writing, express or implied, between the Company and
you relating to the sale of any of the Securities.
16. JURISDICTION AND VENUE.
The Company agrees that the courts of the State of New York shall have
jurisdiction over any litigation arising from this Agreement, and venue shall be
proper in the Southern District of New York.
17. COUNTERPARTS.
This agreement may be executed in counterparts.
If the foregoing correctly sets forth the understanding between you
and the CompAny, please so indicate in the space
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<PAGE>
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
By:___________________________
Bruce Maison, President
Accepted as of the date first above
written:
RICKEL & ASSOCIATES, INC.
By:_________________________________
35
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
FIRST: The name of the Corporation is Environmental Purification
Industries, Inc.
SECOND: The address of its registered office in the State of Delaware is
No. 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is: To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: The number of shares for all classes of stock which the
Corporation is authorized to have outstanding is Three Thousand (3,000), all of
which shall be Common Shares, $.01 par value.
FIFTH: The name and mailing address of the Incorporator is as follows:
NAME MAILING ADDRESS
ACFB Incorporated 2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
SIXTH: The Corporation is to have perpetual existence.
SEVENTH: In furtherance and not in limitation of the powers conferred by
statute, the Corporation's Board of Directors is expressly authorized:
To make, alter or repeal the bylaws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees,
each committee to consist of one or more of the directors of the
Corporation.
<PAGE>
When and as authorized by the stockholders in accordance with this
Certificate of Incorporation and applicable statutes, to sell, lease or
exchange all or substantially all of the property and assets of the
Corporation, including its goodwill and its corporate franchises, upon such
terms and conditions and for such consideration (which may consist, in
whole or in part, of money or property, including, without limitation,
shares of stock or other securities of any other corporation or
corporations) as the Corporation's Board of Directors shall deem
appropriate and in the best interests of the Corporation.
EIGHTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
NINTH: Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Corporation's Board of Directors or in the bylaws of the Corporation. Elections
of directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
TENTH: All actions required or permitted to be taken by the Corporation's
stockholders must be effected at a duly called annual or special meeting (and
may not be effected by written consent in lieu thereof).
ELEVENTH: Special meetings of the stockholders of the Corporation, for any
purpose or purposes, may only be called at any time by a majority of the entire
serving Board of Directors or by either the Chairman of the Board or the
President of the Corporation.
TWELFTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
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<PAGE>
THIRTEENTH: No director shall be personally liable to the Corporation or
any of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law 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 limitations on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. Any repeal or
modification of this Article shall be prospective only, and shall not adversely
affect any limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification.
FOURTEENTH: A. Each person who was or is made a party to or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director or officer of the
Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent,
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA, excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his heirs, executors and administrators; provided, however, that, except as
provided in subsection B of this Article, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such director or officer to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Article or otherwise. The Corporation may, by action of
its Board of
3
<PAGE>
Directors, provide indemnification to employees and agents of the Corporation
with the same scope and effect as the foregoing indemnification of directors and
officers.
B. If a claim under subsection A of this Article is not paid in full by
the Corporation within thirty (30) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
C. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
D. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
E. As used in this Article, references to "the Corporation" shall
include, in addition to the resulting or surviving corporation, any constituent
corporation absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees and agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
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<PAGE>
F. If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee and agent of the
Corporation as to expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including a grand jury
proceeding and an action by the Corporation, to the fullest extent permitted by
any applicable portion of this Article that shall not have been invalidated or
by any other applicable law.
FIFTEENTH: When necessary or appropriate to the meaning hereof, the
singular, plural, masculine, feminine and neuter shall be deemed to include each
other.
THE UNDERSIGNED, being the Incorporator hereinabove named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, do make this certificate, hereby declaring and certifying that this is
its act and deed and the facts herein stated are true, and accordingly have
hereunto set its hand this 26th day of February, 1996.
ACFB Incorporated
Incorporator
By: /s/ Donna Fuller
---------------------------------
Donna Fuller, Assistant Secretary
5
<PAGE>
RESTATED
CERTIFICATE OF INCORPORATION
OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
FIRST: The name of the Corporation is Environmental Purification
Industries, Inc.
SECOND: The address of its registered office in the State of Delaware is
No. 1209 Orange Street, in the City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
THIRD: The nature of the business or purposes to be conducted or
promoted is: To engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
FOURTH: A. GENERAL AUTHORIZATION. The aggregate number of shares which
the Corporation is authorized to issue is [ ]
(__________), consisting of:
(1) _________________________________ (______________) shares of
Common Stock, with a par value of $.01 per share ("Common Stock"); and
(2) _________________________________ (______________) shares of
Preferred Stock, with a par value of $.01 per share ("Preferred
Stock").
B. PREFERRED STOCK. The following is a statement of the express terms,
powers, preferences, rights, qualifications, limitations and restrictions
thereof in respect to the shares of the Preferred Stock:
The Board of Directors of the Corporation is hereby authorized, subject to
the limitations prescribed by law and the provisions of this subsection B, to
provide by resolutions for the issuance of the Preferred Stock in one or more
series, to establish the number of shares to be included in each such series,
and to fix and state the voting powers, the designations, preferences and
relative, participating, optional or other special rights, or qualifications,
limitations, or restrictions thereof, applicable to the shares of each series.
The authority of the Board of Directors with respect to each series shall
include, without limitation, the determination of the following:
(1) The number of shares constituting that series and the
distinctive designation of that series;
<PAGE>
(2) The dividend rate and preference as to dividends on the
shares of that series, whether dividends shall be cumulative and the
date or dates, if any, from which dividends thereon shall be
cumulative;
(3) The voting powers, if any, of the shares of that series;
(4) Whether shares of that series shall have conversion or
exchange privileges and, if so, the terms and conditions of such
conversion or exchange privileges, including provision for adjustments
in such events as the Board shall determine;
(5) Whether or not the shares of that series shall be
redeemable, and if so, the terms and conditions of such redemption,
including, without limitation, the date or dates on or after which
they shall be redeemable, and the amount per share payable in the
event of redemption, which amount may vary under different conditions
and at different redemption dates;
(6) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation;
(7) Whether shares of that series shall be entitled to the
benefit of sinking fund provisions and, if so, on what terms and
conditions; and
(8) Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and
privileges of shares of that series, provided, however, that no such
rights, privileges, qualifications, limitations or restrictions shall
be in conflict with the Restated Certificate of Incorporation of the
Corporation.
The shares of each series authorized by the Board of Directors hereunder
may vary from the shares of any other series as to rights, privileges,
qualifications, limitations or restrictions applicable thereto.
C. COMMON STOCK. The following is a statement of the express terms,
powers, preferences, rights, qualifications, limitations and restrictions of the
Common Stock of the Corporation.
(1) GENERALLY:
All preferences, voting powers, relative, participating, optional or other
special rights and privileges, and qualifications, limitations, or
restrictions of the Common Stock are expressly made subject and subordinate
to those that may be fixed with respect to the Preferred Stock.
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<PAGE>
(2) VOTING RIGHTS:
Except as otherwise required by law or this Restated Certificate of
Incorporation, each holder of Common Stock shall have one vote in respect
of each share of Common Stock held by him of record on the books of the
Corporation for the election of directors and on all matters submitted to a
vote of stockholders of the Corporation. Except as otherwise required by
law or as set forth in this Restated Certificate of Incorporation, the
holders of Common Stock and the Preferred Stock shall vote together as a
single class on all matters submitted to the stockholders for a vote.
(3) DIVIDENDS:
The holders of outstanding Common Stock shall be entitled to receive
dividends when, as and if declared by the Board of Directors from funds
legally available therefor, provided that such dividend rights shall be
junior to the dividend rights of the holders of outstanding shares of the
Preferred Stock.
(4) DISSOLUTION, LIQUIDATION OR WINDING UP:
In the event of any dissolution, liquidation or winding up of the affairs
of the Corporation, after distribution in full of the preferential amounts
to be distributed to the holders of shares of the Preferred Stock, the
holders of Common Stock shall be entitled to receive all of the remaining
assets of the Corporation of whatever kind available for distribution to
stockholders ratably in proportion to the number of Common Stock held by
them respectively, unless otherwise provided by law or this Restated
Certificate of Incorporation.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Corporation's Board of Directors is expressly authorized:
To make, alter or repeal the bylaws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real property of the Corporation.
To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
By a majority of the whole Board, to designate one or more committees,
each committee to consist of one or more of the directors of the
Corporation.
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When and as authorized by the stockholders in accordance with this
Restated Certificate of Incorporation and applicable statutes, to sell,
lease or exchange all or substantially all of the property and assets of
the Corporation, including its goodwill and its corporate franchises, upon
such terms and conditions and for such consideration (which may consist, in
whole or in part, of money or property, including, without limitation,
shares of stock or other securities of any other corporation or
corporations) as the Corporation's Board of Directors shall deem
appropriate and in the best interests of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: Meetings of stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Corporation's Board of Directors or in the bylaws of the Corporation. Elections
of directors need not be by written ballot unless the bylaws of the Corporation
shall so provide.
NINTH: The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors, which shall consist of not less
than two directors, the exact number of directors to be determined from time to
time by resolution adopted by affirmative vote of a majority of the entire Board
of Directors. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors, initially with Class I directors being elected
for a one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. At each succeeding annual meeting of
stockholders, beginning in 1997, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of
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directors in each class as nearly equal as possible, and any additional director
of any class elected to fill a vacancy resulting from an increase in such class
shall hold office for a term that shall coincide with the remaining term of that
class, but in no case will a decrease in the number of directors shorten the
term of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor shall be
elected and shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy on the Board
of Directors that results from an increase in the number of directors may be
filled by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director, and any other vacancy occurring in the
Board of Directors may be filled by a majority of the directors then in office,
even if less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.
Subject to the rights of the holders of any class or series of the voting stock
then outstanding, any director, or the entire Board of Directors, may be removed
from office at any time, but only for cause and only by the affirmative vote of
the holders of at least 75% of the voting power of all of the then-outstanding
shares of the voting stock, voting together as a single class.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Restated Certificate of Incorporation applicable thereto
(including the resolutions of the Board of Directors adopted pursuant to Article
FOURTH), and such Directors so elected shall not be divided into classes
pursuant to this Article unless expressly provided by such terms.
TENTH: Special meetings of the stockholders of the Corporation, for any
purpose or purposes, may only be called at any time by a majority of the entire
serving Board of Directors or by either the Chairman of the Board or the
President of the Corporation.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Restated Certificate of Incorporation, in
the manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
TWELFTH: No director shall be personally liable to the Corporation or any
of its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware General Corporation Law, or (d) for
any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law 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 limitations on
personal liability provided herein, shall be limited to the fullest extent
permitted by the amended Delaware General Corporation Law. Any repeal or
modification of this Article
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shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
THIRTEENTH: A. Each person who was or is made a party to or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he, or a person of whom
he is the legal representative, is or was a director, officer, employee or agent
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent,
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA, excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his heirs, executors and administrators; provided, however, that, except as
provided in subsection B of this Article, the Corporation shall indemnify any
such person seeking indemnification in connection with a proceeding (or part
thereof) initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Article shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his capacity as a director or
officer (and not in any other capacity in which service was or is rendered by
such person while a director or officer, including, without limitation, service
to an employee benefit plan) in advance of the final disposition of a proceeding
shall be made only upon delivery to the Corporation of an undertaking by or on
behalf of such director or officer to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Article or otherwise. The Corporation may, by action of
its Board of Directors, provide indemnification to employees and agents of the
Corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
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B. If a claim under subsection A of this Article is not paid in full by
the Corporation within thirty (30) days after a written claim has been received
by the Corporation, the claimant may at any time thereafter bring suit against
the Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation Law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he has met the applicable
standard of conduct set forth in the Delaware General Corporation Law, nor an
actual determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
C. The right to indemnification and the payment of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of this Restated Certificate of
Incorporation, bylaw, agreement, vote of stockholders or disinterested directors
or otherwise.
D. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
E. As used in this Article, references to "the Corporation" shall
include, in addition to the resulting or surviving corporation, any constituent
corporation absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees and agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
F. If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee and agent of the
Corporation as to expenses (including attorneys' fees),
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judgments, fines and amounts paid in settlement with respect to any action, suit
or proceeding, whether civil, criminal, administrative or investigative,
including a grand jury proceeding and an action by the Corporation, to the
fullest extent permitted by any applicable portion of this Article that shall
not have been invalidated or by any other applicable law.
FOURTEENTH: When necessary or appropriate to the meaning hereof, the
singular, plural, masculine, feminine and neuter shall be deemed to include each
other.
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BY-LAWS
OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF STOCKHOLDERS' MEETINGS. All meetings of the
stockholders of the Corporation shall be held at such place or places, within or
outside the State of Delaware, as may be fixed by the Board of Directors from
time to time or as shall be specified in the respective notices thereof.
Section 2. DATE, HOUR AND PURPOSE OF ANNUAL MEETINGS OF STOCKHOLDERS.
Annual meetings of stockholders, commencing with the year 1997, shall be held on
such day and at such time as the Directors may determine from time to time by
resolution, at which meeting the stockholders shall elect, by a plurality of the
votes cast at such election, a Board of Directors, and transact such other
business as may properly be brought before the meeting. If for any reason a
Board of Directors shall not be elected at the annual meeting of stockholders,
or if it appears that such annual meeting is not held on such date as may be
fixed by the Directors in accordance with the provisions of these By-laws, then
in either such event the Directors shall cause the election to be held as soon
thereafter as convenient.
Section 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders of the Corporation, for any purpose or purposes, may only be called
at any time by a majority of the entire Board of Directors or by either the
Chairman of the Board or the President of the Corporation. Such request shall
state the purpose or purposes of the meeting.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise
expressly required or permitted by the laws of Delaware, not less than 10 days
nor more than 60 days before the date of every stockholders' meeting the
Secretary shall give to each stockholder of record entitled to vote at such
meeting written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called. Such notice, if mailed, shall be deemed to be given when deposited in
the United States mail, with postage thereon prepaid, addressed to the
stockholder at the post office address for notices to such stockholder as it
appears on the records of the Corporation.
An affidavit of the Secretary or an Assistant Secretary or of a transfer
agent of the Corporation that the notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
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Section 5. QUORUM OF STOCKHOLDERS.
(a) Unless otherwise provided by the laws of Delaware, at any meeting
of the stockholders the presence in person or by proxy of stockholders
entitled to cast a majority of the votes thereat shall constitute a quorum.
(b) At any meeting of the stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice other than announcement at the
meeting. In the absence of a quorum, the officer presiding thereat shall
have power to adjourn the meeting from time to time until a quorum shall be
present. Notice of any adjourned meeting other than announcement at the
meeting shall not be required to be given, except as provided in Section
5(d) below and except where expressly required by law.
(c) At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called, but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment
or adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
Section 6. CHAIRMAN AND SECRETARY OF MEETING. The Chairman, or in his
absence, the Vice Chairman, or in his absence, the President, or in his absence,
any Vice President, shall preside at meetings of the stockholders. The
Secretary shall act as secretary of the meeting, or in his absence an Assistant
Secretary shall act, or if neither is present, then the presiding officer shall
appoint a person to act as secretary of the meeting.
Section 7. VOTING BY STOCKHOLDERS. Except as may be otherwise provided
by the Certificate of Incorporation or by these By-laws, at every meeting of the
stockholders each stockholder shall be entitled to one vote for each share of
stock standing in his name on the books of the Corporation on the record date
for the meeting. All elections and questions shall be decided by the vote of a
majority in interest of the stockholders present in person or represented by
proxy and entitled to vote at the meeting, except as otherwise permitted or
required by the laws of Delaware, the Certificate of Incorporation or these By-
laws.
Section 8. PROXIES. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by his attorney-in-fact. Every proxy
shall be in writing, subscribed by the stockholder or his duly authorized
attorney-in-fact, but need not be dated, sealed, witnessed or acknowledged.
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Section 9. LIST OF STOCKHOLDERS.
(a) At least 10 days before every meeting of stockholders, the
Secretary shall prepare or cause to be prepared a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical
order and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least 10 days
prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
(c) The list shall also be produced and kept at the time and place of
the meeting during the whole time of the meeting, and it may be inspected
by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by
this Section or the books of the Corporation, or to vote in person or by
proxy at any meeting of stockholders.
ARTICLE II
DIRECTORS
Section 1. POWERS OF DIRECTORS. The property, business and affairs of
the Corporation shall be managed by its Board of Directors, which may exercise
all the powers of the Corporation except such as are by the laws of Delaware or
the Certificate of Incorporation or these By-laws required to be exercised or
done by the stockholders.
Section 2. NUMBER, METHOD OF ELECTION, TERMS OF OFFICE OF DIRECTORS.
The number of Directors which shall constitute the whole Board of Directors
shall be such as from time to time shall be determined by resolution of the
Board of Directors, but the number shall not be less than two, provided,
however, that the tenure of a Director shall not be affected by any decrease in
the number of Directors so made by the Board. Each Director shall hold office
until his successor is elected and qualified, provided, however, that a Director
may resign at any time.
Section 3. VACANCIES ON BOARD OF DIRECTORS.
(a) Any Director may resign his office at any time by delivering his
resignation in writing to the Chairman or the President or the Secretary.
It will take effect at the time specified therein, or if no time is
specified, it will be effective at the
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time of its receipt by the Corporation. The acceptance of a resignation
shall not be necessary to make it effective, unless expressly so provided
in the resignation.
(b) Any vacancy on the Board of Directors that results from an
increase in the number of directors may be filled by a majority of the
directors then in office, even if less than a quorum, or by a sole
remaining director, and any other vacancy occurring in the Board of
Directors may be filled by a majority of the directors then in office, even
if less than a quorum, or by a sole remaining director. Any director
elected to fill a vacancy not resulting from an increase in the number of
directors shall have the same remaining term as that of his predecessor.
Section 4. MEETINGS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may hold its meetings, both regular and
special, either within or outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by
resolution of the Board of Directors.
(c) The first meeting of each newly elected Board of Directors for
the election of officers and the transaction of such other business as may
come before it (except the initial Board of Directors) shall be held as
soon as practicable after the annual meeting of the stockholders .
(d) Special meetings of the Board of Directors shall be held whenever
called by direction of the Chairman or the President or at the request of
Directors constituting one-third of the number of Directors then in office,
but not less than two Directors.
(e) The Secretary shall give notice to each Director of any meeting
of the Board of Directors by mailing the same at least two days before the
meeting or by telegraphing, faxing or delivering the same not later than
the day before the meeting. Such notice need not include a statement of
the business to be transacted at, or the purpose of, any such meeting. Any
and all business may be transacted at any meeting of the Board of
Directors. No notice of any adjourned meeting need be given. No notice to
or waiver by any Director shall be required with respect to any meeting at
which the Director is present.
Section 5. QUORUM AND ACTION. A majority of the total number of
directors shall constitute a quorum for the transaction of business; but if
there shall be less than a quorum at any meeting of the Board, a majority of
those present may adjourn the meeting from time to time. Unless otherwise
provided by the laws of Delaware, the Certificate of Incorporation or these By-
laws, the act of a majority of the Directors present at any meeting at which a
quorum is present shall be the act of the Board of Directors.
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Section 6. PRESIDING OFFICER AND SECRETARY OF MEETING. The Chairman
or, in his absence, a member of the Board of Directors selected by the members
present, shall preside at meetings of the Board. The Secretary shall act as
secretary of the meeting, but in his absence the presiding officers shall
appoint a secretary of the meeting, who may, but need not, be a Director.
Section 7. ACTION BY CONSENT WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing and the writing or
writings are filed with the records of the Board or committee.
Section 8. EXECUTIVE COMMITTEE. The Board of Directors may appoint
from among its members and from time to time may fill vacancies in an Executive
Committee to serve during the pleasure of the Board. The Executive Committee
shall consist of three members, or such greater number of members as the Board
of Directors may by resolution from time to time fix. One of such members shall
be the Chairman of the Board, who shall be the presiding officer of the
Committee. During the intervals between the meetings of the Board, the
Executive Committee shall possess and may exercise all of the powers of the
Board in the management of the business and affairs of the Corporation conferred
by these By-laws or otherwise, except to the extent restricted in the
resolutions of the Board of Directors appointing the members of the Executive
Committee. The Committee shall keep a record of all its proceedings and report
the same to the Board. A majority of the members of the Committee shall
constitute a quorum. The act of a majority of the members of the Committee
present at any meeting at which a quorum is present shall be the act of the
Committee.
Section 9. OTHER COMMITTEES. The Board of Directors may also appoint
from among its members such other committees of two or more Directors as it may
from time to time deem desirable, and may delegate to such committees such
powers of the Board as it may consider appropriate.
Section 10. COMPENSATION OF DIRECTORS. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for attendance
at meetings, or both, with expenses, if any, as the Board of Directors may from
time to time determine. Nothing herein contained shall be construed to preclude
any Director from serving in any other capacity and receiving compensation
therefor.
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ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS OF THE CORPORATION. The executive
officers of the Corporation shall be chosen by the Board of Directors and shall
be a President, a Secretary and a Treasurer. The Board of Directors also may
appoint a Chairman of the Board, a Vice Chairman of the Board, and one or more
Vice Presidents, Assistant Secretaries and Assistant Treasurers. Any two
offices except those of Chairman of the Board and Vice Chairman of the Board,
President and Vice President, or President and Secretary may be filled by the
same person. None of the officers need be a member of the Board except the
Chairman of the Board and the Vice Chairman of the Board.
Section 2. CHOOSING OF EXECUTIVE OFFICERS. The Board of Directors at
its first meeting after each annual meeting of stockholders shall choose a
President, a Secretary and a Treasurer.
Section 3. ADDITIONAL OFFICERS. 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.
Section 4. SALARIES. The salaries, if any, of officers and agents of
the Corporation specially appointed by the Board shall be fixed by the Board of
Directors.
Section 5. TERM, REMOVAL AND VACANCIES. The officers of the
Corporation shall hold office until their respective successors are chosen and
qualify. Any officer elected or appointed by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the stockholders.
In the absence or disability of the Chairman of the Board: (a) the Vice
Chairman of the Board shall preside at all meetings of the Board of Directors
and of the stockholders, and (b) the powers and duties of the Chairman of the
Board shall be exercised jointly by the Vice Chairman of the Board and the
President until such authority is altered by action of the Board of Directors.
The Chairman of the Board shall present to the Annual Meeting of Stockholders a
report of the business of the preceding fiscal year.
Section 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if any, shall have such powers and perform such duties as are provided in these
By-laws or as may be delegated to him by the Chairman of the Board, and shall
perform such other duties as may from time to time be assigned to him by the
Board of Directors.
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Section 8. PRESIDENT. The President shall have such powers and perform
such duties as are provided in these By-laws or as may be delegated to him by
the Board of Directors or the Chairman of the Board. The President shall be the
Chief Executive Officer of the Corporation and shall have all the duties and
responsibilities previously enumerated for the Chairman of the Board. In the
absence of the Chairman of the Board and the Vice Chairman of the Board, the
President shall preside at all meetings of the stockholders.
Section 9. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer shall have general charge and supervision of the business of
the Company and shall exercise and perform all the duties incident to the office
of the Chief Executive Officer. He shall have direct supervision of the other
officers and shall also exercise and perform such powers and duties as may be
assigned to him by the Board of Directors.
Section 10. POWERS AND DUTIES OF VICE PRESIDENTS. Any Vice President
designated by the Board of Directors shall, in the absence, disability, or
inability to act of the President, perform all duties and exercise all the
powers of the President and shall perform such other duties as the Board may
from time to time prescribe. Each Vice President shall have such other powers
and shall perform such other duties as may be assigned to him by the Board.
Section 11. POWERS AND DUTIES OF TREASURER AND ASSISTANT TREASURERS.
(a) The Treasurer shall have the care and custody of all the funds
and securities of the Corporation except as may be otherwise ordered by the
Board of Directors, and shall cause such funds to be deposited to the
credit of the Corporation in such banks or depositories as may be
designated by the Board of Directors, the Chairman, the President or the
Treasurer, and shall cause such securities to be placed in safekeeping in
such manner as may be designated by the Board of Directors, the Chairman,
the President or the Treasurer.
(b) The Treasurer, or an Assistant Treasurer, or such other person or
persons as may be designated for such purpose by the Board of Directors,
the Chairman, the President or the Treasurer, may endorse in the name and
on behalf of the Corporation all instruments for the payment of money,
bills of lading, warehouse receipts, insurance policies and other
commercial documents requiring such endorsement.
(c) The Treasurer, or an Assistant Treasurer, or such other person or
persons as may be designated for such purpose by the Board of Directors,
the Chairman, the President or the Treasurer, may sign all receipts and
vouchers for payments made to the Corporation; he shall render a statement
of the cash account of the Corporation to the Board of Directors as often
as it shall require the same; he shall enter regularly in books to be kept
by him for that purpose full and accurate accounts of all moneys received
and paid by him on account of the Corporation and of all securities
received and delivered by the Corporation.
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(d) Each Assistant Treasurer shall perform such duties as may from
time to time be assigned to him by the Treasurer or by the Board of
Directors. In the event of the absence of the Treasurer or his incapacity
or inability to act, then any Assistant Treasurer may perform any of the
duties and may exercise any of the powers of the Treasurer.
Section 12. POWERS AND DUTIES OF SECRETARY AND ASSISTANT SECRETARIES.
(a) The Secretary shall attend all meetings of the Board, all
meetings of the stockholders, and shall keep the minutes of all proceedings
of the stockholders and the Board of Directors in proper books provided for
that purpose. The Secretary shall attend to the giving and serving of all
notices of the Corporation in accordance with the provisions of these By-
laws and as required by the laws of Delaware. The Secretary may, with the
President, a Vice President or other authorized officer, sign all contracts and
other documents in the name of the Corporation. He shall perform such other
duties as may be prescribed in these By-laws or assigned to him and all other
acts incident to the position of Secretary.
(b) Each Assistant Secretary shall perform such duties as may from
time to time be assigned to him by the Secretary or by the Board of
Directors. In the event of the absence of the Secretary or his incapacity
or inability to act, then any Assistant Secretary may perform any of the
duties and may exercise any of the powers of the Secretary.
(c) In no case shall the Secretary or any Assistant Secretary,
without the express authorization and direction of the Board of Directors,
have any responsibility for, or any duty or authority with respect to, the
withholding or payment of any federal, state or local taxes of the
Corporation, or the preparation or filing of any tax return.
ARTICLE IV
CAPITAL STOCK
Section 1. STOCK CERTIFICATES.
(a) Every holder of stock in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman or
the President or the Vice Chairman or a Vice President, and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary, certifying the number of shares owned by him.
(b) If such a certificate is countersigned by a transfer agent other
than the Corporation or its employee, or by a registrar other than the
Corporation or its
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employee, the signatures of the officers of the Corporation may be
facsimiles and, if permitted by Delaware law, any other signature on the
certificate may be a facsimile.
(c) In case any officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Certificate of Incorporation as shall be approved by
the Board of Directors or by the Secretary of the Corporation. They shall
be numbered and registered in the order in which they are issued. No
certificate shall be issued until fully paid.
Section 2. RECORD OWNERSHIP. A record of the name and address of the
holder of each certificate, the number of shares represented thereby, and the
date of issue thereof shall be made on the Corporation's books. The Corporation
shall be entitled to treat the holder of record of any share of stock as the
holder in fact thereof, and accordingly shall not be bound to recognize any
equitable or other claim to or interest in any share on the part of any other
person, whether or not it shall have express or other notice thereof, except as
required by the laws of Delaware.
Section 3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only upon
the surrender of the certificate therefor and a written assignment of the shares
evidenced thereby. Whenever any transfer of stock shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer if, when the certificates are presented to the Corporation for
transfer, both the transferor and transferee request the Corporation to do so.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. Certificates
representing shares of the stock of the Corporation shall be issued in place of
any certificate alleged to have been lost, stolen or destroyed in such manner
and on such terms and conditions as the Board of Directors from time to time may
authorize.
Section 5. TRANSFER AGENT, REGISTRAR, RULES RESPECTING CERTIFICATES.
The Corporation shall maintain one or more transfer offices or agencies where
stock of the Corporation shall be transferable. The Corporation shall also
maintain one or more registry offices where such stock shall be registered. The
Board of Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of stock certificates.
-9-
<PAGE>
Section 6. FIXING RECORD DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD.
(a) The Board of Directors may fix a date as the record date for the
purpose of determining the stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and which record date
shall not be more than 60 nor less than 10 days before the date of a
meeting of the stockholders. A determination of the stockholders of record
entitled to notice of or to vote at a meeting of the stockholders shall
apply to any adjournment of the meeting; provided, however, that the Board
of Directors may fix a new record date for the adjourned meeting.
(b) The Board of Directors may fix a date as the record date for the
purpose of determining the stockholders entitled to consent to corporate
action in writing without a meeting, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than 10 days after the
date upon which the resolution fixing the record date is adopted by the
Board of Directors.
(c) The Board of Directors may fix a date as the record date for the
purpose of determining the stockholders entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock, or for any other lawful purpose, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than 60 days
prior to the date of any such action.
ARTICLE V
SECURITIES HELD BY THE CORPORATION
Section 1. VOTING. Unless the Board of Directors shall otherwise
order, the Chairman, the Vice Chairman, the President, any Vice President or the
Treasurer shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of the stockholders of any corporation in
which the Corporation may hold stock and at such meeting to exercise any or all
rights and powers incident to the ownership of such stock, and to execute on
behalf of the Corporation a proxy or proxies empowering another or others to act
as aforesaid. The Board of Directors from time to time may confer like powers
upon any other person or persons.
-10-
<PAGE>
Section 2. GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD BY THE
CORPORATION.
(a) Any of the following officers, to-wit: the Chairman, the
President, any Vice President, the Treasurer or the Secretary of the
Corporation shall be and are hereby authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidences of indebtedness, or other securities now or hereafter
standing in the name of or owned by the Corporation, and to make, execute
and deliver under the seal of the Corporation any and all written
instruments of assignment and transfer necessary or proper to effectuate
the authority hereby conferred.
(b) Whenever there shall be annexed to any instrument of assignment
and transfer executed, pursuant to and in accordance with the foregoing
paragraph (a), a certificate of the Secretary or an Assistant Secretary of
the Corporation in office at the date of such certificate setting forth the
provisions hereof and stating that they are in full force and effect and
setting forth the names of persons who are then officers of the
Corporation, then all persons to whom such instrument and annexed
certificate shall thereafter come shall be entitled, without further
inquiry or investigation and regardless of the date of such certificate, to
assume and to act in reliance upon the assumption that the shares of stock
or other securities named in such instrument were theretofore duly and
properly transferred, endorsed, sold, assigned, set over and delivered by
the Corporation, and that with respect to such securities the authority of
these provisions of the By-laws and of such officers is still in full force
and effect.
ARTICLE VI
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the Corporation may be declared by the Board of Directors at any regular or
special meeting, pursuant to law. Dividends may be paid in cash, in property,
or in shares of the capital stock, subject to the provisions of the Certificate
of Incorporation.
Section 2. PAYMENT AND 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 purpose as the Directors shall think conducive to
the interest of the Corporation, and the Directors may modify or abolish any
such reserves in the manner in which they were created. Only stockholders of
record on the date fixed as the record date for the determination of
stockholders entitled to receive payment of any dividend shall be entitled to
receive payment of such dividend, notwithstanding any transfer of stock on the
books of the Corporation after any such record date.
-11-
<PAGE>
ARTICLE VII
GENERAL PROVISIONS
Section 1. SIGNATURES OF OFFICERS. 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. The signature of any officer upon any of the foregoing instruments
may be a facsimile whenever authorized by the Board.
Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors, and if not so fixed, shall end on
the last day of February of each year.
Section 3. SEAL. Upon resolution of the Board of Directors, the
Corporation may elect to have a corporate seal. In such event, the corporate
seal shall have inscribed thereon the name of the Corporation, the year of its
incorporation and the words "Corporate Seal, Delaware". Said seal may be used
for causing it or a facsimile thereof to be impressed or affixed or reproduced
or otherwise.
Section 4. GENDER. When necessary or appropriate to the meaning
hereof, the singular, plural, masculine, feminine and neuter shall be deemed to
include each other.
ARTICLE VIII
WAIVER OF OR DISPENSING WITH NOTICE
Whenever any notice of the time, place or purpose of any meeting of the
stockholders, Directors or a committee is required to be given under the laws of
Delaware, the Certificate of Incorporation or these By-laws, a waiver thereof in
writing, signed by the person or persons entitled to such notice, whether before
or after the holding thereof, or actual attendance at the meeting in person, or
in the case of a stockholder, by his attorney-in-fact, shall be deemed
equivalent to the giving of such notice to such persons. No notice need be
given to any person with whom communication is made unlawful by any law of the
United States or any rule, regulation, proclamation or executive order issued
under any such law.
-12-
<PAGE>
ARTICLE IX
AMENDMENT OF BY-LAWS
These By-laws, or any of them, may from time to time be supplemented,
amended or repealed by the Board of Directors, or by the vote of a majority in
interest of the stockholders represented and entitled to vote at any meeting at
which a quorum is present.
-13-
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
THIS CERTIFIES THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF THE PAR
VALUE OF .01 PER SHARE, OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN PERSON OR
BY DULY AUTHORIZED ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY
ENDORSED. THIS CERTIFICATE IS NOT VALID UNLESS COUNTERSIGNED BY THE TRANSFER
AGENT AND REGISTRAR.
WITNESS FACSIMILE SIGNATURES OF ITS DULY AUTHORIZED OFFICERS.
DATED:
(Signature) (Signature)
---------------------- ---------------------
SECRETARY PRESIDENT AND CEO
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
NEW YORK, NEW YORK TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -as tenants in common UNIF GIFT MIN ACT - Custodian
------------------------
TEN ENT -as tenants by the entireties (Cust) (Minor)
under Uniform Gifts to
JT TEN -as joint tenants with right Minors
of survivorship and not as Act
tenants in common -------------------
(State)
Additional abbreviations may also be used though not in the above
list.
FOR VALUE RECEIVED ______HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________ ________________________________________
________________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________________________SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
________________________________________________________________________ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ____________________________________________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED BY:
<PAGE>
LEASE
Lease made this 1st day of March 1996 between Chicago Investors, a general
partnership organized under the law of the State of Ohio, having its as
principal office at 805 Chicago Street, Toledo, Ohio 43611, herein referred to
as "Lessor," and Environmental Purification Industries Company, a general
partnership organized under the laws of the State of Ohio, having its principal
office at 2111 Champlain, Toledo, Ohio 43611, herein referred to as "Lessee."
In consideration of the mutual covenants contained herein, the parties
agree as follows:
Section 1. SUBJECT AND PURPOSE. A. Lessor leases the Building and land
located at 805 Chicago Street, Toledo, Lucas County, Ohio, and more particularly
described and shown in Exhibit A attached hereto and made a part hereof
(hereinafter referred to as the "Premises") for purposes incident to the
operations conducted by the Lessee and for no other purpose.
B. Lessor grants Lessee access to and from the Premises and public
streets over Lessor's properties located at or adjacent to Chicago Street,
Toledo, Ohio. Lessee shall not, however, interfere with Lessor's operations and
Lessor's tenants' operations conducted on Lessor's properties.
Section 2. TERM. A. Lessor leases the Premises for an initial term
("Initial Term") of 24 months commencing March 1, 1996, and terminating February
28, 1998. At the end of the Initial Term, Lessee has the options to extend this
Lease for up to three (3) additional option periods of one (1) year each (each
of said renewals is a "Renewal Term") upon the following terms and conditions:
1. Lessee gives Lessor written notice of its exercise of the applicable
renewal options at least sixty (60) days prior to the expiration of the Initial
Term and at least sixty (60) days prior to the expiration of each Renewal Term
if Lessee exercises its options to renew the Lease for any Renewal Term.
2. Lessee is not in default under this Lease beyond the expiration of any
cure period either on a date Lessee delivers the notice required above or at any
time thereafter prior to the commencement of the Renewal Term so exercised.
3. All of the terms and provisions of this Lease shall be applicable to
the Renewal Term, except that the rental for each Renewal Term shall be as set
forth in Section 3 RENTAL of this Lease. After the Initial Term and Renewal
Term (s), Lessee shall be deemed a tenant of the Premises from month-to-month at
the rents in effect at the later of the Initial Term or Renewal Term (s),
subject to all the terms and provisions hereof, except only as to the term of
this Lease. After the Initial Term and the Renewal Term (s), either party may
cancel this Lease upon giving the other party sixty (60) days written notice.
In the event Lessor secures a new tenant for the Premises during the month-to-
month tenure of Lessee, Lessor shall grant the Lessee the first right of first
refusal to match the terms of the proposed lease agreed upon by and between the
Lessor and the new tenant.
<PAGE>
B. Notwithstanding the above, until Lessee removes all of its equipment
and personal property from the Premises, Lessee shall be liable for a pro-rata
monthly rental based on the same amount as stated herein for such additional
period of the time until all equipment and personal property are completely
removed. Lessee shall have a maximum of sixty (60) days to remove all of its
equipment and personal property from the date of cancellation after which period
the Lessor shall have the option to cause Lessee to immediately remove its
equipment and personal property or to restore the monthly rental to the full
amount.
Section 3. RENTAL. Lessee agrees to pay Lessor the monthly rental in
advance on the first day each month for that month's rental during the term of
this Lease or any Renewal Term hereunder as follows:
1. March 1, 1996 through February 28, 1998 $ 1,375.00
2. March 1, 1998 through February 28, 1999 $ 1,550.00
3. March 1, 1999 through February 29, 2000 $ 1,700.00
4. March 1, 2000 through February 28, 2001 $ 1,800.00
All rental payments shall be made to the Lessor at the address specified
above. If any rent payment is delinquent, a late charge of ten ($10) per day
shall be charged until rent is paid.
Section 4. TAXES AND ASSESSMENTS; UTILITIES. In consideration of the
rentals specified in this Lease, Lessor shall be responsible for all taxes and
assessments directly attributable to the Premises and for the utilities (gas,
electricity and water) consumed on the Premises. However, should the operations
and use of the Premises by the Lessee cause the utilities to increase by more
than 15% over the average monthly cost of utilities for the twelve-month period
preceding March 1, 1996, stated to be $750.00 per month, the Lessee shall be
obligated to pay as additional rent the cost of utilities exceeding such 15%
increase. The Lessor will provide substantiation to include but not be limited
to meter readings, for the computation of the increase. Lessee shall pay Lessor
for such increase upon receipt of billing for such increase from the Lessor.
Section 5. INSURANCE. A. Lessee will maintain or cause to be maintained
or, or failing to do so, shall reimburse Lessor for, insurance on the Premises
of the following character:
1. Comprehensive general liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the Premises
in the minimum amounts of Three Million Dollars ($3,000,000) for bodily injury
or death in any one occurrence, Three Million Dollars ($3,000,000) in the
aggregate, and Three Million Dollars ($3,000,000) for property damage.
2. Workers compensation insurance to the extent required by the law
of the State of Ohio, and to the extent necessary to protect lessor and the
Premises against workers compensation claims.
<PAGE>
B. All of the above described insurance shall be written by companies of
recognized financial standing and legally qualified to issue such insurance.
C. Lessee shall deliver to Lessor original or duplicate certificates of
insurance evidencing the existence of all insurance which is required to be
maintained by Lessee hereunder, such delivery to be made (i) promptly after the
execution and delivery hereof, and (ii) at least thirty (30) days prior to the
expiration of any such insurance.
D. Lessee shall at all times comply with and cause the Premises to comply
with all insurance policies required of Lessee under this Section 5 to the
extent necessary to prevent cancellation thereof and to insure full payment of
any claims made under such policies.
E. Lessor shall maintain property insurance on the improvements
constituting the Premises in an amount equal to the Actual Cash Value thereof.
F. Lessor and Lessee hereby release each other from any and all liability
or responsibility (to the other or any one claiming through or under them) by
way of subrogation or otherwise for any loss or damage to property caused by
fire or any of the extended coverage or supplementary contract casualties; even
if such fire or other casualty shall have been caused by the fault or negligence
of the other party, or any one for whom such party may be responsible; provided,
however, that this release shall be applicable and enforced and effect only with
respect to loss and damage occurring during such time as the releaser's policies
shall contain a clause or endorsement to the effect that any such release shall
not adversely affect and impair said policies or prejudice the right of the
releaser to recover thereunder. Lessor and Lessee each agree that their
policies will include such a clause or endorsement so long as the same shall be
obtainable.
Section 6. MAINTENANCE AND REPAIR. Throughout the term of this Lease,
Lessee at its expense will maintain all parts of the Premises in good repair and
condition, except for ordinary wear and tear. Lessor is responsible for the
repair and maintenance of the structural components of the Premises. However,
in the event of any casualty to the Premises, the Lessor shall not be obligated
to repair such casualty if the cost of making such repairs exceeds $15,000 over
insurance proceeds collected or to be collected. In the event Lessor elects not
to make such repairs, Lessee shall have the option to make such repairs or to
terminate the lease.
If the Premises become unsuitable for the purpose set forth in the
Lease for a period of fifteen (15) consecutive days due to structural disrepair
or failure, the rental shall be thereafter suspended until the Premises are
brought into a suitable condition for use.
Section 7. ALTERATIONS; LESSEE'S EQUIPMENT. Lessee may, at its expense,
make non-structural alterations of the Building provided that (i) the market
value of the Premises shall not be lessened thereby, (ii) such work shall be
expeditiously completed in a good and workmanlike manner and in
<PAGE>
compliance with all applicable legal requirements and the requirements of all
insurance policies required to be maintained by Lessee hereunder, and (iii) the
character and use of the Premises shall not be changed as a consequence thereof.
Lessee shall make no structural alterations or construct any additions to the
Premises without first having obtained the written consent of Lessor, which
consent Lessor shall not unreasonably withhold. All additions and alterations
shall be and remain part of the realty and the property of Lessor, and shall be
subject to this Lease.
Lessee may place upon the Premises any trade fixtures, machinery,
equipment, materials, inventory, furniture, computers and/or other personal
property belonging to Lessee or third parties, whether or not the same shall be
affixed to the Premises, which are used in connection with any of Lessee's
business operations on the Premises, and may remove the same at any time during
the term of this Lease. Lessee shall repair any damage to the Premises caused
by such removal.
Section 8,. CONDEMNATION AND CASUALTY. A. Lessee hereby irrevocably
assigns to Lessor any award, compensation or insurance payment to which Lessee
may become entitled by reason of Lessee's interest in the Premises (i) if the
use, occupancy or title of the Premises or any part thereof is taken,
requisitioned or sold in, by or on account of any actual or threatened eminent
domain proceeding or other action by any person having the power of eminent
domain, or (ii) if the Premises or any part thereof are damaged or destroyed by
fire, flood of other casualty. Lessee shall, promptly upon obtaining knowledge
of such damage or destruction, or of any such proceeding or action for the
taking of the Premises or any part thereof, notify Lessor of the pendency
thereof. Lessor may appear at any proceeding or action to negotiate, prosecute
and adjust any claim for any award, compensation or insurance payment on account
of any such damage, destruction, taking, requisition or sale, and Lessor shall
collect any such award, compensation or insurance payment. All amounts paid
in connection with any such damage, destruction, taking, requisition or sale
shall be applied pursuant to this paragraph, and all such amounts (minus the
expense of collecting such amounts) are herein call the Net Proceeds. Lessor
shall pay all reasonable costs and expenses in connection with each such
proceeding, action, negotiation, prosecution and adjustment, for which costs and
expenses Lessor shall be reimbursed out of any award, compensation or insurance
payment received. Lessee shall be entitled to participate in any such
proceedings, action, negotiation, prosecution or adjustment. The foregoing
notwithstanding, nothing in this Lease shall impair Lessee's right to any award
or payment on account of Lessee's trade fixtures, equipment and other tangible
personal property, moving expenses and loss of business, if available, to the
extent Lessee shall have the right to make a claim therefore against the person
having the power of eminent domain, but in no event shall any such claim be
based upon the value of Lessee's leasehold interest.
B. In the event an occurrence of the character referred to in clause (A.)
above shall affect all or a substantial portion of the Premises and shall render
the Premises unsuitable for restoration for continued use and occupancy for the
purpose set forth in the Lease, Lessee shall have the option to terminate this
<PAGE>
Lease, in which event Lessor shall retain all awards or compensation granted for
the occurrence of such event, except for those awards or compensations which are
payable to Lessee and/or any subtenant as set forth above.
Section 9. UNLAWFUL OR DANGEROUS ACTIVITY. Lessee shall neither use nor
occupy the Premises or any part thereof for any unlawful, disreputable business
purpose or operate or conduct any business which constitutes a nuisance of any
kind.
Section 10. INDEMNITY. A. Lessee shall indemnify Lessor against all
expenses, liability, or claims of every kind, including reasonable counsel fees,
by or on behalf of any person or entity, arising out of either (1) a failure by
Lessee to perform any of the terms and conditions of the Lease, (2) any injury
or damage happening on or about the Premises not covered by Lessor's insurance
and/or the insurance required to be carried by Lessor, or (3) failure to comply
with any law of any governmental authority. The foregoing indemnification will
not apply where the damages arise from the acts or omissions of Lessor or its
employees, agents or contractors.
B. Lessor shall indemnify Lessee against all expenses, liability of
every kind, including reasonable counsel fees, by or on behalf of any person
arising our of a failure by Lessor to perform any of the terms and conditions of
the Lease or Lessor's failure to comply with any law of any governmental
authority.
Section 11. DEFAULT OR BREACH. Each of the following events shall
constitute a default or breach of the Lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee, while in
possession shall file a petition in bankruptcy or insolvency or for
reorganization under any bankruptcy act, or shall voluntarily take advantage of
any such act by answer or otherwise, or shall make any assignment for the
benefit of creditors;
2. If involuntary proceedings under any bankruptcy law or insolvency
act shall be instituted against Lessee, or if a receiver or trustee shall be
appointed for all or substantially all of the property of Lessee, and such
proceedings shall not be dismissed or the receivership or trustee vacated within
thirty (30) days after the institution or appointment;
3. If Lessee shall fail to perform or comply with any of the
conditions of the Lease, including the failure to pay rent, and if such
nonperformance shall continue for a period of fifteen (15) days after notice
thereof by Lessor to Lessee, or, except for the failure to pay rent, such longer
period of time as is reasonable under the circumstances.
Section 12. EFFECT OF DEFAULT. In the event of any default hereunder, as
set forth in Section 11, the rights of Lessor shall be as follows:
1. Lessor shall have the right to cancel and terminate this Lease, as
well as all of the right, title, and interest of Lessee in the Lease by sending
a written notice of termination to Lessee; and on termination of the Lease, the
interest of
<PAGE>
Lessee hereunder shall terminate, except as to Lessee's liability existing on
the date of termination; and
2. Lessor may re-enter the Premises thirty (30) days after written
notice of default and remove the property of Lessee in accordance with
applicable law. Re-entry will not terminate the Lease and the termination shall
not be effective until Lessor sends written notice of the termination to Lessee.
On termination, Lessor may recover from Lessee all damages proximately resulting
from the breach, including the cost of removing Lessee's property and recovering
the Premises.
Section 13. SUBORDINATION. All rights of Lessee under this lease shall be
subject and subordinate to the lien of any and all mortgages that may now or
hereafter affect the Leased Premises, or any part thereof, and to any and all
renewals, modifications, or extensions of any such mortgages, Lessee shall on
demand execute, acknowledge and deliver to Lessor, without expense to Lessor,
any and all instruments that may be necessary or proper to subordinate this
Lease or all rights therein to the lien of any such mortgage or mortgages and
each renewal, modification, or extension. Lessor shall provide to Lessee a non-
disturbance agreement in form and substance reasonably satisfactory to Lessee
executed by any mortgagee which now or in the future has a lien against the
Premises.
Section 14. ACCESS TO PREMISES. Lessee shall permit Lessor or its agents
to enter the Premises at all reasonable hours to inspect the Premises or make
repairs that may become necessary from time to time.
Section 15. LIABILITY OF LESSOR. Lessee shall be in exclusive control and
possession of the Premises, and Lessor shall not be liable for any injury or
damages to any property or to any person on or about the Premises, nor for any
injury or damage to any property of Lessee unless caused by Lessor or its
employees, agents or contractors. The provisions herein permitting Lessor to
enter and inspect the Premises are made to insure that Lessee is in compliance
with the terms and conditions hereof. Lessee shall not be liable to Lessor for
damages arising from any entry by Lessor on the Premises for inspection
purposes.
Section 16. WAIVERS. The failure of Lessor to insist on a strict
performance of any of the terms and conditions hereof shall not be deemed a
waiver of the rights or remedies that Lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent breach or
default in any terms and conditions.
Section 17. SURRENDER OF POSSESSION. Lessee shall, on the last day of
the term specified in Section 2 herein, or on earlier termination and forfeiture
of the Lease, peaceably and quietly surrender and deliver the Premises to
Lessor.
Section 18. ASSIGNMENT. Lessee may not assign this Lease or sublease the
Premises without the written permission of Lessor, which Lessor shall not
<PAGE>
unreasonably withhold. Lessor may assign, mortgage, pledge or encumber this
Lease or any of the rents becoming due hereunder without Lessee's consent
provided Lessee is given written notice of such assignment and the transferee
must assume the obligations of Lessee under this Lease.
Section 19. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS. This Lease
contains the entire agreement between the parties and cannot be changed or
modified except by a written instrument subsequently executed by the parties
hereto. This Lease and the terms and conditions hereof apply to and are binding
on the heirs, legal representatives, successors, and assigns of both parties.
Section 20. APPLICABLE LAW. This agreement shall be governed and
construed in accordance with the laws of the State of Ohio.
Section 21. TIME IS OF THE ESSENCE. Time is of the essence in all
provisions of this Lease.
This agreement executed on the date first written above.
Lessor: Chicago Investors, an Ohio
General Partnership
/s/ Real V. Remillard By: /s/ Yale M. Feniger
- ----------------------------------- --------------------------------
Witness General Partner
/s/
- -----------------------------------
Witness
Lessee: Environmental Purification
Industries Company, An Ohio
General Partnership
/s/ Real V. Remillard By: /s/ Bruce F. Maison
- ----------------------------------- --------------------------------
Witness General Partner
/s/
- -----------------------------------
Witness
<PAGE>
STATE OF OHIO )
) SS:
COUNTY OF Lucas )
-----
On the 4th day of June, 1996, Yale M. Feniger, the GENERAL PARTNER of
Chicago Investors, appeared before me and duly acknowledged that he executed the
foregoing instrument.
/s/ Laura M. Contos (Kenyon)
-----------------------------------
Notary Public
STATE OF OHIO ) LAURA CONTOS
) SS: NOTARY PUBLIC, STATE OF OHIO
COUNTY OF Lucas ) MY COMMISSION EXPIRES SEPT 11, 1999
-----
On the 4th day of June, 1996, Bruce F. Maison, a General Partner of
Environmental Purification Industries Company, appeared before me and duly
acknowledged that he executed the foregoing instrument.
/s/ Laura M. Contos (Kenyon)
LAURA CONTOS
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES SEPT 11, 1999
<PAGE>
SUB LEASE
Sub Lease made this 1st day of March 1996 between Ottawa River Steel Co.,
an Ohio Corporation, having its as principal office at 805 Chicago Street,
Toledo, Ohio 43611, herein referred to as "Lessor," and Environmental
Purification Industries Company, a general partnership organized under the laws
of the State of Ohio, having its principal office at 2111 Champlain, Toledo,
Ohio 43611, herein referred to as "Lessee."
In consideration of the mutual covenants contained herein, the parties
agree as follows:
Section 1. SUBJECT AND PURPOSE. A. Lessor leases office space on the
second floor of a building located at 810 Chicago Street, Toledo, Lucas County,
Ohio, and more particularly described and shown as part of Building 3 in Exhibit
A attached hereto and made a part hereof (hereinafter referred to as the
"Premises") to be occupied and used for general office purposes and for no other
purpose.
B. Lessor grants Lessee access to and from the Premises and public
streets over Lessor's properties located at or adjacent to Chicago Street,
Toledo, Ohio. Lessee shall not, however, interfere with Lessor's operations and
Lessor's tenants' operations conducted on Lessor's properties.
Section 2. TERM. A. Lessor leases the Premises for an Initial Term of 24
months commencing March 1, 1996, and terminating February 28, 1998. At the end
of the Initial Term, Lessee has the options to extend this Lease for up to three
(3) additional option periods of one (1) year each (each of said renewals is a
"Renewal Term") upon the following terms and conditions:
1. Lessee gives Lessor written notice of its exercise of the applicable
renewal options at least sixty (60) days prior to the expiration of the Initial
Term and at least sixty (60) days prior to the expiration of each Renewal Term
if Lessee exercises its options to renew the Lease for any Renewal Term.
2. Lessee is not in default under this Lease beyond the expiration of any
cure period either on a date Lessee delivers the notice required above or at any
time thereafter prior to the commencement of the Renewal Term so exercised.
3. All of the terms and provisions of this Lease shall be applicable to
the Renewal Term, except that the rental for each Renewal Term shall be as set
forth in Section 3 RENTAL of this Lease. After the Initial Term and Renewal
Term (s), Lessee shall be deemed a tenant of the Premises from month-to-month at
the rents in effect at the later of the Initial Term or Renewal Term (s),
subject to all the terms and provisions hereof, except only as to the term of
this Lease. After the Initial Term and the Renewal Term (s), either party may
cancel this Lease upon giving the other party sixty (60) days written notice.
In the event Lessor secures a new tenant for the Premises during the month-to-
month tenure of Lessee, Lessor shall grant the Lessee the first right of first
refusal to match
<PAGE>
the terms of the proposed lease agreed upon by and between the Lessor and the
new tenant.
B. Notwithstanding the above, until Lessee removes all of its equipment
and personal property from the Premises, Lessee shall be liable for a pro-rata
monthly rental based on the same amount as stated herein for such additional
period of the time until all equipment and personal property are completely
removed. Lessee shall have a maximum of sixty (60) days to remove all of its
equipment and personal property from the date of cancellation after which period
the Lessor shall have the option to cause Lessee to immediately remove its
equipment and personal property or to restore the monthly rental to the full
amount.
Section 3. RENTAL. Lessee agrees to pay Lessor the monthly rental in
advance on the first day each month for that month's rental during the term of
this Lease or any Renewal Term hereunder as follows:
1. March 1, 1996 through February 28, 1998 $ 585.00
2. March 1, 1998 through February 28, 1999 $ 625.00
3. March 1, 1999 through February 29, 2000 $ 675.00
4. March 1, 2000 through February 28, 2001 $ 725.00
All rental payments shall be made to the Lessor at the address specified
above. If any rent payment is delinquent, a late charge of ten ($10) per day
shall be charged until rent is paid.
Section 4. TAXES AND ASSESSMENTS; UTILITIES. In consideration of the
rentals specified in this Lease, Lessor shall be responsible for all taxes and
assessments directly attributable to the Premises and for the utilities (gas,
electricity and water) consumed on the Premises.
Section 5. INSURANCE. A. Lessee will maintain or cause to be maintained
or, or failing to do so, shall reimburse Lessor for, insurance on the Premises
of the following character:
1. Comprehensive general liability insurance against claims for
bodily injury, death or property damage occurring on, in or about the Premises
in the minimum amounts of Three Million Dollars ($3,000,000) for bodily injury
or death in any one occurrence, Three Million Dollars ($3,000,000) in the
aggregate, and Three Million Dollars ($3,000,000) for property damage.
2. Workers compensation insurance to the extent required by the law
of the State of Ohio, and to the extent necessary to protect lessor and the
Premises against workers compensation claims.
B. All of the above described insurance shall be written by companies of
recognized financial standing and legally qualified to issue such insurance.
C. Lessee shall deliver to Lessor original or duplicate certificates of
insurance evidencing the existence of all insurance which is required to be
<PAGE>
maintained by Lessee hereunder, such delivery to be made (i) promptly after the
execution and delivery hereof, and (ii) at least thirty (30) days prior to the
expiration of any such insurance.
D. Lessee shall at all times comply with and cause the Premises to comply
with all insurance policies required of Lessee under this Section 5 to the
extent necessary to prevent cancellation thereof and to insure full payment of
any claims made under such policies.
E. Lessor shall maintain property insurance on the improvements
constituting the Premises in an amount equal to the Actual Cash Value thereof.
F. Lessor and Lessee hereby release each other from any and all liability
or responsibility (to the other or any one claiming through or under them) by
way of subrogation or otherwise for any loss or damage to property caused by
fire or any of the extended coverage or supplementary contract casualties; even
if such fire or other casualty shall have been caused by the fault or negligence
of the other party, or any one for whom such party may be responsible; provided,
however, that this release shall be applicable and enforced and effect only with
respect to loss and damage occurring during such time as the releaser's policies
shall contain a clause or endorsement to the effect that any such release shall
not adversely affect and impair said policies or prejudice the right of the
releaser to recover thereunder. Lessor and Lessee each agree that their
policies will include such a clause or endorsement so long as the same shall be
obtainable.
Section 6. MAINTENANCE AND REPAIR. Throughout the term of this Lease,
Lessee at its expense will maintain all parts of the Premises in good repair and
condition, except for ordinary wear and tear. Lessor is responsible for the
repair and maintenance of the structural components of the Premises.
If the Premises become unsuitable for the purpose set forth in the
Lease for a period of fifteen (15) consecutive days due to structural disrepair
or failure, the rental shall be thereafter suspended until the Premises are
brought into a suitable condition for use.
Section 7. ALTERATIONS; LESSEE'S EQUIPMENT. Lessee may, at its expense,
make non-structural alterations of the Premises provided that (i) the market
value of the Premises shall not be lessened thereby, (ii) such work shall be
expeditiously completed in a good and workmanlike manner and in compliance with
all applicable legal requirements and the requirements of all insurance policies
required to be maintained by Lessee hereunder, and (iii) the character and use
of the Premises shall not be changed as a consequence thereof. Lessee shall
make no structural alterations or construct any additions to the Premises
without first having obtained the written consent of Lessor, which consent
Lessor shall not unreasonably withhold. All additions and alterations shall be
and remain part of the realty and the property of Lessor, and shall be subject
to this Lease.
Lessee may place upon the Premises any trade fixtures, machinery,
equipment, materials, inventory, furniture, computers and/or other personal
<PAGE>
property belonging to Lessee or third parties, whether or not the same shall be
affixed to the Premises, which are used in connection with any of Lessee's
business operations on the Premises, and may remove the same at any time during
the term of this Lease. Lessee shall repair any damage to the Premises caused
by such removal.
Section 8,. CONDEMNATION AND CASUALTY. A. Lessee hereby irrevocably
assigns to Lessor any award, compensation or insurance payment to which Lessee
may become entitled by reason of Lessee's interest in the Premises (i) if the
use, occupancy or title of the Premises or any part thereof is taken,
requisitioned or sold in, by or on account of any actual or threatened eminent
domain proceeding or other action by any person having the power of eminent
domain, or (ii) if the Premises or any part thereof are damaged or destroyed by
fire, flood of other casualty. Lessee shall, promptly upon obtaining knowledge
of such damage or destruction, or of any such proceeding or action for the
taking of the Premises or any part thereof, notify Lessor of the pendency
thereof. Lessor may appear at any proceeding or action to negotiate, prosecute
and adjust any claim for any award, compensation or insurance payment on account
of any such damage, destruction, taking, requisition or sale, and Lessor shall
collect any such award, compensation or insurance payment. All amounts paid
in connection with any such damage, destruction, taking, requisition or sale
shall be applied pursuant to this paragraph, and all such amounts (minus the
expense of collecting such amounts) are herein call the Net Proceeds. Lessor
shall pay all reasonable costs and expenses in connection with each such
proceeding, action, negotiation, prosecution and adjustment, for which costs and
expenses Lessor shall be reimbursed out of any award, compensation or insurance
payment received. Lessee shall be entitled to participate in any such
proceedings, action, negotiation, prosecution or adjustment. The foregoing
notwithstanding, nothing in this Lease shall impair Lessee's right to any award
or payment on account of Lessee's trade fixtures, equipment and other tangible
personal property, moving expenses and loss of business, if available, to the
extent Lessee shall have the right to make a claim therefore against the person
having the power of eminent domain, but in no event shall any such claim be
based upon the value of Lessee's leasehold interest.
B. In the event an occurrence of the character referred to in clause (A.)
above shall affect all or a substantial portion of the Premises and shall render
the Premises unsuitable for restoration for continued use and occupancy for the
purpose set forth in the Lease, Lessee shall have the option to terminate this
Lease, in which event Lessor shall retain all awards or compensation granted for
the occurrence of such event, except for those awards or compensations which are
payable to Lessee and/or any subtenant as set forth above.
Section 9. UNLAWFUL OR DANGEROUS ACTIVITY. Lessee shall neither use nor
occupy the Premises or any part thereof for any unlawful, disreputable business
purpose or operate or conduct any business which constitutes a nuisance of any
kind.
Section 10. INDEMNITY. A. Lessee shall indemnify Lessor against all
expenses, liability, or claims of every kind, including reasonable counsel fees,
by
<PAGE>
or on behalf of any person or entity, arising out of either (1) a failure by
Lessee to perform any of the terms and conditions of the Lease, (2) any injury
or damage happening on or about the Premises not covered by Lessor's insurance
and/or the insurance required to be carried by Lessor, or (3) failure to comply
with any law of any governmental authority. The foregoing indemnification will
not apply where the damages arise from the acts or omissions of Lessor or its
employees, agents or contractors.
B. Lessor shall indemnify Lessee against all expenses, liability of
every kind, including reasonable counsel fees, by or on behalf of any person
arising out of a failure by Lessor to perform any of the terms and conditions of
the Lease or Lessor's failure to comply with any law of any governmental
authority.
Section 11. DEFAULT OR BREACH. Each of the following events shall
constitute a default or breach of the Lease by Lessee:
1. If Lessee, or any successor or assignee of Lessee, while in
possession shall file a petition in bankruptcy or insolvency or for
reorganization under any bankruptcy act, or shall voluntarily take advantage of
any such act by answer or otherwise, or shall make any assignment for the
benefit of creditors;
2. If involuntary proceedings under any bankruptcy law or insolvency
act shall be instituted against Lessee, or if a receiver or trustee shall be
appointed for all or substantially all of the property of Lessee, and such
proceedings shall not be dismissed or the receivership or trustee vacated within
thirty (30) days after the institution or appointment;
3. If Lessee shall fail to perform or comply with any of the
conditions of the Lease, including the failure to pay rent, and if such
nonperformance shall continue for a period of fifteen (15) days after notice
thereof by Lessor to Lessee, or, except for the failure to pay rent, such longer
period of time as is reasonable under the circumstances.
Section 12. EFFECT OF DEFAULT. In the event of any default hereunder, as
set forth in Section 11, the rights of Lessor shall be as follows:
1. Lessor shall have the right to cancel and terminate this Lease, as
well as all of the right, title, and interest of Lessee in the Lease by sending
a written notice of termination to Lessee; and on termination of the Lease, the
interest of Lessee hereunder shall terminate, except as to Lessee's liability
existing on the date of termination; and
2. Lessor may re-enter the Premises thirty (30) days after written
notice of default and remove the property of Lessee in accordance with
applicable law. Re-entry will not terminate the Lease and the termination
shall not be effective until Lessor sends written notice of the termination to
Lessee. On termination, Lessor may recover from Lessee all damages proximately
resulting from the breach, including the cost of removing Lessee's property and
recovering the Premises.
<PAGE>
Section 13. SUBORDINATION. All rights of Lessee under this lease shall be
subject and subordinate to the lien of any and all mortgages that may now or
hereafter affect the Premises, or any part thereof, and to any and all renewals,
modifications, or extensions of any such mortgages. Lessee shall on demand
execute, acknowledge and deliver to Lessor, without expense to Lessor, any and
all instruments that may be necessary or proper to subordinate this Lease or all
rights therein to the lien of any such mortgage or mortgages and each renewal,
modification, or extension. Lessor shall provide to Lessee a non-disturbance
agreement in form and substance reasonably satisfactory to Lessee executed by
any mortgagee which now or in the future has a lien against the Premises.
Section 14. ACCESS TO PREMISES. Lessee shall permit Lessor or its agents
to enter the Premises at all reasonable hours to inspect the Premises or make
repairs that may become necessary from time to time.
Section 15. LIABILITY OF LESSOR. Lessee shall be in exclusive control and
possession of the Premises, and Lessor shall not be liable for any injury or
damages to any property or to any person on or about the Premises, nor for any
injury or damage to any property of Lessee unless caused by Lessor or its
employees, agents or contractors. The provisions herein permitting Lessor to
enter and inspect the Premises are made to insure that Lessee is in compliance
with the terms and conditions hereof. Lessee shall not be liable to Lessor for
damages arising from any entry by Lessor on the Premises for inspection
purposes.
Section 16. WAIVERS. The failure of Lessor to insist on a strict
performance of any of the terms and conditions hereof shall not be deemed a
waiver of the rights or remedies that Lessor may have regarding that specific
instance only, and shall not be deemed a waiver of any subsequent breach or
default in any terms and conditions.
Section 17. SURRENDER OF POSSESSION. Lessee shall, on the last day of
the term specified in Section 2 herein, or on earlier termination and forfeiture
of the Lease, peaceably and quietly surrender and deliver the Premises to
Lessor.
Section 18. ASSIGNMENT. Lessee may not assign this Lease or sublease the
Premises without the written permission of Lessor, which Lessor shall not
unreasonably withhold. Lessor may assign, mortgage, pledge or encumber this
Lease or any of the rents becoming due hereunder without Lessee's consent
provided Lessee is given written notice of such assignment and the transferee
must assume the obligations of Lessor under this Lease.
Section 19. TOTAL AGREEMENT; APPLICABLE TO SUCCESSORS. This Lease
contains the entire agreement between the parties and cannot be changed or
modified except by a written instrument subsequently executed by the parties
hereto. This Lease and the terms and conditions hereof apply to and are binding
on the heirs, legal representatives, successors, and assigns of both parties.
Provided Lessee performs all of its material obligations under this Lease, then
Lessor represents and warrants that Lessee shall have the quiet
<PAGE>
and peaceful enjoyment of the Premises without any hinderance or claim by any
party claiming by, through or under Lessor.
Section 20. APPLICABLE LAW. This agreement shall be governed and
construed in accordance with the laws of the State of Ohio.
Section 21. TIME IS OF THE ESSENCE. Time is of the essence in all
provisions of this Lease.
This agreement executed on the date first written above.
Lessor: Ottawa River Steel Co.,
an Ohio Corporation
/s/ Real V. Remillard By: /s/ William D. Feniger
- ------------------------------- ---------------------------------
Witness Title: Vice President
/s/
- -------------------------------
Witness
Lessee: Environmental Purification
Industries Company, an Ohio
General Partnership
/s/ Real V. Remillard By: /s/ Bruce F. Maison
- ------------------------------- ---------------------------------
Witness General Partner
/s/
- -------------------------------
Witness
STATE OF OHIO )
) SS:
COUNTY OF Lucas )
-----
On the 4th day of June, 1996, William D. Feniger, the________________of
Ottawa River Steel Co., appeared before me and duly acknowledged that he
executed the foregoing instrument.
/s/Laura M. Contos (Kenyon)
-------------------------------------
NOTARY PUBLIC
STATE OF OHIO ) LAURA CONTOS
) SS: NOTARY PUBLIC, STATE OF OHIO
COUNTY OF LUCAS ) MY COMMISSION EXPIRES SEPT. 11, 1999
-----
On the 4th day of June, 1996, Bruce F. Maison, a General Partner of
Environmental Purification Industries Company, appeared before me and duly
acknowledged that he executed the foregoing instrument.
/s/Laura M. Contos (Kenyon)
-------------------------------------
NOTARY PUBLIC
LAURA CONTOS
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES SEPT. 11, 1999
<PAGE>
ACKNOWLEDGMENT
Chicago Investors, a general partnership organized under the law of the State
of Ohio, acknowledges it has entered into a lease with Ottawa River Steel Co.
for the Premises described in Section 1 in this Sub Lease and further
acknowledges its consent to the subleasing of the Premises by Ottawa River Steel
Co. to Environmental Purification Industries Company.
Chicago Investors, an Ohio General
Partnership
/s/ Real V. Remillard By: /s/ Yale M. Feniger
- ------------------------------- ---------------------------------
Witness General Partner
/s/
- -------------------------------
Witness
STATE OF OHIO )
) SS:
COUNTY OF LUCAS)
On the 4th day of June, 1996, Yale M. Feniger, a General Partner of Chicago
Investors, appeared before me and duly acknowledged that he signed the foregoing
statement.
/s/Laura M. Contos (Kenyon)
-------------------------------------
Notary Public
My commission expires: LAURA CONTOS
NOTARY PUBLIC, STATE OF OHIO
MY COMMISSION EXPIRES SEPT. 11, 1999
<PAGE>
TAX SHARING AGREEMENT
This Agreement is entered into as of the _______ day of _________________,
1996, between Meridian National Corporation, a Delaware corporation,
Environmental Purification Industries, Inc., a Delaware corporation, and each of
the direct or indirect subsidiaries of Environmental Purification Industries,
Inc.
RECITALS:
WHEREAS, for federal income tax purposes, EPI and its subsidiaries will
cease to be members of the Meridian Group, and for state franchise or income tax
purposes, will cease to be members of certain unified, combined or consolidated
groups which include Meridian or a subsidiary of Meridian (other than members of
the Environmental Group), as a result of public offering of shares of the common
stock, $.01 par value, of EPI registered under the Securities Act of 1933, as
amended; and
WHEREAS, the parties wish to address certain tax matters which may arise as
a result of the Environmental Group ceasing to be part of the Meridian Group;
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties hereto agree
as follows:
1. The following terms shall have the following meanings as used in this
Agreement:
(a) "Consolidation Periods" shall mean, with respect to each member
of the Environmental Group, the taxable periods or portions thereof in
which such member was part of the Meridian Group.
<PAGE>
(b) "Deconsolidation Date" shall mean the date on which all members
of the Environmental Group cease to be members of the Meridian Group
consolidated federal income tax return.
(c) "Environmental Group" shall mean the affiliated group for federal
income tax purposes of which EPI will be the common parent following the
completion of the public offering of shares of EPI's common stock, $.01 par
value.
(d) "EPI" shall mean Environmental Purification Industries, Inc.
(e) "federal income tax deficiency" shall have the meaning set forth
in Paragraph 4 below.
(f) "federal income tax liability" shall have the meaning set forth
in Paragraph 4 below.
(g) "income tax benefit" shall have the meaning set forth in
Paragraph 4 below.
(h) "income tax cost" shall have the meaning set forth below in
Paragraph 4 below.
(i) "income tax deficiencies" shall have the meaning set forth in
Paragraph 4 below.
(j) "income taxes" shall have the meaning set forth in Paragraph 4
below.
(k) "income tax liabilities" shall have the meaning set forth in
Paragraph 4 below.
(l) "income tax refunds" shall have the meaning set forth in
Paragraph 4 below.
(m) "Meridian" shall mean Meridian National Corporation.
2
<PAGE>
(n) "Meridian Group" shall mean the affiliated group for federal
income tax purposes of which Meridian is the common parent.
2. With respect to each of the Consolidation Periods:
(a) EPI shall pay to Meridian an amount equal to the aggregate
federal income taxes, if any, the Environmental Group (or any of its
members) would have been required to pay for such taxable period as if the
Environmental Group (or such member) had filed a separate consolidated
return at such time.
(b) Members of the Environmental Group which file separate state
income tax returns shall be responsible for their own state income tax
liabilities. EPI shall pay to Meridian an amount equal to the aggregate
state income taxes which members of the Environmental Group who are members
of a unitary, combined or consolidated group which includes Meridian or any
of its subsidiaries (other than members of the Environmental Group) would
have been required to pay as if any such member had filed a separate state
income tax return at such time.
(c) Except as set forth below, payments required pursuant to
Paragraphs 2(a) and 2(b) of this Agreement shall be made at such time as
payments are due, or would have been due, to the taxing authorities, or at
such time as refunds are received from the taxing authorities.
Notwithstanding the above, prior to the Deconsolidation Date, Meridian's
Chief Financial Officer shall estimate (based on projections calculated
using assumptions consistent with past practices) the amounts due under
Paragraphs 2(a) and 2(b) of this Agreement for all Consolidation Periods
ending on or before the anticipated Deconsolidation Date and cause any
payments due thereunder to be made prior to the Deconsolidation Date. Such
payments may, in Meridian's discretion, be evidenced by
3
<PAGE>
a demand promissory note bearing interest at the interest rate then being
charged by the Internal Revenue Service on federal income tax deficiencies.
The principal of such notes shall be appropriately adjusted as soon as
practicable to take into account any difference between the estimated
amount due and the actual amount due. The amounts due under Paragraphs
2(a) and 2(b) of this Agreement for the period beginning March 1, 1996 and
ending on the Deconsolidation Date shall be recalculated by the Chief
Financial Officer of Meridian upon filing of Meridian's tax return for its
fiscal year ending February 28, 1997 in accordance with the terms of such
Paragraphs and appropriate adjustment to payments due under those
Paragraphs shall be made. If income tax deficiencies or tax refunds
relating to the Environmental Group result from a tax audit, amended
return, claim, final determination by any court or otherwise related to the
income tax returns for the Consolidation Period, the amounts due under
Paragraphs 2(a) or 2(b) of this Agreement shall be recalculated by
Meridian's Chief Financial Officer in accordance with the terms of such
Paragraphs and an appropriate adjustment to payments due under those
Paragraphs shall be made.
(d) Notwithstanding anything to the contrary contained herein, in
making any computations pursuant to this Agreement, the taxable income or
loss of the Environmental Group calculated on a stand alone basis shall be
deemed to include any increase or decrease in the taxable income or loss of
the Environmental Group in the year in question resulting from any or all
members of the Environmental Group ceasing to be members of the Meridian
Group consolidated federal income tax return.
(e) Items of income, gain, loss, deduction or credit of any member of
the Environmental Group for the period beginning March 1, 1996 and ending
February 28,
4
<PAGE>
1997 will be allocated between the portion of the period occurring through
the Deconsolidation Date in accordance with the principles set forth in
Treasury Regulation Section 1.1502-76, as determined by Meridian's Chief
Financial Officer in his reasonable discretion.
3. With respect to each taxable period ending after the Deconsolidation
Date:
(a) The Environmental Group shall be responsible for its own federal
and state income tax liabilities.
(b) The Environmental Group shall be responsible for filing all
required returns and reports for any other tax or governmental charge to
which it or any of its members is subject and which is not encompassed by
subparagraph (a) hereof, including without limitation ad valorem, capital
stock, sales, use, real and personal property, special assessment,
automobile registration, employment, earnings, duty and import taxes.
4. For purposes of this Agreement, the terms "income tax benefit" and
"income tax cost" shall mean the decrease or the increase, respectively, in the
amount of any income tax liability (or the increase or decrease, respectively,
in the amount of any income tax refund) which the party in question would incur
as a result of (i) including or excluding, as the case may be, the item of
income, gain, loss, or deduction subject to adjustment pursuant to this
Agreement in the computation of taxable income or loss and (ii) including or
excluding, as the case may be, the credits subject to adjustment pursuant to
this Agreement in the computation of income tax liability or refund. For
purposes of this Agreement, the terms "income taxes," income tax refunds,"
"income tax liabilities", "income tax deficiencies", "income tax costs" and
"income tax benefits" shall be deemed to include applicable penalties, interest
and additions to tax,
5
<PAGE>
including any penalties pursuant to Section 6661 of the Internal Revenue Code
which are properly attributable to a party. For purposes of this Agreement, the
determination as to the applicability of a particular penalty shall be made on a
consolidated basis. If a particular penalty, determined on a consolidated
basis, is not clearly attributable to any party, such penalty shall be allocated
among the Environmental Group and the Meridian Group (other than the members of
the Environmental Group) in proportion to the adjustments subject to such
penalty attributable to each such Group. Furthermore, the terms "income tax
benefits" shall include the corporate minimum tax, where applicable. Any
reference to state income taxes shall be deemed to include any state franchise
taxes, state business taxes or similar taxes which are computed, in whole or in
part, based on net income or gross receipts.
5. EPI shall pay to Meridian an amount equal to the federal income tax
benefits, if any, the members of the Environmental Group realize for any tax
deductions (e.g., interest expense) related to the share of any federal income
taxes borne by Meridian pursuant to this Agreement; conversely, Meridian shall
pay to EPI an amount equal to the federal income tax benefits, if any, the
members of the Meridian Group (other than members of the Environmental Group)
realize for any tax deductions related to the share of federal income taxes
borne by the Environmental Group, or any of its members, pursuant to this
Agreement. Meridian shall pay to EPI an amount equal to the federal income tax
costs, if any, the members of the Environmental Group incur for any taxable
income (e.g., interest income) related to the share of any federal income taxes
borne by Meridian pursuant to this Agreement, provided no such payment shall be
owed unless Meridian receives a federal income tax benefit as a result of such
payment; conversely, EPI shall pay to Meridian an amount equal to the federal
income tax costs, if any, the members of the Meridian Group (other than members
of the Environmental Group)
6
<PAGE>
incur for any taxable income related to the share of any federal income taxes
borne by the Environmental Group pursuant to this Agreement, provided no such
payment shall be owed unless EPI receives a federal income tax benefit as a
result of such payment.
6. Notwithstanding anything to the contrary herein, no party shall be
entitled to duplicate payments from the other parties hereunder. Meridian's
Chief Financial Officer may, in his discretion, net any payments due to Meridian
from EPI pursuant to this Agreement against any amount due from Meridian to EPI
pursuant to this Agreement or otherwise.
7. Interest shall accrue on payments due or advances made under this
Agreement at the interest rate then being charged by the Internal Revenue
Service on federal income tax deficiencies. Interest shall begin to accrue on
the date payment is due provided, however, that interest shall not accrue for
any period during which interest is being charged by or paid by the Internal
Revenue Service and such interest is included as part of the payment due under
this Agreement. Payments under this Agreement, may, in Meridian's discretion,
be evidenced by a demand promissory note bearing interest as provided in this
Paragraph 7.
8. (a) Meridian agrees that it will indemnify and hold all members of
the Environmental Group harmless from and against any federal or state
unitary, combined or consolidated income tax liabilities (including
interest, penalties, additions to tax, legal fees, court costs, and any
other reasonable costs of defense) with respect to the portion of the
Meridian Group consolidated federal income tax liability or state unitary,
combined or consolidated income tax liability which is allocable to members
of the Meridian Group, other than members of the Environmental Group.
(b) Except as otherwise provided in this Agreement, EPI agrees that
it will indemnify and hold all members of the Meridian Group, other than
the members of
7
<PAGE>
Environmental Group, harmless from and against any federal or state
unitary, combined or consolidated income tax liability (including interest,
penalties, additions to tax, legal fees, court costs, and any other
reasonable costs of defense) with respect to the portion of the Meridian
Group consolidated federal income tax liability or state unitary, combined
or consolidated income tax liability which is allocable to the members of
the Environmental Group.
9. EPI agrees to, or to cause the members of the Environmental Group to
(i) provide Meridian access to the Environmental Group's books and records,
(ii) provide Meridian with papers, schedules, and any other information or
assistance necessary to prepare tax returns or make computations pursuant to
this Agreement, (iii) maintain and preserve books, records and other information
as may be needed by Meridian pursuant to this Agreement or pursuant to the
preparation of any required tax return or the conduct of any tax audit by a
governmental authority for at least such time as has been customary while the
members of the Environmental Group have been part of the Meridian Group,
(iv) cooperate in any audit or investigation of tax returns and execute
appropriate powers of attorney in connection therewith in favor of Meridian, and
(v) sign all documents, including settlement agreements, relating to the tax
returns for Consolidation Periods.
10. With respect to all taxable periods during the Consolidation Period,
and until the applicable statute of limitations for such taxable periods have
expired, Meridian's Chief Financial Officer shall have full authority and
responsibility for (i) preparing any federal income tax returns (including any
amended returns or claims for refund) of the Environmental Group,
(ii) representing the Environmental Group with respect to any federal income tax
audit or federal income tax contest (including, without limitation, any
litigation regarding federal income taxes
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or refunds), (iii) engaging outside counsel and accountants with respect to
federal income tax matters regarding the Environmental Group, and
(iv) performing such other acts and duties with respect to the Environmental
Group's federal income tax returns as he determines is appropriate. Meridian's
Chief Financial Officer shall also have the discretion to reasonably determine
the intent of, and resolve any ambiguities contained in, this Agreement.
11. EPI covenants and agrees to file the Environmental Group's
consolidated federal income tax returns for taxable periods made after the
Deconsolidation Date in a manner consistent with any elections made on the
Meridian Group consolidated federal income tax returns filed for the
Consolidation Periods. EPI also covenants and agrees that the Environmental
Group will not file any claim for refunds with respect to federal income tax
returns for Consolidation Periods. EPI agrees that it will indemnify and hold
the Meridian Group (other than the members of the Environmental Group) harmless
from and against any and all costs, expenses, losses, damages and liabilities
incurred or suffered directly or indirectly (including reasonable attorney's
fees) attributable to the breach of such covenant.
12. Any terms used in this Agreement in the singular shall be deemed to be
in the plural where appropriate and any terms used in the plural shall be deemed
to be in the singular where appropriate.
13. This Agreement is entered into by the parties hereto on their own
behalf as well as on behalf of any subsidiaries such parties may respectively
have after the Deconsolidation Date. This Agreement shall be deemed to have
been joined in and consented to by all such subsidiaries, without further action
of them or the parties hereto. The parties hereto hereby guarantee the
performance by such subsidiaries of all the terms of this Agreement. This
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Agreement shall also be binding upon, and inure to the benefit of, the
successors and assigns of the parties hereto.
14. This Agreement supersedes and terminates all prior tax sharing
agreements among the parties on the Deconsolidation Date.
15. This Agreement may be executed in several counterparts, each of which
shall be an original, but all of which shall constitute one document.
16. This Agreement will be governed by, and construed in accordance with,
the laws of the state of Delaware.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
MERIDIAN CORPORATION
By: __________________________________
Name:
Title:
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
By: __________________________________
Name:
Title:
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<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and entered
into as of __________________, 1996, by and between Environmental Purification
Industries, Inc., a Delaware corporation (the "Company") and Meridian National
Corporation, a Delaware corporation ("Meridian").
R E C I T A L S:
This Agreement is entered into in connection with the initial public
offering of a portion of the shares of the Company's common stock, $.01 par
value, by the Company, pursuant to a prospectus dated ___________________, 1996
(the "Initial Public Offering").
NOW, THEREFORE, the parties to this Agreement agree as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS.
"Affiliate" has the meaning given to such term in Rule 12b-2 promulgated
under the Exchange Act.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the shares of common stock, $.01 par value, of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
all rules and regulations promulgated thereunder.
"Holder" means Meridian or any Permitted Transferee of Registrable Common
Stock. There may be no more than one Holder at any time.
"NASDAQ" means The Nasdaq SmallCap Market.
"Permitted Transferees" means any Person to whom Meridian has transferred
more than 20% of the then outstanding shares of Common Stock and assigned its
registration rights under this Agreement. In the event that Meridian transfers
the requisite percentage of shares of Common Stock and assigns its registration
rights under this Agreement, it is a condition precedent to such transfer and
assignment that Meridian give prior written notice thereof to the Company and
waive any further rights under this Agreement.
<PAGE>
"Person" means any individual, group, partnership, corporation, limited
liability company, trust, joint stock company, unincorporated organization,
joint venture or other entity of whatever nature.
"Registrable Common Stock" means the Common Stock of the Company held by
the Holder, until such time as the Common Stock ceases to be registrable as
provided in Section 2.2 of this Agreement.
"Registration Expenses" means any and all expenses reasonably attributable
to the registration of the Registrable Common Stock, including, without
limitation, the following expenses: (a) all filing fees; (b) all fees and
expenses of complying with securities or blue sky laws (including reasonable
fees and disbursements of counsel); (c) all fees and expenses incurred in
connection with the listing of the Registrable Common Stock on any securities
exchange or other market (including, but not limited to, NASDAQ) pursuant to
Section 3.4(j) of this Agreement and all fees of the National Association of
Securities Dealers, Inc.; (d) the fees and disbursements of counsel retained by
the Company in connection with each such registration or listing on a stock
exchange and of its independent public accountants; (e) the fees and
disbursements of counsel retained by the Holder and any underwriter; (f) all
commissions, fees and disbursements of underwriters; (g) all underwriting
discounts and commissions applicable to the Registrable Common Stock; (h) all
printing expenses; and (i) all other out-of-pocket expenses of the Company
incurred in connection with the registration of the Registrable Common Stock.
"Registration Statement" means a registration statement relating to the
Common Stock on such form as counsel to the Company deems appropriate filed with
the Commission, as such registration statement may be amended from time to time.
"Securities Act" means the Securities Act of 1933, as amended, and all
rules and regulations promulgated thereunder.
ARTICLE II
SECURITIES SUBJECT TO THIS AGREEMENT
2.1 SECURITIES SUBJECT TO THIS AGREEMENT. The securities entitled to the
benefits of this Agreement are shares of the Registrable Common Stock.
2.2 TERMINATION OF ENTITLEMENT. For purposes of this Agreement,
Registrable Common Stock will cease to be Registrable Common Stock when: (a) a
Registration Statement with respect to the sale of the Registrable Common Stock
has become effective under the Securities Act and the Registrable Common Stock
has been transferred pursuant to such Registration Statement; (b) such Common
Stock has been transferred pursuant to Rule 144 or (or any successor provisions)
under the Securities Act; (c) certificates for such shares not bearing a legend
restricting transfer thereof under the Securities Act have been delivered by the
Company and in
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the opinion of counsel for the Company transfer of such shares may be made
without registration or qualification under the Securities Act; or (d) they
cease to be outstanding.
ARTICLE III
REGISTRATION RIGHTS
3.1 DEMAND REGISTRATION.
(a) REQUEST FOR REGISTRATION. At any time more than six months after
the closing of the Initial Public Offering, the Holder of Registrable
Common Stock constituting more than 15% of the then issued and outstanding
Common Stock of the Company may make a written request for registration
under the Securities Act of all or part of its Registrable Common Stock (a
"Demand Registration"). Except as set forth below, there is no limit on
the number of Demand Registrations that may be requested by the Holder.
The Company will have no piggy-back registration rights with respect to any
Demand Registration requested pursuant to this Section 3.1(a).
Such request for a Demand Registration will specify the aggregate
number of shares proposed to be sold and will also specify the intended
method of disposition thereof. The Company will use its best efforts to
effect such registration; PROVIDED, HOWEVER, that the Company will not be
obligated to take any action to effect any such registration, qualification
or compliance pursuant to this Agreement: (i) within 60 days immediately
following the effective date of a Registration Statement pertaining to a
public offering of securities of the Company (other than a registration
relating solely to a Securities Act Rule 145 transaction or a registration
relating solely to employee benefit plans); (ii) if at the time of the
request to register the Holder's Registrable Common Stock, the Company
gives notice within 30 days after such request that it intends to initiate
within 60 days thereafter a registered public offering (other than a
registration relating solely to a Securities Act Rule 145 transaction or a
registration relating solely to employee benefit plans); or (iii) if at the
time of the request, the Holder could sell all of the Registrable Common
Stock requested to be registered under Rule 144 during the three-month
period following such request, or if, in the opinion of counsel for the
Company, the proposed sale of its Registrable Common Stock is otherwise
exempt from registration under the Securities Act.
Notwithstanding anything in this Section 3.1(a) to the contrary, the
Company will not be required to comply with more than one request of the
Holder of Registerable Common Stock pursuant to Section 3.1(a) in any 12-
month period.
(b) EFFECTIVE REGISTRATION AND EXPENSES. A Registration Statement
will not count as a Demand Registration until it has become effective.
Except as set forth below in Section 3.1(d), in any registration initiated
as a Demand Registration, the Holder will
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pay or cause to be paid all Registration Expenses in connection therewith,
whether or not the Registration Statement becomes effective.
(c) UNDERWRITING. If the Holder intends to distribute the
Registrable Common Stock covered by its request by means of an underwritten
offering, it must so advise the Company as a part of its request made
pursuant to Section 3.1(a). The Holder of the Registrable Common Stock to
be registered thereunder may select and obtain the investment banker or
investment bankers and manager or managers that will administer the
offering; PROVIDED, HOWEVER, that such investment bankers and managers must
be reasonably satisfactory to the Company.
(d) PRIORITY ON DEMAND REGISTRATION. If the Underwriter does not
limit the number of shares of Registrable Common Stock to be underwritten
in a Demand Registration, the Company may include securities for its own
account or the account of others in such registration if the underwriters
so agree and if the number of shares of Registrable Common Stock which
would otherwise have been included in such registration and underwriting
will not thereby be limited. In the event that the Company elects to
include securities for its own account or the account of others pursuant to
this Section 3.1(d), then notwithstanding anything to the contrary, with
respect to securities to be registered by the Company for its own account
or the account of others, the Company will pay or cause to be paid, the
pro rata portion of: (i) any filing fees for such securities;
(ii) underwriting discounts and commissions applicable to such securities;
and (iii) any additional incremental costs, including, without limitation,
printing expenses attributable to the offer, sale and registration of such
securities in such Demand Registration.
3.2 PIGGY-BACK REGISTRATION.
(a) If at any time or from time to time during the five-year period
commencing six months from the date of this Agreement, the Company proposes
to file a Registration Statement under the Securities Act with respect to
an offering for its own account or for the account of others of any class
of equity security (other than a registration relating solely to employee
benefit plans, a Securities Act Rule 145 transaction or a registration on
any registration form which does not include substantially the same
information as would be required to be included in a Registration Statement
covering the sale of Registrable Common Stock), then the Company will in
each case give written notice of such proposed filing to the Holder at
least 60 days before the anticipated filing date (the "Piggy-Back
Registration Notice"), and such notice will offer the Holder the
opportunity to register such Registrable Common Stock as the Holder may
request in writing to the Company within 20 days after the date of the
Piggy-Back Registration Notice (a "Piggy-Back Registration").
(b) UNDERWRITING. If the registration as to which the Company gives
notice is for a registered public offering involving an underwriting, the
Company will advise the Holder as part of the Piggy-Back Registration
Notice. The Company will have the right to select and obtain the services
of the investment banker or investment bankers and
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<PAGE>
manager or managers that will administer the offering. The right of the
Holder to registration is conditioned upon the Holder's participation in
such underwriting and the inclusion of the Holder's Registrable Common
Stock in the underwriting to the extent provided herein.
Subject to the provisions of Section 3.2(d), the Company will use its
best efforts to cause the managing underwriter of a proposed underwritten
offering to commit to the Holder of Registrable Common Stock who has
requested within 20 days after receipt of the Company's notice to be
included in the registration for such offering to include such Registrable
Common Stock in such offering on the same terms and conditions as any
similar securities of the Company included therein; PROVIDED, HOWEVER, that
the Company will not be required to effect any such registration for the
Holder if at the time of the request such Holder could sell all of the
Registrable Common Stock requested to be registered under Rule 144, or in
any other transaction that is exempt from registration under the Securities
Act, during the three-month period following such request.
(c) PRIORITY ON PIGGY-BACK REGISTRATION. Notwithstanding any other
provision of this Section 3.2, if the managing underwriter for the Company
determines that market factors require a limitation of the number of shares
to be underwritten, the managing underwriter may exclude some or all
Registrable Common Stock from such registration and underwriting. The
Company will advise the Holder and the number of shares of Registrable
Common Stock to be offered by the Holder pursuant to the Piggy-Back
Registration will be reduced to the extent necessary to reduce the total
number of shares of Common Stock to be included in such offering to the
number recommended by the managing underwriter.
(d) EXPENSES. In connection with a Piggy-Back Registration, the
Company will pay all of the Registration Expenses, except for the pro rata
portion of: (i) any filing fees attributable to the Holder's Registrable
Common Stock; (ii) underwriting discounts and commissions applicable to the
Holder's Registrable Common Stock; and (iii) any additional incremental
costs, including, without limitation, printing expenses attributable to the
offer, sale and registration of the Holder's Registrable Common Stock in
such Piggy-Back Registration.
3.3 HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE OR DISTRIBUTION. To the extent not
inconsistent with applicable law, the Holder agrees not to effect any
public sale or distribution of Registrable Common Stock, including a sale
pursuant to Rule 144 under the Securities Act, during the 60-day period
prior to, and during the 90-day period beginning on, the effective date of
a Registration Statement in which shares of its Registrable Common Stock
are registered (except as to such registered shares), if and to the extent
requested by the Company or by the managing underwriter in the case of an
underwritten public offering.
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(b) STOP ORDERS; SUSPENSION OF EFFECTIVENESS. If, in the case of
either a Demand Registration or a Piggy-Back Registration, a stop order is
imposed or if for any other reason the effectiveness of either a Demand
Registration or a Piggy-Back Registration is suspended, then the Holder
agrees to stop distribution of its Common Stock thereunder immediately upon
written notice thereof from the Company.
3.4 REGISTRATION PROCEDURES. Whenever the Holder has requested that any
Registrable Common Stock be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration of such Registrable Common
Stock in accordance with the intended method of distribution therefor as
promptly as is reasonably practicable, and in connection with any such request,
the Company will:
(a) in connection with a request pursuant to Section 3.1, prepare and
file with the Commission, not later than 90 days after receipt of a request
to file a Registration Statement with respect to Registrable Common Stock,
a Registration Statement on any form for which the Company then qualifies
and which counsel for the Company deems appropriate and which form is
available for the registration of such Registrable Common Stock in
accordance with the intended method of distribution thereof, and use its
best efforts to cause such Registration Statement to become effective;
PROVIDED, that if the Company furnishes to the Holder certified resolutions
signed by the Chief Executive Officer of the Company stating that in the
good faith judgment of the Board of Directors it would be significantly
disadvantageous to the Company and its stockholders for such a Registration
Statement to be filed on or before the date filing would be required, the
Company will have an additional period of not more than 60 days within
which to file such Registration Statement;
(b) in connection with a Demand Registration pursuant to Section 3.1,
prepare and file with the Commission such amendments and supplements to
such Registration Statement and the prospectus used in connection therewith
as may be necessary to keep such Registration Statement effective for a
period of not less than 180 days or such shorter period which will
terminate when all Registrable Common Stock covered by such Registration
Statement has been sold (but not before the expiration of the 90-day period
referred to in Section 4(3) of the Securities Act and Rule 174 thereunder,
if applicable), and comply with the provisions of the Securities Act with
respect to the disposition of all Registrable Common Stock covered by such
Registration Statement during such period in accordance with the intended
methods of disposition by the Holder set forth in such Registration
Statement;
(c) furnish to the seller of Registrable Common Stock, prior to
filing a Registration Statement, copies of such Registration Statement as
proposed to be filed, and thereafter such number of copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary prospectus) and such
other documents as such seller may reasonably request in order to
facilitate the disposition of the Registrable Common Stock owned by such
seller;
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(d) use its best efforts to register or qualify such Registrable
Common Stock under such other securities or blue sky laws of such
jurisdictions as the seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Common Stock owned by such seller; PROVIDED, that the Company
will not be required to (i) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for
this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction, or (iii) consent to general service of process in any such
jurisdiction;
(e) notify each seller of the Registrable Common Stock, at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such Registration Statement contains an untrue
statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading. The Company will prepare a supplement or amendment to such
prospectus as may be appropriate and use its best efforts to cause such
supplement or amendment to become effective so that, as thereafter
delivered to the purchasers of such Registrable Common Stock, such
prospectus will not contain an untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading;
(f) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of such
Registrable Common Stock;
(g) make available for inspection by the seller of Registrable Common
Stock, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by such seller or underwriter (collectively, the "Inspectors"),
all financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records") reasonably
necessary to enable them to exercise their due diligence responsibility,
and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such Inspectors in connection with
such Registration Statement. Records which the Company determines, in good
faith, to be confidential and which it notifies the Inspectors are
confidential will not be disclosed by the Inspectors unless (i) the
disclosure of such records is necessary to avoid or correct a misstatement
or omission in the Registration Statement or (ii) the release of such
Records is ordered pursuant to a subpoena or other order from a court of
competent jurisdiction. The seller of Registrable Common Stock agrees that
it will, upon learning that disclosure of such Records is sought in a court
of competent jurisdiction, give notice to the Company and allow the
Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
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(h) in the event such sale is pursuant to an underwritten offering,
use its best efforts to obtain (i) a "cold comfort" letter from the
Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as
the Holder or the managing underwriter reasonably request and (ii) an
opinion or opinions of counsel for the Company in customary form;
(i) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its
securityholders, as soon as reasonably practicable, an earnings statement
(which need not be audited) covering a period of at least 12 months,
beginning within three months after the effective date of the Registration
Statement, which earnings statement will satisfy the provisions of the last
paragraph of Section 11(a) of the Securities Act; and
(j) cause all such Registrable Common Stock to be listed on each
securities exchange or market on which similar securities issued by the
Company are then listed; PROVIDED that the applicable listing requirements
are satisfied.
The Company may require the seller of Registrable Common Stock as to which
any registration is being effected to furnish to the Company such information
regarding the distribution of such securities as the Company may from time to
time reasonably request in writing.
The Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 3.4(e) hereof, the
Holder will forthwith discontinue disposition of Registrable Common Stock
pursuant to the Registration Statement covering such Registrable Common Stock
until the Holder's receipt of the copies of the supplemented or amended
prospectus contemplated by Section 3.4(e) hereof, and, if so directed by the
Company the Holder will deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in the Holder's possession, of the
prospectus covering such Registrable Common Stock at the time of receipt of such
notice.
3.5 INDEMNIFICATION AND CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify,
to the extent permitted by law, the Holder, its officers, directors and
agents and each Person who controls the Holder (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) from
and against any losses, claims, damages, liabilities and expenses resulting
from any untrue statement of material fact contained in any Registration
Statement, prospectus or preliminary prospectus or any omission of a
material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, except insofar as
the same are caused by or contained in any information or affidavit with
respect to the Holder furnished in writing to the Company by, or on behalf
of, the Holder, expressly for inclusion in any Registration Statement or
prospectus.
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(b) INDEMNIFICATION BY THE HOLDER. In connection with any
Registration Statement in which the Holder is participating, such Holder
will furnish to the Company in writing such information and affidavits with
respect to such Holder as the Company reasonably requests for use in
connection with any such Registration Statement or prospectus and agrees to
indemnify, to the extent permitted by law, the Company, its directors and
officers and each Person who controls the Company (within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act) from
and against any losses, claims, damages, liabilities and expenses resulting
from any untrue statement of a material fact or any omission of a material
fact required to be stated in the Registration Statement or preliminary,
final or summary prospectus or any amendment thereof of supplement thereto,
or necessary to make the statements therein (in the case of a preliminary,
final or summary prospectus, in the light of the circumstances under which
they were made) not misleading, to the extent, but only to the extent, that
such untrue statement or omission is contained in any information or
affidavit with respect to the Holder so furnished in writing by, or on
behalf of, the Holder expressly for inclusion in any Registration Statement
or prospectus.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any person entitled to
indemnification hereunder agrees promptly to give written notice to the
indemnifying party after the receipt by such person of any written notice
of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such person will claim
indemnification or contribution pursuant to this Agreement and, unless in
the reasonable judgment of such indemnified party a conflict of interest
may exist between such indemnified party and the indemnifying party with
respect to such claim, permit the indemnifying party to participate in and
assume the defense of such claim with counsel reasonably satisfactory to
such indemnified party. If the indemnifying party is not entitled to, or
elects not to, assume the defense of a claim, it will not be obligated to
pay the fees and expenses of more than one counsel with respect to such
claim, unless in the reasonable judgment of such indemnified party a
conflict of interest may exist between such indemnified party and any other
of such indemnified parties with respect to such claim, in which event the
indemnifying party will be obligated to pay the reasonable fees and
expenses of additional counsel. The indemnifying party will not be subject
to any liability for any settlement made without its consent, which consent
will not be unreasonably withheld.
(d) CONTRIBUTION. If the indemnification provided for in this
Section 3.5 from the indemnifying party is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, will contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative fault of such indemnifying party
and indemnified parties will be determined by reference to, among other
things, whether any
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action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, has
been made by, or related to information supplied by, such indemnifying
party and indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above will be deemed to
include, subject to the limitations set forth in Section 3.5(c), any legal
or other fees or expenses reasonably incurred by such party in connection
with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 3.5(d) were determined by PRO RATA
allocation or by any other method of allocation which does not take account
of the equitable considerations referred to in the immediately preceding
paragraph. As provided in Section 11(f) of the Securities Act, no person
guilty of fraudulent misrepresentation will be entitled to contribution
from any person.
3.6 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. The Holder may not
participate in any underwritten registration hereunder unless the Holder (a)
agrees to sell its Registrable Common Stock on the basis provided in any
underwriting arrangements approved by the persons entitled hereunder to approve
such arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
3.7 RULE 144. The Company covenants that it will file the reports required
to be filed by it under the Exchange Act and the rules and regulations adopted
by the Commission thereunder; and it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to enable
the Holder to sell Registrable Common Stock without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144,
or (b) any similar rule or regulation hereafter adopted by the Commission. Upon
the request of the Holder, the Company will deliver to the Holder a written
statement as to whether it has complied with such requirements.
ARTICLE IV
CERTAIN RESTRICTIONS
Each certificate evidencing outstanding Common Stock that is issued to the
Holder will bear a legend in substantially the following form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR
OTHERWISE TRANSFERRED UNTIL THE SAME HAVE BEEN REGISTERED UNDER SAID
ACT OR UNTIL THE CORPORATION HAS RECEIVED AN OPINION OF LEGAL COUNSEL
OR
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A COPY OF A LETTER FROM THE COMMISSION, IN EITHER CASE SATISFACTORY TO THE
CORPORATION, THAT SUCH SHARES MAY LEGALLY BE SOLD OR OTHERWISE TRANSFERRED
WITHOUT SUCH REGISTRATION.
ARTICLE V
MISCELLANEOUS
5.1 INCONSISTENT AGREEMENTS. The Company will not hereafter enter into
any agreement with respect to its securities which is inconsistent with this
Agreement. The Company has not previously entered into any agreement with
respect to any of its securities granting any registration rights to any person.
5.2 AMENDMENTS AND WAIVERS. The provisions of this Agreement may not be
amended, modified or supplemented, except by a written instrument executed by
the Company and the Holder.
5.3 NOTICES. All notices, requests, demands and other communications
under this Agreement must be in writing and will be deemed duly given, unless
otherwise expressly indicated to the contrary, (a) when personally delivered,
(b) upon receipt of a telephonic facsimile transmission with confirmed
telephonic transmission answer back, (c) three days after having been deposited
in the United States Mail, certified or registered, return receipt requested,
postage prepaid, or (d) one business day after having been dispatched by a
nationally recognized overnight courier service, addressed to the parties or
their permitted assigns at the following addresses (or at such other address or
number as is given in writing by any of the parties to the others) as follows:
If to the Company: Environmental Purification Industries, Inc.
810 Chicago Street
Toledo, Ohio 43611
Attention: Bruce Maison
With a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Lawrence M. Bell
If to Meridian: Meridian National Corporation
805 Chicago Street
Toledo, Ohio 43611
Attention: William D. Feniger
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With a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
Attention: Lawrence M. Bell
5.4 SUCCESSORS AND ASSIGNS. The provisions of this Agreement will be
binding upon and inure to the benefit of the parties hereto and their successors
and permitted assigns.
5.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed will be deemed to be an original and all of which taken
together will constitute one and the same agreement.
5.6 HEADINGS. The headings in this Agreement are for convenience of
reference only and will not limit or otherwise affect the meaning hereof.
5.7 GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Ohio.
5.8 SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein will not be in any way impaired
thereby, it being intended that all of the rights and privileges of the parties
to this Agreement will be enforceable to the fullest extent permitted by law.
5.9 ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
with respect to the subject matter hereof and supersedes all prior written and
oral agreements with respect thereto.
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
MERIDIAN NATIONAL CORPORATION
By: ________________________________
William D. Feniger
Chief Executive Officer
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
By: ________________________________
Bruce Maison
President and Chief Executive Officer
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TRANSITIONAL AGREEMENT
This Transitional Agreement ("Agreement"), is made as of the _____ day of
______________________, 1996, by and between Meridian National Corporation, a
Delaware Corporation ("Meridian"), and Environmental Purification Industries,
Inc., a Delaware Corporation ("EPI").
WHEREAS, EPI is a wholly-owned subsidiary of Meridian;
WHEREAS, National Purification, Inc., an Ohio Corporation ("NPI") and MEPI
Corp., an Ohio Corporation ("MEPI") are wholly-owned subsidiaries of EPI;
WHEREAS, Environmental Purification Industries Company, an Ohio general
partnership ("EPIC"), is owned 99% by NPI and 1% by MEPI;
WHEREAS, EPI intends to sell shares of EPI common stock, $.01 par value, in
a public offering (the "Offering") pursuant to an effective Registration
Statement on Form S-1;
WHEREAS, upon consummation of the Offering (the "Closing") EPI will be at
least 50% publicly held;
WHEREAS, Meridian currently provides various services to EPI, NPI, MEPI and
EPIC, including services relating to tax matters, employee benefit programs,
accounting and other financial services, as well as legal services;
WHEREAS, to facilitate an orderly separation of EPI and Meridian over a
Transition Period (hereinafter defined), Meridian and EPI desire to enter into
this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
together with other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
<PAGE>
Section 1. SERVICES. EPI engages Meridian to provide and Meridian
agrees to provide to EPI such administrative services as may reasonably be
required with respect to (a) tax administration, consulting and reporting,
(b) tax return preparation and filing, (c) employee benefit program
administration, consulting and reporting, (d) payroll processing,
administration, consulting and reporting, (e) accounting and other financial
services administration, consulting and reporting, (f) financial institution
administration, consulting and reporting, (g) cash management administration,
consulting and reporting, (h) Securities and Exchange Commission administration,
consulting and reporting, (i) NASDAQ administration, consulting and reporting,
(j) underwriting administration and consulting, (k) shareholder administration,
consulting and relations, (l) transfer agent administration, consulting and
reporting, (m) computer software administration and consulting, (n) computer
programming, installation and maintenance, (o) electronic data processing and
report generation and distribution, (p) human resources administration,
consulting and reporting, (q) legal services administration and consulting, and
(r) insurance administration, monitoring and reporting, as well as such other
similar services as EPI may reasonably request (collectively, the "Services").
The Services will be provided at such times and with respect to such matters as
EPI may reasonably request from time to time and will be of the same type and
quality that Meridian would provide in connection with its own business
operations. This Agreement does not include or incorporate any lease or
sublease arrangements or agreements between or among EPI, Meridian or Chicago
Investors relating to the leasing of real estate.
Section 2. TERM. This Agreement shall commence on the date of the
Closing and will continue for a period of [one] year from such date (the
"Transition Period"). EPI shall have the right to extend the Transition Period
for a period of up to six (6) months by delivering written
2
<PAGE>
notice to Meridian at least thirty (30) days prior to the end of the initial
one-year period. Notwithstanding the foregoing, the provisions contained in
Sections 5 and 6 shall survive this Agreement for a period of three (3) years
from the date of the Closing.
Section 3. FEES. As compensation for Services rendered under this
Agreement, EPI will pay to Meridian a fee equal to the actual allocable cost to
Meridian to provide such Services, including allocable costs of the compensation
of employees, computer time and storage space, allocable overhead and out-of-
pocket expenses. Fees will be payable within thirty (30) days after submission
to EPI of detailed invoices by Meridian. Invoices will be delivered no less
often than __________ and will contain sufficient detail to provide an
appropriate basis for confirmation and computation of the accuracy and fairness
of each item of the fee.
Section 4. INSURANCE.
(a) Except as otherwise agreed by the parties, all policies of
liability, fire, workers' compensation, directors and officers and other
forms of insurance insuring EPI and its business, properties and assets
will be maintained by Meridian until the Closing, unless EPI obtains
appropriate coverage at an earlier date.
(b) Following the Closing, EPI will be responsible for obtaining
insurance policies covering its business, properties and assets unless the
parties agree otherwise in writing.
Section 5. CONFIDENTIAL INFORMATION. With respect to all materials,
documents, programs, data and information furnished to EPI by Meridian or to
Meridian by EPI in connection with this Agreement (the "Information"), the
recipient thereof (a) will use its best efforts to keep such Information
confidential and will not reveal such Information to third parties except as
permitted under this Section, and (b) will not use such Information except in
connection
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<PAGE>
with providing services pursuant to this Agreement. The recipient of
Information will employ at least the same degree of care to avoid disclosure of
such Information that it employs with respect to its own information deemed
confidential. The provisions of this Section do not extend to any portions of
Information which become generally available to the public other than as a
result of a disclosure by the recipient or its representatives, subsidiaries or
affiliates, or be deemed to restrict the recipient from complying with any court
or government order, request or decree to produce any Information, but upon
receiving notice that any such order or decree is being sought, the recipient
will promptly give the party furnishing the Information notice thereof and agree
to cooperate with the furnishing parties' efforts, if any, to contest the
issuance of such order or decree.
Section 6. ARBITRATION. If any claim, controversy or dispute arises
between Meridian and EPI in connection with this Agreement, such claim,
controversy or dispute will be resolved by final and binding arbitration.
Any dispute submitted to arbitration pursuant to this Section 6 will be
finally and conclusively determined by the decision of a board of arbitration
consisting of three members (the "Board of Arbitration"), selected as
hereinafter provided. Meridian and EPI will each select one member of the Board
of Arbitration and the third member of the Board of Arbitration will be selected
by mutual agreement of the two previously selected members, or if such
previously selected members fail to reach agreement on such third member within
20 days after the date by which the first two members are both selected, such
third member will thereafter be selected by the American Arbitration Association
upon application made to it for such purpose by the two previously selected
members. If either Meridian or EPI, as the case may be, refuses, neglects or
otherwise fails to appoint its respective member of the Board of Arbitration
within 30 days after
4
<PAGE>
its receipt of written notice from the other party requesting it to do so, such
requesting party may appoint the two initial members of the Board of
Arbitration. The Board of Arbitration will meet in Toledo, Ohio, or such other
place as the parties may agree upon, and will reach and render a decision in
writing (concurred in by a majority of the members of the Board of Arbitration).
In connection with rendering its decision, the Board of Arbitration will adopt
and follow such rules and procedures as a majority of the members of the Board
of Arbitration deems necessary or appropriate. To the extent practical,
decisions of the Board of Arbitration will be rendered no more than 30 days
following commencement of proceedings with respect thereto. The Board of
Arbitration will deliver a written decision to each party to the arbitration.
Any decision made by the Board of Arbitration (either prior to or after the
expiration of such 30 day period) will be final, binding and conclusive on each
party to the arbitration and entitled to be enforced to the fullest extent
permitted by law and entered in any court of competent jurisdiction. Each party
to any such arbitration will bear its own costs and expenses in relation
thereto, including, but not limited to, such party's attorneys' fees, if any,
and the expenses and fees of the member of the Board of Arbitration appointed by
such respective party; PROVIDED, HOWEVER, that the expenses and fees of the
third member of the Board of Arbitration and other expenses of the Board of
Arbitration not capable of being attributed to any one member appointed by the
parties hereto will be borne in equal parts by Meridian and EPI.
Section 7. FORCE MAJEURE.
(a) Meridian will not be liable for any interruption of services,
delay or failure to perform under this Agreement when such interruption,
delay or failure results from cause beyond Meridian's reasonable control or
from any act or failure to act of EPI, or as the result of strikes, lock-
outs or other labor difficulties; acts of any government, riot,
5
<PAGE>
insurrection or other hostilities; embargo, fuel or energy shortage, fire,
flood, acts of God, wrecks or transportation delays; or inability to obtain
necessary labor, materials or utilities from usual sources. In such event,
Meridian's obligations hereunder will be postponed for such time as its
performance is suspended or delayed. Meridian promptly will notify EPI,
either orally or in writing, upon learning of the occurrence of such event
of force majeure. In such case, Meridian will use all reasonable efforts
to resume its performance with the least possible delay.
(b) If Meridian's performance under this Agreement is suspended in
whole or in part for more than 14 calendar days due to an event of force
majeure, EPI will be entitled at its sole cost and expense to arrange
alternative sources of Services for a period of time equal to the greater
of: (i) the time that Meridian advises it will be unable to perform, or
(ii) the time reasonably necessary for EPI to induce another supplier of
Services to supply such Services to EPI.
(c) In the event of any failure, interruption or delay in performance
of the Services, whether excused or unexcused, Meridian will use all
reasonable efforts to restore the Services as soon as reasonably possible
in accordance with Meridian's contingency plans for such Services.
(d) Meridian may temporarily shut down for maintenance purposes the
operation of the facilities providing any Service whenever in its judgment,
reasonably exercised, such action is necessary. In the event maintenance
is non-scheduled, Meridian will notify EPI that maintenance is required.
If the facilities normally used for such Services are shut down for
preventive or non-scheduled maintenance, Meridian will cooperate with EPI
to try to arrange alternative facilities at EPI's request and sole cost
6
<PAGE>
and expense. Meridian will give EPI as much advance written notice of any
such shutdown as is practicable. Where written notice is not feasible,
oral notice will be given and promptly confirmed in writing. Except for
the obligation to cooperate to try to arrange for alternative facilities
referred to above, Meridian will be relieved of its obligations to provide
Services during the period that its facilities are so shut down but will
use reasonable efforts to minimize each period of shutdown for such purpose
and to schedule such shutdown so as not to inconvenience or disrupt the
operations of EPI.
Section 8. COMPLETE AGREEMENT; CONSTRUCTION. This Agreement, including
other agreements and documents referred to herein, constitute the entire
agreement between the parties with respect to the subject matter hereof and
supersede all previous negotiations, commitments and writings with respect to
such subject matter.
Section 9. EXPENSES. Except as otherwise set forth in this Agreement,
all costs and expenses arising prior to the Closing (whether or not then
payable) in connection with the preparation, execution, delivery and
implementation of this Agreement, and the consummation of the transactions
contemplated by the Offering, will be paid by EPI to the extent that appropriate
documentation concerning such costs and expenses is provided to EPI. Such costs
and expenses include, without limitation, printing and distribution of the
Registration Statement.
Section 10. GOVERNING LAW. This Agreement will be governed by and
construed in accordance with the laws of the State of Ohio without regard to the
principles of conflicts of laws thereof.
Section 11. NOTICES. All notices and other communications hereunder
will be in writing and will be delivered by hand or mailed by registered or
certified mail (return-receipt requested)
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<PAGE>
to the parties at the following addresses (or at such other addresses for a
party as shall be specified by like notice) and shall be deemed given on the
date on which such notice is received:
To Meridian: Meridian National Corporation
805 Chicago Street
Toledo, Ohio 43611
Attention: William D. Feniger
To EPI: Environmental Purification Industries, Inc.
810 Chicago Street
Toledo, Ohio 43611
Attention: Bruce F. Maison
With a copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114-2378
Attention: Lawrence M. Bell
Section 12. AMENDMENTS. This Agreement may not be modified or amended
except by an agreement in writing signed by the parties.
Section 13. ASSIGNMENT; SUCCESSORS. Neither Meridian nor EPI may assign
any of its rights or benefits under this Agreement without the prior written
consent of the other, which consent will not be unreasonably withheld or
delayed. This Agreement and all of the provisions hereof will be binding upon
and inure to the benefit of the parties and their respective successors and
permitted assigns.
Section 14. TERMINATION. This Agreement may be terminated at any time
prior to the Closing by and in the sole discretion of the Meridian Board of
Directors without the approval of EPI or of Meridian's stockholders. In the
event of such termination, no party will have any liability of any kind to any
other party.
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Section 15. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for
the benefit of the parties hereto and their respective subsidiaries and
affiliates and should not be deemed to confer upon third parties any remedy,
claim, liability, reimbursement, claim of action or other right in excess of
those existing without reference to this Agreement.
Section 16. TITLES AND HEADINGS. Titles and headings to Sections herein
are inserted for the convenience of reference only and are not intended to be
part of or to affect the meaning or interpretation of this Agreement.
Section 17. LEGAL ENFORCEABILITY. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof. Any such
prohibition or unenforceability in any jurisdiction will not invalidate or
render unenforceable such provision or remedies otherwise available to any party
hereto. Without prejudice to any rights or remedies otherwise available to any
party hereto, each party hereto acknowledges that damages would be an inadequate
remedy for any breach of the provisions of this Agreement and agrees that the
obligations of the parties hereunder will be specifically enforceable.
Section 18. MULTIPLE COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which will be deemed to be an original, and all of
which together will constitute one and the same document.
IN WITNESS WHEREOF, the parties have caused this Transitional Agreement to
be executed as of the day and year first above written.
MERIDIAN NATIONAL CORPORATION
By:___________________________________
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William D. Feniger
Chief Executive Officer
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
By:___________________________________
Bruce Maison
President and Chief Executive Officer
10
<PAGE>
1996 NON-QUALIFIED AND
INCENTIVE STOCK OPTION PLAN
OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
1. PURPOSE OF THE PLAN. This 1996 Non-Qualified and Incentive Stock
Option Plan of Environmental Purification Industries, Inc. adopted as of the
_______ day of _______________, 1996, is intended to encourage officers and
other key employees of the Company and its Subsidiaries to acquire or increase
their ownership of common stock of the Company on reasonable terms. The
opportunity so provided is intended to foster in participants a strong incentive
to put forth maximum effort for the continued success and growth of the Company
and its Subsidiaries, to aid in retaining individuals who put forth such
efforts, and to assist in attracting the best available individuals to the
Company and its Subsidiaries in the future.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "BOARD" means the Board of Directors of Environmental
Purification Industries, Inc.
2.2 "CHANGE IN CONTROL" means a change in control of the company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act (as in
effect on the date the Plan is adopted by the Board), whether or not the
Company is then subject to such reporting requirement; provided, that,
without limitation, such a Change in Control shall be deemed to have
occurred if:
<PAGE>
(a) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) 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 forty percent (40%) or more of the
combined voting power of the Company's then outstanding securities
other than either (i) in connection with a transaction or series of
related transactions approved by the Board (which Board must include
at least a majority who were Continuing Directors and which
transaction or series of related transactions must have been approved
by a majority of the Continuing Directors) or (ii) as the result of
the reduction in the number of issued and outstanding Shares pursuant
to a transaction or series of related transactions approved by the
Board (which Board must include at least a majority who were
Continuing Directors and which transaction or series of related
transactions must have been approved by a majority of the Continuing
Directors); provided, however, that a Change in Control shall not be
deemed to occur under this clause (a) by reason of the acquisition of
securities by the Company or an employee benefit plan (or any trust
funding such a plan) maintained by the Company or solely by reason of
the issuance of securities directly by the Company; or
(b) during any period of two (2) consecutive years (not
including any period prior to the adoption of this Plan) there shall
cease to be majority of the Board comprised of Continuing Directors;
or
(c) (i) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a
merger
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or consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least eighty percent (80%) of
the combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger or
consolidation, or
(ii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all the Company's
assets.
2.3 "CODE" means the Internal Revenue Code of 1986, as in effect at
the time of reference, or any successor revenue code which may hereafter be
adopted in lieu thereof, and any reference to any specific provisions of
the Code shall refer to the corresponding provisions of the Code as it may
hereafter be amended or replaced.
2.4 "COMMITTEE" means the Stock Option Committee of the Board or any
other committee appointed by the Board which is invested by the Board with
responsibility for the administration of the Plan.
2.5 "COMPANY" means Environmental Purification Industries, Inc.
2.6 "CONTINUING DIRECTORS" means individuals who at the beginning of
any period of two (2) consecutive years (not including any period prior to
the adoption of this Plan) constitute the Board and any new director(s)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were
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<PAGE>
directors at the beginning of the period or whose election or nomination
for election was previously so approved.
2.7 "EMPLOYEE" means officers (including officers who are members of
the Board) and other key employees of the Company or any of the Company's
Subsidiaries.
2.8 "ERISA" means the Employee Retirement Income Security Act of
1974, as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of ERISA shall refer to the corresponding provisions of ERISA as
it may hereafter be amended or replaced.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in
effect at the time of reference, or any successor law which hereafter be
adopted in lieu thereof, and any reference to any specific provisions of
the Exchange Act shall refer to the corresponding provisions of the
Exchange Act as it may hereafter be amended or replaced.
2.10 "FAIR MARKET VALUE" means with respect to the Shares, (i) the
closing price of the Shares on the principal stock exchange on which Shares
are then traded or admitted to trading, on the last business day prior to
the date on which the value is to be determined, (ii) if no sales take
place on such day on any such exchange, the average of the last reported
closing bid and asked prices on such day as officially quoted on any such
exchange, or (iii) if the Shares are not then listed or admitted to trading
on any such exchange, the average of the last reported closing bid and
asked prices on such day on the over-the-counter market. For purposes of
(i) above,
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the National Association of Securities Dealers National Market System shall
be deemed a principal stock exchange. Notwithstanding the foregoing, with
respect to Options granted on, or as of, the date of the closing of the
Company's initial public offering of Shares pursuant to a registration
statement under the Securities Act of 1933 which has been filed with, and
declared effective by, the Securities Exchange Commission, Fair Market
Value means the initial price at which Shares are sold in such offering.
2.11 "INCENTIVE STOCK OPTION" means an Option meeting the requirements
and containing the limitations and restrictions set forth in Section 422 of
the Code.
2.12 "NON-QUALIFIED STOCK OPTION" means an Option other than an
Incentive Stock Option.
2.13 "OPTION" means the right to purchase the number of Shares
specified by the Committee, at a price and for a term fixed by the
Committee, in accordance with the Plan, and subject to such other
limitations and restrictions as the Plan and the Committee may impose.
2.14 "OPTION AGREEMENT" means a written agreement in such form as may
be, from time to time, hereafter approved by the Committee, which shall be
duly executed by the Company and the Employee and which shall set forth the
terms and conditions of an Option under the Plan.
2.15 "PARENT" means any corporation, other than the employer
corporation, in an unbroken chain of corporations ending with the employer
corporation if, at the time of the granting of the Option, each of the
corporations other than the employer
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corporation owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
2.16 "PLAN" means the 1996 Non-Qualified and Incentive Stock Option
Plan of Environmental Purification Industries, Inc.
2.17 "REGULATION T" means Part 220, chapter II, title 12 of the Code
of Federal Regulations, issued by the Board of Governors of the Federal
Reserve System pursuant to the Exchange Act, as amended from time to time,
or any successor regulation which may hereafter be adopted in lieu thereof.
2.18 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations of the Exchange Act, as in effect at the time of reference, or
any successor rules or regulations which may hereafter be adopted in lieu
thereof, and any reference to any specific provisions of Rule 16b-3 shall
refer to the corresponding provisions of Rule 16b-3 as it may hereafter be
amended or replaced.
2.19 "SHARES" means shares of the Company's $.01 par value common
stock or if, by reason of the adjustment provisions contained herein, any
rights under an Option under the Plan pertain to any other security, such
other security.
2.20 "SUBSIDIARY" or "SUBSIDIARIES" means any corporation or
corporations other than the employer corporation in an unbroken chain of
corporations beginning with the employer corporation if each of the
corporations other than the last corporation in the unbroken chain owns
stock possessing fifty percent (50%) or more of the total combined voting
power of all classes of stock in one of the other corporations in such
chain.
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<PAGE>
2.21 "SUCCESSOR" means the legal representative of the estate of a
deceased Employee or the person or persons who shall acquire the right to
exercise or receive an Option by bequest or inheritance or by reason of the
death of the Employee.
2.22 "TERM" means the period during which a particular Option may be
exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of 205,000 Shares, which Shares may be, in whole or in part, as the Board shall
from time to time determine, authorized but unissued Shares, or issued Shares
which shall have been reacquired by the Company. Any Shares subject to issuance
upon exercise of Options but which are not issued because of a surrender, lapse,
expiration or termination of any such Option prior to issuance of the Shares
shall once again be available for issuance in satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of at least two (2) members of the Board who are neither
employees nor officers of the Company. Subject to the provisions of the Plan,
the Committee shall have full authority, in its discretion, to determine the
Employees to whom Options shall be granted, the number of Shares to be covered
by each of the Options, and the terms of any such Option; to amend or cancel
Options (subject to Section 18 of the Plan); to accelerate the vesting of
Options; to require the cancellation or surrender of any previously granted
options or other awards under this Plan or any other plans of the Company as a
condition to the granting of an Option; to interpret the Plan; to prescribe,
amend and rescind rules and regulations relating to the Plan; and generally to
interpret and determine any and all matters whatsoever relating to the
administration of the Plan and the granting of Options
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<PAGE>
hereunder. The Board may, from time to time, appoint members to the Committee
in substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and places
as it shall deem advisable. A majority of its members shall constitute a
quorum. Any action of the Committee may be taken by a written instrument signed
by all of the members, and any action so taken shall be fully as effective as if
it had been taken by a vote of a majority of the members at a meeting duly
called and held. The Committee shall make such rules and regulations for the
conduct of its business as it shall deem advisable and shall appoint a Secretary
who shall keep minutes of its meetings and records of all action taken in
writing without a meeting. No member of the Committee shall be liable, in the
absence of bad faith, for any act or omission with respect to his or her service
on the Committee.
5. EMPLOYEES TO WHOM OPTIONS MAY BE GRANTED. Options may be granted
while the Plan is in effect to such of the Employees as the Committee, in its
discretion, shall determine. In determining the Employees to whom Options shall
be granted and the number of Shares to be subject to purchase under such
Options, the Committee shall take into account the duties of the respective
Employees, their present and potential contributions to the success of the
Company and its Subsidiaries, and such other factors as the Committee shall deem
relevant in connection with accomplishing the purposes of the Plan; provided,
however, no Employee may receive Options to acquire more than 150,000 Shares in
any one calendar year. No Option shall be granted to any member of the
Committee so long as his or her membership on the Committee continues or to any
member of the Board who is not also an officer or key employee of the Company or
any Subsidiary.
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<PAGE>
6. BASIC OPTION TERMS.
6.1 TYPES OF OPTIONS. Options granted under the Plan may be (i)
Incentive Stock Options, (ii) Non-Qualified Stock Options, or (iii) a
combination of the foregoing. The Option Agreement shall designate whether
an Option is an Incentive Stock Option or a Non-Qualified Stock Option and
separate Option Agreements shall be issued for each type of Option when a
combination of an Incentive Stock Option and a Non-Qualified Stock Option
is granted on the same date to the same Employee. Any Option which is
designated as a Non-Qualified Stock Option shall not be treated by the
Company or the Employee to whom the Option is granted as an Incentive Stock
Option for Federal income tax purposes.
6.2 OPTION PRICE. Unless otherwise determined by the Committee, the
option price per share of any Non-Qualified Stock Option granted under the
Plan shall not be less than the Fair Market Value of the Shares covered by
the Option on the date the Option is granted. The option price per share
of any Incentive Stock Option granted under the Plan shall not be less than
the Fair Market Value of the Shares covered by the Option on the date the
Option is granted.
Notwithstanding anything herein to the contrary, in the event an
Incentive Stock Option is granted to an Employee who, at the time such
Incentive Stock Option is granted, owns, as defined in Section 424 of the
Code, stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of:
(i) the Company; or
(ii) if applicable, a Subsidiary; or
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<PAGE>
(iii) if applicable, a Parent,
then the option price per share of any Incentive Stock Option granted to
such Employee shall not be less than one hundred ten percent (110%) of the
Fair Market Value of the Shares covered by the Option on the date the
Option is granted.
6.3 TERM OF OPTIONS. Options granted hereunder shall be exercisable
for a Term of not more than ten (10) years from the date of grant thereof,
but shall be subject to earlier termination as hereinafter provided. Each
Option Agreement issued hereunder shall specify the Term of the Option,
which Term shall be determined by the Committee, in accordance with its
discretionary authority hereunder.
Notwithstanding anything herein to the contrary, in the event an
Incentive Stock Option is granted to an Employee who, at the time such
Incentive Stock Option is granted, owns, as defined in Section 424 of the
Code, stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of:
(i) the Company; or
(ii) if applicable, a Subsidiary; or
(iii) if applicable, a Parent,
then such Incentive Stock Option shall not be exercisable more than five
(5) years from the date of grant thereof, but shall be subject to earlier
termination as hereinafter provided.
7. LIMIT ON FAIR MARKET VALUE OF INCENTIVE STOCK OPTIONS. No Employee
may be granted an Incentive Stock Option hereunder to the extent that the
aggregate fair market
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<PAGE>
value (such fair market value being determined as of the date of grant of the
option in question) of the stock with respect to which incentive stock options
are first exercisable by such Employee during any calendar year (under all such
plans of the Employee's employer corporation, its Parent, if any, and its
Subsidiaries, if any) exceeds One Hundred Thousand Dollars ($100,000). For
purposes of the preceding sentence, options shall be taken into account in the
order in which they were granted. Any Option granted under the Plan which is
intended to be an Incentive Stock Option, but which exceeds the limitation set
forth in this Section 7, shall be a Non-Qualified Stock Option.
8. DATE OF GRANT. Unless otherwise determined by the Committee, the date
of grant of an Option granted hereunder shall be the date on which the Committee
acts in granting the Option.
9. EXERCISE OF RIGHTS UNDER OPTIONS.
9.1 NOTICE OF EXERCISE. An Employee entitled to exercise an Option
may do so by delivery to the Company of a written notice to that effect
specifying the number of Shares with respect to which the Option is being
exercised and any other information the Committee may require. The notice
shall be accompanied by payment in full of the purchase price of any Shares
to be purchased, which payment shall be made in cash or, with the
Committee's approval (which in the case of Incentive Stock Options must be
given at the date of grant), in Shares valued at Fair Market Value at the
time of exercise or a combination thereof. No Shares shall be issued upon
exercise of an Option until full payment has been made therefor. All
notices or requests provided for herein shall be delivered to the Chief
Financial
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<PAGE>
Officer of the Company, or such other person that the Committee may
designate. No fractional Shares shall be issued.
9.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby an Employee, subject to the
requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an
Option or a portion thereof without making a direct payment of the option
price to the Company; provided, however, that these cashless exercise
procedures shall not apply to Incentive Stock Options which are outstanding
on the date the Company establishes such procedures unless the application
of such procedures to such Options is permitted pursuant to the Code and
the regulations thereunder without affecting the Options' qualification
under Code Section 422 as Incentive Stock Options. If the Company so
elects to establish a cashless exercise program, the Company shall
determine, in its sole discretion, and from time to time, such
administrative procedures and policies as it deems appropriate and such
procedures and policies shall be binding on any Employee wishing to utilize
the cashless exercise program.
10. OTHER OPTION TERMS AND CONDITIONS. Each Option and each Option
Agreement evidencing the grant of an Option may contain such other terms and
conditions not inconsistent herewith as shall be approved by the Committee.
11. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase
under the holder's Option, except to the extent that one or more certificates
for such Shares shall be issuable
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to the holder upon the due exercise of the Option and the payment in full of the
purchase price therefor.
12. NONTRANSFERABILITY OF OPTIONS. An Option shall not be transferable,
other than: (a) by will or the laws of descent and distribution, and an Option
may be exercised, during the lifetime of the holder of the Option, only by the
holder or in the event of death, the holder's Successor, or in the event of
disability, the holder's personal representative, or (b) pursuant to a qualified
domestic relation order, as defined in the Code or ERISA or the rules
thereunder; provided, however, that an Incentive Stock Option may not be
transferred pursuant to a qualified domestic relations order unless the transfer
is otherwise permitted pursuant to the Code and the regulations thereunder
without affecting the Option's qualification under Code Section 422 as an
Incentive Stock Option.
13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
recapitalizations, mergers, consolidations, combinations, or exchanges of
shares, separations, reorganizations or liquidations, or similar events, or in
the event of extraordinary cash or non-cash dividends being declared with
respect to the Shares, or similar transactions or events, the number and class
of Shares available under the Plan in the aggregate, the number and class of
Shares subject to Options theretofore granted, applicable purchase prices and
all other applicable provisions, shall, subject to the provisions of the Plan,
be equitably adjusted by the Committee (which adjustment may, but need not,
include payment to the holder of an Option, in cash or in shares, in an amount
equal to the difference between the price at which such Option may be exercised
and the then current fair market value of the Shares subject to such Option as
equitably determined by the Committee). The foregoing
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<PAGE>
adjustment and the manner of application of the foregoing provisions shall be
determined by the Committee in its sole discretion. Any such adjustment may
provide for the elimination of any fractional Share which might otherwise become
subject to an Option.
14. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan or in any Option Agreement, in the case of a Change in Control of the
Company, each Option granted under the Plan shall terminate ninety (90) days
after the occurrence of such Change in Control, and an Option holder shall have
the right, commencing at least five (5) days prior to such Change in Control and
subject to any other limitation on the exercise of such Option in effect on the
date of exercise, to immediately exercise any Option in full, without regard to
any vesting limitations, to the extent it shall not have been previously
exercised.
15. FORM OF OPTIONS. Nothing contained in the Plan nor any resolution
adopted or to be adopted by the Board or by the stockholders of the Company
shall constitute the granting of an Option. An Option shall be granted
hereunder only by action taken by the Committee in granting an Option. Whenever
the Committee shall designate an Employee for the receipt of an Option, the
Chief Financial Officer of the Company, or such other person as the Committee
shall appoint, shall forthwith send notice thereof to the Employee, in such form
as the Committee shall approve, stating the number of Shares subject to the
Option, its Term, and the other terms and conditions thereof. The notice shall
be accompanied by a written Option Agreement, in such form as may from time to
time hereafter be approved by the Committee, which shall have been duly executed
by or on behalf of the Company. If the surrender of previously issued options
or awards under this Plan or any other plans of the Company is made a condition
of the grant, the notice shall set forth the pertinent details of such
condition. Execution by the Employee to whom such
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<PAGE>
Option is granted of said Option Agreement in accordance with the provisions set
forth in this Plan shall be a condition precedent to the exercise of any Option.
16. TAXES.
16.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have the
right to require a person entitled to receive Shares pursuant to the
exercise of an Option under the Plan to pay the Company the amount of any
taxes which the Company is or will be required to withhold with respect to
such Shares before the certificate for such Shares is delivered pursuant to
the Option. Furthermore, the Company may elect to deduct such taxes from
any other amounts then payable in cash or in shares or from any other
amounts payable any time thereafter to the Employee. If the Employee
disposes of Shares acquired pursuant to an Incentive Stock Option in any
transaction considered to be a disqualifying transaction under Sections 421
and 422 of the Code, the Employee shall notify the Company of such transfer
and the Company shall have the right to deduct any taxes required by law to
be withheld from any amounts otherwise payable then or at any time
thereafter to the Employee.
16.2 EMPLOYEE ELECTION TO WITHHOLD SHARES. Subject to Committee
approval (which in the case of Incentive Stock Options must be given at the
time of grant), an Employee may satisfy his or her tax liability with
respect to the exercise of an Option by having the Company withhold Shares
otherwise issuable upon exercise of the Option; provided, however, that if
an Employee is subject to Section 16(b) of the Exchange Act at the time the
Option is exercised, such election must satisfy the requirements of Rule
16b-3.
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<PAGE>
17. TERMINATION OF THE PLAN. The Plan shall terminate ten (10) years from
the date the Plan becomes effective, and an Option shall not be granted under
the Plan after that date although the terms of any Option may be amended at any
date prior to the end of its Term in accordance with the Plan. Any Options
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms and conditions of the Option and the Plan.
18. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board, but no amendment without the approval of the
stockholders of the Company shall be made if stockholder approval under
Section 422 of the Code or Rule 16b-3 would be required. Notwithstanding the
discretionary authority granted to the Committee in Section 4 of the Plan, no
amendment of the Plan or any Option granted under the Plan shall impair any of
the rights of any holder, without the holder's consent, under any Option
theretofore granted under the Plan.
19. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to the exercise of an Option may be postponed by the Company for such
period as may be required for it with reasonable diligence to comply with any
applicable requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require an Employee to furnish the Company with appropriate
representations and a written investment letter prior to the exercise of an
Option or the delivery of any Shares pursuant thereto.
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<PAGE>
20. FEES AND COSTS. The Company shall pay all original issue taxes on the
exercise of any Option granted under the Plan and all other fees and expenses
necessarily incurred by the Company in connection therewith.
21. EFFECTIVENESS OF THE PLAN. The Plan shall become effective on the
later of (i) the date the Plan is approved by the Board or (ii) the date of the
closing of the Company's initial public offering of Shares pursuant to a
registration statement under the Securities Act of 1933, which has been filed
with, and declared effective by, the Securities Exchange Commission. The Plan
shall thereafter be submitted to the Company's stockholders for approval and
unless the Plan is approved by the affirmative votes of the holders of shares
having a majority of the voting power of all shares represented at a meeting
duly held in accordance with Delaware law within twelve (12) months after being
approved by the Board, the Plan and all Options granted under it shall be void
and of no force and effect.
22. OTHER PROVISIONS. As used in the Plan, and in Option Agreements and
other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Option
Agreements and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
23. DELAWARE LAW TO GOVERN. This Plan shall be governed by and construed
in accordance with the laws of the State of Delaware.
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<PAGE>
1996 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
1. PURPOSE OF THE PLAN. This 1996 Non-Employee Directors' Stock Option
Plan of Environmental Purification Industries, Inc. adopted on this _______ day
of _______________, 1996, is intended to encourage directors of the Company who
are not officers or key employees of the Company or any of its Subsidiaries to
acquire or increase their ownership of common stock of the Company. The
opportunity so provided is intended to foster in participants an incentive to
put forth maximum effort for the continued success and growth of the Company and
its Subsidiaries.
2. DEFINITIONS. When used herein, the following terms shall have the
meaning set forth below:
2.1 "BOARD" means the Board of Directors of Environmental
Purification Industries, Inc.
2.2 "CHANGE IN CONTROL" means a change in control of the company of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Exchange Act (as in
effect on the date the Plan is adopted by the Board), whether or not the
Company is then subject to such reporting requirement; provided, that,
without limitation, such a Change in Control shall be deemed to have
occurred if:
(a) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) 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 forty percent (40%) or more of the
combined voting power of the
<PAGE>
Company's then outstanding securities other than either (i) in
connection with a transaction or series of related transactions
approved by the Board (which Board must include at least a majority
who were Continuing Directors and which transaction or series of
related transactions must have been approved by a majority of the
Continuing Directors) or (ii) as the result of the reduction in the
number of issued and outstanding Shares pursuant to a transaction or
series of related transactions approved by the Board (which Board must
include at least a majority who were Continuing Directors and which
transaction or series of related transactions must have been approved
by a majority of the Continuing Directors); provided, however, that a
Change in Control shall not be deemed to occur under this clause
(a) by reason of the acquisition of securities by the Company or an
employee benefit plan (or any trust funding such a Plan) maintained by
the Company, or solely by reason of the issuance of securities
directly by the Company; or
(b) during any period of two (2) consecutive years (not
including any period prior to the adoption of this Plan) there shall
cease to be a majority of the Board comprised of Continuing Directors;
or
(c) (i) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity)
at least eighty percent (80%) of the
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<PAGE>
combined voting power of the voting securities of the Company or
such surviving entity outstanding immediately after such merger
or consolidation, or
(ii) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale
or disposition by the Company of all or substantially all the
Company's assets.
2.3 "CODE" means the Internal Revenue Code of 1986, as in effect at
the time of reference, or any successor revenue code which may hereafter be
adopted in lieu thereof, and any reference to any specific provisions of
the Code shall refer to the corresponding provisions of the Code as it may
hereafter be amended or replaced.
2.4 "COMMITTEE" means the Stock Option Committee of the Board or any
other committee appointed by the Board which is invested by the Board with
responsibility for the administration of the Plan.
2.5 "COMPANY" means Environmental Purification Industries, Inc.
2.6 "CONTINUING DIRECTORS" means individuals who at the beginning of
any period of two (2) consecutive years (not including any period prior to
the adoption of this Plan) constitute the Board and any new director(s)
whose election by the Board or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning
of the period or whose election or nomination for election was previously
so approved.
2.7 "DIRECTORS" means directors who serve on the Board and who are
not officers or key employees of the Company or any of its Subsidiaries.
3
<PAGE>
2.8 "ERISA" means the Employee Retirement Income Security Act of
1974, as in effect at the time of reference, or any successor law which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of ERISA shall refer to the corresponding provisions of ERISA as
it may hereafter be amended or replaced.
2.9 "EXCHANGE ACT" means the Securities Exchange Act of 1934, as in
effect at the time of reference, or any successor law which may hereafter
be adopted in lieu thereof, and any reference to any specific provisions of
the Exchange Act shall refer to the corresponding provisions of the
Exchange Act as it may be amended or replaced.
2.10 "FAIR MARKET VALUE" means with respect to the Shares, (i) the
closing price of the Shares on the principal stock exchange on which Shares
are then traded or admitted to trading, on the last business day prior to
the date on which the value is to be determined, (ii) if no sales take
place on such day on any such exchange, the average of the last reported
closing bid and asked prices on such day as officially quoted on any such
exchange, or (iii) if the Shares are not then listed or admitted to trading
on any such exchange, the average of the last reported closing bid and
asked prices on such day on the over-the-counter market. For purposes of
(i) above, the National Association of Securities Dealers National Market
System shall be deemed a principal stock exchange. Notwithstanding the
foregoing, with respect to Options granted on, or as of, the date of the
closing of the Company's initial offering of Shares pursuant to a
registration statement under the Securities Act of 1933 which has been
filed with, and declared effective by, the Securities Exchange Commission,
Fair Market Value means the initial price at which Shares are sold in such
offering.
4
<PAGE>
2.11 "OPTION" means the right to purchase the number of Shares
specified by the Plan at a price and for a term fixed by the Plan, and
subject to such other limitations and restrictions as the Plan and the
Committee imposes.
2.12 "OPTION AGREEMENT" means a written agreement in such form as may
be, from time to time, hereafter approved by the Committee, which shall be
duly executed by the Company and the Director and which shall set forth the
terms and conditions of an Option under the Plan.
2.13 "PLAN" means the 1996 Non-Employee Directors' Stock Option Plan
of Environmental Purification Industries, Inc.
2.14 "REGULATION T" means Part 220, chapter II, title 12 of the Code
of Federal Regulations, issued by the Board of Governors of the Federal
Reserve System pursuant to the Exchange Act, as amended from time to time.
2.15 "RULE 16B-3" means Rule 16b-3 of the General Rules and
Regulations of the Securities and Exchange Commission as in effect at the
time of reference, or any successor rules or regulations which may
hereafter be adopted in lieu thereof, and any reference to any specific
provisions of Rule 16b-3 shall refer to the corresponding provisions of
Rule 16b-3 as it may hereafter be amended or replaced.
2.16 "SHARES" means shares of the Company's $.01 par value common
stock or, if by reason of the adjustment provisions contained herein, any
rights under an Option under the Plan pertain to any other security, such
other security.
2.17 "SUBSIDIARY" or "SUBSIDIARIES" means any corporation or
corporations other than the Company in an unbroken chain of corporations
beginning with the Company if each of the corporations other than the last
corporation in the unbroken chain owns stock
5
<PAGE>
possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
2.18 "SUCCESSOR" means the legal representative of the estate of a
deceased Director or the person or persons who shall acquire the right to
exercise or receive an Option by bequest or inheritance or by reason of the
death of the Director.
2.19 "TERM" means the period during which a particular Option may be
exercised.
3. STOCK SUBJECT TO THE PLAN. There will be reserved for use, upon the
exercise of Options to be granted from time to time under the Plan, an aggregate
of 30,000 Shares, which Shares may be, in whole or in part, as the Board shall
from time to time determine, authorized but unissued Shares, or issued Shares
which shall have been reacquired by the Company. Any Shares subject to issuance
upon exercise of Options but which are not issued because of a surrender, lapse,
expiration or termination of any such Option prior to issuance of the Shares
shall once again be available for issuance in satisfaction of Options.
4. ADMINISTRATION OF THE PLAN. The Board shall appoint the Committee,
which shall consist of at least two (2) members of the Board who are neither
employees nor officers of the Company. Subject to the provisions of the Plan,
the Committee shall have full authority, in its discretion, to interpret the
Plan, to prescribe, amend and rescind rules and regulations relating to the
Plan, and generally to interpret and determine any and all matters whatsoever
relating to the administration of the Plan and the granting of Options
hereunder. The Board may, from time to time, appoint members to the Committee
in substitution for or in addition to members previously appointed and may fill
vacancies, however caused, in the Committee. The Committee shall select one of
its members as its chairman and shall hold its meetings at such times and places
as it shall
6
<PAGE>
deem advisable. A majority of its members shall constitute a quorum. Any
action of the Committee may be taken by a written instrument signed by all of
the members, and any action so taken shall be fully as effective as if it had
been taken by a vote of a majority of the members at a meeting duly called and
held. The Committee shall make such rules and regulations for the conduct of
its business as it shall deem advisable and shall appoint a Secretary who shall
keep minutes of its meetings and records of all action taken in writing without
a meeting. No member of the Committee shall be liable, in the absence of bad
faith, for any act or omission with respect to his or her service on the
Committee.
5. GRANT OF OPTIONS. Each Director who is a Director on the date the
Plan becomes effective shall be granted an Option on such date to purchase
10,000 Shares without further action by the Board or the Committee. Each
Director who joins the Board after the date the Plan becomes effective shall be
granted an Option on the first day of his initial term on the Board to purchase
10,000 Shares without further action by the Board or the Committee. If the
number of Shares available under the Plan on a scheduled grant date is
insufficient to make all automatic grants required to be made pursuant to the
Plan on such date, then each eligible Director shall receive an Option to
purchase a pro rata number of the remaining Shares, if any, under the Plan;
provided further, however, that if such proration results in fractional Shares,
then such Option shall be rounded down to the nearest number of whole Shares.
6. BASIC STOCK OPTION PROVISIONS.
6.1 OPTION PRICE. The option price per share of any Option granted
under the Plan shall be the Fair Market Value of the Shares covered by the
Option on the date the Option is granted.
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<PAGE>
6.2 TERM OF OPTIONS. Options granted hereunder shall be
exercisable for a Term of ten (10) years from the date of grant thereof,
but shall be subject to earlier termination as hereinafter provided, and
except as otherwise provided in the Plan, prior to its expiration or
termination, any Option granted hereunder may be exercised at any time
after the six (6) month anniversary of the date of grant of such Option.
6.3 TERMINATION OF DIRECTORSHIP. In the event a Director ceases to
be a member of the Board (other than by reason of death or disability), an
Option may be exercised by the Director in full at any time within seven
(7) months after he or she ceases to be a member of the Board, but not
beyond the Term of the Option.
6.4 DEATH OR DISABILITY OF DIRECTOR. If a Director dies or becomes
disabled while he or she is a member of the Board, or within seven (7)
months after he or she ceases to be a Member of the Board, an Option may be
exercised in full by the Director's Successor, at any time within one (1)
year after he or she ceases to be a member of the Board on account of such
death, but not beyond the Term of the Option.
7. EXERCISE OF RIGHTS UNDER AWARDS.
7.1 NOTICE OF EXERCISE. A Director entitled to exercise an Option
may do so by delivery of a written notice to that effect specifying the
number of Shares with respect to which the Option is being exercised and
any other information the Committee may require. The notice shall be
accompanied by payment in full of the purchase price of any Shares to be
purchased, which payment shall be made in cash or by certificates of Shares
held for more than six (6) months, duly endorsed in blank, equal in value
to the purchase price of the Shares to be purchased based on their Fair
Market Value at the time of exercise or a combination thereof. No Shares
shall be issued upon exercise of an Option
8
<PAGE>
until full payment has been made therefor. All notices or requests
provided for herein shall be delivered to the Company's Chief Financial
Officer, or such other person as the Committee may designate. No
fractional Shares shall be issued.
7.2 CASHLESS EXERCISE PROCEDURES. The Company, in its sole
discretion, may establish procedures whereby a Director, subject to the
requirements of Rule 16b-3, Regulation T, federal income tax laws, and
other federal, state and local tax and securities laws, can exercise an
Option or a portion thereof without making a direct payment of the option
price to the Company. If the Company so elects to establish a cashless
exercise program, the Company shall determine, in its sole discretion, and
from time to time, such administrative procedures and policies as it deems
appropriate and such procedures and policies shall be binding on any
Director wishing to utilize the cashless exercise program.
8. OTHER OPTION TERMS AND CONDITIONS. Each Option or each Option
Agreement evidencing the grant of an Option shall contain such other terms and
conditions not inconsistent herewith as shall be approved by the Committee.
9. RIGHTS OF OPTION HOLDER. The holder of an Option shall not have any
of the rights of a stockholder with respect to the Shares subject to purchase or
receipt under his or her Option, except to the extent that one or more
certificates for such Shares shall be issuable to the holder upon the due
exercise of the Option and the payment in full of the purchase price therefor.
10. NONTRANSFERABILITY OF OPTIONS. An Option shall not be transferable,
other than: (a) by will or the laws of descent and distribution, and an Option
may be exercised, during the lifetime of the holder of the Option, only by the
holder, or in the event of death, the holder's Successor, or in the event of
disability, the holder's personal representative, or (b) pursuant to a qualified
domestic relation order, as defined in the Code or ERISA or the rules
thereunder.
9
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of changes
in all of the outstanding Shares by reason of stock dividends, stock splits,
reclassifications, recapitalizations, mergers, consolidations, combinations, or
exchanges of shares, separations, reorganizations or liquidations, or similar
events, or in the event of extraordinary cash or non-cash dividends being
declared with respect to the Shares, or similar transactions or events, the
number and class of Shares available under the Plan in the aggregate, the number
and class of Shares subject to Options theretofore granted, applicable purchase
prices and all other applicable provisions, shall, subject to the provisions of
the Plan, be equitably adjusted by the Committee (which adjustment may, but need
not, include payment to the holder of an Option, in cash or in shares, in an
amount equal to the difference between the price at which such Option may be
exercised and the then current fair market value of the Shares subject to such
Option as equitably determined by the Committee). The foregoing adjustment and
the manner of application of the foregoing provisions shall be determined by the
Committee, in its sole discretion. Any such adjustment may provide for the
elimination of any fractional share which might otherwise become subject to an
Option.
12. CHANGE IN CONTROL. Notwithstanding anything to the contrary in the
Plan or in any Option Agreement, in the case of a Change in Control of the
Company, each Option granted under the Plan shall terminate ninety (90) days
after the occurrence of such Change in Control, and an Option holder shall have
the right, commencing at least five (5) days prior to such Change in Control and
subject to any other limitation on the exercise of such Option in effect on the
date of exercise, to immediately exercise any Option in full, without regard to
any vesting limitations, to the extent it shall not have been previously
exercised.
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<PAGE>
13. FORMS OF OPTIONS. An Option shall be granted hereunder on the date or
dates specified in the Plan. Whenever the Plan provides for the receipt of an
Option by a Director, the Company's Chief Financial Officer or such other person
as the Committee shall appoint, shall forthwith send notice thereof to the
Director, in such form as the Committee shall approve, stating the number of
Shares subject to the Option, its Term, and the other terms and conditions
thereof. The notice shall be accompanied by a written Option Agreement, in such
form as may from time to time hereafter be approved by the Committee, which
shall have been duly executed by or on behalf of the Company. Execution by the
Director to whom such Option is granted of said Option Agreement in accordance
with the provisions set forth in this Plan shall be a condition precedent to the
exercise of any Option.
14. TAXES.
14.1 RIGHT TO WITHHOLD REQUIRED TAXES. The Company shall have the
right to require a person entitled to receive Shares pursuant to the
exercise of an Option under the Plan to pay the Company the amount of any
taxes which the Company is or will be required to withhold, if any, with
respect to such Shares before the certificate for such Shares is delivered
pursuant to the Option. Furthermore, the Company may elect to deduct such
taxes from any other amounts then payable in cash or in shares or from any
other amounts payable any time thereafter to the Director.
14.2 DIRECTOR ELECTION TO WITHHOLD SHARES. A Director may satisfy the
withholding tax liability, if any, with respect to the exercise of an
Option, by having the Company withhold Shares otherwise issuable upon
exercise of the Option if such Director makes an election to do so which
satisfies the requirements of Rule 16b-3.
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15. TERMINATION OF THE PLAN. The Plan shall terminate five (5) years from
the date the Plan becomes effective, and an Option shall not be granted under
the Plan after that date although the terms of any Option may be amended at any
date prior to the end of its Term in accordance with the Plan. Any Option
outstanding at the time of termination of the Plan shall continue in full force
and effect according to the terms and conditions of the Option and this Plan.
16. AMENDMENT OF THE PLAN. The Plan may be amended at any time and from
time to time by the Board. Notwithstanding the discretionary authority granted
to the Committee in Section 4 of the Plan, no amendment of the Plan or any
Option granted under the Plan shall impair any of the rights of any holder,
without the holder's consent, under any Option theretofore granted under the
Plan.
17. DELIVERY OF SHARES ON EXERCISE. Delivery of certificates for Shares
pursuant to an Option exercise may be postponed by the Company for such period
as may be required for it with reasonable diligence to comply with any
applicable requirements of any federal, state or local law or regulation or any
administrative or quasi-administrative requirement applicable to the sale,
issuance, distribution or delivery of such Shares. The Committee may, in its
sole discretion, require a Director to furnish the Company with appropriate
representations and a written investment letter prior to the exercise of an
Option or the delivery of any Shares pursuant thereto.
18. FEES AND COSTS. The Company shall pay all original issue taxes on the
exercise of any Option granted under the Plan and all other fees and expenses
necessarily incurred by the Company in connection therewith.
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19. EFFECTIVENESS OF THE PLAN. The Plan shall become effective on the
later of (i) the date the Plan is approved by the Board or (ii) the date of the
closing of the Company's initial public offering of Shares pursuant to a
registration statement under the Securities Act of 1933, which has been filed
with, and declared effective by, the Securities Exchange Commission.
20. OTHER PROVISIONS. As used in the Plan, and in Option Agreements and
other documents prepared in implementation of the Plan, references to the
masculine pronoun shall be deemed to refer to the feminine or neuter, and
references in the singular or the plural shall refer to the plural or the
singular, as the identity of the person or persons or entity or entities being
referred to may require. The captions used in the Plan and in such Option
Agreements and other documents prepared in implementation of the Plan are for
convenience only and shall not affect the meaning of any provision hereof or
thereof.
21. DELAWARE LAW TO GOVERN. This Plan shall be governed by and construed
in accordance with the laws of the State of Delaware.
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LICENSE AGREEMENT
THIS AGREEMENT is made this 7th day of September, 1995, by and between
ASTER, INC., an Ohio corporation with its principal place of business at 160
Glaser Street, Fairborn, Ohio 45324 ("ASTER"), and ENVIRONMENTAL PURIFICATION
INDUSTRIES COMPANY, an Ohio general partnership, the partners of which are
wholly owned subsidiaries of Meridian National Corporation with its principal
place of business at 2111 Champlain Street, Toledo, Ohio 43611 ("EPI").
WITNESSETH:
WHEREAS, ASTER owns the rights to certain mechanical and chemical
processes, formulae, and technology represented by U.S. Patents Nos.
5,160,628 and 5,254,263 on file with the U.S. Patent and Trademark Office and
other processes, formulae, and technology within the scope thereof for
processing paint sludge into putties, powder, filler, and other compounding
ingredients which can be utilized in the manufacture of cements, sealants,
coatings, and other related materials for uses such as automotive and
industrial sealants, adhesives, and coatings (collectively, the "ART"); and
WHEREAS, in addition to the ART, ASTER and/or its President, Michael J.
Gerace ("Gerace") have certain knowledge, skills, and expertise in the
application of the ART; and
WHEREAS, EPI is in the business of processing paint sludge into powdered
products, primarily through the licensed use of technology under U.S. Patent
No. 4,980,030 for the processing of paint sludge into powdered products; and
WHEREAS, ASTER, and EPI desire that the ART be brought to full
commercialization in the business of converting paint waste into useful
materials for sale to the sealant and related industries; and
WHEREAS, ASTER, and EPI desire to enter into this Agreement to provide
for the licensing of the ART to EPI by ASTER upon the terms and conditions
contained herein.
NOW, THEREFORE, for good and valuable consideration, the receipt of which
is hereby acknowledged, the parties do hereby agree as follows:
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ARTICLE I
LICENSE RIGHTS
1.1. GRANT OF LICENSE. ASTER hereby grants to EPI the exclusive right
and license to utilize the ART, and any reissue or extension thereof, in such
a manner and to the extent which EPI deems necessary for commercial
manufacturing of recycled paint polymer ("RPP") from raw paint sludges, both
within and without the United States, subject only to Article 1.2 hereof.
1.2. EXCEPTIONS. EPI's rights obtained from the license granted in
ARTICLE 1.1 above is subject to the following exceptions:
(a.) Other party rights:
(i.) in Mexico subject to the license previously granted to
Industrias Resistol dated July 13, 1992, for the remaining
term of that license, a true and correct copy of which,
consisting of 9 pages is attached hereto as Exhibit A. and
(ii.) such rights, if any, as may be agreed to between ASTER and
Texo Corp. which agreement is subject to EPI's prior approval
as described in Article 15.2 below
(b.) ASTER shall retain rights to the ART for the following:
(i.) the processing by ASTER at the Pilot Plant referred to in
Article 7.1 hereof, of paint sludges provided only by EPI
to ASTER; and
(ii.) the testing of formulations and proving out of potential paint
sludge materials in connection with experimental and
developmental programs. The results of such testing and proving
out will be deemed to be part of the "New Technologies"
referred to in Article 3.1 hereof.
1.3. MINIMUM VOLUMES. EPI agrees to process raw paint sludge using the
ASTER ART at a volume rate shown in Schedule 1 attached. This minimum volume
requirement is subject to the following assumptions:
a) the ART is capable of processing this volume in a commercially
acceptable manner.
b) EPI has the manufacturing capability to process the scheduled volumes
as set forth on Schedule 1, or in the alternative, will use its
reasonable efforts to complete the financing and construction of an
"ASTER system" at its Toledo facility, in a timely fashion.
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c) The use of the ART by EPI, EPI's sublicensees, or other third party
permitted to use the ART under this agreement does not place them in a
position where they are operating in violation of any governmental
regulations or laws. In the unlikely event the use of the ART is
suspended for any reason relative to government regulations or laws,
then all minimum payments and volume requirements are suspended until
such time as EPI, et. al. is permitted to reestablish an active use
of the ART. If and when such a suspension is invoked, then ASTER and
EPI will meet at the earliest possible date to determine a method and
action plan to resolve the reason for the suspension of operations.
1.4. REMOVAL OF TEXO'S RIGHTS. On an annual basis, EPI will reimburse
ASTER up to $20,000 per year for a five year period to be applied to the
settlement to be made between ASTER and Texo to remove Texo from having any
rights or potential rights to the use of ASTER technology (see Article 15.2 of
this agreement). If the total settlement is less than $100,000, then the amount
agreed upon between ASTER and Texo will be evenly divided by the five year
period.
The first payment of $20,000 under this Article 1.4 will be due and payable on
the date which is ten days after the date on which a payment of up to $20,000
annually is due Texo as defined in a settlement agreement which has been
approved by ASTER and EPI under Article 15.2 and is executed by ASTER and Texo.
In the event ASTER should default in its obligations under this ASTER/EPI
agreement, then the amount of money already paid by EPI under Article 1.4 to
ASTER will be immediately refunded to EPI by ASTER and any further obligation to
ASTER by EPI in this Article 1.4 will be cancelled.
1.5. FOREIGN OPERATIONS. When sub-licensed foreign operations are
established, by EPI or by ASTER with EPI's approval, both ASTER and EPI will
share on an equal (50/50) basis all up front cash, Licensing fees, royalties and
any other similar fee income generated by the foreign business relationship(s).
In the event EPI incurs extraordinary expenses in establishing the foreign
licensee operation, then such expenses will be offset, after mutual agreement
between ASTER/EPI, through the suspension of payable royalties and/or fee
revenue from the foreign licensee until the amount of such extraordinary
expenses is recovered. Normal expenses incurred by both ASTER and EPI to
establish the licensee shall be the responsibility of each party incurring such
normal expenses.
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ARTICLE 2
PAYMENTS & ROYALTIES
2.1 PAYMENTS. In consideration for ongoing work performed by ASTER to
commercialize and to continue to refine and market the ART, EPI agrees to pay
ASTER a monthly payment for technical and manufacturing services cited in
Article 6, Article 7, and Appendix A of this agreement. The monthly payment
shall be the greater of $20,000 ("minimum monthly payment"), or the amount
generated by the aggregate sum of:
a. The royalties generated by article 2.2.
b. The technical service fees cited in article 6.
C. The processing fees cited in article 7.
The only portion of the minimum monthly payment that will be deemed to
constitute a royalty shall be the amount of royalties for such month under (a)
above. To the extent that the monthly payment exceeds the aggregate sum of
(a), (b) and (c) above for a given month, the excess to the extent not utilized
per Article 2.3, shall be deemed to be a payment in consideration of ASTER's
having maintained the capability to perform services during such month.
2.2 ROYALTIES. In consideration for the exclusive license granted in
Article 1 above, EPI shall pay ASTER the following monthly royalties:
(i) for each pound of raw sludge processed by EPI, and/or any
sublicensee of EPI, by the ART, ASTER shall receive:
2 CENTS ($0.02) up to 7,500,000 pounds processed annually
1 CENT ($0.01) from 7,500,001 pounds to 15,000,000 pounds
processed annually
.75 CENTS ($0.0075) from 15,000,001 pounds to 20,000,000 pounds
processed annually
.50 CENTS ($0.0050) for anything over 20,000,001 pounds processed
annually
(ii) and a royalty of 4.0 cents ($0.04) for each pound of RPP sold
by EPI and/or any sublicensee of EPI using the ART.
(iii) Subject to the assumptions of Article 1.3, the minimum royalties
due ASTER for any given year shall be equal to the amount
generated by applying the rates shown in Article 2.1a and 2.2(i)
(ii) to the volumes cited in Schedule 1.
(iv) If for any given year EPI and ASTER do not process raw sludge
with the ART to the minimum volume shown in Schedule 1, then
notwithstanding the requirements of Article 1.3, the exclusive
license will be maintained by EPI paying the full royalty due
by applying Article 2.1a and 2.2 (i) (ii) against the full
volume figure
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shown in Schedule I for that given year.
(v) The royalty rates cited above will remain fixed for a period of
36 months from the completion of start-up of the commercial unit
installed in an EPI facility. After this period, the royalty rates
shall be subject to annual adjustments based on the "Consumer
Price Index - All Urban Consumers, All items" (1982-84 = 100)
("CPI"), published by the Bureau of Labor Statistics of the United
States Department of Labor, for the "All Cities" Average.
Adjustment fractions developed from the CPI will be applied to the
royalty rates listed in Article 2.2 (i) and Article 2.2 (ii) to
determine the royalty rates in effect after the 36 month period
specified above. For the first adjustment fraction, the index
number of the CPI for the 25th month after successful start-up
shall be the denominator and the index number for the 36th month
after start-up shall be the numerator. The royalty rates in effect
for the next twelve months after the 36th month of successful
start-up shall be the rates listed in Article 2.2 (i) and
Article 2.2 (ii) multiplied by this fraction. The royalty rate
will be adjusted each year thereafter based on the percentage
changes in such index between the first and twelfth month of the
prior year. No adjustment pursuant to this Article 2.2 (v) shall
reduce the royalty rates below those listed in Article 2.2 (i) and
2.2 (ii).
2.3 "LOOK-BACK ADJUSTMENT". In the event the monthly payment
requirement cited in a, b, and c of Article 2.1 is less than the minimum
monthly payment, then the amount paid in excess of the monthly payment will
be carried forward for two months, and will be applied to any aggregate sum
that exceeds the minimum monthly payment requirements for either of the two
months. In no event shall the excess of any month be carried forward beyond
two additional months.
2.4 MARKETING OF RPP. After the conclusion and signing of the agreement
between ASTER/EPI, both parties will enter into discussions with H.M. Royal
to transfer the current ASTER/H.M. Royal marketing agreement (dated July 27,
1994) to EPI. ASTER will also assist EPI to negotiate a more favorable
sales commission than the current agreement calls for. Any sales of RPP made
by ASTER/Gerace will be considered part of the service for which payments and
royalties are required in Article 2 of the ASTER/EPI agreement. Under Article 2,
Royalties, the $O.04 per pound royalties payable to ASTER for each pound of RPP
sold is based on a RPP sale price of $0.30 per pound. Any sale of RPP below the
$0.30 per pound estimate will be subject to EPI approval and a possible RPP
royalty adjustment with ASTER's consent.
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2.5 REPORTS, RECORDS, AND REMITTANCE. Within thirty (30) days after the
end of each month during the term hereof, reports shall be made by EPI to
ASTER setting forth the number of pounds of raw sludge processed and of RPP
sold under the license herein granted, during the preceding month. EPI's
remittance for the full amount of royalties due, less the minimum paid, for
such month shall accompany such reports. EPI agrees to keep books and
records of the number of pounds of raw sludge processed and RPP sold under
the license herein granted; and ASTER and EPI shall have the right to examine
each others books and records at all reasonable times to the extent and
insofar as is necessary to verify the accuracy of the above-mentioned
reports. Should either party be found in error, the error shall be corrected
and appropriate action taken within 30 days. Minimum monthly royalties are
due on the last day of each month. For the purpose of royalty remittance to
ASTER for RPP sold, the royalty is payable within ten (10) days after
collection of the receivable from the RPP customer.
2.6 TERM OF ROYALTIES. The term for the payment of royalties shall be
in accordance with Article 5 of this agreement.
ARTICLE 3
IMPROVEMENTS TO THE ART
3.1 USE OF IMPROVEMENTS; NEW TECHNOLOGIES. ASTER, Gerace, and EPI agree
that in the event either or any of them, or any affiliate of either or any of
them, should make any Improvements upon the ART, or any part thereof, or
develop any New Technologies, whether patented or not, they shall promptly
communicate the same to the other party who shall have the automatic right to
use the Improvements and/or New Technologies as though they were licensed
under this Agreement. Such Improvements and/or New Technologies then becoming
part of the ART licensed hereunder. Improvements and/or New Technologies
shall mean any processes, formulae, and technology which come within the
scope of (i.e. infringe on) the ART, or any part thereof, or which are
similar to and/or an extension thereof, including variations or logical
extensions or improvements upon the ART, or any part thereof, including
without limitation, cases where new features are added, deleted, or where
technology is changed to produce alternative technologies with properties and
characteristics that are, or have the potentials of being similar in function
to the current ART. ASTER shall patent all such Improvements and/or New
Technologies to the extent they constitute patentable technology. If ASTER
does not intend to promptly apply for a patent for any Improvements and/or
New Technologies, EPI shall be notified in writing within 30 days after said
communication referred to above and, if requested by EPI, ASTER and Gerace
shall assign the rights to such Improvements and/or New Technologies to EPI.
EPI shall then have the option to patent the Improvements and/or New
Technologies. In the event that EPI makes any Improvements on the ART, if
requested by ASTER, EPI will assign the rights to such Improvements to ASTER,
who shall then patent them to the extent they constitute
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patentable technology. Such Improvements will then become part of the ART
which is licensed to EPI hereunder. No additional royalties shall be due for
the use of any Improvements and/or New Technologies.
3.2. PATENT APPLICATIONS. ASTER agrees to diligently prosecute patent
applications for any part of the ART which are currently not issued and to pay
the final fees when said applications shall be allowed in order that patents
may issue thereon.
3.3. TERM. The term of this Article 3 shall be in accordance with article
5 of this agreement.
ARTICLE 4
VALIDITY OF THE ART
4.1 VALIDITY. Assuming satisfaction of the condition in Section 15.2,
ASTER and Gerace jointly and severally hereby represent and warrant to EPI as
follows:
(a.) that ASTER is the owner of the entire right, title, and interest in and
to the ART, including but not limited to U.S. Patents Nos. 5,160,028
and 5,254,263 on file with the U.S. Patent and Trademark Office,
together with any reissues or extensions thereof;
(b.) that ASTER owns the ART and that ASTER has the sole right to grant
license rights to the ART; and has not granted rights to the ART to any
other party except as noted in Article 1.2 (a) of this agreement
(c.) that no part of the ART has infringed, or will infringe, in any way,
upon any patents or other intellectual property rights of any third
person(s).
4.2 INDEMNIFICATION BY ASTER AND GERACE. ASTER and Gerace agree to
indemnify and hold EPI harmless against and in respect of:
(a.) Any and all claims, demands, expenses, losses, damages or deficiencies
of any nature resulting from, arising out of or attributable to (i) any
material misrepresentation by ASTER, (ii) any material breach of or
untruth of any warranty or representation made by ASTER, and/or (iii)
nonfulfillment of any material agreement on the part of ASTER.
(b.) Any and all actions, demands, judgments, costs, interests and legal
expenses, including without limitation attorney fees, cost of
investigation and other expenses incident to any of the foregoing.
4.3. INDEMNIFICATION BY EPI. EPI hereby agrees to indemnify and hold ASTER
harmless against and in respect of:
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(a.) Any and all claims, demands, expenses, losses, damages or deficiencies
of any nature resulting from, arising out of or attributable to (i) any
material misrepresentation by EPI, (ii) any material breach of or
untruth of any warranty or representation made by EPI, and/or (iii)
nonfulfillment of any material agreement on the part of EPI.
(b.) Any and all actions, demands, judgments, costs, interests and legal
expenses, including without limitation attorney fees, cost of
investigation and other expenses incident to any of the foregoing.
4.4. DEFENSE. ASTER shall defend at its own expense any suit for patent
infringement brought against it, and/or EPI arising out of the use of the ART
or any part thereof. In the event of any such suit, threatened or actual,
ASTER shall immediately notify EPI thereof and afford EPI the right of
consultation in connection therewith and keep EPI fully advised from time to
time of the progress and status of any such suit, threatened or actual. EPI
shall have the option of joining with ASTER in the defense and conduct of any
such suit and in the event of so joining, EPI will assume its own expenses in
connection therewith.
4.5 RIGHT TO SUE. ASTER is hereby given the first right during the term
of this Agreement to sue infringers of the ART, or any part thereof, and EPI
will be given an opportunity to participate in the suit. If the recovery or
recoveries from such suit(s) exceeds the expenses of such suit(s), the
expenses of both ASTER and EPI shall be paid out of the recovery or
recoveries with the excess recovery or recoveries being shared equally by EPI
and ASTER. If such recovery or recoveries do not exceed such expenses, ASTER
shall retain the recovery or recoveries to apply to the expenses and pay its
share of the remaining expenses out of its own account. Should ASTER fail to
take the necessary steps by litigation or otherwise to stop infringement of
the ART, then EPI may conduct at its own expense, and with the right to all
recoveries, such litigation as it may deem necessary, provided that EPI has
first given a written thirty (30) day notice to ASTER of its intention to
initiate such litigation, and provided further, that ASTER fails during said
thirty (30) day period to indicate its willingness to initiate and actively
pursue said suggested litigation or fails to initiate said suggested
litigation within two (2) months after said notice.
ARTICLE 5
TERM
The term of this Agreement, unless sooner terminated as hereinafter
provided, shall be perpetual in nature.
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ARTICLE 6
TECHNICAL SERVICES
6.1 TECHNICAL SERVICES PROVIDED. During the continued development and
implementation of the Art towards full commercialization and further business
expansion, certain work will be required and performed by ASTER and Gerace.
This work includes but is not limited to:
(a) completing the pilot plant at 160 Glaser Street, Fairborn, Ohio 45324
("Pilot Plant") at ASTER by refining the manufacturing equipment;
(b) defining and optimizing the pilot process to achieve maximum
efficiency;
(c) evaluating and developing paint sludge waste streams provided by EPI
into commercially acceptable materials for use in existing and new RPP
products;
(d) sample preparations, testing and other technical support including
marketing the RPP products and assisting the EPI sales effort with
customer presentations;
(e) assisting in the scale-up of the current process into a full scale
commercially economical system of production.
Details for contemplated initial technical services required for the
completion and final development of a commercial ASTER system are found in
Appendix A "ASTER/EPI Program Goals 1995/96".
6.2. TECHNICAL ASSISTANCE BEYOND COMMERCIALIZATION. EPI and ASTER will
continually and jointly develop on-going technical support requirements after
the start-up of a commercially operational "ASTER System" at an EPI facility.
Both ASTER and EPI expect there will be a service fee charged to EPI for
these services. The rates to be used are as follows and will be adjusted
using the same calculation formula as outlined in Article 7.3 of this
agreement. EPI will be billed monthly for such pre-agreed upon technical
services provided by ASTER.
Rate/hr.
M.J. Gerace 75.00
-----
Laboratory 35.00
-----
Production engineering 35.00
-----
Administrative time 15.00
-----
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In addition EPI will be billed by ASTER for reasonable out of pocket
expenses. Examples of these charges will include: laboratory materials costs,
shipping, travel expenses (if necessary), special outside testing, etc. If
any of these included expenses exceed $300.00, or in the aggregate, EPI will
be contacted for pre-approval.
6.3. PRE-PRODUCTION EVALUATIONS. ASTER shall evaluate new streams of raw
sludge in its laboratory facility for $350/per test. A five gallon sample of
raw sludge will be required for the evaluation. ASTER shall furnish EPI with
written reports containing results of said evaluations within five (5) working
days from receipt of the physical sample and required paperwork.
ARTICLE 7
MANUFACTURING
7.1. PILOT PLANT. The Pilot Plant will be used solely by ASTER for
the purpose of producing RPP specialty products for sale to end users from
paint sludge provided by EPI and at the request of EPI as well as for the
development, testing and approval process of additional RPP family of
products. The parties shall agree on a mutually satisfactory budget of
material produced. The initial goals appear in Appendix A hereto. All
proceeds from the sale of RPP products produced by the pilot plant will go
directly to EPI.
7.2. DRUMS TO ASTER. EPI will commit to providing drums of paint waste
sludge materials to ASTER for the purpose of continuing development. The
number of drums supplied per month will be offset against the $20,000 per
month minimum payment at the rate of $150.00 per drum, inclusive of all cost
incurred by ASTER to recycle the waste into saleable RPP.
When the amount of paint waste sludge is less than 133 drums per month, ASTER
personnel will utilize their time to work on the continuing development work
to establish the process and procedures to commercialize the ASTER system as
outlined in the government grant application of ASTER dated May 4, 1995 a
true and correct copy which was provided by ASTER to EPI and Appendix A. A
detail accounting of the time and progress will be reported at the end of
each month to EPI using the following fee schedule:
Rate/hr.
Laboratory 35.00
-----
Production engineering 35.00
-----
Administrative time 15.00
-----
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In addition EPI will be billed by ASTER for reasonable out of pocket
expenses. Examples of these charges will include: laboratory material costs,
shipping, travel expenses (if necessary), special outside testing, etc. If
any of these included expenses exceed $30O.00, individually or in the
aggregate, EPI will be contacted for preapproval.
7.3. CPI ADJUSTMENTS. The technical services rates stated in Article
6.2 and 7.2 will remain fixed for a period of 24 months from the signing of
this agreement. Thereafter, the rates shall be subject to adjustment based
on the published Consumer Price Index as defined in Article 2.2(v). The
adjustment will be based on the difference in the published rate for the 25th
month and 36th month after contract signing and will be in effect for the
next 12 month period. The royalty rate will be adjusted each year thereafter
based on the difference between the first and 12th month of the prior year.
7.4. PAYMENT TIMING. All payments made by EPI to ASTER under Articles
2, 6 and 7 are to be paid within thirty (30) days of invoice.
ARTICLE 8
FINANCIAL MATTERS
8.1. FINANCIAL REPORTS. ASTER and EPI shall maintain monthly profit and
loss statements that meet with generally accepted accounting practices which
at a minimum, account for all expenses for their respective RPP operations.
Such statements shall be made available to each other within a reasonable
period not to exceed thirty (30) days after the end of each month.
8.2. COMPENSATION FOR PAST SERVICES RENDERED. EPI shall pay to ASTER
the sum of Twenty Thousand Dollars ($20,000.00) at time of signing of this
agreement to be used to compensate Gerace for services rendered to ASTER
between January 1, 1994 and July 31, 1994.
8.3. PRIOR COMPENSATION TO ASTER. The prepaid processing funding
provided by EPI in 1994 under the agreement dated June 21, 1994 will be
repaid to EPI through a working arrangement cited in Article 8.4 below.
8.4. OFFSET AGAINST FOREIGN RIGHTS. EPI is willing not to make demands
on ASTER for repayment of the $106,000 (approximately) debt ASTER owes to EPI
and will further agree to apply $26,500 against the debt for each foreign
business relationship that is established and successfully finalized with a
signed bona fide
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contract until all $106,000 is offset. When the total debt is offset, there
shall be no further offset of funds in regards to foreign rights and any
additional foreign country business relationships will be available to EPI
whether they are EPI or ASTER instigated. The loan shall not be an interest
bearing receivable from ASTER. In the event ASTER should be in default of
this Agreement, the outstanding balance would be due and payable immediately.
ARTICLE 9
TERMINATION
9.1. TERMINATION BY EPI. If after twenty six (26) months after June 21,
1994, EPI in its judgement is not making sufficient profits and on an ongoing
basis thereafter, EPI shall have the right to terminate this Agreement by
tendering written notice to ASTER. In this case EPI surrenders all rights to
the ART and technology including without limitation patent rights.
9.2 TERMINATION BY ASTER. Should EPI fall to meet its financial
obligations to ASTER, as set forth in this Agreement, then ASTER has the
right to terminate this agreement by tendering written notice to EPI. Under
this condition, EPI will have 30 days in which to remedy the deficiency.
Should EPI fail to correct the deficiency, then, EPI agrees to surrender all
rights to the ART and the technology including without limitation patent
rights.
9.3 TERMINATION BY EITHER PARTY. Other than provided in 9.1 and 9.2, if
one party shall at any time commit any breach of any covenant, warranty, or
agreement herein contained, and shall fail to remedy any such breach within
thirty (30) days after written notice thereof by the other party, such other
party may at its option, and in addition to any other remedies that it may be
entitled to, cancel this agreement by notice in writing to such effect. In
the event this Agreement is terminated by EPI for any reason discussed in
this Article 9.3, then EPI's rights shall remain exclusive subject to the
provisions of Articles 1 and 2, except for the minimum payment cited in
Article 2.1. In the event this agreement is terminated by ASTER for any
reason discussed in this Article 9.3, then EPI's rights shall become
non-exclusive subject to the provisions of Article 12.
ARTICLE 10
RIGHTS OF FIRST REFUSAL
During the term of this Agreement, EPI shall have the right of first
refusal to match the terms of any written offer received by ASTER or Gerace for
the corporation, or the ART, upon the same terms and conditions as set forth in
the third party offer. In this event, ASTER or Gerace will forward a complete
copy of the offer, and EPI must render a decision within sixty (60) days of its
receipt.
12
<PAGE>
ARTICLE 11
PERSONAL NATURE OF SERVICES
It is understood and agreed by the parties hereto that the personal
services of Gerace are an integal part of this Agreement. In the event that
Gerace is no longer affiliated with ASTER or is unable to provide the
technical services specified herein, Gerace agrees not to compete with EPI
directly or indirectly as an officer, employee, inventor, investor, owner or
otherwise or the ART for a period of three (3) years after the separation
from service in any market in which EPI does business. Additionally, in the
event that Gerace is no longer affiliated with ASTER or is unable to perform
the technical services specified herein, EPI shall have the right to decrease
the royalties payable to ASTER as follows:
(a) in the event that Gerace cannot perform due to death or disability
during the first four (4) years of this Agreement, EPI shall only be
required to pay ASTER fifty percent (50%) of the Monthly Royalties
referred to in Article 2 hereof, for the remainder of this
agreement.
(b) in the event that Gerace cannot perform due to death or disability
during any time after the first four (4) years of the Agreement EPI
shall only be required to pay ASTER seventy five percent (75%) of
the Monthly Royalties referred to in Artilcle 2 hereof, for the
remainder of this agreement.
(c) after the first ten (10) years of the Agreement, EPI shall be
required to pay full royalties to ASTER, regardless of whether
Gerace performs personal services or not.
(d) in the event that Gerace cannot perform due to any reason other
than death or disability during the first two (2) years of this
Agreement, EPI shall only be required to pay ASTER twenty five
percent (25%) of the royalties, referred to in Article 2 hereof,
for the remainder of this agreement.
(e) in the event Gerace cannot perform due to any reason other then
death or disability during any time after the first two (2) years
but before the first four (4) years of this Agreement, EPI shall
only be required to pay ASTER fifty percent (50%) of the royalties
referred to in Article 2 hereof, for the remainder of this agreement
(f) in the event Gerace cannot perform due to any reason other than
death or disability during any time after the first four (4) years
but before the first ten (10) years of this Agreement, EPI shall
only be required to pay ASTER seventy-five percent (75%) of the
Royalties referred to in Article 2
13
<PAGE>
hereof, for the remainder of this agreement.
Further, the royalty in effect at the time immediately after the end of the
life of the last of the patents will be reduced by one-half. In no event shall
Gerace's failure to perform affect EPI's license rights under this Agreement.
ARTICLE 12
MINIMUM PAYMENTS AND ROYALTIES TO ASTER
It is understood by the parties that since ASTER is granting EPI an exclusive
license for the ART, the payments made from EPI to ASTER for services and
royalties (as set forth in Articles 1 and 2), are critical to ASTER's
survival and growth. In the event that EPI desires to reduce the minimum
monthly payment below $20,000 (as cited in Article 2.1 then:
(a) EPI shall notify ASTER 6 months in advance, in writing, that the
minimum monthly payments paid ASTER will fall below the amount set forth in
Articie 2.1 (a).
(b) the license for the ART set forth in Article 1.1 shall become
non-exclusive at the end of the 6 months notice period.
(c) ASTER shall receive a minimum monthly royalty that shall be the
greater of:
i. The amount generated by the royalties defined by
Article 2.2i and 2.2 ii or,
ii The amount generated by the royalties cited by
article 2.2i and 2.2ii applied against 1,850,000/lbs.
of raw paint sludge processed annually and resulting
RPP sold annually.
(d) Article 11, in its entirety, will be void.
(e) ASTER and EPI will meet during the 6 month notice period for the
purposes of concluding a renegotiation of Artcle 6 and 7 to
facilitate a nonexclusive relationship.
(f) Article 2.1 will be void.
(g) EPI shall maintain the exclusive right to all customer relationships
currently in existence involving the ART in effect at the time this
agreement becomes non-exclusive. Customers shall be defined on a
plant-by-plant basis for multiple plant companies.
14
<PAGE>
ARTICLE 13
ASSIGNMENT
This Agreement and the rights and obligations of the parties hereunder
shall not be assigned without the prior written consent of the other party,
which consent shall not be unreasonably withheld, except as otherwise
specifically permitted hereunder. ASTER shall not sell any of its assets other
than in the ordinary course of business and ASTER or Gerace or Janet Gerace will
not sell or issue stock of ASTER, without first obtaining the written consent
of EPI.
13.1 SUBLICENSE. EPI is authorized to grant sublicenses of the ART
provided that ASTER has granted its prior written consent not to be unreasonably
withheld.
13.2 RESTRUCTURE. Should ASTER or EPI as a financial and/or operating
entity be restructed or be incorporated into any other new business structures,
then the newly assigned entity shall bear full responsibilities for this
Agreement.
ARTICLE 14
NONDISCLOSURE AND NONUSE
14.1. CONFIDENTIALITY AGREEMENT. EPI and ASTER's obligation in regard
to nondisclosure and nonuse will be governed by the terms of the Confidentiality
Agreements dated May 23, 1994 and June 21, 1994 between the parties.
14.2. AFFIRMATIVE OBLIGATIONS. EPI understands ASTER's concern
regarding the protection of secrecy of the ART and RPP technology and the
exclusive use of materials, components, chemical reactions, formulations,
processes and other proprietary information.
ARTICLE 15
MISCELLANEOUS
15.1 AUTHORIZATION OF AGREEMENT. The signatories hereto represent and
warrant to the other party that they have been duly authorized to execute this
Agreement on behalf of the respective parties for which they have executed this
Agreement
15.2. The effectiveness of the Agreement is subject to the conditon
subsequent that ASTER will be able to negotiate and execute with Texo an
agreement regarding the termination or continuation of Texo's rights with
respect to the ART, which agreement to the extent that it provides for a
termination of Texo's rights, will almost certainly require a payment from
ASTER to Texo. In order for ASTER to be able to make any such required payment,
ASTER and EPI acknowledge that it will be
15
<PAGE>
necessary for EPI to provide funds to ASTER (see Article 1.4 of this
agreement). Execution of such an agreement between Texo and ASTER shall be
subject to EPI approval, and any related Agreement between ASTER and EPI as to
EPI providing funds to ASTER shall be subject to the mutual consent of ASTER
and EPI. If ASTER shall not have entered into or at least is expeditially
negotiating in a good faith effort towards such an agreement with Texo prior to
August 31, 1995, then EPI's obligation to supply funds under Article 1.4 and
15.2 of this agreement are waived.
15.3. EPI AUTHORITY. EPI hereby Warrants and represents the following:
(i) EPI has the requisite power and authority to execute the
Agreement;
(ii) EPI has taken all necessary requisite partnership action,
including the obtaining of any consent of Meridian National
required by law or its certificate of partnership to
authorize the execution, delivery and performance of the
Agreement,
(iii) that EPI is not in default under any mortgage, agreement or
other instuments to which it is a party or by which it or any
of its property may be bound;
(iv) execution By EPI of the Agreement will not conflict with, or
result in the breach of, any material agreement to which it
is a party;
(v) there are no actions, suits or proceedings, pending, or to
the best of its knowledge threatened, which would challenge
the validity of the propriety of the transactions
contemplated by the Agreement or which could reasonably
be expected to result in any material adverse change in the
business, operations or financial condition of EPI or
Meridian/National:
(vi) EPI possesses all material licenses, approvals and consents
of federal, state and local governments and regulatory
authorities as required to conduct properly its business.
15.4 ASTER AUTHORITY. ASTER, and Gerace hereby jointly and severally
warrants and represents the following:
(i) ASTER and Gerace have the requisite power and authority to
execute this Agreement;
(ii) ASTER and Gerace have taken all necessary requisite corporate
action, including the obtaining of any consent of ASTER
required by law to authorize the execution, delivery and
performance of the Agreement;
16
<PAGE>
(iii) ASTER or Gerace are not in default under any mortgage, agreement or
other instruments to which it is a party or by which it or any of its
property may be bound;
(iv) execution by ASTER and Gerace of the Agreement will not conflict with,
or result in the breach of, any material agreement to which it is a
party;
(v) there are no actions, suits or proceedings, pending, or to the best
of its knowledge threatened, which would challenge the validity of the
propriety of the transactions contemplated by the Agreement or which
could reasonably be expected to result in any material adverse change
in the business, operations or financial condition of ASTER or Gerace.
(vi) ASTER possesses all material licenses, approvals and consents of
federal, state and local governments and regulatory authorities as
required to conduct properly its business.
ARTICLE 16
NOTICES
16.1 NOTICES AND COMMUNICATIONS. All notices and communications provided
for in this agreement shall be made in writing either by actual delivery into
the hands of the parties entitled to such notice or communication or by mailing
of the notice or communication in the United States mails to the addresses
stated below of the party entitle thereto by certified or registered mail,
return receipt requested.
16.2 ADDRESSES. All notices and communications herein shall be in writing
and mailed or delivered at the following addresses or at such address as may
have been otherwise designated in writing:
If to ASTER: ASTER, Inc.
160 Glaser Street
Fairborn, Ohio 45324
Attn: Michael J. Gerace
If to EPI: Environmental Purification Industries
2111 Champlain Street
Toledo, Ohio 43611
Attn: Bruce Maison
If to Gerace: Mr. Michael J. Gerace
320 E. Peach Orchard Avenue
Dayton, Ohio 45419
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
WITNESS: ASTER, INC.
/s/ David A. Walsh
- ------------------------------- By: /s/ Michael J. Gerace, President
------------------------------------
Date: September 7, 1995 Michael J. Gerace, President
--------------------------
ENVIRONMENTAL PURIFICATION INDUSTRIES
/s/ James Rosino
- -------------------------------
By: /s/ Bruce Maison, President
------------------------------------
, Title
Date: September 8, 1995
--------------------------
"I, Michael J. Gerace, in consideration of the above parties entering into
this Agreement hereby agree to be bound by the covenants, conditions and
promises contained in those articles of this Agreement and its Appendix A
referencing the obligations of Michael J. Gerace."
/s/ Michael J. Gerace
----------------------------------
Michael J. Gerace
Date: September 7, 1995
------------------------------------------
"I Janet M. Gerace, in consideration of the above parties entering into
this Agreement hereby agree to be bound by the covenants, conditions and
promises contained in those articles of this Agreement referencing the
obligations of Janet M. Gerace."
/s/ Janet M. Gerace
------------------------------------
Janet M. Gerace
Date: September 7, 1995
------------------------------------------
18
<PAGE>
Appendix A
(Ref Section 6.2 and 7.1)
ASTER/EPI
Program Goals
1995/1996
I. Sales OF RPP
1. Gerace will be responsible for the sales and marketing of the RPP
according to the following plan:
A. Stratify Prospects
1. Qualified Buyer
2. Possible Buyer
3. Interested Prospect
4. Possible Prospect
B. Develop follow-up program
1. Develop questionaire
2. Schedule for phone contact
3. Sales calls
4. Develop follow-up list
a. sample request
b. literature request
C. System to develop new prospects
1. Direct mail
2. Advertising
3. Magazine articles
4. Personal contacts
5. H.M. Royal
19
<PAGE>
2. In addition, development work will be done in ASTER's lab and with
customers in order to develop RPP sales in the following market areas:
A. Vinyl sealers
B. Butyl sealants
C. Hot melts and pressure sensitives
D. Asphaltics
E. Plastics
F. Rubbers
3. The target selling price for RPP will be .30/lb with an average selling
price for RPP to be greater than .22/lb.
II. Transfer of Technology to EPI
ASTER will work closely with EPI in order to transfer current technology to
EPI. The activities required to facilitate the transfer are as follows.
<TABLE>
<CAPTION>
Est. Time Required Completion Target
Activities running months: (No. of Days)
<C> <S> <C> <C>
I. Review of current ASTER system 1 30
II. Design of ASTER system at EPI 2 60
III. Procurement of equipment 3 30
(lead time 12 - 26 weeks)
IV. Set up technical support system 3 30
to EPI
1. raw sludge testing
2. RPP lab generating and testing
3. Lab interface procedures
</TABLE>
20
<PAGE>
<TABLE>
<C> <S> <C> <C>
V. Installation 6 - 8 50 - 110
VI. Start assistance 6 - 8 30 - 60
</TABLE>
III. Processing
1. ASTER will continue to process raw sludge focusing on development work
in the following areas:
a. size reduction of raw sludge
b. mixing optimization
c. distillation optimization
d. discharge and screening of final product
e. packaging optimization
f. rework of off-spec materials
2. ASTER will continue to do pilot work for new customers with regard to
stream development and customer start-up.
IV. Technical Services
1. Continue to set standards and perform incoming Q.C. tests and qualify
materials for production.
2. Continue to develop and perform Q.C. tests on finished goods.
3. Provide formulations via batch sheets to production.
4. Assist sales efforts with R&D and samples of RPP as required.
5. Prepare and submit patents for the process and/or RPP technology.
6. Administrate EPA grant and transfer technology to EPI.
21
<PAGE>
Schedule I
*Minimum volume of Raw Paint Sludge Processed Per Year
with the ART by EPI and ASTER
First Year 1,850,000 lbs
2nd Year 3,700,000 lbs
3rd Year 5,000,000 lbs
4th Year and each year 7,000,000 lbs
thereafter
For the purposes of this schedule, the first year will begin at a time that
is the shorter of:
a) Completion of a start-up production facility to process raw paint
sludge into a saleable RPP product, or
b) 2 years from this Agreement as executed by the parties.
* For the purpose of the minimum royalty calculation under Article 2.2
iii and iv, royalties derived from the sale of RPP will be calculated based
on the RPP manufactured and sold during that year.
22
<PAGE>
AMENDMENT TO LICENSE AGREEMENT
BETWEEN ASTER, INC. AND
ENVIRONMENTAL PURIFICATION INDUSTRIES COMPANY
DATED SEPTEMBER 7, 1995
In accordance with Article 15.2 of the License Agreement between Aster,
Inc. and Environmental Purification Industries Company dated September 7,
1995, an Assignment and Release has been agreed upon between Aster, Inc. and
Texo Corporation and the conditions subsequent specified in Article 15.2 will
be satisfied upon execution of such Agreement and Release. The result of the
Assignment and Release will cause Article 1.4 of the License Agreement
payment schedule and time period for such payment to be amended, and it is
hereby amended, according to Schedule A attached hereto and incorporated
herein by reference. All other terms and conditions of the License Agreement
including both Article 1.4 and its effect on Article 15.2, will remain in
full force and effect.
/s/ Michael J. Gerace /s/ Bruce F. Maison
-------------------------- -------------------------------
Michael J. Gerace Bruce F. Maison
President President
Aster, Inc. Environmental Purification
Industries Company
DATE: January 19, 1996 DATE: January 19, 1996
---------------------- -------------------------------
<PAGE>
EXHIBIT 10.10
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOAN AGREEMENT
between
TOLEDO-LUCAS COUNTY PORT AUTHORITY
and
ENVIRONMENTAL PURIFICATION INDUSTRIES COMPANY
----------------------------------
$5,745,000
Toledo-Lucas County Port Authority
Development Revenue Bonds
(Northwest Ohio Bond Fund)
Series 1989D
----------------------------------
Dated
as of
December 15, 1989
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Squire, Sanders & Dempsey
Bond Counsel
<PAGE>
INDEX
(This Index is not a part of the Series 1989D Agreement
but rather is for convenience of reference only.)
Page
----
Preambles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
DEFINITIONS
Section 1.1 Use of Defined Terms. . . . . . . . . . . . . . . . . . . . 2
Section 1.2 Definitions . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Interpretation. . . . . . . . . . . . . . . . . . . . . . . 9
Section 1.4 Captions and Headings . . . . . . . . . . . . . . . . . . . 9
ARTICLE II
REPRESENTATIONS
Section 2.1 Representations of the Issuer . . . . . . . . . . . . . . . 10
Section 2.2 Representations and Covenants of the
Contracting Party . . . . . . . . . . . . . . . . . . . . 10
Section 2.3 Actions under Section 144(a)(4) of the Code . . . . . . . . 14
ARTICLE III
COMPLETION OF THE SERIES 1989D PROJECT;
ISSUANCE OF THE SERIES 1989D BONDS
Section 3.1 Acquisition, Construction, Installation,
Equipping and Improvement . . . . . . . . . . . . . . . . 16
Section 3.2 Plans and Specifications. . . . . . . . . . . . . . . . . . 17
Section 3.3 Issuance of the Series 1989D Bonds;
Application of Proceeds . . . . . . . . . . . . . . . . . 17
Section 3.4 Disbursements from the Series 1989D
PF Account. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.5 Contracting Party Required to Pay Costs in Event
Series 1989D PF Account Insufficient. . . . . . . . . . . 20
Section 3.6 Completion Date . . . . . . . . . . . . . . . . . . . . . . 21
Section 3.7 Investment of Fund Moneys . . . . . . . . . . . . . . . . . 21
Section 3.8 Rebate Fund . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE IV
LOAN BY ISSUER; REPAYMENT OF THE LOAN;
FINANCING PAYMENTS AND ADDITIONAL PAYMENTS
Section 4.1 Loan Repayment; Delivery of Notes . . . . . . . . . . . . . 23
Section 4.2 Additional Payments . . . . . . . . . . . . . . . . . . . . 24
Sertion 4.3 Place of Payments . . . . . . . . . . . . . . . . . . . . . 24
Section 4.4 Obligations Unconditional . . . . . . . . . . . . . . . . . 25
- i -
<PAGE>
Page
----
Section 4.5 Assignment of Agreement and Revenues. . . . . . . . . . . . 25
Section 4.6 Application of Certain Moneys . . . . . . . . . . . . . . . 25
ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
Section 5.1 Right of Inspection . . . . . . . . . . . . . . . . . . . . 26
Section 5.2 Lease or Grant of Use by Contracting Party. . . . . . . . . 26
Section 5.3 Contracting Party to Maintain its Existence;
Sales of Assets or Mergers. . . . . . . . . . . . . . . . 26
Section 5.4 Books and Records; Financial Statements . . . . . . . . . . 27
Section 5.5 Indemnification . . . . . . . . . . . . . . . . . . . . . . 28
Section 5.6 Contracting Party Not to Adversely Affect
Exclusion from Gross Income of Interest on
Series 1989D Bonds. . . . . . . . . . . . . . . . . . . . 30
Section 5.7 Litigation Notice . . . . . . . . . . . . . . . . . . . . . 30
Section 5.8 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 5.9 Removal of Series 1989D Project Facilities. . . . . . . . . 30
ARTICLE VI
PREPAYMENT OF FINANCING PAYMENTS
Section 6.1 Optional Prepayment . . . . . . . . . . . . . . . . . . . . 31
Section 6.2 Prepayment of Financing and Additional Payments . . . . . . 31
Section 6.3 Financing Payment Abatement . . . . . . . . . . . . . . . . 31
Section 6.4 Redemption of Bonds . . . . . . . . . . . . . . . . . . . . 32
Section 6.5 Extraordinary Optional Prepayment . . . . . . . . . . . . . 32
Section 6.6 Mandatory Redemption. . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . 35
Section 7.2 Remedies on Default . . . . . . . . . . . . . . . . . . . . 37
Section 7.3 No Remedy Exclusive . . . . . . . . . . . . . . . . . . . . 38
Section 7.4 Agreement to Pay Attorneys' Fees and Expenses . . . . . . . 38
Section 7.5 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 38
Section 7.6 Notices of Default. . . . . . . . . . . . . . . . . . . . . 38
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Term of Agreement . . . . . . . . . . . . . . . . . . . . . 39
Section 8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.3 Extent of Covenants of the Issuer; No Personal Liability. . 39
- ii -
<PAGE>
Page
----
Section 8.4 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . 39
Section 8.5 Amendments and Supplements. . . . . . . . . . . . . . . . . 40
Section 8.6 Execution Counterparts. . . . . . . . . . . . . . . . . . . 40
Section 8.7 Severability. . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . 40
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Exhibit A - SERIES 1989D PROJECT NOTE
Exhibit B - SERIES 1989D PROJECT FACILITIES
Exhibit C - SERIES 1989D PROJECT SITE
Exhibit D - FORM OF DISBURSEMENT REQUEST
Exhibit E - FINANCING PAYMENT
- iii -
<PAGE>
LOAN AGREEMENT
THIS LOAN AGREEMENT made and entered into as of December 15, 1989, between
the TOLEDO-LUCAS COUNTY PORT AUTHORITY, a port authority and political
subdivision duly organized and validly existing under the laws of the State, and
ENVIRONMENTAL PURIFICATION INDUSTRIES COMPANY, a general partnership duly
organized and validly existing under the laws of the State, under the following
circumstances summarized in the following recitals (the capitalized terms not
defined in the recitals being used therein as defined in Article I hereof):
A. Pursuant to Section 13 of Article VIII of the Ohio Constitution and
the Act, the Issuer has determined to issue, sell and deliver its Series 1989D
Bonds and to loan the proceeds derived from the sale thereof to the Contracting
Party to assist in the financing of the Series 1989D Project to be undertaken by
the Contracting Party.
B. The Contracting Party and the Issuer each have full right and lawful
authority to enter into this Series 1989D Agreement and to perform and observe
the provisions hereof on their respective parts to be performed and observed.
NOW THEREFORE, in consideration of the premises and the mutual
representations and agreements hereinafter contained, the Issuer and the
Contracting Party agree as follows (provided that any obligation of the Issuer
created by or arising out of this Series 1989D Agreement shall never constitute
a general debt of the Issuer or give rise to any pecuniary liability of the
Issuer but shall be payable solely out of Pledged Revenues):
(Balance of page intentionally left blank.)
<PAGE>
ARTICLE I
DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and terms
defined elsewhere in this Series 1989D Agreement or by reference to another
document, the words and terms set forth in Section 1.2 hereof shall have the
meanings set forth therein unless the context or use clearly indicates another
meaning or intent. Such definitions shall be equally applicable to both the
singular and plural forms of any of the words and terms defined therein.
Section 1.2. DEFINITIONS. As used herein:
"Act" means Sections 4582.01 through 4582.20, Ohio Revised Code, as enacted
and amended pursuant to Section 13 of Article VIII of the Ohio Constitution.
"Additional Series 1989D Bonds" means the Additional Series 1989D Bonds
issued on a parity with the Series 1989D Bonds.
"Additional Series 1989D Notes" means any non-negotiable promissory note or
notes, in addition to the Series 1989D Note, delivered by the Contracting Party
to the Trustee in connection with the issuance of Additional Series 1989D Bonds,
as provided herein.
"Additional Payments" means the amounts required to be paid by the
Contracting Party pursuant to the provisions of Section 4.2 hereof.
"Authenticating Agent" means the Authenticating Agent as defined in the
Indenture.
"Authorized Contracting Party Representative" means the person at the time
designated to act on behalf of the Contracting Party by written certificate
furnished to the Issuer and the Trustee, containing the specimen signature of
that person and signed on behalf of the Contracting Party by its Chief Financial
Officer. That certificate may designate an alternate or alternates. In the
event that all persons so designated become unavailable or unable to act and the
Contracting Party fails to designate a replacement within ten days after such
unavailability or inability to act, the Trustee may appoint an interim
Authorized Contracting Party Representative until such time as the Contracting
Party designates that person.
"Basic Indenture" means the Trust Indenture dated as of August 15, 1988
between the Issuer and the Trustee as it may from time to time be supplemented
pursuant to the paragraphs of Section 8.02 of the Basic Indenture exclusive of
paragraph (g) thereof.
"Bond Fund" means the Bond Fund created in the Basic Indenture.
- 2 -
<PAGE>
"Bond Legislation" means (a) when used with reference to the Series 1989D
Bonds, the resolution providing for their issuance and approving this Series
1989D Agreement, the Indenture and related matters; (b) when used with reference
to an issue of Additional Series 1989D Bonds, the resolution providing for the
issuance of the Series 1989D Bonds, to the extent applicable, and the
legislation providing for the issuance of the Additional Series 1989D Bonds and
approving any amendment to this Series 1989D Agreement, any Supplemental
Indenture and related matters; and (c) when used with reference to Bonds when
Additional Series 1989D Bonds are outstanding, the resolution providing for the
issuance of the Series 1989D Bonds and the legislation providing for the
issuance of the then outstanding and the then to be issued Additional Series
1989D Bonds; in each case as amended or supplemented from time to time.
"Bond Service Charges" means, for any period or payable at any time, the
principal of and interest and any premium due on the Bonds for that period or
payable at that time whether due at maturity or upon acceleration or redemption.
"Bonds" means the Series 1989D Bonds and any Additional Series 1989D Bonds.
"Bond Year" means the annual period relevant to the application of Section
148 to the Series 1989D Bonds.
"Capitalized Interest Payment" means the Capitalized Interest Payment, if
any, as defined in the Series 1989D Supplemental Indenture.
"Code" means the Internal Revenue Code of 1986, as amended, including, when
appropriate, the statutory predecessor of the Code, and all applicable
regulations (whether proposed, temporary or final) under that Code and the
statutory predecessor of the Code, and any official rulings and judicial
determinations under the foregoing applicable to the Bonds.
"Collateral Fund" means the Collateral Fund created in the Basic Indenture.
"Completion Date" means the date of completion of the Series 1989D Project
evidenced in accordance with the requirements of Section 3.6 hereof.
"Computation Date" means the last day of each Bond Year and the date on
which the final payment in full of all outstanding Bonds of each series is made
or such other date or dates elected by the Issuer as may be permitted under the
Code for computation of the Rebate Amount.
"Construction Period" means the period between the beginning of the
acquisition, construction, installation, equipping or improvement of the Series
1989D Project or the date on which the Series 1989D Bonds are delivered to the
Original Purchaser, whichever is earlier, and the Completion Date.
- 3 -
<PAGE>
"Contracting Party" means Environmental Purification Industries Company, a
general partnership duly organized and validly existing under the laws of the
State, and its lawful successors and assigns to the extent permitted by this
Series 1989D Agreement.
"Eligible Investments" means Eligible Investments as defined in the
Indenture.
"Event of Default" means any of the events described as an Event of Default
in Section 7.1 hereof.
"Excess Earnings" means as of each Computation Date an amount equal to the
sum of (i) plus (ii):
(i) is the excess of
(a) the aggregate amount earned from the date of issuance of the
Bonds on all nonpurpose investments in which gross proceeds of the Bonds are
invested (other than investments attributable to excess earnings described in
this clause (i)) including any gain or deducting any loss from disposition of
nonpurpose investments, over
(b) the amount which would have been earned if these nonpurpose
investments (other than amounts attributable to an excess described in this
clause (i) had been invested at a rate equal to the yield on the Bonds; and
(ii) is any income attributable to the excess described in this definition,
taking into account any gain or loss on the disposition of investments.
The foregoing sums shall be determined in accordance with Section 148(f) of the
Code. As used herein, the terms "gross proceeds", "nonpurpose investments"
and "yield" have the meanings assigned to them for purposes of Section 148 of
the Code.
"Financing Payment Date" means the first business day of each month
commencing the first business day of March, 1990, or any other date on which any
principal of or interest or any premium on the Notes shall be due and payable,
whether at maturity, upon acceleration, call for redemption or otherwise.
"Financing Payments" means the amounts required to be paid by the
Contracting Party in repayment of the Loan pursuant to the provisions of the
Notes and of Section 4.1 hereof and is composed of the Required Amount and the
Administrative Amount, as set forth in Exhibit E hereto.
"Force Majeure" means any of the causes, circumstances or events described
as constituting Force Majeure in Section 7.1 hereof.
"Holder" or "Holder of a Bond" means the Person in whose name a Bond is
registered on the Register.
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"Guarantor" means collectively Haden MacLellan Holdings plc, a public
limited company, organized under the laws of England, Haden Inc., a corporation
organized under the laws of the State of Michigan, and Meridian National
Corporation, a corporation organized under the laws of the State of Delaware.
"Guaranty" means collectively the Guaranty Agreements, each dated as of
even date herewith and between the Trustee and certain of the entities
comprising the Guarantor, with respect to the Series 1989D Bonds, as amended or
supplemented from time to time.
"Indenture" means the Trust Indenture, dated as of August 15, 1988,
between the Issuer and the Trustee, as amended or supplemented from time to
time.
"Interest Payment Date" means, as to the Series 1989D Bonds, each date set
forth as such in the form of Series 1989D attached as Exhibit B to the Series
1989D Supplemental Indenture, and as to Additional Series 1989D Bonds, each
date designated as an Interest Payment Date in the form of bond for which
provision is made in the applicable Supplemental Indenture or Bond Legislation.
"Interest Rate for Advances" means the rate of 12% percent per annum or the
rate per annum which is two percent plus that interest rate announced by the
Trustee in its lending capacity as a bank as its "Prime Rate" or its "Base
Rate," whichever is greater and lawfully chargeable, in whole or in part.
"Issuer" means the Toledo-Lucas County Port Authority, a port authority and
political subdivision duly organized and validly existing under the laws of the
State.
"Legislative Authority" means the Board of Directors of the Issuer.
"Loan" means the loan by the Issuer to the Contracting Party of the
proceeds received from the sale of the Bonds.
"Notes" means the Series 1989D Note and any Additional Series 1989D Notes.
"Notice Address" means:
(a) As to the Issuer: Toledo-Lucas County Port Authority
One Maritime Plaza
Toledo, Ohio 43604-1866
Attention: President
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(b) As to the Contracting Environmental Purification Industries
Party: Company
805 Chicago Street
Toledo, Ohio 43611
Attention: Chief Financial Officer
(c) As to the Trustee: Society Bank & Trust
Three SeaGate
Toledo, Ohio 43603
Attention: Corporate Trust Department
(d) As to the Guarantors: Meridian National Corporation
805 Chicago Street
Toledo, Ohio 43611
Attention: Chairman
and
Haden-MacLellan Holdings plc
Haleworth House, Tite Hill
Egham, Surrey
TW200LT United Kingdom
Attention: Director
and
Haden Inc.
3220 North Avis Drive
Madison Heights, Michigan 48071
Attention: President
(e) As to the Original Miller & Schroeder Financial, Inc.
Purchaser: 88 East Broad Street, Suite 1770
Columbus, Ohio 43215-3584
Attention: Vice President
or such additional or different address, notice of which is given under
Section 8.2 hereof.
"Opinion of Bond Counsel" means an opinion of Squire, Sanders & Dempsey
or of other counsel nationally recognized as having an expertise in
connection with the exclusion of interest on obligations of states and local
governmental units from the gross income of holders thereof for federal
income tax purposes.
"Original Purchaser" means, as to the Series 1989D Bonds, the Person or
Persons identified as the purchaser or purchasers in the Purchase Agreement
and, as to Additional Series 1989D Bonds, the Person or Persons identified as
the purchaser or purchasers in the applicable Purchase Agreement.
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"Paying Agent" means the Paying Agent as defined in the Indenture.
"Person" or words importing persons mean firms, associations, partnerships
(including without limitation, general and limited partnerships), societies,
trusts, corporations, public or governmental bodies, other legal entities and
natural persons.
"Plans and Specifications" means the plans and specifications describing
the Series 1989D Project Facilities as now prepared and as they may be changed
as herein provided from time to time.
"Pledged Revenues" means (a) the Financing Payments, (b) all other
moneys received or to be received by the Issuer or the Trustee and intended
to be used for Bond Service Charges, including without limitation, moneys in
the Bond Fund and the Primary Reserve Fund, (c) any moneys and investments in
the Project Fund, and (d) all income and profit from the investment of the
foregoing moneys. The term "Pledged Revenues" does not include any moneys or
investments in the Rebate Fund.
"Primary Reserve Fund" means the Primary Reserve Fund created in the Basic
Indenture.
"Project Fund" means the Project Fund created in the Basic Indenture.
"Purchase Agreement" means as to the Series 1989D Bonds the Bond
Purchase Agreement among the Issuer, the Contracting Party, the Guarantor and
the Original Purchaser, and as to any Additional Series 1989D Bonds, the Bond
Purchase Agreement defined in the Bond Legislation providing for the issuance
of the Additional Series 1989D Bonds.
"Register" means the books kept and maintained for the registration and
transfer of Bonds pursuant to Section 3.06 of the Indenture.
"Registrar" means the Registrar as defined in the Indenture.
"Series 1989D Agreement" means this Loan Agreement as amended or
supplemented from time to time.
"Series 1989D Bond Reserve Deposit" means the amount required to be
deposited and maintained in the Series 1989D PRF Account by the Series 1989D
Supplemental Indenture.
"Series 1989D Bonds" means the $5,745,000 Development Revenue Bonds
(Northwest Ohio Bond Fund) Series 1989D of the Issuer, dated as of even date
herewith, issued by the Issuer pursuant to the Bond Legislation and the
Indenture.
"Series 1989D Capitaltzed Interest Subaccount" means the Capitalized
Interest Subaccount in the Series 1989D PF Account.
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"Series 1989D Collateral Account" means the Series 1989D Collateral
Account created in the Series 1989D Supplemental Indenture.
"Series 1989D Mortgage" means the Open-End Mortgage and Security
Agreement dated as of even date herewith, from the Contracting Party to the
Trustee, as amended or supplemented from time to time.
"Series 1989D Note" means the non-negotiable promissory note of the
Contracting Party, dated as of even date herewith, in the form attached
hereto as Exhibit A and in the principal amount of $5,745,000 evidencing the
obligation of the Contracting Party to make Financing Payments.
"Series 1989D PF Account" means the Series 1989D PF Account in the
Project Fund.
"Series 1989D PRF Account" means the Series 1989D PRF Account created by
the Series 1989D Supplemental Indenture in the Primary Reserve Fund.
"Series 1989D Proceeds Subaccount" means the Proceeds Subaccount in the
Series 1989D PF Account.
"Series 1989D Project" means, collectively, the Series 1989D Project
Site and the Series 1989D Project Facilities, together constituting "port
authority facilities" as defined in the Act.
"Series 1989D Project Costs" means the costs of the Series 1989D Project
specified in Section 3.4 hereof.
"Series 1989D Project Facilities" means the Contracting Party's
facilities described in Exhibit B hereto (and more particularly described in
the Plans and Specifications), together with any additions, modifications and
substitutions to those facilities.
"Series 1989D Project Purposes" means acquisition of furnishings and
equipment and the construction of a building to be used in the recycling of
paint sludge into a component used in the production of paint, or such use as
may result from a change in the Plans and Specifications authorized by Section
3.2 of this Series 1989D Agreement or which may otherwise be permitted by this
Series 1989D Agreement.
"Series 1989D Project Site" means the real estate described in Exhibit C
hereto, and any additions thereto or deletions therefrom.
"Series 1989D Supplemental Indenture" means the Ninth Supplemental Trust
Indenture dated as of even date herewith between the Issuer and the Trustee
and entered into in connection with the issuance of the Series 1989D Bonds.
"State" means the State of Ohio.
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"Trustee" means Society Bank & Trust (formerly known as Trustcorp Bank,
Ohio), a bank organized under the laws of the State, until a successor
Trustee shall have become such pursuant to the applicable provisions of the
Indenture, and thereafter "Trustee" shall mean the successor Trustee.
"Unassigned Issuer's Rights" means all of the rights of the Issuer to
receive Additional Payments under Section 4.2 hereof, to be held harmless and
indemnified under Section 5.5 hereof, to be reimbursed for attorney's fees
and expenses under Section 7.4 hereof, and to give or withhold consent to
amendments, changes, modifications, alterations and termination of this
Series 1989D Agreement under Section 8.5 hereof.
Section 1.3. INTERPRETATION. Any reference herein to the Issuer, to the
Legislative Authority or to any member or officer of either includes entities
or officials succeeding to their respective functions, duties or
responsibilities pursuant to or by operation of law or lawfully performing
their functions.
Any reference to a section or provision of the Constitution of the State
or the Act, or to a section, provision or chapter of the Ohio Revised Code or
to any statute of the United States of America, includes that section,
provision or chapter as amended, modified, revised, supplemented or
superseded from time to time; provided, that no amendment, modification,
revision, supplement or superseding section, provision or chapter shall be
applicable solely by reason of this provision, if it constitutes in any way
an impairment of the rights or obligations of the Issuer, the Holders, the
Trustee or the Contracting Party under this Series 1989D Agreement.
Unless the context indicates otherwise, words importing the singular
number include the plural number, and vice versa; the terms "hereof,"
"hereby," "herein," "hereto," "hereunder" and similar terms refer to this
Series 1989D Agreement; and the term "hereafter" means after, and the term
"heretofore" means before, the date of delivery of the Series 1989D Bonds.
Words of any gender include the correlative words of the other genders,
unless the sense indicates otherwise.
Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in this
Series 1989D Agreement are solely for convenience of reference and in no way
define, limit or describe the scope or intent of any Articles, Sections,
subsections, paragraphs, subparagraphs or clauses hereof.
(End of Article I)
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ARTICLE II
REPRESENTATIONS
Section 2.1. REPRESENTATIONS OF THE ISSUER. The Issuer represents that:
(a) it is duly organized and validly existing under the laws of the State;
(b) it has duly accomplished all conditions necessary to be accomplished by
it prior to the issuance and delivery of the Series 1989D Bonds and the
execution and delivery of this Series 1989D Agreement and the Indenture; (c)
it is not in violation of or in conflict with any provisions of the laws of
the State or of the United States of America applicable to the Issuer which
would impair its ability to carry out its obligations contained in this
Series 1989D Agreement or the Indenture; (d) it is legally empowered to enter
into and carry out the transactions contemplated by this Series 1989D
Agreement and the Indenture; (e) it has duly authorized the execution,
delivery and performance of this Series 1989D Agreement and the Indenture;
and (f) it will do all things in its power in order to maintain its existence
or assure the assumption of its obligations under this Series 1989D Agreement
and the Indenture by any successor public body.
Section 2.2. REPRESENTATIONS AND COVENANTS OF THE CONTRACTING PARTY.
The Contracting Party represents and covenants that:
(a) It is a general partnership duly organized and validly
existing under the laws of the State.
(b) It has full power and authority to execute, deliver and
perform this Series 1989D Agreement, the Series 1989D Mortgage and
the Series 1989D Note and to enter into and carry out the
transactions contemplated by those documents. That execution,
delivery and performance do not, and will not, violate any
provision of law applicable to the Contracting Party or the
Contracting Party's partnership agreement and do not, and will not,
conflict with or result in a default under any agreement or
instrument to which the Contracting Party is a party or by which it
is bound. This Series 1989D Agreement, the Series 1989D Mortgage
and the Series 1989D Note have, by proper action, been duly
authorized, executed and delivered by the Contracting Party and all
steps necessary to be taken by the Contracting Party have been
taken to constitute this Series 1989D Agreement, the Series 1989D
Mortgage and the Series 1989D Note valid and binding obligations of
the Contracting Party.
(c) The provision of financial assistance to be made
available to it under this Series 1989D Agreement and the
commitments therefor made by the Issuer have induced the
Contracting Party to locate within the jurisdiction of the Issuer
that business of the Contracting Party to be
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conducted by use of the Series 1989D Project and such business will
create additional jobs and employment opportunities within the
Issuer.
(d) It presently intends to use or operate the Series 1989D
Project in a manner consistent with the Series 1989D Project
Purposes until the date on which the Series 1989D Bonds and any
Additional Series 1989D Bonds have been fully paid and knows of no
reason why the Series 1989D Project will not be so operated. If, in
the future, there is a cessation of that operation, it will use its
best efforts to resume that operation or accomplish an alternate
use by the Contracting Party or others which will be consistent
with the Act and the Code.
(e) The Series 1989D Project will be completed in accordance
with the Plans and Specifications and the Series 1989D Project will
be a manufacturing facility as that term is defined in Section 144
of the Code and will be operated and maintained in such manner as
to conform in all material respects with all applicable zoning,
planning, building, environmental and other applicable governmental
regulations and as to be consistent with the Act.
(f) The Series 1989D Project will be located entirely within
the boundaries of the City of Toledo.
(g) The acquisition and construction of the Series 1989D
Project were not commenced (within the meaning of Section 144(a) of
the Code) prior to the adoption of the resolution of the Issuer on
August 31, 1989, with respect to the Series 1989D Project and no
obligation relating to the acquisition, construction or
installation of the Series 1989D Project was paid or incurred prior
to such date.
(h) At least 95% of the net proceeds of the Series 1989D
Bonds (as defined in Section 150 of the Code) will be used to
provide land or property of a character subject to the allowance
for depreciation under Section 167 of the Code, and the Contracting
Party will not request or authorize any disbursement pursuant to
Section 3.4 hereof, which, if paid, would result in less than 95%
of the net proceeds of the Series 1989D Bonds being so used. The
costs of issuance financed by the Series 1989D Bonds will not
exceed 2% of the proceeds of the Series 1989D Bonds, computed for
this purpose as the issue price of the bonds less accrued interest
(within the meaning of Section 147(g) of the Code), and the
Contracting Party will not request or authorize any disbursement
pursuant to Section 3.4 hereof or otherwise, which, if paid, would
result in more than 2%
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of the proceeds of the Series 1989D Bonds being so used. None of
the proceeds of the Series 1989D Bonds will be used to provide
working capital.
(i) There have never been issued any bonds with respect to
"facilities," as defined in Section 144(a)(4)(B) of the Code, (i)
which are to be or have been used by the Contracting Party or any
other "principal user" of the Series 1989D Project or any "related
person" to either the Contracting Party or such other "principal
user," as those terms are used and defined in Sections 144(a)(2) and
144(a)(3) of the Code, respectively, and which are located within
the boundaries of the City of Toledo, and (ii) which bonds would
have to be taken into account in determining the aggregate face
amount of the Series 1989D Bonds as provided in Section
144(a)(4)(A)(ii) of the Code.
(j) For each "test-period beneficiary" (as defined in Section
144(a)(10)(D) of the Code) of the Series 1989D Project, the sum of
(i) the aggregate authorized face amount of the Series 1989D Bonds
allocated in accordance with Section 144(a)(10)(C) of the Code to
such beneficiary and (ii) the aggregate outstanding principal
amount of any other tax-emempt obligations described in Section
144(a)(10)(B)(ii) of the Code, wherever and whenever issued,
allocated to such beneficiary does not exceed $40,000,000 at any
time during the period beginning on the later of the date the
Series 1989D Project is placed in service or the date of issuance
of the Series 1989D Bonds.
(k) In accordance with Section 147(b) of the Code, the
weighted average maturity of the Series 1989D bonds does not exceed
120% of the weighted average reasonably expected economic life of
the facilities being financed by the Series 1989D Bonds, determined
as of the later of the date the Series 1989D Bonds are issued or
the date the facilities are expected to be placed in service.
(l) None of the proceeds of the Series 1989D Bonds will be
used to provide any private or commercial golf course, country
club, massage parlor, tennis club, skating facility (including
roller skating, skateboard and ice skating), racquet sports
facility (including handball or racquetball court), hot tub
facility, suntan facility, racetrack airplane, skybox or other
private luxury box, or health club facility; any facility primarily
used for gambling; or any store the principal business of which is
the sale of alcoholic beverages for consumption off premises.
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(m) None of the proceeds of the Series 1989D Bonds will be
used to provide facilities for retail food and beverage services
(except grocery stores), automobile sales or service, or the
provision of recreation or entertainment.
(n) Less than 25% of the proceeds of the Series 1989D Bonds
will be used directly or indirectly to acquire land or any interest
therein, and no portion of any such land is to be used for farming
purposes.
(o) No portion of the proceeds of the Series 1989D Bonds will
be used to acquire existing property or any interest therein unless
such acquisition meets the rehabilitation requirements of Section
147(d) of the Code.
(p) The information furnished by the Contracting Party and
used by the Issuer in preparing the certification pursuant to
Section 148 of the Code and information statement pursuant to
Section 149(e) of the Code, both referred to in the Bond
Legislation, as well as the federal tax election referred to in the
Bond Legislation, is accurate and complete as of the date of the
issuance of the Series 1989D Bonds.
(q) In connection with any lease or grant by the Contracting
Party of the use of the Series 1989D Project, the Contracting Party
shall require that the lessee or user of any portion of the Series
1989D Project shall not (i) violate the covenant set forth in
subsection (j) above and (ii) use that portion of the Series 1989D
Project in any manner which would violate the covenants set forth
in subsections (l), (m) and (n) above.
(r) The Series 1989D Bonds are not being issued to finance
facilities which are within or part of "a single building, an
enclosed shopping mall, or a strip of offices, stores or warehouses
using substantial common facilities" (within the meaning of Section
144(a)(9) of the Code) which have heretofore been financed with
obligations issued and still outstanding under Section 144(a) of
the Code.
(s) After the expiration of any applicable temporary period
under Section 148(d)(3) of the Code, at no time during any bond
year will the aggregate amount of gross proceeds of the Series
1989D Bonds invested in higher yielding investments (within the
meaning of Section 148(b) of the Code) exceed 150 percent of the
debt service on the Series 1989D Bonds for such bond year and the
aggregate amount of gross proceeds of the Series 1989D Bonds
invested in higher yielding investments, if any, will be promptly
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and appropriately reduced as the amount of outstanding Series 1989D
Bonds are reduced, provided however that the foregoing shall not
require the sale or disposition of any investments in higher yielding
investments if such sale or disposition would result in a loss which
exceeds the amount which would be paid to the United States pursuant
to Section 5.09 of the Basic Indenture (but for such sale or
disposition) at the time of such sale or disposition if a payment
under Section 5.09 of the Basic Indenture were due at such time.
At no time will any funds constituting gross proceeds of the
Series 1989D Bonds be used in a manner as to constitute a
prohibited payment under the applicable Regulations pertaining to,
or in any other fashion as would constitute failure of compliance
with, Section 148 of the Code.
The terms "bond year," "gross proceeds," "higher yielding
investments," "yield," and "debt service" have the meanings
assigned to them for purposes of Section 148 of the Code.
(t) The Series 1989D Bonds are not "federally guaranteed"
within the meaning of Section 149(b) of the Code.
Section 2.3. ACTIONS UNDER SECTION 144(a)(4) OF THE CODE. The
Issuer is issuing the Series 1989D Bonds pursuant to an election
made by it, at the Contracting Party's request, under Section
144(a)(4) of the Code. In connection with that election, the
Contracting Party represents and covenants that:
(a) The sum of (i) the principal amount of the Series 1989D
Bonds, (ii) the outstanding face amount of prior issues, if any,
described in Section 144(a)(2) of the Code and (iii) the amount of
capital expenditures with respect to "facilities" as defined in
Section 144(a)(4)(B) of the Code, other than those financed or to
be financed out of proceeds of the Series 1989D Bonds or any such
prior issues or those mentioned in Section 144(a)(4)(C) of the Code
("Capital Expenditures"), made during the three-year period
preceding the date of delivery of the Series 1989D Bonds to the
Original Purchaser (the "Issue Date"), does not exceed $10,000,000.
(b) During the three-year period following the Issue Date,
the Contracting Party does not intend to and will not make, cause
or permit to be made any Capital Expenditures in an amount which
would cause the interest on the Series 1989D Bonds to be included
in the gross income of the Holders for federal income tax purposes.
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(c) It will maintain records, listing by month, day, year and
amount each Capital Expenditure made since the Issue Date through
and including the third anniversary of the date of delivery of and
payment for the Series 1989D Bonds and will furnish those records
to the Trustee upon request.
(d) In the event, on account of a lease, sublease, management
contract or other agreement relating to the Series 1989D Project,
or any portion thereof, permitted by the terms hereof and of the
Series 1989D Mortgage, any person other than the Contracting Party
becomes a "principal user" of the Series 1989D Project (as referred
to in Section 2.2(i) hereof), the Contracting Party shall promptly
advise the Trustee of the identity of such person and furnish to
the Trustee a copy of such lease, sublease, management contract or
other agreement. In connection with any such lease, sublease,
management contract or other agreement, the Contracting Party will
require by covenant that any lessee, sublessee, manager or user who
is a "principal user" of the Series 1989D Project and any "related
person" thereto also shall comply with the covenants set forth in
subsections (b) and (c) of this Section as if those covenants were
made herein by such lessee, sublessee, manager, user or "related
person" thereto.
(End of Article II)
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ARTICLE III
COMPLETION OF THE SERIES 1989D PROJECT;
ISSUANCE OF THE SERIES 1989D BONDS
Section 3.1. ACQUISITION, CONSTRUCTION, INSTALLATION, EQUIPPING AND
IMPROVEMENT. The Contracting Party (a) has acquired, or will acquire
concurrently with the delivery of this Series 1989D Agreement, the Series 1989D
Project Site and shall acquire, construct, install, equip and improve the
Series 1989D Project Facilities on the Series 1989D Project Site with all
reasonable dispatch and in accordance with the Plans and Specifications, (b)
shall pay when due all fees, costs and expenses incurred in connection with
that acquisition, construction, installation, equipping and improvement from
funds made available therefor in accordance with this Series 1989D Agreement or
otherwise, and (c) shall ask, demand, sue for, levy, recover and receive all
those sums of money, debts and other demands whatsoever which may be due, owing
and payable under the terms of any contract, order, receipt, writing and
instruction in connection with the acquisition, construction, installation,
equipment and improvement of the Series 1989D Project, and shall use its best
efforts to enforce the provisions of any contract, agreement, obligation, bond
or other performance security with respect thereto. It is understood that the
Series 1989D Project is that of the Contracting Party and any contracts made by
the Contracting Party with respect thereto, whether acquisition contracts,
construction contracts or otherwise, or any work to be done by the Contracting
Party on the Series 1989D Project are made or done by the Contracting Party in
its own behalf and not as agent or contractor for the Issuer and each such
contract shall so state.
The Contracting Party expressly acknowledges and agrees that all wages
paid to laborers and mechanics employed in connection with the construction,
improvement and installation of the Series 1989D Project shall be paid at not
less than the prevailing rates of wages for laborers and mechanics for each
class of work called for by the Series 1989D Project, which wages shall be
determined in accordance with the requirements of Chapter 4115, Ohio Revised
Code, for determination of prevailing wage rates, provided that should the
Contracting Party undertake, as part of the Series 1989D Project, construction
to be performed by its regular bargaining unit employees who are covered under a
collective bargaining agreement which was in existence prior to the date of the
commitment instrument undertaking to issue the Series 1989D Bonds then, in that
event, the rate of pay provided under the collective bargaining agreement may be
paid to those employees. To the extent required by Sections 4582.12 and
4115.032, Ohio Revised Code, the Contracting Party shall comply, and shall
require compliance by all contractors or subcontractors working on the Series
1989D Project, with all applicable requirements of Sections 4115.03 through
4115.16, Ohio Revised Code, including, without limitation, (i) obtaining from
the Ohio Department of Industrial Relations its determination of the prevailing
rates of wages to be paid for all classes of work called for by the Series 1989D
Project, (ii) obtaining the designation of a Prevailing Wage Coordinator for the
Series 1989D Project pursuant to Section 4115.032, Ohio Revised Code and (iii)
ensuring that all contractors and sub-
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contractors receive notification of changes in prevailing wage rates as required
under Section 4115.05, Ohio Revised Code. At such time as the Issuer requests,
the Contracting Party shall be required to provide the Issuer with evidence,
satisfactory to the Issuer, that there has been compliance with the foregoing
requirements.
Section 3.2. PLANS AND SPECIFICATIONS. The Plans and Specifications
have been filed with the Issuer. The Contracting Party may revise the Plans and
Specifications from time to time, provided that no revision shall be made which
would (i) change the Series 1989D Project Purposes, without the written consent
of the Issuer which consent shall not be unreasonably withheld, (ii) change the
Series 1989D Project Purposes to other than purposes permitted by the Act, and
(iii) increase the cost of the Series 1989D Project without evidence
satisfactory to the Issuer that moneys are available to meet such increased
costs.
Section 3.3. ISSUANCE OF THE SERIES 1989D BONDS; APPLICATION OF
PROCEEDS. To provide funds to make the Loan for purposes of assisting in paying
the Series 1989D Project Costs, the Issuer will issue, sell and deliver the
Series 1989D Bonds to the Original Purchaser. The Series 1989D Bonds will be
issued pursuant to the Indenture in the aggregate principal amount, will bear
interest, will mature and will be subject to redemption as set forth therein.
The Contracting Party hereby approves the terms and conditions of the Basic
Indenture, the Series 1989D Supplemental Indenture and the Series 1989D Bonds,
and of the terms and conditions under which the Series 1989D Bonds will be
issued, sold and delivered.
The proceeds from the sale of the Series 1989D Bonds shall be loaned
to the Contracting Party and paid over to the Trustee for the benefit of the
Contracting Party and the Holder of the Series 1989D Bonds and deposited as
follows: (a) a sum equal to any accrued interest paid by the Original Purchaser
shall be deposited in the Interest Payment Account in the Bond Fund, (b) the
amount of any Series 1989D Bond Reserve Deposit to be derived from said proceeds
shall be deposited in the Series 1989D PRF Account, (c) any Capitalized Interest
Payment shall be deposited in the Series 1989D Capitalized Interest Subaccount,
and (d) the balance of the proceeds shall be deposited in the Series 1989D
Proceeds Subaccount. Pending disbursement pursuant to Section 3.4 hereof, the
proceeds so deposited in the Series 1989D PF Account, together with any
investment earnings thereon, shall constitute a part of the Revenues assigned by
the Issuer to the payment of Bond Service Charges as provided in the Indenture.
At the request of the Contracting Party, and for the purposes and upon
fulfillment of the conditions specified in the Indenture, the Issuer may at its
sole discretion provide for the issuance, sale and delivery of Additional Series
1989D Bonds and loan the proceeds from the sale thereof to the Contracting
Party.
Section 3.4. DISBURSEMENTS FROM THE SERIES 1989D PF ACCOUNT. Subject
to the provisions below, disbursements from the Series 1989D PF Account shall be
made only to reimburse or pay the Contracting Party, or any
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person designated by the Contracting Party, for the following Series 1989D
Project Costs:
(a) Costs incurred directly or indirectly for or in connection
with the acquisition, construction, installation, equipping or
improvement of the Series 1989D Project, including costs incurred in
respect of the Series 1989D Project for preliminary planning and
studies; architectural, legal, engineering, surveying, accounting,
consulting, supervisory and other services; labor, services and
materials; and recording of documents and title work.
(b) Premiums attributable to any surety bonds and insurance
required to be taken out and maintained during the Construction Period
with respect to the Series 1989D Project Site and the Series 1989D
Project Facilities.
(c) Taxes, assessments and other governmental charges in respect
of the Series 1989D Project that may become due and payable during the
Construction Period.
(d) Costs incurred directly or indirectly in seeking to enforce
any remedy against any contractor or subcontractor in respect of any
actual or claimed default under any contract relating to the Series
1989D Project Facilities.
(e) Financial, legal, accounting, printing and engraving fees,
charges and expenses, and all other such fees, charges and expenses
incurred in connection with the authorization, sale, issuance and
delivery of the Series 1989D Bonds, including, without limitation, the
fees of any placement agents for the Series 1989D Bonds and the fees
and expenses of the Trustee and any paying agent properly incurred
under the Indenture that may become due and payable during the
Construction Period.
(f) Any other costs, expenses, fees and charges properly
chargeable to the cost of the acquisition, construction, installation,
equipping or improvement of the Series 1989D Project.
(g) Payment of interest on the Series 1989D Bonds and the costs
of an Acceptable Letter of Credit, as defined in the Basic Indenture,
during the Construction Period.
Any disbursements from the Series 1989D PF Account for the payment of
Series 1989D Project Costs shall be made by the Trustee only upon the written
order of the Authorized Contracting Party Representative which shall set forth
for each item of personal property costing in excess of $5,000 the serial number
for that item or certify that such item has no serial or other identifying
number or symbol.
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No disbursements shall be made from the Series 1989D PF Account for
the payment of Series 1989D Project Costs for the acquisition of the furnishings
and equipment and the construction of the building included in the Series 1989D
Project Facilities until the Contracting Party has delivered the following, in
form and substance satisfactory to the Issuer (which determination shall be
within the sole discretion of the Issuer and which the Contracting Party agrees
shall be conclusive and binding on the Contracting Party): (i) copies of the
contracts for the construction of the building included in the Series 1989D
Project Facilities; (ii) evidence that building permits and all other approvals
required by law to construct and acquire the Series 1989D Project Facilities
have been obtained or applications therefor satisfactory to the Issuer have been
made; (iii) in the event that bids for the construction of the building
included in the Series 1989D Project Facilities exceed $650,000, a deposit into
the Series 1989D PF Account from moneys other than proceeds of the Series 1989D
Bonds of the amount by which those bids exceed $650,000; provided that no more
than $100,000 of the amount so deposited shall be provided from funds of the
general partners of the Contracting Party or the Guarantors required to be
provided pursuant to the partnership agreement between the general partners of
the Contracting Party and the Guaranty and any such deposit in excess of
$100,000 shall not reduce or otherwise diminish the amounts required to be
provided by the general partners of the Contracting Party and the Guarantors
pursuant to that partnership agreement and the Guaranty; (iv) a certificate of
builder's risk insurance coverage and a certificate of workers' compensation
insurance coverage as required by the Mortgage; and (v) (a) an endorsement to
the Loan Policy of Title Insurance issued on the Closing Date insuring the
rights under the Deed of Easement dated February 13, 1990 and recorded February
14, 1990 in Lucas County, Ohio, as Deed No. 90- -B09, or (b) other evidence
that sanitary sewer service, storm drainage and rights to ingress, egress,
parking and maneuvering of vehicles necessary for the operation of the Series
1989D Project have been provided.
Each such written order shall be in substantially the form of the
disbursement request attached hereto as Exhibit D and shall be consecutively
numbered and accompanied by invoices or other appropriate documentation
supporting the payments or reimbursements requested. Any disbursement for any
item not described in, or the cost for which item is other than as described in,
the information statement filed by the Issuer in connection with the issuance
of the Series 1989D Bonds as required by Section 149(e) of the Code and referred
to in Section 2.2 hereof, shall be accompanied by evidence satisfactory to the
Trustee that the average reasonably expected economic life of the facilities
being financed by the Series 1989D Bonds is not less than 5/6ths of the average
maturity of the Series 1989D Bonds or, if such evidence is not presented with
the disbursement or at the request of the Trustee, by an Opinion of Bond Counsel
to the effect that such disbursement will not cause the interest on the Series
1989D Bonds to be included in the gross income of the Holders for federal income
tax purposes.
In case any contract provides for the retention by the Contracting Party of
a portion of the contract price, there shall be paid from the Series 1989D PF
Account only the net amount remaining after deduction of any such portion, and
only when that retained amount is due and payable, may it be paid from the
Series 1989D PF Account.
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Any moneys in the Series 1989D PF Account remaining after the
Completion Date, and payment, or provision for payment, in full of the
appropriate Series 1989D Project Costs, at the direction of the Authorized
Contracting Party Representative, promptly shall be
(1) used to acquire, construct, install, equip and improve such
additional real or personal property in connection with the Series
1989D Project as is designated by the Authorized Contracting Party
Representative and the acquisition, construction, installation,
equipping and improvement of which will be permitted under the Act and
the Code, provided that any such use shall be accompanied by evidence
satisfactory to the Trustee that the average reasonably expected
economic life of such additional property, together with the other
property theretofore acquired with the proceeds of the Series 1989D
Bonds will not be less than 5/6ths of the average maturity of the
Series 1989D Bonds or, if such evidence is not presented with the
direction, an Opinion of Bond Counsel to the effect that the
acquisition of such additional property will not cause the interest on
the Series 1989D Bonds to be included in the gross income of the
Holders for federal income tax purposes;
(ii) used for the purchase of Series 1989D Bonds in the open
market for the purpose of cancellation at prices not exceeding the
full market value thereof plus accrued interest thereon to the date of
payment therefor;
(iii)paid into the Bond Fund to be applied to the redemption of
the Series 1989D Bonds in accordance with the Indenture; or
(iv) a combination of the foregoing as is provided in that
direction.
Section 3.5. CONTRACTING PARTY REQUIRED TO PAY COSTS IN EVENT SERIES
1989D PF ACCOUNT INSUFFICIENT. If moneys in the Series 1989D PF Account are not
sufficient to pay all Series 1989D Project Costs, the Contracting Party,
nonetheless, will complete the Series 1989D Project in accordance with the Plans
and Specifications and, unless additional Series 1989D Bonds shall have been
issued for that purpose, shall pay all such Additional Series 1989D Project
Costs from its own funds. The limitation of Section 147(g) of the Code
notwithstanding, the Contracting Party shall pay all costs of issuing the Series
1989D Bonds which cannot be paid from proceeds within the two percent limitation
of that Section. The Contracting Party shall not be entitled to any
reimbursement for any such additional Series 1989D Project Costs or payment of
issuance costs from the Issuers, the Trustee or any Holder; nor shall it be
entitled to any abatement, diminution or postponement of the Financing Payments.
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Section 3.6. COMPLETION DATE. The Contracting Party shall notify the
Issuer and the Trustee of the Completion Date by a certificate signed by the
Authorized Contracting Party Representative stating
(a) the date on which the Series 1989D Project Facilities were
substantially completed,
(b) that all other facilities necessary in connection with the
Series 1989D Project have been acquired, constructed, installed,
equipped and improved,
(c) that the acquisition, construction, installation, equipping
and improvement of the Series 1989D Project Facilities and those other
facilities have been accomplished in such a manner as to conform in
all material respects with all applicable zoning, planning, building,
environmental and other similar governmental regulations,
(d) that except as provided in subsection (e) of this Section,
all costs of that acquisition, construction, installation, equipping
and improvement then or theretofore due and payable have been paid,
and
(e) the amounts which the Trustee shall retain in the Series
1989D PF Account for the payment of Series 1989D Project Costs not yet
due or for liabilities which the Contracting Party is contesting or
which otherwise should be retained and the reasons such amounts should
be retained.
That certificate may state that it is given without prejudice to any rights
against third parties which then exist or subsequently may come into being. The
Authorized Contracting Party Representative shall include with that certificate
a statement specifically describing all items of personal property comprising a
part of the Series 1989D Project Facilities. The certificate shall be delivered
as promptly as practicable after the occurrence of the events and conditions
referred to in subsections (a) through (d) of this Section.
Section 3.7. INVESTMENT OF FUND MONEYS. At the oral or written
request of the Authorized Contracting Party Representative, any moneys held as
part of the Series 1989D PRF Account or the Series 1989D PF Account shall be
invested or reinvested by the Trustee in Eligible Investments.
The Issuer and the Contracting Party each hereby covenants that it
will restrict that investment and reinvestment and the use of the proceeds of
the Series 1989D Bonds in such manner and to such extent, if any, as may be
necessary, after taking into account reasonable expectations at the time of
delivery of and payment for the Series 1989D Bonds or subsequent intentional
acts, so that the Series 1989D Bonds will not constitute arbitrage bonds under
Section 148 of the Code.
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The Contracting Party shall provide the Issuer with, and the Issuer
may base its certifications as authorized by the Bond Legislation on, a
certificate of an appropriate officer, employee or agent of or consultant to the
Contracting Party for inclusion in the transcript of proceedings for The Series
1989D Bonds, setting forth the reasonable expectations of the Contracting Party
on the date of delivery of and payment for the Series 1989D Bonds regarding the
amount and use of the proceeds of the Series 1989D Bonds and the facts,
estimates and circumstances on which those expectations are based.
Section 3.8. REBATE FUND. Within five days after the end of each Bond
Year and within five days after payment in full of all outstanding Bonds of each
series, the Contracting Party shall cause the calculation by an independent
entity satisfactory to the Issuer, or if requested by the Contracting Party, the
Issuer at the expense of the Contracting Party will cause the calculation, of
the amount of Excess Earnings as of the end of that Bond Year or the date of
such payment and shall notify the Trustee of that amount. If the amount then on
deposit in the Rebate Fund created under the Indenture is less than the amount
of Excess Earnings (computed by taking into account the amount or amounts, if
any, previously paid to the United States pursuant to Section 5.09 of the Basic
Indenture and this Section), the Contracting Party shall, within five days after
the date of the aforesaid calculation, pay to the Trustee for deposit in the
Rebate Fund an amount sufficient to cause the Rebate Fund to contain an amount
equal to the Excess Earnings. The obligation of the Contracting Party to make
such payments shall remain in effect and be binding upon the Contracting Party
notwithstanding the release and discharge of the Series 1989D Agreement or the
Indenture.
(End of Article III)
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ARTICLE IV
LOAN BY ISSUER; REPAYMENT OF THE LOAN;
FINANCING PAYMENTS AND ADDITIONAL PAYMENTS
Section 4.1. LOAN REPAYMENT; DELIVERY OF NOTES. Upon the terms and
conditions of this Series 1989D Agreement, the Issuer will make the Loan to the
Contracting Party. In consideration of and in repayment of the Loan, the
Contracting Party shall make, as Financing Payments, payments on or before each
Financing Payment Date in the amount shown for the then current year in Exhibit
E hereto. All such Financing Payments shall be paid to the Trustee in
accordance with the terms of the Series 1989D Note for the account of the
Issuer and shall be held and disbursed in accordance with the provisions of the
Indenture and this Series 1989D Agreement for application to the payment of Bond
Service Charges.
The Financing Payment required to be made by this Series 1989D
Agreement next following a transfer pursuant to paragraph (e) of Section 5.04 of
the Basic Indenture to the Bond Fund caused by failure of the Contracting Party
to pay in full its Financing Payments, shall be increased in an amount equal to
the amount so transferred pursuant to said paragraph (e) and such increased
amount when paid shall be deposited in the Funds from which transfer was made in
inverse order of the transfer and shall abate any previously unpaid Financing
Payments to the extent of such increase.
The Contracting Party's obligations under the Notes and this Series
1989D Agreement shall be secured by the Series 1989D Mortgage. To secure the
Contracting Party's performance of its obligation under this Series 1989D
Agreement and the Series 1989D Note, the Contracting Party shall execute and
deliver to the Issuer and the Trustee, concurrently with the issuance and
delivery of the Series 1989D Bonds, the Series 1989D Note and the Series 1989D
Mortgage.
In connection with the issuance of any Additional Series 1989D Bonds,
the Contracting Party shall execute and deliver to the Trustee one or more
Additional Series 1989D Notes in a form substantially similar to the form of the
Series 1989D Note. All such Additional Series 1989D Notes shall:
(a) provide for monthly payments of interest which will make
available amounts equal to the payments when due of interest on the
corresponding Additional Series 1989D Bonds;
(b) require payments of principal and redemption payments and
any premium which will make available amounts equal to the payments
when due of principal, prepayments and sinking fund payments and any
premium on the corresponding Additional Series 1989D Bonds; and
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(c) contain by reference or otherwise optional and mandatory
redemption provisions and provisions in respect of the optional and
mandatory acceleration or prepayment of principal and any premium
corresponding with the redemption and acceleration provisions of the
corresponding Additional Series 1989D Bonds.
Upon payment in full of all of the Financing Payments required by this
Series 1989D Agreement or upon provision for the payment thereof having been
made in accordance with the provisions of this Series 1989D Agreement, (i) the
Notes requiring payment of the Financing Payments so paid or for the payment of
which provision has been made, shall be deemed fully paid, the obligations of
the Contracting Party thereunder shall be terminated, and any of those Notes
shall be surrendered by the Trustee to the Contracting Party, and shall be
cancelled by the Contracting Party, or (ii) in the event there is only one of
those Notes, an appropriate notation shall be endorsed thereon evidencing the
date and amount of the principal payment or prepayment equal to the Financing
Payments so paid, or with respect to which provision for payment has been made,
and that Note shall be surrendered by the Trustee to the Contracting Party for
cancellation if all the Financing Payments required thereby shall have been paid
(or provision made therefor) and cancelled as aforesaid. Unless the Contracting
Party is entitled to a credit under express terms of this Series 1989D Agreement
or the Notes, all payments on each of the Notes shall be in the full amount
required thereunder.
Except for such interests as may hereafter arise pursuant to Sections
5.07 and 5.09 of the Basic Indenture, the Contracting Party and the Issuer each
acknowledge that neither the Contracting Party nor the Issuer has any interest
in the Special Funds as defined in the Basic Indenture and any moneys deposited
therein shall be in the custody of and held by the Trustee in trust for the
benefit of the Holders.
Section 4.2. ADDITIONAL PAYMENTS. The Contracting Party shall pay to
the Issuer, as Additional Payments hereunder, any and all costs and expenses
incurred or to be paid by the Issuer in connection with the issuance and
delivery of the Series 1989D Bonds and Additional Series 1989D Bonds or
otherwise related to actions taken by the Issuer under this Series 1989D
Agreement or the Indenture.
The Contracting Party shall pay to the Trustee, the Registrar and any
Paying Agent or Authenticating Agent, their reasonable fees, charges and
expenses for acting as such under the Indenture.
Section 4.3. PLACE OF PAYMENTS. The Contracting Party shall make all
Financing Payments directly to the Trustee at its corporate trust office.
Additional Payments shall be made directly to the person or entity to whom or to
which they are due. The Issuer reserves the right from time to time to direct
that Financing Payments be made directly to the Issuer and from time to time to
revoke that direction.
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Section 4.4. OBLIGATIONS UNCONDITIONAL. The obligations of the
Contracting Party to make Financing Payments and Additional Payments shall be
absolute and unconditional, and the Contracting Party shall make such payments
without abatement, diminution or deduction regardless of any cause or
circumstances whatsoever including, without limitation, any defense, set-off,
recoupment or counterclaim which the Contracting Party may have or assert
against the Issuer, the Trustee or any other Person.
Section 4.5. ASSIGNMENT OF AGREEMENT AND REVENUES. To secure the
payment of Bond Service Charges, the Issuer shall assign to the Trustee, by
the Indenture, its rights under and interest in this Series 1989D Agreement
(except for the Unassigned Issuer's Rights) and the Pledged Revenues. The
Contracting Party hereby agrees and consents to those assignments.
Section 4.6. APPLICATION OF CERTAIN MONEYS. Any amount deposited in the
Bond Fund pursuant to Section 4.4, 5.2 or 5.3 of the Series 1989D Mortgage shall
be deposited in the Prepayment Account, as defined in the Basic Indenture, and
used as provided in the Basic Indenture.
(End of Article IV)
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ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
Section 5.1. RIGHT OF INSPECTION. Subject to reasonable security and
safety regulations and upon reasonable notice, the Issuer and the Trustee, and
their respective agents, shall have the right during normal business hours to
inspect the Series 1989D Project.
Section 5.2. LEASE OR GRANT OF USE BY CONTRACTING PARTY. Except as may
otherwise be provided in the Series 1989D Mortgage and subject to the
provisions of Section 2.2(q) and 2.3(d) hereof, the Contracting Party may
lease or grant the right to occupy and use the Series 1989D Project, in whole
or in part, to others, provided that:
(a) No such grant or lease shall relieve the Contracting
Party from its obligations under this Series 1989D Agreement, the
Series 1989D Mortgage or the Series 1989D Note, or the Guarantor
from its obligations under the Guaranty;
(b) In connection with any such grant or lease the
Contracting Party shall retain such rights and interests as will
permit it to comply with its obligations under this Series 1989D
Agreement, the Series 1989D Mortgage and the Series 1989D Note;
(c) No such grant or lease shall impair materially the
purposes of the Act to be accomplished by operation of the Series
1989D Project Facilities as herein provided.
Section 5.3. CONTRACTING PARTY TO MAINTAIN ITS EXISTENCE; SALES OF
ASSETS OR MERGERS. The Contracting Party shall do all things necessary to
preserve and keep in full force and effect its existence, rights and
franchises, except as otherwise permitted by this Section 5.3. In particular,
the Contracting Party shall not (a) sell, transfer or otherwise dispose of
all, or substantially all, of its assets; (b) consolidate with or merge into
any other entity; or (c) permit one or more other entities to consolidate
with or merge into it. The preceding restrictions shall not apply, however,
to a transaction if all of the following conditions are met, but such a
transaction shall not release the Contracting Party from its obligations
under this Series 1989D Agreement:
(i) the transferee or the surviving or resulting entity has a
net worth, determined in accordance with generally accepted
accounting principles consistently applied, equal to or greater
than the net worth of the Contracting Party immediately prior to
such consolidation, merger, sale, transfer or disposition;
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(ii) the transferee or the surviving or resulting entity, if
other than the Contracting Party, by proper written instrument
satisfactory to the Issuer and the Trustee, irrevocably and
unconditionally assumes the obligation to perform and observe the
agreements and obligations of the Contracting Party under this
Series 1989D Agreement;
(iii) the Contracting Party shall have delivered an Opinion
of Bond Counsel to the Issuer and the Trustee that the proposed
sale, transfer or disposition hereunder will not adversely affect
the exclusion from gross income for federal income tax purposes of
interest on the Series 1989D Bonds; and
(iv) the Guarantor reaffirms its obligations imposed by the
Guaranty.
Section 5.4. BOOKS AND RECORDS; FINANCIAL STATEMENTS. Commencing with
the fiscal year of the Contracting Party which ends next following the deliver
of this Series 1989D Agreement and at the end of each fiscal year of the
Contracting Party thereafter, the Contracting Party shall have an annual audit
made by its regular independent certified public accountants and keep true and
proper books of records and accounts in which full and correct entries are made
of all its business transactions and shall reflect in its financial statements
adequate accruals and appropriations to reserves, all in accordance with
generally accepted accounting principles. The Contracting Party shall deliver
to the Trustee and the Issuer copies of the following:
(a) within 120 days after the end of each fiscal year of the
Contracting Party, a balance street of the Contracting Party as at
the end of such year and statements of income and retained earnings
of the Contracting Party for such year, setting forth in
comparative form the respective corresponding figures as at the end
of or for the previous fiscal year, all in reasonable detail and
accompanied by an opinion thereon of the regular independent public
accountants selected by the Contracting Party, stating that those
balance sheets and financial statements have been prepared in
accordance with generally accepted accounting principles
consistently applied and that the audit by such accountants in
connection with those balance sheets and financial statements has
been made in accordance with generally accepted auditing standards;
(b) promptly upon receipt thereof, copies of all reports
submitted to the Contracting Party by independent public
accountants in connection with any annual, interim or special audit
of the records of the Contracting Party; and
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(c) as soon as available, copies of all financial
statements, reports, notices and proxy statements sent by the
Contracting Party to its partners and of all regular and periodic
reports.
Section 5.5. INDEMNIFICATION. (a) The Contracting Party releases the
Issuer from, agrees that the Issuer shall not be liable for, and indemnifies
the Issuer against, all liabilities, claims, costs and expenses imposed upon,
incurred or asserted against the Issuer on account of: (i) any loss or damage
to property or injury to or death of or loss by any person that may be
occasioned by any cause whatsoever pertaining to the construction,
maintenance, operation and use of the Series 1989D Project; (ii) any breach
or default on the part of the Contracting Party in the performance of any
covenant or agreement of the Contracting Party under this Series 1989D
Agreement, the Series 1989D Mortgage, the Series 1989D Note or any related
document, or arising from any act or failure to act by the Contracting Party,
or any of its agents, contractors, servants, employees or licensees; (iii)
the authorization, issuance, sale, trading, redemption or servicing of the
Bonds, and the provision of any information or certification furnished in
connection therewith concerning the Bonds, the Series 1989D Project or the
Contracting Party including, without limitation, any information furnished by
the Contracting Party for, and included in, or used as a basis for
preparation of, any certifications, information statements or reports
furnished by the Issuer and any other information or certification obtained
from the Contracting Party to assure the exclusion from gross income for
federal income tax purposes of interest on the Bonds; (iv) the Contracting
Party's failure to comply with any requirement of this Series 1989D Agreement
including the covenant in Section 5.6 hereof; (v) any failure of compliance
with the provisions of Sections 4582.12 4115.05 and any other applicable
provision of Chapter 4115, Ohio Revised Code; and (vi) any claim, action or
proceeding brought with respect to the matters set forth in (i), (ii), (iii),
(iv) and (v) above.
(b) The Contracting Party shall indemnify and hold the Issuer and the
Trustee harmless from and against all liabilities, and all reasonable costs
and expenses, including attorneys' fees, arising out of any federal, state or
local environmental laws, regulations or ordinances, incurred by the Issuer
or the Trustee as a result of the existence on, or release from, the Series
1989D Project of hazardous substances which in any way result from any act of
omission or commission of the Contracting Party or any of its agents,
employees, independent contractors, invitees, licensees, successors,
assignees or subtenants.
The Contracting Party further covenants and agrees with the Issuer and
the Trustee that neither the Contracting Party nor any of its agents, employees,
independent contractors, invitees, licensees, successors, assignees or
subtenants will store, release or dispose of, or permit the storage, release or
disposal of any hazardous substances on the Series 1989D Project at any time
from and after the effective date of this Series 1989D Agreement other than in
accordance with applicable federal, state and local law and regulation. In the
event that the Contracting Party receives a notification or clean up requirement
under 42 U.S.C. 9601 et seq. or comparable state or
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local statute, ordinance or regulation, the Contracting Party shall promptly
notify the Issuer and the Trustee of such receipt. On receipt of any such
notification or clean up requirement of the Contracting Party shall either
proceed with appropriate diligence to comply with such notification or clean
up requirement or shall commence and continue negotiation concerning or
contest the liability of the Contracting Party with respect to such
notification or clean up requirement. The Contracting Party shall indemnify
and hold the Issuer and the Trustee harmless from and against any and all
liabilities and all reasonable costs and expenses, including reasonable
attorneys' fees, arising out of any federal, state or local environmental
laws, regulations or ordinances, incurred by the Issuer or the Trustee as a
result of any breach of this covenant.
(c) The Contracting Party agrees to indemnify the Trustee for and
to hold it harmless against all liabilities, claims, costs and expenses incurred
without negligence or bad faith on the part of the Trustee, on account of any
action taken or omitted to be taken by the Trustee in accordance with the terms
of this Series 1989D Agreement, the Bonds, the Series 1989D Mortgage, the Notes
or the Indenture or any action taken at the request of or with the consent of
the Contracting Party, including the costs and expenses of the Trustee in
defending itself against any such claim, action or proceeding brought in
connection with the exercise or performance of any of its powers or duties
under this Series 1989D Agreement, the Bonds, the Indenture, the Series 1989D
Mortgage, the Guaranty or the Notes.
(d) In case any claim or demand is at any time made, or action or
proceeding is brought, against the Issuer or the Trustee in respect of which
indemnity may be sought hereunder, the party seeking indemnity promptly shall
give notice of that action or proceeding to the Contracting Party, and the
Contracting Party upon receipt of that notice shall have the obligation and the
right to assume the defense of the action or proceeding; provided, that
failure of a party to give that notice shall not relieve the Contracting Party
from any of its obligations under this Section unless that failure prejudices
the defense of the action or proceeding by the Contracting Party. At its own
expense, an indemnified party may employ separate counsel and participate in the
defense. The party seeking indemnity agrees to fully cooperate with the
Contracting Party and lend the Contracting Party such assistance as the
Contracting Party shall reasonably request in defense of any claim, demand,
action or proceeding. The Contracting Party shall not be liable for any
settlement made without its consent.
(e) Nothing in this Series 1989D Agreement is meant to release,
extinguish or otherwise alter or interfere with any rights which the Issuer
and the Trustee may now or hereafter have against the Contracting Party for
any environmental liabilities as a result of the Contracting Party's former,
present or future ownership or occupancy of any real property in the vicinity
of the Series 1989D Project Site.
(f) The indemnification set forth above is intended to and shall
include the indemnification of all affected officials, directors, officers and
employees of the issuer and the Trustee, respectively. That indemnification
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is intended to and shall be enforceable by the Issuer and the Trustee,
respectively, to the full extent permitted by law.
Section 5.6. CONTRACTING PARTY NOT TO ADVERSELY AFFECT EXCLUSION FROM
GROSS INCOME OF INTEREST ON SERIES 1989D BONDS. The Contracting Party hereby
represents that it has taken and caused to be taken, and covenants that it will
take and cause to be taken, all actions that may be required of it, alone or in
conjunction with the Issuer, for the interest on the Series 1989D Bonds to be
and remain excluded from gross income for federal income tax purposes, and
represents that it has not taken or permitted to be taken on its behalf, and
covenants that it will not take or permit to be taken on its behalf, any actions
that would adversely affect such exclusion under the provisions of the Code.
Section 5.7. LITIGATION NOTICE. The Contracting Party shall give the
Trustee, the Issuer and the Original Purchaser prompt notice of any action,
suit or proceeding by it or against it at law or in equity, or before any
governmental instrumentality or agency, or of any of the same which may be
threatened, which, if adversely determined, would materially impair the right
or ability of the Contracting Party to carry on the business which is
contemplated in connection with the Series 1989D Project, or would materially
and adversely affect its business, operations, properties, assets or
condition.
Section 5.8. OFFICERS. The Contracting Party shall, insofar as
possible, barring death, disability or other circumstances beyond its
control, maintain during the term of this Series 1989D Agreement
substantially the same management as that controlling and directing the
business of the Contracting Party at the time of execution of this Series
1989D Agreement.
Section 5.9. REMOVAL OF SERIES 1989D PROJECT FACILITIES. Subject to
complying with the Series 1989D Mortgage, the Contracting Party may remove
any portion of the Series 1989D Project Facilities from the Series 1989D
Project Site to any other site in Lucas County, Ohio. With the prior written
consent of the Issuer, the Contracting Party may remove any portion of the
Series 1989D Project Facilities from the Series 1989D Project Site to any
other location. In the case of any moving of the Series 1989D Project
Facilities, the site of the new location shall become subject to a lien
acceptable to the Issuer and be included as part of the Series 1989D Project
Site hereunder, and the Contracting Party shall deliver such instruments as
may be necessary to accomplish the attachment of the lien to the new site.
(End of Article V)
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<PAGE>
ARTICLE VI
PREPAYMENT OF FINANCING PAYMENTS
Section 6.1. OPTIONAL PREPAYMENT. Provided no Event of Default shall
have occurred and be subsisting, at any time and from time to time, the
Contracting Party may deliver moneys to the Trustee in addition to Financing
Payments or Additional Payments required to be made as prepayment of
Financing Payments and direct the Trustee as to the particular Financing
Payments which are prepaid. Such moneys shall be deposited in the Prepayment
Account created in the Basic Indenture and used as provided in the Basic
Indenture with respect to moneys in that account. If the moneys so delivered
are sufficient to purchase all of the Series 1989D Bonds or to call all of
the Series 1989D Bonds for optional redemption in accordance with the
applicable provisions of the Bond Legislation and the Series 1989D
Supplemental Indenture providing for optional redemption at the redemption
price stated in the Series 1989D Supplemental Indenture or to defease the
Series 1989D Bonds pursuant to Article IX of the Basic Indenture then this
Series 1989D Agreement shall be terminated. The determination to be made
under the preceding sentence shall be made as if all Series 1989D Bonds not
retired from Financing Payments or Net Proceeds applied pursuant to the
Series 1989D Mortgage were then outstanding whether or not such Series 1989D
Bonds are outstanding under the Basic Indenture. Delivery of moneys shall
not operate to abate or postpone Financing Payments or Additional Payments
otherwise becoming due or to alter or suspend any other obligations of the
Contracting Party under this Series 1989D Agreement.
Section 6.2. PREPAYMENT OF FINANCING AND ADDITIONAL PAYMENTS. The
Contracting Party may at any time prepay all or any part of the Financing
Payments and Additional Payments and the Issuer agrees that it and the
Trustee shall accept such prepayments when tendered by the Contracting Party.
Such prepayments shall be credited against the Financing Payments and
Additional Payments in the order specified by the Authorized Contracting
Party Representative and approved by an officer of the Issuer. Such
prepayments shall not in any way alter or suspend the obligations of the
Contracting Party under this Series 1989D Agreement.
Section 6.3. FINANCING PAYMENT ABATEMENT. If at any time all of the
portions of the Financing Payments set forth in Exhibit E under the heading of
Required Amount shall have been paid or sufficient prepayments thereof have
been made that if applied to redemption of the Bonds in accordance with the
Indenture none of the Bonds would be outstanding and provision satisfactory to
the Issuer shall have been made for paying all Administrative Amounts and
Additional Payments due or to become due to the Issuer through the date on
which the last of the Bonds is to be retired or redeemed, and if the
Contracting Party is not at the time in default hereunder, the Contracting
Party shall be entitled to terminate this Series 1989D Agreement. The
determinations to be made under the preceding sentence shall be made as if all
Series 1989D Bonds not retired from Financing Payments or Net Proceeds applied
pursuant to the Series 1989D Mortgage were then outstanding whether or not
such Series 1989D Bonds are outstanding under the Basic Indenture. Except as
specifically
-31-
<PAGE>
provided in this Series 1989D Agreement to the contrary, no other action
pursuant to any provision of this Series 1989D Agreement shall abate in any
way payment of Financing Payments.
Section 6.4. REDEMPTION OF BONDS. The Issuer has the exclusive right to
effect redemption of all or part of the then outstanding Bonds on any
available redemption date on which such redemption may be made under the
applicable provisions and to determine to redeem from prepayments of Required
Amounts hereunder bonds secured by the Indenture which are not Bonds.
Section 6.5. EXTRAORDINARY OPTIONAL PREPAYMENT. The Contracting Party
shall have, subject, to the conditions hereinafter imposed, the option to
terminate this Series 1989D Agreement upon the payment of an amount
(determined as provided in Section 6.1 hereof) which would permit the
redemption of the entire amount of unpaid principal balance of the Bonds
secured by the Basic Indenture in accordance with the applicable provisions
of the Indenture upon the occurrence of any of the following events:
(a) The Series 1989D Project shall have been damaged or
destroyed to such an extent that (1) it cannot reasonably be
expected to be restored, within a period of six months from the
commencement of restoration, to the condition thereof immediately
preceding such damage or destruction or (2) its normal use and
operation is reasonably expected to be prevented for a period of
six consecutive months or (3) the reasonably expected cost of
repair or restoration would exceed 80 percent of the appraised fair
market value of the Series 1989D Project immediately prior to such
damage or destruction.
(b) Title to, or the temporary use of, all or a significant
part of the Series 1989D Project shall have been taken under the
exercise of the power of eminent domain (1) to such extent that the
Series 1989D Project cannot reasonably be expected to be restored
within a period of six months from the commencement of restoration
to a condition of usefulness comparable to that existing prior to
the taking or (2) to such an extent that as a result of the taking,
normal use and operation of the Series 1989D Project is reasonably
expected to be prevented for a period of six consecutive months.
(c) As a result of any changes in the Constitution of the
State, the Constitution of the United States of America, or state
or federal Laws or as a result of legislative or administrative
action (whether state or federal) or by final decree, judgment or
order of any court or administrative body (whether state or
federal) entered after the contest thereof by the Issuer or the
Contracting Party in good faith, this Series 1989D Agreement shall
have become void or unenforceable or impossible of performance
-32-
<PAGE>
in accordance with the intent and purpose of the parties as
expressed in this Series 1989D Agreement, or if unreasonable
burdens or excessive liabilities shall have been imposed with
respect to the Series 1989D Project or the operation thereof,
including, without limitation, federal, state or other ad valorem,
property, income or other taxes not being imposed on the date of
this Series 1989D Agreement other than ad valorem taxes presently
levied upon privately owned property used for the same general
purpose as the Series 1989D Project.
To exercise that option, the Contracting Party shall, within ninety days
following the event authorizing the exercise of that option, give notice to
the Issuer and to the Trustee specifying the date on which the Contracting
Party will deliver the funds equal to that required for that redemption,
which date shall be not more than ninety days from the date that notice is
mailed.
The amount payable by the Contracting Party in the event of its exercise
of the option granted in this Section shall be the sum of the following:
(i) An amount of money which, when added to the moneys and
investments held to the credit of the Subaccounts created in the
Bond Fund and the Series 1989D PRF Account for the Series 1989D
Bonds, would be sufficient pursuant to the provisions of the
Indenture to pay, at par, and discharge all then outstanding Series
1989D Bonds on the earliest applicable redemption date, that amount
to be paid to the Trustee, plus
(ii) An amount of money equal to the Administrative Amounts
and the Additional Payments relating to the Series 1989D Bonds
accrued and to accrue until such earliest applicable redemption
date, that amount or applicable portions thereof to be paid to the
Issuer, the Trustee or to the Persons to whom those Additional
Payments are or will be due.
The Contracting Party shall also have the option, in the event that
title to or the temporary use of a portion of the Series 1989D Project shall
be taken under the exercise of the power of eminent domain even if the taking
is not of such nature as to permit the exercise of the prepayment option
specified in subparagraph (b) above, to direct the prepayment of that part of
the Financing Payments as may be payable from the proceeds (after the payment
of costs and expenses incurred in the collection thereof) received in the
eminent domain proceeding, provided, that, the Contracting Party shall
furnish to the Issuer a certificate of an Engineer (as defined in the Series
1989D Mortgage) stating that (1) the property comprising the part of the
Series 1989D Project taken is not essential to continued operations of the
Series 1989D Project in the manner existing prior to that taking, (2) the
Series 1989D Project has been restored to a condition substantially
equivalent to that existing prior to the taking or (3) other improvements
have been acquired
-33-
<PAGE>
or made which are suitable for the continued operation of the Series 1989D
Project. Such prepayments shall be credited against the Financing Payments
in the order specified by the Authorized Contracting Party Representative and
approved by an officer of the Issuer. Such prepayments shall not in any way
alter or suspend the obligations of the Contracting Party under this Series
1989D Agreement.
Section 6.6. MANDATORY REDEMPTION. The Contracting Party shall deliver
to the Trustee the moneys needed to redeem the Series 1989D Bonds in
accordance with any mandatory redemption provisions relating thereto as may
be set forth in Section 5(e) of the Series 1989D Supplemental Indenture.
(End of Article VI)
-34-
<PAGE>
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. EVENTS OF DEFAULT. Each of the following shall be an
Event of Default:
(a) The Contracting Party shall fail to pay in full any
Financing Payment on or prior to the date on which that Financing
Payment is due and payable and, in the case of any Financing
Payment required to be paid by the first paragraph of Section 4.1
of this Series 1989D Agreement, such Financing Payment remains
unpaid for 30 calendar days for any Financing Payment required to
be made in a month other than May and November and for five
calendar days for any Financing Payment required to be made in the
month of May and November;
(b) The Contracting Party shall fail to observe and perform
any other agreement, term or condition contained in this Series
1989D Agreement (other than with respect to Sections 5.9 and 6.6
hereof), and the continuation of such failure for a period of
thirty days after notice thereof shall have been given to the
Contracting Party by the Issuer or the Trustee, or for such longer
period as the Issuer and the Trustee may agree to in writing;
provided, that if the failure is other than the payment of money and
is of such nature that it can be corrected but not within the
applicable period, that failure shall not constitute an Event of
Default so long as the Contracting Party institutes curative action
within the applicable period and diligently pursues that action to
completion;
(c) The Contracting Party shall: (i) admit in writing its
inability to pay its debts generally as they become due; (ii) have
an order for relief entered in any case commenced by or against it
under the federal bankruptcy laws, as now or hereafter in effect;
(iii) commence a proceeding under any other federal or state
bankruptcy, insolvency, reorganization or similar law, or have such
a proceeding commenced against it and either have an order of
insolvency or reorganization entered against it or have the
proceeding remain undismissed and unstayed for ninety days; (iv)
make an assignment for the benefit of creditors; or (v) have a receiver
or trustee appointed for it or for the whole or any substantial
part of its property;
(d) The Contracting Party shall fail to make any payment due
on any indebtedness, or any condition in respect of any
indebtedness or other security of the
-35-
<PAGE>
Contracting Party, or under any agreement securing or relating to
that indebtedness or other security shall exist, the effect of
which is to cause (or permit any holder of such indebtedness or
other security or a trustee to cause) such indebtedness or other
security, or a portion thereof, to become due prior to its stated
maturity or prior to its regularly scheduled dates of payments,
provided that the foregoing shall constitute an Event of Default
under this Series 1989D Agreement only if the accelerated
indebtedness exceeds in the aggregate an amount which is equal to
the greater of $25,000 or one percent of net sales of the
Contracting Party in its most recent fiscal year for which audited
financial statements are then available determined in accordance
with generally accepted accounting principles and that the
foregoing shall not apply to any default of indebtedness between
the Contracting Party and any parent or any extension of such
indebtedness;
(e) Any representation or warranty made by the Contracting
Party herein or any statement in any report, certificate, financial
statement or other instrument furnished in connection with this
Series 1989D Agreement or with the purchase of the Series 1989D
Bonds shall at any time prove to have been false or misleading in
any material respect when made or given;
(f) There shall occur an "Event of Default" as defined in
Section 6.2(a), (c) or (d) of the Series 1989D Mortgage or in
Section 2.8 of the Guaranty; and
(g) The Contracting Party shall remove any portion of the
Series 1989D Project Facilities from the Series 1989D Project Site
to a location other than a site in Lucas County, Ohio, without
having obtained the prior written consent of the Issuer as provided
in Section 5.9 hereof.
Notwithstanding the foregoing, if, by reason of Force Majeure, the
Contracting Party is unable to perform or observe any agreement, term or
condition hereof which would give rise to an Event of Default under
subsection (b) hereof, the Contracting Party shall not be deemed in default
during the continuance of such inability. However, the Contracting Party
shall promptly give notice to the Trustee and the Issuer of the existence of
an event of Force Majeure and shall use its best efforts to remove the
effects thereof; provided that the settlement of strikes or other industrial
disturbances shall be entirely within its discretion.
The term Force Majeure shall mean, without limitation, the following:
(i) acts of God; strikes, lockouts or other industrial
disturbances; acts of public enemies; orders or restraints of any
kind of the government of the United
-36-
<PAGE>
States of America or of the State or any of their departments,
agencies, political subdivisions or officials, or any civil or
military authority; insurrections; civil disturbances; riots;
epidemics; landslides; lightning; earthquakes; fires; hurricanes;
tornados; storms; droughts; floods; arrests; restraint of
government and people; explosions; breakage, malfunction or
accident to facilities, machinery, transmission pipes or canals;
partial or entire failure of utilities; shortages of labor,
materials, supplies or transportation; or
(ii) any cause, circumstance or event not reasonably within
the control of the Contracting Party.
The declaration of an Event of Default under subsection (c) above, and
the exercise of remedies upon any such declaration, shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding that
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.
Section 7.2. REMEDIES ON DEFAULT. Whenever an Event of Default shall
have happened and be subsisting, any one or more of the following remedial
steps may be taken:
(a) The Trustee may and, at the request of the Issuer in the
case of an Event of Default described in Section 7.1(g) hereof,
shall declare all Financing Payments to be immediately due and
payable, whereupon the same shall become immediately due and
payable;
(b) The Trustee may refuse to honor requests and orders from
the Contracting Party for the disbursement of funds from the Series
1989D PF Account pursuant to Section 3.4 hereof;
(c) The Trustee may exercise any or all or any combination of
the remedies specified in the Series 1989D Mortgage and in the
Series 1989D Supplemental Indenture;
(d) The Issuer or the Trustee may have access to, inspect,
examine and make copies of the books, records, accounts and
financial data of the Contracting Party pertaining to the Series
1989D Project; or
(e) The Issuer or the Trustee may pursue all remedies now or
hereafter existing at law or in equity to collect all amounts then
due and thereafter to become due under this Series 1989D Agreement,
the Series 1989D Mortgage or the Notes or to enforce the
performance and observance of any other obligation or agreement of
the Contracting Party under those instruments.
-37-
<PAGE>
Notwithstanding the foregoing, the Issuer shall not be obligated to take any
step which in its opinion will or might cause it to expend time or money or
otherwise incur liability unless and until a satisfactory indemnity bond has
been furnished to the Issuer at no cost or expense to the Issuer. Any
amounts collected as Financing Payments or applicable to Financing Payments
and any other amounts collected pursuant to action taken under this Section
shall be deposited and applied in accordance with the provisions of the
Indenture.
Section 7.3. NO REMEDY EXCLUSIVE. No remedy conferred upon or reserved
to the Issuer or the Trustee by this Series 1989D Agreement is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy
given under this Series 1989D Agreement, the Series 1989D Mortgage or the
Series 1989D Note, or now or hereafter existing at law, in equity or by
statute. No delay or omission to exercise any right or power accruing upon
any default shall impair that right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to
time and as often as may be deemed expedient. In order to entitle the issuer
or the Trustee to exercise any remedy reserved to it in this Article, it
shall not be necessary to give any notice, other than any notice required by
law or for which express provision is made herein.
Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If an Event
of Default should occur and the Issuer or the Trustee should incur expenses,
including attorneys' fees, in connection with the enforcement of this Series
1989D Agreement, the Series 1989D Mortgage or the Notes or the collection of
sums due thereunder, the Contracting Party shall reimburse the Issuer and the
Trustee, as applicable, for the reasonable expenses so incurred upon demand.
If any such expenses are not so reimbursed, the amount thereof, together with
interest thereon from the date of demand for payment at the Interest Rate for
Advances, to the extent permitted by law, shall constitute indebtedness
secured by the Series 1989D Mortgage, and in any action brought to collect
that indebtedness or to enforce the Series 1989D Mortgage, the Trustee or the
Issuer, as applicable, shall be entitled to seek the recovery of those
expenses in such action except as limited by law or by judicial order or
decision entered in such proceedings.
Section 7.5. NO WAIVER. No failure by the Issuer or the Trustee to
insist upon the strict performance by the Contracting Party of any provision
hereof shall constitute a waiver of their right to strict performance and no
express waiver shall be deemed to apply to any other existing or subsequent
right to remedy the failure by the Contracting Party to observe or comply
with any provision hereof.
Section 7.6. NOTICES OF DEFAULT. The Contracting Party shall notify the
Trustee immediately if it becomes aware of the occurrence of any Event of
Default hereunder or of any fact, condition or event which, with the giving
of notice or passage of time or both, would become an Event of Default. The
Trustee shall give written notice by registered or certified mail to the
Original Purchaser and the Issuer of an Event of Default within five days
after the Trustee has knowledge of an Event of Default.
(End of Article VII)
-38-
<PAGE>
ARTICLE VIII
MISCELLANEOUS
Section 8.1. TERM OF AGREEMENT. This Series 1989D Agreement shall be
and remain in full force and effect from the date of delivery of the Series
1989D Bonds to the Original Purchaser until such time as all sums payable by
the Contracting Party under this Series 1989D Agreement, the Series 1989D
Mortgage and the Notes shall have been paid, except for obligations of the
Contracting Party under Sections 3.8, 4.2 and 5.5 hereof, which shall survive
any termination of this Series 1989D Agreement.
Section 8.2. NOTICES. All notices, certificates, requests or other
communications hereunder shall be in writing and shall be deemed to be
sufficiently given when mailed by registered or certified mail, postage
prepaid, and addressed to the appropriate Notice Address. A duplicate copy
of each notice, certificate, request or other communication given hereunder
to the Issuer, the Contracting Party, or the Trustee shall also be given to
the others and to the Guarantor. The Contracting Party, the Issuer, the
Guarantor and the Trustee by notice given hereunder, may designate any
further or different addresses to which subsequent notices, certificates,
requests or other communications shall be sent. If, because of the
suspension of delivery of certified or registered mail or for any other
reason, notice, certificates or requests or other communications are unable
to be given by the required class of mail, any notice required to be mailed
by the provisions of this Series 1989D Agreement shall be given in such other
manner as in the judgment of the Trustee shall most effectively approximate
mailing thereof, and the giving of that notice in that manner for all
purposes of this Series 1989D Agreement shall be deemed to be in compliance
with the requirement for the mailing thereof. Except as otherwise provided
herein, the mailing of any notice shall be deemed complete upon deposit of
that notice in the mail and the giving of any notice by any other means of
delivery shall be deemed complete upon receipt of the notice by the delivery
service.
Section 8.3. EXTENT OF COVENANTS OF THE ISSUER; NO PERSONAL LIABILITY.
All covenants, obligations and agreements of the Issuer contained in this
Series 1989D Agreement or the Indenture shall be effective to the extent
authorized and permitted by applicable law. No such covenant, obligation or
agreement shall be deemed to be a covenant, obligation or agreement of any
present or future member, officer, agent or employee of the Issuer or the
Legislative Authority in other than his official capacity, and neither the
members of the Legislative Authority nor any official executing the Bonds
shall be liable personally on the Bonds or be subject to any personal
liabiLity or accountability by reason of the issuance thereof or by reason of
the covenants, obligations or agreements of the Issuer contained in this
Series 1989D Agreement or in the Indenture.
Section 8.4. BINDING EFFECT. This Series 1989D Agreement shall inure to
the benefit of and shall be binding in accordance with its terms upon the
Issuer, the Contracting Party and their respective permitted successors
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<PAGE>
and assigns provided that this Series 1989D Agreement may not be assigned by
the Contracting Party (except in connection with a sale or transfer of assets
pursuant to Section 5.3 hereof) and may not be assigned by the Issuer except
to the Trustee pursuant to the Indenture or as otherwise may be necessary to
enforce or secure payment of Financing Payments. This Series 1989D Agreement
may be enforced only by the parties, their assignees and others who may, by
law, stand in their respective places.
Section 8.5. AMENDMENTS AND SUPPLEMENTS. Except as otherwise expressly
provided in this Series 1989D Agreement or the Indenture, subsequent to the
issuance of the Series 1989D Bonds and prior to all conditions provided for
in the Indenture for release of the Indenture having been met, this Series
1989D Agreement may not be effectively amended, changed, modified, altered or
terminated except in accordance with the provisions of Article XI of the
Indenture, as applicable.
Section 8.6. EXECUTION COUNTERPARTS. This Series 1989D Agreement may be
executed in any number of counterparts, each of which shall be regarded as an
original and all of which shall constitute but one and the same instrument.
Section 8.7. SEVERABILITY. If any provision of this Series 1989D
Agreement, or any covenant, obligation or agreement contained herein is
determined by a court to be invalid or unenforceable, that determination
shall not affect any other provision, covenant, obligation or agreement, each
of which shall be construed and enforced as if the invalid or unenforceable
portion were not contained herein. That invalidity or unenforceability shall
not affect any valid and enforceable application thereof, and each such
provision, covenant, obligation or agreement shall be deemed to be effective,
operative, made, entered into or taken in the manner and to the full extent
permitted by law.
Section 8.8. GOVERNING LAW. This Series 1989D Agreement shall be deemed
to be a contract made under the laws of the State and for all purposes shall
be governed by and construed in accordance with the laws of the State.
(End of Article VIII)
(Balance of page intentionally left blank.)
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<PAGE>
IN WITNESS WHEREOF, the Issuer and the Contracting Party have
caused this Series 1989D Agreement to be duly executed in their respective
names, all as of the date hereinbefore written.
TOLEDO-LUCAS COUNTY PORT AUTHORITY
By: /s/
-------------------------------
President
By: /s/
-------------------------------
Assistant Secretary
ENVIRONMENTAL PURIFICATION INDUSTRIES
COMPANY
By National Purification, Inc.,
General Partner
/s/
-------------------------------
Vice President
and
By Haden Purification, Inc.,
General Partner
/s/ Richard Johnston
-------------------------------
Richard Johnston, Secretary
The legal form and substance of the
within instrument is hereby approved.
/s/
-------------------------------
Staff Counsel
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<PAGE>
FISCAL OFFICER CERTIFICATE
The undersigned, fiscal officer of the Issuer, hereby certifies
that the moneys required to meet the obligations of the Issuer during the
year 1990 under the Series 1989D Agreement have been lawfully appropriated by
the Legislative Authority of the Issuer for such purposes and are in the
treasury of the Issuer or in the process of collection to the credit of an
appropriate fund, free from any previous encumbrances. This Certificate is
given in compliance with Sections 5705.41 and 5705.44, Ohio Revised Code.
/s/
--------------------------------------
Secretary of the Board of Directors of
the Toledo-Lucas County Port Authority
Dated: February 14, 1990
--------------
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<PAGE>
EXHIBIT 10.11
_______________________________________________________________________________
_______________________________________________________________________________
OPEN-END
MORTGAGE AND SECURITY AGREEMENT
from
ENVIRONMENTAL PURIFICATION INDUSTRIES COMPANY
to
SOCIETY BANK & TRUST, Trustee
_________________________
$5,745,000
Toledo-Lucas County Port Authority
Development Revenue Bonds
(Northwest Ohio Bond Fund)
Series 1989D
_________________________
Dated
as of
December 15, 1989
_______________________________________________________________________________
_______________________________________________________________________________
Recorded in Lucas County, Ohio
No. 3975
2-14, 1990 12:43 p.m.
Squire, Sanders & Dempsey
Bond Counsel
<PAGE>
INDEX
(The Index is not a part of this Series 1989D Mortgage
and is only for convenience of reference.)
Page
----
Preambles and Granting Clauses ......................................... 1
ARTICLE I
DEFINITIONS
Section 1.1 Use of Defined Terms ................................... 4
Section 1.2 Definitions ............................................ 4
Section 1.3 Interpretation ......................................... 7
ARTICLE II
PRESERVATION OF SECURITY
Section 2.1 Representations and Warranties ......................... 8
Section 2.2 Recordation ............................................ 8
Section 2.3 After-Acquired Property ................................ 8
Section 2.4 Liens and Encumbrances ................................. 9
Section 2.5 Security Agreement and Financing Statement ............. 9
Section 2.6 No Claims Against Mortgagee ............................ 9
Section 2.7 Security for Loan Advances ............................. 10
Section 2.8 Construction Mortgage .................................. 10
ARTICLE III
TAXES, MECHANICS' LIENS AND INSURANCE
Section 3.1 Payment of Taxes and Other Governmental
Charges .............................................. 11
Section 3.2 Mechanics' and Other Liens ............................. 11
Section 3.3 Insurance .............................................. 12
Section 3.4 Workers' Compensation Coverage ......................... 13
ARTICLE IV
MAINTENANCE AND USE OF SERIES 1989D MORTGAGED PROPERTY
Section 4.1 Compliance with Legal and Insurance
Requirements ......................................... 14
Section 4.2 Maintenance and Use of Series 1989D
Mortgaged Property ................................... 14
Section 4.3 Additions, Modifications and Improvements .............. 15
Section 4.4 Substitutions and Removals ............................. 15
Section 4.5 Indemnification ........................................ 16
- i -
<PAGE>
Page
----
ARTICLE V
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 5.1 Damage to or Destruction of Series 1989D
Project Facilities ................................... 18
Section 5.2 Use of Insurance Proceeds .............................. 18
Section 5.3 Eminent Domain ......................................... 18
Section 5.4 Investment and Disbursement of Net Proceeds ............ 19
ARTICLE VI
REMEDIES
Section 6.1 Right to Perform Covenants ............................ 21
Section 6.2 Events of Default ..................................... 21
Section 6.3 Remedies .............................................. 23
Section 6.4 Waiver of Appraisement; Valuation ..................... 23
Section 6.5 Appointment of Receiver ............................... 23
Section 6.6 Possession, Management and Income; Assignment ......... 23
Section 6.7 Remedies Cumulative ................................... 24
Section 6.8 Provisions Subject to Applicable Law .................. 24
Section 6.9 No Waiver by Mortgagee ................................ 24
Section 6.10 Discontinuance of Proceedings and Restoration
of Status Quo ....................................... 24
ARTICLE VII
MISCELLANEOUS
Section 7.1 Additional Security ................................... 25
Section 7.2 Release of Series 1989D Mortgaged
Property and Easements .............................. 25
Section 7.3 Release and Discharge ................................. 25
Section 7.4 Inspection ............................................ 25
Section 7.5 Expenses .............................................. 26
Section 7.6 Books, Records and Accounts ........................... 26
Section 7.7 Estoppel Affidavits ................................... 26
Section 7.8 Subrogation ........................................... 26
Section 7.9 No Merger ............................................. 26
Section 7.10 General Provisions .................................... 27
Section 7.11 Amendments, Changes and Modifications ................. 27
Section 7.12 Delivery and Assignment of Leases ..................... 27
Signatures ............................................................ 29
Acknowledgments ....................................................... 30
Exhibit A - Series 1989D Project Site
Exhibit B - Permitted Encumbrances
Exhibit C - Series 1989D Note
- ii -
<PAGE>
OPEN-END
MORTGAGE AND SECURITY AGREEMENT
Maximum Indebtedness Not to Exceed $5,845,000
THIS OPEN-END MORTGAGE AND SECURITY AGREEMENT (the "Series 1989D
Mortgage"), dated as of December 15, 1989, is executed and delivered by
ENVIRONMENTAL PURIFICATION INDUSTRIES COMPANY, a general partnership duly
organized and existing under the laws of the State (the "Mortgagor"), to SOCIETY
BANK & TRUST, a bank duly organized and validly existing under the laws of the
State of Ohio (the "Mortgagee"), under the circumstances summarized in the
following recitals (the capitalized terms used in the recitals being used
therein as defined in Article I hereof):
A. Pursuant to Section 13, Article VIII, Ohio Constitution and
Sections 4582.01 to 4582.20, both inclusive, Ohio Revised Code, the
Toledo-Lucas County Port Authority (the "Issuer") has issued, sold and
delivered its Series 1989D Bonds to Miller & Schroeder Financial, Inc.,
Columbus, Ohio (the "Original Purchaser") in the principal amount of
$5,745,000. The Series 1989D Bonds have been issued pursuant to the
Indenture between the Mortgagee and the Issuer. Reference is hereby made to
the Indenture, a counterpart of which is on file and available for inspection
at the Notice Address of the Mortgagee.
B. Pursuant to the Series 1989D Agreement to which reference is
hereby made and a counterpart of which is on file and available for inspection
at the Notice Address of the Mortgagee, the Mortgagee has loaned to the
Mortgagor the proceeds received from the sale of the Series 1989D Bonds.
C. By the Series 1989D Agreement and as further evidenced by the
Series 1989D Note, the Mortgagor is required to repay such loan by making
Financing Payments, as defined in the Series 1989D Agreement, to the Mortgagee
at such times and in such amounts as shall be sufficient to pay Bond Service
Charges on the Series 1989D Bonds as and when due and payable. The final
principal payment on the Series 1989D Bonds, if not earlier redeemed, is due and
payable on November 15, 2000.
D. By the Indenture, the Issuer has, with the consent of the
Mortgagor, assigned to the Mortgagee, as Trustee under the Indenture (the
"Trustee"), as security for the payment of the Bond Service Charges (i) all of
its rights and interest under, in and to the Series 1989D Agreement except for
the Unassigned Issuer's Rights as therein defined and (ii) the Pledged Revenues
as defined in the Indenture.
NOW THEREFORE, as an inducement to and in consideration of the loan of
the proceeds of the sale of the Series 1989D Bonds by the Issuer pursuant to the
Series 1989D Agreement, and for other valuable consideration, the receipt of
which is hereby acknowledged, and for the purpose of securing: (i) all payments
to be made by the Mortgagor under the Series 1989D Agreement, the Series 1989D
Note and this Series 1989D Mortgage, including, without limitation, all
Financing Payments, (ii) any amounts advanced or costs incurred by the
Mortgagee for the protection of the Series 1989D Note, the Series 1989D
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Bonds or the Series 1989D Mortgaged Property, as hereinafter defined, or in
connection with the enforcement of this Series 1989D Mortgage, the Series 1989D
Note or the Series 1989D Agreement and (iii) the performance and observance of
each covenant and agreement of the Mortgagor contained in this Series 1989D
Mortgage, the Series 1989D Note and the Series 1989D Agreement, the Mortgagor
does hereby grant, bargain, sell, convey, mortgage, assign, grant a security
interest in and transfer unto the Mortgagee, its successors and assigns, the
following property (the "Series 1989D Mortgaged Property"):
(a) The real estate described in Exhibit A attached hereto, together with
all other real properties now or hereafter made subject to the lien of
this Series 1989D Mortgage by supplemental mortgage or otherwise (the
"Series 1989D Project Site");
(b) All buildings, structures, additions, improvements, facilities,
fixtures, fittings, machinery, apparatus, Installations, furniture,
equipment and other property, now or hereafter located in, upon or
under, or based at the Series 1989D Project Site (other than Personal
Property installed pursuant to Section 4.3 hereof) (the "Series 1989D
Project Facilities");
(c) All rentals, revenues, payments, repayments, income, charges and
moneys derived by the Mortgagor from the lease, sale or other
disposition of the Series 1989D Project Site or Series 1989D Project
Facilities and the proceeds from any Insurance or condemnation award
pertaining thereto and payments made under warranties and in the
repurchase of certain of the Series 1989D Project Facilities pursuant
to the Equipment Sale Agreement and all other rights granted to the
Mortgagor in the Equipment Sale Agreement, including without
limitation all licenses granted to the Mortgagor in the Equipment
Sale Agreement; and
(d) All easements, rights of way or use, licenses, privileges, franchises,
servitudes, tenements, hereditaments and all appurtenances now or
hereafter belonging to or anywise appertaining to the Series 1989D
Project Site or the Series 1989D Project Facilities including,
without limitation, all right, title and interest in any street,
open or proposed.
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TO HAVE AND TO HOLD the Series 1989D Mortgaged Property unto the
Mortgagee, its successors and assigns, forever;
AND, IT IS HEREBY COVENANTED that this Series 1989D Mortgage is given
and the Series 1989D Mortgaged Froperty is to be held upon the terms herein set
forth.
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ARTICLE I
DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and terms
elsewhere defined in this Series 1989D Mortgage or by reference to another
document, the words and terms set forth in Section 1.2 hereof shall have the
meanings therein set forth unless the context or use expressly indicates
different meaning or intent. Such definitions shall be equally applicable to
both the singular and plural forms of any of the words and terms therein
defined.
Section 1.2. DEFINITIONS. As used herein:
"Additional Series 1989D Bonds" means the Additional Series 1989D
Bonds as defined in the Series 1989D Supplemental Indenture.
"Basic Indenture" means the Trust Indenture dated as of August 15,
1988, constituting a trust agreement between the Issuer and the Mortgagee, as
Trustee, as supplemented from to time to time pursuant to the paragraphs of
Section 8.02 of the Basic Indenture exclusive of paragraph (g) thereof.
"Bond Fund" means the Bond Fund created by the Basic Indenture.
"Bond Legislation" means (a) when used with reference to the Series
1989D Bonds, the resolution providing for their issuance and approving the
Series 1989D Agreement, the Series 1989D Supplemental Indenture and related
matters; (b) when used with reference to an issue of Additional Series 1989D
Bonds, the resolution providing for the issuance of the Series 1989D Bonds, to
the extent applicable, and the legislation providing for the issuance of the
Additional Series 1989D Bonds and approving any amendment to the Series 1989D
Agreement, any Supplemental Indenture and related matters; and (c) when used
with reference to Bonds when Additional Series 1989D Bonds are outstanding, the
resolution providing for the issuance of the Series 1989D Bonds and the
legislation providing for the issuance of the then outstanding Additional Series
1989D Bonds; in each case as amended or supplemented from time to time.
"Bonds" means the Series 1989D Bonds and any Additional Series 1989D
Bonds issued pursuant to Section 2.02 of the Basic Indenture.
"Bond Service Charges" means, for any period of time, the principal of
and premium, if any, and interest required to be paid by the Mortgagee on the
Series 1989D Bonds for such time period whether due at maturity or upon
acceleration or redemption.
"Commercial Code" means the Uniform Commercial Code as enacted in the
State, as from time to time duly amended or supplemented.
"Engineer" means an individual or firm acceptable to the Mortgagee and
qualified to practice the profession of engineering or architecture under
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the laws of the State and who is not an officer, employer or owner of an
interest in the Mortgagor.
"Equipment Sale Agreement" means, collectively, the Haden
Environmental Corporation Proposal for Sale, Proposal No. 89-135-11, dated
September 25, 1989, and the Mortgagor's acceptance of that Proposal dated
September 27, 1989.
"Event of Default" means any of the events described as an Event of
Default in Section 6.2 hereof.
"Financing Payments" means the amounts required to be paid by the
Mortgagor in repayment of the Loan pursuant to the Series 1989D Note and
Section 4.1 of the Series 1989D Agreement.
"Force Majeure" means any of the causes, circumstances or events
described as constituting Force Majeure in Section 6.2 hereof.
"Holder" or "Holder of a Bond" means the Person in whose name a bond
is registered on the Register.
"Indenture" means the Basic Indenture, as amended or supplemented from
time to time, including supplemented by the Series 1989D Supplemental Indenture.
"Independent Counsel" means an attorney or firm of attorneys
acceptable to the Mortgagor and duly admitted to practice law before the
highest court of the State and who is not an officer, employer or owner of an
interest in the Mortgagor.
"Insurance Requirements" means those insurance requirements described
in Section 4.1 hereof.
"Interest Rate for Advances" means the rate of 12% per annum or the
rate per annum which is 2% plus that interest rate announced by the Trustee in
its lending capacity as a bank as its "Prime Rate" or its "Base Rate," whichever
is greater and lawfully chargeable, in whole or in part.
"Issuer" means Toledo-Lucas County Port Authority, a port authority
and political subdivision of the State.
"Legal Requirements" means those legal requirements described in
Section 4.1 hereof.
"Loan" means the loan by the Issuer to the Mortgagor of the proceeds
received from the sale of the Series 1989D Bonds.
"Net Proceeds," when used with respect to any insurance proceeds or
condemnation award, means the gross proceeds thereof less the payment of all
expenses, including attorneys' fees incurred in connection with the
collection of such gross proceeds.
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"Notes" means the Series 1989D Note and any Additional Series 1989D
Notes delivered pursuant to the Series 1989D Agreement as amended and
supplemented from time to time.
"Notice Address" means as to the Mortgagor, Environmental Purification
Industries Company, 805 Chicago Street, Toledo, Ohio 43611, and as to the
Mortgagee, Society Bank & Trust, Three SeaGate, Toledo, Ohio 43603, Attention:
Corporate Trust Department, and as to the Issuer, Toledo-Lucas County Port
Authority, One Maritime Plaza, Toledo, Ohio 43604-1866, Attention: President, or
such different or additional address of which notice is given pursuant to
Section 8.2 of the Series 1989D Agreement.
"Outstanding" means Outstanding as defined in the Basic Indenture.
"Permitted Encumbrances" means the exceptions, restrictions,
easements and encumbrances set forth in Exhibit B hereto.
"Prepayment Account" means the Prepayment Account in the Bond Fund
created in Section 5.04 of the Basic Indenture.
"Project Fund" means the Project Fund created by Section 5.01 of the
Basic Indenture.
"Required Property Insurance Coverage" means insurance insuring the
Series 1989D Project Facilities against (i) loss or damage by fire,
lightning, vandalism and malicious mischief and all other perils covered by
standard "extended coverage" or "all risks" policies in the State, (ii) by
appropriate endorsement, against loss of revenues from interruption of the
operation of the Series 1989D Project Facilities as a result of damage or
destruction thereof covering a period of interruption of not less than 12
months and in an amount not less than the Financing Payments required to be
made during the next ensuing 12 calendar months, and (iii) against such
other perils as the Mortgagee may require, in an amount equal to 100% of the
replacement cost of the Series 1989D Project Facilities, without deduction
for depreciation, and containing a "replacement cost endorsement," provided
that such insurance may provide for a loss deductible of not to exceed
$10,000.
"Required Public Liability Insurance Coverage" means comprehensive
general accident and public liability insurance in the minimum amounts of
$3,000,000 for death or bodily injury resulting from each occurrence in
connection with the Series 1989D Project Site or the Series 1989D Project
Facilities and other property and operations of the Mortgagor and $1,000,000
for property damages for any occurrence in connection with the Series 1989D
Project Site or Series 1989D Project Facilities and other properties and
operations of the Mortgagor, provided that such insurance may provide for a
loss deductible of not to exceed $10,000.
"Series 1989D Agreement" means the Loan Agreement dated as of even
date with this Series 1989D Mortgage, between the Issuer and the Mortgagor, as
amended or supplemented from time to time.
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"Series 1989D Bonds" means the $5,745,000 Development Revenue Bonds
(Northwest Ohio Bond Fund), Series 1989D of the Issuer authorized in the Bond
Legislation and the Series 1989D Supplemental Indenture.
"Series 1989D Mortgage" means this Open-End Mortgage and Security
Agreement, as amended or supplemented from time to time.
"Series 1989D Note" means the promissory note of the Mortgagor in the
form attached hereto as Exhibit C and in the principal amount of $5,745,000, of
even date with the Series 1989D Bonds, evidencing the obligation of the
Mortgagor to make Financing Payments and delivered by the Mortgagor to the
Mortgagee pursuant to the Series 1989D Agreement.
"Series 1989D PF Account" means the Series 1989D PF Account created in
Section 6(a) of the Series 1989D Supplemental Indenture.
"Series 1989D Supplemental Indenture" means the Ninth Supplemental
Trust Indenture dated as of even date herewith between the Issuer and the
Mortgagee supplementing the Basic Indenture and entered into in connection with
the issuance of the Series 1989D Bonds.
"State" means the State of Ohio.
Section 1.3. INTERPRETATION. Any reference to a section or provision
of the Constitution of the State, or to a section, provision or chapter of the
Ohio Revised Code or any statute of the United States of America, includes that
section, provision or chapter as amended, modified, revised, supplemented or
superseded from time to time; provided, that no amendment, modification,
revision, supplement or superseding section, provision or chapter shall be
applicable solely by reason of this provision, if it constitutes in any way an
impairment of the rights or obligations of the Holders, the Mortgagee, the
Issuer, the Registrar or the Mortgagor under the Indenture, the Bond
Legislation, the Bonds, the Series 1989D Agreement, the Series 1989D Note, this
Series 1989D Mortgage or any other instrument or document entered into in
connection with any of the foregoing, including without limitation, any
alteration of the obligation to pay Bond Service Charges in the amount and
manner, at the times, and from the sources provided in the Bond Legislation and
the Indenture, except as permitted in the Indenture.
The terms "hereof," "hereby," "herein," "hereto," "hereunder" and
similar terms refer to this Series 1989D Mortgage; and the term "hereafter"
means after, and the term "heretofore" means before, the date of delivery of
this Series 1989D Mortgage. Words of the masculine gender include the
feminine and neuter, and when the sense so indicates words of the neuter
gender may refer to any gender.
(End of Article I)
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ARTICLE II
PRESERVATION OF SECURITY
Section 2.1. REPRESENTATIONS AND WARRANTIES. The Mortgagor represents
and warrants, subject to Permitted Encumbrances, that (i) the Mortgagor is
lawfully seized with good and marketable fee simple title to the Series 1989D
Project Site and has good title to all personal property included in the Series
1989D Mortgaged Property, (ii) it has full right and authority to sell and
convey the Series 1989D Mortgaged Property and (iii) it will warrant and defend
to the Mortgagee such title to the Series 1989D Mortgaged Property and the lien
and interest of the Mortgagee therein and thereon against all claims and demands
whatsoever and will, except as otherwise herein expressly provided, not convey
all or any portion of the Series 1989D Mortgaged Property without the prior
written consent of the Mortgagee and will maintain the priority of the lien of,
and the security interest granted by, this Series 1989D Mortgage upon the
Series 1989D Mortgaged Property until the Mortgagor shall be entitled to
defeasance as provided herein.
Section 2.2. RECORDATION. The Mortgagor, at its expense, shall cause
this Series 1989D Mortgage, any instruments supplemental hereto, financing
statements, including all necessary amendments, supplements and appropriate
continuation statements to be recorded, registered and filed, and to be kept
recorded, registered and filed, in such manner and in such places as may be
required in order to establish, preserve and protect the lien of this Series
1989D Mortgage, subject to Permitted Encumbrances, as a valid, first mortgage
lien on all real property, fixtures and interests therein included in the
Series 1989D Mortgaged Property and a valid, perfected first priority security
interest in all personal property, fixtures and interests therein included in
the Series 1989D Mortgaged Property (including in each such case, without
limitation, any such properties acquired after the execution hereof). If
requested by the Mortgagee but in each case not more than once in each calendar
year, the Mortgagor, at its expense, will furnish to the Mortgagee an opinion of
Independent Counsel, specifying the action required to be taken by the Mortgagor
to comply with this Section 2.2 since the date of this Series 1989D Mortgage or
the date of the most recent such opinion or stating that no such action is
necessary.
Section 2.3. AFTER-ACQUIRED PROPERTY. All property of every kind
acquired by the Mortgagor after the date hereof, which by the terms hereof is
intended to be subject to the lien of this Series 1989D Mortgage, shall
immediately upon the acquisition thereof by the Mortgagor, and without further
mortgage, conveyance or assignment, become subject to the lien of this Series
1989D Mortgage as fully as though now owned by the Mortgagor and specifically
described herein. Nevertheless, the Mortgagor shall take such actions and
execute and deliver such additional instruments as the Mortgagee shall
reasonably require to further evidence or confirm the subjection to the lien of
this Series 1989D Mortgage of any such property.
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Section 2.4. LIENS AND ENCUMBRANCES. Except as otherwise expressly
permitted by this Series 1989D Mortgage or the Series 1989D Agreement, the
Mortgagor shall not, without the prior written consent of the Mortgagee,
directly or indirectly create or permit to remain, and will promptly discharge,
any mortgage, lien, encumbrance or charge on, pledge of, security interest in or
conditional sale or other title retention agreement with respect to the Series
l989D Mortgaged Property or any part thereof or the interest of the Mortgagor or
the Mortgagee therein or any revenues, income or profit or other sums arising
from the Series 1989D Mortgaged Property or any part thereof (including,
without limitation, any lien, encumbrance or charge arising by operation of
law) other than:
(a) the lien of this Series 1989D Mortgage;
(b) liens for taxes, assessments and other governmental charges which are
not at the time required to be paid pursuant to Section 3.1 hereof;
(c) liens of mechanics, materialmen, suppliers or vendors or rights
thereto to the extent permitted by Section 3.2 hereof; and
(d) Permitted Encumbrances.
Section 2.5. SECURITY AGREEMENT AND FINANCING STATEMENT. This Series
1989D Mortgage constitutes a security agreement as to all or any part of the
Series 1989D Mortgaged Property which is of a nature that a security interest
therein can be perfected under the Commercial Code. This Series 1989D Mortgage
also constitutes a financing statement with respect to any and all property
included in the Series 1989D Mortgaged Property which is or may become fixtures.
All rights that the Mortgagor has to enforce the repurchase of
certain of the Series 1989D Project Facilities pursuant to the Equipment Sale
Agreement and the proceeds of a repurchase pursuant to the Equipment Sale
Agreement are hereby pledged, assigned and transferred to the Mortgagee for the
protection of the Series 1989D Bondholders and those proceeds when received
shall be used by the Mortgagee to pay principal of and interest on the Series
1989D Bonds as provided in the Series 1989D Supplemental Indenture.
Section 2.6. NO CLAIMS AGAINST MORTGAGEE. Nothing contained in this
Series 1989D Mortgage shall constitute any request by the Mortgagee, express or
implied, for the performance of any labor or services or the furnishing of any
materials or other property in respect of the Series 1989D Mortgaged Property or
any part thereof, or be construed to give the Mortgagor any right, power or
authority to contract for or permit the performance of any labor or services
or the furnishing of any materials or other property in such fashion as would
provide the basis for any claim either against the Mortgagee or that any lien
based on the performance of such labor or services or the furnishing of any such
materials or other property is prior to the lien of this Series 1989D Mortgage.
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Section 2.7. SECURITY FOR LOAN ADVANCES. This Series 1989D Mortgage
is intended to secure the unpaid balances of loan advances to be made under the
Series 1989D Agreement after this Series 1989D Mortgage has been delivered to
the Lucas County, Ohio Recorder's Office for recordation. The maximum amount
of loan advances, exclusive of interest thereon and advances made for the
payment of taxes, assessments, insurance premiums and costs incurred for the
protection of the Series 1989D Mortgaged Property, which may be outstanding at
any time, is $5,845,000. The Series 1989D Agreement and the Indenture obligate
the Mortgagee to advance definite and certain sums under definite conditions,
by disbursement from the Project Fund, which advances are to be made to pay
certain permitted costs with respect to the Series 1989D Mortgaged Property as
set forth in the Series 1989D Agreement.
Delete Section 2.8. CONSTRUCTION MORTGAGE. This Series 1989D Mortgage secures
an obligation incurred for the construction of improvements on the Series
1989D Project Site, including the acquisition cost of such real property, and,
consequently, is a "construction mortgage" within the meaning of the Commercial
Code.
(End of Article II)
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ARTICLE III
TAXES, MECHANICS' LIENS AND INSURANCE
Section 3.1. PAYMENT OF TAXES AND OTHER GOVERNMENTAL CHARGES. The
Mortgagor shall pay, promptly when due and before penalty or interest accrue
thereon, all taxes, assessments, whether general or special, and other
governmental charges of any kind whatsoever, foreseen or unforeseen, ordinary
or extraordinary, that now or may at any time hereafter be assessed or levied
against or with respect to the Series 1989D Mortgaged Property or any part
thereof (including, without limitation, any taxes levied upon or with respect
to the revenues, income or profits of the Mortgagor from the Series 1989D
Mortgaged Property) which, if not paid, may become or be made a lien on the
Series 1989D Mortgaged Property, or any part thereof, or a charge on such
revenues, income or profits. The Mortgagor shall deliver to the Mortgagee no
later than five days after the due date of any payment required to be made
pursuant to this paragraph written evidence that such payment has been made.
Notwithstanding the preceding paragraph, the Mortgagor may, at its
expense and after prior written notice to the Mortgagee, by appropriate
proceedings diligently prosecuted, contest in good faith the validity or amount
of any such taxes, assessments or other charges and during the period of
contest, need not pay the items so contested. However, if at any time the
Mortgagee shall deliver to the Mortgagor an opinion of Independent Counsel to
the effect that by nonpayment of any such items, the lien or security interest
created by this Series 1989D Mortgage as to any part of the Series 1989D
Mortgaged Property will be materially affected or the Series 1989D Mortgaged
Property or any part thereof will be subject to imminent loss or forfeiture, the
Mortgagor shall promptly pay such taxes, assessments or charges. During the
period when the taxes, assessments or other charges so contested remain unpaid,
the Mortgagor shall set aside on its books adequate reserves with respect
thereto.
Section 3.2. MECHANICS' AND OTHER LIENS. The Mortgagor shall not
permit any mechanics' or other liens to be filed or to exist against the
Series 1989D Mortgaged Property by reason of work, labor, services or
materials supplied or claimed to have been supplied to, for or in connection
with the Series 1989D Mortgaged Property or to the Mortgagor or anyone
holding the Series 1989D Mortgaged Property or any part thereof through or
under the Mortgagor. If any such lien shall at any time be filed, the
Mortgagor shall, within thirty days after notice of the filing thereof but
subject to the right to contest as set forth herein, cause the same to be
discharged of record by payment, deposit, bond, order of a court of competent
jurisdiction or otherwise. Notwithstanding the foregoing, the Mortgagor
shall leave the right, at its own expense and after prior written notice to
the Mortgagee, by appropriate proceedings duly instituted and diligently
prosecuted, to contest in good faith the validity or the amount of any such
lien. However, if the Mortgagee shall deliver to the Mortgagor an opinion of
Independent Counsel to the effect that by nonpayment of any such items, the
lien or security interests created by this Series 1989D Mortgage will be
materially affected or the
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Series 1989D Mortgaged Property or any part thereof will be subject to
imminent loss or forfeiture, the Mortgagor shall promptly cause such lien to
be discharged of record.
Section 3.3. INSURANCE. The Mortgagor shall keep the Series 1989D
Project Facilities continuously insured with Required Property Insurance
Coverage. For purposes of establishing the amount of the Required Property
Insurance Coverage, "replacement cost" of the Series 1989D Project Facilities
shall be determined not less frequently than at two-year intervals by an
Engineer or a competent appraiser, appraisal company or one of the insurers
acceptable to the Mortgagee, which determination, together with written evidence
of the applicable increase or decrease in the Required Property Insurance
Coverage due to a change in "replacement cost" shall be promptly delivered by
the Mortgagor to the Mortgagee upon such determination.
The Mortgagor shall keep and maintain Required Public Liability
Insurance Coverage with reference to the Series 1989D Project Site and the
Series 1989D Project Facilities provided that the Required Public Liability
Insurance Coverage shall be increased to such larger amounts as the Mortgagee
may determine to be appropriate in light of inflationary increases, the
operations conducted by the Mortgagor and the insurance coverage carried by
other entities conducting similar operations.
All insurance shall be obtained and maintained either by means of
policies with generally recognized, responsible insurance companies or in
conjunction with other companies through an insurance trust or other
arrangements satisfactory to the Mortgagee, and all such companies are to be
qualified to do business in the State. The insurance to be provided may be by
blanket policies. Each policy of insurance shall be written so as not to be
subject to cancellation or substantial modification upon less than fifteen
days' advance written notice to the Mortgagee and the Issuer. The Mortgagor
shall deposit annually with the Mortgagee and the Issuer certificates or other
evidence satisfactory to the Mortgagee and the Issuer that (i) the insurance
required hereby has been obtained and is in full force and effect and (ii) all
premiums thereon have been paid in full. Prior to the expiration of any such
insurance, the Mortgagor shall furnish the Mortgagee and the Issuer with
evidence satisfactory to the Mortgagee and the Issuer that such insurance has
been renewed or replaced and that all premiums thereon have been paid in full
and all insurance policies required hereby are in full force and effect. The
Mortgagor shall file with the Mortgagee and the Issuer a copy of any claim it
may make under the Required Property Insurance Coverage which claim is in excess
of $25,000.
All policies providing the Required Property Insurance Coverage shall
contain standard mortgage clauses requiring all proceeds resulting from any
claim for loss or damage in excess of $50,000 to be paid to the Mortgagee and
any Net Proceeds of insurance providing such coverage shall be paid and applied
as provided in Section 5.2 hereof. Any proceeds of policies providing Required
Public Liability Insurance Coverage shall be applied toward the extinguishment
or satisfaction of the liability with respect to which such insurance proceeds
have been paid.
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Section 3.4. WORKERS' COMPENSATION COVERAGE. The Mortgagor shall
maintain or cause to be maintained in connection with the Series 1989D Mortgaged
Property any workers' compensation coverage required by the applicable laws of
the State and shall annually deposit with the Mortgagee and the Issuer evidence
of such coverage.
(End of Article III)
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ARTICLE IV
MAINTENANCE AND USE OF SERIES 1989D MORTGAGED PROPERTY
Section 4. 1. COMPLIANCE WITH LEGAL AND INSURANCE REQUIREMENTS.
The Mortgagor, at its expense, shall promptly comply with all Legal
Requirements and Insurance Requirements, and shall procure, maintain and
comply with all permits, licenses and other authorizations required for any
use being made of the Series 1989D Mortgaged Property or any part thereof
then being made or anticipated to be made, and for the proper construction,
installation, operation and maintenance of the Series 1989D Mortgaged
Property or any part thereof, and will comply with any instruments of record
at the time in force burdening the Series 1989D Mortgaged Property or any
part thereof. As used in this Section, "Legal Requirements" means all laws,
statutes, codes, acts, ordinances, resolutions, orders, judgments, decrees,
injunctions, rules, regulations, permits, licenses, authorizations,
directions and requirements of all governmental entities, departments,
commissions, boards, courts, authorities, agencies, officials and officers,
foreseen or unforeseen, ordinary or extraordinary, which now or at any time
hereafter may be applicable to the Series 1989D Mortgaged Property or any
part thereof, any use, anticipated use or condition of the Series l989D
Mortgaged Property or any part thereof. "Insurance Requirements" means all
provisions of any insurance policy covering or applicable to the Series 1989D
Mortgaged Property or any part thereof, all requirements of the issuer of any
such policy, and all orders, rules, regulations and other requirements of the
National Board of Fire Underwriters (or any other body exercising similar
functions) applicable to or affecting the Series 1989D Mortgaged Property or
any part thereof. The Mortgagor may, at its expense and after prior written
notice to the Mortgagee, by any appropriate proceedings diligently
prosecuted, contest in good faith any Legal Requirement and postpone
compliance therewith pending the resolution or settlement of such contest
provided that such postponement does not, in the opinion of Independent
Counsel, materially affect the lien or security interests created by this
Series 1989D Mortgage as to any part of the Series 1989D Mortgaged Property
or subject the Series 1989D Mortgaged Property, or any part thereof, to
imminent loss or forfeiture.
Section 4.2. MAINTENANCE AND USE OF SERIES 1989D MORTGAGED PROPERTY.
The Mortgagor, at its expense, will keep or cause to be kept the Series 1989D
Mortgaged Property in good order and condition (ordinary wear and tear excepted)
and will make all necessary or appropriate repairs, replacements and renewals
thereof, interior, exterior, structural and non-structural, ordinary and
extraordinary, foreseen and unforeseen. The Mortgagor will not do, or permit to
be done, any act or thing which might materially impair the value or usefulness
of the Series 1989D Mortgaged Property or any part thereof, will not
commit or permit any material waste of the Series 1989D Mortgaged Property or
any part thereof, and will not permit any unlawful occupation, business or
trade to be conducted on the Series 1989D Mortgaged Property or any part
thereof. The Mortgagor shall also, at its expense, promptly comply with all
rights of way or use, privileges, franchises, servitudes, licenses, easements,
tenements, hereditaments and appurtenances forming a part of the Series 1989D
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Mortgaged Property and all instruments creating or evidencing the same, in each
case, to the extent compliance therewith is required of the Mortgagor under the
terms thereof.
Section 4.3. ADDITIONS, MODIFICATIONS AND IMPROVEMENTS. The Mortgagor
may, in its discretion and at its expense, make from time to time any
additions, modifications or improvements to the Series 1989D Mortgaged Property
which it may deem desirable for its business purposes provided that no such
additions, modifications or improvements shall, in the opinion of an Engineer,
adversely affect the structural integrity or strength of any improvements
constituting a part of the Series 1989D Mortgaged Property or materially
interfere with the use and operation thereof. All additions, modifications and
improvements so made by the Mortgagor shall become or be deemed to constitute a
part of the Series 1989D Mortgaged Property, except as may be provided herein.
The Mortgagor may from time to time install Personal Property, as
defined below, in addition to the Series 1989D Project Facilities, in or upon
the Series 1989D Mortgaged Property. All such Personal Property shall remain
the sole property of the Mortgagor and shall not be deemed part of the Series
1989D Mortgaged Property. The Personal Property may be removed at any time by
the Mortgagor provided if any such removal will cause damage to any part of the
Series 1989D Mortgaged Property, the Mortgagor shall repair such damage at its
expense.
"Personal Property" as used herein means all equipment, machinery and
furniture and other tangible personal property located at or in the Series 1989D
Mortgaged Prorperty and utilized as a part of or in conjunction with the
Mortgagor's business operations other than equipment, machinery and furniture
and other tangible personal property (i) acquired with the proceeds of the
Series 1989D Bonds or in replacement or restoration of, substitution for, or as
an addition, modification or improvement to the Series 1989D Project Facilities
or (ii) which is necessary in order for the Series 1989D Project Facilities, or
a portion thereof, to be operated.
Section 4.4. SUBSTITUTIONS AND REMOVALS. If the Mortgagor, in its
reasonable discretion, determines that any item of personal property
constituting a part of the Series 1989D Mortgaged Property shall have become
inadequate, obsolete, worn-out, unsuitable, undesirable or unnecessary or
should be replaced, the Mortgagor may remove such items provided that such
removal (taking into account any substitutions) shall not impair the
operating unity of the Series 1989D Mortgaged Property and providing that the
Mortgagor shall:
(a) substitute and install as part of the Series 1989D Mortgaged
Property property of equal or greater utility and value (but not
necessarily fulfilling the same function in the operation of the
Series 1989D Mortgaged Property) as the removed property, which such
substituted property shall be free from all liens and encumbrances
(other than Permitted Encumbrances) and shall become part of the
Series 1989D Mortgaged Property; or
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(b) in the case of removal of property without substitution,
promptly pay to the Mortgagee for application as provided in Section
4.6 of the Series 1989D Agreement an amount equal to (i) if the
removed property is sold or scrapped, the proceeds of such sale or
the scrap value thereof, (ii) if the removed property is used as a
trade-in for property not to be installed as part of the Series
1989D Mortgaged Property, the trade-in credit received by the
Mortgagor or (iii) in the case of the retention of such removed
property by the Mortgagor for other purposes, the fair market value
of such property, as determined by an Engineer.
If, prior to any such removal, the Mortgagor shall have acquired and installed
personal property with its own funds which have become a part of the Series
l989D Mortgaged Property, the Mortgagor may credit the amount so spent against
the requirement that it either substitute other property or make payment under
this Section on account of such removal, provided that such previously
acquired and installed property meets the requirements for substituted property
under Section 4.4(a) hereof.
The Mortgagor shall promptly report to the Mortgagee each such
removal, substitution, sale or other disposition and shall pay to the
Mortgagee such amounts as are required by the provisions of the preceding
subsection (b) of this Section promptly after the sale, trade-in or other
disposition requiring such payment; provided, however, that no such payment
need be made until the amount to be paid to the Mortgagee on account of all
such sales, trade-ins or other dispositions not previously paid aggregates at
least $10,000.
At the request of the Mortgagee, the Mortgagor shall deliver to the
Mortgagee such instruments, including financing statements and amendments
thereto, that are necessary or advisable to perfect the Mortgagee's lien upon
and security interest in any personal property installed in substitution for
any property removed pursuant to this Section. The Mortgagee may require the
Mortgagor to provide, at the expense of the Mortgagor, an opinion of
Independent Counsel as to the perfection of the Mortgagee's lien and
security interest. Upon the request of the Mortgagor, the Mortgagee shall
execute and deliver to the Mortgagor appropriate instruments releasing any
property removed pursuant to this Section from the liens and security
interests hereunder.
Section 4.5. INDEMNIFICATION. The Mortgagor will protect, indemnify
and save harmless the Mortgagee and the Issuer from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs and expenses
(including, without limitation, reasonable attorneys' fees and expenses except
as may be limited by law or judicial order or decision entered in any action
brought to recover moneys under this Section) imposed upon, incurred by or
asserted against the Mortgagee or the Issuer by reason of (a) ownership of any
interest in the Series 1989D Mortgaged Property or any part
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thereof, (b) any accident, injury to, loss by or death of persons or loss of or
damage to property occurring on or about the Series 1989D Mortgaged Property or
any part thereof or the adjoining sidewalks, curbs, vaults and vault space, if
any, streets or ways, (c) any use, disuse or condition of the Series 1989D
Series 1989D Mortgaged Property or any part thereof, or the adjoining
sidewalks, curbs, vaults and vault space, if any, streets or ways, (d) any
failure on the part of the Mortgagor to perform or comply with any of the terms
hereof, (e) any necessity to defend any of the rights, title or interests
conveyed by this Series 1989D Mortgage or (f) the performance of any labor or
services or the furnishing of any materials or other property in respect of the
Series 1989D Mortgaged Property or any part thereof. The Mortgagor further
covenants and agrees with the Issuer and the Mortgagee that neiLher the
Mortgagor nor any of its agents, employees, independent contractors, invitees,
licensees, successors, assignees or subtenants will store, release or dispose
of, or permit the storage, release or disposal of any hazardous substances on
the Series 1989D Mortgaged Property at any time from and after the effective
date of this Series 1989D Mortgage other than in accordance with applicable
federal, state and local law and regulation. In the event that the Mortgagor
receives a notification or clean up requirement under 42 U.S.C. 9601 et seq. or
comparable state or local statute, ordinance or regulation, the Mortgagor shall
promptly notify the Issuer and the Mortgagee of such receipt. On receipt of
any such notification or clean up requirement the Mortgagor shall either proceed
with appropriate diligence to comply with such notification or clean up
requirement or shall commence and continue negotiation concerning or contest the
liability of the Mortgagor with respect to such notification or clean up
requirement. The Mortgagor shall indemnify and hold the Issuer and the
Mortgagee harmless from and against any and all liabilities and all reasonable
costs and expenses, including reasonable attorneys' fees, arising out of any
federal, state or local environmental laws, regulations or ordinances, incurred
by the Issuer or the Mortgagee as a result of any breach of this covenant.
In case any action, suit or proceeding is brought against the
Mortgagee for any such reason, the Mortgagor, upon the request of the Mortgagee
or the Issuer, will at the Mortgagor's expense, cause such action, suit or
proceeding to be resisted and defended by Independent Counsel. Any amounts
payable to the Mortgagee or the Issuer under this Section which are not paid
within ten days after written demand therefor shall bear interest at the
Interest Rate for Advances from the date of such demand, and such amounts,
together with such interest, shall be indebtedness secured by this Series 1989D
Mortgage. The obligations of the Mortgagor under this Section shall survive any
defeasance of this Series 1989D Mortgage.
Nothing in this Series 1989D Mortgage is meant to release, extinguish
or otherwise alter or interfere with any rights which the Issuer and the
Mortgagee may now or hereafter have against the Mortgagor for any environmental
liabilities as a result of the Mortgagor's former, present or future ownership
or occupancy of any real property in the vicinity of the Series 1989D Project
Site.
(End of Article IV)
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ARTICLE V
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 5.1. DAMAGE TO OR DESTRUCTION OF SERIES 1989D PROJECT
FACILITIES. In case of any damage to or destruction of the Series 1989D Project
Facilities or any part thereof, the Mortgagor will promptly give or cause to be
given written notice thereof to the Mortgagee and the Issuer generally
describing the nature and extent of such damage or destruction. Unless the
Series 1989D Agreement is to be terminated pursuant to Section 6.5 thereof, the
Mortgagor shall, whether or not the Net Proceeds of insurance, if any, received
on account of such damage or destruction shall be sufficient for such purpose,
promptly commence and complete, or cause to be commenced and completed, the
repair or restoration of the Series 1989D Project Facilities as nearly as
practicable to the value, condition and character thereof existing immediately
prior to such damage or destruction, with such changes or alterations, however,
as the Mortgagor may deem necessary for proper operation of the Series 1989D
Mortgaged Property.
Section 5.2. USE OF INSURANCE PROCEEDS. In connection with the repair
or restoration of the Series 1989D Project Facilities pursuant to Section 5.1
hereof, Net Proceeds of Required Property Insurance Coverage not in excess of
$50,000 shall be paid to the Mortgagor for application of as much as may be
necessary for such repair and restoration. Any such Net Proceeds, if in excess
of $50,000, shall be paid to and held by the Mortgagee in the Awards Account In
the Project Fund established by Section 5.04(b) of the Basic Indenture, for
application of as much as may be necessary for the payment of the costs of
repair or restoration, either on completion thereof or as the work progresses,
as directed by the Mortgagor. The Mortgagee may, prior to making payment from
the Awards Account, require the Mortgagor to provide evidence that, or deposit
with the Mortgagee moneys to be placed in such Account so that, there will be
adequate moneys available for such repair and restoration. The Mortgagee shall
not be obligated to make any payment from such Account if there exists a
material Event of Default hereunder. Any balance of the Net Proceeds (together
with any investment income therefrom) held by the Mortgagee remaining after
payment of all costs of such repair or restoration shall be paid to the
Mortgagee for deposit into the Prepayment Account for application as provided in
the Basic Indenture.
If, in lieu of repair or restoration, the Series 1989D Agreement is to
be terminated, an amount equal to any Net Proceeds received by the Mortgagee
prior to the prepayment effecting such termination shall (together with any
investment income therefrom and any further amount required to effect such
termination) be deemed to be a prepayment of Financial Payments and deposited
by the Mortgagee in the Prepayment Account and used as provided in the Basic
Indenture.
Section 5.3. EMINENT DOMAIN. If title to or the temporary use of the
Series 1989D Mortgaged Property, or any part thereof, shall be taken under the
exercise of the power of eminent domain by any governmental body or by any
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person, firm or corporation acting under governmental authority, the
Mortgagor will promptly give written notice thereof to the Mortgagee and the
Issuer describing the nature and extent of such taking. Any Net Proceeds
received from any award made in such eminent domain proceedings shall, if
received prior to the release and discharge of this Series 1989D Mortgage, be
paid to and held by the Mortgagee in the Awards Account for application to
one or more of the following purposes:
(a) The restoration of the Series 1989D Project Facilities as
nearly as practicable to the same condition or character thereof existing
immediately prior to the exercise of the power of eminent domain with such
changes or alterations, however, as the Mortgagor may deem necessary for proper
operation of the Series 1989D Mortgaged Property.
(b) The acquisition or construction by the Mortgagor of other
improvements suitable for the Mortgagor's operations on the Series 1989D Project
Site (which improvements shall be deemed a part of the Series 1989D Mortgaged
Property); provided, that such improvements shall be subject to no liens or
encumbrances (other than the lien hereof and Permitted Encumbrances).
(c) If the Series 1989D Agreement is terminated, payment into the
Prepayment Account and used as provided in the Basic Indenture.
Within ninety days from the date of entry of a final order in any eminent domain
proceeding, the Mortgagor shall direct the Mortgagee in writing to which purpose
or combination of purposes above specified the Net Proceeds of the condemnation
award (together with any investment income therefrom) shall be applied. Any
balance of the Net Proceeds (together with any investment income therefrom and
any further amount required to effect such termination) not required for the
purpose or purposes so directed shall be deemed to be a prepayment of Financing
Payments and deposited by the Mortgagee in the Prepayment Account and used as
provided in the Basic Indenture.
Section 5.4. INVESTMENT AND DISBURSEMENT OF NET PROCEEDS. All moneys
received by the Mortgagee or its designee constituting Net Proceeds shall,
pending application, be invested at the direction of the Mortgagor (for the
account of and at the risk of the Mortgagor) and shall (together with any
investment income therefrom), to the extent to be used for repair, rebuilding,
restoration, acquisition or construction, be disbursed for such purpose, as
provided in the Series 1989D Agreement and the Indenture for the investment and
disbursement of moneys in the Series 1989D PF Account and, to the extent held in
the Prepayment Account, as provided in the Indenture for the investment and
disbursement of moneys in the Bond Fund. Any balance of Net Proceeds (together
with any investment income therefrom) held by the Mortgagee or its designee upon
the release and discharge of this Series 1989D Mortgage pursuant
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to Section 7.3 hereof and not required to effect such release and discharge,
or any Net Proceeds thereafter received by the Mortgagee, shall be paid to the
Mortgagor.
(End of Article V)
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ARTICLE VI
REMEDIES
Section 6.1. RIGHT TO PERFORM COVENANTS. If the Mortgagor shall fail
to make any payment or perform any act required to be made or performed
hereunder (including, without limitation, the payments described in Article III
hereof) or under the Series 1989D Agreement or the Series 1989D Note, the
Mortgagee, without demand upon the Mortgagor and without waiving or releasing
any obligation or default, may (but shall be under no obligation to) upon ten
days' written notice to the Mortgagor (except under emergency conditions), make
such payment or perform such act for the account and at the expense of the
Mortgagor and may enter upon the Series 1989D Mortgaged Property or any part
thereof for such purpose and take all such action thereon as, in its opinion,
may be necessary or appropriate therefor. All payments so made by the Mortgagee
and all costs, fees and expenses (including, without limitation, reasonable
attorneys' fees and expenses) incurred in connection therewith or in connection
with the performance by the Mortgagee of any such act, together with interest
thereon at the Interest Rate for Advances from the date of payment or
incurrence, shall, together with such interest, be additional indebtedness
secured by this Series 1989D Mortgage, to the extent permitted by law, shall be
paid by the Mortgagor to the Mortgagee on demand. In any action brought to
collect such indebtedness, or to foreclose this Series 1989D mortgage, the
Mortgagee shall be entitled to the recovery of such expenses in such action
except as limited by law or judicial order or decision entered in such
proceedings.
Section 6.2. EVENTS OF DEFAULT. Any one or more of the following
events shall be an Event of Default under this Series 1989D Mortgage:
(a) Failure by the Mortgagor to pay in full when due any installment of
principal, interest or premium under the Series 1989D Note.
(b) An Event of Default as defined in the Series 1989D Agreement.
(c) Failure by the Mortgagor to pay to the Mortgagee (within 10 days of
receipt of notice from the Mortgagee of the sum owing) any amounts due
under Section 6.1 hereof.
(d) Failure by the Mortgagor to observe or perform any other term,
covenant or agreement on the Mortgagor's part to be observed or
performed under this Series 1989D Mortgage, and continuation of that
failure for 30 days after written notice thereof shall have been
given to the Mortgagor by the Mortgagee, or for such longer period as
the Mortgagee may agree to in writing; provided that if the failure is
other than
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the payment of money and is of such nature that it cannot
he corrected within the applicable period, that failure
shall not constitute an Event of Default so long as the
Mortgagor Institutes curative action within the applicable
period and diligently pursues that action to completion.
(e) The Mortgagor shall: (i) admit in writing its inability to pay its
debts generally as they become due; (ii) have an order for relief
entered in any case commenced by or against it under the federal
bankruptcy laws, as now or hereafter in effect; (iii) commence
a proceeding under any other federal or state bankruptcy,
insolvency, reorganization or similar law, or have such a
proceeding commenced against it and either have an order of
insolvency or reorganization entered against it or have the proceeding
remain undismissed and unstayed for 90 days; (iv) make an assignment
for the benefit of creditors; or (v) have a receiver or trustee
appointed for it or for the whole or any substantial part of its
property.
Notwithstanding the foregoing, if, by reason of Force Majeure, the
Mortgagor is unable to perform or observe any agreement, term or condition
hereof, other than any obligation to make payments required hereunder, the
Mortgagor shall not be deemed in default during the continuance of such
inability. However, the Mortgagor shall promptly give notice to the Mortgagee
and the Issuer of the existence of an event of Force Majeure and shall use its
best efforts to remove the effects thereof; provided that the settlement of
strikes or other industrial disturbances shall be entirely within its
discretion.
The term Force Majeure shall mean, without limitation, the following:
(i) acts of God; strikes, lockouts or other industrial
disturbances; acts of public enemies; orders or restraints of any kind of the
government of the United States of America or of the State or any of their
departments, agencies, political subdivisions or officials, or any civil or
military authority; insurrections; civil disturbances; riots; epidemics;
landslides; lightning; earthquakes; fires; hurricanes; tornados; storms;
droughts; floods; arrests; restraint of government and people; explosions;
breakage, malfunction or accident to facilities, machinery, transmission pipes
or canals; partial or entire failure of utilities; shortages of labor,
materials, supplies or transportation; or
(ii) any cause, circumstance or event not reasonably within the
control of the Mortgagor.
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The declaration of an Event of Default under subsection (e) above,
and the exercise of remedies upon any such declaration, shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding
such declaration or exercise during the pendency of or immediately following
any bankruptcy, liquidation or reorganization proceedings.
Section 6.3. REMEDIES. If an Event of Default shall have occurred and
be continuing, the Mortgagee, at any time, at its election, may exercise any or
all or any combination of the remedies conferred upon or reserved to it under
this Series 1989D Mortgage, the Series 1989D Agreement, the Guaranty, the Series
1989D Note or any instrument collateral thereto, or now or hereafter existing
at law, in equity or by statute. Without limitation, the Mortgagee may (a)
declare the entire unpaid principal balance of the indebtedness secured hereby
immediately due and payable, without notice or demand, the same being
expressly waived by the Mortgagor; (b) proceed at law or in equity to collect
all indebtedness secured by this Series 1989D Mortgage due hereunder, whether at
maturity or by acceleration; (c) foreclose the lien of this Series 1989D
Mortgage as against all or any part of the Series 1989D Mortgaged Property; and
(d) exercise any rights, powers and remedies it may have as a secured party
under the Commercial Code, or other similar laws in effect including, without
limitation, the option of proceeding as to both personal property and fixtures
in accordance with the Mortgagee's rights with respect to real property. Any
moneys received by the Mortgagee pursuant to the exercise of remedies provided
in this Series 1989D Mortgage or by law shall be applied as provided in
Sections 5.04 and 7.06 of the Basic Indenture.
Section 6.4. WAIVER OF APPRAISEMENT; VALUATION. The Mortgagor does
hereby waive to the full extent it may lawfully do so, the benefit of all
appraisement, valuation, stay and extension laws now or hereafter in force and
all rights of marshaling of assets in the event of any sale of the Series 1989D
Mortgaged Property, any part thereof or any interest therein and any court
having jurisdiction to foreclose the lien hereof may sell the Series 1989D
Mortgaged Property in part or as an entirety.
Section 6.5. APPOINTMENT OF RECEIVER. If an Event of Default shall
have occurred and be continuing, the Mortgagee shall, as a matter of right and
to the extent permitted by applicable law and without regard to the adequacy of
the Series 1989D Mortgaged Property as security, be entitled to the appointment
of a receiver for all or any part of the Series 1989D Mortgaged Property,
whether such receivership is incidental to a proposed sale of the Series 1989D
Mortgaged Property or otherwise, and the Mortgagor hereby consents to the
appointment of such a receiver and covenants not to oppose any such
appointment.
Section 6.6. POSSESSION, MANAGEMENT AND INCOME; ASSIGNMENT. If an
Event of Default shall have occurred and is continuing, the Mortgagee, to the
extent permitted under applicable law, ex parte and without notice may enter
upon and take possession of the Series 1989D Mortgaged Property or any part
thereof by force, summary proceedings, ejectment or otherwise, and may remove
the Mortgagor and all other persons and any and all property therefrom and may
hold, operate and manage the same and receive all revenues, income or profits
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accruing with respect thereto or any part thereof. The Mortgagee shall be
under no liability for or by reason of any such taking of possession, entry,
removal, holding, operation or management.
Section 6.7. REMEDIES CUMULATIVE. Each right, power and remedy of the
Mortgagee, provided for in this Series 1989D Mortgage, in the Series 1989D
Agreement, in the Series 1989D Note or now or hereafter existing at law or in
equity or by statute or otherwise, shall be cumulative and concurrent and shall
be in addition to every other right, power or remedy provided for in this Series
1989D Mortgage, in the Series 1989D Agreement, in the Series 1989D Note or now
or hereafter existing at law or in equity or by statute or otherwise, and the
exercise or beginning of the exercise or partial exercise by the Mortgagee of
any one or more of such rights, powers or remedies shall not preclude the
simultaneous or later exercise by the Mortgagee of any or all such other rights,
powers or remedies.
Section 6.8. PROVISIONS SUBJECT TO APPLICABLE LAW. All rights, powers
and remedies provided herein may be exercised only to the extent that the
exercise thereof does not violate any applicable law, and are intended to be
limited to the extent necessary so that they will not render this Series 1989D
Mortgage invalid, unenforceable or not entitled to be recorded, registered or
filed under any applicable law.
Section 6.9. NO WAIVER BY MORTGAGEE. No failure by the Mortgagee to
insist upon the strict performance of any term hereof or to exercise any right,
power or remedy consequent upon a breach thereof, shall constitute a waiver of
any such term or of any such breach. No waiver of any breach shall affect or
alter this Series 1989D Mortgage, which shall continue in full force and effect
with respect to any other then existing or subsequent breach.
Section 6.10. DISCONTINUANCE OF PROCEEDINGS AND RESTORATION OF STATUS
QUO. In case the Mortgagee shall have proceeded to enforce any right, power or
remedy under this Series 1989D Mortgage by foreclosure, entry or otherwise, and
such proceedings shall have been discontinued or abandoned for any reason, or
shall have been determined adversely to the Mortgagee, then and in every case
the Mortgagor and the Mortgagee shall be restored to their former positions and
rights hereunder, and all rights, powers and remedies of the Mortgagee shall
continue as if no such proceeding had been taken.
(End of Article VI)
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ARTICLE VII
MISCELLANEGUS
Section 7.1. ADDITIONAL SECURITY. Without notice to or consent of
the Mortgagor and without impairment of the lien and rights created by this
Series 1989D Mortgage, the Mortgagee may accept from the Mortgagor or from any
other person or persons, additional security for the indebtedness secured by
this Series 1989D Mortgage. Neither the giving of this Series 1989D Mortgage
nor the acceptance of any such additional security shall prevent the Mortgagee
from resorting, first, to such additional security, or first, to the security
created by this Series 1989D Mortgage, in either case without affecting the
lien hereof and the rights conferred hereunder.
Section 7.2. RELEASE OF SERIES 1989D MORTGAGED PROPERTY AND EASEMENTS.
At the request of the Mortgagor, the Mortgagee may, at any time and from time to
time, consent to, join in or permit a release of any part of the Series 1989D
Mortgaged Property or the granting of any easements, licenses, party wall rights
and rights of lateral support with respect to the Series 1989D Project Site or
the Series 1989D Project Facilities; provided, that the Mortgagee shall have
determined that any of the foregoing is not prejudicial to the Holders of the
Bonds and does not impair the value of the Series 1989D Mortgaged Property as
security under this Series 1989D Mortgage. None of the foregoing shall impair
in any manner the validity, or except as specifically provided therein the
priority, of this Series 1989D Mortgage. Any moneys received by the Mortgagee
pursuant to this Section shall be applied as provided in Section 4.6 of the
Series 1989D Agreement.
Section 7.3. RELEASE AND DISCHARGE. If all of the Financing Payments
under the Series 1989D Agreement shall have been paid and all other sums payable
under this Series 1989D Mortgage, the Series 1989D Note and the Series 1989D
Agreement by the Mortgagor shall have been paid and the Mortgagor shall have
complied with all the terms, conditions and requirements hereof, of the Series
1989D Agreement and of the Series 1989D Note, then this Series 1989D Mortgage
shall be null and void and of no further force and effect. Upon the written
request and at the expense of the Mortgagor, the Mortgagee will execute and
deliver such proper instruments of release and discharge as may reasonably be
requested to evidence such defeasance, release and discharge.
Notwithstanding any termination of this Series 1989D Mortgage, any
payment of any or all of the Series 1989D Bonds or any discharge of the Series
1989D Supplemental Indenture, if a Determination of Taxability (as defined in
the Series 1989D Supplemental Indenture) shall occur with respect to the Series
1989D Bonds, the Mortgagor shall pay all additional amounts it is required to
pay under the Series 1989D Supplemental Indenture at the time provided by the
Series 1989D Supplemental Indenture.
Section 7.4. INSPECTION. The Mortgagee and its representatives are
hereby authorized to enter upon and inspect the Series 1989D Mortgaged Property
at any time during normal business hours during the term of this Series 1989D
Mortgage.
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<PAGE>
Section 7.5. EXPENSES. The Mortgagor will, to the extent permitted
by law, immediately upon demand pay or reimburse the Mortgagee for all
attorneys' fees, costs and expenses incurred by the Mortgagee in any
proceedings involving an insolvent or a debtor under federal bankruptcy law,
or in any action, proceeding or dispute of any kind in which the Mortgagee is
made a party, or appears as an intervenor or party plaintiff or defendant,
affecting or relating to the Series 1989D Note secured hereby, this Series
1989D Mortgage or the Series 1989D Agreement, the Mortgagor or any of the
Series 1989D Mortgaged Property, including, but not limited to, the
foreclosure of this Series 1989D Mortgage, any condemnation action involving
the Series 1989D Mortgaged Property, or any action to protect the security
hereof, and any such amounts paid by the Mortgagee shall, except as may be
limited by law or judicial order or decision entered in any action to
foreclose this Series 1989D Mortgage, be added to the indebtedness secured
hereby and secured by the lien and security interest of this Series 1989D
Mortgage and shall bear interest at the Interest Rate for Advances.
Section 7.6. BOOKS, RECORDS AND ACCOUNTS. The Mortgagor will keep and
maintain or will cause to be kept and maintained proper and accurate books,
records and accounts reflecting all items of income and expense in connection
with the operation of the Series 1989D Mortgaged Property or in connection
with any services, equipment or furnishings provided in connection with the
operation of the Series 1989D Mortgaged Property, whether such income or
expenses be realized by the Mortgagor or by any other person or entity
whatsoever excepting sublessors unrelated to and unaffiliated with the
Mortgagor and who leased from the Mortgagor portions of the Series 1989D
Mortgaged Property for the purposes of occupying same. The Mortgagee and its
designee shall have the right from time to time at all times during normal
business hours to examine such books, records and accounts at the office of
the Mortgagor or other person or entity maintaining such books, records and
accounts and to make copies or extracts thereof as the Mortgagee shall desire.
Section 7.7. ESTOPPEL AFFIDAVITS. The Mortgagor, within ten days
after written request from the Mortgagee, shall furnish a written statement,
duly acknowledged, setting forth the unpaid principal of and interest on the
indebtedness secured hereby and whether or not any offsets or defenses exist
against such principal and interest.
Section 7.8. SUBROGATION. The Mortgagee shall be subrogated to the
claims and liens of all parties whose claims or liens are discharged or paid
with the proceeds of the indebtedness secured hereby.
Section 7.9. NO MERGER. It being the desire and intention of the
parties hereto that this Series 1989D Mortgage and the lien thereof do not merge
in fee simple title to the Series 1989D Mortgaged Property, it is hereby
understood and agreed that should the Mortgagee acquire any additional or other
interests in or to the Series 1989D Mortgaged Property or the ownership thereof,
then, unless a contrary intent is manifested by the Mortgagee as evidenced by an
appropriate document duly recorded, this Series 1989D Mortgage
- 26 -
<PAGE>
and the lien thereof shall not merge in the fee simple title, that this Series
1989D Mortgage may be foreclosed as if owned by a stranger to the fee simple
title.
Section 7.10. GENERAL PROVISIONS. This Series 1989D Mortgage shall
be deemed to be made under the laws of the State and for all purposes shall be
governed by and construed in accordance with the laws of the State and shall
inure to the benefit of and be binding upon the Mortgagor, the Mortgagee and
their respective permitted successors and assigns. If any term or provision of
this Series 1989D Mortgage shall be held to be invalid, illegal or
unenforceable, the validity of the remaining provisions hereof shall in no way
be affected thereby. The captions or headings herein shall be solely for
convenience.
In the event of the issuance of Additional Series 1989D Bonds, this
Series 1989D Mortgage may not be effectively cancelled, changed, modified or
altered without written title evidence that the Trustee, as holder of the
Series 1989D Mortgage and of any amendments or supplements thereto relating to
those Additional Series 1989D Bonds, will have a valid, direct first mortgage
upon the Series 1989D Mortgaged Property constituting real property subject only
to (i) taxes and assessments which are not delinquent, and (ii) liens and
encumbrances permitted by the terms and provisions of this Series 1989D
Mortgage, as so supplemented or amended. The title evidence shall consist of an
American Land Title Association form of loan policy of title insurance, or a
commitment therefor, in usual and customary form in a face amount acceptable to
the Mortgagee. The policy or the commitment therefor shall be issued by a title
company authorized to transact business in the State, selected by the Mortgagor
and approved by the Mortgagee.
Section 7.11. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as
otherwise provided herein, this Series 1989D Mortgage may not be effectively
amended, changed, modified, altered or terminated without the prior written
consent of the Mortgagee.
Section 7.12. DELIVERY AND ASSIGNMENT OF LEASES. The Mortgagor shall
execute and deliver to the Mortgagee, concurrently with the execution and
delivery of any lease of any portion of the Series 1989D Project, a collateral
assignment of its interest as lessor with respect to that lease and, as
executed, any further such leases, in form and substance satisfactory to the
Mortgagee, pursuant to which the Mortgagor assigns its interest in the
respective lease and all said leases, and to the rents and profits thereunder,
as additional collateral for the indebtedness hereby secured.
The Mortgagor will perform, fulfill, comply with and observe, each and
every covenant, agreement and condition to be performed, fulfilled, complied
with and observed by the Mortgagor, as lessor under any such leases, and will
not suffer or permit any default of the Mortgagor as lessor thereunder to occur
(except defaults which are duly cured within the time provided in such lease for
the curing thereof).
- 27 -
<PAGE>
The Mortgagor shall not accept prepayment of installments of rent or
other sums due or to become due thereunder without the consent of the
Mortgagee.
(End of Article VII - next page is execution page)
- 28 -
<PAGE>
IN WITNESS WHEREOF, the Mortgagor has executed this Series 1989D
Mortgage as of the date hereof.
Signed and acknowledged ENVIRONMENTAL PURIFICATION
in the presence of: INDUSTRIES COMPANY
By National Purification, Inc.,
General Partner
/s/ /s/
- ------------------------------ -----------------------------------
Vice President
and
By Haden Purification, Inc.,
General Partner
/s/ /s/
- ------------------------------ -----------------------------------
Witnesses as to Mortgagor Secretary-Treasurer
- 29 -
<PAGE>
Exhibit 10.13
TERM NOTE
$300,000 Cleveland, Ohio
February 29, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to pay
to the order of NATIONAL CANADA FINANCE CORP. ("Bank") the principal amount of
THREE HUNDRED THOUSAND DOLLARS ($300,000) as hereinafter provided, with interest
on the unpaid principal balance from time to time outstanding at a rate per
annum equal to one and one-half (1 1/2) percentage points above Bank's Base Rate
(as defined in the Loan Agreement, as described below). Interest shall be
payable monthly commencing on March 31, 1996, and continuing on the last day of
each month thereafter until the entire principal amount has been repaid in full.
Any increase or decrease in the interest rate resulting from a change in Bank's
Base Rate shall become effective on the date of such change. Interest shall be
computed on a 360-day year basis based on the actual number of days elapsed.
The undersigned agree to pay the principal of this Term Note (the "Note")
in full on June 30, 1996.
Payment of the principal of and interest on this Note shall be made in
lawful money of the United States of America to Bank at 125 West 55th Street,
New York, New York, or at such other place as the holder shall have designated
to the undersigned in writing.
This Note is issued pursuant to the Loan And Security Agreement, entered
into by and among Meridian National Corporation, Ottawa River Steel Co.,
National Metal Processing, Inc., Interstate Metal Processing, Inc., Precise Pac,
Inc., Meridian Environmental Services, Inc. (collectively "Borrowers") and Bank
of New England, N.A., dated December 9, 1989, as amended (the "Loan Agreement"),
to which reference is hereby made for a statement of the rights and obligations
of Bank and the duties and obligations of the Borrowers in relation thereto, but
neither this reference to the Loan Agreement nor any provision thereof shall
affect or impair the absolute and unconditional obligation of the undersigned to
pay the principal of, and interest on, this Note when due.
This Note is secured by, among other things, the security interests and
liens described in the Loan Agreement.
The undersigned may prepay all or any portion of this Note at any time and
in any amount without penalty.
Page 1 of 3
<PAGE>
In the event the undersigned fail to pay, when due, any principal or
interest owed under this Note, or upon the occurrence of an Event of Default (as
defined in the Loan Agreement) which has not been waived in writing by Bank, the
undersigned shall pay Bank interest on the daily average balance of all amounts
outstanding under this Note at a rate per annum (the "Default Rate") of two (2)
percentage points plus the rate otherwise applicable to all amounts outstanding
under this Note from the date when due or the date such Event of Default has
occurred, as applicable, until all amounts due herein are paid in full or such
Event of Default has been waived by Bank; provided, however, that the Default
Rate shall not exceed the maximum rate permitted by applicable law.
Upon the nonpayment or partial payment of any payment of principal or
interest or any other obligation due and owing to Bank, all or any portion of
the principal and interest due or to become due under this Note shall become at
once due and payable at the option of the holder of this Note without notice,
demand, presentment, or dishonor, which the undersigned hereby waive.
The undersigned agree to pay upon default the costs of collection including
reasonable fees of attorneys.
No delay or omission on the part of the holder in exercising any right
under this Note shall operate as a waiver of such right or of any other right of
such holder, nor shall any delay, omission or waiver on any one occasion be
deemed a bar to or waiver of the same or any other right on any future occasion.
The undersigned and every endorser of this Note regardless of the time, order or
place of signing waive presentment, demand, protest and notices of every kind
and assent to any one or more extensions or postponements of the time of payment
or any other indulgences, and to any substitutions, exchanges, or releases of
any other parties or persons primarily or secondarily liable.
The undersigned authorize any attorney-at-law to appear before any court of
record, state or Federal, in the county of the State of Ohio in which this Note
was executed or in any other State of the United States of America after the
unpaid principal of this Note becomes due, waive the issuance and service of
process, admit the maturity of this Note, confess judgment against the
undersigned in favor of Bank for the amount then appearing due, together with
interest thereon and costs of suit, and thereupon to release all errors and
waive all rights of appeal and stay of execution. The foregoing warrant of
attorney shall survive any judgment, it being understood that should any
judgment be vacated for any reason, the foregoing warrant of attorney
nevertheless may thereafter be used for obtaining an additional judgment or
judgments.
Page 2 of 3
<PAGE>
This Note is being executed and delivered in Cleveland, Ohio.
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIE A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT,
OR ANY OTHER CAUSE.
ENVIRONMENTAL PURIFICATION MERIDIAN NATIONAL CORPORATION
INDUSTRIES, INC.
By: /s/ By: /s/
---------------------------------- ---------------------------
Title: President Title: Secretary
------------------------------- ------------------------
Page 3 of 4
<PAGE>
[LOGO]
June 4, 1996
Mr. Jack Jankovic
National Canada Finance
One Cleveland Center, Suite 2430
1375 East 9th Street
Cleveland, OH 44114
Dear Jack:
As we have discussed, we are requesting a one month extension of the due date
to July 31, 1996 on the $300,000 EPI Term Loan. Would you please indicate
your approval by signing below and returning an executed copy at your earliest
convenience. We appreciate your assistance in this matter.
Sincerely,
MERIDIAN NATIONAL ENVIRONMENTAL PURIFICATION
CORPORATION INDUSTRIES, INC.
/s/ JAMES L. ROSINO /s/ BRUCE F. MAISON
- ------------------------------- ------------------------------
James L. Rosino Bruce F. Maison
Vice President - Finance President
National Canada Finance Corp. consents to the extension of the due date of
the $300,000 EPI Term Note to July 31, 1996 referred to in this letter.
By: /s/ JACK JANKOVIC
--------------------------------
Jack Jankovic
National Canada Finance Corp.
Page 4 of 4
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES
OF
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC.
Name Jurisdiction of Organization
---- ----------------------------
1. National Purification, Inc. an Ohio corporation
2. MEPI Corp. an Ohio corporation
3. Environmental Purification an Ohio general partnership
Industries Company
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Selected
Combined Financial Data," "Selected Combined Financial Data" and "Experts" and
to the use of our reports dated April 26, 1996 (except Note 2 to the balance
sheet of Environmental Purification Industries, Inc., as to which the date is
June 11, 1996), in the Registration Statement (Form S-1) and related Prospectus
of Environmental Purification Industries, Inc. for the registration of 1,380,000
shares of its Common Stock and 1,380,000 redeemable warrants to purchase Common
Stock.
Ernst & Young LLP
Toledo, Ohio
July 3, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Combined Financial Statements of the Company included elsewhere in this
Registration Statement and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-29-1996
<PERIOD-END> FEB-29-1996
<CASH> 26,014
<SECURITIES> 0
<RECEIVABLES> 525,081
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 607,577
<PP&E> 3,464,291
<DEPRECIATION> 1,813,876
<TOTAL-ASSETS> 2,965,708
<CURRENT-LIABILITIES> 3,469,261
<BONDS> 2,036,847
0
0
<COMMON> 600
<OTHER-SE> (2,541,000)
<TOTAL-LIABILITY-AND-EQUITY> 2,965,708
<SALES> 0
<TOTAL-REVENUES> 3,533,514
<CGS> 0
<TOTAL-COSTS> 3,241,358
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 431,798
<INCOME-PRETAX> (139,642)
<INCOME-TAX> 0
<INCOME-CONTINUING> (139,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (139,642)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
