<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 2, 1997
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EPI TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 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) 727-0495
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
REAL P. REMILLARD
810 CHICAGO STREET
TOLEDO, OHIO 43611
(419) 727-0495
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent For Service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Lawrence M. Bell, Esq. James Martin Kaplan, Esq.
Ira C. Kaplan, Esq. Zimet, Haines, Friedman & Kaplan
Benesch, Friedlander, Coplan & Aronoff 460 Park Avenue
LLP
2300 BP America Building New York, New York 10022
200 Public Square
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 OFFERING PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO PRICE PER SHARE OF AGGREGATE
SECURITIES TO BE REGISTERED BE REGISTERED WARRANT (1) OFFERING PRICE (1)
<S> <C> <C> <C>
Shares of Common Stock, par value $.01 per share ("Common
Stock") (2)..................................................... 1,437,500 $5.00 $7,187,500
Redeemable Warrants to purchase Common Stock ("Warrants") (3).... 1,437,500 $.10 $143,750
Shares of Common Stock underlying Warrants (4)................... 1,437,500 $5.50 $7,906,250
Underwriter's Warrant to purchase Common Stock and Warrants...... 1 $.001 $0
Shares of Common Stock underlying Underwriter's Warrant (4)...... 125,000 $5.50 $687,500
Warrants underlying Underwriter's Warrant........................ 125,000 $.11 $13,750
Shares of Common Stock underlying Warrants issuable upon exercise
of Underwriter's Warrant (4).................................... 125,000 $6.05 $756,250
Total............................................................ $16,695,000
<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)..................................................... $2,178.03
Redeemable Warrants to purchase Common Stock ("Warrants") (3).... $43.56
Shares of Common Stock underlying Warrants (4)................... $2,395.83
Underwriter's Warrant to purchase Common Stock and Warrants...... $0
Shares of Common Stock underlying Underwriter's Warrant (4)...... $208.33
Warrants underlying Underwriter's Warrant........................ $4.17
Shares of Common Stock underlying Warrants issuable upon exercise
of Underwriter's Warrant (4).................................... $229.17
Total............................................................ $5,059.09
</TABLE>
(1) Estimated solely for the purpose of determining the registration fee.
(2) Includes 187,500 shares of Common Stock which may be purchased by the
Underwriter to cover overallotments.
(3) Includes 187,500 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
anti-dilution 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;
Summary Selected Consolidated Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of Operations;
Business; Management; Principal Stockholders;
Relationships Between the Company and Meridian;
Certain Other Relationships and Related
Transactions; Description of Securities; Shares
Eligible for Future Sale; 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>
[LOGO]
PRELIMINARY PROSPECTUS DATED OCTOBER 2, 1997
SUBJECT TO COMPLETION
EPI TECHNOLOGIES, INC.
1,250,000 SHARES OF COMMON STOCK AND
1,250,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
This Prospectus relates to an offering ("Offering") by EPI Technologies,
Inc. (the "Company") of 1,250,000 shares of Common Stock, $.01 par value
("Common Stock"), and 1,250,000 redeemable Common Stock purchase warrants
("Warrants"), through Duke & Co., Inc. (the "Underwriter"). The shares of Common
Stock and the Warrants may be purchased separately and will be transferable
immediately after issuance.
Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an exercise price of $5.50 per share, subject to adjustment in
certain events, for a period of three years commencing two years after the date
of this Prospectus. The Warrants are subject to redemption by the Company, after
obtaining the approval of the Underwriter, at $.10 per Warrant, at any time
commencing two years after the date of this Prospectus on at least 30 days prior
written notice to the holders of the Warrants, provided the closing bid price of
the Common Stock as reported on The Nasdaq Stock Market or a national securities
exchange has been at least $8.25 per share on each of 20 consecutive trading
days following the second anniversary of the date of this Prospectus, and
provided that such consecutive trading days end not more than three business
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 $5.00 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 negotiations
between the Company and the Underwriter and do not necessarily bear any direct
relationship to the Company's assets, operating results, 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 Common Stock has been
owned by Meridian National Corporation ("Meridian") and certain investors. As a
result of this Offering, Meridian's beneficial ownership of the Common Stock
will be reduced from 80% to 40% (or 37.2% if the Underwriter's Overallotment
Option (defined below) is exercised in full). 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 9) AND "DILUTION" (PAGE
21).
------------------------
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>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS (1) COMPANY (2)
<S> <C> <C> <C>
Per Share....................................... $5.00 $.50 $4.50
Per Warrant..................................... $.10 $.01 $.09
Total (3)....................................... $6,375,000 $637,500 $6,598,125
</TABLE>
(FOOTNOTES APPEAR ON P. 2)
The Common Stock and the Warrants are being offered by the Underwriter,
subject to prior sale, when, as and if delivered to the Underwriter and subject
to the approval of certain legal matters by counsel and certain other
conditions. The Underwriter reserves the right, pursuant to the terms of the
Underwriting Agreement, 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 offices of the
Underwriter, 909 Third Avenue, New York, New York 10022, on or about
, 1997.
DUKE & CO., INC.
THE DATE OF THIS PROSPECTUS IS , 1997.
<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, $25,000 of which has been paid by the Company; (b) a
warrant (the "Underwriter's Warrant") entitling the Underwriter to purchase
up to 125,000 shares of Common Stock and 125,000 Warrants, at a price of
$5.50 per share of Common Stock and $.11 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 two years from the
date of this Prospectus at the rate of $50,000 per year (the "Consulting
Fee"), payable annually 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 and to pay the Underwriter a
fee (based on the "Lehman Formula" and commencing with 5% of the first
$5,000,000 of consideration) in the event that the Underwriter originates a
financing, merger, acquisition, joint venture or other transaction to which
the Company is a party. 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 (a) the Underwriter's non-accountable expense allowance
($191,250, or $219,938 if the Underwriter's Overallotment Option is
exercised in full), (b) the Consulting Fee ($100,000), and (c) the other
expenses of this Offering (estimated to aggregate $290,000). 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 187,500 shares of Common Stock and 187,500 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
$7,331,250, $733,125, and $6,598,125, respectively. See "Underwriting."
------------------------
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, 1998, 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE OR MAINTAIN THE PRICE OF THE COMMON STOCK AND WARRANTS AT A LEVEL
ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION
MAY TAKE PLACE ON THE NASDAQ SMALLCAP MARKET. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ IN ACCORDANCE WITH RULE
103 OF REGULATION M. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY MUST BE READ IN CONJUNCTION WITH THE MORE DETAILED
INFORMATION (INCLUDING THE RISK FACTORS) AND FINANCIAL STATEMENTS, 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, (II) A 10,000 TO ONE STOCK SPLIT WHICH WAS
EFFECTED IN AUGUST 1997 AND RESULTED IN THE COMPANY HAVING 1,250,000 SHARES OF
COMMON STOCK ISSUED AND OUTSTANDING, AND (III) AN INITIAL OFFERING PRICE OF
$5.00 PER SHARE OF COMMON STOCK AND $.10 PER WARRANT. THE COMPANY IS A HOLDING
COMPANY AND, UNLESS OTHERWISE INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO
THE "COMPANY" ARE TO THE COMPANY AND ITS CONSOLIDATED SUBSIDIARIES. REFERENCES
HEREIN TO "FISCAL 1997", "FISCAL 1996" AND "FISCAL 1995" DESCRIBE THE COMPANY'S
FISCAL YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995,
RESPECTIVELY.
THE COMPANY
The Company is one of the first commercial paint waste recyclers in the
United States. Since 1991, the Company has processed over 76,500,000 pounds of
paint waste through its recycling facility, including 7,900,000, 14,200,000 and
14,700,000 pounds of paint waste during the six months ended August 31, 1997 and
the years ended February 28, 1997 and February 29, 1996, respectively. The
Company estimates that the annual worldwide generation of paint waste exceeds
3.7 billion pounds, approximately 1.8 billion pounds of which are generated in
the United States. The Company processes hazardous and non-hazardous industrial
paint waste for its customers and creates a recycled product, EPI-PURE-TM-. In
addition to offering its customers an alternative that substantially eliminates
the "cradle to grave" disposal liability otherwise associated with the
generation of hazardous paint waste, the Company believes that the use of its
recycling technologies contributes to the protection of the environment,
conserves vital resources and offers a responsible solution to many of today's
paint waste disposal problems.
The Company uses two different systems to recycle paint waste: the patented
DryPure-TM- system, which generates a resultant dry powder (EPI-PURE-TM-) and
which the Company typically sells as a filler in the formulation of certain
building and construction products; and the Polymeric Recovery System, the
patented paint waste recycling technology which the Company has recently
installed in its Toledo, Ohio facility and which is currently undergoing a
start-up phase of production. Along with increasing the Company's processing
capacity, the Polymeric Recovery System produces a recycled product
(EPI-MER-TM-), which the Company intends to sell as a lower cost replacement for
traditional, virgin materials used in formulated products. The Company is
currently marketing EPI-MER-TM- to approximately ten potential customers,
including those in the sealant, coating and adhesive industries. The Company
believes that EPI-MER-TM- has a greater range of commercial applications than
EPI-PURE-TM- and that it can be sold at higher margins than EPI-PURE-TM-, which
currently represents less than 2% of the Company's annual sales revenue. For
these reasons, management believes that the Company's profitability is
substantially dependent on sales of EPI-MER-TM-. There can be no assurance that
the Company will be able to construct and operate the Polymeric Recovery System
in a way that will enable it to recycle paint waste in a commercially viable
manner. In addition, although the Company believes that a commercial market
exists for EPI-MER-TM-, there can be no assurance that the Company will be able
to market and sell EPI-MER-TM- on a profitable basis or at all. See "Risk
Factors -- Commercial Viability of the Polymeric Recovery System" and "-- No
Current Sales of EPI-MER-TM-; Developing Market for a New Product."
The Company markets its paint waste recycling services to businesses that
have spray painting operations that collect paint overspray (wastes) in water
wash spray booths, which are typically used in industrial spray painting
operations. 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 by maintaining stringent quality controls, the Company has
established a reputation in the industry of addressing these customer needs.
Generally, the Company's target market for selling EPI-MER-TM- is different from
the customers for which the Company currently recycles paint waste or to which
the Company sells EPI-PURE-TM-. Accordingly, the Company will be required to
develop a new market and relationships with new customers prior to generating
substantial sales of EPI-MER-TM-. The Company intends to use its current sales
force to market and sell EPI-MER-TM-.
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
3
<PAGE>
main disposal alternatives, landfilling and incineration. Using the Company's
licensed technologies, paint waste generators pay two to four times more to
recycle paint waste as compared to landfilling 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.
The Company believes many generators of hazardous and non-hazardous paint waste
are willing to pay the higher cost of recycling to substantially eliminate the
generators' exposure to potential, long-term costs associated with the disposal
alternatives. Approximately 15% of the paint waste processed by the Company is
hazardous. By recycling hazardous paint waste, these companies avoid liability
as "potential responsible parties" of landfills where their paint waste is
disposed and which may be declared Superfund clean-up sites. Additionally, the
Company's customers substantially avoid the potentially adverse impact of
changing environmental laws and regulations. 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. In addition, the
Company's business is dependent upon certain patented technologies licensed from
two separate, non-affiliated companies, one of which, Haden Environmental
Corporation ("Haden Environmental"), is a direct competitor of the Company. See
"Risk Factors -- Dependence on Licensed Technology" and "-- Competition."
The Company's current business strategy is to grow its business by
commercializing the Polymeric Recovery System technology through the following
steps: (i) developing a market for and selling EPI-MER-TM-, for use as a lower
cost replacement for traditional, virgin materials used in formulated products;
(ii) the construction, ownership and operation of up to five customized
Polymeric Recovery Systems on-site at large automotive assembly plants in the
United States ("on-site facilities"); and (iii) the 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 which individually generate lesser amounts of paint waste. The Company
has submitted proposals for on-site facilities to three automotive assembly
plants, two of which are present customers of the Company. However, the Company
has no current commitments for the installation of any on-site facilities. The
Company believes that as a result of the implementation of its business strategy
to commercialize the Polymeric Recovery System (a) certain 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) on-site
facilities using the Polymeric Recovery System will decrease the price barrier
for the Company's services by eliminating the cost borne by paint waste
generators to transport paint waste to the Company's Toledo, Ohio facility. See
"Risk Factors -- Capital Requirements; Potential Unavailability of Additional
Financing" and "Business -- Marketing Strategy; Proposed Expansion Program."
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 subsidiary to hold all of the
outstanding stock and partnership interests of 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"). In November 1996, the Company issued shares of
Common Stock representing an aggregate 20% interest in the Company for $600,000
to three non-affiliated investors (the "Minority Stockholders"). Prior to the
completion of this Offering, the Company will issue shares of cumulative
dividend paying preferred stock, par value $.01 per share, to Meridian
("Meridian Preferred Stock") in exchange for certain outstanding indebtedness of
the Company to Meridian. The Company estimates it will owe Meridian
approximately $3,998,000 immediately prior to the completion of this Offering,
of which approximately $3,553,000 will be exchanged for the Meridian Preferred
Stock. A portion of the net proceeds of this Offering, $445,000, will be used to
pay the remaining outstanding amount of said debt, which represents interest
accrued on the debt during the period beginning March 1, 1996 and ending
immediately prior to the completion of this Offering this Offering. See
"Relationships Between the Company and Meridian -- Meridian Preferred Stock." As
a result of this Offering, Meridian's beneficial ownership of the Common Stock
will be reduced from 80% to 40% (or 37.2% if the Underwriter's Overallotment
Option is exercised in full). See "Risk Factors -- Absence of Additional
Financial Support from Meridian," "-- Control by Meridian" and "Relationships
Between the Company and Meridian."
Unless the context otherwise requires, as used herein the term "Company"
means EPI Technologies, Inc. and its consolidated subsidiaries. The Company's
principal executive offices are located at 810 Chicago Street, Toledo, Ohio
43611 and its telephone number is (419) 727-0495.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
SECURITIES OFFERED............ 1,250,000 shares of Common Stock and 1,250,000 Warrants.
Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock. The Common Stock and the
Warrants will be separately tradeable and transferable
immediately upon issuance. See "Description of Securities"
and "Underwriting."
OFFERING PRICE................ $5.00 per share of Common Stock and $.10 per Warrant.
COMMON STOCK OUTSTANDING:
PRIOR TO THIS OFFERING...... 1,250,000 shares of Common Stock
AFTER THIS OFFERING (1)..... 2,500,000 shares of Common Stock
WARRANTS OUTSTANDING:
PRIOR TO THIS OFFERING...... (a) 150,000 warrants issued to the Minority Stockholders
(the "Minority Stockholder Warrants"), and (b) 500,000
warrants issued to an investor in a private offering (the
"Bridge Warrants"). See "Description of Securities --
Minority Stockholder Warrants; Bridge Warrants."
AFTER THIS OFFERING (2)..... 1,900,000 Warrants
EXERCISE PRICE OF WARRANTS.... $5.50 per share, subject to adjustment in certain
circumstances. See "Description of Securities -- Warrants."
EXERCISE PERIOD OF WARRANTS... The period commencing , 1999 and expiring ,
2002 (five years after the date of this Prospectus).
REDEMPTION.................... Each Warrant entitles the registered holder thereof to
purchase one share of Common Stock at an exercise price of
$5.50 per share, subject to adjustment in certain events,
for a period of three years commencing two years after the
date of this Prospectus. The Warrants are subject to
redemption by the Company, after obtaining the approval of
the Underwriter, at $.10 per Warrant at any time commencing
two years after the date of this Prospectus on at least 30
days prior written notice to the holders of the Warrants,
provided the closing bid price of the Common Stock as
reported on The Nasdaq Stock Market or a national securities
exchange has been at least $8.25 per share on each of 20
consecutive trading days following the second anniversary of
the date of this Prospectus, and provided that such
consecutive trading days end not more than three business
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 from this
Offering, estimated to aggregate $5,156,250, as follows:
approximately (i) $1,000,000 for the installation of up to
five customized on-site recycling systems; (ii) $600,000 for
the construction of a new facility using the Polymeric
Recovery System in the Southeast region of the United
States; (iii) $550,000 for the partial repayment of the Bank
Debt, including a $50,000 loan closing fee; (iv) $445,000
for the payment of accrued interest due to Meridian; (v)
$255,000 for repayment of a subordinated cognovit promissory
note, including interest (the "Bridge Note"); (vi) $250,000
for U.S. EPA Part B permit approval costs; and (vii)
$2,056,250 for working capital and general corporate
purposes. See "Use of Proceeds" and "Business."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
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 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants offered hereby, (ii) a maximum of 500,000 shares of
Common Stock issuable upon exercise of the Bridge Warrants, (iii) a maximum
of 250,000 shares of Common Stock issuable upon exercise of the
Underwriter's Warrant (including Warrants underlying the Underwriter's
Warrant), (iv) an aggregate of 310,000 shares of Common Stock reserved for
issuance pursuant to options available for grant under the Company's stock
option plans, of which 285,000 have been granted effective upon the
completion of this Offering, and (v) a maximum of 150,000 shares of Common
Stock issuable upon exercise of the Minority Stockholder Warrants. 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) a maximum of 125,000
Warrants issuable upon exercise of the Underwriter's Warrant.
6
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The non- "as adjusted" summary selected consolidated financial data set
forth in the following table has been derived from the Consolidated Financial
Statements of the Company. The statement of operations data for each of the
three fiscal years ended February 28, 1997 and balance sheet data as of February
28, 1997 and February 29, 1996 are derived from the Consolidated Financial
Statements of the Company, which have been audited by Ernst & Young LLP,
independent auditors, and which 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 Consolidated 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,
--------------------------------------------------------------
1997 1996 1995 1994 1993(2)
FEBRUARY 28, -------------- ---------- ---------- ---------- ----------
1997
AS ADJUSTED(1)
----------------
(BALANCE SHEET
ONLY)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 3,417,070 $3,533,514 $3,459,107 $2,530,066 $1,390,695
Operating costs and expenses:
Costs of operations..................... 2,307,086 2,196,322 2,023,815 1,496,040 999,447
Selling, general and administrative..... 1,376,957 1,045,036 941,812 851,546 534,913
-------------- ---------- ---------- ---------- ----------
3,684,043 3,241,358 2,965,627 2,347,586 1,534,360
-------------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (266,973) 292,156 493,480 182,480 (143,665)
Other income (expense):
Interest income......................... 35,584 36,185 30,009 20,192 13,019
Cost of withdrawn registration.......... (275,908) -- -- -- --
Interest expense on external
borrowings............................. (219,736) (243,683) (258,985) (272,304) (193,929)
Interest expense on advances from
Meridian............................... (218,103) (224,300) (186,918) (126,607) (117,318)
Equity in operations of affiliate....... -- -- -- -- (194,154)
-------------- ---------- ---------- ---------- ----------
(678,163) (431,798) (415,894) (378,719) (492,382)
-------------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary
item..................................... (945,136) (139,642) 77,586 (196,239) (636,047)
Extraordinary gain -- extinguishment of
debt..................................... 329,279 -- -- -- --
-------------- ---------- ---------- ---------- ----------
Net income (loss)......................... $ (615,857) $ (139,642) $ 77,586 $ (196,239) $ (636,047)
-------------- ---------- ---------- ---------- ----------
-------------- ---------- ---------- ---------- ----------
Pro forma earnings (loss) per common share
(3):
Pro forma loss before extraordinary
gain................................... $ (0.78)
Extraordinary gain...................... 0.29
--------------
Pro forma net (loss).................... $ (0.49)
--------------
--------------
BALANCE SHEET DATA:
Total assets.............................. 10,291,040 $ 6,129,790 $4,617,583 $4,875,188 4,903,737 $5,234,966
Property and equipment, net............... 3,603,035 3,603,035 1,650,415 1,754,582 1,940,295 1,947,801
Advances from Meridian.................... -- 2,965,468 2,673,429 2,448,752 1,884,509 1,635,059
Long-term debt, less current portion...... 3,483,701 3,983,701 3,395,472 3,997,208 4,517,317 4,948,355
----------------
Receivable from former partner, less
current portion.......................... 1,031,875 1,031,875 1,358,625 1,651,875 1,925,625 2,178,125
Stockholders' equity (net capital
deficiency):
Meridian Preferred Stock................ 3,553,000 -- -- -- -- --
Common stock............................ 25,000 1 1 1 1 1
Paid-in capital......................... 5,712,396 581,145 99 99 99 99
Deficit................................. (3,156,857) (3,156,857) (2,541,000) (2,400,858) (2,478,444) (2,282,205)
---------------- -------------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficiency)... 6,133,539 (2,575,711) (2,540,900) (2,400,758) (2,478,344) (2,282,105)
---------------- -------------- ---------- ---------- ---------- ----------
Cash dividends declared per common
share.................................... N/A 0 0 0 0 0
OTHER OPERATING DATA:
Depreciation and amortization............. $ 338,690 $ 254,586 $ 257,141 $ 249,580 $ 163,739
Capital expenditures...................... 2,147,537 140,294 63,510 114,856 99,086
</TABLE>
- ------------------
N/A -- Not applicable.
(1) "As adjusted" amounts reflect (i) the receipt by the Company of the
estimated net proceeds from this Offering, (ii) the repayment of
approximately $445,000 of interest accrued during the period from March 1,
1996 to the estimated completion date of this Offering on intercompany
advances due to Meridian, (iii) the exchange of the balance of the
intercompany advances due to Meridian of approximately $3,553,000 (based on
an estimate of the intercompany advances which will be due immediately prior
to the date of the completion of this Offering) for Meridian Preferred
Stock, and (iv) the payment of $500,000 to be applied against the Bank Debt
along with a loan closing fee of $50,000.
(2) As described in note 4 of the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus, effective July 1, 1992, MEPI
joined NPI as the sole corporate general partners of EPIC. Prior to July 1,
1992, NPI accounted for its 50% investment in EPIC by the equity method of
accounting. Subsequent to July 1, 1992, NPI and MEPI consolidated EPIC into
their accounts.
(3) Pro forma loss per share assuming a weighted average of 1,153,863 shares of
Common Stock were issued and outstanding after giving effect to a 10,000 to
one stock split which was effected in August 1997 and to certain other
adjustments to reflect the retirement of $500,000 of Bank Debt from the net
proceeds of this Offering.
7
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
SIX MONTHS ENDED AUGUST 31, 1997 AND 1996
The summary selected consolidated financial data set forth in the following
table has been derived from the unaudited Condensed Consolidated Financial
Statements of the Company, including the notes thereto. The statement of
operations data for each of the six months ended August 31, 1997 and 1996 and
balance sheet data as of August 31, 1997 are derived from the unaudited
Condensed Consolidated Financial Statements of the Company, which 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 unaudited
Condensed Consolidated Financial Statements of the Company, including the notes
thereto, and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
AUGUST 31
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................................ $ 1,800,240 $ 1,777,923
Operating costs and expenses:
Costs of operations................................................................ 1,292,014 1,194,977
Selling, general and administrative................................................ 745,611 661,001
------------ ------------
2,037,625 1,855,978
------------ ------------
Loss from operations................................................................. (237,385) (78,055)
Other income (expense):
Interest income.................................................................... 18,526 18,981
Interest expense on external borrowings............................................ (143,334) (116,683)
Interest expense on advances from Meridian......................................... (152,924) (119,974)
------------ ------------
(277,732) (217,676)
------------ ------------
Loss before extraordinary gain....................................................... $ (515,117) $ 295,731
Extraordinary gain -- extinguishment of debt......................................... -- 329,279
------------ ------------
Net income (loss).................................................................... $ (515,117) $ 33,548
------------ ------------
------------ ------------
Pro forma earnings (loss) per common share (1):
Pro forma loss before extraordinary gain........................................... $ (0.36) $ (0.26)
Extraordinary gain................................................................. -- 0.31
------------ ------------
Pro forma net income (loss)........................................................ $ (0.36) $ 0.05
------------ ------------
------------ ------------
BALANCE SHEET DATA:
Total Assets......................................................................... $ 6,264,392 $ 5,821,367
Property and equipment, net.......................................................... 3,719,750 2,733,901
Advances from Meridian............................................................... 3,645,702 3,025,234
Long-term debt, less current portion................................................. 1,733,290 2,392,500
Receivable from former partner, less current portion................................. 860,625 1,196,250
Stockholders' equity (net capital deficiency)........................................ (3,065,936) (2,507,351)
Cash dividends declared per common share............................................. 0 0
OTHER OPERATING DATA:
Depreciation and amortization........................................................ $ 220,323 $ 139,591
Capital expenditures................................................................. 287,595 313,863
</TABLE>
- ----------------
(1) Pro forma loss per share assuming a weighted average of 1,350,000 and
1,068,087 shares of Common Stock were issued and outstanding during the six
months ended August 31, 1997 and August 31, 1996, respectively, after giving
effect to a 10,000 to one stock split which was effected in August 1997 and
to certain other adjustments to reflect the retirement of $500,000 of Bank
Debt from the net proceeds of this Offering.
8
<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. ACCUMULATED NET LOSSES; WORKING CAPITAL DEFICIENCY; ANTICIPATED FUTURE
LOSSES. At August 31, 1997, the Company had accumulated losses of $3,672,000,
which include losses incurred while 50% of the partnership interests of EPIC
were owned by another company, and had a working capital deficiency of
$6,594,000. Excluding advances from Meridian which will be converted to Meridian
Preferred Stock prior to the completion of this Offering, the working capital
deficiency at August 31, 1997 would have been $3,041,000. The Company has
experienced operating losses during the six months ended August 31, 1997 and
five of its six years of operations. The Company expects such losses to continue
until it generates significant sales of EPI-MER-TM-, the recycled product
produced by the Polymeric Recovery System. Accordingly, management believes that
the Company's profitability is substantially dependent on sales of EPI-MER-TM-.
Further, the Company believes that the DryPure-TM- system, its current paint
waste processing system, as designed, will not generate significant future
profits for the Company. There can be no assurance that the Company will be
profitable in the future. See " -- No Current Sales of EPI-MER-TM-; Developing
Market for a New Product" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
2. COMMERCIAL VIABILITY OF THE POLYMERIC RECOVERY SYSTEM. The Company
constructed and installed the Polymeric Recovery System under a license
agreement with Aster, Inc., a privately held company ("Aster"). The installed
Polymeric Recovery System is currently undergoing a start-up phase of
production. There can be no assurance that the Company's Polymeric Recovery
System at its Toledo, Ohio facility will be commercially viable or that the
Company will be able to sell, construct and operate the customized on-site
facilities. Additionally, the Company estimates that the first customized
on-site facility will be developed within the next two years and that two years
will be required to construct and develop the second facility using the
Polymeric Recovery System in the Southeast region of the United States. There
are no current commitments for installation of on-site facilities and the
Company has not selected a site in the Southeast 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 market
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."
3. NO CURRENT SALES OF EPI-MER-TM-; DEVELOPING MARKET FOR A NEW
PRODUCT. Management believes that the Company's profitability is substantially
dependent on sales of EPI-MER-TM-. The Company believes that EPI-MER-TM- can be
used to formulate a broader range of materials than EPI-PURE-TM-, the recycled
product produced by the DryPure-TM- system, including adhesives, sealants,
caulks, cements, coatings and other related products. Generally, the Company's
target market for selling EPI-MER-TM- is different from the customers for which
the Company recycles paint waste or to which the Company sells EPI-PURE-TM-.
Accordingly, the Company will be required to develop a new market and
relationship with new customers prior to generating substantial sales of
EPI-MER-TM-. In addition, in order to generate sales of EPI-MER-TM-, (i) the
recycled product must meet the same performance characteristics as the material
it replaces, (ii) it must be priced competitively relative to the material
EPI-MER-TM- is replacing and other alternatives which exist for the Company's
prospective customer, and (iii) the Company must be able to produce sufficient
quantities of EPI-MER-TM- to satisfy the customer's processing requirements. To
date, the Company has not sold any EPI-MER-TM-. Although the Company believes a
commercial market exists for EPI-MER-TM-, there can be no assurance that the
Company will be able to successfully market and sell EPI-MER-TM- on a profitable
basis or at all. See "Business -- Recycled Product Market," "-- Marketing
Strategy; Proposed Expansion Program" and "-- Description of Processes."
9
<PAGE>
4. DEPENDENCE ON LICENSED TECHNOLOGY. The Company's business depends on
the use of certain patented technologies licensed from Aster and Haden
Environmental. Although the Company is not aware of any claims challenging the
validity of the patents licensed to the Company by Aster and Haden
Environmental, 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 -- Technology Licenses."
5. ABSENCE OF ADDITIONAL FINANCIAL SUPPORT FROM MERIDIAN. Since its
inception, the Company has been dependent on Meridian for substantial financial
support, as well as for various services. Meridian does not intend to continue
to provide additional 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 (the "Mortgage Note") to the Toledo Lucas
County (Ohio) Port Authority which had an outstanding principal balance of
$2,393,000 at August 31, 1997, and (ii) the Company's obligations under an
employment agreement between the Company and Bruce F. Maison, President and
Chief Executive Officer of the Company. In the event that Meridian should ever
become insolvent or declare bankruptcy, the entire balance of the Mortgage Note
will become due and payable. Accordingly, the Company is substantially dependent
on the continuation of Meridian as a going concern. Meridian has a working
capital deficiency and has incurred losses in four of its last five years.
6. COMPETITION. Approximately 99% of all paint waste in the United States
is disposed of through either landfilling or incineration, both of which
generally offer substantially lower costs to generators of paint waste.
Landfilling 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 landfilling and incineration is
dependent on current stringent environmental regulatory laws and regulations. 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 water wash spray booths
by companies that have spray painting operations. The introduction of new
technology that replaces water wash 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, Haden Environmental, Salem
Environmental Services and Nortru, a division of Philip Environmental Services,
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 less expensive than recycling utilizing the Polymeric Recovery
System or the DryPure-TM- system. 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."
Management believes that currently there are no recycled products similar to
EPI-MER-TM- which are sold as a lower cost replacement for traditional, virgin
materials used in formulated products. However, no assurances can be given that
current suppliers of traditional, virgin materials which would be replaced by
EPI-MER-TM- will not lower their prices to compete with EPI-MER-TM-. In
addition, no assurances can be given that companies with substantially greater
resources than the Company will not enter the replacement market for
traditional, virgin materials in formulated products. See "Business --
Competition."
7. LIMITED NUMBER OF POTENTIAL CUSTOMERS FOR ON-SITE FACILITIES. The
Company intends to target the automotive market for the sale of on-site
facilities, which represents approximately 10% of the total United States paint
waste market. The Company believes that only 34 of the 68 automotive assembly
plants in the United States generate sufficient paint waste to justify the
purchase of a Polymeric Recovery System. This limited number of potential
customers may negatively impact the Company's ability to sell on-site
facilities.
10
<PAGE>
There can be no assurance that the Company will be able to sell, finance and
operate on-site Polymeric Recovery Systems. The failure to generate such sales
could have a material adverse effect on the financial condition, operations and
liquidity of the Company. See "Business -- Paint Waste Processing Market."
8. 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. However, the Company will be subject to other state
environmental laws and regulations after it installs on-site facilities outside
the State of Ohio and develops the general waste processing facility in the
Southeast region of the United States. No assurances can be given that such
other state environmental laws or regulations or that future changes in
environmental laws, regulations, or interpretations currently applicable to the
Company 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."
9. IMPACT OF DENIAL OF U.S. EPA PERMIT. In July 1994, the Company
submitted an application with the U.S. Environmental Protection Agency (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 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 is operating under interim status until a final
determination on its application for a Part B permit is made by the U.S. EPA.
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 materially adversely impact the Company's relations with
its customers. Additionally, the Company estimates that the testing requirements
necessary to demonstrate compliance with the U.S. EPA's standards for approval
of a Part B permit or capital expenditures necessary to eliminate the need for a
Part B permit will cost approximately $250,000. Although the Company continually
evaluates its alternatives in the event that its application for a Part B permit
is denied, denial of such a permit could have a material adverse effect on the
financial condition, operations and liquidity of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources," "Business -- Development of the Paint Waste
Recycling Business" and "-- Environmental Standards and Government Regulation."
10. BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately $2,056,250,
or 39.9%, of the estimated $5,156,250 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, the Company does not expect to
spend approximately $1,850,000, or 35.6% of the estimated net proceeds from this
Offering, which are designated for specific projects, within the next year.
Further, 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."
11. 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. In addition, although
approximately 55% of the Company's customers (representing approximately 82% of
the Company's current sales volume) have been customers of the Company since
1994, substantially all of the Company's business is generated from individual
purchase orders, which define the price for which the
11
<PAGE>
Company will process paint waste and the quality of the paint waste to be
supplied by the customer but which do not require the customer to send any paint
waste to the Company. Further, for the fiscal year ended February 28, 1997, two
of the Company's customers, ARK, Inc. (American Recycling of Kentucky) and
Subaru-Isuzu Automotive, Inc., aggregated approximately 34.9% 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."
12. 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. Accordingly, all
aspects of the Company's proposed expansion program are contingent upon
obtaining external financing. In the event that the Company is unable to obtain
appropriate industrial development revenue bond financing or other conventional
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."
13. DEBT SERVICE; BENEFITS OF OFFERING TO INSIDERS. The Company will be
dependent on cash on hand and cash flow from operations to repay its
indebtedness. The Mortgage Note had a principal balance of $2,393,000 at August
31, 1997. Haden Purification, Inc. ("Haden Purification") has assumed liability
for one-half of the remaining principal, interest and fee payments due under the
Mortgage Note. Accordingly, the Company has recorded a receivable of $1,196,000
at August 31, 1997 for the portion of the Mortgage Note assumed by Haden
Purification even though the Company remains liable for the entire outstanding
Mortgage Note. Additionally, at August 31, 1997, the Company owed $2,161,000
pursuant to three promissory notes (the "Bank Debt") executed by the Company in
favor of National Bank of Canada (the "Senior Lender"). The Senior Lender has
agreed upon the completion of this Offering to refinance the Bank Debt upon
receiving a $500,000 principal payment and a $50,000 loan closing fee from the
net proceeds of this Offering. The refinanced Bank Debt will mature in five
years and provide for a seven-year monthly amortization schedule at the annual
rate of the Senior Lender's prime rate plus 1%. The Senior Lender will require
that a $750,000 compensating cash balance be maintained with the Senior Lender
after the refinancing. Substantially all of the property and equipment of the
Company, which has a net book value of $3,720,000 at August 31, 1997, has been
assigned as collateral to the Toledo-Lucas County (Ohio) Port Authority and to
the Senior Lender. If the Company is unable to meet its debt service
obligations, the Company will be required to restructure its debt 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, 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."
In connection with the refinancing of the Bank Debt, (i) Meridian will no
longer be required to be a co-signer, (ii) the Chairman of the Board of
Directors, Chief Executive Officer and President of Meridian, who is also
Chairman of the Company's Board, will be released from his personal guaranty of
the Bank Debt, and (iii) MNP Corporation, which owns 6.7% of the outstanding
shares of Common Stock, will be released from its guaranty of $750,000 of the
Bank Debt. See "Management -- Employment Contract," and "Relationships Between
the Company and Meridian" and "Certain Other Relationships and Related
Transactions."
14. CONTROL BY MERIDIAN. On completion of this Offering, Meridian will
beneficially own, in the aggregate, 40% (or 37.2% if the Underwriter's
Overallotment Option is exercised in full) of the then issued and outstanding
shares of Common Stock. Accordingly, Meridian will be in a position to
significantly
12
<PAGE>
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."
15. ADVERSE EFFECT OF REDEMPTION OF WARRANTS. The Warrants are subject to
redemption by the Company, after obtaining approval of the Underwriter, at a
price of $.10 per Warrant at any time commencing two years after the date of
this Prospectus, on at least 30 days prior written notice to the holders of the
Warrants, provided the average closing bid price of the Common Stock as reported
on The Nasdaq Stock Market or a national securities exchange, has been at least
$8.25 per share on each of 20 consecutive trading days ending not more than
three business days prior to the date on which the Company gives notice of
redemption, and provided that such consecutive trading days end not more than
three business 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."
16. 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."
17. 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."
18. ANTI-TAKEOVER PROVISIONS. The Company's Second 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 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 Second Restated Certificate of Incorporation
and By-laws."
19. 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 the
existing stockholders. Such dilution is estimated to be $4.30 per share (or
approximately 86%), based on certain assumptions. See "Dilution."
13
<PAGE>
20. 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. In addition,
the Company must pay all accrued and unpaid dividends on the Meridian Preferred
Stock prior to declaring or paying any dividends on the Common Stock. Further,
the terms of the additional financing that the Company plans to seek to fund a
significant portion of its proposed expansion program may contain covenants that
limit the Company's ability to pay dividends on shares of Common Stock. See
"Risk Factors -- Capital Requirements; Potential Unavailability of Additional
Financing," "Dividend Policy" and "Relationships Between the Company and
Meridian--Meridian Preferred Stock."
21. 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 by negotiations between the Company and the Underwriter
and do not 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."
22. INSURANCE AND POTENTIAL LIABILITY. The Company maintains insurance,
including insurance relating to pollution legal liability ($1,000,000 per
occurrence and $2,000,000 total), personal injury ($1,000,000 per occurrence and
$2,000,000 total) and product liability ($1,000,000 per occurrence). In
addition, the Company maintains an umbrella insurance policy that provides
$10,000,000 of coverage relating to personal injury and product liability. The
Company considers these amounts to be adequate and customary for its industry.
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.
23. SHARES ELIGIBLE FOR FUTURE SALE. Although the Company has agreed,
without the prior written consent of the Underwriter, except for certain
circumstances, not to sell or issue any equity securities or sell or grant any
options, warrants or rights to purchase any equity securities issued by the
Company for a period of three years after the completion of the Offering, 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 2,500,000 shares of Common Stock (2,687,500 shares of Common Stock
if the Underwriter's Overallotment Option is exercised in full). The 1,250,000
shares of Common Stock and 1,250,000 Warrants sold in this Offering (1,437,500
shares of Common Stock and 1,437,500 Warrants if the Underwriter's Overallotment
Option is exercised in full) and the 1,250,000 shares of Common Stock issuable
upon exercise of the Warrants (1,437,500 shares of Common Stock 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 1,250,000 shares
of Common Stock 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 an exemption therefrom, or
pursuant to Rule 144 under the Securities Act. The 125,000 shares of Common
Stock issuable to the Underwriter pursuant to the Underwriter's
14
<PAGE>
Warrant, the 150,000 Minority Stockholder Warrants, the 500,000 Bridge Warrants
and 125,000 warrants issuable to the Underwriter pursuant to the Underwriter's
Warrant (along with the 775,000 shares of Common Stock issuable upon exercise of
such warrants), which will be outstanding upon the completion of this Offering
are treated as "restricted securities" for purposes of Rule 144. Therefore, such
warrants and shares of Common Stock may not be resold in a public distribution
except in compliance with the registration requirements of the Securities Act,
or an exception therefrom, or pursuant to Rule 144 under the Securities Act. See
"Shares Eligible for Future Sale."
In addition to the restrictions under the Securities Act, except for
Meridian (which has agreed to a three year lock-up period), each director,
officer, Minority Stockholder and the holder of the Bridge Warrants has entered
into an agreement with the Underwriter pursuant to which he, she or it has
agreed not to sell or otherwise transfer any securities of the Company for a two
year period following the completion of this Offering without the prior consent
of the Underwriter, provided, however, that the foregoing limitations shall be
for a one year period with respect to the sale or transfer of the Minority
Stockholder Warrants and the Bridge Warrants. See "Relationships Between the
Company and Meridian."
24. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK. The Company's
Second Restated Certificate of Incorporation authorizes the issuance of
5,000,000 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
(except for the Meridian 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."
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
15
<PAGE>
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. FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS. This Prospectus
contains forward-looking statements including statements regarding, among other
items, the Company's business strategies, continued growth in the Company's
markets, and anticipated trends in the Company's business and the industry in
which it operates. The words "believe," "expect," "anticipate," "intends,"
"forecast," "project," and similar expressions identify forward-looking
statements. Such forward-looking statements are based upon the Company's
expectations and are subject to a number of risks and uncertainties, many of
which are beyond the Company's control. Actual results could differ materially
from such forward-looking statements, as a result of the factors described under
this "Risk Factors" section and elsewhere herein, including among others,
regulatory or economic influences. In light of these risks and uncertainties,
there can be no assurance that any forward-looking information contained in this
Prospectus will in fact transpire or prove to be accurate. All subsequent
written and oral forward-looking statements attributable to the Company or
persons acting on its behalf are expressly qualified in their entirety by this
section.
27. EFFECT OF ISSUANCE OF COMMON STOCK ON EXERCISE OF WARRANTS AND OPTIONS;
POSSIBLE ISSUANCE OF ADDITIONAL OPTIONS. Immediately after this Offering,
assuming exercise of the Underwriter's Overallotment Option in full, the Company
will have outstanding options and warrants to purchase an aggregate of up to
2,660,000 shares of Common Stock, including the Warrants and the Underwriter's
Warrant (including the Warrants issuable upon the exercise of the Underwriter's
Warrant). 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 a one-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) and the holders of the Minority Stockholder Warrants
and the holder of the Bridge Warrants have certain "piggyback" registration
rights with respect to the shares of Common Stock underlying the Minority
Stockholder Warrants and the Bridge Warrants, respectively.
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 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."
28. DEPRESSIVE EFFECT OF THE MERIDIAN PREFERRED STOCK. The Meridian
Preferred Stock has dividend and liquidation preferences over the Common Stock.
Dividends paid or accrued on the Meridian Preferred Stock will be deducted from
the net income of the Company in determining income per share attributable to
the Common Stock, which could negatively impact the market value. See
"Description of Securities -- Preferred Stock."
16
<PAGE>
29. 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, while 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."
30. LIMITATION ON LIABILITY OF DIRECTORS FOR MONETARY DAMAGES. The
Company's Second 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 a director derives an improper
personal benefit. See "Management -- Limitation on Directors' Liability;
Indemnification; Insurance."
31. UNDERWRITER MARKET MAKING ACTIVITIES. In order to facilitate this
Offering, the Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the prices of the Common Stock and Warrants. Specifically, the
Underwriter may overallot in connection with this Offering, creating a short
position in the Common Stock and/or Warrants for its own account. In addition,
to cover overallotments or to stabilize the price of the Common Stock and
Warrants, the Underwriters may bid for, and purchase, shares of Common Stock and
Warrants in the open market. The Underwriter may also reclaim selling
concessions allowed to a dealer for distributing the Common Stock and Warrants
in this Offering, if the Underwriter repurchases previously distributed Common
Stock and Warrants in transaction to cover short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Common Stock and Warrants above independent market levels.
The Underwriter is not required to engage in these activities, and may end any
of these activities at any time. See "Underwriting."
32. UNDERWRITER'S INFLUENCE ON THE MARKET. A significant number of shares
of Common Stock and Warrants offered hereby may be sold to customers of the
Underwriter. Such customers subsequently may engage in transactions for the sale
or purchase of such securities through or with the Underwriter. Although it has
no obligation to do so, the Underwriter intends to engage in market-making
activities or solicited broker's activities with respect to the purchase or sale
of Common Stock and Warrants in The Nasdaq SmallCap Market or other
over-the-counter market where such securities will trade. However, no assurance
can be given that the Underwriter will continue to participate as a market maker
in the securities of the Company or that other broker/dealers will make a market
in such securities. The Underwriter also has the right to act as the Company's
exclusive agent in connection with any future solicitation of warrantholders to
exercise their Warrants. Unless granted an exemption by the Commission under the
applicable Exchange
17
<PAGE>
Act rules and regulations, the Underwriter will be prohibited from engaging in
any market-making activities or solicited brokerage activities with regard to
the Company's securities during a period prior to the commencement of any such
solicitation and ending on the later of the termination of such solicitation
activity or the termination (by waiver or otherwise) of any right the
Underwriter may have to receive a fee for the exercise of the Warrants following
such solicitation. As a result, the Underwriter and soliciting broker/ dealers
may be unable to continue to make a market in the Company's securities during
certain periods while the exercise of the Warrants is being solicited. Such a
limitation, while in effect, could impair the liquidity and market price of the
Company's securities. See "Underwriting."
33. UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE: PENDING
INVESTIGATION. While certain of the officers of the Underwriter have
significant experience in corporate financing and the underwriting of
securities, the Underwriter has previously underwritten only five public
offerings. Accordingly, there can be no assurance that the Underwriter's limited
public offering experience will not affect this Offering of the Common Stock and
Warrants and subsequent development of a trading market, if any, in such
securities. In addition, the Underwriter is aware that the Commission is
investigating certain of the Underwriter's trading practices and mark-ups in
connection with the securities of an issuer whose 1995 public offering was
underwritten by the Underwriter. There can be no assurance that this
investigation will not adversely and materially affect this Offering or
subsequent trading in the Common Stock and/or Warrants of the Company. See
"Underwriting."
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<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 estimated offering
expenses, are estimated to aggregate $5,156,250 (or $5,986,000 if the
Underwriter's Overallotment Option is exercised in full), assuming an initial
public offering price of $5.00 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
PERCENTAGE
APPROXIMATE OF NET
AMOUNT PROCEEDS
------------ ------------
<S> <C> <C>
Five customer on-site processing equipment installations (1).......................... $ 1,000,000 19.39%
Southeast U.S. facility and equipment expansion (2)................................... 600,000 11.64%
Repayment of the Bank Debt (3)........................................................ 500,000 9.70%
Bank Debt loan closing fee (3)........................................................ 50,000 0.96%
Payment of accrued interest to Meridian (4)........................................... 445,000 8.63%
Repayment of Bridge Note, including interest (5)...................................... 255,000 4.95%
U.S. EPA Part B permit approval costs................................................. 250,000 4.85%
Working capital (6)................................................................... 2,056,250 39.88%
------------ ------------
$ 5,156,250* 100.00%
------------ ------------
------------ ------------
</TABLE>
- --------------
* After giving effect to the total Consulting Fee ($100,000) payable to the
Underwriter, $50,000 payable upon completion of this Offering and $50,000
payable on the first anniversary of the completion of this Offering and
without giving effect to the exercise of the Underwriter's Overallotment
Option. See "Underwriting."
(1) The Company intends, if it receives sufficient customer orders, to purchase
and install processing equipment at up to five customer plant facilities.
Management currently estimates that the first customized 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 (exclusive of start-up
costs). 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."
(2) 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 1999. 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."
(3) The principal balance on the Bank Debt incurred by the Company to finance
the expansion of the Company's paint waste recycling operation in Toledo,
Ohio, was $2,161,000 at August 31, 1997. The Senior Lender has agreed upon
the completion of this Offering to refinance the Bank Debt upon receiving a
$500,000 principal payment and a $50,000 loan closing fee from the net
proceeds of this Offering. The refinanced Bank Debt will mature in five
years and provide for a seven-year monthly amortization schedule at the
annual rate of the Senior Lender's prime rate plus 1%. The Senior Lender has
also agreed that upon the completion of this Offering the present guarantors
of the Bank Debt and
19
<PAGE>
Meridian would not be obligated to the Senior Lender under the terms of the
refinancing. The Senior Lender will require a $750,000 compensating cash
balance be maintained with the Senior Lender after the refinancing.
(4) In connection with the exchange of certain outstanding indebtedness of the
Company to Meridian for the Meridian Preferred Stock prior to the completion
of this Offering, Meridian will receive, in addition to the Meridian
Preferred Stock, the interest portion of such indebtedness which accrued at
the annual rate of 1% over the prime rate, during the period commencing May
1, 1996 through the completion of this Offering. Such accrued interest is
expected to aggregate $445,000. See "Relationships Between the Company and
Meridian -- Meridian Preferred Stock".
(5) The Bridge Note, which has an outstanding principal balance of $250,000, is
payable upon the completion of this Offering. The Bridge Note bears interest
at 10% per annum.
(6) The Company expects to use the balance of the net proceeds from this
Offering for working capital and general corporate purposes. Additionally,
the Senior Lender would require the Company to maintain a $750,000
compensating cash balance with the Senior Lender, pursuant to the terms of
the refinanced Bank Debt.
------------------------
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 and planned expansion
program for at least 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, the Company will 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. In addition,
the Company must pay all accrued and unpaid dividends on the Meridian Preferred
Stock prior to declaring or paying any dividends on the Common Stock. Further,
the terms of the additional financing that the Company plans to seek to fund a
significant portion of its proposed expansion program may contain covenants that
limit the Company's ability to pay dividends on shares of Common Stock. See
"Risk Factors -- Capital Requirements; Potential Unavailability of Additional
Financing", "-- Absence of Dividends" and "Relationships Between the Company and
Meridian -- Meridian Preferred Stock."
20
<PAGE>
CAPITALIZATION
The following table sets forth, as of August 31, 1997, (i) the actual
capitalization as derived from the Condensed Consolidated Financial Statements,
and (ii) the capitalization of the Company as adjusted to reflect (a) a 10,000
to one stock split of the outstanding shares of Common Stock which was effected
in August 1997, (b) the issuance and sale of 1,250,000 shares of Common Stock
and 1,250,000 Warrants pursuant to this Offering, (c) the conversion of
$3,553,000 of outstanding advances from Meridian into Meridian Preferred Stock,
(d) the repayment of $445,000 of interest accrued from the period from March 1,
1996 to estimated completion date of this Offering on intercompany advances due
to Meridian, and (e) the partial repayment of $500,000 on the Bank Debt. This
table should be read in conjunction with the Consolidated Financial Statements,
including notes thereto, and the unaudited Condensed Consolidated Financial
Statements included elsewhere in this Prospectus. See "Use of Proceeds" and
"Relationships Between the Company and Meridian."
<TABLE>
<CAPTION>
AUGUST 31, 1997
---------------------------
ACTUAL AS ADJUSTED
------------ -------------
<S> <C> <C>
Advances from Meridian............................................................... $ 3,645,702 $ 0
Long-term debt due within one year (1)............................................... 3,085,965 1,162,251
Long-term debt, net of current portion............................................... 1,733,290 3,157,004
Stockholders' equity (net capital deficiency):
Meridian Preferred Stock, $.01 par value; zero shares authorized, none issued and
outstanding, (5,000,000 shares authorized, 1,776,500 issued and outstanding, as
adjusted at stated value of $2.00 per share)...................................... -- 3,553,000
Common Stock: $.01 par value; 3,000 shares authorized; 125 issued and outstanding,
(20,000,000 shares authorized; 2,500,000 issued and outstanding, as adjusted)..... 1 25,000
Capital in excess of par value..................................................... 606,037 5,712,288
Deficit............................................................................ (3,671,974) (3,671,974)
------------ -------------
Total stockholders' equity (net capital deficiency).................................. (3,065,936) 5,618,314
------------ -------------
Total capitalization................................................................. $ 5,399,021 $ 9,937,569
------------ -------------
------------ -------------
</TABLE>
- --------------
(1) During the Company's fiscal year ended February 28, 1997, the Company
arranged financing totaling $2,350,000 with the Senior Lender. The proceeds
have been primarily used to finance an expansion of the Company's paint
waste recycling operation, which commenced operations in May 1997, and to
repay existing obligations. The Senior Lender has agreed upon completion of
this Offering to refinance the Bank Debt upon receiving a $500,000 principal
payment and a $50,000 loan closing fee from the net proceeds of this
Offering. The refinanced Bank Debt will mature in five years and provide for
a seven-year monthly amortization schedule at the annual rate of the Senior
Lender's prime rate plus 1%. The Senior Lender has also agreed that the
present guarantors of the Bank Debt and Meridian will not be obligated to
the Senior Lender under the terms of the refinancing. The Senior Lender will
require that a $750,000 compensating cash balance be maintained with the
Senior Lender after the refinancing. See "Relationships Between the Company
and Meridian" and "Certain Other Relationships and Related Transactions."
21
<PAGE>
DILUTION
At August 31, 1997, the Company had a net tangible book value deficiency of
$3,412,000 or $(2.73) per outstanding share of Common Stock. Net tangible book
value per common share represents the Company's total tangible assets less total
liabilities and Meridian Preferred Stock, divided by the number of shares of
Common Stock outstanding, on a pro forma basis, after giving effect to the
10,000 to one stock split which was effected in August 1997. After giving effect
to receipt of the estimated net proceeds from the sale of the 1,250,000 shares
of Common Stock and 1,250,000 Warrants in this Offering at assumed offering
prices of $5.00 per share of Common Stock and $.10 per Warrant (after deducting
the estimated offering expenses), the pro forma net tangible book value of the
Company would have been approximately $1,745,000, or approximately $.70 per
outstanding share of Common Stock. This represents an immediate dilution of
$4.30 per share, or 86%, to purchasers of Common Stock in this Offering. The
following table illustrates the per share dilution to be incurred by the public
investors in this Offering:
<TABLE>
<S> <C> <C>
Assumed initial offering price per share................................... $ 5.00
Net tangible book value deficiency per common share at August 31, 1997... $ (2.73)
Increase per share attributable to shares offered hereby................. 3.43
---------
Pro forma net tangible book value per common share after this Offering..... .70
-----
Dilution of net tangible book value per common share to new investors...... $ 4.30(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 at August
31, 1997, as adjusted for this Offering, would have been approximately
$2,574,000 or $.96 per common share and the dilution per common share to new
investors would have been approximately $4.04. See "Underwriting."
------------------------
The following table compares the shares of Common Stock acquired by Meridian
and the Minority Stockholders through the date of this Prospectus, the total
cash consideration paid by Meridian and the Minority Stockholders and the
average cash price per share paid by Meridian and the Minority Stockholders 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............................. 1,000,000 40% $ 100 0% $ --
Minority Stockholders................ 250,000 10% $ 600,000 8.8% $ 2.40
New Investors........................ 1,250,000 50% $ 6,250,000 91.2% $ 5.00
----------- ------- ------------- ------------- -----
2,500,000 100.0% $ 6,850,100 100.0% $ 2.74
----------- ------- ------------- ------------- -----
----------- ------- ------------- ------------- -----
</TABLE>
22
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
The non- "as adjusted" summary selected consolidated financial data set
forth in the following table has been derived from the Consolidated Financial
Statements of the Company. The statement of operations data for each of the
three fiscal years ended February 28, 1997 and balance sheet data as of February
28, 1997 and February 29, 1996 are derived from the Consolidated Financial
Statements of the Company, which have been audited by Ernst & Young LLP,
independent auditors, and which 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 Consolidated 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,
--------------------------------------------------------------
1997 1996 1995 1994 1993(2)
FEBRUARY 28, -------------- ---------- ---------- ---------- ----------
1997
AS ADJUSTED (1)
----------------
(BALANCE SHEET
ONLY)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $ 3,417,070 $3,533,514 $3,459,107 $2,530,066 $1,390,695
Operating costs and expenses:
Costs of operations..................... 2,307,086 2,196,322 2,023,815 1,496,040 999,447
Selling, general and administrative..... 1,376,957 1,045,036 941,812 851,546 534,913
-------------- ---------- ---------- ---------- ----------
3,684,043 3,241,358 2,965,627 2,347,586 1,534,360
-------------- ---------- ---------- ---------- ----------
Income (loss) from operations............. (266,973) 292,156 493,480 182,480 (143,665)
Other income (expense):
Interest income......................... 35,584 36,185 30,009 20,192 13,019
Cost of withdrawn registration.......... (275,908) -- -- -- --
Interest expense on external
borrowings............................. (219,736) (243,683) (258,985) (272,304) (193,929)
Interest expense on advances from
Meridian............................... (218,103) (224,300) (186,918) (126,607) (117,318)
Equity in operations of affiliate....... -- -- -- -- (194,154)
-------------- ---------- ---------- ---------- ----------
(678,163) (431,798) (415,894) (378,719) (492,382)
-------------- ---------- ---------- ---------- ----------
Net income (loss) before extraordinary
item..................................... (945,136) (139,642) 77,586 (196,239) (636,047)
Extraordinary gain -- extinguishment of
debt..................................... 329,279 -- -- -- --
-------------- ---------- ---------- ---------- ----------
Net income (loss)......................... $ (615,857) $ (139,642) $ 77,586 $ (196,239) $ (636,047)
-------------- ---------- ---------- ---------- ----------
-------------- ---------- ---------- ---------- ----------
Pro forma earnings (loss) per common
share (3):
Pro forma loss before extraordinary
gain................................... $ (0.78)
Extraordinary gain...................... 0.29
--------------
Pro forma net (loss).................... $ (0.49)
--------------
--------------
BALANCE SHEET DATA:
Total assets.............................. 10,291,040 $ 6,129,790 $4,617,583 $4,875,188 4,903,737 $5,234,966
Property and equipment, net............... 3,603,035 3,603,035 1,650,415 1,754,582 1,940,295 1,947,801
Advances from Meridian.................... -- 2,965,468 2,673,429 2,448,752 1,884,509 1,635,059
Long-term debt, less current portion...... 3,483,701 3,983,701 3,395,472 3,997,208 4,517,317 4,948,355
----------------
Receivable from former partner, less
current portion.......................... 1,031,875 1,031,875 1,358,625 1,651,875 1,925,625 2,178,125
Stockholders' equity (net capital
deficiency):
Meridian Preferred stock................ 3,553,000 -- -- -- -- --
Common stock............................ 25,000 1 1 1 1 1
Paid-in capital......................... 5,712,396 581,145 99 99 99 99
Deficit................................. (3,156,857) (3,156,857) (2,541,000) (2,400,858) (2,478,444) (2,282,205)
---------------- -------------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficiency)... 6,133,539 (2,575,711) (2,540,900) (2,400,758) (2,478,344) (2,282,105)
---------------- -------------- ---------- ---------- ---------- ----------
Cash dividends declared per common
share.................................... N/A 0 0 0 0 0
OTHER OPERATING DATA:
Depreciation and amortization............. $ 338,690 $ 254,586 $ 257,141 $ 249,580 $ 163,739
Capital expenditures...................... 2,147,537 140,294 63,510 114,856 99,086
</TABLE>
- ------------------
N/A -- Not applicable.
(1) "As adjusted" amounts reflect (i) the receipt by the Company of the
estimated net proceeds from this Offering, (ii) the repayment of
approximately $445,000 of interest accrued during the period from March 1,
1996 to the estimated completion date of this Offering on intercompany
advances due to Meridian, (iii) the exchange of the balance of the
intercompany advances due to Meridian of approximately $3,553,000 (based on
an estimate of the intercompany advances which will be due immediately prior
to the date of the completion of this Offering) for Meridian Preferred
Stock, and (iv) the payment of $500,000 to be applied against the Bank Debt
along with a loan closing fee of $50,000.
(2) As described in note 4 of the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus, effective July 1, 1992, MEPI
joined NPI as the sole corporate general partners of EPIC. Prior to July 1,
1992, NPI accounted for its 50% investment in EPIC by the equity method of
accounting. Subsequent to July 1, 1992, NPI and MEPI consolidated EPIC into
their accounts.
(3) Pro forma loss per share assuming a weighted average of 1,153,863 shares of
Common Stock were issued and outstanding after giving effect to a 10,000 to
one stock split which was effected in August 1997 and to certain other
adjustments to reflect the retirement of $500,000 of Bank Debt from the
proceeds of this Offering.
23
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA
SIX MONTHS ENDED AUGUST 31, 1997 AND 1996
The summary selected consolidated financial data set forth in the following
table has been derived from the unaudited Condensed Consolidated Financial
Statements of the Company, including the notes thereto. The statement of
operations data for each of the six months ended August 31, 1997 and 1996 and
balance sheet data as of August 31, 1997 are derived from the unaudited
Condensed Consolidated Financial Statements of the Company, which 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 unaudited
Condensed Consolidated Financial Statements of the Company, including the notes
thereto, and the other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31
--------------------------
1997 1996
------------ ------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................................................ $ 1,800,240 $ 1,777,923
Operating costs and expenses:
Costs of operations................................................................ 1,292,014 1,194,977
Selling, general and administrative................................................ 745,611 661,001
------------ ------------
2,037,625 1,855,978
------------ ------------
Loss from operations................................................................. (237,385) (78,055)
Other income (expense):
Interest income.................................................................... 18,526 18,981
Interest expense on external borrowings............................................ (143,334) (116,683)
Interest expense on advances from Meridian......................................... (152,924) (119,974)
------------ ------------
(277,732) (217,676)
------------ ------------
Loss before extraordinary gain....................................................... $ (515,117) $ (295,731)
Extraordinary gain--extinguishment of debt........................................... -- 329,279
------------ ------------
Net income (loss).................................................................... $ (515,117) 33,548
------------ ------------
------------ ------------
Pro forma earnings (loss) per common share (1):
Pro forma loss before extraordinary gain........................................... $ (0.36) $ (0.26)
Extraordinary gain................................................................. -- 0.31
------------ ------------
Pro forma income (loss)............................................................ $ (0.36) $ 0.05
------------ ------------
------------ ------------
BALANCE SHEET DATA:
Total Assets......................................................................... $ 6,264,392 $ 5,821,367
Property and equipment, net.......................................................... 3,719,750 2,733,901
Advances from Meridian............................................................... 3,645,702 3,025,234
Long-term debt, less current portion................................................. 1,733,290 2,392,500
Receivable from former partner, less current portion................................. 860,625 1,196,250
Stockholders' equity (net capital deficiency)........................................ (3,065,936) (2,507,351)
Cash dividends declared per common share............................................. 0 0
OTHER OPERATING DATA:
Depreciation and amortization........................................................ $ 220,323 $ 139,591
Capital expenditures................................................................. 287,595 313,863
</TABLE>
(1) Pro forma loss per share assuming a weighted average of 1,350,000 and
1,068,087 shares of Common Stock were issued and outstanding during the six
months ended August 31, 1997 and August 31, 1996, respectively, after giving
effect to a 10,000 to one stock split which was effected in August 1997 and
to certain other adjustments to reflect the retirement of $500,000 of Bank
Debt from the net proceeds of this Offering.
24
<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
Consolidated Financial Statements of the Company, including the notes thereto,
included elsewhere in this Prospectus.
OVERVIEW
EPIC is a general partnership which was formed in September 1989 with two
partners, NPI (a wholly-owned subsidiary of Meridian) and Haden Purification, to
construct and own a paint waste recycling facility in Toledo, Ohio. Effective
July 1, 1992, Haden Purification terminated its partnership interest in EPIC and
the partnership agreement was amended to reflect the addition of MEPI (a
wholly-owned subsidiary of Meridian) as a general partner of EPIC. As a result
of this amendment, NPI and MEPI jointly own 100% of the partnership interests of
EPIC. Meridian formed the Company in February 1996 as a subsidiary to hold all
of the issued and outstanding stock and partnership interests of NPI, MEPI and
EPIC. In November 1996, the Company issued shares of Common Stock, representing
an aggregate 20% interest in the Company to the Minority Stockholders. See
"Business -- Corporate History."
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 landfilling or
incineration. 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")
February 29, 1996 ("Fiscal 1996") and February 28, 1997 ("Fiscal 1997"). In
these last three fiscal years, the Company operated at or near its paint waste
processing capacity. The Company completed the installation of a $2,300,000
Polymeric Recovery System at its Toledo, Ohio facility in May 1997, which
provides a 50% capacity increase to the Company's existing paint waste
processing operations. See "Business."
Although the Company operated at capacity during the six months ended August
31, 1997 and the year ended February 28, 1997, the Company recognized losses
from operations of $237,385 and $266,973 for the periods then ended,
respectively. The Company believes that the DryPure-TM- system, its current
paint waste processing system, as designed, will not generate significant
profits for the Company. Accordingly, the Company has recently installed the
Polymeric Recovery System, a new paint waste recycling technology, at its
Toledo, Ohio facility. The Company is currently marketing EPI-MER-TM-, the
recycled product generated by the Polymeric Recovery System, to approximately
ten potential customers, including those in the sealant, coating and adhesive
industries. The Company believes that EPI-MER-TM- has a greater range of
commercial applications than EPI-PURE-TM-, the recycled product generated by the
DryPure-TM- system, and that it can be sold at higher margins than EPI-PURE-TM-,
which currently represents less than 2% of the Company's annual sales revenue.
For these reasons, management believes that the Company's profitability is
substantially dependent on sales of EPI-MER-TM-. The Company's current business
strategy is to grow its business by (i) developing a market for and selling
EPI-MER-TM- for use as a lower cost replacement for traditional, virgin
materials used in formulated products, (ii) the construction, ownership and
operation of up to five customized Polymeric Recovery Systems on-site at large
automotive assembly plants in the United States, and (iii) the 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 which individually generate lesser amounts of paint waste.
RESULTS OF OPERATIONS
SIX MONTHS ENDED AUGUST 31, 1997 COMPARED TO SIX MONTHS ENDED AUGUST 31,
1996
REVENUE AND COSTS OF OPERATIONS. Net sales for the six months ended August
31, 1997 increased 1.3% over net sales recorded in the six months ended August
31, 1996 despite a decrease in sales revenue of $110,000 associated with sales
of paint waste services processed at third party facilities, as the Company
25
<PAGE>
continued to operate at or near full capacity. The average price charged
customers for paint waste increased 1.5% for the six months ended August 31,
1997 over the average price charged customers for paint waste recycling for the
six months ended August 31, 1996. Prices charged to customers vary depending
upon the types of paint waste to be processed as well as the amount of paint
waste volume to be processed for specific customer. Costs of operations as a
percentage of net sales amounted to 71.8% and 67.2% for the six months ended
August 31, 1997 and August 31, 1996, respectively. This increase is due largely
to the commencement of the start-up period for the Polymeric Recovery System in
May 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased $85,000 or 12.8% in the six months ended
August 31, 1997 over those for the six months ended August 31, 1996. Payroll
related costs accounted for $59,000 of this increase, primarily due to staffing
increases in the sales department and administrative areas needed to support the
Polymeric Recovery System technology. Amortization of loan costs related to
borrowings to finance the $2,300,000 expansion of the Toledo, Ohio facility
increased $32,000 over the comparable period.
INTEREST EXPENSE. Interest expense for the six months ended August 31, 1997
increased $60,000, or 25.2% compared to the six months ended August 31, 1996 due
to increased borrowings necessary to finance the $2,300,000 expansion of the
Toledo plant. $36,000 of interest costs in the six months ended August 31, 1997
were capitalized as part of the Toledo plant expansion.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUE AND COSTS OF OPERATIONS. Net sales decreased 3% in Fiscal 1997
compared to Fiscal 1996. This decrease is due primarily to a decrease in revenue
from sales of EPI-PURE-TM- and lower volumes of paint waste processed along with
a slight decrease in the average selling price charged customers for processing
paint waste. The Company has continued operating at or near capacity levels for
the past three fiscal years. The Company's cost of operations as a percentage of
net sales were 67.5% in Fiscal 1997 compared to 62.2% in Fiscal 1996. This
percentage increase in operating costs was related to increased fees paid to
Aster for processing of paint waste of approximately $43,000, and expensing of a
throughput charge, which is based on the amount of paint waste processed through
the DryPure-TM- system, paid to Haden Purification. In prior years, these
throughput payments were applied to the Haden Purification note payable, which
was settled during Fiscal 1997. Total throughput charges expensed in Fiscal 1997
were $59,000. The Company also experienced lower margins attained on brokerage
processing sales (prior paint waste processed at third party facilities) during
Fiscal 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. In Fiscal 1997, the Company's
selling, general and administrative expenses increased $332,000, or 32%. Payroll
related costs accounted for $237,000 of this increase. Approximately $93,000 of
the payroll increase is attributable to salaries and related expenses of
personnel who, during Fiscal 1996, were employed part-time by the Company and
part-time in a former operation of Meridian. During Fiscal 1997, these employees
were employed full-time by the Company. The remainder of the payroll increase is
due primarily to additional personnel costs required by the expansion project
and increases in other administrative costs related to staffing for the
development of the new Polymeric Recovery System business. Also included in the
increased administrative expenses in Fiscal 1997 was $72,000 related to the
amortization of loan costs incurred in Fiscal 1996. These factors resulted in
selling, general and administrative expenses increasing to 40.3% of net sales in
Fiscal 1997 from 30.6% of net sales in Fiscal 1996.
INTEREST EXPENSE. Interest expense decreased $30,000 (or 6%) in Fiscal 1997
compared to Fiscal 1996. This decrease resulted from the compromise of the Haden
note payable, and from declining interest expense related to the Mortgage Note
as principal payments continue to decrease the outstanding Mortgage Note
balance. The impact on interest expense of the additional borrowings related to
the expansion of the Toledo, Ohio facility was negligible as interest of $56,000
related to the expansion project was capitalized during the construction phase
of the project.
INCOME TAXES. The Company had, as of February 28, 1997, net operating loss
carryforwards for federal tax purposes of approximately $2,624,000. These net
operating loss carryforwards, to the extent not utilized
26
<PAGE>
in Meridian's consolidated federal income tax return for its taxable year ended
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 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."
OTHER EXPENSES. The Company expensed $276,000 of costs related to an
attempted public offering of shares of Common Stock which were incurred in
Fiscal 1997. The registration statement filed by the Company in connection with
the proposed public offering was subsequently withdrawn by the Company.
FISCAL 1996 COMPARED TO FISCAL 1995
REVENUE AND COSTS OF OPERATIONS. Net sales increased 2% in Fiscal 1996
compared to Fiscal 1995. This modest sales increase was 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 costs of
operations as a percentage of net sales were 62.2% in Fiscal 1996 compared to
58.5% in Fiscal 1995. This percentage increase in operating costs primarily
relates to $118,000 in fees paid in Fiscal 1996 to Aster for processing paint
waste at its Dayton, Ohio facility pursuant to a license agreement between the
Company and Aster, 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 Mortgage Note due to principal payments
decreasing the outstanding Mortgage Note payable balance.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital deficiency at August 31, 1997 increased to
approximately $6,594,000, an increase of $2,739,000 over the working capital
deficiency at February 28, 1997. This increase is primarily a result of the
classification as a current liability at August 31, 1997 of the balloon payment
of $1,906,000 due in March 1998 under the Bank Debt, which was incurred to
finance the implementation of the Polymeric Recovery System at the Company's
Toledo, Ohio facility. Additionally, advances from Meridian increased $680,000
during the six months ended August 31, 1997 due primarily to cash expenditures
incurred in connection with the commencement of the start-up period for the
Polymeric Recovery System in May 1997 and debt service requirements related to
the Bank Debt, which was incurred to finance the construction of the Polymeric
Recovery System. Historically, the Company has satisfied its operating cash
requirements through a combination of (i) advances from Meridian, (ii) external
borrowings, and (iii) cash generated by operating activities. Net advances from
Meridian amounted to approximately $292,000 and $224,000 in Fiscal 1997 and
Fiscal 1996, respectively. Excluding the advances from Meridian, the Company
would have had a working capital deficiency of approximately $2,948,000 at
August 31, 1997, $890,000 at February 28, 1997 and $189,000 at February 29,
1996.
Cash generated from (used in) operating activities amounted to ($283,000),
($344,000), $230,000, and ($1,000) for the six months ended August 31, 1997,
Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively. The amount of cash used
in operating activities during the six months ended August 31, 1997 is primarily
due to the net loss of $515,000 for the period. The commencement of the startup
period for the Polymeric Recovery System at the Company's Toledo, Ohio facility
in May 1997 contributed largely to the loss, along with the factors which are
discussed in the "Overview." The amount of cash used in operating activities in
Fiscal 1997 is primarily due to the net loss before extraordinary items. In
general, cash flow from operating activities fluctuates based on changes in
operating assets and liabilities. Such changes amounted to cash generated (used)
of approximately $11,000 in the six months ended August 31, 1997, $263,000,
$116,000, and
27
<PAGE>
($385,000) in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively. Of the
$263,000 cash generated from changes in operating assets and liabilities in
Fiscal 1997, $221,000 was generated from an increase in accounts payable and
accrued liabilities primarily due to amounts included in accounts payable for
costs related to a proposed public offering which was not completed. The costs
associated with the proposed public offering were expensed in Fiscal 1997. The
large amount of cash used in Fiscal 1995 primarily resulted from an increase in
accounts receivable of approximately $307,000 as the Company's net sales grew to
approximately $3,459,000 in Fiscal 1995 from approximately $2,530,000 in Fiscal
1994.
The Company's primary uses of cash are for the purchases of property and
equipment and for the repayment of long-term debt. Cash used for such purchases
and retirement of long-term debt amounted to $573,000 during the six months
ended August 31, 1997 and $2,882,000, $428,000, and $434,000 in Fiscal 1997,
Fiscal 1996 and Fiscal 1995, respectively. The large amount of cash used for
these purposes in Fiscal 1997 was financed primarily by issuance of the Bank
Debt which was incurred primarily to finance the construction of the Polymeric
Recovery System at the Company's Toledo, Ohio facility.
On December 15, 1989 the Company issued the Mortgage Note to the
Toledo-Lucas Count (Ohio) Port Authority. The Mortgage Note had a principal
balance of approximately $2,393,000 at August 31, 1997. Haden Purification has
assumed liability for one-half of the remaining principal, interest and fee
payments due under the Mortgage Note. Accordingly, the Company has recorded a
receivable of approximately $1,196,000 at August 31, 1997 for the portion of the
Mortgage Note assumed by Haden Purification even though the Company remains
liable for the entire outstanding Mortgage Note. The Mortgage Note bears
interest at 8 1/2%. The Company's monthly principal and interest payments on the
portion of the Mortgage Note not assumed by Haden Purification are $36,400.
Additionally, under the terms of the Mortgage Note at August 31, 1997,
approximately $315,000 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, which
would have a materially adverse impact on the financial condition and liquidity
of the Company. See "Risk Factors -- Absence of Additional Financial Support
from Meridian" and "-- Debt Service; Benefits of Offering to Insiders."
On June 28, 1996, the Company executed a compromise agreement to, among
other things, settle a note issued to Haden Purification, which had a balance
due of $679,000, for $350,000 (the "Compromise Agreement"). The Company reported
the gain on early extinguishment of debt as an extraordinary gain.
During Fiscal 1997, the Company completed financing totaling $2,350,000 with
the Senior Lender. The proceeds have been used primarily to finance the
construction of the Polymeric Recovery System. The Bank Debt requires monthly
principal payments of $21,000. A final payment of $2,035,000 is due in March
1998. Meridian is a co-signer on the Bank Debt. In addition, $750,000 of the
Bank Debt is guaranteed by MNP Corporation, which owns 6.7% of the outstanding
shares of Common Stock, and the Chairman of the Board of Directors, President
and Chief Executive Officer of Meridian, who is also the Chairman of the
Company's Board, has personally guaranteed the Bank Debt. Substantially all of
the property and equipment of the Company, which has a net book value of
$3,720,000 at August 31, 1997, has been assigned as collateral to the
Toledo-Lucas County (Ohio) Port Authority and the Senior Lender. See
"Relationships Between the Company and Meridian" and "Certain Other
Relationships and Related Transactions."
The Senior Lender has agreed upon the completion of this Offering to
refinance the Bank Debt upon receiving a $500,000 principal payment and a
$50,000 loan closing fee from the net proceeds of this Offering. The refinanced
Bank Debt will mature in five years and provide for a seven-year monthly
amortization schedule at the annual rate of the Senior Lender's prime rate plus
1%. In connection with the refinancing of the Bank Debt, (i) Meridian will no
longer be required to be a co-signer, (ii) the Chairman of the Board of
Directors, Chief Executive Officer and President of Meridian, who is also
Chairman of the Company's Board, will be released from his personal guaranty of
the Bank Debt, and (iii) MNP Corporation will be
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released from its guaranty of $750,000 of the Bank Debt. The Senior Lender will
require that a $750,000 compensating balance be maintained with the Senior
Lender after the refinancing. See "Relationships Between the Company and
Meridian" and "Certain Other Relationships and Related Transactions."
In November 1996, the Company issued shares of common stock representing an
aggregate 20% interest for $600,000 to the Minority Stockholders.
The Company is required to pay certain fees in connection with the
DryPure-TM- technology that the Company has licensed to process paint waste.
Under the terms of the Compromise Agreement with Haden Purification, the Company
is required to continue to pay Haden Environmental, through July 1, 1998, a
throughput charge of $10 per cubic yard of paint waste processed through the
DryPure-TM- system. At August 31, 1997, remaining throughput charges are
estimated to aggregate $70,000. The throughput charges will be reported as
operating expenses as incurred through June 30, 1998. Prior to the execution of
the Compromise Agreement, payments of the throughput charges were credited
toward amounts due under a note payable to Haden Purification. The Company is
also required to pay royalty fees to Aster based on pounds of paint waste
processed with the new technology. These fees will be payable upon successful
startup of the new equipment and sale of EPI-MER-TM-. The Aster license
agreement requires payment of royalties on a minimum processing level of
l,850,000 pounds of raw paint waste in the first year of production ($37,000),
3,700,000 pounds in the second year ($74,000), 5,000,000 pounds in the third
year ($l00,000), and 7,000,000 pounds for each year thereafter ($140,000). This
royalty rate decreases for annual processing in excess of 7,500,000 pounds.
Additionally, the Company will be required to pay Aster a royalty fee of $.04
per pound of EPI-MER-TM- sold, subject to adjustment if the Company is unable to
sell EPI-MER-TM- for a minimum of $.30 per pound. All royalty fees are subject
to an adjustment at the end of the third year of processing based on the
consumer price index.
The Company also pays hourly fees to Aster for technical and manufacturing
services. Total payments by the Company to Aster may not fall below a minimum of
$20,000 per month unless the Company provides Aster with six months advance
notice. At the end of the six month notice period, the Company's license for the
use of the technology would become non-exclusive.
In August 1997, the Company raised $275,000 through a private placement of
units consisting of the Bridge Note, which had an original principal balance of
$250,000, and 500,000 Bridge Warrants, which were sold for $.05 per Bridge
Warrant. The Bridge Note, which is unsecured, bears interest at a rate of 10%
per annum and is due upon the completion of this Offering. The Bridge Warrants
entitle the holder to purchase 500,000 shares of Common Stock. The Bridge
Warrants automatically convert upon the completion of this Offering to warrants
with the same terms as the Warrants.
During the past five years, the U.S. EPA has adopted a more pragmatic
approach toward the regulated environmental community. This approach includes
the use of cost/benefit analysis before implementing additional major levels of
regulation on industry. In practice, the U.S. EPA appears to have recognized
that it must be practical in balancing its mandate to provide vigilant
environmental protection while fostering economic growth. The Company currently
estimates that it will incur expenses of approximately $40,000 when the U.S. EPA
reviews and approves the Company's plan to comply with a consent decree entered
into between the Company and the U.S. EPA. Additionally, the Company estimates
that the testing requirements necessary to demonstrate compliance with the U.S.
EPA's standards for approval of a "Part B" permit, for which the Company has
filed an application, will cost approximately $250,000. The Part B Permit allows
a company to handle hazardous waste at a specific facility under the Federal
Resource Conservation Recovery Act ("RCRA"). In the event that the U.S. EPA
rejects the Company's application for a Part B permit, or if the Company decides
to modify its Toledo, Ohio facility to eliminate the need for a Part B permit,
the Company estimates that it will incur approximately $250,000 in capital
expenditures to design and implement necessary modifications. The Company
expects to incur both the $40,000 expense related to compliance with the consent
decree and the $250,000 expense in connection with the application for a Part B
permit or modifications of its Toledo, Ohio facility within the next two years.
The Company does not currently project
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that it will incur any other material capital expenditures related to compliance
with environmental regulations. See "Risk Factors -- Impact of Denial of U.S.
EPA Permit" and "Business -- Environmental Standards and Government Regulation."
The Company's expansion plans include the installation of six new
facilities, all utilizing the Polymeric Recovery System to recycle paint waste.
Of the six new facilities, five are planned to be on-site installations at
customers' facilities, and one is planned to be a stand-alone, regional facility
in the Southeast region of the United States. The Company estimates that the
aggregate cost of the six new facilities, which are planned to be constructed
over a two to three year period commencing in 1998, will be approximately
$8,000,000 and that approximately $6,400,000 of external financing will be
required to fund the construction of these facilities. 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 and planned expansion program 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. See
"Risk Factors -- Capital Requirements; Potential Unavailability of Additional
Financing" and "Use of Proceeds."
The Company has agreed, for a period of three years after the completion of
this Offering, not to issue or sell any shares of Common Stock or other equity
securities or sell or grant options, warrants or rights to purchase any shares
of Common Stock or equity securities, without the prior written consent of the
Underwriter, except for (i) options to purchase up to 310,000 shares of Common
Stock, (ii) shares of Common Stock issuable upon exercise of such options, and
(iii) shares issuable upon exercise of any warrants outstanding on the date of
this Prospectus or to be outstanding upon the completion of this Offering as
described herein. Additionally, during such three year period, the Company may
issue securities in connection with an acquisition, merger or similar
transaction, provided that such securities are not registered under the
Securities Act and do not have registration rights prior to the later of (a)
twelve months after issuance, or (b) three years from the date of the completion
of this Offering. Further, the Company may issue options to purchase shares of
Common Stock to its employees, not exceeding 10% of the outstanding shares of
Common Stock on the second anniversary of the completion of this Offering,
during the period commencing on the second anniversary of such date and ending
on the fourth anniversary of such date. The Company has agreed that for a period
of three years after the completion of this Offering it will not file any
registration statement with the Commission with respect to equity securities
issued by the Company without the prior consent of the Underwriter. See
"Underwriting."
The use by the Company of a portion of the net proceeds from this Offering
to (i) repay $550,000 of the Bank Debt, including a $50,000 loan closing fee,
(ii) pay $445,000 of accrued interest on advances from Meridian, (iii) repay the
$250,000 Bridge Note, including interest thereon, and (iv) make capital
expenditures of $250,000 in connection with the U.S. EPA Part B permit approval
will not negatively impact the Company's ability to pay its debts as they become
due. See "Use of Proceeds."
No new accounting standards which have not yet been adopted by the Company
are expected to have a material effect on the financial statements of the
Company.
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BUSINESS
GENERAL
The Company is one of the first commercial paint waste recyclers in the
United States. Since 1991, the Company has processed over 76,500,000 pounds of
paint waste through its recycling facility, including 7,900,000, 14,200,000 and
14,700,000 pounds of paint waste during the six months ended August 31, 1997 and
the years ended February 28, 1997 and February 29, 1996, respectively. The
Company estimates that the annual worldwide generation of paint waste exceeds
3.7 billion pounds, approximately 1.8 billion pounds of which are generated in
the United States. The Company processes hazardous and non-hazardous industrial
paint waste for its customers and creates a recycled product, EPI-PURE-TM-. In
addition to offering its customers an alternative that substantially eliminates
the "cradle to grave" disposal liability otherwise associated with the
generation of hazardous paint waste, the Company believes that the use of its
recycling technologies contributes to the protection of the environment,
conserves vital resources and offers a responsible solution to many of today's
paint waste disposal problems.
The Company uses two different systems to recycle paint waste: the patented
DryPureTM system, which generates a resultant dry powder (EPI-PURETM) and which
the Company typically sells as a filler in the formulation of certain building
and construction products; and the Polymeric Recovery System, the patented paint
waste recycling technology which the Company has recently installed in its
Toledo, Ohio facility and which is currently undergoing a start-up phase of
production. Along with increasing the Company's processing capacity, the
Polymeric Recovery System produces a recycled product (EPI-MERTM), which the
Company intends to sell as a lower cost replacement for traditional, virgin
materials used in formulated products. The Company is currently marketing
EPI-MERTM to approximately ten potential customers, including those in the
sealant, coating and adhesive industries. The Company believes that EPI-MER-TM-
has a greater range of commercial applications than EPI-PURE-TM- and that it can
be sold at higher margins than EPI-PURE-TM-, which currently represents less
than 2% of the Company's annual sales revenue. For these reasons, management
believes that the Company's profitability is substantially dependent on sales of
EPI-MERTM. There can be no assurance that the Company will be able to construct
and operate the Polymeric Recovery System in a way that will enable it to
recycle paint waste in a commercially viable manner. In addition, although the
Company believes that a commercial market exists for EPI-MER-TM-, there can be
no assurance that the Company will be able to market and sell EPI-MER-TM- on a
profitable basis or at all. See "Risk Factors -- Commercial Viability of the
Polymeric Recovery System" and "-- No Current Sales of EPI-MERTM; Developing
Market for a New Product."
The Company markets its paint waste recycling services to businesses that
have spray painting operations that collect paint overspray (wastes) in water
wash spray booths, which are typically used in industrial spray painting
operations. 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 by maintaining stringent quality controls, the Company has
established a reputation in the industry of addressing these customer needs.
Generally, the Company's target market for selling EPI-MERTM is different from
the customers for which the Company currently recycles paint waste or to which
the Company sells EPI-PURETM. Accordingly, the Company will be required to
develop a new market and relationships with new customers prior to generating
substantial sales of EPI-MERTM. The Company intends to use its current sales
force to market and sell EPI-MERTM.
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,
landfilling and incineration. Using the Company's licensed technologies, paint
waste generators pay two to four times more to recycle paint waste as compared
to landfilling 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. The Company believes many
generators of hazardous and non-hazardous paint waste are willing to pay the
higher cost of recycling to substantially eliminate the generators' exposure to
potential, long-term costs associated with the disposal alternatives.
Approximately 15% of the paint waste processed by the Company is hazardous. By
recycling hazardous paint
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waste, these companies avoid liability as "potential responsible parties" of
landfills where their paint waste is disposed and which may be declared
Superfund clean-up sites. Additionally, the Company's customers substantially
avoid the potentially adverse impact of changing environmental laws and
regulations. 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. In addition, the Company's business is
dependent upon certain patented technologies licensed from two separate,
non-affiliated companies, one of which, Haden Environmental, is a direct
competitor of the Company. See "Risk Factors -- Dependence on Licensed
Technology" and "-- Competition."
The Company's current business strategy is to grow its business by
commercializing the Polymeric Recovery System technology through the following
steps: (i) developing a market for and selling EPI-MER-TM- for use as a lower
cost replacement for traditional, virgin materials used in formulated products;
(ii) the construction, ownership and operation of up to five customized
Polymeric Recovery System on-site at large automotive assembly plants in the
United States; and (iii) the 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 which
individually generate lesser amounts of paint waste. The Company has submitted
proposals for on-site facilities to three automotive assembly plants, two of
which are present customers of the Company. However, the Company has no current
commitments for the installation of any on-site facilities. The Company believes
that as a result of the implementation of its business strategy to commercialize
the Polymeric Recovery System (a) certain 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) on-site facilities using the
Polymeric Recovery System will decrease the price barrier for the Company's
services by eliminating the cost borne by paint waste generators to transport
paint waste to the Company's Toledo, Ohio facility. See "Risk Factors -- Capital
Requirements; Potential Unavailability of Additional Financing" and "Business --
Marketing Strategy; Proposed Expansion Program."
DEVELOPMENT OF THE PAINT WASTE RECYCLING BUSINESS
Increased public awareness of the harmful effects on the environment and
public health due to the 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 standards on the
management of wastes and provide substantial liabilities for violators who 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 waste, because of its stickiness and leaching characteristics, is one
of the most difficult wastes to legally dispose of and therefore poses 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 waste are landfilling 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 waste. As a result, many generators
are electing to use incineration which is a more expensive disposal process than
direct disposal into landfills. Incineration involves (i) fuel blending, which
is the commingling of various waste streams into a fuel supplement for use as an
alternative fuel in the manufacture of cement, reducing, in the process, but not
eliminating the generator's liability, or (ii) direct thermal destruction of
waste streams
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which results in the generation of an ash residue which may contain heavy metals
or other hazardous constituents. Ash residue containing hazardous constituents
can be legally disposed only in a fully permitted hazardous waste landfill,
thereby continuing the generator's potential long-term liability connected with
the disposal of hazardous waste. Fuel blending cannot be used for a majority of
paint waste and is more expensive than direct thermal destruction.
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 waste and learned of a then unique process
for the handling of this waste. The process, known as DryPure-TM- and patented
by Haden Environmental, heats the paint waste, 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 automotive
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 as a filler in the
formulation of certain building and construction products. In order for the
Company's processes to be accepted as recycling under current federal and state
regulations, the processes (i) must recover a usable product and use the
reusable product for a commercial product, (ii) must use the waste as a
substitute for a commercial product, or (iii) the materials derived from the
waste must be used as an ingredient in an industrial process to make a product.
The waste or the materials derived from the waste cannot be burned to recover
its energy, or used to produce a fuel or used as a constituent in a fuel,
incinerated or disposed of in a landfill. Historically, the Company has
satisfied these requirements through sales of EPI-PURE-TM-. See "Risk Factors --
No Current Sales of EPI-MER-TM-; Developing Market for a New Product."
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 waste. 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, patented technology is used to process
paint waste in a reaction vessel under low heat and vacuum 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 recycled material known as EPI-MER-TM-. The formulated
material has the performance characteristics of traditional, virgin materials
but has a substantially lower formulation cost. The Company has implemented a
$2,300,000 facilities and equipment expansion of its Toledo, Ohio facility to
commercialize the Polymeric Recovery System.
PAINT WASTE PROCESSING MARKET
The Company estimates that the annual worldwide generation of paint waste
exceeds 3.7 billion pounds, approximately 1.8 billion pounds of which are
generated in the United States. The Company anticipates processing approximately
15,000,000 pounds of paint waste in Fiscal 1998, which represents less than 1%
of the paint waste generated in the United States. The Company plans to continue
to increase its
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market share of paint waste processing and recycling through its newly expanded
processing facility in Toledo, Ohio and owning, installing and operating
customized 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. See "Risk Factors -- Commercial Viability of
the Polymeric Recovery System."
The Company intends to target the automotive market for the sale of on-site
facilities, which 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 automotive manufacturers, substantial quantities of paint
waste are 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 Polymeric Recovery System recovers certain materials from the paint
waste to produce EPI-MER-TM- which can be utilized as a replacement for
traditional, virgin materials in formulated products and which the Company
believes will be priced significantly less than the cost of traditional, virgin
materials. The initial target markets for EPI-MER-TM- are manufacturers and
formulators of the following compounded polymer products: vinyl plastisols, hot
melts, adhesives, pressure sensitive adhesives, caulks, butyls, asphalt,
mastics, paint and coatings. EPI-MER-TM- sales will be concentrated in the
sealant, coating and adhesive industries, which collectively have an annual
market volume in the United States of approximately eight billion pounds. In
order to generate sales of EPI-MER-TM- (i) the recycled product must meet the
same performance characteristics as the material it replaces, (ii) it must be
priced competitively relative to the product EPI-MER-TM- is replacing and other
alternatives which exist for the Company's prospective customer, and (iii) the
Company must be able to produce sufficient quantities of EPI-MER-TM- to satisfy
the customer's processing requirements. See "Risk Factors -- No Current Sales of
EPI-MER-TM-; Developing Market for a New Product."
EPI-PURE-TM- is typically used as a filler in the formulation of certain
building and construction products. For example, EPI-PURE-TM- is used by
manufacturers as partial replacements for sand in concrete and calcium carbonate
in asphalt related products. Fillers such as EPI-PURE-TM- are used to add bulk
to the final product. Because the materials which EPI-PURE-TM- has replaced as a
filler are inexpensive, the Company has not generated significant revenues from
the sale of EPI-PURE-TM-.
MARKETING STRATEGY; PROPOSED EXPANSION PROGRAM
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,
landfilling 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
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landfilling 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 newly-installed Polymeric Recovery System in the Toledo, Ohio facility
provides a 50% increase in the Company's existing paint waste processing
operations. In order to fill this capacity, the Company will target the
generation of new customers while maintaining its current customer base. In
addition, the Company will focus its marketing efforts on generating sales of
EPI-MER-TM-. Although the Company believes a commercial market exists for
EPI-MER-TM-, there can be no assurance that the Company will be able to market
and sell EPI-MER-TM- on a profitable basis or at all. See "Risk Factors --
Commercial Viability of the Polymeric Recovery System" and "-- No Current Sales
of EPI-MER-TM-."
The Company plans to own, install and operate the on-site facilities.
Management currently estimates that the cost of constructing and installing each
customized on-site processing equipment installation will be approximately
$1,000,000. 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
customized on-site facilities to large automotive assembly plants in the Midwest
region of the United States where the Company has an established market
relationship and several existing customers in this market category. Although
there are no current commitments for the installation of such systems, the
Company has submitted proposals for on-site facilities to three automotive
companies, two of which are present customers of the Company. Management
currently estimates that the first customized on-site facility will be developed
within the next two years. 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 operate the Polymeric Recovery System in a way that will
allow it to recycle paint waste in a commercially viable manner. Further, the
Company believes that only 34 of the 68 automotive assembly plants in the United
States generate sufficient paint waste to justify the purchase of a Polymeric
Recovery System. This limited number of customers may negatively impact the
Company's ability to sell on-site facilities. See "Risk Factors -- Commercial
Viability of the Polymeric Recovery System" and "-- Limited Number of Potential
Customers for On-site Facilities."
In addition to the newly installed $2,300,000 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 Southeast region
of the United States to accommodate that geographic market which includes
smaller and medium sized automotive assembly plants generating approximately
925,000 to 2,775,000 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 1998 and be completed in
late 1999. The Company has not selected a 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."
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The Company plans to finance approximately 80% of the costs of the on-site
facilities and the second processing and recycling plant in the Southeast region
of the United States 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. 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 is 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
- -- Captial Requirements; Potential Unavailability of Additional Financing" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The sales of EPI-MER-TM- are being handled through direct selling efforts.
The Company believes that the use of direct sales personnel is 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 a
reformulated compound takes time for testing and acceptance, the Company is
building an inventory of EPI-MER-TM- to which will demonstrate that the
EPI-MER-TM- is available for use. The Company is currently marketing EPI-MER-TM-
to approximately 10 potential customers, including those in the sealant, coating
and adhesive industries. EPI-MER-TM-, as a replacement for traditional, virgin
materials, must meet the same performance characteristics as the material it
replaces. EPI-MER-TM- has met certain vendor formulation specifications and is
undergoing further tests by vendors. See "Risk Factors -- No Current Sales of
EPI-MER-TM-; Developing Market for a New Product."
CUSTOMERS AND MARKETING
The Company markets its paint waste recycling services to businesses that
have spray painting operations that collect paint overspray (waste) in water
wash 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 by maintaining stringent quality controls, the
Company has established a reputation in the industry of 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
individual, one-year purchase orders 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.
Although approximately 55% of the Company's customers (representing
approximately 82% of the Company's current sales volume) have been customers of
the Company since 1994, substantially all of the Company's business is generated
from individual purchase orders, which define the price for which the Company
will process paint waste and the quality of paint waste to be supplied by the
customer but which do not require the customer to send any paint waste to the
Company. For the fiscal year ended February 28, 1997, ARK, Inc. (American
Recycling of Kentucky) and Subaru-Isuzu Automotive, Inc. represented
approximately 18.6% and 16.3% 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, Haden Environmental, Salem Environmental
Services and Nortru, a division of Philip Environmental Services, 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
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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- may give the Company a competitive
advantage by providing a higher value, recycled product for use as a raw
material in industrial products and thereby permitting the Company to decrease
the price of its paint waste processing services. See "Risk Factors -- No
Current Sales of EPI-MER-TM-; Developing Market for a New Product."
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 waste 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 landfilling or incineration, the Company's recycling
process substantially eliminates continuing generator costs. Landfilling 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 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 waste. See "Risk Factors -- Competition."
The Company's business is dependent on the continued use of water wash spray
booths by companies that perform spray painting. Water wash spray booths are a
capture device used in spray painting operations which uses chemically treated
water to collect fugitive paint overspray. The process uses a large volume of
air movement to carry paint spray particles into contact with a chemically
treated water flood sheet. The treated water detackifies the paint, which is
then either skimmed from the water surface or sinks to the bottom and is
subsequently collected. The Company processes the resulting sludge or paint
waste. The introduction of new technology that replaces water wash spray booths
would have a material adverse effect on the financial condition, operations and
liquidity of the Company. See "Risk Factors -- Competition."
Management believes that currently there are no recycled products similar to
EPI-MERTM which are sold as a lower cost replacement for traditional, virgin
materials used in formulated products. However, no assurances can be given that
current suppliers of traditional, virgin materials which would be replaced by
EPI-MERTM will not lower their prices to compete with EPI-MERTM. In addition, no
assurances can be given that companies with substantially greater resources than
the Company will not enter the replacement market for traditional, virgin
materials in formulated products. See "Risk Factors -- Competition."
TECHNOLOGY LICENSES
DRYPURE-TM- SYSTEM. Under the terms of the Compromise Agreement, the
Company 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 July 1, 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's customer
base. Additionally, Haden Environmental and its affiliates are not permitted to
compete with the Company, directly or indirectly, as a third party paint waste
processor within 200 miles of
Toledo, Ohio through July 1, 1998. Furthermore, through July 1, 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 the Company 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 the Company,
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. The Company's previously
existing obligation to pay Haden Environmental a throughput charge of $10 per
cubic yard of paint waste processed through the DryPure-TM- system will
terminate on July 1, 1998. At August 31,
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1997, remaining throughput charges were estimated to aggregate $70,000. Prior to
the execution of the Compromise Agreement, payments of the throughput charge
were credited toward amounts due under a note payable to Haden Purification. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
POLYMERIC RECOVERY SYSTEM. The Company has an exclusive, worldwide (except
for Mexico) perpetual license for the use of patented mechanical and chemical
technology from Aster which comprise the Polymeric Recovery System. The Company
pays royalties to Aster based on pounds of paint waste processed annually. The
license agreement requires the Company to pay royalties on a minimum of
1,850,000 pounds of raw paint waste in the first year of production ($37,000),
3,700,000 pounds in the second year of production ($74,000), 5,000,000 pounds in
the third year of production ($100,000) and 7,000,000 pounds for each year
thereafter ($140,000). This royalty rate decreases for annual processing in
excess of 7,500,000 pounds. Additionally, the Company will be required to pay
Aster a royalty fee of $.04 per pound of EPI-MER-TM- sold, subject to downward
adjustment if the Company is unable to sell EPI-MER-TM- for a minimum of $.30
per pound. In the event that the Company is unable to process the minimum
requirement of paint waste in any given year, the Company can retain the license
by paying the full royalties on the amount of raw paint waste processed and a
royalty fee of $.04 per pound of EPI-MER-TM- sold during that year. All royalty
fees are subject to an adjustment beginning three years from the completion of
the start-up period based on the consumer price index. The Company also pays
hourly fees to Aster for technical and manufacturing services. Although the term
of the license agreement is perpetual, the Company may terminate the license
agreement at any time if it determines that profits on the licensed technology
are insufficient. Aster may terminate the license agreement if the Company 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.
The Company 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 the Company 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 the Company. The Company is
permitted to grant sublicenses of the Polymeric Recovery System after obtaining
the written consent of Aster. The Company and Aster will share equally in the
proceeds from sub-licensed operations outside the United States (other than
Mexico).
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 oil which provides heat for 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, the Company's stack emissions comply with
applicable U.S. EPA standards and EPI-PURE-TM-, the resultant product from the
DryPure-TM- system, tests below the U.S. EPA's allowable level for leachates
which would be characterized as hazardous waste (the amount of organic and
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inorganic analytes present in liquid, solid and multiphase wastes). In order to
comply with federal requirements, the maximum concentration of leachates must
not exceed the following limits (as measured in mg/L): arsenic 5.0; barium
100.0; cadmium 1.0; chromium 5.0; lead 5.0; mercury 0.2; selenium 1.0; and
silver 5.0. 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 six fiscal years, the Company has processed over 76,500,000
pounds of paint waste into approximately 18,000,000 pounds of EPI-PURE-TM-. The
Company has sold over 14,500,000 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. Although sales of EPI-PURE-TM- are not material from a financial point
of view, sales of EPI-PURE-TM- are significant to the Company for business
purposes because such sales complete the recycling process. See " --
Environmental Standards and Government Regulation."
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 product in the form of a putty, liquid or
powder material configuration 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. See "Business -- Marketing Strategy; Proposed Expansion
Program."
The installation of the Polymeric Recovery System at the Company's Toledo,
Ohio facility was completed in May 1997. The Company's Polymeric Recovery System
uses approximately 8,000 square feet of plant space in the Company's Toledo,
Ohio facility.
For the past three 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 17,300,000 pounds of paint waste. The
Company's annual paint waste processing capacity is increased approximately
27,750,000 pounds with the addition of the Polymeric Recovery System.
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, carbon black clay and potassium hydroxide may be 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
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regulations, the Company believes that its policies, practices and procedures
substantially comply with current applicable environmental laws and regulations.
Specifically, the Company's facility in Toledo, Ohio is currently subject to the
following federal and state environmental regulations, among others: (i) federal
requirements for recyclable materials (40 CFR 266.20(b)); federal requirements
for waste burned in boilers of industrial furnaces (BIF) (40 CFR part 266,
subpart H); State of Ohio air regulations governing permits to install new
sources of pollution (OAC 3745-31) and permits to operate and variances (OAC
3745-35); and the National Pollutant Discharge Elimination System (OAC
DSW-0100). Additionally, the Company is subject to State of Ohio regulations
governing the discharge of waste water (OAC DSW-0200). Further, the Company will
be subject to other state environmental laws and regulations after it installs
the on-site facilities outside the State of Ohio and develops the second waste
processing facility in the Southeast region of the United States. No assurance
can be given that such other state environmental laws and regulations or that
future changes in environmental laws, regulations, or interpretations currently
applicable to the Company 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.
During the past five years, the U.S. EPA has adopted a more pragmatic
approach toward the regulated environmental community. This approach includes
the use of cost/benefit analysis before implementing additional major levels of
regulation on industry. In practice, the U.S. EPA appears to have recognized
that it must be practical in balancing its mandate to provide vigilant
environmental protection while fostering economic growth. The Company currently
estimates that it will incur expenses of approximately $40,000 when the U.S. EPA
reviews and approves the Company's plan to comply with a consent decree entered
into between the Company and the U.S. EPA. Additionally, the Company estimates
that the testing requirements necessary to demonstrate compliance with the U.S.
EPA's standards for approval of a "Part B" permit, for which the Company has
filed an application, will cost approximately $250,000. The Part B Permit allows
a company to handle hazardous waste at a specific facility under RCRA. In the
event that the U.S. EPA rejects the Company's application for a Part B permit,
or if the Company decides to modify its Toledo, Ohio facility to eliminate the
need for a Part B permit, the Company estimates that it will incur approximately
$250,000 in capital expenditures to design and implement necessary
modifications. The Company expects to incur both the $40,000 expense related to
compliance with the consent decree and the $250,000 expense in connection with
the application for a Part B permit or modifications of its Toledo, Ohio
facility within the next two years. The Company does not currently project that
it will incur any other material capital expenditures related to compliance with
environmental regulations. See "Risk Factors -- Impact of Denial of U.S. EPA
Permit" and "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
Recycling of hazardous paint waste currently comprises approximately 15% of
the Company's sales volume, with remaining sales volume consisting of
non-hazardous paint waste. 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 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, however, 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 -- Impact of Denial of U.S. EPA
Permit."
The Company's comprehensive recycling program meets the objectives of RCRA
by processing a hazardous paint waste stream into a new raw material for
beneficial reuse in a manufacturing process,
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thereby ending a generator's potential long-term liability. Equipment that is
used to recycle hazardous waste is not subject to hazardous waste permits or
other management standards, except air emissions controls under RCRA. However,
paint waste which meets 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. A water discharge permit is not required for the
DryPure-TM- system since it does not result in the discharge of fluids to a
sewer system or outside the facility. The Company has been granted a "permit to
install" by the Ohio EPA which allows the installation and operation of the
Polymeric Recovery System. Presently, the waste water generated by the Polymeric
Recovery System is being treated offsite pending the installation of discharge
treatment equipment which is required to bring the waste water discharge to
acceptable guidelines. The Company estimates that the treatment equipment will
cost approximately $25,000. The Company anticipates the final water discharge
permit will be granted after the Company submits its water discharge analysis.
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.
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 subsidiary to hold all of the
outstanding stock and partnership interests of NPI and MEPI, the sole general
partners of EPIC. In November 1996, the Company issued shares of Common Stock
representing an aggregate 20% interest in the Company for $600,000 to the
Minority Stockholders. Prior to the completion of this Offering, the Company
will issue shares of Meridian Preferred Stock in exchange for certain
outstanding indebtedness of the Company to Meridian. The Compay estimates it
will owe Meridian approximately $3,998,000 immediately prior to the completion
of this Offering, of which approximately $3,553,000 will be exchanged for the
Meridian Preferred Stock. A portion of the net proceeds of this Offering,
$445,000, will be used to pay the remaining outstanding amount of said debt,
which represents interest accrued on the debt during the period beginning March
1, 1996 and ending immediately prior to the completion of this Offering. See
"Relationships Between the Company and Meridian -- Meridian Preferred Stock." As
a result of this Offering, Meridian's beneficial ownership of the Common Stock
will be reduced from 80% to 40% (or 37.2% if the Underwriter's Overallotment
Option is exercised in full). See "Risk Factors -- Absence of Additional
Financial Support from Meridian," "-- Control by Meridian" and "Relationships
Between the Company and Meridian."
EMPLOYEES
At July 31, 1997, the Company had 32 full-time employees and had engaged two
full-time independent contractors. None of the Company's employees are covered
by a collective bargaining agreement. The Company believes that its employee
relations are satisfactory.
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LITIGATION
There are no material legal proceedings pending against the Company.
PROPERTIES
The Company owns a 19,500 square foot building located in Toledo, Ohio where
it conducts its paint waste recycling operations. This property and the
Company's DryPure-TM- recycling equipment are subject to a mortgage securing
repayment of the 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. At August 31, 1997, the outstanding principal balance of the Mortgage
Note was $2,393,000. Haden Purification has assumed liability for one-half of
the remaining principal, interest and fee payments due under the Mortgage Note.
Meridian is a guarantor of one-half of the Mortgage Note. Substantially all of
the property and equipment of the Company, which has a net book value of
$3,720,000 at August 31, 1997, has been assigned as collateral to the
Toledo-Lucas County (Ohio) Port Authority and to the Senior Lender.
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-. Chicago Investors is a general
partnership in which Champlain Investors, a general partnership, has a 50%
interest. Mr. Feniger owns a one-half interest in Champlain Investors and his
father, Yale M. Feniger, owns the remaining one-half interest.
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
$1,175 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 also leases approximately 17,000 square feet of material storage
space in Toledo, Ohio under a one year lease expiring in June 1998 with monthly
rental of $2,572.
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."
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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............................ 55 President, Chief Executive Officer and
Director (Class II)
Real P. Remillard.......................... 66 Chief Financial Officer and Secretary
Spencer I. Browne.......................... 47 Director (Class I)
William D. Feniger......................... 50 Chairman of the Board and Director (Class
I)
James L. Rosino............................ 43 Director (Class III)
</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.
REAL P. REMILLARD has been Chief Financial Officer and Secretary 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 and is a member of the Ohio Society of
Certified Public Accountants.
SPENCER I. BROWNE has been a director of the Company since November 1996.
Mr. Browne formed Stategic Asset Management LLC in January 1997 to assist small
companies in raising debt and equity capital. From August 1988 until September
1996, Mr. Browne served as President, Chief Executive Officer and a director of
Asset Investors Corporation ("AIC"), a real estate investment trust which is
traded on the New York Stock Exchange ("NYSE"), which he co-founded in 1986. He
also served as President, Chief Executive Officer and a director of Commercial
Assets, Inc., an American Stock Exchange traded company affiliated with AIC,
from its formation in October 1993 until September 1996. In addition, from June
1990 until March 1996, Mr. Browne served as President and a director of M.D.C.
Holdings, Inc., an NYSE traded company and the parent company of a major
homebuilder in Colorado. He is director of Mego Mortgage Corporation, which is a
specialized consumer finance company traded on NASDAQ.
WILLIAM D. FENIGER has been a director of the Company since February 1996
and Chairman of the Company's 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.
JAMES L. ROSINO has been a director of the Company since October 1996. Mr.
Rosino is Chief Financial Officer and Vice President -- Finance of Meridian and
has served as such since February 1996. Mr. Rosino has also served as Secretary
and Treasurer of Meridian since May 1996. From May 1988 through February 1996,
Mr. Rosino served as Corporate Controller of Meridian. Mr. Rosino earned a
Bachelor of Business Administration degree from the University of Toledo and is
a Certified Public Accountant.
43
<PAGE>
The Company has agreed for a period of three years after the completion of
this Offering to use its best efforts to elect to the Board a nominee designated
by the Underwriter who is reasonably acceptable to the Company. Meridian has
executed an agreement to vote its shares of Common Stock in favor of the
Underwriter's nominee during such three year period. The Underwriter will also
be entitled to have an advisor to the Board during such three year period in the
event that its nominee is not a director of the Company. The Underwriter's
nominee, if not a director, will be entitled to attend or participate in all
Board meetings and to receive advance notice of all proposed Board actions and
resolutions.
After the appointment of the Underwriter's nominee, the Board will consist
of five directors divided into three classes; Class I Directors, Class II
Directors and Class III Directors. The Company's 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 1998, 1999 and in the year 2000,
respectively, and until their respective successors are duly elected and
qualified or until their early 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 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. Mr.
Remillard serves as Chief Financial Officer and Secretary of the Company. Both
Messrs. Maison and Remillard are employed pursuant to employment agreements. See
"-- Executive Compensation" and "Underwriting."
All future transactions between the Company and its officers, directors and
5% stockholders will be on terms no less favorable than could be obtained from
independent third parties and will be approved by a majority of the independent,
disinterested directors of the Company. In addition, all agreements between the
Company and any of its stockholders for the three years after the date of the
completion of this Offering must be reasonably acceptable to the Underwriter.
COMMITTEE OF THE BOARD OF DIRECTORS
Effective upon the completion of this Offering, the Board will establish an
Audit Committee, a Compensation Committee and a Stock Option Committee. The
Board has not yet determined which directors will serve on such committees.
The general functions of the Audit Committee will 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 Compensation Committee will be 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 Stock Option Committee will be 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.
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 28, 1997
and February 29, 1996 and February 28, 1995 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 28, 1997.
44
<PAGE>
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) 1997 $ 131,250 -- $ 2,232 -- --
1996 125,000 $ 23,000 2,611 -- --
1995 111,077 10,000 2,295 -- --
</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
and as President of another subsidiary of Meridian.
------------------------
EMPLOYMENT CONTRACTS
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 Company or Mr. Maison notifies
the other part 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, at the discretion of the Board. 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. For the purposes of the employment agreement,
a "change of control" occurs upon a substantial change of control of the
Company, including, without limitation, a transaction in which shares
representing greater than 30% 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 Preferred Stock and
a bonus of $22,250 upon the completion of this Offering.
Mr. Remillard is employed as Chief Financial Officer and Secretary of the
Company under an agreement expiring , 2000. The employment agreement
provides for an initial base salary of $50,000, subject to an increase each year
at the discretion of the Board. Additionally, Mr. Remillard is entitled to
bonuses and stock options at the discretion of the Board. Mr. Remillard is
entitled to hospitalization insurance, disability and retirement plan benefits
and such other benefits as are provided to salaried employees of the Company.
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 non-employee directors
45
<PAGE>
based on their attendance at meetings. In the event that the Underwriter
designates an advisor to the Board, such designee will receive the same fee for
attendance at meetings as the non-employee directors of the Company.
STOCK OPTION PLANS
1997 NON-QUALIFIED AND INCENTIVE STOCK OPTION PLAN
The Company's 1997 Non-Qualified and Incentive Stock Option Plan (the
"Option Plan") was adopted by the Board in September 1997, subject to approval
by the Company's stockholders. An aggregate of 210,000 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; provided, however, in no event
shall an employee be granted an Option or Options to acquire more than 150,000
shares in any one calendar year. 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.
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 210,000 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 21,000 shares granted to
Real P. Remillard, the Company's Chief Financial Officer and Secretary. 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.
46
<PAGE>
1997 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
The Company's 1997 Non-Employee Directors' Stock Option Plan (the
"Directors' Plan") was adopted by the Board in September 1997. An aggregate of
100,000 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 and 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, Rosino and Browne) will be
granted an option on the closing date of this Offering to purchase 25,000 shares
of Common Stock. 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 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. 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 Second 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 Second 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
47
<PAGE>
improper personal benefit. This provision of the Company's Second 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 Second
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.
48
<PAGE>
PRINCIPAL STOCKHOLDERS
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. Meridian, which owns all of the outstanding Meridian Preferred Stock,
is the only holder of the Company's Preferred Stock. See "Relationships Between
the Company and Meridian."
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------
PERCENT (2)
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....................................................... 1,000,000 80.0% 40.0%(3)
Elliot Smith
c/o Ladenburg Thalmann & Co. Inc.
590 Madison Avenue, 35th Floor
New York, NY 10022..................................................... 83,333 6.7% 3.3%
MNP Corporation (4)
44225 Utica Road
Utica, MI 48318-9002................................................... 83,333 6.7% 3.3%
<CAPTION>
DIRECTORS AND EXECUTIVE OFFICERS
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Bruce F. Maison
810 Chicago Street
Toledo, OH 43611....................................................... 130,000(5) 9.4% 4.9%
Real P. Remillard
810 Chicago Street
Toledo, OH 43611....................................................... 21,000(6) 1.7% *
William D. Feniger
805 Chicago Street
Toledo, OH 43611....................................................... --(7)
Spencer I. Browne
650 South Cherry Street
Denver, CO 80222....................................................... 83,333(7) 6.7% 3.3%
James L. Rosino
805 Chicago Street
Toledo, OH 43611....................................................... --(7) * *
All executive officers and directors as a group (5 persons)............. 234,333(8) 16.7% 8.8%
</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) The computation used in determining the percent of beneficial ownership
includes a fraction which has as its numerator (i) the actual number of
shares of stock owned, plus (ii) the number of shares beneficially owned
pursuant to rights exercisable within 60 days of the completion of this
Offering and
49
<PAGE>
the denominator includes the total number of shares outstanding plus the
number of shares determined in item (ii) of the numerator with respect to
the holder for which the computation is made. Accordingly the total
beneficial ownership exceeds 100%.
(3) Meridian will beneficially own 37.2% of the then issued and outstanding
shares of Common Stock if the Underwriter's Overallotment Option is
exercised in full.
(4) Mr. Larry Berman, the Chairman of the Board of Directors and a stockholder
of MNP Corporation, is a director of Meridian.
(5) 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.
(6) Consists of 21,000 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.
(7) Does not include 25,000 shares of Common Stock subject to stock options that
become exercisable six months after the completion of this Offering.
(8) Includes the stock options granted to Messrs. Maison and Remillard.
50
<PAGE>
RELATIONSHIPS BETWEEN THE COMPANY AND MERIDIAN
GENERAL
Prior to the completion of this Offering, Meridian owned 80% of the
outstanding shares of Common Stock. As a result of this Offering, Meridian's
ownership of the Common Stock will be reduced from 80% to 40% (or 37.2% if the
Underwriter's Overallotment Option is exercised in full). Meridian is a
guarantor of one-half of the Company's obligations under the Mortgage Note which
had an outstanding principal balance of approximately $2,393,000 at August 31,
1997. In addition, Meridian is a co-signor of the Bank Debt, which had an
outstanding principal balance of $2,161,000 at August 31, 1997. With the
exception of William D. Feniger and James L. Rosino, none of the executive
officers and the present directors of the Company are present officers or
directors of Meridian. See "Risk Factors -- Absence of Additional Financial
Support from Meridian," "-- 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.
The Senior Lender has agreed upon the completion of this Offering to
refinance the Bank Debt upon receiving a $500,000 principal payment and a loan
closing fee of $50,000 from the net proceeds of this Offering. Meridian will not
be required to co-sign the refinanced Bank Debt. In addition, William D.
Feniger, Chairman of the Board of Directors, Chief Executive Officer and
President of Meridian, who is also the Chairman of the Company's Board, will
also be released from his personal guaranty of the Bank Debt in connection with
the refinancing. Mr. Feniger owns approximately 23% of Meridian's common stock
and approximately 33% of Meridian's non-voting series A preferred stock.
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-. 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-half interest in
Champlain Investors and his father, Yale M. Feniger, owns the remaining one-half
interest. The current annual rentals for the office space and for the
EPI-PURE-TM- processing space are $7,020 and $14,100, respectively. 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."
51
<PAGE>
MERIDIAN PREFERRED STOCK
Prior to the completion of this Offering, the Company will issue Meridian
Preferred Stock to Meridian in exchange for approximately $3,553,000 of the
Company's $3,998,000 in outstanding indebtedness to Meridian. A portion of the
net proceeds of this Offering, $445,000, will be used to pay the remaining
outstanding amount of said debt, which represents interest accrued on the debt
during the period beginning March 1, 1996, and ending immediately prior to the
completion of this Offering. See "Description of Securities -- Preferred Stock."
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 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.
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.
In addition, the Company has agreed to not make any loans or advances to
Meridian, or any entity affiliated with Meridian, for a period of three years
after the completion of this Offering.
STOCK OWNERSHIP
Upon completion of this Offering, Meridian will beneficially own, in the
aggregate, 40% of the then issued and outstanding shares of Common Stock (or
37.2% 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.
MANAGEMENT
William D. Feniger, Chairman of the Company's Board, serves as Chairman of
the Board of Directors, President and Chief Executive Officer of Meridian. Mr.
Feniger will devote such time to the business and affairs of the Company as he
deems appropriate; however, he has duties and responsibilities to Meridian which
will require most of his time and which may reduce the time which he might
otherwise spend as Chairman of the Company's Board. Mr. Feniger, however, is not
an executive officer of the Company.
52
<PAGE>
Mr. Feniger owns approximately 23% of Meridian's common stock and approximately
33% of Meridian's non-voting series A preferred stock. Larry Berman, the
Chairman of the Board of Directors and a stockholder of MNP Corporation, which
owns 6.7% of the outstanding shares of Common Stock, is a director of Meridian.
See "Management and Principal Stockholders."
CERTAIN OTHER RELATIONSHIPS AND RELATED TRANSACTIONS
The Senior Lender has agreed upon the completion of this Offering to
refinance the Bank Debt upon receiving a $500,000 principal payment and a
$50,000 loan closing fee from the net proceeds of this Offering. William D.
Feniger, the Chairman of the Company's Board, will be released from his personal
guaranty of the Bank Debt in connection with the refinancing. In addition, MNP
Corporation, which owns 6.7% of the outstanding shares of Common Stock, will be
released from its guaranty of $750,000 of the Bank Debt in connection with the
refinancing. MNP Corporation holds an option to purchase a building and certain
real property owned by Meridian. In the event that MNP Corporation would have
been required to make any payments to the Senior Lender pursuant to its guaranty
of the Bank Debt, under an agreement between MNP Corporation and Meridian the
option price at which the building and real property are purchasable by MNP
Corporation would have been decreased by the amount of such payment by MNP
Corporation to the Senior Lender.
DESCRIPTION OF SECURITIES
GENERAL
The Company is authorized to issue an aggregate of 20,000,000 shares of
Common Stock, $.01 par value per share, and 5,000,000 shares of preferred stock,
$.01 par value per share (the "Preferred Stock").
COMMON STOCK
Immediately prior to the completion of this Offering, 1,250,000 shares of
Common Stock were issued and outstanding. Immediately following the completion
of this Offering (assuming the Underwriter's Overallotment Option is not
exercised), 2,500,000 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. Subject to the preferences that
may be applicable to any class of Preferred Stock then outstanding, including
the Meridian Preferred Stock, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be 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 Second Restated Certificate of
Incorporation to issue a maximum of 5,000,000 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 addition to the
shares of Meridian 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
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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."
The Meridian Preferred Stock, (series A Preferred Stock with a per share
stated value of $2.00), which bears a dividend of 8% per annum, payable
annually, is non-voting, and has a liquidation preference equal to the amount of
the indebtedness exchanged. Such indebtedness aggregated approximately
$3,998,000 (including accrued interest payable) of which approximately
$3,553,000 will be converted into Meridian Preferred Stock prior to the
completion of this Offering. In the event that earnings before interest, taxes,
depreciation and amortization ("EBITDA") of the Company for the fiscal year
immediately preceding a date of payment of the dividend is less than five times
the aggregate dividend payable upon all shares of Meridian Preferred Stock then
outstanding, the Company will only pay a PRO RATA portion of the dividend
payable on the Meridian Preferred Stock based on the percentage which EBITDA
represents of five times the aggregate dividend payable on all such outstanding
shares. Some or all of the accrued unpaid dividends may be paid on a subsequent
payment date if EBITDA, in the fiscal year immediately preceding such subsequent
payment date, exceeds five times the aggregate dividend then payable upon all of
the shares of Meridian Preferred Stock then outstanding. The Company must pay
all accrued and unpaid dividends on the Meridian Preferred Stock prior to
declaring or paying dividends on the Common Stock, including dividends which the
Company may have been unable to pay in prior years under the terms of the
Meridian Preferred Stock.
WARRANTS
In connection with this Offering, 1,250,000 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 $5.50 per share, for a period of three years commencing two
years after the date of this Prospectus. The exercise price of the Warrants is
subject to adjustment upon the occurrence of certain events such as the issuance
of securities at a price less than the exercise price then in effect, or upon
stock splits, stock dividends, reorganizations, mergers or consolidations.
Unless exercised, the Warrants will automatically expire on the fifth
anniversary of the date of this Prospectus. The Warrants are subject to
redemption by the Company, after obtaining the approval of the Underwriter, at
$.10 per Warrant at any time commencing two years after the date of this
Prospectus on at least 30 days prior written notice to the holders of the
Warrants, provided the closing bid price of the Common Stock as reported on The
Nasdaq Stock Market or a national securities exchange has been at least $8.25
per share on each of 20 consecutive trading days following the second
anniversary of the date of this Prospectus, and provided that such consecutive
trading days end not more than three 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
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the Registration Statement which includes this Prospectus can or will be kept
current or that the Company 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.
MINORITY STOCKHOLDER WARRANTS; BRIDGE WARRANTS
The Minority Stockholder Warrants issued to the Minority Stockholders have
the same terms and conditions as the Warrants. Additionally, the Bridge Warrants
will be exchanged effective upon the completion of this Offering for warrants
with the same terms and conditions as the Warrants. See "-- Warrants" above.
The Minority Stockholder Warrants and the Bridge Warrants, along with the
650,000 shares of Common Stock issuable upon exercise of such warrants which
will be outstanding after the completion of this Offering are treated as
"restricted securities" for purposes of Rule 144. Therefore, such warrants and
shares of Common Stock may not be resold in a public distribution except in
compliance with the registration requirements of the Securities Act, or an
exemption therefrom, or pursuant to Rule 144 under the Securities Act.
Additionally, the Minority Stockholders and the holder of the Bridge Warrants
have agreed not to sell or transfer any securities of the Company for a two year
period following the completion of this Offering, provided, however, that they
may sell or transfer the Minority Stockholder Warrants and the Bridge Warrants,
respectively, after a one year period following the completion of this Offering.
Additionally, the holders of the Minority Stockholder Warrants and the holder of
the Bridge Warrants have agreed in any public sale or transfer of securities at
any time during the three year period (or four year period for the Bridge
Warrants and Minority Stockholder Warrants) commencing immediately after the end
of each such person's applicable lock-up period, to sell such securities through
the Underwriter, subject to certain conditions and limited exceptions. See
"Shares Eligible for Future Sale."
REGISTRATION RIGHTS
The Company has granted certain demand registration rights to the holders of
the Underwriter's Warrant. See "Underwriting." Additionally, the holders of
Minority Stockholder Warrants and the holder of the Bridge Warrants have certain
"piggyback" registration rights with respect to registration statements filed by
the Company. The Minority Stockholders and the holder of the Bridge Warrants
have agreed not to exercise such registration rights for a three year period
from the completion of this Offering. The Company has agreed that for a period
of three years after the completion of this Offering that it will not file a
registration statement with the Commission with respect to equity securities
issued by the Company without the prior written consent of the Underwriter. See
"Underwriting."
CERTAIN PROVISIONS OF DELAWARE LAW AND OF THE COMPANY'S SECOND RESTATED
CERTIFICATE OF INCORPORATION AND BY-LAWS
GENERAL
The Second 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 Second Restated Certificate of
Incorporation and By-laws of the Company.
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BOARD OF DIRECTORS
The Company's Second 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 four. The Company has agreed to use its best efforts for
a period of three years commencing on the completion of this Offering to elect
to the Board a nominee designated by the Underwriter, who is reasonably
acceptable to the Company. [Dean Petkanas, the nominee designated by the
Underwriter, has been accepted by the Company. Upon the election of Mr.
Petkanas, the Board will be expanded to five members.] 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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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSIDERATIONS, TO
THE EXTENT IT RELATES TO A HOLDER'S TAX BASIS IN THE WARRANTS OR THE
CONSEQUENCES OF THE SALE, EXERCISE OR LAPSE OF THE WARRANTS, IS LIMITED TO
HOLDERS OF THE WARRANTS SOLD PURSUANT TO THIS OFFERING.
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.
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
September 1997 is 5.45%). 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 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,
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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
2,500,000 shares of Common Stock (or 2,687,500 shares if the Underwriter's
Overallotment Option is exercised in full). The 1,250,000 shares of Common Stock
and 1,250,000 Warrants sold in this Offering (or 1,437,500 shares of Common
Stock and 1,437,500 Warrants if the Underwriter's Overallotment Option is
exercised in full) and the 1,250,000 shares of Common Stock issuable upon
exercise of the Warrants (or 1,437,500 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 1,250,000 shares of Common
Stock owned by Meridian and the Minority Stockholders 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 an exemption therefrom, or pursuant to Rule 144 under
the Securities Act. The 125,000 shares of Common Stock issuable to the
Underwriter pursuant to the Underwriter's Warrant, 150,000 Minority Stockholder
Warrants, the 500,000 Bridge Warrants and the 125,000 warrants issuable to the
Underwriter pursuant to the Underwriter's Warrant (along with the 775,000 shares
of Common Stock issuable upon exercise of such warrants) which will be
outstanding upon the completion of this Offering are treated as "restricted
securities" for purposes of Rule 144. Therefore, such warrants and shares of
Common Stock may not be resold in a public distribution except in compliance
with the registration requirements of the Securities Act, or an exemption
therefrom, or pursuant to Rule 144 under the Securities Act.
In general, under Rule 144, as currently in effect, a stockholder (or
stockholders whose shares are aggregated) who has beneficially owned for at
least one year shares of Common Stock which are treated as "restricted
securities," including persons who may be deemed affiliates of the Company,
would be entitled to sell, within any three-month period (beginning 90 days
after the date of this Prospectus), a number of shares that does not exceed the
greater of 1% of the then outstanding shares of the Common Stock or the average
weekly trading volume in the Common Stock during the four calendar weeks
preceding the date on which notice of such sale is given, provided certain
requirements as to the manner of sale and requirements as to the availability of
current public information about the Company are satisfied. A stockholder who is
deemed not to have been an affiliate of the Company at any time during the 90
days preceding a sale by him, and who has beneficially owned for at least two
years shares of Common Stock that are treated as "restricted securities," would
be entitled to sell such shares under Rule 144(k) immediately upon the
effectiveness of this Offering, without regard to the foregoing volume
limitations and manner of sale, notice, and availability of current public
information requirements.
The Company has agreed, for a period of three years after the completion of
this Offering, not to issue or sell any shares of Common Stock or other equity
securities or sell or grant options, warrants or rights to purchase any shares
of Common Stock or equity securities, without the prior written consent of the
Underwriter, except for (i) options to purchase up to 310,000 shares of Common
Stock, (ii) shares of Common Stock issuable upon exercise of such options, and
(iii) shares issuable upon exercise of any warrants outstanding on the date of
this Prospectus or to be outstanding upon the completion of this Offering as
described herein. Additionally, during such three year period, the Company may
issue securities in connection with an acquisition, merger or similar
transaction, provided that such securities are not registered under the
Securities Act and do not have registration rights prior to the later of (a)
twelve months after issuance, or (b) three years from the date of the completion
of this Offering. Further, the Company may issue options to purchase shares of
Common Stock to its employees, not exceeding 10% of the outstanding
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shares of Common Stock outstanding on the second anniversary of the completion
of this Offering, during the period commencing on the second anniversary of such
date and ending on the fourth anniversary of such date. The Company has agreed
that for a period of three years after the completion of this Offering that it
will not file a registration statement with the Commission with respect to
equity securities issued by the Company without the prior consent of the
Underwriter. See "Underwriting."
Except for Meridian which has agreed to a three year lock-up period, the
Company's officers and directors, the Minority Stockholders and holders of stock
options, the Bridge Warrant and the Minority Stockholder Warrants have agreed
that, subject to certain limited exceptions, for a period of two years 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, provided, however, that the foregoing limitation shall be for one
year with respect to the sale and transfer of Minority Stockholder Warrants and
Bridge Warrants. In addition, the Company has granted certain "piggyback"
registration rights to the holders of Minority Stockholder Warrants and the
holder of the Bridge Warrants. 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.
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UNDERWRITING
The Company has agreed to sell, and the Underwriter has agreed to purchase
from the Company, 1,250,000 shares of Common Stock and 1,250,000 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
1,250,000 shares of Common Stock and 1,250,000 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 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.
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 125,000 shares of Common Stock and 125,000
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 110% of the offering price of the
Common Stock and Warrants, respectively, sold to the public pursuant to this
Prospectus. 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 three year period after the completion of this
Offering, not to issue or sell any shares of Common Stock or other equity
securities or sell or grant options, warrants or rights to purchase any shares
of Common Stock or equity securities, without the prior written consent of the
Underwriter, except for (i) options to purchase up to 310,000 shares of Common
Stock, (ii) shares of Common Stock issuable upon exercise of such options, and
(iii) shares issuable upon exercise of any warrants outstanding on the date of
this Prospectus or to be outstanding upon the completion of this Offering as
described herein. Additionally, during such three year period, the Company may
issue securities in connection with an acquisition, merger or similar
transaction, provided that such securities are not registered under the
Securities Act and do not have registration rights prior to the later of (a) one
year after issuance, or (b) three years from the date of the completion of this
Offering. Further, the Company may issue options to purchase shares of Common
Stock to its employees, not exceeding 10% of the outstanding shares of Common
Stock on the second anniversary of the completion of this Offering, during the
period commencing on the second anniversary of such date and ending on the
fourth anniversary of such date.
The Company has agreed to indemnify the Underwriter and its controlling
persons against certain liabilities, including liabilities under the Securities
Act, or to contribute to payments the Underwriter may be required to make in
respect thereof.
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The Company has agreed for a period of three years after the completion of
this Offering to use its best efforts to elect to the Board a nominee designated
by the Underwriter who is reasonably acceptable to the Company. Meridian will
execute an agreement prior to the completion of this Offering to vote its shares
of Common Stock in favor of the Underwriter's nominee during such three year
period. The Underwriter will also be entitled to have an advisor to the Board
during such three year period in the event that no nominee of the Underwriter is
a director of the Company. The Underwriter's nominee, if any, will be entitled
to attend or participate in all Board meetings and to receive advance notice of
all proposed Board actions and resolutions, and receives the same compensation
and expense reimbursements as non-management Board Members.
The Underwriter intends to act as a market maker for the Common Stock and
Warrants after the completion of this Offering. In order to facilitate this
Offering, the Underwriter may engage in transactions that stabilize, maintain or
otherwise affect the prices of the Common Stock and Warrants. Specifically, the
Underwriter may overallot in connection with this Offering, thereby creating a
short position in the Common Stock and/or Warrants for its own account. In
addition, to cover over-allotments or to stabilize the price of the Common Stock
and Warrants, the Underwriter may bid for, and purchase, shares of Common Stock
and Warrants in the open market. The Underwriter may also reclaim selling
concessions allowed to a dealer for distributing the Common Stock and Warrants
in this Offering. The Underwriter may overallot in connection with this
Offering, if the Underwriter repurchases previously distributed shares of Common
Stock and Warrants in transaction to cover short positions, in stabilization
transactions or otherwise. Any of these activities may stabilize or maintain the
market price of the Common Stock and Warrants above independent market levels.
The Underwriter is not required to engage in these activities, and may end any
of these activities at any time.
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 Regulation M promulgated under
the Exchange Act, and (vi) the Underwriter is designated in writing as the
soliciting NASD member. The Company has agreed to not solicit Warrant exercises
other than through the Underwriter unless the Underwriter declines to make such
solicitations.
The Company has agreed to retain the Underwriter at a Consulting Fee of
$50,000 per year for a two year period commencing on the date of this
Prospectus. The fee is payable annually 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 and to
engage the Underwriter to review and otherwise participate in any such
transaction which is originated by a party other than the Underwriter and to
compensate the Underwriter for such services.
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.
Additionally, Meridian, the Company's officers and directors, the Minority
Stockholders and holders of stock options, the Bridge Warrants and Minority
Stockholder Warrants have agreed in any public sale or transfer of securities
issued by the Company at any time during the three year period (or four year
period for the Bridge Warrants and Minority Stockholder Warrants) commencing
immediately after the end of each such person's applicable lock-up period, to
sell such securities through the Underwriter, subject to certain conditions and
limited exceptions. The Company has agreed that for a period of three years
after
61
<PAGE>
the completion of this Offering that it will not file a registration statement
with the Commission with respect to equity securities issued by the Company
without the prior written consent of the Underwriter. See "Shares Eligible for
Future Sale."
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 and do not
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.
LEGAL MATTERS
The legality of the Common Stock and Warrants offered hereby will be passed
on for the Company by Benesch, Friedlander, Coplan & Aronoff LLP, Cleveland,
Ohio. Zimet, Haines, Friedman & Kaplan, New York, New York, has acted as counsel
to the Underwriter in connection with this Offering. Benesch, Friedlander,
Coplan & Aronoff LLP provides legal services to Meridian.
EXPERTS
The consolidated financial statements of the Company at February 28, 1997
and February 29, 1996 and for each of the three fiscal years in the period ended
February 28, 1997, included elsewhere in this Prospectus, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere in this Prospectus, and are included in reliance upon such
report 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 in the future 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: 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).
62
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
EPI TECHNOLOGIES, INC.
<S> <C>
Report of Independent Auditors....................................................... F-2
Consolidated Balance Sheets at February 28, 1997 and February 29, 1996............... F-3
For the Years Ended February 28, 1997, February 29, 1996 and February 28, 1995:
Consolidated Statements of Operations.............................................. F-4
Consolidated Statements of Net Capital Deficiency.................................. F-5
Consolidated Statements of Cash Flows.............................................. F-6
Notes to Consolidated Financial Statements........................................... F-7
Condensed Consolidated Balance Sheet at August 31, 1997 (Unaudited).................. F-14
For the Three-Month Periods Ended August 31, 1997 and 1996 (Unaudited):
Condensed Consolidated Statements of Operations.................................... F-15
Condensed Consolidated Statements of Cash Flows.................................... F-16
Notes to Condensed Consolidated Financial Statements (Unaudited)..................... F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
EPI Technologies, Inc.
We have audited the accompanying consolidated balance sheets of EPI
Technologies, Inc. and predecessor companies (see Note 1) as of February 28,
1997 and February 29, 1996, and the related consolidated statements of
operations, net capital deficiency and cash flows for each of the three years in
the period ended February 28, 1997. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of EPI Technologies,
Inc. and predecessor companies at February 28, 1997 and February 29, 1996, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended February 28, 1997, in conformity with
generally accepted accounting principles.
Toledo, Ohio
May 22, 1997
F-2
<PAGE>
EPI TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------- ----------------
<S> <C> <C>
ASSETS
Current assets:
Cash........................................................................... $ 4,743 $ 26,014
Accounts receivable............................................................ 491,649 525,081
Receivable from former partner (NOTES 4 AND 8)................................. 321,875 293,250
Other current assets........................................................... 48,489 56,482
------------- ----------------
Total current assets............................................................. 866,756 900,827
Property and equipment, at cost less accumulated depreciation and amortization... 3,603,035 1,650,415
Receivable from former partner (NOTES 4 AND 8)................................... 1,031,875 1,358,625
Funds held by trustee (NOTE 5)................................................... 316,613 314,270
Other assets..................................................................... 311,511 393,446
------------- ----------------
Total assets..................................................................... $ 6,129,790 $ 4,617,583
------------- ----------------
------------- ----------------
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities....................................... $ 728,041 $ 480,582
Advances from parent company (NOTE 7).......................................... 2,965,468 2,673,429
Long-term debt due within one year............................................. 1,028,291 609,000
------------- ----------------
Total current liabilities........................................................ 4,721,800 3,763,011
Long-term debt (NOTE 8).......................................................... 3,983,701 3,395,472
Net capital deficiency:
Common stock -- $.01 par value; 3,000 shares authorized; 125 shares issued and
outstanding (100 in 1996)..................................................... 1 1
Additional paid-in capital..................................................... 581,145 99
Deficit........................................................................ (3,156,857) (2,541,000)
------------- ----------------
Total net capital deficiency..................................................... (2,575,711) (2,540,900)
------------- ----------------
Total liabilities and net capital deficiency..................................... $ 6,129,790 $ 4,617,583
------------- ----------------
------------- ----------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-3
<PAGE>
EPI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................................... $ 3,417,070 $ 3,533,514 $ 3,459,107
Operating costs and expenses:
Costs of operations................................................... 2,307,086 2,196,322 2,023,815
Selling, general and administrative................................... 1,376,957 1,045,036 941,812
------------ ------------ ------------
3,684,043 3,241,358 2,965,627
------------ ------------ ------------
Income (loss) from operations........................................... (266,973) 292,156 493,480
Other income (expense):
Cost of withdrawn registration (NOTE 11).............................. (275,908) -- --
Interest expense on external borrowings............................... (219,736) (243,683) (258,985)
Interest expense on advances from parent company...................... (218,103) (224,300) (186,918)
Interest income....................................................... 35,584 36,185 30,009
------------ ------------ ------------
(678,163) (431,798) (415,894)
------------ ------------ ------------
Income (loss) before extraordinary item................................. (945,136) (139,642) 77,586
Extraordinary gain -- extinguishment of debt (NOTE 8)................... 329,279 -- --
------------ ------------ ------------
Net income (loss)....................................................... $ (615,857) $ (139,642) $ 77,586
------------ ------------ ------------
------------ ------------ ------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-4
<PAGE>
EPI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF NET CAPITAL DEFICIENCY
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------
EPI ADDITIONAL
TECHNOLOGIES, PAID-IN
INC. PREDECESSORS CAPITAL DEFICIT TOTAL
----------------- ------------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance at March 1, 1994................... $ 600 $ (2,478,944) $ (2,478,344)
Net income............................... 77,586 77,586
----- ------------- -------------
Balance at February 28, 1995............... 600 (2,401,358) (2,400,758)
Net loss................................. (139,642) (139,642)
Elimination of common stock of
predecessors............................ (600) (600)
Issuance of 100 shares of common stock... $ 1 $ 99 100
--
----- ---------- ------------- -------------
Balance at February 29, 1996............... 1 -- 99 (2,541,000) (2,540,900)
Issuance of 25 shares of common stock.... 581,046 581,046
Net loss................................. (615,857) (615,857)
--
----- ---------- ------------- -------------
Balance at February 28, 1997............... $ 1 $ -- $ 581,145 $ (3,156,857) $ (2,575,711)
--
--
----- ---------- ------------- -------------
----- ---------- ------------- -------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-5
<PAGE>
EPI TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------------
FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
1997 1996 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (615,857) $ (139,642) $ 77,586
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization........................... 338,690 254,586 257,141
Noncash interest expense................................ -- -- 50,055
Extraordinary gain-extinguishment of debt............... (329,279) -- --
Changes in operating assets and liabilities:
Accounts receivable................................... 33,432 70,774 (307,275)
Other current assets.................................. 7,993 (16,689) 19,242
Accounts payable and accrued liabilities.............. 221,433 61,446 (97,418)
---------------- ---------------- ----------------
Net cash provided by (used in) operating activities....... (343,588) 230,475 (669)
INVESTING ACTIVITIES
Additions to property and equipment....................... (2,147,537) (140,294) (63,510)
Changes in other assets................................... (16,105) (3,009) (186,899)
Increase in funds held by trustee......................... (2,343) (4,939) (7,061)
---------------- ---------------- ----------------
Net cash used in investing activities..................... (2,165,985) (148,242) (257,470)
FINANCING ACTIVITIES
Borrowings on notes payable to bank....................... 2,350,000 -- --
Payments on long-term debt................................ (734,783) (287,332) (370,514)
Issuance of 25 shares of common stock..................... 581,046 -- --
Net advances from parent company.......................... 292,039 224,177 569,333
---------------- ---------------- ----------------
Net cash provided by (used in) financing activities....... 2,488,302 (63,155) 198,819
---------------- ---------------- ----------------
Increase (decrease) in cash............................... (21,271) 19,078 (59,320)
Cash at beginning of period............................... 26,014 6,936 66,256
---------------- ---------------- ----------------
Cash at end of period..................................... $ 4,743 $ 26,014 $ 6,936
---------------- ---------------- ----------------
---------------- ---------------- ----------------
Supplemental information:
Cash paid for interest, net of amount capitalized....... $ 200,173 $ 234,732 $ 226,590
---------------- ---------------- ----------------
---------------- ---------------- ----------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-6
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
EPI Technologies, Inc. (the "Company"), its wholly-owned subsidiaries, National
Purification, Inc. ("NPI") and MEPI Corp. ("MEPI"), and Environmental
Purification Industries Company ("EPIC"), an Ohio general partnership whose sole
general partners are NPI and MEPI. The Company was formed on February 26, 1996,
as a wholly-owned subsidiary of Meridian National Corporation ("Meridian"). NPI
and MEPI were formerly wholly-owned subsidiaries of Meridian, which transferred
their ownership to the Company. The accompanying financial statements reflect
the combined accounts of the Company, NPI and MEPI for periods prior to the
transfer of ownership by Meridian.
During fiscal 1997 the Company sold to outside investors shares of common
stock for gross proceeds of $600,000 representing a 20% interest in the Company.
The Company operates a paint waste recycling facility which is currently
operating near its processing capacity. A $2.3 million expansion project,
expected to commence operations in the second quarter of fiscal 1998, will
supplement the current recycling process and significantly increase total
processing capacity. The expansion project will incorporate a new technology for
recycling paint wastes (see Note 9).
The Company has a working capital deficiency, recurring losses and continues
to rely on Meridian for financial support. Meridian also has a working capital
deficiency, and has experienced losses in recent years. The Company's losses
have contributed to the losses of Meridian.
The Company is pursuing a public offering of common stock. If the proposed
public offering is successfully completed, Meridian does not intend to continue
to provide financial support to the Company, except for the guarantee of a
mortgage note to a trustee bank and the guarantee of the Company's obligations
pursuant to an employment agreement with a senior executive of the Company. In
the event that the Company does not complete the proposed public offering,
Meridian may not be able to continue to provide financial support to the Company
indefinitely.
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, which approximates the amortization expense which
would have resulted from the interest method.
CAPITALIZED INTEREST
Interest costs of approximately $56,000 in 1997 have been capitalized as a
cost of the expansion of the paint waste recycling facility.
F-7
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
Building and building improvements................................ 40 years
Office furniture and equipment.................................... 5 years
</TABLE>
REVENUE RECOGNITION
The Company recognizes revenue upon processing of its customers' paint
wastes.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Based on, among other things, the Company's financial condition, the
collateral securing outstanding debt and the frequently redetermined interest
rates associated with the majority of the Company's debt instruments, the
Company believes that the aggregate fair values of advances from Meridian and
long-term debt approximate the carrying values.
INCOME TAXES
For federal and state income tax purposes, the taxable income or loss of the
Company is included in the consolidated income tax returns of Meridian. Net
operating losses and related income tax provisions are allocated based on
federal income tax consolidated return rules. 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.
NEW ACCOUNTING PRONOUNCEMENTS
No new accounting standards, which have not been adopted by the Company, are
expected to have a material effect on the financial statements of the Company.
3. CUSTOMER CONCENTRATIONS
Accounts receivable as of February 28, 1997 and February 29, 1996 are
principally due from companies which operate in the automotive industries and
which are principally located in the midwestern region of the United States.
Percentage of sales to major customers for the years ended February 28, 1997 and
February 29, 1996 were: 18.6% and 15.3%, respectively, to ARK, Inc. (American
Recycling of Kentucky), and 16.3% and 13.2%, respectively, to Subaru-Isuzu
Automotive, Inc. These two customers comprise approximately $150,000 and
$145,000 of the accounts receivable balance at February 28, 1997 and February
29, 1996, respectively. Credit is extended based on, among other things, an
evaluation of credit reports and payment practices. Collateral or letters of
credit are not required.
4. RECEIVABLE FROM FORMER PARTNER
EPIC was formed in September 1989 with two partners: NPI and Haden
Purification, Inc. ("Haden Purification"). Effective July 1, 1992, MEPI was
admitted as a partner and Haden Purification terminated its partnership
interest.
In connection with the 1992 termination of its partnership interest in EPIC,
Haden Purification assumed liability for one-half of the remaining principal,
interest and fee payments due under the Company's 8.5% mortgage note payable and
was assigned 50% of the amount held in trust to meet future debt
F-8
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
4. RECEIVABLE FROM FORMER PARTNER -- (CONTINUED)
service requirements. Haden Purification makes principal, interest and fee
payments directly to the trustee bank. As such, these payments reduce the
receivable from former partner and long-term debt in the balance sheet and are
excluded from the statement of cash flows.
5. FUNDS 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 8). 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 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Primary reserve................................................... $ 584,196 $ 584,578
Closure........................................................... 19,667 16,942
------------ ------------
603,863 601,520
Portion attributable to former partner............................ (287,250) (287,250)
------------ ------------
$ 316,613 $ 314,270
------------ ------------
------------ ------------
</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. In connection
with termination in 1992 of its partnership interest in EPIC, Haden Purification
was assigned 50% of the Company's residual interest in the primary reserve fund.
Any application by the trustee of primary reserve funds to the financing
payments required under the 8.5% mortgage note payable reduces Haden
Purification's obligation under its assumption proportionately. Haden
Purification is also entitled to 50% of any refund by the trustee of amounts in
the primary reserve fund.
These funds are held by a trustee, are valued at cost which approximates
market and consist of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
U. S. Government securities....................................... $ 565,424 $ 561,706
Other............................................................. 38,439 39,814
------------ ------------
$ 603,863 $ 601,520
------------ ------------
------------ ------------
</TABLE>
F-9
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
6. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
Machinery and equipment........................................... $ 2,938,097 $ 2,916,383
Land and land improvements........................................ 119,825 119,825
Building and building improvements................................ 306,400 306,400
Office furniture and equipment.................................... 56,300 50,115
Construction in progress.......................................... 2,234,300 71,568
------------ ------------
5,654,922 3,464,291
Less accumulated depreciation and amortization.................... 2,051,887 1,813,876
------------ ------------
Net property and equipment........................................ $ 3,603,035 $ 1,650,415
------------ ------------
------------ ------------
</TABLE>
7. ADVANCES FROM PARENT COMPANY
The Company participates in the centralized financing and cash management
system of Meridian. Under this system, the advances from parent company
fluctuate daily as a result of cash activity attributable to the Company.
Advances from Meridian are due upon demand. Interest is charged on intercompany
advances and outstanding borrowings at 1% over the prime rate and amounted to
$218,000, $224,000 and $187,000 in 1997, 1996 and 1995, respectively. The
effective interest rate on such intercompany advances was 9.25% and 9.8% at
February 28, 1997 and February 29, 1996, respectively.
8. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28, FEBRUARY 29,
1997 1996
------------ ------------
<S> <C> <C>
8.5% mortgage note payable to trustee bank, due in monthly
installments, including interest, of approximately $73,000 until
final maturity in November 2000................................. $ 2,707,500 $ 3,303,750
Notes payable to bank, due in monthly installments of $21,000,
plus interest (9.75% at February 28, 1997) at 1.5% above prime,
with a payment of $150,000 due September 1997 and a final
payment of $1,906,000 due March 1998............................ 2,287,000 --
Note payable to Haden Purification................................ -- 700,722
Other............................................................. 17,492 --
------------ ------------
5,011,992 4,004,472
Less amounts due in one year...................................... 1,028,291 609,000
------------ ------------
$ 3,983,701 $ 3,395,472
------------ ------------
------------ ------------
</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, excluding construction in progress,
which has a net book value of approximately $1,369,000 at February 28, 1997.
F-10
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
8. LONG-TERM DEBT -- (CONTINUED)
The balance of the mortgage note not assumed by Haden Purification,
$1,353,750 at February 28, 1997, has been guaranteed by Meridian. Interest
expense in the consolidated statements of operations excludes interest and fee
payments made by Haden Purification amounting to $146,600, $170,900 and $193,300
in 1997, 1996 and 1995, respectively.
During fiscal 1997, the Company arranged financing totaling $2,350,000 with
its bank. The proceeds have been primarily used to finance an expansion of the
Company's paint waste recycling operation, expected to commence operations in
the second quarter of fiscal 1998, and to repay existing obligations. Monthly
payments required amount to $21,000 plus interest at prime plus 1.5%. The notes
originally required final principal payments of $650,000 and $1,469,000 on
September 30, 1997 and October 31, 1997, respectively. The bank has agreed to
extend the notes until March 1998, requiring the continuation of the monthly
principal payments of $21,000 and an additional payment due of $150,000 in
September 1997. A final payment of $1,906,000 is due in March, 1998. These
borrowings are guaranteed by a corporation which is a stockholder of the
Company. Additionally, an officer and stockholder of Meridian and the chairman
of the Company's Board of Directors has personally guaranteed the Company's
borrowings from the bank. The Company is investigating various opportunities to
obtain long-term financing for the project.
In June 1996, the Company executed an agreement (the "Compromise Agreement")
to repay the note payable to Haden Purification which had an outstanding
principal balance due of $679,000 at the date of settlement. The terms of the
Compromise Agreement included, among other things, settlement of the note
payable and accrued interest for a payment of $350,000 made in July 1996. The
Company is required to continue to pay, through July 1, 1998, Haden
Environmental Corporation, an affiliate of Haden Purification, a throughput
charge of $10 per cubic yard of paint waste processed through the Company's
current recycling system. Prior to execution of the Compromise Agreement,
payments of the throughput charge were credited towards amounts due under the
note payable to Haden Purification. The gain of $329,279 on early extinguishment
of debt is reflected as an extraordinary gain. The throughput charges will be
reported as operating expenses as incurred. Future throughput charges are
estimated to aggregate $114,000.
Maturities of long-term debt in each of the five years subsequent to
February 28, 1997 are approximately as follows: 1998 -- $1,028,000; 1999 --
$2,610,000; 2000 -- $764,000; 2001 -- $608,000 and 2002 -- $2,000. These amounts
include principal payments to be made by Haden Purification as follows: 1998 --
$322,000; 1999 -- $350,000; 2000 -- $380,000 and 2001 -- $302,000.
9. 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's $2.3 million facility expansion will utilize the licensed
process and technology. 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 relinquished all
rights to Aster technology. The final payment of $40,000 under the settlement
agreement was paid in March 1997. The Company has recorded the settlement
expenses as prepaid royalty fees included in "Other Assets," and will charge
such amounts to expense over a five year period.
The Company will be required to pay royalty fees to Aster based on pounds of
paint waste processed with the new technology. These fees will be payable upon
successful startup of the new equipment and sale of EPI-MERTM, which is the
recycled material produced by using this technology. The Aster license agreement
F-11
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
requires payment of royalties on a minimum processing level of 1,850,000 pounds
of raw paint waste in the first year of production ($37,000), 3,700,000 pounds
in the second year ($74,000), 5,000,000 pounds in the third year ($100,000), and
7,000,000 pounds for each year thereafter ($140,000). This royalty rate
decreases for annual processing in excess of 7,500,000 pounds. Additionally, the
Company will be required to pay Aster a royalty fee of $.04 per pound of
EPI-MERTM sold, subject to adjustment if the Company is unable to sell EPI-MERTM
for a minimum of $.30 per pound. All royalty fees are subject to an adjustment
at the end of the third year of processing based on the consumer price index.
The Company also pays hourly fees to Aster for technical and manufacturing
services. Total payments by the Company to Aster may not fall below a minimum of
$20,000 per month unless the Company provides Aster with six months advance
notice. At the end of the six month notice period, the Company's license for the
use of the technology would become non-exclusive.
The Company leases certain property and equipment under agreements
classified as operating leases. Total rent expense charged to operations for
1997, 1996 and 1995 approximated $52,000, $41,000 and $30,000, respectively.
Minimum future rental commitments under noncancellable operating leases at
February 28, 1997, including aggregate payments of $77,000 to an affiliated
company and an affiliate of an officer and director of the Company, are $40,000
in 1998, $31,000 in 1999, $27,000 in 2000 and $22,000 in 2001.
10. 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.
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. Aggregate allocated charges were
approximately $30,000, $22,200 and $22,600 in 1997, 1996 and 1995, respectively.
During Fiscal 1997, the Chairman of the Board loaned $55,000 to the Company,
which the Company repaid before year end. Related interest expense was
approximately $2,000.
11. COST OF WITHDRAWN REGISTRATION
During 1997, the Company incurred expenses in conjunction with a proposed
initial public offering of an approximate 50% interest in the Company. Due
primarily to weakness in the public market for the offering, the planned
offering was withdrawn. The Company expensed in the fourth quarter of fiscal
1997 approximately $276,000 of legal, accounting and other costs related to the
uncompleted offering.
12. INCOME TAXES
The Company has allocated net operating loss carryforwards for federal tax
purposes of approximately $2,624,000 available for the reduction of future
federal income tax. Net operating loss carryforwards begin expiring in fiscal
2005.
F-12
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
12. INCOME TAXES -- (CONTINUED)
A reconciliation of the provision for income taxes excluding extraordinary
gains, based on the statutory U. S. federal tax rate of 34%, to the provision
for income taxes is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- -----------
<S> <C> <C> <C>
Tax (benefit) based on statutory U. S. federal income
tax rate.............................................. $ (321,346) $ (47,478) $ 26,379
Effects of use of losses by consolidated group.......... 172,122 4,282 179,752
Change in valuation allowance........................... 164,506 47,000 (250,000)
State deferred taxes.................................... (24,676) (7,000) 38,000
Other................................................... 9,394 3,196 5,869
----------- ---------- -----------
Combined provision for income taxes..................... $ -- $ -- $ --
----------- ---------- -----------
----------- ---------- -----------
</TABLE>
Significant components of deferred tax assets at year end are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets:
Allocated net operating loss carryforwards......... $ 1,050,000 $ 915,000 $ 715,000
Discontinued registration costs.................... 53,000 -- --
Property and equipment............................. -- 58,000 191,000
Other.............................................. 16,000 11,000 31,000
------------- ----------- -----------
Total deferred tax assets............................ 1,119,000 984,000 937,000
Deferred tax liability--property and equipment....... (102,000) -- --
Valuation allowance.................................. (1,017,000) (984,000) (937,000)
------------- ----------- -----------
Net deferred taxes................................... $ -- $ -- $ --
------------- ----------- -----------
------------- ----------- -----------
</TABLE>
The change in the valuation allowance equals the change in net deferred
taxes. There are no deferred tax liabilities.
F-13
<PAGE>
EPI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
AUGUST 31,
1997
-------------
<S> <C>
ASSETS
Current Assets:
Cash............................................................................................. $ 1,521
Accounts receivable.............................................................................. 647,729
Receivable from former partner................................................................... 335,625
Other current assets............................................................................. 18,425
-------------
Total current assets............................................................................... 1,003,300
Property and equipment, at cost less accumulated depreciation and amortization..................... 3,719,750
Receivable from former partner..................................................................... 860,625
Funds held by trustee.............................................................................. 335,140
Other assets....................................................................................... 345,577
-------------
Total assets....................................................................................... $ 6,264,392
-------------
-------------
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable and accrued liabilities......................................................... $ 865,371
Advances from parent company..................................................................... 3,645,702
Long-term debt due within one year............................................................... 3,085,965
-------------
Total current liabilities.......................................................................... 7,597,038
Long-term debt..................................................................................... 1,733,290
Net capital deficiency:
Common stock -- $.01 par value; 3,000 shares authorized; 125 shares issued and outstanding....... 1
Additional paid-in capital....................................................................... 606,037
Deficit.......................................................................................... (3,671,974)
-------------
Total net capital deficiency....................................................................... (3,065,936)
-------------
Total liabilities and net capital deficiency....................................................... $ 6,264,392
-------------
-------------
SEE ACCOMPANYING NOTES.
</TABLE>
F-14
<PAGE>
EPI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST 31,
----------------------------
1997 1996
------------- -------------
<S> <C> <C>
Net sales........................................................................... $ 1,800,240 $ 1,777,923
Operating costs and expenses:
Costs of operations............................................................... 1,292,014 1,194,977
Selling, general and administrative............................................... 745,611 661,001
------------- -------------
2,037,625 1,855,978
------------- -------------
Loss from operations................................................................ (237,385) (78,055)
Other income (expense):
Interest expense on external borrowings........................................... (143,334) (116,683)
Interest expense on advances from parent company.................................. (152,924) (119,974)
Interest income................................................................... 18,526 18,981
------------- -------------
(277,732) (217,676)
------------- -------------
Loss before extraordinary gain...................................................... $ (515,117) $ (295,731)
Extraordinary gain--extinguishment of debt ......................................... -- 329,279
------------- -------------
Net income (loss)................................................................... $ (515,117) $ 33,548
------------- -------------
------------- -------------
Pro forma earnings (loss) per common share:
Pro forma loss before extraordinary gain............................................ $ (0.36) $ (0.26)
Extraordinary gain.................................................................. -- 0.31
------------- -------------
Pro forma net income (loss)......................................................... $ (0.36) $ 0.05
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-15
<PAGE>
EPI TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED AUGUST
31,
------------------------
1997 1996
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................................................................... ($ 515,117) $ 33,548
Adjustments to reconcile net loss to net cash provided by (used in) operating
activities:...........................................................................
Extraordinary gain--extinguishment of debt............................................ -- (329,279)
Depreciation and amortization......................................................... 220,323 139,591
Changes in operating assets and liabilities:
Accounts receivable................................................................. (156,080) (136,135)
Other current assets................................................................ 30,064 38,995
Accounts payable and accrued liabilities............................................ 137,330 133,519
----------- -----------
Net cash used in operating activities................................................... (283,480) (119,761)
INVESTING ACTIVITIES
Additions to property and equipment..................................................... (287,595) (313,863)
Changes in other assets................................................................. (83,617) (112,540)
Increase in funds held by trustee....................................................... (18,527) (16,778)
----------- -----------
Net cash used in investing activities................................................... (389,739) (443,181)
FINANCING ACTIVITIES
Net advances from parent company........................................................ 680,234 351,805
Payments on long-term debt.............................................................. (285,237) (517,693)
Borrowings on notes payable to bank..................................................... 250,000 705,000
Proceeds for issuance of warrants....................................................... 25,000 --
----------- -----------
Net cash provided by financing activities............................................... 669,997 539,112
----------- -----------
Decrease in cash........................................................................ (3,222) (23,830)
Cash at beginning of period............................................................. 4,743 26,014
----------- -----------
Cash at end of period................................................................... $ 1,521 $ 2,184
----------- -----------
----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-16
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 1997
(UNAUDITED)
1. ORGANIZATION AND BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements include the
accounts of EPI Technologies, Inc. (the "Company"), its wholly-owned
subsidiaries, National Purification, Inc. ("NPI"), and MEPI Corp. ("MEPI"), and
Environmental Purification Industries Company ("EPIC"), an Ohio general
partnership whose sole general partners are NPI and MEPI. The Company was formed
on February 26, 1996, as a subsidiary of Meridian National Corporation
("Meridian"). NPI and MEPI were formerly wholly-owned subsidiaries of Meridian,
which transferred their ownership to the Company. The accompanying condensed
consolidated financial statements reflect the combined accounts of the Company,
NPI and MEPI for periods prior to the transfer of ownership by Meridian.
2. GENERAL
The unaudited condensed consolidated financial statements have been prepared
on the same basis as the audited financial statements and, in the opinion of
management, include all adjustments, consisting of normal recurring items,
necessary for a fair presentation of the periods. The results of operations for
interim periods are not necessarily indicative of actual results achieved in
full fiscal years.
As contemplated by the Securities and Exchange Commission under Rule 10-01
of Regulation S-X, the accompanying consolidated financial statements and
related notes have been condensed and do not contain certain information
included in the Company's annual consolidated financial statements and notes
thereto.
3. PRO FORMA LOSS PER SHARE
Pro forma loss per share has been computed assuming weighted average shares
outstanding amounted to 1,350,000 and 1,068,087 during the six months ended
August 31, 1997 and August 31, 1996 respectively giving affect to (i) a split of
10,000 shares of stock for each outstanding share of stock effective March
1,1996 (ii) the issuance of 100,000 shares of stock at the proposed offering
price which is equivalent to the amount of debt expected to be retired from the
proceeds of the proposed offering, and (iii) adjusting the net income (loss) for
the periods by eliminating the interest incurred on the debt retired. For
computational purposes, the number of shares of common stock of the Company
expected to be issued in the proposed offering and the pro forma effects of the
proposed offering and other transactions related thereto have been excluded.
4. BRIDGE FINANCING
In August 1997, the Company raised $275,000 through a private placement of a
unit consisting of an aggregate of (i) a $250,000 bridge note and (ii) bridge
warrants. The bridge note is unsecured, bears interest at the rate of 10% per
annum and is due upon the completion of the proposed offering. The Note provides
for a default rate of interest of 18% per annum. The bridge warrants, sold for
an aggregate price of $25,000, entitle the holder to purchase shares of Common
Stock at an exercise price of $2.40 per share. The bridge warrants automatically
convert to warrants with the same terms as the warrants offered pursuant to the
proposed offering including the exercise price of $5.50 per share upon the
completion of the proposed offering.
F-17
<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.............................................................. 9
Use of Proceeds........................................................... 19
Dividend Policy........................................................... 20
Capitalization............................................................ 21
Dilution.................................................................. 22
Summary Selected Consolidated Financial Data.............................. 23
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 25
Business.................................................................. 31
Management................................................................ 43
Principal Stockholders.................................................... 49
Relationships Between the Company and Meridian............................ 51
Certain Other Relationships and Related Transactions...................... 53
Description of Securities................................................. 53
Certain Federal Income Tax Considerations................................. 57
Shares Eligible for Future Sale........................................... 58
Underwriting.............................................................. 60
Legal Matters............................................................. 62
Experts................................................................... 62
Additional Information.................................................... 62
Index to Financial Statements............................................. F-1
</TABLE>
------------------------
UNTIL , 1997 (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.
EPI
TECHNOLOGIES, INC.
1,250,000 SHARES OF
COMMON STOCK
AND
1,250,000 WARRANTS
-------------------------
P R O S P E C T U S
-------------------------
DUKE & CO., INC.
, 1997
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<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................................................ $ 5,059.09
NASD Filing Fee.....................................................
Boston Stock Exchange Filing Fee....................................
Nasdaq Filing Fee...................................................
Printing and Engraving Expenses.....................................
Legal Fees and Expenses.............................................
Underwriter's Nonaccountable Expense Allowance...................... 191,250
Underwriter's Consulting Fee........................................ 100,000
Accounting Fees and Expenses........................................
"Blue Sky" Fees and Expenses........................................
Transfer Agent, Warrant Agent and Registrar Fees....................
Miscellaneous.......................................................
----------
Total......................................................... $ 390,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second 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 Second 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 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
were exempt from the registration requirements of the Securities Act:
In connection with the formation of the Company in February 1996, 100 shares
of the Company's Common Stock were issued to Meridian National Corporation for
$100. In November 1996, 8 1/3 shares of Common Stock were issued to each of
Spencer I. Browne, Elliot Smith and MNP Corporation for $600,000.
In August 1997, the Company issued the Bridge Warrants, which permit the
holders upon exercise to purchase an aggregate of 500,000 shares of Common Stock
in connection with the Bridge Financing for $25,000.
In August 1997, in consideration of an agreement to waive premptive rights
underlying Common Stock owned and not to offer, sell or otherwise dispose of
Common Stock for a two year period, the Company issued warrants to Spencer I.
Browne, Elliot Smith and MNP Corporation which permit such persons upon exercise
to purchase an aggregate of 150,000 shares of Common Stock. These transactions
are exempt from the registration requirements of the Securities Act on the basis
of Section 4(2).
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
A. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
1.2 Form of Consulting and Investment Banking Agreement.
3.1 Restated Certificate of Incorporation of the Company, dated August 27, 1997.
*3.2 Form of Second Restated Certificate of Incorporation of the Company.
*3.3 By-laws of the Company.
4.1 Specimen Stock Certificate.
*4.2 Form of Warrant Agreement (including Form of Redeemable Warrant).
4.3 Form of Underwriter's Warrant Agreement.
*5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
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 Transitional Agreement between the Company and Meridian.
10.5 Form of 1997 Non-Qualified and Incentive Stock Option Plan.
10.6 Form of 1997 Non-Employee Directors' Stock Option Plan.
10.7 License Agreement dated September 7, 1995 between Aster and EPIC and amendment
dated September 7, 1995.
10.8 Employment Agreement dated July 30, 1996 between Bruce F. Maison and the Company.
10.9 Letter Agreement dated July 30, 1996 between Bruce F. Maison and Meridian.
*10.10 Employment Agreement dated , 1997 between the Company and Real P.
Remillard.
10.11 Loan Agreement dated as of December 15, 1989 between Toledo-Lucas County Port
Authority and EPIC.
10.12 Open-End Mortgage and Security Agreement dated as of December 15, 1989 from EPIC to
Society Bank & Trust, as Trustee.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.13 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.
10.14 $300,000 Term Note dated February 29, 1996 by the Company and Meridian in favor of
the Senior Lender, as amended.
10.15 $350,000 Term Note dated July 25, 1996 by the Company and Meridian in favor of the
Senior Lender, as amended.
10.16 $1,700,000 Term Note dated November 4, 1996 by the Company, EPIC and Meridian in
favor of the Senior Lender.
10.17 Security Agreement dated November 4, 1996 between the Company, EPIC and the Senior
Lender.
*10.18 Subordinated Cognovit Promissory Note dated August 28, 1997 issued by the Company
in connection with the Bridge Financing.
*10.19 Form of Warrant Certificate issued by the Company to the Minority Stockholders.
*10.20 Registration Rights Agreement dated , 1997 among the Company and the
Minority Stockholders.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (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>
- --------------
* To be filed by amendment.
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.
II-3
<PAGE>
(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 any 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.
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.
The undersigned registrant hereby undertakes 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.
The undersigned registrant hereby undertakes:
(1) 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.
(2) 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-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
OCTOBER 2, 1997.
EPI TECHNOLOGIES, 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 WILLIAM D. FENIGER, OR EITHER
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 October 2, 1997
Bruce F. Maison
/s/ REAL P. REMILLARD Chief Financial Officer and Secretary
-------------------------------------- October 2, 1997
Real P. Remillard
/s/ WILLIAM D. FENIGER Chairman of the Board and Director
-------------------------------------- October 2, 1997
William D. Feniger
/s/ SPENCER I. BROWNE Director
-------------------------------------- October 2, 1997
Spencer I. Browne
/s/ JAMES L. ROSINO Director
-------------------------------------- October 2, 1997
James L. Rosino
</TABLE>
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- --------- ---------
<C> <S> <C>
1.1 Form of Underwriting Agreement..................................................................
1.2 Form of Consulting and Investment Banking Agreement.............................................
3.1 Restated Certificate of Incorporation of the Company, dated August 27, 1997.....................
*3.2 Form of Second Restated Certificate of Incorporation of the Company.
*3.3 By-laws of the Company.
4.1 Specimen Stock Certificate......................................................................
*4.2 Form of Warrant Agreement (including Form of Redeemable Warrant)................................
4.3 Form of Underwriter's Warrant Agreement.........................................................
*5.1 Opinion of Benesch, Friedlander, Coplan & Aronoff LLP.
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 Transitional Agreement between the Company and Meridian.................................
10.5 Form of 1997 Non-Qualified and Incentive Stock Option Plan......................................
10.6 Form of 1997 Non-Employee Directors' Stock Option Plan..........................................
10.7 License Agreement dated September 7, 1995 between Aster and EPIC and amendment dated September
7, 1995........................................................................................
10.8 Employment Agreement dated July 30, 1996 between Bruce F. Maison and the Company................
10.9 Letter Agreement dated July 30, 1996 between Bruce F. Maison and Meridian.......................
*10.10 Employment Agreement dated , 1997 between the Company and Real P. Remillard.
10.11 Loan Agreement dated as of December 15, 1989 between Toledo-Lucas County Port Authority and
EPIC...........................................................................................
10.12 Open-End Mortgage and Security Agreement dated as of December 15, 1989 from EPIC to Society Bank
& Trust, as Trustee............................................................................
10.13 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.......
10.14 $300,000 Term Note dated February 29, 1996 by the Company and Meridian in favor of the Senior
Lender, as amended.
10.15 $350,000 Term Note dated July 25, 1996 by the Company and Meridian in favor of the Senior
Lender, as amended.............................................................................
10.16 $1,700,000 Term Note dated November 4, 1996 by the Company, EPIC and Meridian in favor of the
Senior Lender..................................................................................
10.17 Security Agreement dated November 4, 1996 between the Company, EPIC and the Senior Lender.
*10.18 Subordinated Cognovit Promissory Note dated August 28, 1997 issued by the Company in connection
with the Bridge Financing.
*10.19 Form of Warrant Certificate issued by the Company to the Minority Stockholders.
*10.20 Registration Rights Agreement dated , 1997 among the Company and the Minority
Stockholders.
21.1 List of Subsidiaries............................................................................
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
23.1 Consent of Ernst & Young LLP....................................................................
*23.2 Consent of Benesch, Friedlander, Coplan & Aronoff LLP (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>
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* To be filed by amendment.
<PAGE>
EPI TECHNOLOGIES, INC.
UNDERWRITING AGREEMENT
New York, New York
___________, 1997
Duke & Co., Inc.
909 Third Avenue
New York, New York 10022
Dear Sirs:
The undersigned, EPI Technologies, Inc., a Delaware corporation (the
"Company"), hereby confirms its agreement with Duke & Co., Inc. (the
"Underwriter" or "You"), as follows:
1. INTRODUCTION. The Company proposes to issue and sell to the
Underwriter an aggregate of 1,250,000 shares of Common Stock, $.01 par value
(the "Common Stock"), of the Company and 1,250,000 redeemable Common Stock
purchase warrants (the "Redeemable Warrants"), each Redeemable Warrant
exercisable to purchase one share of Common Stock. Each Redeemable Warrant
shall be exercisable for a period of three (3) years, commencing two years after
the Effective Date, and shall entitle the holder to purchase one share of Common
Stock at a price equal to $5.50 per share, which price is subject to adjustment
in certain circumstances to prevent dilution. The Company shall have the right,
upon the written consent of the Underwriter, to call each of the Redeemable
Warrants for redemption upon not less than thirty (30) days' prior written
notice at any time commencing two years from the Effective Date at a redemption
price of $.10 per Redeemable Warrant, subject to adjustment, provided that the
closing bid quotation of the Common Stock as reported on The Nasdaq Stock Market
or the last sales price if quoted on a national securities exchange for a period
of 20 consecutive trading days, which period ends on the third trading day prior
to the date on which the Company gives notice of redemption, exceeds $8.25 per
share, subject to adjustment in certain circumstances to prevent dilution. The
Redeemable Warrants will be issued pursuant to a warrant agreement dated the
date hereof between the Company and Continental Stock Transfer and Trust Company
(the "Public Warrant Agreement"), a form of which has been filed as Exhibit 4.2
to the Registration Statement. It is contemplated that the shares of Common
Stock and the Redeemable Warrants will trade separately and be purchasable
separately immediately upon issuance.
The 1,250,000 shares of Common Stock and 1,250,000 Redeemable Warrants are
hereinafter referred to as the "Firm Securities." Upon your request, as
provided in Section 3 of this Agreement, the Company shall also issue and sell
to you up to an
<PAGE>
additional 187,500 shares of Common Stock and 187,500 Redeemable Warrants for
the purpose of covering over-allotments in the sale of the Firm Securities.
Such additional securities are hereinafter referred as the "Option Securities."
The Firm Securities and the Option Securities are hereinafter sometimes referred
to as the "Offered Securities." The 1,437,500 shares of Common Stock included
as part of the Offered Securities are hereinafter referred to as the "Shares";
the 1,437,500 shares of Common Stock issuable upon exercise of the Redeemable
Warrants included as part of the Offered Securities are hereinafter referred to
as the "Public Warrant Shares"; and the Offered Securities and Public Warrant
Shares are sometimes hereinafter referred to collectively as the "Public
Securities."
The Company also proposes to issue and sell to you, pursuant to the terms
of a warrant agreement, dated as of the First Closing Date (as hereinafter
defined), between you and the Company (the "Underwriter's Warrant Agreement"),
warrants (the "Underwriter's Warrants) to purchase up to 125,000 shares of
Common Stock and 125,000 Redeemable Warrants. The Underwriter's Warrants shall
be exercisable during the four-year period commencing 12 months from the
Effective Date, at $5.50 per share of Common Stock and $0.11 per Redeemable
Warrant, subject to adjustment in certain events to protect against dilution.
The 125,000 shares of Common Stock issuable upon exercise of the Underwriter's
Warrants are hereinafter referred to as the "Underwriter's Shares"; the 125,000
Redeemable Warrants issuable upon exercise of the Underwriter's Warrants are
hereinafter referred to as the "Underwriter's Redeemable Warrants"; the 125,000
shares of Common Stock issuable upon exercise of the Underwriter's Redeemable
Warrants are hereinafter referred to as the "Underwriter's Warrant Shares"; and
the Underwriter's Warrants, the Underwriter's Shares, the Underwriter's
Redeemable Warrants and the Underwriter's Warrant Shares are sometimes
hereinafter referred to collectively as the "Underwriter's Securities." The
Public Securities and the Underwriter's Securities are sometimes hereinafter
referred to collectively as the "Registered Securities."
The Registered Securities are more fully described in the Registration
Statement and the Prospectus referred to below.
2. REPRESENTATIONS AND WARRANTIES. The Company represents and warrants
to, and agrees with, the Underwriter:
(a) A registration statement on Form S-1 (File No. 333-_____)
including a preliminary form of prospectus, relating to the registration of the
Registered Securities has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and said
registration statement has been filed with the Commission
-2-
<PAGE>
under the Act. One or more amendments to said registration statement has or
have, as the case may be, been similarly prepared and filed with the Commission
and the Company may file on or prior to the Effective Date of said registration
statement an additional amendment thereto which will include the final
prospectus. The Company will not, so long as any Redeemable Warrants or
Underwriter's Warrants remain outstanding and exercisable, file any amendment
thereto or any amendment or supplement to the Preliminary Prospectus or the
Prospectus (as those terms are defined below) unless the Company has given
reasonable and prior notice thereof to the Underwriter and counsel for the
Underwriter and neither shall have reasonably objected within a reasonable
period of time prior to the filing thereof. As used in this Agreement and
unless the context indicates otherwise, the term "Registration Statement" refers
to and means said registration statement, including any exhibit, financial
statement and prospectus included therein, as finally amended and revised on or
prior to the effective date (the "Effective Date") of said registration
statement. The term "Preliminary Prospectus" refers to and means any prospectus
filed with the Commission and included in said registration statement before it
becomes effective, and the term "Prospectus" refers to and means the prospectus
included in the Registration Statement, except that if the prospectus first
filed by the Company pursuant to Rule 424(b) of the Rules and Regulations shall
differ from the Prospectus, the term "Prospectus" shall refer to the prospectus
filed pursuant to Rule 424(b). If the Registration Statement or the Prospectus
is amended or supplemented after the Effective Date and prior to or on the
Closing Dates (as hereinafter defined), then the terms "Registration Statement"
and "Prospectus" shall refer to such documents as so amended or supplemented.
The terms used herein shall have the same meaning as in the Prospectus unless
the context hereof otherwise requires.
(b) Neither the Commission nor any state regulatory authority has
issued an order preventing or suspending the use of the Preliminary Prospectus
nor has the Commission or any such authority instituted or, to the best
knowledge of the Company, threatened to institute any proceedings with respect
to such an order; the Preliminary Prospectus, at the time of filing with the
Commission, conformed in all material respects to the requirements of the Act
and the Rules and Regulations, contained all statements which were required to
be stated therein by the Act and the Rules and Regulations and did not include
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; and the
Registration Statement at the time when it becomes effective, and the Prospectus
(and any amendments or supplements thereto) at all subsequent times up to the
date set forth in the Prospectus as required by Item 502(e) of Regulation S-K of
the Rules and Regulations, will contain all statements which are required to be
stated therein in accordance with the Act and
-3-
<PAGE>
the Rules and Regulations and will conform in all material respects to the
requirements of the Act and the Rules and Regulations, and at such times 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 not misleading, except that the representations and
warranties in this Section 2(b) do not apply to statements or omissions made in
the Registration Statement or Prospectus by or on behalf of the Underwriter made
in reliance upon and in conformity with information furnished in writing to the
Company in connection with the Registration Statement or Prospectus or any
amendment or supplement thereto by the Underwriter, expressly for use therein.
(c) Each of the Company and the Subsidiaries (as defined in paragraph
(d) of this Section 1 below) has been duly organized and is now, and at the
Closing Dates will be, validly existing and in good standing as a corporation or
partnership, as the case may be, under the laws of the jurisdiction of its
organization, and has (i) with respect to the Company, an authorized and
outstanding capitalization and indebtedness as set forth in the Registration
Statement at the respective dates referred to therein and (ii) full power and
authority to own its properties and conduct its business as presently conducted
and as described in, or contemplated by, the Registration Statement. Each of
the Company and the Subsidiaries is duly qualified and in good standing as a
foreign corporation in all jurisdictions in which the nature of the business
transacted by it or the character or location of its properties makes such
qualification necessary. Each of the Company and the Subsidiaries holds all
authorizations, approvals, licenses, certificates, franchises and permits from
state, federal or other regulatory authorities necessary for the conduct of its
business as presently conducted and as described in or contemplated by the
Registration Statement and is in compliance with all laws and regulations and
all orders and decrees applicable to it or to such business or assets, and there
are no proceedings pending or, to the best knowledge of the Company, threatened,
seeking to cancel, terminate or limit such authorizations, approvals, licenses,
certificates, franchises or permits.
(d) The Company does not own, directly or indirectly, any capital
stock or other equity interest in or of any corporation, partnership or other
legal entity whatsoever, except that the Company owns 100% of the outstanding
securities of National Purification, Inc., a ________ corporation ("NPI"), and
MEPI Corporation, a __________ corporation ("MEPI"). Environmental Purification
Industries Company is an Ohio general partnership whose sole partners are NPI
and MEPI ("EPIC" and collectively with NPI and MEPI, the "Subsidiaries"). All
of the securities or partnership interests owned by the Company, directly or
indirectly, in the Subsidiaries are free and clear of all liens, charges,
-4-
<PAGE>
encumbrances and restrictions. There are no options or warrants for the
purchase of, or other rights to purchase, or outstanding securities convertible
into or exchangeable for, any capital stock or other securities of the
Subsidiaries. [Add other reps/covenants re: Subsidiaries.]
(e) The financial statements of the Company, including the related
notes included as part of the Registration Statement, present fairly the
financial condition of the Company and Subsidiaries as of the dates thereof and
the results of operations for the respective periods to which they apply. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as otherwise stated therein, and all adjustments necessary for a fair
presentation of results for such periods have been made.
(f) Ernst & Young LLP, who have audited the financial statements
included as part of the Registration Statement, are independent public
accountants as required by the Act and the Rules and Regulations.
(g) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus, except as disclosed in or contemplated by
the Registration Statement and Prospectus, (i) the Company has not incurred any
liabilities or obligations, direct or contingent, or entered into any material
transactions other than in the ordinary course of business; (ii) there has not
been any change in the capital stock, funded debt (other than regular repayments
of principal and interest on existing indebtedness) or other securities of the
Company; (iii) there has not been any adverse change in the condition (financial
or otherwise), business, operations, income, net worth or properties, including
any loss or damage to the properties, of the Company (whether or not such loss
is insured against); and (iv) the Company has not paid or declared any dividend
or other distribution on its Common Stock or its other securities or redeemed or
repurchased any of its Common Stock or other securities.
(h) This Agreement, the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement (as defined in Section 5(v)
hereof), have been duly and validly authorized by the Company, and this
Agreement constitutes, and the Public Warrant Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement, when executed and delivered
pursuant to this Agreement (assuming due execution by the Underwriter and/or the
appropriate parties to such agreements), will each constitute, a valid and
binding agreement of the Company, enforceable against the Company in accordance
with its respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws
-5-
<PAGE>
affecting creditors' rights generally, (ii) as enforceability of any
indemnification, contribution or exculpation provision may be limited under
applicable Federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought ((i), (ii) and (iii) are hereinafter
referred to as the "Enforceability Exceptions").
(i) The Shares have been duly authorized and, when issued and
delivered pursuant to this Agreement, will be duly authorized, validly issued,
fully paid and non-assessable. The Redeemable Warrants have been duly
authorized and, when issued and delivered pursuant to this Agreement, will
constitute valid and legally binding obligations of the Company enforceable in
accordance with their terms, subject to the Enforceability Exceptions, and will
be entitled to the benefits provided by the Public Warrant Agreement. The
Public Warrant Shares have been reserved for issuance upon exercise of the
Redeemable Warrants and, when issued in accordance with the terms of the
Redeemable Warrants and Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. The Underwriter's Warrants have
been duly authorized and, when issued and delivered pursuant to this Agreement
and the Underwriter's Warrant Agreement, will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Underwriter's Warrant Agreement. The Underwriter's Shares have
been reserved for issuance upon exercise of the Underwriter's Warrants and, when
issued in accordance with the terms of the Underwriter's Warrants and
Underwriter's Warrant Agreement, will be duly authorized, validly issued, fully
paid and non-assessable. The Underwriter's Redeemable Warrants, when issued in
accordance with the terms of the Underwriter's Warrants and Underwriter's
Warrant Agreement, will be duly authorized and will constitute valid and legally
binding obligations of the Company enforceable in accordance with their terms,
subject to the Enforceability Exceptions, and will be entitled to the benefits
provided by the Public Warrant Agreement. The Underwriter's Warrant Shares have
been reserved for issuance upon exercise of the Underwriter's Redeemable
Warrants and, when issued in accordance with the terms of the Underwriter's
Redeemable Warrants and the Public Warrant Agreement, will be duly authorized,
validly issued, fully paid and non-assessable. Neither the issuance of any of
the Public Securities nor any of the Underwriter's Securities will violate or
otherwise be subject to the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company, and none of
the holders of any of the Public Securities or any of the Underwriter's
Securities will be subject to personal liability by reason of being such
holders.
-6-
<PAGE>
(j) All issued and outstanding capital stock of the Company has been
duly authorized and validly issued and is fully paid and non-assessable; the
issuances and sales of all such capital stock complied in all respects with
applicable Federal and state securities laws; the holders thereof have no rights
of rescission with respect thereto, and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
violation of the preemptive rights of any holders of any security of the Company
or similar contractual rights granted by the Company.
(k) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage, deed
of trust, note, loan or credit agreement, or any other agreement or instrument
to which the Company or any Subsidiary is a party or by which the Company or any
Subsidiary may be bound or to which any of the property or assets of the Company
or any Subsidiary are subject.
(l) The Company and the Subsidiaries are not in violation of any term
or provision of its Certificate of Incorporation or By-Laws thereof. Neither
the execution and delivery of this Agreement, nor the issuance and/or sale of
any of the Public Securities or the Underwriter's Securities, nor the
consummation of any of the transactions contemplated herein, nor the compliance
by the Company with the terms and provisions hereof, has conflicted with or will
conflict with, or has resulted in or will result in a breach of, any of the
terms and provisions, or has constituted or will constitute a default under, or
has resulted in or will result in the creation or imposition of any lien, charge
or encumbrance upon the property or assets of the Company or any Subsidiary
pursuant to the terms 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 Subsidiary is a party, or by which the Company or any Subsidiary is or may
be bound, or to which any of the property or assets of the Company or any
Subsidiary is subject; nor will such actions result in any violation of the
provisions of the Certificate of Incorporation or the By-Laws of the Company or
any Subsidiary or of any contract or agreement, or of any statute or any order,
rule or regulation applicable to the Company or any of the Subsidiaries or of
any other regulatory authority or other governmental body having jurisdiction
over the Company or any of the Subsidiaries .
(m) There is neither pending nor, to the best knowledge of the
Company, threatened, any action, suit, or proceeding at law or in equity or any
arbitration (or circumstances that may give rise to the same) to which the
Company or any Subsidiary or any of the respective officers, directors or
securityholders thereof is a party before or by any court, arbitration tribunal
or governmental instrumentality, agency, or
-7-
<PAGE>
body, which might result in any materially adverse change in the condition
(financial or otherwise), business, operations, income, net worth or properties
of the Company or any Subsidiary, or which might materially adversely affect the
properties or assets thereof, or prevent consummation of the transactions
contemplated hereby; nor are there any such actions, suits or proceedings
against the Company related to environmental matters or matters related to
discrimination on the basis of age, sex, religion or race; and no labor
disturbance by the employees of the Company or any Subsidiary exists or to the
best knowledge of the Company is imminent which might be expected to materially
adversely affect the conduct of the business, property, operations, financial
condition or earnings of the Company or any Subsidiary.
(n) There is no contract or other document which is required by the
Act or by the Rules and Regulations to be filed as an exhibit to the
Registration Statement which has not been so filed, and each contract which is
filed as an exhibit to the Registration Statement is and shall be in full force
and effect at each of the Closing Dates or shall have been terminated in
accordance with its terms or as set forth in the Registration Statement and
Prospectus, and no party to any such contract has given notice to the Company of
the cancellation of or, to the knowledge of the Company, shall have threatened
to cancel, any such contract, and, except as set forth in the Prospectus, the
Company and the Subsidiaries are not or shall not be in default thereunder.
(o) Except as set forth in the Registration Statement, neither the
Company nor any Subsidiary owns any real property. Each of the Company and the
Subsidiaries has good and marketable title to all of its property and assets,
including any licenses, trademarks and copyrights, described in the Registration
Statement as owned by it, free and clear of all liens, charges, encumbrances and
restrictions other than such as do not materially affect the value or
transferability of such property and assets and do not interfere with the use of
such property or assets made or proposed to be made by the Company or any
Subsidiary, and other than as described in the Registration Statement (including
the financial statements and notes included therein); all of the leases,
subleases and licenses under which it holds or uses any real or personal
property, including those described or referred to in the Prospectus, are in
full force and effect, and the Company and the Subsidiaries are not in default
in respect of any of the terms or provisions of any such leases, subleases and
licenses, and, to the best of the Company's knowledge, no claim of any sort has
been asserted by anyone adverse to the rights of the Company or any Subsidiary
under any such leases, subleases or licenses affecting or questioning the rights
of the Company or such Subsidiary to the continued use or enjoyment of the
rights and property covered thereby. Each of the Company and the Subsidiaries
owns or leases all such properties as are necessary to its
-8-
<PAGE>
operations as now conducted and as proposed to be conducted as set forth in the
Prospectus.
(p) Each of the Company and the Subsidiaries has timely (giving
effect to permitted extensions) and properly prepared and filed all necessary
Federal, state, local and foreign income and franchise tax returns and has paid
all taxes shown on such returns and all assessments received by it to the extent
the same have become due, other than those due without interest or penalty, and
except to the extent the Company is in good faith contesting any such tax or
assessment in appropriate proceedings and has established reserves in accordance
with normal accounting practices. The Company has no knowledge of any tax
deficiency which might be asserted against the Company or any Subsidiary which
could adversely affect the business or properties thereof, and has established
adequate reserves for such taxes which are not yet due and payable.
(q) Each of the Company and the Subsidiaries maintains insurance,
which is in full force and effect, of the types and in the amounts currently
adequate for its business, including but not limited to personal injury and
product liability insurance, insurance covering all personal property owned or
leased by the Company or any Subsidiary against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against. The Company and
the Subsidiaries have not (i) failed to give notice or present any insurance
claim with respect to any matter, including but not limited to the Company's
business, property or employees, under the insurance policy or surety bond in a
due and timely manner, (ii) had any disputes or claims against any underwriter
of such insurance policies or surety bonds or has failed to pay any premiums due
and payable thereunder, or (iii) failed to comply with all conditions contained
in such insurance policies and surety bonds. To the best knowledge of the
Company, there are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company or any Subsidiary.
(r) The Company and the Subsidiaries own or possess adequate rights
to use all patents, patent rights, inventions, trademarks, service marks, trade
names and copyrights necessary for the conduct of their business as described in
the Prospectus and the Company and the Subsidiaries have not received any notice
of infringement of or conflict with, and the Company and the Subsidiaries, to
the best of the Company's knowledge, are not infringing or in conflict with
asserted rights of others with respect to, any patents, patent rights,
inventions, trademarks, service marks, trade names or copyrights.
(s) Except as set forth in the Prospectus, neither the Company nor
any Subsidiary is obligated or under any liability whatsoever to make any
payment by way of royalties, fees or
-9-
<PAGE>
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright, know-how, technology or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise. In addition, the Company and the
Subsidiaries own and have the unrestricted right to use all trade secrets,
know-how (including all other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, designs,
processes, works of authorship, computer programs and technical data and
information (collectively herein "intellectual property") that are material to
the development, manufacture, operation and sale of all products and services
sold or proposed to be sold by the Company and any Subsidiary, free and clear of
and without violating any right, lien, or claim of others, including without
limitation, former employers of its employees. The Company is not aware of any
development by any other person or entity of trade secrets or items of technical
information similar to those of the Company. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
its intellectual property in all material aspects.
(t) The Company is not obligated to pay and has not paid within the
past twelve months, and has not obligated, and will not obligate, the
Underwriter to pay, any finder's fee in connection with the underwriting
contemplated hereby or any other fee (cash, securities or otherwise) in
consideration of financial, consulting or investment banking services.
(u) No officer or director of the Company or any affiliate (as such
term is defined in Rule 405 promulgated under the Rules and Regulations) of any
such officer or director has taken, and each officer or director has agreed that
he will not take, directly or indirectly, any action designed to or which might
reasonably be expected to cause or result in the stabilization or manipulation
of the price of any security issued by the Company.
(v) No officer, director or greater than 5% stockholder of the
Company or any Subsidiary, or any "affiliate" or "associate" (as these terms are
defined in Rule 405 promulgated under the Rules and Regulations) of any of the
foregoing persons or entities has or has had, either directly or indirectly, (i)
an interest (other than ownership of an immaterial number of shares of capital
stock of an entity whose securities are publicly traded) in any person or entity
which (A) furnishes or sells products or services which are furnished or sold or
are proposed to be furnished or sold by the Company or any Subsidiary, or (B)
purchases from or sells or furnishes to the Company or any Subsidiary any goods
or services, or (ii) a beneficial interest in any contract or agreement to which
the Company or any Subsidiary is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, or transactions, between or
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among the Company or any of its Subsidiaries and any officer or director of the
Company or any Subsidiary, or any partner, affiliate or associate of any of the
foregoing persons or entities.
(w) The minute books of each of the Company and the Subsidiaries have
been made available to the Underwriter and contain a complete summary of all
meetings and actions of the directors and stockholders or partners, as the case
may be, of each of the Company and the Subsidiaries since the time of their
respective dates of organization, and reflect all transactions referred to in
such minutes accurately in all respects.
(x) The Company is not aware of any bankruptcy, labor disturbance or
other event affecting any of its principal suppliers or customers which is
reasonably likely to result in a material adverse change in the condition,
financial or otherwise, prospects, business or results of operation of the
Company and the Subsidiaries, taken as a whole.
(y) The Registered Securities and all the other securities of the
Company conform to all statements in relation thereto in the Registration
Statement.
(z) On the Effective Date, (i) the authorized capital stock of the
Company will be as set forth in the Registration Statement, and (ii) not more
than an aggregate of 1,250,000 shares of Common Stock shall be issued and
outstanding, not including: (A) an aggregate of 150,000 shares of Common Stock
issuable upon exercise of warrants, having terms equivalent to those of the
Redeemable Warrants (subject to the terms hereof), which may be issued to the
Minority Stockholders referred to herein (the "Minority Stockholder Warrants");
(B) 500,000 shares of Common Stock issuable upon exercise of warrants issued in
connection with a bridge financing ("Bridge Financing") in August 1997 (the
"Bridge Warrants"); (C) an aggregate of [250,000] shares of Common Stock
reserved for issuance under the Company's 1996 Non-Qualified and Incentive Stock
Option Plan and 1996 Non-Employee Directors' Stock Option Plan (collectively,
the "Stock Option Plans"); [(D) an aggregate of ______ shares of Common Stock
reserved for issuance pursuant to an option granted to a consultant to the
Company (the "Consultant's Option")]. Other than the shares of Common Stock
already issued (or reserved for issuance as described in the immediately
preceding sentence), the 1,437,500 Public Warrant Shares reserved for issuance
upon the Redeemable Warrants, the 125,000 Underwriter's Shares reserved for
issuance upon exercise of the Underwriter's Warrants, the 125,000 Underwriter's
Warrant Shares reserved for issuance upon exercise of the Underwriter's
Redeemable Warrants, and the Public Securities and Underwriter's Securities to
be offered in or in connection with the proposed public offering ("Public
Offering"), no other shares of capital stock or securities convertible into
capital stock shall be
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outstanding or reserved for issuance at the completion of the Public Offering,
without the consent of the Underwriter.
(aa) Except for the registration rights granted (i) under the
Underwriter's Warrant Agreement, (ii) to the holders of the Bridge Warrants and
(iii) to Meridian and the Minority Stockholders (each as described in the
Registration Statement), no holder of any securities of the Company has the
right to require that the Company include such securities in the Registration
Statement or any registration statement to be filed by the Company; and Meridian
(as hereinafter defined), the Minority Stockholders and the holders of the
Bridge Warrants have agreed not to exercise such registration rights for a
period of thirty-six (36) months from the completion of the Public Offering and
to waive any right which such person or entity may have to include any of such
holder's securities in the Registration Statement.
(bb) The Common Stock and the Redeemable Warrants are eligible for
quotation on The Nasdaq SmallCap Market ("NASDAQ") and have been approved for
listing on the Boston Stock Exchange, subject to official notice of issuance.
The Company has filed a registration statement with the Commission pursuant to
Sections 12(g) and 12(b) of the 1934 Act, and has used its best efforts to have
same declared effective by the Commission on an accelerated basis on the
Effective Date.
(cc) Neither the Company or any Subsidiary nor any officer, director
or other agent thereof has, acting on behalf of the Company or any Subsidiary,
at any time (i) made any contributions to any candidate for political office in
violation of law, or failed to disclose fully any such contributions in
violation of law, (ii) made any payment to any state, Federal or foreign
governmental officer or official, or any other person charged with similar
public or quasi-public duties, other than payments required or not prohibited
by law or (iii) made any payment of funds of the Company or any Subsidiary or
received or retained any funds in violation of any law, rule or regulation and
under circumstances requiring the disclosure of such payment, receipt or
retention of funds in the Prospectus.
(dd) Since February 28, 1997, neither the Company nor any Subsidiary
has sustained any material casualty loss or interference with its business from
fire, storm, explosion, flood or other like or unlike casualty, whether or not
covered by insurance, or from any labor dispute or court or governmental action,
order or decree which is not disclosed or reflected in the Prospectus.
(ee) The Company is not an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended.
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(ff) No unregistered securities of the Company have been sold by the
Company within the three years prior to the date hereof, except as disclosed in
Part II of the Registration Statement.
(gg) The employment agreements between the Company and its respective
officers, as disclosed in the Registration Statement, are or will be on or
before the First Closing Date binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except to
the extent enforceability may be limited by any bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or similar laws affecting
creditors' rights generally and to the extent that the remedy of specific
performance and injunction or other forms of equitable relief may be subject to
equitable defenses and the discretion of the court before which any proceeding
therefor may be brought.
(hh) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(ii) There are no voting or other shareholder agreements between the
Company and any shareholders of the Company or between or by and among any
shareholders of the Company.
(jj) Each of the Company and the Subsidiaries has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance with all federal, state, local, and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or any of the Subsidiaries by the U.S. Department of Labor or any
other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor
practice charge or complaint against the Company or any of the Subsidiaries
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or, to the Company's best
knowledge, threatened against or involving the Company or the Subsidiaries or
any predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company or any of the Subsidiaries, and
no collective bargaining agreement or modification thereof is currently being
negotiated by the Company or any of the Subsidiaries. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements to which the Company or any of the Subsidiaries is or was
a party. No labor dispute with the employees of the Company or any of the
Subsidiaries exists, or is imminent.
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(kk) The statements in the Prospectus under "RISK FACTORS,"
"BUSINESS," "CERTAIN TRANSACTIONS," "MANAGEMENT" and "DESCRIPTION OF
SECURITIES," insofar as they refer to statements of law, descriptions of
statutes, licenses, regulations or legal conclusions are correct in all material
respects.
(ll) (i) Meridian National Corporation ("Meridian"), the principal
stockholder of the Company, has agreed to exchange, prior to the First Closing
Date, indebtedness of the Company to Meridian in the approximate amount of
[principal amount of indebtedness] for _________ shares of a new class of
preferred stock ("Meridian Preferred") plus an amount payable in cash out of the
proceeds of the Public Offering equal to the interest on such indebtedness which
accrued from and after [May 1, 1996] through the First Closing Date. The
Meridian Preferred is non-voting, non-convertible, and has a liquidation
preference equal to the amount of the debt surrendered in the exchange and bear
a dividend of 8% per annum, payable annually on the 120th day following the end
of each of the Company's fiscal years commencing with the 120th day following
the first full fiscal year after the First Closing Date If earnings before
interest, taxes, depreciation and amortization ("EBITDA") of the Company for the
fiscal year immediately preceding a date of payment of the dividend is less than
five times the aggregate dividend payable in respect of all shares of Meridian
Preferred then outstanding, the Company will only pay a pro rata portion of the
aggregate dividend payable, with such portion to be determined by multiplying
the aggregate dividend payable by a fraction, the numerator of which is EBITDA
for such fiscal year and the denominator of which is five times the aggregate
dividend payable in respect of all such shares. In the event that the dividend
payable on any payment date is reduced by operation of the preceding sentence,
some or all of the accrued unpaid dividend may be paid on a subsequent payment
date if EBITDA in the fiscal year immediately preceding such subsequent payment
date exceeds five times the aggregate dividend then payable in respect of the
shares of Meridian Preferred then outstanding, with the amount of the unpaid
dividend which may be paid on such subsequent payment date to be determined by
multiplying the amount of the unpaid dividend by a fraction, the numerator of
which is the amount by which EBITDA in the fiscal year exceeds five times the
dividend scheduled to be paid on the payment date, and the denominator of which
is five times the aggregate dividend scheduled to be paid. The Meridian
Preferred may, at the Company's option, be redeemed in full at any time on or
after the fifth anniversary of the First Closing Date, provided that such
redemption will not cause any of the Company's securities to be delisted from
Nasdaq or any other national securities exchange on which such securities are
then listed for trading.
(ii) Meridian has agreed that all securities of the Company held
by Meridian will be free and clear of all liens and pledges on the First Closing
Date, and Meridian shall not
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pledge or otherwise hypothecate any securities of the Company for a period of 36
months following the First Closing Date, except that Meridian may pledge
securities of the Company at any time following the First Closing Date, provided
that, as a condition of such pledge, the pledgee agrees in writing with the
Underwriter not to sell or otherwise transfer such securities for the remainder
of the 36 month period (whether or not Meridian defaults during that period on
the obligation which is secured by the pledge).
(iii) Each of Spencer Browne, MNP Corporation, Larry Berman and
Elliot Smith (collectively, the "Minority Stockholders") has consented to the
termination of each of the Registration Rights Agreement, Stockholders Agreement
and Section 4.8 of the Stock Purchase Agreement between the Company and the
Minority Stockholders dated November 19, 1996. The Minority Stockholders shall
have piggyback registration rights with respect to the Common Stock underlying
the Minority Stockholder Warrants, but have agreed not to sell or transfer any
securities of the Company for a period of twenty four months following the First
Closing Date; provided, however, that the foregoing limitation shall be for a
period of twelve months following the First Closing Date for the sale or
transfer of the Minority Stockholder Warrants.
(mm) The Company warrants that consummation of the transactions
contemplated herein will not, as of the Effective Date or the First Closing
Date, result in a material breach of any of the terms, provisions or conditions
of any agreement to which it or any Subsidiary is a party.
(nn) The Company has delivered to the Underwriter a business plan
("Business Plan") covering a three year period setting forth its best estimates
of sales, earnings, cash flow, capital expenditures and other significant items.
The Company has also delivered to the Underwriter a comparative analysis of
capital expenditures and operating costs incurred in connection with
construction and operation of (i) the facility using the recycling process
developed by Haden Environmental Corporation and (ii) the facility utilizing the
recycling process developed by Aster, Inc., including budgeted compared to
actual expenditures and costs.
Any certificate signed by an officer of the Company in his capacity as
such and delivered to the Underwriter or counsel for the Underwriter shall be
deemed a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
3. PURCHASE, DELIVERY AND SALE OF THE OFFERED SECURITIES AND THE
UNDERWRITER'S WARRANTS.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and
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conditions herein set forth, the Company agrees to sell to the Underwriter the
Firm Securities, consisting of 1,250,000 shares of Common Stock and 1,250,000
Redeemable Warrants, and the Underwriter agrees to purchase such Firm Securities
from the Company, on a firm commitment basis, at a purchase price of $4.50 per
share of Common Stock and $.09 per Redeemable Warrant, to be sold by the
Underwriter at an initial public offering price of $5.00 per share and $.10 per
Redeemable Warrant.
(b) In addition, the Company hereby grants the Underwriter the option
(the "Over-allotment Option) to purchase from the Company, at any time or from
time to time during a period of forty-five (45) calendar days from the date of
the Prospectus, all or any part of the Option Securities at a purchase price of
$4.50 per share of Common Stock and/or $.09 per Redeemable Warrant, to be sold
by the Underwriter at an initial public offering price of $5.00 per share and
$.10 per Redeemable Warrant. Notice of exercise of the Over-allotment Option,
in whole or in part, shall be delivered by the Underwriter to the Company at
least two (2) days in advance of the date on which the Option Securities are to
be delivered to the Underwriter, provided that delivery of the Option Securities
shall be made concurrently with tender of payment therefor. Option Securities
may be purchased by the Underwriter only for the purpose of covering
over-allotments in the sale of the Firm Securities, and the Underwriter shall
have no obligation to make any over-allotments. No Option Securities shall be
delivered and paid for unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered and paid for as herein
provided.
(c) On the First Closing Date, the Company shall issue and sell to
the Underwriter the Underwriter's Warrants. The total purchase price of the
Underwriter's Warrants shall be $250. The Underwriter's Warrants shall be
exercisable for a period of four years commencing 12 months from the Effective
Date, at prices of $5.50 per Underwriter's Share and $.11 per Underwriter's
Redeemable Warrant, respectively. The Underwriter's Warrant Agreement,
including the forms of Underwriter's Warrant Certificates, shall be
substantially in the form filed as Exhibit 4.3 to the Registration Statement.
Payment for the Underwriter's Warrants shall be made on the First Closing Date.
(d) Payment for the Firm Securities and the Option Securities shall
be made on each of the First Closing Date and Option Closing Date (as
hereinafter defined), respectively, by certified or bank cashier's check in New
York Clearing House funds, payable to the order of the Company, or by wire
transfer, at the offices of the Underwriter, or at such other place as agreed
upon by the Underwriter and the Company, upon delivery of certificates (in form
and substance reasonably satisfactory to the Underwriter) representing the Firm
Securities and Option Securities to be sold at such closing or by confirmation
of electronic transfer of the
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Firm Securities or Option Securities, as the case may be, to the Underwriter for
the accounts of the Underwriter. Delivery and payment for the Firm Securities
shall be made at 10:00 A.M. New York time, on or before the fifth business day
following the Public Offering or at such earlier time as the Underwriter shall
determine or as required by law, or at such other time as shall be agreed upon
by the Underwriter and the Company. The hour and date of delivery and payment
for the Firm Securities are called the "First Closing Date." The Firm
Securities shall be registered in such name or names and in such authorized
denominations as the Underwriter may request in writing at least two (2) full
business days prior to Closing Date. The Company will permit the Underwriter to
examine and package any certificates representing the Firm Securities for
delivery, at least one (1) full business day prior to the First Closing Date.
Delivery for each of the Option Securities as provided above shall be made
within two (2) business days after notice of exercise to the Company, and
against payment therefor, as provided above. The hour and date of such delivery
and payment made subsequent to the First Closing Date for Option Securities is
referred to as the "Option Closing Date." The Option Securities shall be
registered in such name or names and in such denominations as the Underwriter
may request in writing at the time of exercise of the Over-allotment Option.
The First Closing Date and Option Closing Date are collectively referred to
herein as the "Closing Dates."
(e) The Company shall not be obligated to sell or deliver any Firm
Securities except upon tender of payment by the Underwriter for all the Firm
Securities.
4. PUBLIC OFFERING BY THE UNDERWRITER. The Underwriter agrees to cause
the Firm Securities to be offered to the public initially at the prices and
under the terms set forth in the Prospectus as soon, on or after the effective
date of this Agreement, as the Underwriter deems advisable, but no more than
five (5) full business days after such effective date. The Underwriter may
allow such concessions and discounts upon sales to other dealers as set forth in
the Prospectus. The Underwriter agrees to notify the Company in writing when
the Public Offering is first made and when it is completed. After the
completion of the initial public offering, the public offering prices, the
concessions and the reallowance may be changed by the Underwriter.
5. AGREEMENTS OF THE COMPANY. The Company covenants and agrees with the
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective as promptly as possible, and will not at any time,
whether before or after the Effective Date, file any amendment or supplement to
the Registration Statement, (i) which shall not have been previously submitted
to, and approved by, the Underwriter or counsel for the
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Underwriter a reasonable time prior to the filing thereof, (ii) to which the
Underwriter or counsel for the Underwriter shall have reasonably objected in
writing as not being in compliance with the Act or the Rules and Regulations or
(iii) which is not in compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter, promptly after it shall
have received notice of the effectiveness of the Registration Statement or any
amendment or supplement thereto, of the receipt of any comments of the
Commission with respect thereto, of the time when the Registration Statement or
any post-effective amendment thereto has become effective or any supplement to
the Prospectus has been filed.
(c) The Company will advise the Underwriter promptly of any request
of the Commission for an amendment or supplement to the Registration Statement
or the Prospectus, or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement, or of any judgment, order, injunction or decree preventing or
suspending the use of any Preliminary Prospectus or the Prospectus, or of the
institution of any proceedings for any of such purposes, of which it has
knowledge, and will use its best efforts to prevent the issuance of any stop
order, and, if issued, to obtain as promptly as possible the lifting thereof.
(d) If at any time when a prospectus relating to the Public
Securities and/or the Underwriter Securities is required to be delivered under
the Act, any event shall have occurred as a result of which, in the opinion of
counsel for the Company or counsel for the Underwriter, the Prospectus, as then
amended or supplemented, 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 it is necessary at any time to amend the
Prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to counsel for the Underwriter, and the Company
will furnish to the Underwriter copies of such amendment or supplement as soon
as available and in such quantities as the Underwriter may request.
(e) Within the time during which the Prospectus is required to be
delivered under the Act, or pursuant to the undertakings of the Company in the
Registration Statement, the Company will comply, at its own expense, with all
requirements imposed upon it by the Act, the Rules and Regulations, the 1934 Act
or the rules and regulations of the Commission promulgated under the 1934 Act,
each as now or hereafter amended or supplemented, and
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by any order of the Commission so far as necessary to permit the continuance of
sales of, or dealings in, the Registered Securities.
(f) The Company will furnish to the Underwriter, without charge, two
(2) signed copies of the Registration Statement and of any amendment of
supplement thereto which has been filed prior to the date of this Agreement,
together with two (2) copies of each exhibit filed therewith, and of five (5)
conformed copies of such Registration Statement and amendments thereto (unsigned
and exclusive of exhibits). The signed copies of the Registration Statement so
furnished to the Underwriter will include signed copies of any and all consents
and reports of the independent public auditors as to the financial statements
included in the Registration Statement and Prospectus, and signed copies of any
and all consents and certificates of any other person whose profession gives
authority to statements made by them and who are named in the Registration
Statement or Prospectus as having prepared, certified or reviewed any parts
thereof.
(g) The Company will deliver to the Underwriter, without charge, (i)
prior to the Effective Date, copies of each Preliminary Prospectus distributed
to the public and filed with the Commission bearing in red ink the statement
required by Item 501 of Regulation S-K of the Rules and Regulations; (ii) on and
from time to time after the Effective Date, copies of the Prospectus; and (iii)
as soon as they are available, and from time to time thereafter, copies of each
amended or supplemented Prospectus, and the number of copies to be delivered in
each such case will be such as the Underwriter may reasonably request. The
Company has consented and hereby consents to the use of each Preliminary
Prospectus for the purposes permitted by the Act and the Rules and Regulations.
The Company authorizes the Underwriter and dealers to use the Prospectus in
connection with the sale of the Offered Securities and the Public Warrant
Shares, for such period as, in the opinion of counsel for the Underwriter,
delivery of the Prospectus is required to comply with the applicable provisions
of the Act and the Rules and Regulations.
(h) For so long as any Redeemable Warrant is outstanding, the Company
shall, at its own expense, use its reasonable best efforts to cause
post-effective amendments to the Registration Statement, or a new registration
statement relating to the Public Warrant Shares, to become effective in
compliance with the Act and without any lapse of time between the effectiveness
of the Registration Statement and of any such post-effective amendment or new
registration statement. The Company also agrees to take such action as may be
necessary to qualify the Registered Securities for offer and sale under the Blue
Sky or securities laws of such states or other jurisdictions as is required and
as the Underwriter or counsel for the Underwriter may designate (provided that
such states or jurisdictions do not require the Company to qualify as a foreign
corporation or to file a general consent to
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service of process) and to continue such qualifications in effect so long as may
be required for the purposes of the distribution of the Registered Securities.
In each state or jurisdiction where the Company shall qualify the Registered
Securities as above provided, the Company will prepare and file such statements
or reports as may be required by the laws of such state or jurisdiction, and the
Underwriter shall, upon the written request of the Company, supply the Company
with all information known to the Underwriter and required to be included in
such statements or reports.
(i) Except as otherwise provided in (iii) below, during the period of
three years from the First Closing Date, the Company, at its expense, shall
furnish the Underwriter with (i) copies of each annual report of the Company;
(ii) as soon as practicable and in any event upon filing such report with the
Commission, a financial report of the Company, which will include a balance
sheet as of the end of the preceding fiscal year, a statement of operations, a
statement of stockholders' equity (deficit) and a statement of cash flows
covering such fiscal year, such report being in reasonable detail and audited by
independent public auditors; (iii) during the period of two years from the First
Closing Date, for each fiscal quarter of the Company other than the last fiscal
quarter in any fiscal year, as soon as practicable and in any event upon filing
such report with the Commission, a financial report of the Company, which will
include a balance sheet as of the end of the fiscal quarter, a statement of
operations, a statement of stockholders' equity (deficit) and a statement of
cash flows covering such fiscal quarter, together with notes thereto, for such
fiscal quarter and, with respect to the statement of operations, for the fiscal
year to date, setting forth in each case in comparative form the corresponding
figures for the preceding year, such report being in reasonable detail and
certified by the Chief Financial Officer of the Company to be correct and
complete to the best of such officer's knowledge, to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; and (iv) a copy of any Schedule 13D, 13G, 14D-1,
13E-3 or 13E-4 received or filed by the Company from time to time; (v) a copy of
any report filed by the Company pursuant to the 1934 Act; (vi) copies of all
statements, documents or other information which the Company shall mail or
otherwise make available to any class of its security holders, or shall file
with the Commission or with any exchange upon which the securities issued by the
Company shall then be listed or registered; and (vii) such other publicly
available information as the Underwriter may from time to time request. If, and
so long as, the Company has an active subsidiary or subsidiaries, the Company's
financial statements will be on a consolidated basis to the extent the accounts
of the Company and its subsidiary or subsidiaries are consolidated in reports
furnished to its stockholders generally. Separate financial
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statements shall be furnished for all subsidiaries whose accounts are not
consolidated but which at the time are significant subsidiaries as defined by
the Rules and Regulations. With respect to each consolidated and unconsolidated
significant subsidiary and affiliate, if any, the financial reports shall be in
sufficient detail to show the basis of any consolidated reports required
hereunder. Notwithstanding the foregoing, the Company's financial statements
shall be deemed to comply with the requirements of this paragraph if they comply
with the Rules and Regulations.
(j) For a period of three years from the First Closing Date, the
Company shall not change its independent public accountants without the
Underwriter's prior consent. For a period of three years from the First Closing
Date, the Company, at its expense, shall cause its then independent public
accountants to review (but not audit), the Company's financial statements for
each of the first three fiscal quarters prior to the announcement of quarterly
financial information, the filing of the Company's 10-Q quarterly report and the
mailing of quarterly financial information to stockholders, provided that such
review shall not be deemed to require submission with the 10-Q quarterly report
of a report on the financial statements included therein from such accountants.
For a period of three years from the First Closing Date, the Company shall
promptly submit to the Underwriter copies of all accountants' management reports
and similar correspondence between the Company and its independent public
accountants.
(k) As soon as practicable, but in any event not later than 45 days
after the end of the 12-month period beginning on the day after the end of the
fiscal quarter of the Company during which the Effective Date occurs (90 days in
the event that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company will make generally available to its security holders in
accordance with Section 11(a) of the Act and Rule 158 of the Rules and
Regulations an earnings statement of the Company and its subsidiaries (which
need not be audited) in reasonable detail and covering a period of at least 12
months beginning after the Effective Date, and advise the Underwriter that such
statement has been so made available.
(l) No proceeds the Company receives from the sale of the Offered
Securities will be used to pay outstanding loans from officers, directors or
shareholders or to pay any accrued salaries or bonuses to any current or former
employees or consultants or any affiliates thereof within 36 months after the
First Closing Date or to pay off any other outstanding debt other than (i)
current trade payables which arose in the ordinary course of business, (ii)
$500,000 of indebtedness payable to National Bank of Canada, (iii) dividends in
respect of the Meridian Preferred and the interest payment contemplated by
Section 2(ll)(i), (iv) up to $800,000 which may be used to service indebtedness
of the Company outstanding on the First Closing Date in accordance with the debt
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service schedules in effect on the First Closing Date and (v) the promissory
notes issued in the Bridge Financing. In addition, for a period of three years
after the First Closing Date, the Company shall make no loans or advances to
Meridian or any entity affiliated with Meridian.
(m) The Company on the First Closing Date will sell to the
Underwriter the Underwriter's Warrants according to the terms specified in
Section 3 hereof. The Company has reserved and shall continue to reserve a
sufficient number of shares of Common Stock for issuance upon exercise of the
Underwriter's Warrants and the Underwriter's Redeemable Warrants.
(n) For the three year period following the First Closing Date, the
Company agrees that the Underwriter shall have the right to nominate, and the
Company shall use its best efforts to cause the election of, one member of the
Company's Board of Directors, who shall be reasonably acceptable to the Company;
alternatively, the Underwriter may appoint a designee to serve as an observer at
all meetings of the Company's Board of Directors, which observer would be
entitled to the same cash compensation and reimbursement of expenses as the
Company affords its directors who are not also officers or employees of the
Company (and would, in any event, be reimbursed for all reasonable costs
incurred in attending Board meetings, including but not limited to, food,
lodging and transportation) and to receive all copies of all notices and other
documents distributed to the members of the Company's Board of Directors
(including, but not limited to, any unanimous consents prepared and advance
notices of all proposed Board actions or consents), as if such observer were a
member of the Company's Board of Directors. To the extent permitted by law, the
Company agrees to indemnify and hold the designee (as a director or advisor) and
the Underwriter harmless against any and all claims, actions, awards and
judgments arising out of his service. The Company shall immediately after the
First Closing Date use its reasonable best efforts to obtain directors' and
officers' liability insurance in amounts reasonable and customary for similarly
situated companies, at a premium that the Company can reasonably afford. In the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, it will, if possible, include the
Underwriter and its designee (as a director) as insureds under such policy. The
rights and benefits of such indemnification and the benefits of such insurance
shall, to the extent possible, extend to the Underwriter insofar as it may be,
or be alleged to be, responsible for such advisor. The Company will deliver, on
or before the date hereof, the agreements of each of its officers, directors and
holders of 5% or more of its Common Stock, including without limitation,
Meridian, to vote, during the three (3) year period commencing on the First
Closing Date, for the election of the Underwriter's designee for director, if
any. In addition, if at any time during the three years following the First
Closing Date,
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the working capital of the Company falls below 33% of the working capital of the
Company on the First Closing Date (with the Company's working capital on the
First Closing Date to be calculated after giving effect to the use of proceeds
of the Public Offering as contemplated by the Registration Statement), the
Company will also establish a Management Advisory Committee, which committee
shall consist of two persons, one of whom shall be the director designated by
the Underwriter and one of whom shall be the Chairman of the Board of the
Company, shall make recommendations to the Board of Directors concerning
management of the Company, its operations and its personnel and shall remain in
place until such time as the Company's working capital (as reflected in a filing
made by the Company with the Commission on either a Form 10-K, 10-Q or 8-K)
equals or exceeds 50% of the Company's working capital on the First Closing
Date.
(o) The Company will maintain insurance in full force and effect of
the types and in the amounts adequate for its business and in line with
insurance maintained by similar companies and businesses, including but not
limited to, personal injury and product liability insurance and insurance
covering all personal property owned or leased by the Company against theft,
damage, destruction, acts of vandalism and all other risks customarily insured
against.
(p) During the course of the distribution of the Offered Securities,
the Company will not take, directly or indirectly, any action designed to or
which might, in the future, reasonably be expected to cause or result in
stabilization or manipulation of the prices of the Common Stock and/or
Redeemable Warrants. During the so-called "quiet period" in which delivery of a
prospectus is required, if applicable, the Company will not issue press releases
or engage in any other publicity regarding the Company, its business or any
terms of the Public Offering, without the Underwriter's prior written consent.
During such period, copies of all documents which the Company or its public
relations advisors intend to distribute will be provided to the Underwriter for
review prior to such distribution.
(q) The Company will use its reasonable best efforts at its cost and
expense, to take all necessary and appropriate action to maintain the listing of
the Common Stock and the Redeemable Warrants on NASDAQ and the Boston Stock
Exchange for a period of three years from the First Closing Date and will, as
promptly as practicable following determination by the Company that the Common
Stock and Redeemable Warrants will qualify therefor, use its reasonable best
efforts to list such securities on The Nasdaq National Market and maintain such
listing for as long as such securities remain qualified.
(r) On or prior to the Effective Date, the Company shall register
with (i) the Corporation Records Service (including
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annual report information) published by Standard & Poor's Corporation or (ii)
Moody's Industrial Manual (Moody's OTC Industrial Manual not being sufficient
for these purposes).
(s) The Company has filed a registration statement with the
Commission pursuant to Sections 12(b) and 12(g) of the 1934 Act with respect to
the Common Stock and Redeemable Warrants and will use its best efforts to have
same declared effective by the Commission on or before the Effective Date. The
Company will use its best efforts to maintain such registration in effect for a
period of not less than 5 years from the First Closing Date.
(t) The Company will at all times from the First Closing Date until
at least three (3) years from such date, maintain in full force, or cause to be
maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of Bruce F.
Maison. Such policy shall be owned by the Company and all benefits thereunder
shall be payable to the Company.
(u) On the Closing Dates, all transfer or other taxes (other than
income taxes) which are required to be paid in connection with the sale and
transfer of the Offered Securities and the Underwriter's Warrants will have been
fully paid by the Company and all laws imposing such taxes will have been fully
complied with.
(v) On the First Closing Date, the Company and the Underwriter shall
enter into a consulting agreement, substantially in the form filed as Exhibit
____ to the Registration Statement, pursuant to which the Underwriter will offer
to provide financial consulting services to the Company for a two-year period
(the "Consulting Agreement").
(w) Except for (i) the Public Securities, (ii) the Underwriter's
Securities, (iii) the issuance of Common Stock pursuant to the exercise of the
Minority Stockholder Warrants, the Bridge Warrants and the [Consultant's Option]
as described in the Prospectus, (iv) the issuance, subject to the terms hereof,
to employees, officers and directors of stock options to purchase a number of
shares of Common Stock not to exceed [250,000] shares pursuant to the Stock
Option Plans (provided that (A) the Company may not grant options for more than
_______ of such shares prior to the First Closing Date, (B) any options granted
pursuant to this clause (iv) shall have an exercise price equal to the greater
of $5.00 per share and the market price per share of Common Stock on the date of
grant and (C) the vesting of such options shall be subject to the achievement of
earnings performance criteria acceptable to the Underwriter, and (D) the
recipients of such shares (and their permitted transferees) may not sell them
publicly, pursuant to Rule 144 promulgated under the Act or
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otherwise, at any time prior to the second anniversary of the First Closing Date
without the prior written consent of the Underwriter), and (v) the Meridian
Preferred Stock, the Company will not, from and after the date hereof until
thirty-six (36) months after the First Closing Date, sell or issue any shares of
Common Stock, preferred stock or other equity securities of the Company or sell
or grant options, warrants or rights to purchase any shares of equity securities
of the Company, without the Underwriter's prior written consent, except that the
Company may, during the period commencing as the second anniversary of the First
Closing Date and ending on the fourth anniversary of the First Closing Date,
issue to its employees options to purchase shares of Common Stock in an amount
not exceeding in the aggregate 10% of the shares of Common Stock issued and
outstanding on the second anniversary of the First Closing Date (such amount of
options to be inclusive of all options granted or available for grant under
clause (iv) above). In addition, the Company will not, from and after the date
hereof until thirty-six (36) months after the First Closing Date, sell or issue
any shares of preferred stock without the Underwriter's consent, other than the
issuance of the Meridian Preferred Stock contemplated by (v) above, or authorize
any new class or series of capital stock. Notwithstanding the foregoing,
during the 36-month period following the First Closing Date, the Company may
issue securities in connection with an acquisition, merger or similar
transaction without the Underwriter's prior consent, provided that such
securities are not publicly registered and the acquirer of the securities is not
granted registration rights with respect thereto which may be exercised prior to
the later of twelve (12) months after the issuance of such securities and
thirty-six (36) months after the First Closing Date.
(x) The Company will not file any registration statement relating to
the offer or sale of any of the Company's securities, including any registration
statement on Form S-8, during the thirty-six (36) months following the First
Closing Date without the Underwriter's prior written consent. Furthermore, for
a period of three years after the First Closing Date, the Company shall notify
the Underwriter in writing at least fifteen (15) days before the proposed filing
of any registration statement for any public offering of any equity or debt
securities of the Company or its Subsidiaries (other than securities issued
pursuant to an employee benefit plan or a transaction subject to Rule 145
promulgated under the Act), or at least fifteen (15) days before the private
offering of any debt or equity securities by the Company or its Subsidiaries
through a private financing, in order that the Underwriter or, at its option, a
group of associated investment bankers of which the Underwriter shall be a
co-manager, shall have a right of first refusal to effect such offering on terms
at least as favorable as otherwise offered in writing to the Company. A private
offering of securities shall not include shares given as compensation to
employees of the Company.
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The Underwriter agrees to notify the Company if the Underwriter intends to
exercise its right of first refusal within 15 days of receipt by the Underwriter
of such notice from the Company. A refusal by the Underwriter in respect of any
offering made by the Company shall not prejudice any further rights of first
refusal during the three year period, including without limitation the right of
first refusal of the Underwriter with respect to any revised terms otherwise
offered to the Company.
(y) The Company shall retain Continental Stock transfer & Trust
Company ("Continental Stock") as transfer agent for the Common Stock and as
warrant agent for the Redeemable Warrants. For the five (5) year period
following the First Closing Date, the Company will not change its transfer agent
or warrant agent without the prior written consent of the Underwriter. For a
period of two (2) years from the First Closing Date, the Company, at its own
expense, shall cause Continental Stock (or any successor transfer and warrant
agent) to provide to the Underwriter, no less frequently than weekly, copies of
the Company's daily stock transfer sheets for each of the Common Stock and
Redeemable Warrants. In addition, for a period of two years from the First
Closing Date, the Company, at its own expense, shall cause Depository Trust
Company ("DTC") to provide, by facsimile, to the Underwriter on a daily basis a
copy of a security position listing with respect to each of the Common Stock and
Redeemable Warrants. In addition, the Company will pay for any and all costs
imposed by DTC for tracking after-market trading in the Common Stock and
Redeemable Warrants for a thirty (30) day period following the Effective Date.
(z) Subsequent to the dates as of which information is given in the
Registration Statement and Prospectus and prior to the Closing Dates, except as
disclosed in or contemplated by the Registration Statement and Prospectus, (i)
the Company will not have incurred any liabilities or obligations, direct or
contingent, or entered into any material transactions other than in the ordinary
course of business; (ii) there shall not have been any change in the capital
stock, funded debt (other than regular repayments of principal and interest on
existing indebtedness) or other securities of the Company, any adverse change in
the condition (financial or otherwise), business, operations, income, net worth
or properties, including any loss or damage to the properties of the Company
(whether or not such loss is insured against), which could adversely affect the
condition (financial or otherwise), business, operations, income, net worth or
properties of the Company; and (iii) the Company shall not have paid or declared
any dividend or other distribution on its Common Stock or its other securities
or redeemed or repurchased any of its Common Stock or other securities. The
Company shall furnish to the Underwriter as early as practicable prior to each
of the date hereof, the First Closing Date and each Option Closing Date, if any,
but no later than two (2) full business days prior thereto, a
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copy of the latest available unaudited interim financial statements of the
Company (which in no event shall be as of a date more than sixty (60) days prior
to the date of the Registration Statement) which have been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Section 9(d) hereof.
(aa) For a period of two (2) years following the First Closing Date,
the Company shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the First Closing Date without obtaining the Underwriter's prior written
consent, which consent shall not be unreasonably withheld. The Underwriter
shall either approve or disapprove such contemplated redemption of securities or
dividend payment or distribution within five (5) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.
(bb) On or before the Effective Date, each of Bruce F. Maison and Real
P. Remillard will enter into employment agreements with the Company of at least
three years in length and with such other terms and conditions as are acceptable
to the Underwriter. The Company will not, for a period of three (3) years from
the First Closing Date increase or authorize an increase in the compensation of
its five (5) most highly paid employees in any year without the prior written
consent of the Underwriter or unless permitted by the terms of employment
contracts satisfactory to the Underwriter.
(cc) The Company maintains and will continue to maintain a system of
internal accounting controls sufficient to provide reasonable assurances that:
(i) transactions are executed in accordance with management's general or
specific authorization; (ii) transactions are recorded as necessary in order to
permit preparation of financial statements in accordance with generally accepted
accounting principles and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(dd) For a period of five (5) years from the First Closing Date, the
Company shall provide the Underwriter, on a not less than annual basis, with
internal forecasts setting forth projected results of operations for each
quarterly and annual period in the two (2) fiscal years following the respective
dates of such forecasts. Such forecasts shall be provided to the
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Underwriter more frequently than annually if prepared more frequently by
management, and revised forecasts shall be prepared and provided to the
Underwriter when required to reflect more current information, revised
assumptions or actual results that differ materially from those set forth in the
forecasts.
(ee) For a period of three years from the Effective Date, the Company
will retain a financial public relations firm reasonably acceptable to
Underwriter.
(ff) On or prior to the Effective Date, the Company will have a person
employed as Chief Financial Officer who is reasonably acceptable to the
Underwriter. The Underwriter acknowledges that Real P. Remillard is reasonably
acceptable to it as the Company's Chief Financial Officer.
(gg) The Company agrees that for so long as the Common Stock is
registered under the 1934 Act, the Company will hold an annual meeting of
shareholders for the election of directors within 180 days after the end of each
of the Company's fiscal years and, within 150 days after the end of each of the
Company's fiscal years, will provide the Company's shareholders with the audited
financial statements of the Company as of the end of the fiscal year just
completed prior thereto. Such financial statements shall be those required by
applicable rules under the 1934 Act and shall be included in an annual report
pursuant to the requirements thereof.
(hh) For a period equal to the lesser of (i) seven (7) years from the
date hereof and (ii) the sale to the public of the Underwriter's Securities, the
Company will not take any action or actions which may prevent or disqualify the
Company's use of Form S-1 or Form SB-2 (or other appropriate form) for the
registration under the Act of the Underwriter's Redeemable Warrants, the
Underwriter's Shares or the Underwriter's Warrant Shares.
(ii) The Company hereby appoints, effective as of the First Closing
Date, the Underwriter as the Company's exclusive warrant solicitation agent in
the event of any solicitation of the exercise of the Redeemable Warrants, in
connection with a redemption of the Redeemable Warrants or otherwise, commencing
one year after the Effective Date, and shall pay to the Underwriter a Warrant
Solicitation fee of five (5%) percent of the exercise price of all solicited
Redeemable Warrants, subject to the rules and regulations of the NASD with
regard to such fees.
(jj) The Company shall pay, at the First Closing Date, in an aggregate
amount not to exceed $10,000, for the cost of engaging (i) a firm of the
Underwriter's choice to conduct an investigation of the Company and its
principals and (ii) a
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consultant of the Underwriter's choice to provide a written analysis of the
Company's business and prospects.
(kk) Promptly following the First Closing Date the Board of Directors
shall designate an Audit Committee, at least one of whose members shall be the
director, if any, who is designated by the Underwriter. A majority of the
members of the Audit Committee shall be independent directors.
(ll) The Company shall cause each director, officer and, subject to
Section 2(ll)(iii), securityholder of the Company (including without limitation
the Minority Stockholders and the holders of securities issued in connection
with the Bridge Financing), to enter into an agreement with the Underwriter
pursuant to which he, she or it will agree not to sell or otherwise transfer any
securities of the Company for a period of 24 months following the First Closing
Date without the prior consent of the Underwriter unless the purchaser or
transferee agrees in writing with the Underwriter not to sell or otherwise
transfer such securities for the remainder of such 24 month period without the
consent of the Underwriter; provided, however, that the lock-up period
applicable to Meridian shall be 36 months; and provided, further, that the
foregoing limitations shall be for a twelve month period with respect to the
sale or transfer of Minority Stockholder Warrants and Bridge Warrants. In the
event Meridian or any such director, officer or securityholder proposes to sell
or transfer any securities of the Company publicly at any time during the
three-year period (or four-year period for the sale or transfer of Minority
Stockholder Warrants or Bridge Warrants) commencing immediately after the end of
the applicable lock-up period, such party shall, unless otherwise agreed in
writing by the Underwriter, be required to sell such securities through the
Underwriter so long as the price and terms of execution offered by the
Underwriter are at least as favorable as may be obtained from other brokerage
firms. In any case where a brokerage firm other than the Underwriter is
proposed to be utilized in connection with any such transaction, the Underwriter
shall be provided with a written statement by such other firm setting forth the
price and terms of execution offered by such firm and the Underwriter shall have
the option, during the five day period after receipt of such statement, to match
the terms so offered and, accordingly, the Underwriter shall have the right to
execute such transaction on such terms. In addition, the Company shall cause
Meridian to agree not to distribute or otherwise make available to shareholders
of Meridian or any of Meridian's affiliates or any other person, by way of a
dividend, issuance of a security convertible into the Common Stock owned by
Meridian or otherwise, for a period of 36 months after the First Closing Date
any securities of the Company which Meridian owns on the First Closing Date.
(mm) The Company shall engage the Underwriter's counsel to provide the
Underwriter, on the First Closing Date and
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annually thereafter, until the earlier of (i) such time as the Common Stock is
listed on the New York Stock Exchange or American Stock Exchange or quoted on
NASDAQ/NMS or (ii) the second anniversary of the First Closing Date, 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 up to 50 states. The Company
shall pay such counsel a one-time fee of $10,000 on the First Closing Date for
such opinion.
(nn) There shall be no agreements between the Company and any
securityholder during the period commencing on the date hereof and ending on the
third anniversary of the First Closing Date except those which are reasonably
acceptable to the Underwriter.
(oo) The Company will arrange to have its securityholders agree to be
bound by such "lock-up" or similar transfer restrictions as may be required by
the NASD or any exchange or similar entity.
(pp) For a period of three (3) years from the Effective Date, the
Company will not offer or sell any of its securities pursuant to Regulation S
promulgated under the Act without the prior written consent of the Underwriter.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriter
and each person, if any, who controls the Underwriter within the meaning of
Section 15 of the Act against any losses, claims, damages, expenses or
liabilities, joint or several (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
reasonable attorney's fees), to which the Underwriter or any such controlling
person may become subject, under the Act or otherwise, but only as such losses,
claims, damages or liabilities (or action in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent that any such loss, claim, damages or liability arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, in reliance upon, and in
conformity with, written information furnished to the Company by the Underwriter
specifically for use in the preparation thereof. The information set forth on
the cover page concerning the
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Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in the Registration Statement shall be deemed to
have been furnished to the Company by the Underwriter for purposes hereof. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter agrees that it will indemnify and hold harmless
the Company, each of its directors, each nominee (if any) for director named in
the Prospectus, each of its officers who has signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act, against any losses, claims, damages, expenses or liabilities
(which shall, for all purposes of this Agreement, include, but not be limited
to, all costs of defense and investigation and all attorney's fees), joint or
several, to which the Company or any such director, nominee, officer or
controlling person may become subject under the Act or otherwise, but only as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in the Registration Statement, any Preliminary
Prospectus or the Prospectus or any amendment or supplement thereto, or arise
out of or are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, but in each case only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in the Registration Statement, any Preliminary Prospectus or the Prospectus or
such amendment or supplement thereto in reliance upon and in conformity with
written information furnished to the Company by the Underwriter specifically for
use in the preparation thereof, PROVIDED, HOWEVER, that the obligation of each
Underwriter to indemnify the Company (including any controlling person, director
or officer thereof) shall (i) only relate to any untrue statement or alleged
untrue statement or any omission or alleged omission which applies to such
Underwriter and (ii) be limited in amount to the net proceeds received by the
Company from the Underwriter. This indemnity will be in addition
to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve the indemnifying
party from any liability which it may have to any indemnified party otherwise
than solely pursuant to this Section 6. In case any such action is brought
against any indemnified party, which notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may choose, jointly with any other indemnifying
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party similarly notified, reasonably assume the defense thereof. Subject to the
provisions herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall have a default
judgment entered against it or shall settle such action without the consent of
the indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, (ii) the named parties to such
action (including any impleaded parties) include both the indemnified and the
indemnifying party and the indemnified party shall have been advised by such
counsel that there may be one or more legal defenses available to the
indemnifying party different from or in conflict with any legal defenses which
may be available to the indemnified party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of the
indemnified party, it being understood, however, that the indemnifying party
shall, in connection with any one such action or separate but substantially
similar or related actions in the same jurisdiction arising out of the same
general allegations or circumstances, be liable only for the reasonable fees and
expenses of one separate firm of attorneys for the indemnified party, which firm
shall be designated in writing by the indemnified party), or (iii) the
professional competence of the counsel to be employed by the indemnifying party
is not reasonably acceptable to the indemnified party. No settlement of any
action against an indemnified party shall be made without the prior written
consent of the indemnified party, which consent shall not be unreasonably
withheld. The indemnifying party shall not be liable to indemnify the
indemnified party for any settlement of any action effected without the
indemnifying party's prior written consent to any such settlement, which consent
shall not be unreasonably withheld.
7. CONTRIBUTION. 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 Section 6 hereof but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that the express provisions of Section 6 provide for indemnification in such
case, or (ii) contribution
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under the Act may be required on the part of the Underwriter, then the Company
and the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all costs of defense and
investigation and all attorneys' fees), in either such case (after contribution
from others) in such proportions such that the Underwriter shall be responsible
in the aggregate for that portion of such losses, claims, damages or liabilities
determined by multiplying the total amount of such losses, claims, damages or
liabilities by the difference between the aggregate public offering prices of
the Shares and Redeemable Warrants and the aggregate purchase prices of the
Shares and Redeemable Warrants to such Underwriter and dividing the product by
the aggregate public offering prices of the Shares and Redeemable Warrants, and
the Company shall be responsible for that portion of such losses, claims,
damages or liabilities determined by multiplying the total amount of such
losses, claims, damages or liabilities by the aggregate purchase prices of the
Shares and Redeemable Warrants to the Underwriter and dividing the product
thereof by the aggregate public offering prices of the Shares and Redeemable
Warrants. 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 is 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 Section 7, the term "Underwriter" includes
any person who controls the Underwriter within the meaning of Section 15 of the
Act. If the full amount of the contribution specified in this Section 7 is not
permitted by law, then the Underwriter shall be entitled to contribution from
the Company, its officers, directors and controlling persons to the fullest
extent permitted by law. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect to which a claim for contribution may be made
against another party or parties under this Section 7, notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties shall not relieve the party or parties from whom contribution
may be sought from any obligation it or they may have hereunder or otherwise
than under this Section 7, or to the extent that such party or parties were not
adversely affected by such omission. The contribution agreement set forth above
shall be in addition to any liabilities which any indemnifying party may have at
common law or otherwise.
8. SURVIVAL OF AGREEMENTS, ETC. (a) All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this
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Agreement, all representations, warranties, indemnities, and agreements made by
the parties to this Agreement or pursuant hereto shall remain in full force and
effect and will survive delivery of and the payment for the Offered Securities,
for a period of five years from the date hereof, except that, if a party hereto
has actual knowledge at the time of the Closing Dates of facts which would
constitute a breach of the representations and warranties contained herein, such
breaches shall be waived by such party if such party consummates the
transactions contemplated by this Agreement.
(b) If Victor Wang shall no longer be a controlling shareholder of
the Underwriter, then in that event, the Company's obligations with respect to
Section 5(x) hereof and Section 3(e) of the Consulting Agreement, in favor of
the Underwriter shall thereupon be of no further force and effect; in no event
shall any amounts theretofore paid by the Company be refunded.
9. CONDITIONS OF UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter hereunder will be subject to the accuracy of and compliance with (as
of the date of this Agreement and as of the Closing Dates) the representations,
warranties and agreements contained in Sections 2 and 5 hereof and to the
following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m., New York City time, on the date of this Agreement, or such later
date as shall be consented to in writing by the Underwriter; and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceeding for that purpose shall have been initiated or be
pending or, to the best knowledge of the Company or the Underwriter,
contemplated or threatened by the Commission; any request by the Commission for
additional information to be included in the Registration Statement or the
Prospectus or otherwise shall have been complied with to the satisfaction of
counsel for the Underwriter; qualification under the securities laws of such
states as the Underwriter may designate of the issue and sale of the Offered
Securities upon the terms and conditions herein set forth or contemplated and
containing no provision unacceptable to the Underwriter shall have been secured;
and no stop order shall be in effect denying or suspending effectiveness of such
qualifications, nor shall any stop order proceedings with respect thereto be
instituted or pending or, to the best knowledge of the Company and the
Underwriter, threatened under such laws. If the Company has elected to rely
upon Rule 430A of the Rules and Regulations, the prices of the Shares and
Redeemable Warrants and any price-related information previously omitted from
the effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period, and prior to the
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First Closing Date the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in accordance
with the requirements of Rule 430A of the Rules and Regulations.
(b) No amendments to the Registration Statement, any Preliminary
Prospectus or the Prospectus to which the Underwriter or counsel for the
Underwriter shall have objected, after having received reasonable notice of a
proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to the
Company prior to the respective Closing Dates that the Registration Statement or
the Prospectus, or any amendment or supplement thereto, contains an untrue
statement of fact which, in the reasonable opinion of counsel for the
Underwriter, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(d) The Underwriter shall have received from Ernst & Young LLP, two
certificates or letters, one dated and delivered on the Effective Date and one
dated and delivered on the First Closing Date, in form and substance
satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations, and no disclosure under Item 13 of a registration statement on Form
S-1 is required insofar as it relates to them;
(ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
registration statements on Form S-1 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements included in the
Registration Statement;
(iii) on the basis of inquiries and procedures conducted
by them (not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company (with
an indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders and the Board of Directors of the Company and its subsidiaries
since February 28,
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1997, and other specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that causes them
to believe that:
(A) during the period from (and including) February
28, 1997 to a specified date not more than five days prior to the date of such
letter, there has been any change in the Common Stock or other securities of the
Company (except as specifically disclosed in such certificates or letters), any
decreases in shareholders' equity or working capital or any increases in net
current liabilities, net liabilities or long-term debt (except, regarding the
foregoing, for decreases resulting from operating losses continuing at rates
commensurate with those incurred in prior periods) or in any other item
appearing in the Company's financial statements as to which the Underwriter may
request advice, in each case as compared with amounts shown in the audited
balance sheet as of February 28, 1997, as included in the Prospectus, except in
each case for changes, increases or decreases which the Prospectus discloses
have occurred or will or may occur; and
(B) during the period from (and including) February
28, 1997 to such specified date there was any decrease in revenues or in the
total or per share amounts of income before extraordinary items or net income or
loss, or any other material change in such other items appearing in the
Company's financial statements as to which the Underwriter may request advice,
in each case as compared with the corresponding period in the fiscal period
ended February 28, 1997, except in each case for increases, changes or decreases
which the Prospectus discloses have occurred or will or may occur.
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
Any changes, increases or decreases in the items set
forth in such letter which, in the sole judgment of the Underwriter, are
materially adverse with respect to the financial position or results of
operations of the Company shall be deemed to constitute a failure of the Company
to comply with the conditions of the obligations to the Underwriter hereunder.
(e) The Underwriter shall have received from Benesch, Friedlander,
Coplan & Aronoff LLP ("Benesch Friedlander"), counsel for the Company, two
opinions, one dated and delivered on
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the Effective Date and one dated and delivered on the First Closing Date, in
form and substance satisfactory to Zimet, Haines, Friedman & Kaplan, counsel for
the Underwriter.
(f) All corporate proceedings relating to this Agreement, the
Registered Securities, the Registration Statement, each Preliminary Prospectus,
the Prospectus and other related matters shall be satisfactory to, or approved
by, counsel for the Underwriter, and the Underwriter shall have received from
such counsel a signed opinion, in form and substance reasonably satisfactory to
the Underwriter, dated the First Closing Date, with respect to such corporate
proceedings and other legal matters in connection with this Agreement, the
Registered Securities, the Registration Statement, the Prospectus (other than
the financial statements and other financial data contained therein) and related
matters as the Underwriter may reasonably require, and the Company shall have
furnished to such counsel such documents, certificates and opinions as they may
have requested for the purpose of enabling them to pass upon such matters.
(g) The Underwriter shall have received a certificate, dated and
delivered as of the date of the First Closing Date, of the Chief Executive
Officer and Secretary of the Company stating that:
(i) The Company and such officers have complied with all
the agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section 5
hereof.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein not misleading and does not contain any untrue statement
of a material fact, and since the Effective Date there has occurred no event
required to be set forth in the amended or supplemented prospectus which has not
been set forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 2 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and further certifying as to the matters
referred to in Sections 9(h) and (i).
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(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions and
there has not been any change in the Common Stock or funded debt of the Company
or any adverse change in the condition (financial or otherwise), business,
operations, income, net worth, properties or prospects of the Company.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall have not sustained any material loss of or damage to its
properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
(vii) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of the
Offered Securities.
(viii) No action, suit or proceeding, at law or in equity,
shall be pending or, to the knowledge of such officers, threatened against the
Company, or affecting any of its properties, before or by any commission, board
or other administrative agency, except as otherwise set forth in the
Registration Statement.
(h) On the First Closing Date, the Company shall not be a party to,
or be involved in, any arbitration, litigation (except as set forth in the
Registration Statement and described in the Company's Form 10-KSB for the year
ended February 28, 1997) or governmental proceeding, which is then pending, or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement.
(i) The Company shall not have sustained, at any time since February
28, 1997, any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the sole judgment of the
Underwriter, adversely affects the business of the Company.
(j) All of the Shares and Redeemable Warrants shall have been
tendered for delivery in accordance with the terms and provisions of this
Agreement.
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(k) The Underwriter shall have received the agreements referred to in
Sections 2(v), 2(aa), 2(ll) and 5(ll) hereof.
(l) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed all its obligations due to be performed prior thereto; (ii)
the Registration Statement and the Prospectus and any amendment or supplement
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations and conform in all
material respects to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
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
not misleading; (iii) there shall have been, since the date as of which
information is given, no material adverse change in the condition, business,
operations, properties, business prospects, securities, long-term or short-term
debt or general affairs of the Company from that set forth in the Registration
Statement or the Prospectus, except changes which the Registration Statement and
the Prospectus indicate will occur after the Effective Date and prior to such
Closing Date, and the Company shall not have incurred any material liabilities
or obligations, direct or contingent, or entered into any material transaction,
contract or agreement not in the ordinary course of business other than as
referred to in the Registration Statement and the Prospectus; and (iv) except as
set forth in the Prospectus, no action, suit or proceeding, at law or in equity,
shall be pending or threatened against the Company which might be required to be
set forth in the Registration Statement, and no proceedings shall be pending or
threatened against the Company before or by any commission, board or
administrative agency in the United States or elsewhere, wherein an unfavorable
decision, ruling or finding might adversely affect the condition, business,
operations, properties, prospects or general affairs of the Company.
(m) Upon exercise of the Over-allotment Option provided for in
Section 3(b) hereof, the obligations of the Underwriter to purchase and pay for
the Option Shares and/or the Redeemable Warrants will be subject to the
following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending, or, to the knowledge of the Underwriter or the Company, shall
be contemplated by the Commission, and any request on the part of the
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Commission for additional information shall have been complied with to the
satisfaction of counsel for the Underwriter.
(ii) At the Option Closing Date there shall have been
delivered to the Underwriter the signed opinion of Benesch Friedlander, counsel
for the Company, in form and substance reasonably satisfactory to Zimet, Haines,
Friedman & Kaplan, counsel for the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinions furnished to the
Underwriter by such counsel at the First Closing Date pursuant to Section 9(e).
(iii) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate of the Chief Executive Officer and
the Secretary of the Company dated the Option Closing Date, in form and
substance satisfactory to counsel for the Underwriter, substantially the same in
scope and substance as the certificates furnished to the Underwriter at the
First Closing Date pursuant to Section 9(g).
(iv) At the Option Closing Date there shall have been
delivered to the Underwriter a certificate or letter, in form and substance
satisfactory to the Underwriter, from Ernst & Young LLP, dated the Option
Closing Date and addressed to the Underwriter, confirming the information in its
certificate or letter referred to in Section 9(d) hereof and stating that
nothing has come to their attention during the period from the ending date of
their review referred to in said certificate or letter to a date not more than
five business days prior to the Option Closing Date which would require any
change in said certificate or letter if it were required to be dated the Option
Closing Date.
(v) All proceedings taken at or prior to the Option Closing
Date in connection with the sale and transfer of the Option Securities shall be
satisfactory in form and substance to the Underwriter, and the Underwriter and
counsel for the Underwriter, shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and counsel for the
Underwriter may reasonably request in connection with this transaction in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(n) The Company shall have executed and delivered the Public Warrant
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement, and
shall have issued the Underwriter's Warrants.
(o) The Company shall have furnished to the Underwriter such other
certificates, documents, and opinions as the Underwriter may have reasonably
requested (including certificates
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of officers of the Company) as to the accuracy, at the Closing Dates, of the
representations and warranties of the Company herein, as to the performance by
the Company of its obligations hereunder and as to other conditions concurrent
and precedent to the obligations of the Underwriter hereunder.
The opinions and certificates mentioned above or elsewhere in this
Agreement will be deemed to be in compliance with the provisions hereof only if
they are reasonably satisfactory to the Underwriter and to counsel for the
Underwriter.
Any certificate signed by an officer of the Company delivered to the
Underwriters or to counsel for the Underwriters, will be deemed a representation
and warranty by the Company to the Underwriters as to the statements made
therein.
10. EFFECTIVE DATE. This Agreement will become effective at 9:30 a.m. on
the first business day following the date on which the Registration Statement
becomes effective; provided, however, this Agreement will become effective at
such later time after the Registration Statement becomes effective as the
Underwriter may determine on and by notice to the Company or by release of any
of the Offered Securities for sale to the public or by any other action
constituting a commencement of the Public Offering. For the purposes of this
Section 10, the Offered Securities will be deemed to be so released upon the
release for publication of any newspaper advertisement relating to the Offered
Securities or upon the release by the Underwriter of telegrams offering the
Offered Securities for sale to securities dealers, whichever may occur first.
The term "business day" shall mean a calendar day other than a Saturday, Sunday
or holiday. Notwithstanding anything herein to the contrary, the provisions of
this Section and of Sections 6, 7, 11 and 12 hereof will, however, be effective
upon the execution of this Agreement.
11. TERMINATION. This Agreement may be terminated by the Underwriter by
notice to the Company (i) at any time before this Agreement becomes effective in
accordance with Section 9 hereof; (ii) if, prior to the First Closing Date, the
Company shall have failed or refused to fully comply with any of the provisions
of this Agreement on its part to be performed prior thereto, or if any of the
agreements, conditions, covenants, representations or warranties of the Company
herein contained shall not have been performed or fulfilled within the times
specified; (iii) trading in securities generally on the New York Stock Exchange
or the American Stock Exchange will have been suspended; (iv) limited or minimum
prices will have been established on either such Exchange or maximum ranges for
prices for securities shall have been required on the over-the-counter market by
the NASD; (v) a banking moratorium will have been declared either by federal or
New York State authorities; (vi) any other restrictions on transactions in
securities materially affecting the free market for securities or
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the payment for such securities, will be established by either of such
Exchanges, by the Commission by any other federal or state agency, by action of
the Congress or by Executive Order; (vii) the Company will have sustained a
material loss, whether or not insured, by reason of fire, flood, accident or
other calamity; (viii) any action has been taken by the Government of the United
States or any department or agency thereof which, in the sole judgment of the
Underwriter, has had a material adverse effect upon the general market for
securities; (ix) if, prior to the First Closing Date, there shall have occurred
the outbreak of any war or any other event or calamity which, in the sole
judgment of the Underwriter, materially disrupts the financial markets of the
United States; (x) if, prior to the First Closing Date, the general market for
securities or political, legal or financial conditions should deteriorate so
materially from that in effect on the date of this Agreement that, in the sole
judgment of the Underwriter, it becomes impracticable for the Underwriter to
commence or proceed with the Public Offering of the Offered Securities and with
the payment for or acceptance thereof; (xi) if trading of any securities of the
Company shall have been delisted on any exchange or in any over-the-counter
market; or (xii) if, prior to the First Closing Date, the Underwriter
determines, in its sole discretion, that any materially adverse change shall
have occurred, since the date as of which information is given in the
Registration Statement and the Prospectus, in the financial condition, business,
prospects, operations, properties or obligations of the Company.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement, and whether or not this
Agreement is otherwise carried out, the provisions of Section 7, 8 and 12 shall
not be in any way affected by such election or termination or failure to carry
out the terms of this Agreement or any part hereof.
12. EXPENSES; BLUE SKY FILINGS AND EXPENSES.
(a) Whether or not the Public Offering is consummated, the Company
will pay all costs and expenses incident to the performance of the obligations
of the Company hereunder, including without limiting the generality of the
foregoing, (i) the preparation, printing, filing, and copying of the
Registration Statement, Prospectus, this Agreement, the Selected Dealer
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter and
the costs of mailing Prospectuses to offerees and purchasers of the Offered
Securities; (ii) the out-of-pocket travel expenses of the Underwriter and
counsel to the Underwriter or other professionals designated by the Underwriter
to visit the Company's facilities for purposes of discharging due diligence
responsibilities (and if conferences and discussions are held outside New York,
New York, the Company shall pay such reasonable amount of pre-approved traveling
and lodging
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out-of-pocket expenses as may be incurred by the Underwriter and its counsel,
payable when incurred and billed); (iii) the printing, engraving, issuance and
delivery of certificates representing the Offered Securities, including any
transfer or other taxes payable thereon; (iv) the registration or qualification
of the Offered Securities under state securities or "blue sky" laws (including
attorneys fees of $35,000 ($10,000 of which is payable when the first blue sky
application is made with the balance paid on the First Closing Date) and
disbursements of counsel to the Underwriter (to be paid monthly as incurred,
except that the amount of blue sky filing fees shall be paid by the Company to
the Underwriter's counsel at the time application for qualification of the
offering under blue sky laws is made); (v) all reasonable fees and expenses of
the Company's counsel and accountants; (vi) all costs, expenses and filing fees
in connection with review of the terms of the offering by the NASD (it being
agreed that all reasonable fees and expenses of the Underwriter and
Underwriter's counsel in securing NASD approval, shall be paid by the Company);
(vii) all costs and expenses of any listing of the Offered Securities on NASDAQ
and Boston Stock Exchange; (viii) all costs and expenses of three (3) bound
volumes provided to the Underwriter of all documents, paper exhibits,
correspondence and records forming the materials included in the offering; (ix)
the cost of "tombstone" advertisements to be placed in one or more daily or
weekly periodicals as the Underwriter may request; (x) all expenses incurred in
connection with presentation of two "due diligence" meetings and (xi) all other
costs and expenses incurred or to be incurred by the Company in connection with
the transactions contemplated by this Agreement. The aforementioned $35,000
payment shall not include fees of special counsel if the same is required to be
incurred in a "merit review" state which may require local counsel; the
Underwriter will not retain special counsel in any state without the prior
consent of the Company. The obligations of the Company under this subsection
(a) shall survive any termination or cancellation of this Agreement, except as
provided in paragraph (c) of this Section 12.
(b) In addition to the Company's responsibility for payment of the
foregoing expenses, the Company shall pay to the Underwriter a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds of the
offering, including in such amount the proceeds from the exercise of the
Underwriter's over-allotment option. The non-accountable expense allowance due
shall be paid at the First Closing Date and any Option Closing Date, as
applicable. The Underwriter hereby acknowledges prior receipt from the Company
of $25,000, which amount shall be applied to the non-accountable expense
allowance due when and if the offering is closed.
(c) If at any time prior to the First Closing Date, (i) the Company
will not or cannot expeditiously proceed with the sale of the Registered
Securities, including without limitation as
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a result of the Company taking or not taking actions, (ii) any of the
representations, warranties or covenants of the Company contained in this
Agreement or any agreement contemplated hereby are not true and correct or
cannot be complied with, (iii) Meridian fails to supplement the Company's
working capital at levels necessary to maintain the Company's operations or
withdraws or fails to maintain any guarantees made by Meridian in respect of the
Company's indebtedness or any other obligations of the Company and the
Underwriter shall not commence or continue the underwriting, (iv) in the
Underwriter's sole judgment, there occurs a material adverse change in the
Company's financial condition, business, prospects or obligations, and the
Underwriter shall not commence or continue the underwriting, or (v) in the
Underwriter's sole judgment, reasonably exercised, market conditions are
unsuitable for the Public Offering and the Underwriter shall not commence or
continue the underwriting, then the Company shall reimburse the Underwriter in
full for its actual out-of-pocket expenses (including, without limitation, its
legal fees and disbursements), up to $50,000 (in each case inclusive of any
portion of the non-accountable expense allowance paid pursuant to paragraph (b)
above).
(d) If the Company decides not to proceed with the Public Offering
for any reason, and subsequently engages in any public offering, private
placement, merger, acquisition, joint venture or corporate reorganization with
any other business entity within 12 months after the Company notifies the
Underwriter of its decision not to proceed with the Public Offering, the
Underwriter shall be entitled to receive from the Company a fee equal to 5% of
the consideration paid or received in any such transaction, less any payments
previously made to the Underwriter pursuant to paragraph (b); provided that if
the consideration paid or received in the transaction consists, in whole or in
part, of securities or other non-cash items, the fee payable to the Underwriter
shall nonetheless be paid in cash (i.e., check). The Company and the
Underwriter mutually agree that since the amount of monetary damages suffered by
the Underwriter would be difficult to calculate in the event of abandonment of
the Public Offering, the amount of such fee is a fair measure of compensation
due to the Underwriter in such event. The Company and the Underwriter shall
negotiate in good faith the terms of an investment banking finders' fee, if any,
if the Underwriter is instrumental in arranging such transaction.
(e) The Underwriter shall determine in which states or jurisdictions
the Offered Securities shall be registered or qualified for sale, provided that
such states or jurisdictions do not require the Company to qualify as a foreign
business corporation or to file a general consent to service of process.
Immediately prior to the Effective Date, counsel for the Underwriter shall
advise counsel for the Company in writing of all states in which the offering
has been registered or qualified for sale or has been cancelled, withdrawn or
denied and the number of
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Offered Securities registered or qualified for sale in each such state. The
Company shall be responsible for the cost of state registration or
qualification, including the filing fees (which filing fees are payable to
Underwriter's counsel in advance of such filings) and the legal fees and
disbursements of Underwriter's counsel in connection with obtaining such
registration or qualification; provided, however, that the legal fees of
Underwriter's counsel payable by the Company with respect to blue sky filings
shall be $35,000, subject to paragraph (a) above. The disbursements of
Underwriter's counsel shall be paid by the Company monthly as incurred by such
legal counsel. The Underwriter hereby acknowledge that the Company has
previously paid $10,000 to Underwriter's counsel to be applied towards the legal
fees payable pursuant to this paragraph (e) and the Company hereby acknowledges
that any remaining balance with respect to legal fees or blue sky filing fees,
and any unpaid disbursements, shall be due and payable on the First Closing
Date.
13. NOTICES. Any notice hereunder shall be in writing, unless otherwise
expressly provided herein, and if to the respective persons indicated, will be
sufficient if mailed by certified mail, return receipt requested, postage
prepaid, or hand delivered, and confirmed in writing or by telegraph, addressed
as respectively indicated or to such other address as will be indicated by a
written notice similarly given, to the following persons:
(a) If to the Underwriter -- addressed to Duke & Co., Inc., 909 Third
Avenue, New York, New York 10022, Attention: Gregg Thaler, President, with a
copy to Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, New York, New York
10022, Attention: James Martin Kaplan, Esq.
(b) If to the Company -- addressed to EPI Technologies, Inc., 810
Chicago Street, Toledo, Ohio 43611, Attention: President, with a copy to
Benesch, Friedlander, Coplan & Aronoff LLP, 2300 BP America Building, 200 Public
Square, Cleveland, Ohio 44114, Attention: Ira C. Kaplan, Esq.
Notice shall be deemed delivered upon receipt.
14. SUCCESSORS. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
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representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriter and any person or persons who control any of the Underwriter within
the meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within the meaning of
Section 15 of the Act. No purchaser of any of the Offered Securities from the
Underwriter will be deemed a successor or assign solely because of such
purchase.
15. FINDERS AND HOLDERS OF FIRST REFUSAL RIGHTS.
(a) The Company hereby represents and warrants to the Underwriter
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions or holds a right of
first refusal or similar right in connection with the proposed offering, and the
Company hereby agrees to indemnify and hold harmless the Underwriter, its
officers, directors, agents and each person, if any, who controls such
Underwriter within the meaning of Section 15 of the Act, from and against any
loss, liability, claim, damage or expense whatsoever arising out of a claim by
an alleged finder or alleged holder of a right of first refusal or similar right
in connection with the proposed offering, insofar as such loss, liability,
claim, damage or expense arises out of any action or alleged action of the
Company.
(b) The Underwriter hereby represents and warrants to the Company
that no person is entitled, directly or indirectly, to compensation for services
as a finder in connection with the proposed transactions; and the Underwriter
hereby agrees to indemnify and hold harmless the Company, its officers,
directors and agents, from and against any loss, liability, claim, damage or
expense whatsoever arising out of a claim by an alleged finder in connection
with the proposed offering, insofar as such loss, liability, claim, damage or
expense arises out of any action or alleged action of the Underwriter.
16. APPLICABLE LAW. This Agreement shall be deemed to be a contract made
under the laws of the State of New York and for all purposes shall be construed
in accordance with the laws of said state applicable to contracts made and to be
performed entirely within such State. The Company (1) agrees that any legal
suit, action or proceeding arising out of or relating to this Agreement shall be
instituted exclusively in New York State Supreme Court, County of New York, or
in the United States District Court for the Southern District of New York, (2)
waives any objection which the Company may have now or hereafter to the venue of
any such suit, action or proceeding, and (3) irrevocably consents to the
jurisdiction of the New York State Supreme Court, County of New York and the
United States District Court for the Southern District
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<PAGE>
of New York in any such suit, action or procedure. Each of the Company and the
Underwriter further agrees to accept and acknowledge service of any and all
process which may be served in any suit, action or proceeding in the New York
State Supreme Court, County of New York and the United States District Court for
the Southern District of New York, and agrees that service of process upon the
Company mailed by certified mail to the Company's address shall be deemed in
every respect effective service of process upon the Company in any such suit,
action or proceeding. In the event of litigation between the parties arising
hereunder, the prevailing party shall be entitled to costs and reasonable
attorney's fees.
17. HEADINGS. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
18. COUNTERPARTS. This Agreement may be executed in any number of
counterparts which, taken together, shall constitute one and the same
instrument.
19. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement and
understanding between the Underwriter and the Company with respect to the
subject matter hereof, and supersedes all prior agreements, arrangements and
understandings, written or oral, between them.
20. REPRESENTATION OF THE UNDERWRITER. The Underwriter hereby represents
that it is registered as a broker-dealer with the Commission and is registered
as a broker-dealer in all states in which it of conducts business and it is a
member in good standing of the NASD.
21. TERMINOLOGY. All personal pronouns used in this Agreement, whether
used in the masculine, feminine or neuter gender, shall include all other
genders and the singular shall include the plural, and vice versa.
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<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate the Underwriter's acceptance thereof, as of the day and year first
above written, in the space provided below for that purpose, whereupon this
letter with the Underwriter's acceptance shall constitute a binding agreement
between us.
Very truly yours,
EPI TECHNOLOGIES, INC.
By
------------------------
Name:
Title:
Confirmed and accepted on the
day and year first above written.
DUKE & CO., INC.
By:
-------------------------
Name: Gregg Thaler
Title: President
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<PAGE>
EPI TECHNOLOGIES, INC.
[SELECTED DEALER AGREEMENT]
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<PAGE>
` CONSULTING AND INVESTMENT BANKING AGREEMENT
This Agreement is made and entered into as of the ___ day of ___________,
1997 by and between Duke & Co., Inc., a Florida corporation ("Duke" or
"Consultant"), and EPI Technologies, Inc., a Delaware corporation (the
"Company").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. DUTIES OF CONSULTANT. The Consultant shall, at the request of the
Company, upon reasonable notice, render the following services to the Company
from time to time.
(a) CONSULTING SERVICES. The Consultant will provide such financial
consulting services and advice pertaining to the Company's business affairs as
the Company may from time to time reasonably request. Without limiting the
generality of the foregoing, the Consultant will assist the Company in
developing, studying and evaluating financing, merger and acquisition proposals
and assist in negotiations and discussions pertaining thereto.
(b) FINANCING. The Consultant will assist and represent the Company
in obtaining both short and long-term financing if, as and when requested by the
Company. The Consultant will be entitled to additional compensation under
certain circumstances in accordance with the terms set forth in Section 3
hereof.
The services described in this Section 1 shall be rendered by the
Consultant without any direct supervision by the Company and at such time and
place and in such manner (whether by conference, telephone, letter or otherwise)
as the Consultant may determine.
2. TERM. Except as otherwise specified in Paragraph 4 hereof, this
Agreement shall be effective for a two (2) year period commencing on the date
hereof and ending __________, 1999.
3. COMPENSATION.
(a) As compensation for the Consultant's services hereunder, the
Company shall pay to the Consultant a fee of Fifty Thousand Dollars ($50,000)
per year for the term of this Agreement, payable annually in advance with the
first payment due upon the First Closing date (as defined in the Underwriting
Agreement dated ___________, 1997 by and between Duke and the Company (the
"Underwriting Agreement")) and the remaining $50,000 due on the first
anniversary of the First Closing Date.
<PAGE>
(b) In addition to the financial consulting services described in
Section 1 above, the Consultant may, at the request of the Company, bring the
Company in contact with persons, whether individuals or entities, that may be
suitable candidates for providing the Company with, or may lead the Company to
other individuals or entities that may provide the Company with, debt or equity
financing or that may be suitable candidates, or may lead the Company to such
suitable candidates, to purchase substantially all of the stock or assets of the
Company, merge with the Company, or enter into a joint venture or other
transaction with the Company. If, at any time during the term of this
Agreement, the Company enters into an agreement with any such persons or their
affiliates, or with any persons introduced to the Company by any such persons or
their affiliates, pursuant to which the Company obtains debt or equity financing
or pursuant to which substantially all of the Company's stock or assets is
purchased or the Company is merged with or into another entity, or pursuant to
which the Company enters into a joint venture or other transaction, the Company
will pay to the Consultant, in accordance with the formula set forth below,
additional compensation based on the aggregate Transaction Value (as defined
below) of such transaction (the "Transaction"). Nothing herein shall be deemed
or construed to obligate or require the Company to complete or consummate any
Transaction for which the Consultant would be compensated hereunder or to pay
the Consultant any fee or compensation for any Transaction which is not
consummated.
(c) The additional compensation to be paid will be paid upon the
closing of the Transaction, by certified check, in the following amounts:
5% of the first $5,000,000 of Transaction Value in the Transaction;
4% of the Transaction Value in excess of $5,000,000 and up to
$6,000,000;
3% of the Transaction Value in excess of $6,000,000 and up to
$7,000,000;
2% of the Transaction Value in excess of $7,000,000 and up to
$8,000,000; and
1% of any Transaction Value in excess of $8,000,000.
(d) "Transaction Value" shall mean the aggregate value of all cash,
securities and other property (i) paid to the Company, its affiliates, or their
securityholders in connection with any Transaction involving an investment in or
acquisition of the Company or any affiliate (or the assets of either), (ii) paid
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<PAGE>
by the Company or any affiliate in any such Transaction involving an investment
in or acquisition of another party or its equity holdings by the Company or any
affiliate, or (iii) paid or contributed by the Company or any affiliate and by
the other party or parties in the event of any such Transaction involving a
joint venture or similar joint enterprise or undertaking. The value of any such
securities (whether debt or equity) or other property shall be the fair market
value thereof as determined by agreement of the Consultant and the Company or by
an independent appraiser jointly selected by the Consultant and the Company.
"Transaction Value" shall also include the principal amount of any indebtedness
assumed or forgiven as part of a Transaction.
(e) In the event the Company engages in a transaction during the
three year period commencing on the First Closing Date which is originated by a
party other than Duke, the Company will engage Duke to review and otherwise
participate in such transaction and compensate Duke on such terms as agreed to
by the Company and Duke; notwithstanding the foregoing, it is acknowledged and
agreed that Duke shall not be entitled to a fee pursuant to this sentence in
respect of either of the transactions described on Exhibit A hereto in the event
such transaction is consummated during such three year period.
(f) In the event Duke originates, at the Company's request, a line of
credit with a lender or a corporate partner, the Company and Duke will mutually
agree on a satisfactory fee and the terms of payment of such fee. In the event
Duke introduces the Company to a customer, at the request of the Company, and
sales develop as a result of the introduction, the Company agrees to pay a fee
of two percent (2%) of total sales generated directly from this introduction
during the first two years following the date of the first sale. Total sales
shall mean gross receipts less any applicable refunds, returns, allowances,
credits, taxes and shipping charges and monies paid by the Company by way of
settlement or judgment arising out of claims made by or threatened against the
Company. Commission payments shall be paid on the 15th day of each third month
following the receipt of the customers' payments. In the event any adjustments
are made to the total sales after the commission has been paid, the Company
shall be entitled, at its option, to an appropriate refund or credit against
future payments under this Agreement.
(g) All fees to be paid pursuant to this Agreement, except as
otherwise specified, are due and payable to Duke in cash or company check at the
closing or closings of any Transaction specified herein. In the event that the
consideration in respect of a Transaction is paid out over a period of time,
Duke shall be paid its pro-rata portion of such consideration as the Company is
paid. In the event that this Agreement shall not be renewed or if terminated
for any reason, notwithstanding any such non-renewal or termination, Duke shall
be entitled to a full fee as provided under
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<PAGE>
Paragraphs 3 and 4 hereof, for any Transaction for which the discussions were
initiated with a third party at the request of the Company during the term of
this Agreement and which is consummated within a period of twelve months after
non-renewal or termination of this Agreement.
4. EXPENSES OF DUKE. In addition to the fees payable hereunder and
regardless of whether any Transaction set forth in Paragraph 3 hereof is
proposed or consummated, the Company shall reimburse Duke for Duke's reasonable
travel and out-of-pocket expenses incurred in connection with the services
performed by Duke pursuant to this Agreement and at the request of the Company,
including without limitation, hotels, food and associated expenses and
long-distance telephone calls.
5. AVAILABLE TIME. The Consultant shall make available such time as it,
in its sole discretion, shall deem appropriate for the performance of its
obligations under this Agreement.
6. LIABILITY OF DUKE.
(1) The Company acknowledges that all opinions and advice (written or
oral) given by Duke to the Company in connection with Duke's engagement are
intended solely for the benefit and use of the Company in considering the
Transaction to which they relate, and the Company agrees that no person or
entity other than the Company shall be entitled to make use of or rely upon the
advice of Duke to be given hereunder, and no such opinion or advice shall be
used for any other purpose or reproduced, disseminated, quoted or referred to at
any time, in any manner or for any purpose, nor may the Company make any public
references to Duke, or use Duke's name in any annual reports or any other
reports or releases of the Company without Duke's prior written consent or as
required by law.
(2) The Company acknowledges that Duke makes no commitment whatsoever
as to making a market in the Company's securities or to recommending or advising
its clients to purchase the Company's securities. Research reports or corporate
finance reports that may be prepared by Duke will, when and if prepared, be done
solely on the merits or judgement of analysis of Duke or any senior corporate
finance personnel of Duke.
7. DUKE'S SERVICES TO OTHERS. The Company acknowledges that Duke or its
affiliates are in the business of providing financial services and consulting
advice to others. Nothing herein contained shall be construed to limit or
restrict Duke in conducting such business with respect to others, or in
rendering such advice to others, except that Duke will not provide services to
others when such services may materially and adversely affect the Company.
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<PAGE>
8. COMPANY INFORMATION.
(a) The Company recognizes and confirms that, in advising the Company
and in fulfilling its engagement hereunder, Duke will use and rely on data,
material and other information furnished to Duke by the Company. The Company
acknowledges and agrees that in performing its services under this engagement,
Duke may rely upon the data, material and other information supplied by the
Company without independently verifying the accuracy, completeness or veracity
of same.
(b) Except as required by applicable law, Duke shall keep confidential
all non-public information provided to it by the Company, and shall not disclose
such information to any third party without the Company's prior written consent,
other than such of its employees and advisors as Duke reasonably determines to
have a need to know, provided that Duke shall instruct such employees and
advisors to keep such information confidential and Duke shall be liable for any
breach of such confidentiality. In the event that Duke is required by subpoena
to disclose such information, the Company shall be afforded an opportunity to
seek an order preserving the confidentiality of such information.
9. INDEMNIFICATION.
(a) The Company shall indemnify and hold Duke harmless against any
and all liabilities, claims, lawsuits, including any and all awards and/or
judgments to which it may become subject under the Securities Act of 1933, as
amended (the "1933 Act"), the Securities Exchange Act of 1934, as amended (the
"1934 Act") or any other federal or state statute, at common law or otherwise,
insofar as said liabilities, claims and lawsuits (including costs, expenses,
awards and/or judgments) arise out of or are in connection with the services
rendered by Duke or any transactions in connection with this Agreement, except
for any liabilities, claims and lawsuits (including awards and/or judgments),
arising out of acts or omissions of Duke. In addition, the Company shall also
indemnify and hold Duke harmless against any and all costs and expenses,
including reasonable counsel fees, incurred relating to the foregoing.
Duke shall give the Company prompt notice of any such liability, claim or
lawsuit which Duke contends is the subject matter of the Company's
indemnification and the Company thereupon shall be granted the right to take any
and all necessary and proper action, at its sole cost and expense, with respect
to such liability, claim and lawsuit, including the right to settle, compromise
and dispose of such liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities and
provided that no such settlement shall be made without the prior consent of
Duke.
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<PAGE>
Duke shall indemnify and hold the Company harmless against any and all
liabilities, claims and lawsuits, including any and all awards and/or judgments
to which it may become subject under the 1933 Act, the 1934 Act or any other
federal or state statute, at common law or otherwise, insofar as said
liabilities, claims and lawsuits (including costs, expenses, awards and/or
judgments) arise out of or are in connection with the services rendered by Duke
or any transactions in connection with this Agreement. In addition, Duke shall
also indemnify and hold the Company harmless against any and all costs and
expenses, including reasonable counsel fees, incurred relating to the foregoing.
The Company shall give Duke prompt notice of any such liability, claim or
lawsuit which the Company contends is the subject matter of Duke's
indemnification and Duke thereupon shall be granted the right to take any and
all necessary and proper action, at its sole cost and expense, with respect to
such liability, claim or lawsuit, including the right to settle, compromise or
dispose of such liability, claim or lawsuit, excepting therefrom any and all
proceedings or hearings before any regulatory bodies and/or authorities and
provided that no such settlement shall be made without the prior consent of the
Company.
(b) In order to provide for just and equitable contribution in any
case in which (i) any person entitled to indemnification under this Paragraph 9
makes claim for indemnification pursuant hereto but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case notwithstanding the
fact that this Paragraph 9 provides for indemnification in such case, or (ii)
contribution may be required on the part of any such person in circumstances for
which indemnification is provided under this Paragraph 9, then, and in each such
case, the Company and Duke shall contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after any contribution from
others) in such proportion taking into consideration the relative benefits
received by each party from the transactions undertaken in connection with this
Agreement (taking into account the portion of the proceeds realized by each),
the parties' relative knowledge and access to information concerning the matter
with respect to which the claim was assessed, the opportunity to correct and
prevent any statement or omission and other equitable considerations appropriate
under the circumstances; and provided, that, in any such case, no person guilty
of a fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
Within fifteen (15) days after receipt by any party to this Agreement (or
its representative) of notice of the
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<PAGE>
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be 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 which 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 the Contributing
Party. The indemnification provisions contained in this Paragraph 9 are in
addition to any other rights or remedies which either party hereto may have with
respect to the other or hereunder.
10. DUKE AN INDEPENDENT CONTRACTOR. Duke shall perform its services
hereunder as an independent contractor and not as an employee of the Company or
an affiliate thereof. The parties hereto expressly understand and agree that
Duke shall have no authority to act for, represent or bind the Company or any
affiliate thereof in any manner, except as may be agreed to expressly by the
Company in writing from time to time.
11. MISCELLANEOUS.
(a) This Agreement between the Company and Duke constitutes the entire
agreement and understanding of the parties hereto, and supersedes any and all
previous agreements and understandings, whether oral or written, between the
parties with respect to the matters set forth herein.
(b) All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and, if sent to Duke, shall be
mailed, delivered or telegraphed and confirmed to Duke & Co., Inc., 909 Third
Avenue, New York, New York 10022, Attention: President, with a copy to Zimet,
Haines, Friedman & Kaplan, 460 Park Avenue, New York, New York 10022,
Attention: James Martin Kaplan, Esq., and if to the Company, shall be mailed,
delivered or telegraphed and confirmed to EPI Technologies, Inc., 810 Chicago
Street, Toledo, Ohio 43611, Attention: President, with a copy to Benesch,
Friedlander, Coplan & Aronoff LLP, 2300 BP America Building, 200 Public Square,
Cleveland, Ohio 44114, Attention: Ira C. Kaplan, Esq.
(c) This Agreement shall be binding upon and inure to the benefit of
each of the parties hereto and their respective successors, legal
representatives and permitted assigns. This
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<PAGE>
Agreement shall not be assignable by any party without the prior written consent
of the other party; provided, however, that Duke shall be entitled to assign its
obligations under this Agreement to another member of the National Association
of Securities Dealers, Inc. with the Company's consent, which consent shall not
be unreasonably withheld.
(d) This Agreement may be executed in any number of counterparts,
each of which together shall constitute one and the same original document.
(e) No provision of this Agreement may be amended, modified or
waived, except in a writing signed by all of the parties hereto.
(f) This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, without giving effect to its conflict of
law principles. The parties hereby agree that any dispute which may arise
between them arising out of or in connection with this Agreement shall be
adjudicated before a court located in New York City, and they hereby submit to
the exclusive jurisdiction of the courts of the State of New York located in New
York, New York and of the federal courts in the Southern District of New York
with respect to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of any such action or proceeding brought in such a court or respecting the
fact that such court is an inconvenient forum, relating to or arising out of
this Agreement, and consent to the service of process in any such action or
legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth in Paragraph 11(b) hereof.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
DUKE & CO., INC.
By:_________________________
Name:
Title:
EPI TECHNOLOGIES, INC.
By:_________________________
Name:
Title:
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<PAGE>
EXHIBIT A
EXCLUDED TRANSACTIONS
The Company is currently in discussions with Laidlaw Environmental Inc.,
Columbia, South Carolina, and Texo Corporation, Cincinnati, Ohio, regarding
joint marketing arrangements, joint ventures and participation in the Public
Offering (as defined in the Underwriting Agreement).
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<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
EPI TECHNOLOGIES, INC.
EPI Technologies, Inc., a corporation organized and existing under the
laws of the State of Delaware, hereby certifies as follows:
1. The name of the corporation is EPI Technologies, Inc. and the name
under which the corporation was originally incorporated is Environmental
Purification Industries, Inc. The date of filing of its original Certificate
of Incorporation with the Secretary of State was February 26, 1996.
2. This Restated Certificate was duly adopted by vote of the stockholders
in accordance with Sections 242 and 245 of the General Corporation Law of the
State of Delaware.
3. This Restated Certificate of Incorporation restates and integrated and
further amends the Certificate of Incorporation of EPI Technologies, Inc. to
read in its entirety as follows:
FIRST: The name of the Corporation is EPI Technologies, 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. The number of shares for all classes of stock which the
Corporation is authorized to have outstanding is Two Million Five Hundred
Thousand (2,500,000), all of which shall be Common Shares, $.01 par value.
B. On the effective date of this Amendment, the number of outstanding
shares of Common Stock of the Corporation shall be increased so that each
share of Common Stock issued and outstanding shall be changed and converted
into ten thousand (10,000) 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.
<PAGE>
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.
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.
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.
2
<PAGE>
Elections of directors need not be by written ballot unless the bylaws of the
Corporation shall so provide.
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 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 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
3
<PAGE>
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.
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
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<PAGE>
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), 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.
IN WITNESS WHEREOF, said EPI Technologies, Inc. has caused this Restated
Certificate to be signed by Real P. Remillard, its Secretary, this 26th day
of August, 1997.
By: /s/ Real P. Remillard
-----------------------------------
Real P. Remillard, Secretary
5
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01
EPI TECHNOLOGIES, 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
EPI TECHNOLOGIES, 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>
UNDERWRITER'S WARRANT AGREEMENT dated as of _______, 1997 between EPI
Technologies, Inc., a Delaware corporation (the "Company"), and Duke & Co., Inc.
(the "Underwriter").
W I T N E S S E T H:
WHEREAS, the Underwriter has agreed, pursuant to the underwriting agreement
(the "Underwriting Agreement") dated _______, 1997 between the Underwriter and
the Company, to act as the underwriter in connection with the Company's proposed
public offering (the "Public Offering") of 1,250,000 shares of common stock, par
value $0.01 per share ("Common Stock"), and 1,250,000 redeemable Common Stock
purchase warrants ("Redeemable Warrants"), plus up to an additional 187,500
shares of Common Stock and 187,500 Redeemable Warrants pursuant to the
Underwriter's over-allotment option, which securities are included in a
registration statement on Form S-1 (File No. 333-_____) (hereinafter, the
"Public Offering Registration Statement"); and
WHEREAS, the Company proposes to issue to the Underwriter warrants, one for
the purchase of up to 125,000 shares of Common Stock and the other for the
purchase of up to 125,000 Redeemable Warrants; and
WHEREAS, the warrants issued pursuant to this Agreement are being issued by
the Company to the Underwriter or officers and partners of the Underwriter and
members of the selling group (the "Selling Group") and/or their officers or
partners, in consideration for, and as part of the Underwriter's compensation in
connection with, the Underwriter acting as the underwriter pursuant to the
Underwriting Agreement;
NOW, THEREFORE, in consideration of the foregoing premises, the payment by
the Underwriter to the Company of an aggregate of $250, the receipt of which is
hereby acknowledged by the Company, the agreements herein set forth and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. GRANT. Subject to the terms and conditions of this Agreement, the
Underwriter, and/or its designees who are officers or partners of the
Underwriter or members of the Selling Group in connection with the Public
Offering, are hereby granted the right to purchase, at any time from ______ ,
1998 until 5:00 P.M., New York City time, on _______, 2002 (the "Warrant
Exercise Term"), up to (i) 125,000 shares of Common Stock (the "Shares") at an
initial exercise price (subject to adjustment as provided in Article 8 hereof)
of $5.50 per Share and (ii) 125,000 Redeemable Warrants at an initial exercise
price of $0.11 per Redeemable Warrant. The right to purchase Shares as
described in (i) above is hereinafter
<PAGE>
referred to as "Warrant No. 1" and the right to purchase Redeemable Warrants as
described in (ii) above is hereinafter referred to as "Warrant No. 2". Warrant
No. 1 and Warrant No. 2 are hereinafter referred to collectively as the
"Warrants". Except as specifically otherwise provided herein, the Shares and the
Redeemable Warrants issued pursuant to Warrant No. 1 and Warrant No. 2,
respectively, shall bear the same terms and conditions as described under the
caption "Description of Securities" in the Public Offering Registration
Statement. In addition, the Redeemable Warrants shall be governed by the terms
of the Warrant Agreement dated as of _______, 1997, executed in connection with
the Public Offering (the "Public Warrant Agreement"), and except that the holder
shall have registration rights under the Securities Act of 1933, as amended (the
"Act"), with respect to the Warrants, the Shares and the Redeemable Warrants
subject thereto and the shares of Common Stock unde rlying the Redeemable
Warrants issuable upon exercise of Warrant No. 2, which registration rights are
more fully described in paragraph 7 of this Warrant Agreement. In the event of
any adjustments to the exercise price of and the number of shares of Common
Stock purchasable under the Redeemable Warrants pursuant to the Public Warrant
Agreement, the same chages to the Redeemable Warrants subject to Warrant No. 2
shall be simultaneously effected.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") for Warrant No. 1 and Warrant No. 2 to be delivered pursuant to
this Agreement shall be in the forms set forth as Exhibit A and Exhibit B
attached hereto, respectively, and made a part hereof, with such appropriate
insertions, omissions, substitutions and other variations as required or
permitted by this Agreement.
3. EXERCISE OF WARRANTS.
3.1 CASH EXERCISE. The exercise price of the respective Warrants shall be
payable in cash or by certified or official bank check to the order of the
Company, or any combination of cash or check. Upon surrender of the applicable
Warrant Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the applicable exercise price for the Shares and/or
Redeemable Warrants purchased, at the Company's principal offices, currently
located at 810 Chicago Street, Toledo, Ohio 43611, the registered holder of a
Warrant Certificate ("Holder" or "Holders") shall be entitled to receive a
certificate or certificates for the Shares and/or Redeemable Warrants so
purchased. The purchase rights represented by each Warrant Certificate are
exercisable at the option of the Holder thereof, in whole or in part (but not as
to fractional Shares or fractional Redeemable Warrants). In the case of the
purchase of less than all the Shares or Redeemable Warrants, as the case may be,
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender thereof and shall execute and deliver a new
Warrant
2
<PAGE>
Certificate of like tenor for the balance of the Shares or Redeemable Warrants,
as the case may be, purchasable thereunder.
3.2 CASHLESS EXERCISE FOR WARRANT NO. 1. At any time during the Warrant
Exercise Term, the Holder may, at its option, exchange Warrant No. 1, in whole
or in part (a "Warrant Exchange"), into the number of Shares determined in
accordance with this Section 3.2, by surrendering the Warrant Certificate
representing Warrant No. 1 at the principal office of the Company, accompanied
by a notice stating (i) such Holder's intent to effect such exchange, (ii) the
number of Shares subject to Warrant No. 1 as to which the exchange is to be
effected and (iii) the date on which the Holder requests that such Warrant
Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall take
place on the date specified in the Notice of Exchange or if the date the Notice
of Exchange is received by the Company is later than the date specified in the
Notice of Exchange, such later date (the "Exchange Date"). Certificates for the
Shares issuable upon such Warrant Exchange and, if applicable, a new warrant of
like tenor evidencing the balance of the Shares remaining subject to this
Warrant, shall be issued as of the Exchange Date and delivered to the Holder
within three (3) business days following the Exchange Date. In connection with
any Warrant Exchange, Warrant No. 1 shall represent the right to subscribe for
and acquire the number of Shares (rounded to the next highest integer) equal to
(i) the number of Shares specified by the Holder in its Notice of Exchange (the
"Total Number") less (ii) the number of Shares equal to the quotient obtained by
dividing (A) the product of the Total Number and the existing exercise price of
Warrant No. 1 by (B) the market price of a share of Common Stock on the Exchange
Date; and, in the case of any Warrant Exchange for less than all of the Shares
purchasable under Warrant No. 1, the Company shall execute and deliver a new
Warrant Certificate of like tenor for the balance of the Shares purchasable
thereunder. By way of example, if the holder of Warrant No. 1 submits a Notice
of Exchange relating to 62,500 of the 125,000 Shares subjct to Warrant No. 1 and
the current market price of a share of Common Stock on the Exchange Date is
$10.00, the holder will be entitled to receive 28,125 shares of Common Stock,
along with a new Warrant Certificate entitling the holder to purchase 62,500
Shares.
4. ISSUANCE OF CERTIFICATES.
4.1. ISSUANCE. Upon exercise of the Warrants, the issuance of certificates
for the Shares and/or Redeemable Warrants, as applicable shall be made forthwith
(and in any event within three (3) business days thereafter) without charge to
the Holder thereof including, without limitation, any tax which may be payable
in respect of the issuance thereof, and such certificates shall (subject to the
provisions of Article 5 hereof) be issued in the name of, or in such names as
may be directed by, the Holder thereof; provided, however, that the Company
shall not be required
3
<PAGE>
to pay any tax which may be payable in respect of any transfer involved in the
issuance and delivery of any such certificates in a name other than that of the
Holder, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
4.2. FORMS OF CERTIFICATES. The Warrant Certificates and certificates
representing the Shares and/or Redeemable Warrants shall be executed on behalf
of the Company by the manual or facsimile signature of the present or any future
Chairman or Vice Chairman of the Board of Directors or President or Vice
President of the Company under its corporate seal reproduced thereon, attested
to by the manual or facsimile signature of the present or any future Secretary
or Assistant Secretary of the Company. Warrant Certificates shall be dated the
date of execution by the Company upon initial issuance, division, exchange,
substitution or transfer. The Warrant Certificates and, upon exercise of the
Warrants, in part or in whole, certificates representing the Shares and/or
Redeemable Warrants shall bear a legend substantially similar to the following:
"The securities represented by this certificate have not been
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating
to the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably
satisfactory to counsel to the Company, stating that an exemption
from registration under such Act is available."
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by acceptance thereof, covenants and agrees that the Warrant is
being acquired as an investment and not with a view to the distribution thereof,
and that the Warrant may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers or partners of the Underwriter or to any
member of the Selling Group participating in the distribution to the public of
the Common Stock and Redeemable Warrants, and/or their respective officers or
partners.
6. PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICES. The initial exercise price of
Warrant No. 1 shall be $5.50 per Share and the initial exercise price of Warrant
No. 2 shall be $.11 per Redeemable Warrant. The adjusted exercise price shall be
the price
4
<PAGE>
which shall result from time to time from any and all adjustments of the initial
exercise price in accordance with the provisions of Article 8 hereof.
6.2 EXERCISE PRICE. The term "exercise price" herein shall mean the
initial exercise price of Warrant No. 1 or Warrant No. 2, as the case may be, or
the adjusted exercise price, depending upon the context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. None of the Warrants,
the Shares, the Redeemable Warrants and the Common Stock issuable upon exercise
of the Redeemable Warrants (the "Underlying Shares") have been registered for
purposes of public distribution under the Securities Act of 1933, as amended
(the "Act").
7.2 REGISTRABLE SECURITIES. As used herein the term "Registrable
Securities" means the Warrants, the Shares issuable upon exercise of Warrant No.
1, the Redeemable Warrants issuable upon exercise of Warrant No. 2, the
Underlying Shares and any securities issued upon any stock split or stock
dividend in respect of any of the foregoing; provided, however, any of such
securities shall cease to be Registrable Securities when, as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, (ii) registration under the Act is no longer required for
the subsequent public distribution of such securities or (iii) it has ceased to
be outstanding. In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of "Registrable
Securities" as is appropriate in order to prevent any dilution or enlargement of
the rights granted pursuant to this Article 7.
7.3 PIGGYBACK REGISTRATION. If, at any time during the four years
following the date of this Agreement, the Company proposes to prepare and file
one or more post-effective amendments to the Public Offering Registration
Statement filed in connection with the Public Offering or any new registration
statement or post-effective amendments thereto covering equity or debt
securities of the Company, or any such securities of the Company held by its
shareholders (other than pursuant to a Form S-4 relating to a merger or
acquisition or pursuant to a Form S-8 or successor form) (for purposes of this
Article 7, collectively, a "Registration Statement"), it will give written
notice of its intention to do so by registered mail ("Notice"), at least thirty
(30) days prior to the filing of each such Registration Statement, to all
holders of the Registrable Securities. Upon the written request of such a
holder (a "Requesting Holder"), made within twenty (20) business days after
receipt of the Notice, that the Company include any of
5
<PAGE>
the Requesting Holder's Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use its best
efforts to effect the registration under the Act of the Registrable Securities
which it has been so requested to register ("Piggyback Registration"), at the
Company's sole cost and expense and at no cost or expense to the Requesting
Holders (other than underwriting discounts and commissions applicable to the
sale of such Registrable Securities and the fees and disbursements, if any, of
counsel to the Requesting Holders); provided, however, that the Company shall in
any event be entitled to withdraw such Registration Statement prior to its
effectiveness if such Registration Statement is withdrawn as to all securities
proposed to be registered thereunder.
7.4 DEMAND REGISTRATION.
(a) At any time during the Warrant Exercise Term, any "Demand Holder" (as
such term is defined in Section 7.4(d) below) of the Registrable Securities
shall have the right (which right is in addition to the piggyback registration
rights provided for under Section 7.3 hereof), exercisable by written notice to
the Company (the "Demand Registration Request"), to have the Company prepare and
file with the Securities and Exchange Commission (the "Commission"), on one
occasion, at the sole expense of the Company (except as provided in Section
7.5(b) hereof), a Registration Statement and such other documents, including a
prospectus, as may be necessary (in the opinion of both counsel for the Company
and counsel for such Demand Holder), in order to comply with the provisions of
the Act, so as to permit a public offering and sale of the Registrable
Securities by the holders thereof. The Company shall use its best efforts to
cause the Registration Statement to become effective under the Act, so as to
permit a public offering and sale of the Registrable Securities by the holders
thereof. Once effective, the Company will use its best efforts to maintain the
effectiveness of the Registration Statement until the earlier of (i) the date
that all of the Registrable Securities have been sold or (ii) the date which is
nine months after the effective date of such Registration Statement.
(b) The Company covenants and agrees to give written notice of any Demand
Registration Request to all holders of the Registrable Securities within ten
(10) business days from the date of the Company's receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Section 7.4(b), holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Section 7.4(a) hereof by notifying the Company of their
decision to have such securities included within ten (10) days of their receipt
of the Company's notice.
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<PAGE>
(c) In addition to the registration rights provided for under Section 7.3
hereof and subsection (a) of this Section 7.4, at any time during the Warrant
Exercise Term, any Demand Holder (as defined below in Section 7.4(d)) of
Registrable Securities shall have the right, exercisable by written request to
the Company, to have the Company prepare and file with the Commission, on one
occasion in respect of all holders of Registrable Securities, a Registration
Statement so as to permit a public offering and sale of such Registrable
Securities until the earlier of (i) the date that all of the Registrable
Securities have been sold or (ii) the date which is nine months after the
effective date of such Registration Statement; provided, however, that all costs
incident thereto shall be at the expense of the holders of the Registrable
Securities included in such Registration Statement (including the costs of any
special audit which may be required). If a Demand Holder shall give notice to
the Company at any time of its or their desire to exercise the registration
right granted pursuant to this Section 7.4(c), then within ten (10) days after
the Company's receipt of such notice, the Company shall give notice to the other
holders of Registrable Securities advising them that the Company is proceeding
with such registration and offering to include therein the Registrable
Securities of such holders, provided they furnish the Company with such
appropriate information in connection therewith as the Company shall reasonably
request in writing.
(d) The term "Demand Holder" as used in this Section 7.4 shall mean any
holder or any combination of holders of Registrable Securities, if included in
such holders' Registrable Securities are that aggregate number of shares of
Common Stock (including Shares already issued and not disposed of in a public
offering and/or Shares issuable pursuant to the exercise of Warrant No. 1 and
Underlying Shares already issued and not disposed of in a public offering and/or
Underlying Shares issuable pursuant to the exercise of Redeemable Warrants
issued and not disposed of in a public offering or issuable pursuant to exercise
of Warrant No. 2 (the "Total Common Shares")) as would constitute 50% or more of
the aggregate number of such Total Common Shares.
7.5 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. The Company
covenants and agrees as follows:
(a) In connection with any registration under Section 7.4 hereof, the
Company shall file the Registration Statement as expeditiously as possible, but
in no event later than twenty (20) days following receipt of any demand therefor
(unless delayed by the failure of a holder of Registrable Securities to promptly
furnish such information necessary to complete such registration statement),
shall use its best efforts to have any such Registration Statement declared
effective at the earliest possible time, and shall furnish each holder of
Registrable Securities such number of prospectuses as shall reasonably be
requested.
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<PAGE>
(b) The Company shall pay all costs, fees and expenses in connection with
all Registration Statements filed pursuant to Sections 7.3 and 7.4(a) hereof
(excluding any underwriting discounts and commissions which may be incurred in
connection with the sale of any Registrable Securities and excluding any fees
and expenses of counsel for any Requesting Holder or Demand Holder), including,
without limitation, the Company's legal and accounting fees, printing expenses,
and blue sky fees and expenses. The holders of Registrable Securities included
in any Registration Statement filed pursuant to Section 7.4(c) hereof will pay
all costs, fees and expenses in connection with such Registration Statement,
including their own legal fees and expenses, if any.
(c) The Company will take all necessary action which may be required in
qualifying or registering the Registrable Securities included in a Registration
Statement for offering and sale under the securities or blue sky laws of such
states as are reasonably requested by the holders of such securities.
(d) The Company shall indemnify any holder of the Registrable Securities
to be sold pursuant to any Registration Statement and each person, if any, who
controls such holder within the meaning of Section 15 of the Act or Section
20(a) of the Securities Exchange Act of 1934, as amended ("Exchange Act"),
against all loss, claim, damage, expense or liability (including all expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act, the Exchange
Act or otherwise, arising from such Registration Statement to the same extent
and with the same effect as the provisions pursuant to which the Company has
agreed to indemnify the Underwriter contained in Section 6 of the Underwriting
Agreement and to provide for just and equitable contribution as set forth in
Section 7 of the Underwriting Agreement.
(e) Each holder of Registrable Securities to be sold pursuant to a
Registration Statement will furnish to the Company such information as may be
reasonably be requested by the Company for inclusion in the Registration
Statement. Any holder of Registrable Securities to be sold pursuant to a
Registration Statement, and its successors and assigns, shall severally, and not
jointly, indemnify, the Company, its officers and directors and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished in writing by or on behalf of such holder, or its successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions contained in Section 6 of the
Underwriting
8
<PAGE>
Agreement pursuant to which the Underwriter has agreed to indemnify the Company
and to provide for just and equitable contribution as set forth in Section 7 of
the Underwriting Agreement.
(f) Nothing contained in this Agreement shall be construed as requiring
any Holder to exercise his Warrants prior to the initial filing of any
Registration Statement or the effectiveness thereof.
(g) If the Company shall fail to comply with the provisions of this
Article 7, the Company shall, in addition to any other equitable or other relief
available to the holders of Registrable Securities, be liable for any or all
actual damages (but not punitive or consequential damages) sustained by the
holders of Registrable Securities, requesting registration of their Registrable
Securities.
(h) The Company shall not permit the inclusion of any securities other
than the Registrable Securities to be included in any Registration Statement
filed pursuant to Section 7.4 hereof, without the prior written consent of the
Demand Holders, which consent shall not be unreasonably withheld.
(i) The Company shall deliver promptly to each holder of Registrable
Securities whose securities are included in a Registration Statement copies of
all correspondence between the Commission and the Company, its counsel or
auditors and all memoranda relating to discussions with the Commission or its
staff with respect to the Registration Statement and permit each holder of
Registrable Securities and underwriters to do such investigation, upon
reasonable advance notice, with respect to information contained in or omitted
from the Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the National Association of Securities
Dealers, Inc. ("NASD"). Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such holder of Registrable Securities
or underwriter shall reasonably request.
(j) If, in connection with a registration which includes Registrable
Securities pursuant to this Article 7, the Company shall enter into an
underwriting agreement with one or more underwriters selected for such
underwriting, such agreement shall contain such representations, warranties and
covenants by the Company and such other terms as are customarily contained in
agreements of that type used by the underwriters. The holders of Registrable
Securities shall be parties to any underwriting agreement relating to an
underwritten sale of their Registrable Securities and may, at their option,
require that any or all the representations and warranties of the Company to or
for the benefit
9
<PAGE>
of such underwriters shall, to the extent that they may be applicable, also be
made to and for the benefit of such holders of Registrable Securities. Such
holders of Registrable Securities shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters except as they may relate to such holders of Registrable Securities
and their intended methods of distribution.
8. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF SHARES.
8.1 STOCK DIVIDEND, SPLIT, ETC.. In case the Company shall (i) declare a
dividend or make a distribution on its outstanding shares of Common Stock in
shares of Common Stock, (ii) subdivide or reclassify its outstanding shares of
Common Stock into a greater number of shares, or (iii) combine or reclassify its
outstanding shares of Common Stock into a smaller number of shares, the exercise
price under Warrant No. 1 in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be adjusted so that it shall equal the
price determined by multiplying the exercise price by a fraction, the
denominator of which shall be the number of shares or Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
8.2 RIGHTS OR WARRANTS. In the case the Company shall fix a record date
for the issuance of rights or warrants to all holders of its Common Stock
entitling them to subscribe for or purchase shares of Common Stock (or
securities convertible into Common Stock) at a price (the "Subscription Price")
(or having a conversion price per share) less than the current market price of
the Common Stock (as defined in Section 8.5 below) on such record date, the
exercise price of Warrant No. 1 shall be adjusted so that it shall thereafter
equal the price determined by multiplying (i) the exercise price in effect
immediately prior to the date of such issuance and (ii) a fraction, the
numerator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock which the aggregate offering price of the total number of shares of Common
Stock so offered for subscription or purchase (or the aggregate conversion price
of the convertible securities so offered) would purchase at such current market
price per share of the Common Stock, and the denominator of which shall be the
sum of the number of shares of Common Stock outstanding on such record date and
the number of additional shares of Common Stock offered for subscription or
purchase (or into which the convertible securities so offered are convertible).
Such adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock are not
10
<PAGE>
delivered (or securities convertible into Common Stock are not delivered) after
the expiration of such rights or warrants the exercise price shall be readjusted
to the exercise price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
int Common Stock) actually delivered.
8.3 EVIDENCES OF INDEBTEDNESS OR ASSETS. In case the Company shall
hereafter distribute to the holders of its Common Stock evidences of its
indebtedness or assets (excluding cash dividends or distributions of securities
of the type referred to in Section 8.1 above) or subscription rights or warrants
(excluding those referred to in Section 8.2 above), then in each such case the
exercise price of Warrant No. 1 in effect thereafter shall be determined by
multiplying (i) the exercise price in effect immediately prior thereto and (ii)
a fraction, the numerator of which shall be the total number of shares of Common
Stock outstanding multiplied by the current market price per share of Common
Stock (as defined in Section 8.5 below), less the fair market value (as
determined by the Company's Board of Directors) of said assets or evidences of
indebtedness so distributed or of such rights or warrants, and the denominator
of which shall be the total number of shares of Common Stock outstanding
multiplied by such current market price per share of Common Stock. Such
adjustment shall be made successively whenever such a record date is fixed.
Such adjustment shall be made whenever any such distribution is made and shall
become effectively immediately after the record date for the determination of
shareholders entitled to receive such distribution.
8.4 ADJUSTMENT OF NUMBER OF SHARES. Whenever the Exercise Price payable
upon exercise of Warrant No. 1 is adjusted pursuant to Sections 8.1, 8.2 or 8.3
above, the number of Shares purchasable upon exercise of Warrant No. 1 shall
simultaneously be adjusted by multiplying the number of Shares initially
issuable upon exercise of Warrant No. 1 by the exercise price in effect on the
date hereof and dividing the product so obtained by the exercise price, as
adjusted.
8.5 DETERMINATION OF CURRENT MARKET PRICE. For the purpose of any
computation under Sections 8.2 and 8.3 above, the current market price per share
of Common Stock at any date shall be deemed to be the average of the daily
closing prices for twenty (20) consecutive business days before such date. The
closing price for each day shall be the last sale price regular way or, in case
no such reported sale takes place on such day, the average of the last reported
bid and asked prices regular way, in either case on the principal national
securities exchange on which the Common Stock is admitted to trading or listed,
or as reported by National Association of Securities Dealers, Inc. Automatic
Quotation System ("NASDAQ") or other similar organization if NASDAQ is no longer
11
<PAGE>
reporting such information, or if not so available, the fair market price as
determined by the Board of Directors.
8.6 NO ADJUSTMENT FOR DE MINIMUS ADJUSTMENT. No adjustment in the
Exercise Price shall be required unless such adjustment would require an
increase or decrease of at least ten cents ($0.10) in such price; provided,
however, that any adjustments which by reason of this Section 8.6 are not
required to be made shall be carried forward and taken into account in any
subsequent adjustment required to be made hereunder. All calculations under
this Article 8 shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be. Anything in this Article 8 to the contrary
notwithstanding, the Company shall be entitled, but shall not be required, to
make such changes in the exercise price, in addition to those required by this
Article 8, as it shall determine, in its sole discretion, to be advisable in
order that any dividend or distribution in shares of Common Stock, or any
subdivision, reclassification or combination of Common Stock, hereafter made by
the Company shall not result in any Federal income tax liability to the holders
of Common Stock or securities convertible into Common Stock (including
Redeemable Warrants issuable upon exercise of Warrant No. 2).
8.7 NOTICE. Whenever an exercise price is adjusted, as herein provided,
the Company shall promptly, but no later than 10 days after any request for such
an adjustment by the Holder, cause a notice setting forth the adjusted exercise
price and adjusted number of Shares and/or Warrants issuable upon exercise of
the Warrants and, if requested, information describing the transactions giving
rise to such adjustments, to be mailed to the Holder, at the address set forth
herein, and shall cause a certified copy thereof to be mailed to its transfer
agent, if any. The Company may retain a firm of independent certified public
accountants selected by the Board of Directors (who may be the regular
accountants employed by the Company) to make any computation required by this
Section 8, and a certificate signed by such firm shall be conclusive evidence of
the correctness of such adjustment.
8.8 OTHER SECURITIES. In the event that at any time, as a result of any
adjustment made pursuant to this Article 8, the Holder thereafter shall become
entitled to receive any securities of the Company other than Common Stock and
Redeemable Warrants, thereafter the number of such other securities receivable
upon exercise of the Warrants shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the provisions
with respect to the Common Stock and Redeemable Warrants contained in Sections
8.1 to 8.6, inclusive above.
12
<PAGE>
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES.
9.1 EXCHANGE. Each Warrant Certificate is exchangeable without expense,
upon the surrender hereof by the registered Holder at the principal executive
office of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Shares or
Redeemable Warrants, as the case may be, in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
9.2 REPLACEMENT. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
any Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
or Redeemable Warrants and shall not be required to issue scrip or pay cash in
lieu of fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or Redeemable Warrants, as the
case may be.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all times
reserve and keep available out of its authorized shares of Common Stock, solely
for the purpose of issuance upon the exercise of Warrant No. 1 and the exercise
of the Redeemable Warrants subject to Warrant No. 2, such number of shares of
Common Stock as shall be issuable upon the exercise thereof. The Company
covenants and agrees that, upon exercise of Warrant No. 1 and payment of the
exercise price therefor, all shares of Common Stock issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any shareholder, and that, upon exercise of Warrant No.
2 and payment of the exercise price therefor, the Redeemable Warrants will be
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms. As long as the Warrants shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock and all
Redeemable Warrants issuable upon the exercise of the Warrants, as well as the
Underlying Shares, to be listed on or quoted by NASDAQ or listed on such
national securities exchanges as the Company's Common Stock is then listed.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement shall
be construed as conferring upon the Holder or
13
<PAGE>
Holders the right to vote or to consent or to receive notice as a shareholder in
respect of any meetings of shareholders for the election of directors or any
other matter, or as having any rights whatsoever as a shareholder of the
Company. If, however, at any time prior to the expiration of the Warrants and
their exercise, any of the following events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock and/or Redeemable Warrants for the purpose of entitling
them to receive a dividend or distribution payable otherwise than in
cash, or a cash dividend or distribution payable otherwise than out of
current or retained earnings, as indicated by the accounting treatment
of such dividend or distribution on the books of the Company; or
(b) the Company shall offer to all the holders of its Common Stock and/or
Redeemable Warrants any additional shares of capital stock of the
Company or securities convertible into or exchangeable for shares of
capital stock of the Company, or any option, right or warrant to
subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date or the date of closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or entitled
to vote on such proposed dissolution, liquidation, winding up or sale. Such
notice shall specify such record date or the date of closing of the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.
13. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
14
<PAGE>
(a) If to a registered Holder of the Warrants, to the address of such
Holder as shown on the books of the Company; or
(b) If to the Company, to 810 Chicago Street, Toledo, Ohio 43611, Attn:
President, or to such other address as the Company may designate by notice to
the Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the Underwriter may from
time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates in order to cure any ambiguity, to correct or
supplement any provision contained herein which may be defective or inconsistent
with any provisions herein, or to make any other provisions in regard to matters
or questions arising hereunder which the Company and the Underwriter may deem
necessary or desirable and which the Company and the Underwriter deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement by or
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of business
on _______, 2005. Notwithstanding the foregoing, this Agreement will terminate
on any earlier date when all Warrants have been exercised and all the Shares
issuable upon exercise of Warrant No. 1 and all the Redeemable Warrants issuable
upon exercise of Warrant No. 2 (or the Underlying Shares) have been resold to
the public; provided, however, that the provisions of Section 7.5 shall survive
such termination until the close of business on _______, 2008.
17. GOVERNING LAW. This Agreement and each Warrant Certificate issued
hereunder shall be deemed to be a contract made under the laws of the State of
New York and for all purposes shall be construed in accordance with the laws of
said State.
18. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered holder or holders of the Warrant
Certificates, Warrants or the underlying securities any legal or equitable
right, remedy or claim under this Agreement; and this Agreement shall be for the
sole and exclusive benefit of the Company and the Underwriter and any other
holder or holders of the Warrant Certificates, Warrants or the underlying
securities.
19. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all
15
<PAGE>
purposes be deemed to be an original, and such counterparts shall together
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
EPI TECHNOLOGIES, INC.
By:
-------------------------
Name:
Title:
Attest:
By:
------------------------
Name:
Title
DUKE & CO., INC.
By:
-------------------------
Name:
Title:
Attest:
By:
------------------------
Name:
Title
16
<PAGE>
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES
ISSUABLE UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE
EXTENT APPLICABLE, PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, ________, 2002.
No. WW-1 125,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that or registered assigns is the
registered holder of 125,000 Warrants to purchase, at any time from _______,
1998 until 5:00 P.M. New York City time on _______, 2002 ("Expiration Date"), up
to 125,000 shares ("Shares") of fully-paid and nonassessable preferred stock,
par value $.001 per share ("Common Stock"), of EPI Technologies, Inc., a
Delaware corporation (the "Company"), at the initial exercise price, subject to
adjustment in certain events (the "Exercise Price"), of $5.50 per Share upon
surrender of this Warrant Certificate and payment of the Exercise Price at an
office or agency of the Company, but subject to the conditions set forth herein
and in the Warrant Agreement dated as of _______, 1997 between the Company and
Duke & Co., Inc. (the "Warrant Agreement"). Payment of the Exercise Price may be
made in cash, or by certified or official bank check in New York Clearing House
funds payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
17
<PAGE>
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain events,
the Exercise Price and/or number of the Company's securities issuable thereupon
may, subject to certain conditions, be adjusted. In such event, the Company
will, at the request of the holder, issue a new Warrant Certificate evidencing
the adjustment in the Exercise Price and the number and/or type of securities
issuable upon the exercise of the Warrants; provided, however, that the failure
of the Company to issue such new Warrant Certificates shall not in any way
change, alter, or otherwise impair, the rights of the holder as set forth in the
Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
18
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed as of the date below.
Dated: _______, 1997 EPI TECHNOLOGIES, INC.
By:
-------------------------
Name:
Title:
Attest:
By:
------------------------
Name:
Title
19
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Shares and herewith
tenders in payment for such Shares cash or a certified or official bank check
payable in New York Clearing House Funds to the order of in the amount of $ ,
all in accordance with the terms hereof. The undersigned requests that a
certificate for such Shares be registered in the name of , whose address is and
that such Certificate be delivered to whose address is.
Dated:__________, 1997 Signature:
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
---------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
20
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint, Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:__________, 1997 Signature:
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate)
-----------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
21
<PAGE>
EXHIBIT B
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:00 P.M., NEW YORK TIME, _______, 2002
No. WW-2 125,000 Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that or registered assigns is the
registered holder of 125,000 Warrants to purchase, at any time from _______,
1998 until 5:00 P.M. New York City time on , 2002 ("Expiration Date"), up to
125,000 Redeemable Common Stock Purchase Warrants ("Redeemable Warrants"), of
EPI Technologies, Inc., a Delaware corporation (the "Company"), at the exercise
price (the "Exercise Price"), of $.11 per Redeemable Warrant upon surrender of
this Warrant Certificate and payment of the Exercise Price at an office or
agency of the Company, but subject to the conditions set forth herein and in the
Warrant Agreement dated as of ________, 1997 between the Company and Duke & Co.,
Inc. (the "Warrant Agreement"). Payment of the Exercise Price may be made in
cash, or by certified or official bank check in New York Clearing House funds
payable to the order of the Company, or any combination of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to in a description of the rights, limitation
of rights,
22
<PAGE>
obligations, duties and immunities thereunder of the Company and the holders
(the words "holders" or "holder" meaning the registered holders or registered
holder) of the Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax, or other governmental charge
imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the Warrant
Agreement shall have the meanings assigned to them in the Warrant Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its corporate seal.
Dated: ________, 1997
EPI TECHNOLOGIES, INC.
---------------------------------------
By:
Name:
Title:
Attest:
Name:
Title
23
<PAGE>
FORM OF ELECTION TO PURCHASE
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase Redeemable Warrants and
herewith tenders in payment for such Redeemable Warrants cash or a certified or
official bank check payable in New York Clearing House Funds to the order of
_______________ in the amount of $_______, all in accordance with the terms
hereof. The undersigned requests that a certificate for such Redeemable
Warrants be registered in the name of___________, whose address is ________
__________________________ and that such Certificate be delivered to whose
address is _____________________________________.
Dated: _________, 1997 Signature:
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
-----------------------------
(Insert Social Security or
Other Identifying Number of
Holder)
24
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to
transfer the Warrant Certificate.)
FOR VALUE RECEIVED
hereby sells, assigns and transfers unto
_____________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint, Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated: ________, 1997 Signature:
-----------------------------
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate)
-----------------------------
(Insert Social Security or
Other Identifying Number of
Assignee)
25
<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 _________________,
1997, between Meridian National Corporation, a Delaware corporation, EPI
Technologies, Inc., a Delaware corporation, and each of the direct or
indirect subsidiaries of EPI Technologies, 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 EPI Technologies, 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
8
<PAGE>
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
9
<PAGE>
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:
EPI TECHNOLOGIES, INC.
By: __________________________________
Name:
Title:
10
<PAGE>
TRANSITIONAL AGREEMENT
This Transitional Agreement ("Agreement"), is made as of the _____ day of
______________________, 1997, by and between Meridian National Corporation, a
Delaware corporation ("Meridian"), and EPI Technologies, 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
3
<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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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: EPI Technologies, Inc.
810 Chicago Street
Toledo, Ohio 43611
Attention: Bruce F. Maison
With a copy to: Benesch, Friedlander, Coplan & Aronoff LLP
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
EPI TECHNOLOGIES, INC.
By:___________________________________
Bruce Maison
President and Chief Executive Officer
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1997 NON-QUALIFIED AND
INCENTIVE STOCK OPTION PLAN
OF
EPI TECHNOLOGIES, INC.
1. PURPOSE OF THE PLAN. This 1997 Non-Qualified and Incentive Stock
Option Plan of EPI Technologies, Inc. adopted as of the _______ day of
_______________, 1997, 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 EPI Technologies, 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 EPI Technologies, 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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<PAGE>
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 1997 Non-Qualified and Incentive Stock Option
Plan of EPI Technologies, 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 210,000 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 and who are outside directors as
defined in Treasury Regulation Section 1.162-27. 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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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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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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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, Section 162(m) 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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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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1997 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN OF
EPI TECHNOLOGIES, INC.
1. PURPOSE OF THE PLAN. This 1997 Non-Employee Directors' Stock Option
Plan of EPI Technologies, Inc. adopted on this _______ day of
_______________, 1997, 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 EPI Technologies, 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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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 EPI Technologies, 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.
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<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 EPI Technologies, 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 100,000 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
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<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
25,000 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
7,500 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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<PAGE>
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.
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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
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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.
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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
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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;
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(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
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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>
July 30, 1996
Mr. Bruce Maison
7224 Oakhill Drive
Sylvania, Ohio 43560
Dear Bruce:
The following sets forth our mutual understanding respecting your
employment with Environmental Purification Industries, Inc., a Delaware
corporation ("Employer"), and when this letter is signed by you it will
constitute an Agreement between Employer and you. For purposes of this
Agreement, you are referred to as "Employee". The terms of this Agreement are
as follows:
1. EMPLOYMENT.
(a) During the term of this Agreement, or any extension or renewal of
this Agreement (all references to the term of this Agreement include any
period of extension or renewal), Employee will serve as President and Chief
Executive Officer of Employer and will have such responsibilities, duties
and authority as are customary of a President and Chief Executive Officer
of a Company the size and structure of Employer and Employee will devote
his full time and best efforts to his employment and perform diligently
such duties as are or may be from time to time required by the Board of
Directors of Employer (the "Board"), which duties will be consistent with
duties that are customary for a President and Chief Executive Officer.
Employee's duties will include, without limitation, the management of
sales, inventory and receivables.
(b) Employee will not, without the prior written consent of Employer,
directly or indirectly, during the term of this Agreement, other than in
the performance of duties naturally inherent in the business of Employer or
any subsidiary of Employer and in furtherance thereof, render services of a
business, professional or commercial nature to any other person or firm,
whether for compensation or otherwise. Such consent will be given provided
that the performance of such services does not interfere with the
performance of Employee's duties under this Agreement. For purposes of
this Agreement, all references to subsidiaries of Employer include
subsidiaries now or in the future existing.
(c) In connection with Employee's employment by Employer, Employee
will be based at the principal executive offices of Employer in Toledo,
Ohio.
<PAGE>
Mr. Bruce Maison
Page 2
2. TERM AND POSITIONS. Subject to the provisions for termination
contained in paragraph 6, the term of this Agreement will be deemed to have
begun on March 1, 1996 and will continue until July 31, 2002. Such term will
automatically be extended for one (1) additional year on August 1 of each
succeeding calendar year beginning on August 1, 2002 unless (i) this Agreement
is terminated as provided in paragraph 6, or (ii) either Employee or Employer
gives written notice of termination of this Agreement to the other at least
thirty (30) days prior to such date.
3. BASE COMPENSATION.
(a) For all services he may render to Employer and any subsidiary of
Employer during the term of this Agreement, Employee will receive a base
salary while he is employed under this Agreement at the rate of $131,250
per year, adjusted as set forth in paragraph 3(b) and payable in equal
installments consistent with the other salaried employees of Employer. In
the event that the Board assigns significant additional responsibilities to
Employee, then Employer and Employee will negotiate with respect to an
increase in such base salary commensurate with such additional
responsibilities.
(b) Beginning with Employer's fiscal year commencing March 1, 1997,
Employee's salary for each fiscal year will be increased by an amount equal
to at least five percent of Employee's salary for the prior fiscal year;
provided, however, that the Compensation Committee of the Board may specify
a lower increase or no increase if Employer did not have pre-tax operating
profits (before corporate allocations other than management fees consistent
with past practice) of at least 70% of the amount set forth in the Budget
(as defined in paragraph 5) for the prior fiscal year as determined by
Employer's public accounting firm in accordance with generally accepted
accounting principles. In the event of adverse business and industry
conditions, the Compensation Committee may decrease Employee's salary;
provided, however, that the percentage decrease to Employee's salary will
not exceed the percentage decrease to any other executive officer of
Employer and provided, further, that the percentage decrease to Employee's
salary will not be greater than 10% of Employee's salary for the prior
fiscal year.
(c) During the term of this Agreement, Employee will be entitled to
such hospitalization, insurance, disability and retirement plan benefits
and such other similar employment privileges and benefits as are afforded
generally from time to time to other executives of Employer. During each
fiscal year, Employee will be entitled to take four weeks paid vacation.
Employee will take his vacation at such times and in such increments as
will not be detrimental to the business of Employer.
<PAGE>
Mr. Bruce Maison
Page 3
4. DEFERRED COMPENSATION.
(a) If Employee's employment with Employer (i) has not been
terminated on or prior to July 31, 2002, (ii) is terminated due to the
death or "permanent disability" (as defined in paragraph 11) of Employee on
or prior to July 31, 2002, (iii) is terminated by Employee due to a
decrease in his base compensation pursuant to the last sentence of
paragraph 3(b), or (iv) is terminated by Employer other than for "cause"
(as defined in paragraph 6) on or prior to July 31, 2002, then Employee
will be entitled to receive a deferred benefit in an amount equal to
$190,000 (the "Deferred Benefit"), payable in 120 successive monthly
installments of $1,583.33, without interest, commencing on the first day of
the first month following the date of termination of employment.
(b) In the event of Employee's death while in the employ of Employer
or thereafter, but prior to payment in full of the Deferred Benefit, the
Employer shall, subject to paragraph 4(d) below, pay the Deferred Benefit
(or the remaining unpaid amount thereof, as the case may be) in a lump sum,
within 60 days after the date of death, to such beneficiary(s) as shall be
designated by the Employee in a notice for that purpose furnished to
Employer, but in the absence or failure of such designation, to the
Employee's spouse, or in the event the Employee shall have no spouse or in
the event the Employee's spouse shall predecease him, to his estate.
(c) Notwithstanding any other provision in this Agreement, Employer
shall not be obligated to pay any part of the Deferred Benefit if the
Employee's employment with Employer shall be terminated by reason of a
termination for cause pursuant to paragraph 6 or if Employee shall
materially breach any of the provisions of this Agreement, including,
without limitation, paragraph 8.
(d) If Employer owns or shall elect to purchase insurance to provide
Employer with funds to make any or all of the payments in accordance with
this paragraph 4, Employer shall at all times be the sole and complete
owner and beneficiary of such insurance, and shall have the unrestricted
right to use all amounts and to exercise all options and privileges
thereunder without the knowledge or consent of the Employee or any
beneficiary of Employee, it being expressly agreed by Employer and Employee
that neither the Employee nor any beneficiary of Employee shall have any
right, title or interest whatsoever in or to such insurance.
(e) Employee and any beneficiary of Employee shall rely solely on the
unsecured promises of Employer set forth in this paragraph 4 for the
payments set forth herein, and nothing in this Agreement shall be construed
to give the Employee or any beneficiary of Employee any right, title,
interest or claim in or to any specific asset, fund, reserve, account or
property of any kind whatsoever owned by Employer or in which Employer may
have any right, title, interest, or claim now or in the future, but
Employee
<PAGE>
Mr. Bruce Maison
Page 4
and any beneficiary of Employee shall have the right to enforce a claim
against Employer in the same manner as any unsecured creditor.
5. BONUS PAYMENTS. Within 60 days after the beginning of each fiscal
year, the Compensation Committee of the Board and Employee will agree upon an
operating budget for Employer (the "Budget"). After the Compensation Committee
and Employee have agreed on the Budget, the Budget will be submitted to the
Board for approval. To the extent set forth in the bonus program described on
Exhibit "A", Employee will be entitled to receive bonus payments in respect of
each fiscal year based upon the performance of Employer for such fiscal year.
6. TERMINATION.
(a) The employment of Employee under this Agreement, and the term of
this Agreement, may be terminated by Employer for cause at any time. The
term "cause" includes but is not limited to:
(i) Employee's willful failure or refusal to perform specific
directives of the Chairman or the Board which are consistent with his
duties under this Agreement; or
(ii) Substantial underperformance by Employer in any fiscal year
in relation to the Budget, provided that such underperformance was not
caused by material adverse changes in general business and industry
conditions during the course of such fiscal year or by other factors
beyond Employee's control; or
(iii) Employee's fraud, dishonesty, willful misconduct, or gross
negligence in the performance of his duties hereunder; or
(iv) Employee's material breach of any provision of this
Agreement.
Any termination by reason of the foregoing will not be in limitation of any
other right or remedy Employer may have under this Agreement or otherwise.
(b) In the event of termination of this Agreement by Employer
pursuant to this paragraph 6, Employee will be entitled to no further
salary, bonus payments, additional compensation or other benefits under
this Agreement, except for compensation or benefits accrued and earned as
of such time.
(c) In the event that Employee's base compensation is decreased
pursuant to the last sentence of paragraph 3(b), Employee may terminate
this Agreement.
7. REIMBURSEMENT AND RELATED MATTERS.
<PAGE>
Mr. Bruce Maison
Page 5
(a) Employer will reimburse Employee (or provide him with an expense
allowance) for travel, entertainment and other expenses reasonably and
necessarily incurred by Employee in the promotion of Employer's business.
(b) Employer will provide Employee with a suitable current model
automobile (similar in quality and value to the 1995 Cadillac SLS currently
provided to Employee) purchased or leased by Employer. Employer will pay
all maintenance and repair expenses, procure and maintain in force
collision, comprehensive and liability insurance coverage, and all
operating expenses related to the automobile provided by Employer to
Employee.
(c) Employer will reimburse Employee for all dues and assessments
paid by Employee to The Toledo Club during the term of this Agreement up to
a maximum of $3,600 per year.
(d) Employee will be granted a stock option to purchase 130,000
shares of common stock of Employer at an exercise price equal to the per
share price of common stock sold in the public offering describe in
paragraph 16 and on the terms and conditions set forth in the Stock Option
Agreement attached to this Agreement as Exhibit "B".
8. COVENANTS AND CONFIDENTIAL INFORMATION.
(a) Employee agrees that during the term of this Agreement and for a
period of one year thereafter (and, as to clause (iv) of this
subparagraph (a), at any time after the term of this Agreement) he will
not, directly or indirectly, do or suffer any of the following:
(i) Own, manage, control or participate in the ownership,
management or control of, or be employed by or otherwise affiliated or
associated as a consultant, independent contractor or otherwise with,
any other corporation, partnership, proprietorship, firm, association,
or other business entity, or otherwise engage in any business, which
is engaged in any manner in, or otherwise competes with, the business
of Employer or any of Employer's subsidiaries (as conducted on the
date Employee ceases to be employed by Employer in any capacity,
including as a consultant) in the United States east of the
Mississippi River; provided, however, that the ownership of not more
than one percent of the stock of any publicly traded corporation will
not be deemed a violation of this covenant;
(ii) Employ, assist in employing, or otherwise associate in
business with any person who is an employee, officer or agent of
Employer or any of Employer's subsidiaries;
<PAGE>
Mr. Bruce Maison
Page 6
(iii) Induce any person who is an employee, officer or agent of
Employer or any of Employer's subsidiaries to terminate said
relationship; or
(iv) Disclose, divulge, discuss, copy or otherwise use or suffer
to be used in any manner, in competition with, or contrary to the
interests of, Employer or any of Employer's subsidiaries, the customer
lists, manufacturing methods, product research or engineering data or
other trade secrets of Employer or any of Employer's subsidiaries, it
being acknowledged by Employee that all such information regarding the
business of Employer and Employer's subsidiaries compiled or obtained
by, or furnished to, Employee while Employee shall have been employed
by or associated with Employer is confidential information and
Employer's exclusive property, provided that such information was not
already generally known to the public or within the industry.
Notwithstanding the foregoing, clause (i) above will not apply after
Employee's employment with Employer terminates if such termination resulted
from (x) a termination by Employer in violation of this Agreement or (y) a
termination by Employee of this Agreement due to a decrease in his base
compensation pursuant to the last sentence of paragraph 3(b).
(b) Employee acknowledges that the remedy at law for any breach by
him of this paragraph 8 will be inadequate and that the damages flowing
from such breach are not readily susceptible to being measured in monetary
terms. Accordingly, Employee agrees that upon adequate proof of Employee's
violation of any legally enforceable provision of this paragraph 8,
Employer will be entitled to immediate injunctive relief and may obtain a
temporary order restraining any threatened or further breach. Nothing in
this paragraph 8 will be deemed to limit Employer's remedies at law or in
equity for any breach by Employee of any of the provisions of this
paragraph 8 which may be pursued or availed of by Employer.
(c) In the event Employee violates any legally enforceable provision
of this paragraph 8 as to which there is a specific time period during
which he is prohibited from taking certain actions or from engaging in
certain activities, as set forth in such provision, then, in such event,
such violation will toll the running of such time period from the date of
such violation until such violation ceases.
(D) EMPLOYEE HAS CAREFULLY CONSIDERED THE NATURE AND EXTENT OF THE
RESTRICTIONS UPON HIM AND THE RIGHTS AND REMEDIES CONFERRED UPON EMPLOYER
UNDER THIS PARAGRAPH 8, AND HEREBY ACKNOWLEDGES AND AGREES THAT THE SAME
ARE REASONABLE IN TIME AND TERRITORY, ARE DESIGNED TO ELIMINATE COMPETITION
WHICH OTHERWISE WOULD BE UNFAIR TO EMPLOYER, DO NOT STIFLE THE INHERENT
SKILL AND EXPERIENCE OF EMPLOYEE, WOULD NOT OPERATE AS A BAR TO EMPLOYEE'S
SOLE MEANS OF SUPPORT, ARE FULLY REQUIRED
<PAGE>
Mr. Bruce Maison
Page 7
TO PROTECT THE LEGITIMATE INTERESTS OF EMPLOYER AND DO NOT CONFER A BENEFIT
UPON EMPLOYER DISPROPORTIONATE TO THE DETRIMENT TO EMPLOYEE.
9. ADDITIONAL SUMS PAYABLE TO EMPLOYEE UPON CHANGE IN CONTROL. If within
two (2) years after the date of a Change in Control (as defined below) Employer
terminates Employee for any reason other than for "cause" (as defined in
Paragraph 6) then Employer agrees to pay Employee, as a bonus, an amount equal
to the sum of:
(a) Three (3) times Employee's salary (as determined in accordance
with paragraph 3) at the time Employee is terminated; and
(b) The balance of all consideration set forth in this Agreement
through the then current term of this Agreement.
For purposes of this Agreement, a "Change in Control" will occur upon a
substantial change in control of Employer which includes, without limitation, a
transaction pursuant to which shares representing greater than 40% of the voting
power of Employer are acquired by a person, entity or group (as such term is
used in Rule 13d-5) other than Meridian National Corporation (including by a
merger transaction involving Employer).
10. SEVERABLE PROVISIONS. The provisions of this Agreement are severable
and if any one or more provisions are determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable in any jurisdiction will,
nevertheless, be binding and enforceable.
11. DEATH OR PERMANENT DISABILITY. In the event of Employee's death or
permanent disability (as hereinafter defined) occurring during the term of this
Agreement, this Agreement will be deemed terminated and he or his estate, as the
case may be, will be entitled to no further salary, other compensation or other
privileges or benefits hereunder, except as to that portion of any unpaid salary
or other benefits accrued and earned by Employee under this Agreement up to and
including the day of death or disability. In the event that a bonus payment
under paragraph 5 would have been payable if Employee had been employed for the
entire fiscal year, then such bonus payment, calculated in accordance with
paragraph 5 as if Employee had been employed for the entire year and then
prorated through the date of death or disability, will be paid to Employee or
his estate, as the case may be. The phrase "permanent disability" will be
deemed to occur after 180 days in the aggregate during any consecutive 12 month
period, or after 120 consecutive days, during which 180 or 120 days, as the case
may be, Employee, by reason of his physical or mental disability or illness, is
unable to discharge fully his duties under this Agreement. In the event of
permanent disability, the benefits provided under paragraph 3(c) will continue
to be provided during the period of disability until termination of this
Agreement as provided in this paragraph and the payments under any disability
policy provided under paragraph 3(c) will continue until exhausted under the
terms of such policy. Upon such termination, Employee will be entitled to
continuation of health insurance coverage for a period
<PAGE>
Mr. Bruce Maison
Page 8
of 18 months to the extent provided in the Consolidated Omnibus Reconciliation
Act of 1985 (COBRA) and Employer will pay the premiums for such coverage for the
first 12 months of such period.
12. BINDING AGREEMENT. The rights and obligations of Employer under this
Agreement will inure to the benefit of, and will be binding upon, Employer and
its successors and assigns, and the rights and obligations of Employee under
this Agreement will inure to the benefit of, and will be binding upon, Employee
and his heirs, personal representatives and estate.
13. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach of this Agreement, will be settled by arbitration
in accordance with the Rules of the American Arbitration Association then
pertaining in the City of Toledo, Ohio, and judgment upon the award rendered by
the Arbitrator or Arbitrators may be entered in any Court having jurisdiction
thereof. The Arbitrator or Arbitrators will possess the power to issue
mandatory orders and restraining orders in connection with such arbitration;
provided, however, that nothing in this paragraph 13 will be construed so as to
deny Employer the right and power to seek and obtain injunctive relief in a
court of equity for any breach or threatened breach by Employee of any of his
covenants contained in paragraph 8(a).
14. NOTICES. Any notice to be given under this Agreement must be
personally delivered in writing or will be deemed duly given after it is posted
in the United States mail, postage prepaid, registered or certified, return
receipt requested, and if mailed to Employer, must be addressed to Employer at
its principal place of business, attention: Chairman, and if mailed to
Employee, must be addressed to him at his home address last shown on the records
of Employer, or at such other address or addresses as either Employer or
Employee may in the future designate in writing to the other.
15. WAIVER. The failure of either party to enforce any provision or
provisions of this Agreement will not in any way be construed as a waiver of any
such provision or provisions as to any future violations thereof, nor prevent
that party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy will not constitute a waiver of such party's right to
assert all other legal remedies available to it under the circumstances.
16. EFFECTIVE DATE. This Agreement will become effective on the date of
the closing of the public offering of shares of common stock of Employer
pursuant to an effective registration statement under the Securities Act of
1933, as amended, in connection with the proposed "spin-off" by Meridian
National Corporation of the companies that comprise its paint recycling business
(the "Effective Date").
17. MISCELLANEOUS. Except for the Indemnity Agreement dated November 12,
1990 executed by Environmental Purification Industries Company ("EPIC"),
National Purification, Inc. and Haden Purification, Inc., this Agreement
supersedes all prior employment agreements and
<PAGE>
Mr. Bruce Maison
Page 9
understandings between the parties including, without limitation, the letter
agreement dated October 9, 1995, among Employee, EPIC and Meridian Environmental
Services, Inc., provided, however, that such prior employment agreements shall
not be superseded (i) in the event that the Effective Date does not occur, and
(ii) during the period of time between the date of this Agreement and the
Effective Date. No modification, termination or attempted waiver of this
Agreement will be valid unless in writing and signed by the party against whom
the same is sought to be enforced. This Agreement will be governed by and
construed according to the laws of the State of Ohio.
If the foregoing understanding respecting the Agreement between you and
Employer is acceptable to you, please indicate your approval by signing a copy
of this letter in the space provided below and return it to me.
Sincerely,
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
By: /s/ Real P. Remillard, Secretary
----------------------------
Real P. Remillard, Secretary
The terms and provisions of this Agreement are hereby approved and accepted this
30th day of June, 1996.
/s/ Bruce Maison
----------------------------
Bruce Maison
<PAGE>
July 30, 1996
Mr. Bruce Maison
7224 Oakhill Drive
Sylvania, Ohio 43560
Dear Bruce:
Reference is hereby made to the letter agreement dated July 30, 1996
between Environmental Purification Industries, Inc., a Delaware corporation
("EPI, Inc.") and you (the "Employment Agreement"). For purposes of this
Agreement, you are referred to as "Maison."
Meridian National Corporation ("Meridian") hereby agrees as follows:
1. GUARANTEE. Meridian hereby guaranties performance of the obligations
of EPI, Inc. under the Employment Agreement. This guaranty is a continuing and
irrevocable guaranty, binding upon Meridian and its successors and assigns, and
the rights and obligations of Maison under this Agreement will inure to the
benefit of, and will be binding upon, Maison and his heirs, personal
representatives and estate. In the event that EPI, Inc. breaches any of its
obligations under the Employment Agreement, Meridian will, upon written demand
by Maison, promptly perform the obligation of EPI, Inc.
2. VOTING OF SHARES. During the term of the Employment Agreement, if
Maison is nominated for election as a director of EPI, Inc., Meridian agrees to
vote all of its shares of voting capital stock of EPI, Inc. in favor of election
of Maison as a director of EPI, Inc.
3. BONUS. Upon the payment of $1,300,000 to Meridian in connection with
the closing of the public offering of shares of common stock of EPI, Inc.
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "Securities Act"), in connection with the proposed
"spin-off" by Meridian of the companies that comprise its paint recycling
business (the "Spin-Off"), Meridian will pay Maison a bonus of $65,000.
4. SALE OF CAPITAL STOCK OF EPI, INC. BY MERIDIAN. Meridian agrees to
pay to Maison a percentage of the aggregate amount of net proceeds realized by
Meridian, in one or more transactions, upon the sale of the 1,200,000 shares of
common stock of EPI, Inc., par value $.01 per share, Meridian will own as of the
closing of the public offering in connection with the Spin-Off (the "Common
Stock"), as follows:
(a) 1.0% of the aggregate amount of net proceeds, if the average
price per share of Common Stock (calculated by dividing the aggregate
amount of gross proceeds by the number of shares sold) is equal to or
exceeds $1.00 per share of Common Stock but less than or equal to $1.99 per
share of Common Stock;
(b) 2.0% of the aggregate amount of net proceeds, if the average
price per share of Common Stock (calculated by dividing the aggregate
amount of gross proceeds
<PAGE>
Mr. Bruce Maison
Page 2
by the number of shares sold) is equal to or exceeds $2.00 per share of
Common Stock but less than or equal to $2.99 per share of Common Stock;
(c) 3.0% of the aggregate amount of net proceeds, if the average
price per share of Common Stock (calculated by dividing the aggregate
amount of gross proceeds by the number of shares sold) is equal to or
exceeds $3.00 per share of Common Stock but less than or equal to $3.99 per
share of Common Stock;
(d) 4.0% of the aggregate amount of net proceeds, if the average
price per share of Common Stock (calculated by dividing the aggregate
amount of gross proceeds by the number of shares sold) is equal to or
exceeds $4.00 per share of Common Stock but less than or equal to $4.99 per
share of Common Stock;
(e) 4.5% of the aggregate amount of net proceeds, if the average
price per share of Common Stock (calculated by dividing the aggregate
amount of gross proceeds by the number of shares sold) is equal to or
exceeds $5.00 per share of Common Stock but less than or equal to $5.49 per
share of Common Stock; and
(f) 5.0% of the aggregate amount of net proceeds, if the average
price per share of Common Stock (calculated by dividing the aggregate
amount of gross proceeds by the number of shares sold) is equal to or
exceeds $5.50 per share of Common Stock.
Such payments will be made within thirty (30) days following the date
Meridian receives such net proceeds and will be subject to federal, state or
local income tax withholding laws applicable to Meridian or EPI, Inc. For
purposes of this paragraph 4, "net proceeds" will be deemed be the gross
proceeds received by Meridian on the sale of the Common Stock less Meridian's
costs of sale including, without limitation, commissions, attorneys' fees and
other out of pocket expenses associated with the transaction.
5. BINDING AGREEMENT. The rights and obligations of Meridian under this
Agreement will inure to the benefit of, and will be binding upon, Meridian and
its successors and assigns, and the rights and obligations of Maison under this
Agreement will inure to the benefit of, and will be binding upon, Maison and his
heirs, personal representatives and estate.
6. ARBITRATION. Any controversy or claim arising out of or relating to
this Agreement, or the breach of this Agreement, will be settled by arbitration
in accordance with the Rules of the American Arbitration Association then
pertaining in the City of Toledo, Ohio, and judgment upon the award rendered by
the Arbitrator or Arbitrators may be entered in any Court having jurisdiction
thereof. The Arbitrator or Arbitrators will possess the power to issue
mandatory orders and restraining orders in connection with such arbitration.
7. NOTICES. Any notice to be given under this Agreement must be
personally delivered in writing or will be deemed duly given after it is posted
in the United States mail,
<PAGE>
Mr. Bruce Maison
Page 3
postage prepaid, registered or certified, return receipt requested, and if
mailed to Meridian, must be addressed to Meridian at its principal place of
business, attention: Chairman, and if mailed to Maison, must be addressed to
him at his home address last shown on the records of Meridian, or at such other
address or addresses as either Meridian or Maison may in the future designate in
writing to the other.
8. WAIVER. The failure of either party to enforce any provision or
provisions of this Agreement will not in any way be construed as a waiver of any
such provision or provisions as to any future violations thereof, nor prevent
that party thereafter from enforcing each and every other provision of this
Agreement. The rights granted the parties herein are cumulative and the waiver
of any single remedy will not constitute a waiver of such party's right to
assert all other legal remedies available to it under the circumstances.
9. EFFECTIVE DATE. This Agreement will become effective on the date of
the closing of the public offering of shares of common stock of EPI, Inc.
pursuant to an effective registration statement under the Securities Act in
connection with the Spin-Off.
10. MISCELLANEOUS. No modification, termination or attempted waiver of
this Agreement will be valid unless in writing and signed by the party against
whom the same is sought to be enforced. This Agreement will be governed by and
construed according to the laws of the State of Ohio.
If the foregoing understanding respecting the Agreement between you and
Meridian is acceptable to you, please indicate your approval by signing a copy
of this letter in the space provided below and return it to me.
Sincerely,
MERIDIAN NATIONAL CORPORATION
By:/s/ William D. Feniger
-------------------------
William D. Feniger, Chairman
The terms and provisions of this Agreement are hereby approved and accepted
this 30th day of July, 1996.
/s/ Bruce Maison
--------------------------
Bruce Maison
<PAGE>
EXHIBIT 10.11
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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.
- 4 -
<PAGE>
"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
- 5 -
<PAGE>
(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.
- 6 -
<PAGE>
"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.
-7-
<PAGE>
"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.
-8-
<PAGE>
"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)
-9-
<PAGE>
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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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
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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
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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
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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)
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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
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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.
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<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
<PAGE>
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.
(Balance of page intentionally left blank.)
- 2 -
<PAGE>
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.
(Balance of page intentionally left blank.)
- 3 -
<PAGE>
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
- 4 -
<PAGE>
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.
- 5-
<PAGE>
"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.
- 6 -
<PAGE>
"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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<PAGE>
(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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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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<PAGE>
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)
- 24 -
<PAGE>
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
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<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).
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<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)
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<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>
COMPROMISE AGREEMENT
THIS COMPROMISE AGREEMENT ("Agreement") is made as of the 28th day of June,
1996, by and among HADEN MACLELLAN HOLDINGS, PLC. ("HMH"), HADEN, INC. ("HI"),
HADEN ENVIRONMENTAL CORPORATION ("HEC"), HADEN PURIFICATION, INC. ("HPI"),
MERIDIAN NATIONAL CORPORATION ("MNC"), NATIONAL PURIFICATION, INC. ("NPI"), MEPI
CORP. ("MEPI"), ENVIRONMENTAL PURIFICATION INDUSTRIES COMPANY ("EPI"), AND
ENVIRONMENTAL PURIFICATION INDUSTRIES, INC. ("Newco"). HMH, HI, HEC and HPI and
their respective affiliates are collectively referred to below as the "Haden
Parties." MNC, NPI, MEPI, EPI and Newco and their respective affiliates are
collectively referred to below as the "Meridian Parties."
RECITALS:
A. The parties hereto (other than Newco) entered into a Termination
Agreement dated as of July 1, 1992, as amended June 11, 1993, and April 28, 1994
(said Termination Agreement and said amendments thereto are collectively
referred to below as the "Termination Agreement"), providing for, among other
things, the termination and abandonment of HPI's interest in EPI and certain
continued funding of EPI.
B. Pursuant to the Termination Agreement, HPI advanced to EPI funds which
advances are evidenced by that certain Promissory Note of EPI dated as of July
1, 1992 (the "$650,000 Note").
C. Pursuant to the Termination Agreement, NPI and MEPI, jointly and
severally, guaranteed repayment of the $650,000 Note and granted a security
interest in all of their
<PAGE>
interests in EPI (the "Partnership Interests") to HPI under the terms of that
certain Guaranty and Security Agreement dated as of July 1, 1992 (the "Guaranty
and Security Agreement").
D. As of the date of this Agreement, the outstanding balance under the
$650,000 Note is approximately $701,000 of which EPI has delivered funds to HPI
in the amount of $48,769.
E. Pursuant to a certain Loan Agreement, dated as of December 15, 1989,
between Toledo-Lucas County Port Authority and EPI (the "IRB Loan Agreement"),
EPI is the borrower of an original principal amount of $5,745,000. The IRB Loan
Agreement and all of the documents related to and referenced in the IRB Loan
Agreement are collectively referred to below as the "IRB Loan Documents." The
loan transaction described in the IRB Loan Documents is referred to as the IRB
Loan.
F. Pursuant to the Termination Agreement, HPI assumed and agreed to pay
50% of the Financing Payments (as defined in the IRB Documents) due from EPI to
the Trustee (as defined in the IRB Documents).
G. HPI has agreed to accept $350,000 as payment in full of all
obligations under the $650,000 Note and to terminate the Guaranty and Security
Agreement and the Termination Agreement (except to the extent provided below)
all upon the terms and subject to the conditions set forth in this Agreement.
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<PAGE>
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and provisions set forth in this Agreement, and in reliance thereon, the parties
agree as follows:
1. PREPAYMENT AND COMPROMISE OF $650,000 NOTE. Concurrently with the
delivery of counterpart executed copies of this Agreement, Newco, on behalf of
EPI, will prepay, or cause to be prepaid, by wire transfer or official bank
check, the sum of $350,000 (the "Compromise Payment") to HPI in full and
complete compromise, settlement, and payment of all principal and interest and
any other obligations under the $650,000 Note. HPI (a) hereby accepts the
Compromise Payment as payment in full of all principal and interest and any
other obligations under the $650,000 Note and (b) will promptly surrender to EPI
the original $650,000 Note marked "fully paid and cancelled." The Haden Parties
hereby withdraw the notice of default issued to EPI on behalf of HPI by Jaffe,
Raitt, Heuer & Weiss dated June 13, 1996 and acknowledge that EPI is not in
default under the $650,000 Note.
2. TERMINATION OF GUARANTY AND SECURITY AGREEMENT; RELEASE OF SECURITY
INTEREST. Except to the extent provided in Section 4 below, the Guaranty and
Security Agreement, the Termination Agreement and any other existing agreements
between any of the Haden Parties and any of the Meridian Parties are hereby
terminated and will be of no further force and effect. Each of the Meridian
Parties acknowledges and agrees with the Haden Parties that neither HPI nor any
other Haden Party is a partner of, or has any ownership interest in, EPI and
nothing contained in this Agreement shall be construed otherwise. HPI
-3-
<PAGE>
will take all necessary steps to evidence its release of its security interest
in the Partnership Interests, including, without limitation, the execution and
delivery of termination statements to EPI for filing in each office in which a
financing statement has been filed by HPI or as may be necessary or required to
release any security interest it has in the Partnership Interests.
3. REPRESENTATION AND WARRANTY OF HPI. HPI represents and warrants that
it has not assigned, transferred, encumbered, or pledged to any party, or
otherwise alienated, the $650,000 Note, or any portion thereof.
4. CONTINUING AGREEMENTS. Except as provided below, any and all
restrictions, rights, obligations or liabilities of the parties to this
Agreement contained in the Termination Agreement are hereby dissolved and will
be of no further force and effect. Notwithstanding the foregoing, the parties
to this Agreement agree as follows:
(a) From and after the date of this Agreement through July 1, 1998,
none of the Haden Parties will, directly or indirectly, own, manage,
control or participate in the ownership, management, or control of, or be
engaged or otherwise affiliated or associated as a consultant, independent
contractor or otherwise with, any person, corporation, limited liability
company, partnership, proprietorship, firm, associate or other business
entity, or otherwise engage in any business, that competes with EPI or any
of its affiliates as a "third party paint sludge processor" (as defined
below) within a circular, geographical area having a two hundred (200) mile
radius with its center located at EPI's Toledo, Ohio location (the "Toledo
200 Miles Area").
-4-
<PAGE>
(b) (i) HPI hereby assumes and agrees to pay 50% of the Financing
Payments (as defined in the IRB Loan Documents) due from EPI to the
Trustee, for Financing Payments due on or after July 1, 1992, net of
the Bond Reserve Deposit (as defined in the IRB Loan Documents). The
Trustee has been advised of this assumption by HPI, and the Trustee is
entitled to enforce this assumption, directly against HPI. This
assumption is intended to constitute a contribution of money by HPI to
EPI, within the scope of Section 752(a) of the Internal Revenue Code
of 1986, as amended.
(ii) HMH hereby guaranties to EPI and MNC the prompt and full
satisfaction of HPI's obligations under this Agreement.
(iii) EPI hereby assigns to HPI 50% of EPI's residual interest in
the Bond Reserve Deposit.
(iv) HPI will satisfy its obligations under subsection (b)(i)
above by making payments directly to the Trustee, for credit to the
IRB Loan, in amounts equal to 50% of the Financing Payments, as
Financing Payments are due under the IRB Loan Documents, for Financing
Payments due on or after July 1, 1992. HPI will provide evidence to
EPI of each payment made by HPI to the Trustee, at the time of such
payment. To the extent that any portion of the obligation of EPI
under the IRB Loan Documents is prepaid, at any time in the future,
HPI shall have the option to prepay its liability under this paragraph
on the same basis. The obligation of HPI to make payments to the
Trustee, in the amount of 50% of the Financing Payments is fixed and
-5-
<PAGE>
unconditional, and HPI waives all rights of subrogation against EPI
and all rights of contribution against NPI, with respect to such
payments. At such time as the Bond Reserve Deposit being held by the
Trustee under the IRB Loan Documents, including any accrued and unpaid
interest thereon, is applied by the Trustee to periodic Financing
Payments due from EPI or to a prepayment of the IRB Loan, 50% of such
funds shall be applied to the obligations of HPI under this paragraph.
In the event that the Trustee refunds any or all of the Bond Reserve
Deposit, including accrued and unpaid interest thereon, 50% of such
refund shall be refunded to HPI. The intent of this provision is that
HPI shall satisfy 50% of EPI's remaining obligations under the IRB
Loan, net of the Bond Reserve Deposit.
(c) HEC is the owner of certain patent and other proprietary rights
related to the fabrication and use of the DryPure-TM- processing system
(the "DryPure-TM- Rights"). HEC hereby reaffirms and acknowledges its
grant of a nonexclusive perpetual license of the DryPure-TM- Rights, to EPI
for the processing of paint sludge using the DryPure-TM- processing system.
Such license will be personal to EPI but may be assigned in connection with
any sale of the DryPure-TM- processing system.
(d) From and after the date of this Agreement through July 1, 1998,
HEC will not grant a license of DryPure-TM- Rights to any third party paint
sludge processor, to use a DryPure-TM- system within the Toledo 200 Mile
Area. Furthermore, from and after the date of the Agreement through July
1, 1998, HEC will not grant a license of DryPure-TM- Rights outside of the
Toledo 200 Mile Area to any third party paint
-6-
<PAGE>
sludge processor, without offering a right of first refusal, on the
location, but not pertaining to the price, effective for a 30 day period,
to EPI for those areas. It is understood and agreed by the parties that
the term license includes, without limitation, the sale, lease or other
financing arrangement of a DryPure-TM- processing system.
(e) For the purposes of this Agreement, the term "third party paint
sludge processor" means any business which uses a DryPure-TM- system to
process paint sludge which it did not generate (E.G., EPI), as opposed to
the parties who use a DryPure-TM- sludge drying system to process paint
sludge or other waste streams which they generate (E.G., Chrysler, Ford,
Toyota, Caterpillar).
(f) From and after the date of this Agreement through July 1, 1998,
EPI will pay a throughput charge to HEC in an amount equal to $10.00 per
cubic yard of paint sludge processed through EPI's DryPure-TM- systems.
All throughput charges will be paid on the last day of each month with
respect to number of cubic yards of paint sludge processed during the
preceding month.
(g) Nothing contained in this Agreement shall be deemed to prohibit
EPI from soliciting business from automobile and truck manufacturers. From
and after the date of this Agreement through July 1, 1998, HEC will assist
in the promotion of EPI, on a reasonable efforts but no guaranteed results
basis, for business by EPI from automobile and truck manufacturers. HEC is
in the business of selling, leasing and operating DryPure-TM- systems to
automobile and truck manufacturers. The assistance to be given by HEC to
EPI, referenced above, will be that HEC will refer
-7-
<PAGE>
automobile and truck manufacturers to EPI in instances where the sales call
by HEC results in an interest by the customer in the DryPure-TM-
technology, but not of a sale or lease basis. HEC will then refer the
customer to EPI.
(f) To the extent that EPI is unable to meet its obligations to the
Trustee, after application of the payments being made to the Trustee
pursuant to subsection (b)(iv) above (i.e. 50% of the Financing Payments
due), MNC hereby assures HMH that MNC will promptly satisfy its obligations
under the Guaranty Agreement dated as of December 15, 1989 between MNC and
the Trustee so that HMH's interest in the Bond Reserve Deposit is in no way
diminished. MNC and EPI will provide evidence to HPI of each payment by
EPI or MNC to the Trustee, at the time of such payment.
5. RELEASE. Each of MNC, NPI, MEPI, EPI and Newco hereby release the
Haden Parties and their respective officers, directors, shareholders, employees,
agents, successors and assigns (collectively, the "Haden Group") from and
against any and all claims, demands, causes of action, obligations and
liabilities (collectively, "Claims") of every kind and nature which they have,
had or could have had against the Haden Group or any of them from the beginning
of time through the date of execution and delivery of this Agreement, whether
such Claims are known or unknown, accrued or unaccrued. Each of HMH, HI, HEC
and HPI hereby release the Meridian Parties, and their respective officers,
directors, shareholders, employees, agents, successors and assigns
(collectively, the "Meridian Group") from and against any and all Claims of
every kind and nature which they have, had or could have had against the
Meridian Group or any of them from the beginning of time through
-8-
<PAGE>
the date of execution and delivery of this Agreement, whether such Claims are
known or unknown, accrued or unaccrued.
6. ARBITRATION. Any disputes arising between any of the Haden Parties,
on the one hand, and any of the Meridian Parties, on the other hand, of any
nature whatsoever, shall be submitted to binding arbitration pursuant to the
rules of the American Arbitration Association, then in effect, in Toledo, Ohio.
7. BINDING EFFECT. The rights and obligations of the parties under this
Agreement will inure to the benefit of, and will be binding upon, the parties
and their respective successors and assigns. Any assignment of this Agreement
or any of the rights, interests or obligations of any party to this Agreement
will not relieve any party from its obligations under this Agreement.
8. GOVERNING LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of Ohio without giving effect to the
principles of conflicts of law thereof.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties and supersedes all other understandings or agreements, written or
oral, if any, with respect to the subject matter of this Agreement.
10. MULTIPLE COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which will be considered one and the same agreement.
-9-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Compromise Agreement as
of the date first above written. Each person signing below warranties his or
her authority to do so.
HADEN MACLELLAN HOLDINGS, PLC. HADEN, INC.
By: __________________________ By: ___________________________
Name: Name:
Title: Title:
HADEN ENVIRONMENTAL HADEN PURIFICATION, INC.
CORPORATION
By: __________________________ By:____________________________
Name: Name:
Title: Title:
MERIDIAN NATIONAL CORPORATION NATIONAL PURIFICATION, INC.
By: __________________________ By: ___________________________
William D. Feniger William D. Feniger
President President
[Signatures continued on next page]
-10-
<PAGE>
MEPI CORP. ENVIRONMENTAL PURIFICATION
INDUSTRIES COMPANY
By: MEPI Corp., its general partner
By:____________________________
William D. Feniger By:____________________________
President William D. Feniger
President
and also
ENVIRONMENTAL PURIFICATION By: National Purification, Inc.,
INDUSTRIES, INC. its general partner
By: ___________________________ By: ________________________________
Bruce F. Maison William D. Feniger
President President
-11-
<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/ Bruce F. Maison By: /s/ Real Remillard
---------------------------------- ---------------------------
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>
AMENDMENT NO. 1 TO TERM NOTE
----------------------------
(EPI FIRST TERM NOTE)
THIS AMENDMENT No. 1 TO TERM NOTE ("Amendment No. 1 To Term Note") is
delivered by MERIDIAN NATIONAL CORPORATION ("MNC") and ENVIRONMENTAL
PURIFICATION INDUSTRIES, INC. ("EPI") to NATIONAL CANADA FINANCE CORP.
("Bank").
RECITALS
--------
A. MNC and EPI issued a certain Term Note to Bank on February 29, 1996
in the principal amount of Three Hundred Thousand Dollars ($300,000; the "EPI
First Term Note"), pursuant to the provisions of the Loan and Security
Agreement, dated December 6, 1989, entered into by and among MNC, Ottawa
River Street Co., National Metal Processing, Inc., Interstate Metal
Processing, Inc., Precise Pac, Inc. and Meridian Environmental Services, Inc.
(collectively, the "Borrowers") and the Bank of New England, N.A. ("BNE"), as
amended pursuant to: Amendment No. 1 To The Loan And Security Agreement dated
March 1, 1990; Amendment No. 2 To The Loan And Security Agreement dated
September 14, 1990; Amendment No. 3 To The Loan And Security Agreement dated
May 31, 1991; Amendment No. 4 To The Loan And Security Agreement effective as
of June 22, 1992; Amendment No. 5 To The Loan And Security Agreement dated
May 11, 1993; a letter amendment dated June 9, 1993; Amendment No. 6 To The
Loan And Security Agreement effective as of October 20, 1993; Amendment No. 7
To The Loan And Security Agreement dated January 31, 1994; Amendment No. 8 To
The Loan And Security Agreement effective as of November 30, 1994; Amendment
No. 9 To The Loan And Security Agreement effective as of February 14, 1995;
Amendment No. 10 to the Loan and Security Agreement effective as of May 25,
1995; Amendment No. 11 To The Loan And Security Agreement effective as of
February 29, 1996; Amendment No. 12 To The Loan And Security Agreement
effective as of July 25, 1996; and Amendment No. 13 To The Loan And Security
Agreement dated of even date herewith (collectively, the "Amended Loan
Agreement"; all terms defined therein shall have the same meaning in this
Amendment No. 1 To Term Note unless otherwise stated).
B. Bank is the successor-in-interest to BNE and to BNE's rights,
duties and remedies under the Amended Loan Agreement.
C. MNC, EPI and Bank desire to amend the EPI First Term Note to modify
the principal payment schedule pursuant to the provisions of the Amended Loan
Agreement and this Amendment No. 1 To Term Note.
Page 1 of 3
<PAGE>
PROVISIONS
----------
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and provisions set forth in this Amendment No. 1 To Term Note and
in the Amended Loan Agreement, MNC and EPI hereby amend and modify the EPI
First Term Note as follows:
1. PRINCIPAL PAYMENTS. The principal amount of the EPI First Term Note
(as defined in the Amended Loan Agreement) and any unpaid interest shall be
payable in full on the earlier of (a) September 30, 1997 or (b) the closing
date of any public offering of EPI stock pursuant to which EPI or any
stockholder of EPI receives cash (after any underwriter's discount and
commissions) of $1,000,000 or more.
2. REFERENCES. This Amendment No. 1 To Term Note is issued pursuant to
and is entitled to the benefits of the Amended Loan Agreement.
3. RATIFICATION OF TERM NOTE. This Amendment No. 1 To Term Note is not
a novation but merely a restatement of the obligation of MNC and EPI to repay
to Bank all amounts borrowed pursuant to the EPI First Term Note, as amended
by this Amendment No. 1 To Term Note. Except as expressly modified herein,
the terms and provisions of the EPI First Term Note (a) are incorporated
herein by reference as fully as though the EPI First Term Note were set forth
at length in this Amendment No. 1 To Term Note, (b) continue to be in full
force and effect, (c) are ratified and confirmed in all respects as of the
date of this Amendment No. 1 To Term Note, and (d) are not amended or
modified in any other manner.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 To
Term Note by their duly authorized officers this 4th day of November, 1996.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGEMENT 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.
ENVRIONMENT PURIFICATION MERIDIAN NATIONAL
INDUSTRIES, INC. CORPORATION
By: /s/ Bruce F. Maison By: /s/ James L. Rosino
------------------------- ---------------------------
Title: President Title: Vice President-Finance
---------------------- ------------------------
Page 2 of 3
<PAGE>
AGREED TO AND ACCEPTED BY:
NATIONAL CANADA FINANCE CORP.
By: /s/ Jack Jankovic
------------------------------
Title: VP
---------------------------
Date: 11/4/96
---------------------------
Page 3 of 3
<PAGE>
TERM NOTE
$350,000 Cleveland, Ohio
July 25, 1996
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to pay
to the order of NATIONAL CANADA FINANCE CORP. ("Banks") the principal amount of
THREE HUNDRED FIFTY THOUSAND DOLLARS ($350,000) 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 July 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 and any unpaid interest on
this Term Note (the "Note") in full on August 15, 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 owning 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 judgement 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 TIME 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/ Real P. Remillard By: /s/ James L. Rosino
--------------------------- ------------------------
Title: Chief Financial Officer Title: Vice President-Finance
------------------------ ---------------------
Page 3 of 3
<PAGE>
AMENDMENT NO. 1 TO TERM NOTE
(EPI SECOND TERM NOTE)
THIS AMENDMENT NO. 1 TO TERM NOTE ("Amendment No. 1 To Term Note") is
delivered by MERIDIAN NATIONAL CORPORATION ("MNC") and ENVIRONMENTAL
PURIFICATION INDUSTRIES, INC. ("EPI") to NATIONAL CANADA FINANCE CORP.
("Bank").
RECITALS
A. MNC and EPI issued a certain Term Note to Bank on July 25, 1996 in
the principal amount of Three Hundred Fifty Thousand Dollars ($350,000; the
"EPI Second Term Note"), pursuant to the provisions of the Loan and Security
Agreement, dated December 6, 1989, entered into by and among MNC, Ottawa
River Steel Co., National Metal Processing, Inc., Interstate Metal
Processing, Inc., Precise Pac, Inc. and Meridian Environmental Services, Inc.
(collectively, the "Borrowers") and the Bank of New England, N.A. ("BNE"), as
amended pursuant to: Amendment No. 1 To The Loan And Security Agreement dated
March 1, 1990; Amendment No. 2 To The Loan And Security Agreement dated
September 14, 1990; Amendment No. 3 To The Loan And Security Agreement dated
May 31, 1991; Amendment No. 4 To The Loan And Security Agreement effective as
of June 22, 1992; Amendment No. 5 To The Loan And Security Agreement dated
May 11, 1993; a letter amendment dated June 9, 1993; Amendment No. 6 To The
Loan And Security Agreement effective as of October 20, 1993; Amendment No. 7
To The Loan And Security Agreement dated January 31, 1994; Amendment No. 8 To
The Loan And Security Agreement effective as of November 30, 1994; Amendment
No. 9 To The Loan And Security Agreement effective as of February 14, 1995;
Amendment No. 10 To The Loan And Security Agreement effective as of May 25,
1995; Amendment No. 11 To The Loan And Security Agreement effective as of
February 29, 1996; Amendment No. 12 To The Loan And Security Agreement
effective as of July 25, 1996; and Amendment No. 13 To The Loan And Security
Agreement dated of even date herewith (collectively, the "Amendment Loan
Agreement"; all terms defined therein shall have the same meaning in this
Amendment No. 1 To Term Note unless otherwise stated).
B. Bank is the successor-in-interest to BNE and to BNE's rights,
duties and remedies under the Amended Loan Agreement.
C. MNC, EPE and Bank desire to amend the EPI Second Term Note to
modify the principal payment schedule pursuant to the provisions of the
Amended Loan Agreement and this Amendment No. 1 To Term Note.
Page 1 of 3
<PAGE>
PROVISIONS
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and provisions set forth in this Amendment No. 1 To Term Note and
in the Amended Loan Agreement, MNC and EPI hereby amend and modify the EPI
Second Term Note as follows:
1. PRINCIPAL PAYMENTS. The principal amount of the EPI Second Term
Note (as defined in the Amended Loan Agreement) and any unpaid interest shall
be payable in full on the earlier of (a) September 30, 1997 or (b) the closing
date of any public offering of EPI stock pursuant to which EPI or any
stockholder of EPI receives cash (after any underwriter's discount and
commissions) of $1,000,000 or more.
2. REFERENCES. This Amendment No. 1 To Term Note is issued pursuant to
and is entitled to the benefits of the Amended Loan Agreement.
3. RATIFICATION OF TERM NOTE. This Amendment No. 1 To Term Note is not
a novation but merely a restatement of the obligation of MNC and EPI to repay
to Bank all amounts borrowed pursuant to the EPI Second Term Note, as amended
by this Amendment No. 1 To Term Note. Except as expressly modified herein,
the terms and provisions of the EPI Second Term Note (a) are incorporated
herein by reference as fully as though the EPI Second Term Note were set
forth at length in this Agreement No. 1 To Term Note, (b) continue to be in
full force and effect, (c) are ratified and confirmed in all respects as of
the date of this Amendment No. 1 To Term Note, and (d) are not amended or
modified in any other manner.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 To
Term Note by their duly authorized officers this 4th day of November, 1996.
----
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME 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
INDUSTRIES, INC. CORPORATION
By: /s/ Bruce F. Maison By: James L. Rosino
------------------ -------------------
Title: President Title: Vice President - Finance
------------- -------------------------
Page 2 of 3
<PAGE>
AGREED TO AND ACCEPTED BY:
NATIONAL CANADA FINANCE CORP.
By: /s/ Jack Jankovic
----------------------
Title: VP
--------------------
Date: 11/4/96
---------------------
Page 3 of 3
<PAGE>
AMENDMENT NO. 1 TO TERM NOTE
(EPI SECOND TERM NOTE)
THIS AMENDMENT NO. 1 TO TERM NOTE ("Amendment No. 1 To Term Note") is
delivered by MERIDIAN NATIONAL CORPORATION ("MNC") and ENVIRONMENTAL
PURIFICATION INDUSTRIES, INC. ("EPI") to NATIONAL CANADA FINANCE CORP.
("Bank").
RECITALS
A. MNC and EPI issued a certain Term Note to Bank on July 25, 1996 in
the principal amount of Three Hundred Fifty Thousand Dollars ($350,000; the
"EPI Second Term Note"), pursuant to the provisions of the Loan and Security
Agreement, dated December 6, 1989, entered into by and among MNC, Ottawa
River Steel Co., National Metal Processing, Inc., Interstate Metal
Processing, Inc., Precise Pac, Inc. and Meridian Environmental Services, Inc.
(collectively, the "Borrowers") and the Bank of New England, N.A. ("BNE"), as
amended pursuant to: Amendment No. 1 To The Loan And Security Agreement dated
March 1, 1990; Amendment No. 2 To The Loan And Security Agreement dated
September 14, 1990; Amendment No. 3 To The Loan And Security Agreement dated
May 31, 1991; Amendment No. 4 To The Loan And Security Agreement effective as
of June 22, 1992; Amendment No. 5 To The Loan And Security Agreement dated
May 11, 1993; a letter amendment dated June 9, 1993; Amendment No. 6 To The
Loan And Security Agreement effective as of October 20, 1993; Amendment No. 7
To The Loan And Security Agreement dated January 31, 1994; Amendment No. 8 To
The Loan And Security Agreement effective as of November 30, 1994; Amendment
No. 9 To The Loan And Security Agreement effective as of February 14, 1995;
Amendment No. 10 To The Loan And Security Agreement effective as of May 25,
1995; Amendment No. 11 To The Loan And Security Agreement effective as of
February 29, 1996; Amendment No. 12 To The Loan And Security Agreement
effective as of July 25, 1996; and Amendment No. 13 To The Loan And Security
Agreement dated of even date herewith (collectively, the "Amendment Loan
Agreement"; all terms defined therein shall have the same meaning in this
Amendment No. 1 To Term Note unless otherwise stated).
B. Bank is the successor-in-interest to BNE and to BNE's rights,
duties and remedies under the Amended Loan Agreement.
C. MNC, EPE and Bank desire to amend the EPI Second Term Note to
modify the principal payment schedule pursuant to the provisions of the
Amended Loan Agreement and this Amendment No. 1 To Term Note.
Page 1 of 3
<PAGE>
PROVISIONS
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and provisions set forth in this Amendment No. 1 To Term Note and
in the Amended Loan Agreement, MNC and EPI hereby amend and modify the EPI
Second Term Note as follows:
1. PRINCIPAL PAYMENTS. The principal amount of the EPI Second Term
Note (as defined in the Amended Loan Agreement) and any unpaid interest shall
be payable in full on the earlier of (a) September 30, 1997 or (b) the closing
date of any public offering of EPI stock pursuant to which EPI or any
stockholder of EPI receives cash (after any underwriter's discount and
commissions) of $1,000,000 or more.
2. REFERENCES. This Amendment No. 1 To Term Note is issued pursuant to
and is entitled to the benefits of the Amended Loan Agreement.
3. RATIFICATION OF TERM NOTE. This Amendment No. 1 To Term Note is not
a novation but merely a restatement of the obligation of MNC and EPI to repay
to Bank all amounts borrowed pursuant to the EPI Second Term Note, as amended
by this Amendment No. 1 To Term Note. Except as expressly modified herein,
the terms and provisions of the EPI Second Term Note (a) are incorporated
herein by reference as fully as though the EPI Second Term Note were set
forth at length in this Agreement No. 1 To Term Note, (b) continue to be in
full force and effect, (c) are ratified and confirmed in all respects as of
the date of this Amendment No. 1 To Term Note, and (d) are not amended or
modified in any other manner.
IN WITNESS WHEREOF, the parties have executed this Amendment No. 1 To
Term Note by their duly authorized officers this 4th day of November, 1996.
----
WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME 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
INDUSTRIES, INC. CORPORATION
By: /s/ Bruce F. Maison By: James L. Rosino
------------------ -------------------
Title: President Title: Vice President - Finance
------------- -------------------------
Page 2 of 3
<PAGE>
AGREED TO AND ACCEPTED BY:
NATIONAL CANADA FINANCE CORP.
By: /s/ Jack Jankovic
----------------------
Title: VP
--------------------
Date: 11/4/96
---------------------
Page 3 of 3
<PAGE>
EXHIBIT 10.15
TERM NOTE
$1,700,000 Cleveland, Ohio
November 4, 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 ONE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($1,700,000) 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
November 30, 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 form 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 and any unpaid interest on
this Term Note (the "Note") in full in twelve monthly installments consisting
of (a) eleven (11) equal monthly instalments of Twenty-One Thousand Dollars
($21,000) each, commencing November 30, 1996 and continuing on the last day
of each successive calendar month thereafter and (b) a final payment on
October 31, 1997 in the amount of One Million Four Hundred Sixty-Nine
Thousand Dollars ($1,469,000), or such other amount of principal and accrued
but unpaid interest remaining unpaid on October 31, 1997; provided that if at
any time prior to October 31, 1997 Environmental Purification Industries,
Inc. ("EPI") completes any public offering of its stock pursuant to which EPI
or any stockholder of EPI receives cash (after any underwriter's discovery
and commissions) of $1,000,000 or more, the undersigned agree to pay the
entire amount of principal and accrued but unpaid interest on this Term Note
in full on the closing date of such public offering.
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 (a) 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"), and (b) the Security Agreement entered into
by and among EPI, Environmental Purification Industries Company ("EPIC") and
Bank dated of even date herewith (the "Security Agreement") to both of which
reference is hereby made for a statement of the rights and obligations of
Bank and the duties and obligations of the Borrowers undersigned in relation
Page 1 of 3
<PAGE>
thereto, but neither this reference to the Loan Agreement and the Security
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 and the Security Agreement.
The undersigned may prepay all or any portion of this Note at any time
and in any amount without penalty.
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.
Page 2 of 3
<PAGE>
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.
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 TIME 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/ BRUCE F. MAISON By: /s/ WILLIAM FENIGER
------------------------------- --------------------------------
Title: PRESIDENT Title: CEO
--------------------------- ----------------------------
ENVIRONMENTAL PURIFICATION
INDUSTRIES COMPANY
By National Purification, Inc.
General Partner
/s/ JAMES L. ROSINO, TREASURER
- -----------------------------------
and
By MEPI Corp., General Partner
/s/ JAMES L. ROSINO, TREASURER
- -----------------------------------
Page 3 of 3
<PAGE>
SECURITY AGREEMENT
THIS SECURITY AGREEMENT is made as of the 4th day of November, 1996, by
and among NATIONAL CANADA FINANCE CORP. (which, together with its successors
and assigns, is referred to herein as "Bank"), ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC. (which, together with its permitted successors and assigns,
is referred to herein as "EPI") and ENVIRONMENTAL PURIFICATION INDUSTRIES
COMPANY (which together with its permitted successors and assigns, is
referred to herein as EPIC; EPIC and EPI shall be referred to collectively a
"Borrowers" and individually as a "Borrower").
RECITALS:
Borrowers are indebted to Bank pursuant to the terms of a Term Note of
even date herewith in the principal amount of $1,700,000 (the "EPI Third Term
Note"), executed by Borrowers and Meridian National Corporation, the sole
shareholder of EPI and the sole shareholder of the general partners of EPIC
("MNC"), and payable to the order of Bank (which, as amended, modified or
supplemented from time to time, together with all notes issued in
substitution thereof or replacement thereof, is referred to collectively
herein as the "Note").
PROVISIONS
NOW, THEREFORE, in consideration of the extension of credit heretofore,
now or hereafter made by Bank to Borrowers, the parties hereto hereby agree
as follows:
1. GENERAL
1.1 DEFINED TERMS. In addition to the terms defined above, when used
herein, the following terms shall have the following meanings:
ACCOUNTS - As to each Borrower, all of such Borrower's accounts,
contracts, contract rights, notes, bills, drafts, acceptances, general
intangibles, choses in action, and all other debts, obligations and
liabilities in whatever form, owing to such Borrower from any Person, whether
now existing or hereafter arising, now or hereafter received by or
belonging or owing to such Borrower, for goods sold or leased or for services
rendered, whether or not earned by performance and whether or not evidenced
by contracts, instruments or documents, or however otherwise the same may
have been established or created, all guarantees and security therefor, all
rights, title and interests of such Borrower in the merchandise or services
which gave rise thereto including, but not limited to, the rights of
reclamation and stoppage in transit, and rights of an unpaid seller of
merchandise or services.
ACCOUNT DEBTOR - Any person who is or may become obligated to a Borrower
under, with respect to, or on account of an Account.
<PAGE>
AGREEMENT - This Security Agreement as the same may be amended, modified
or supplemented from time to time.
BANKRUPTCY LAWS - All statutes, rules, regulations and other forms of
law, federal, state or otherwise, including, but not limited to, the
provisions of Title 11 of the United States Code, in each instance as in
effect from time to time, relating to the bankruptcy, insolvency, liquidation
or reorganization of debtors or the modification or alteration of the rights
of creditors.
BANK'S LIEN - The Lien upon the Collateral in favor of Bank securing
payment of all Obligations, whether arising pursuant hereto or pursuant to
any of the other Loan Documents.
CODE - The Uniform Commercial Code as adopted and in force in the State
of Ohio as from time to time in effect.
COLLATERAL - All of the Property described in Section 2.1 of this
Agreement, together with all other Property of the Borrowers now or at any
time or times hereafter subject to a Lien in favor of Bank.
COLLATERAL LOCATION - The location(s) identified on EXHIBIT A attached
to this Agreement, and any other locations where the Collateral presently is
or hereafter is located.
CONTRACTS - As to each Borrower, all contracts, instruments,
undertakings, documents or other agreements in or under which such Borrower
may now or hereafter have any right, title or interest and which pertain to
the purchase, lease, sale or other disposition by such Borrower of any
Collateral, as amended, modified or supplemented from time to time.
CONTRACT RATE - As defined in the Note, as the same may be amended,
modified or supplemented from time to time.
CONTRACT RIGHTS - All rights of Borrowers, including, without
limitation, all rights to payment, under each Contract.
DEPOSITORY ACCOUNT - As defined in Section 3.1 of this Agreement.
DEPOSITORY AGREEMENT - As defined in Section 3.1 of this Agreement.
DEPOSITORY BANK - As defined in Section 3.1 of this Agreement.
EQUIPMENT - The equipment and machinery identified on EXHIBIT B attached
hereto, together with all parts, appurtenances and accessions thereto and
substitutions therefor and replacements thereof.
EVENT OF DEFAULT - As defined in the Loan Agreement.
LIEN - Any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such
interest is based on the common law, statute or
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<PAGE>
contract, including, but not limited to, the security interest or lien
arising from a security agreement, mortgage, encumbrance, pledge, conditional
sale, trust receipt or assignment, lease, consignment or bailment for
security purposes.
LOAN AGREEMENT - Loan And Security Agreement entered into by and among
MNC, Ottawa River Steel Co., National Metal Processing, Inc., Interstate
Metal Processing, Inc., Precise Pac, Inc., Meridian Environmental Services,
Inc. and Bank.
LOAN DOCUMENTS - This Agreement, the Note and the Loan Agreement.
LOCKBOX - As defined in Section 3.2 of this Agreement.
OBLIGATIONS - All debts, liabilities and obligations of Borrowers to
Bank under this Agreement and also any and all other debts, liabilities, and
obligations of Borrowers to Bank of every kind and description, direct or
indirect, absolute or contingent, due or to become due, now existing or
hereafter arising including, without limiting the generality of the foregoing,
any debt, liability, or obligation of Borrowers to Bank under any guaranty or
of Borrowers to any other Person which Bank may have obtained by assignment
or otherwise and all interest, fees, charges, and expenses which at any time
may be payable by Borrowers to Bank.
PERMITTED LIENS - As defined in Section 5.2 of this Agreement.
PERSON - An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political
subdivision thereof.
PRINCIPAL BUSINESS LOCATION - 810 Chicago Street, Toledo, Ohio 43611
PROCEEDS - As defined in the Code and, in any event, including, but not
be limited to, (a) any and all proceeds of any insurance, indemnity, warranty
or guaranty payable to Borrowers from time to time with respect to any of the
Collateral, (b) any and all payments (in any form whatsoever) made or due and
payable to Borrowers from time to time in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Collateral by any governmental authority (or any Person acting under color
of a governmental authority) and (c) any and all other amounts from time to
time paid or payable under or in connection with any of the Collateral.
PROPERTY - Any kind of property or asset, whether real, personal or
mixed, or tangible or intangible, or any interest in any such property or
asset.
1.2 OTHER TERMS. All other terms contained in this Agreement shall
have, unless the context indicates to the contrary, the meanings provided for
by the Code to the extent the same are used or defined therein.
1.3 USE OF PLURAL FORM. All definitions shall be equally applicable to
both the singular and plural forms of the defined terms.
-3-
<PAGE>
2. COLLATERAL; GENERAL TERMS
2.1 GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of the Obligations, and in addition to any other Collateral or
Lien securing the Obligations, Borrowers hereby grant to Bank a continuing
security interest in and to all of the following Property of Borrowers,
whether now owned or existing or hereafter acquired or arising and
wheresoever located:
(A) All Accounts, Contract Rights and Proceeds;
(B) All Equipment;
(C) Any and all deposits or other sums at any time credited by or due
from Bank to Borrowers, whether in a Depository Account or other account,
together with any and all instruments, documents, policies and certificates
of insurance, securities, goods, Accounts, choses in action, general
intangibles, chattel paper, cash or other Property, and the proceeds of each
of the foregoing, to the extent owned by Borrowers or in which Borrowers have
an interest and which now or hereafter are at any time in the possession or
control of Bank or in transit by mail or carrier to or from Bank or in the
possession of any Person acting in Bank's behalf, without regard to whether
Bank received the same in pledge, for safekeeping, as agent for collection or
transmission or otherwise or whether Bank had conditionally released the
same, and any and all balances, sums, proceeds and credits of Borrowers
with, and any claims of Borrowers against, Bank;
(D) All accessions to, substitutions for and all replacements, products
and proceeds of the Property described in Subsections (A), (B) and (C) above,
including, without limitation, proceeds of insurance policies insuring such
Property; and
(E) All books, records, and other property (including, but not limited
to, credit files, programs, printouts, and other materials and records) of
Borrowers pertaining to any of the Property described in Subsections (A), (B),
(C), or (D) above.
2.2 PERFECTION OF LIENS OF BANK. Borrowers agree to execute such
financing statements provided for by applicable law and to otherwise take
such action, and execute such assignments or other instruments or documents,
in each case as Bank may request, to evidence, perfect or record Bank's Lien
upon the Collateral. Borrowers hereby authorize Bank to execute and file any
such financing statement or continuation statement on Borrowers' behalf. The
parties agree that a carbon, photographic or other reproduction of this
Agreement shall be sufficient as a financing statement.
2.3 INSURANCE. Borrowers shall maintain and pay for insurance upon all
tangible Collateral wherever located, in storage or in transit in vehicles,
including goods evidenced by documents, covering casualty, hazards, public
liability and such other risks and in such amounts and with such insurance
companies as shall in each instance be reasonably satisfactory to Bank.
Borrowers shall deliver certified copies of such policies to Bank with
satisfactory loss payable endorsements naming Bank as its interest may
appear. Each policy of insurance or endorsement shall contain a provision
requiring thirty (30) days advance written notice to Bank in the event of
-4-
<PAGE>
cancellation of the policy for any reason whatsoever or any modification
thereto and a clause that the interest of Bank shall not be impaired or
invalidated by any act or neglect of Borrowers or other owner of the premises
where such Property may be located, nor by the occupation of such premises
for purposes more hazardous than are permitted by said policy. Borrowers
shall deliver to Bank, promptly as rendered, true copies of all reports made
by Borrowers in any report forms to insurance companies. Borrowers hereby
irrevocably make, constitute, and appoint Bank (and all officers, employees
or agents designated by Bank) as Borrowers' true and lawful attorney-in-fact
and agent, with full power of substitution, such that upon an Event of
Default or if an Event of Default has occurred and in continuing, then Bank
shall have the right and authority to make, and adjust claims under such
policies of insurance (provided, however, that Bank agrees to consult with
Borrowers prior to finally making, settling, or adjusting claims under such
policies of insurance), receive, and endorse the name of Borrowers on, any
check, draft, instrument or other item of payment for the proceeds of such
policies of insurance and make all determinations and decisions with respect
to such policies of insurance or to pay any premium in whole or in part
relating thereto. Bank, without waving or releasing any obligation or default
by Borrowers hereunder, may (but shall be under no obligation to do so) at
any time or times thereafter maintain such action with respect thereto which
Bank deems advisable. All sums disbursed by Bank in connection therewith
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable, on demand, and until paid by Borrowers to
Bank, with interest thereon at the Contract Rate, shall be additional
Obligations hereunder secured by the Collateral.
2.4 PROTECTION OF COLLATERAL; REIMBURSEMENT. All insurance expenses and
all expenses of protecting, storing, warehousing, insuring, handling,
maintaining, and shipping any Collateral, any and all excise, property,
sales, use or other taxes imposed by any state, federal or local authority on
any of the Collateral, or in respect of the sale thereof, or otherwise in
respect of Borrowers' business operations, which, if unpaid, could result in
the imposition of any Lien upon the Collateral, shall be borne and paid by
Borrowers. If Borrowers fail to promptly pay any portion thereof when due,
then at Bank's option it may pay the same. All sums so paid or incurred by
Bank for any of the foregoing and any and all other sums for which Borrowers
may become liable hereunder and all costs and expenses (including reasonable
attorneys' fees, legal expenses, and court costs) which Bank may incur in
enforcing or protecting its Lien on or rights and interest in the Collateral
or any of its rights or remedies under this or any other agreement between
the parties hereto or in respect of any of the transactions to be had
hereunder shall be repayable on demand and, until paid by Borrowers to Bank
with interest thereon at the Contract Rate, shall be additional Obligations
hereunder secured by the Collateral. Bank shall not be liable or responsible
in any way for the safekeeping of any of the Collateral or for any loss or
damage thereto or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever.
2.5 INSPECTION. Bank, by any of its officers, employees, agents or
representatives, shall have the right to inspect the Collateral, all records
related thereto (and to make extracts from such records), and the premises
upon which any of the Collateral is located, to verify the amount, quality,
quantity, value and condition of, or any other matter relating to, the
Collateral.
-5-
<PAGE>
3. COLLECTION OF ACCOUNTS
3.1 PROCEEDS. Except for minor petty cash required in the ordinary
course of business of Borrowers, all checks, drafts, cash and other proceeds
realized from the sale of any goods or services or from the sale or other
disposition of any of the Collateral, including, but not limited to, all
proceeds realized from the collection of the Accounts or otherwise pursuant
to any Contract Right, note, bill, draft, acceptance, chose in action and
other like forms of general intangibles, and all remittances received by
Borrowers in respect to the foregoing, shall, be held by Borrowers as trustee
of an express trust for Bank's sole benefit and subject to immediate deposit
(in their original form duly endorsed in blank) in a special account over
which Bank has the sole right and power of withdrawal, maintained at a
financial institution acceptable to Bank (such financial institution and
account being herein referred to as the "Depository Bank" and "Depository
Account" respectively). The Depository Account shall be subject to the
written agreement of the Depository Bank to waive any right of setoff it
might otherwise claim to have against any funds in the Depository Account
and to otherwise charge any costs relative to the Depository Account to
Borrowers or such other account(s) as Borrowers may maintain with the
Depository Bank, such agreement (the "Depository Agreement") to be in form
and substance acceptable to Bank. Bank assumes no responsibility for any
claim of accord and satisfaction or release with respect to funds which have
been deposited in the Depository Account.
3.2 LOCKBOX. If at any time requested by Bank, Borrowers shall instruct
all Account Debtors to mail their payments directly to a designated post
office lockbox (a "Lockbox") maintained at Borrowers' expense, with respect
to which only Bank or, should Bank so agree, a designated financial
institution shall have the right of access and all payments so received shall
be subject to immediate deposit into the Depositary Account.
3.3 BANK'S ACCOUNT. All funds held in the Depository Account shall be
subject to transfer to an account designated by the Bank (the "Bank's
Account") as set forth in the Depository Agreement or as otherwise designated
by Bank and the application of any such funds to the payment of the
Obligations shall not occur until Bank's receipt of such funds in cleared
federal funds in the Bank's Account. The order and method of application of
such payment shall be in the sole discretion of Bank.
3.4 NOTIFICATION OF ACCOUNT DEBTORS. Upon the occurrence and
continuance of an Event of Default, Bank shall have the right to notify
Account Debtors and other Persons indebted to Borrowers of Bank's interest in
such amounts payable to Borrowers and to instruct such Account Debtors and
other Persons to remit the same directly to Bank. Upon the collection and
deposit of such amounts in cleared federal funds in Bank's Account (less any
costs of collection and other charges or expenses incurred in connection
therewith), such amounts shall be subject to application to the Obligations.
3.5 VERIFICATION OF ACCOUNTS. Any of Bank's officers, employees, or
agents shall have the right, at any time or times thereafter, in the name of
Bank, any designee of Bank or in the name of Borrowers, to verify the
validity, amount or any other matter relating to any Accounts by mail,
telephone, telegraph, or otherwise.
-6-
<PAGE>
3.6 CONDITIONAL ASSIGNMENTS, RECORDS AND SCHEDULES AND SCHEDULES OF
ACCOUNTS. Commencing on November 15, 1996, and continuing on November 30,
1996, and on the fifteenth (15th) day and the last day of each month
thereafter, Borrowers shall deliver to Bank, in form and substance
acceptable to Bank, a detailed aged trial balance of all then existing
Accounts specifying the names, face value and dates of invoices for each
Account Debtor obligated on an Account so listed. In addition, upon Bank's
request, Borrowers shall furnish Bank with copies of proof of delivery and
the original copy of all documents relating to the Accounts including, but
not limited to, repayment histories and present status reports relating to
the Accounts and such other matters and information relating to the status of
then existing Accounts as Bank shall reasonably request. Upon an Event of
Default or if an Event of Default has occurred and is continuing Borrowers
shall execute and deliver to Bank, on forms supplied by Bank and at such
intervals as Bank may from time to time require, written assignments of all of
their Accounts after shipment of the subject goods, together with copies of
invoices and/or invoice registers related thereto.
4. REPRESENTATIONS AND WARRANTIES
As an inducement to Bank to make advances under the Notes, EPI and EPIC
warrant, represent and covenant to Bank that:
(A) EPI is a corporation duly formed, legally existing and in good
standing under the laws of its state or jurisdiction of organization and has
duly qualified and is authorized to do business and is in good standing as a
foreign corporation in each other state or jurisdiction where the character
of its Property, the nature of its business operations or the nature of its
other business activities or Property owned or leased makes such
qualification necessary.
(B) EPIC is a general partnership duly organized and validly
existing under the laws of the State of Ohio and is duly qualified and
authorized to do business and is in good standing as a foreign partnership in
each other state or jurisdiction where the character of its Property or the
nature of its activities makes such qualification necessary.
(C) EPI has the right and power and is duly authorized and empowered
to enter into, execute, deliver and perform its obligations under this
Agreement and each of the other Loan Documents to which it is a party. This
Agreement and each of the other Loan Documents to which EPI is a party have
each been duly authorized and approved by all requisite corporate action of
EPI, and are the legal, valid and binding obligations of EPI, enforceable
against EPI in accordance with their respective terms. EPI's execution and
delivery of, and performance under, this Agreement and each of the other Loan
Documents to which it is party will not (i) require any consent or approval
of any Person other than the Board of Directors of EPI, (ii) contravene any
provision of the Articles of Incorporation or Certificate of Incorporation,
Bylaws or Code of Regulations of EPI, (iii) violate, or cause EPI to be in
default under, any provision of any writ, judgement, injunction or decree
having applicability to EPI or any of its Property, or (iv) result in the
creation or imposition of any Lien (other than Permitted Liens) upon any
Property of EPI.
(D) EPIC has the right and power and is duly authorized and
empowered to enter into, execute, deliver and perform this Agreement and each
of the other Loan Documents to which it is a party. This Agreement and each
of the other Loan Documents to which EPIC is a
-7-
<PAGE>
party have each been duly authorized and approved by an officer of each of
National Purification, Inc. ("NPI"), an Ohio corporation, and MEPI Corp., an
Ohio corporation, in their capacities as general partners of EPIC, and are
the legal, valid and binding obligations of EPIC, enforceable against EPIC in
accordance with their respective terms. NPI and MEPI are wholly owned
subsidiaries of Meridian National Corporation. EPIC's execution and delivery
of, and performance under, this Agreement and each of the other Loan
Documents to which it is a party will not (i) require any consent or approval
of any person other than the Boards of Directors of NPI and MEPI, (ii)
contravene any provision of the EPIC Partnership Agreement, (iii) violate, or
cause EPIC to be in default under, any provision of any writ, judgment,
injunction or decree having applicability to EPIC or any of its Property, or
(iv) result in the creation or imposition of any Lien (other than Permitted
Liens) upon any property of EPIC.
(E) All of the Collateral is located at a Collateral Location.
(F) Each Borrower has good, indefeasible and marketable title to and
ownership of all Property it purports to own, which, in the case of the
Collateral, is free and clear of all Liens, except Permitted Liens.
5. COVENANTS AND CONTINUING AGREEMENTS
5.1 AFFIRMATIVE COVENANTS. During the period that any Obligations remain
outstanding and unpaid, Borrowers covenant that, unless otherwise consented
to by Bank in writing, they will:
(A) Comply in all respects with all covenants, agreements and
conditions on their part to be performed or observed under the terms of the
Notes and each of the other Loan Documents to which they are a party.
(B) Promptly notify Bank in writing, upon Borrowers' learning thereof,
of any claim by any Person to any of the Collateral or any right therein, to
the extent not otherwise a Permitted Lien, or any action by any Person to
levy upon, repossess or attach any Collateral.
(C) If any of the Accounts arise out of a contract with the United
States of America, or any department, agency, subdivision or instrumentality
thereof, execute any instruments and take any other action required or
requested by Bank to perfect Bank's security interest in such Accounts under
the provisions of the Assignment of Claims Act of 1940.
(D) In the event any Account is or becomes evidenced by any note,
trade acceptance or other instrument, promptly notify Bank of such fact and,
upon Bank's request, deliver the same to Bank, appropriately endorsed.
5.2 NEGATIVE COVENANTS. During the period that any Obligations remain
outstanding and unpaid, Borrowers covenant that, unless Bank has first
consented thereto in writing, they will not:
(A) Permit or suffer to exist any lien in or upon any of the
Collateral except the following (herein referred to as "Permitted Liens"):
-8-
<PAGE>
(1) Those security interests and liens granted in favor of Bank
pursuant to this Agreement and the other Loan Documents;
(2) Liens securing taxes, assessments or governmental charges or
levies or the claims or damages of materialmen, mechanics, carriers,
warehousemen, landlords and other like Persons, provided the payment
thereof is not at the time required;
(3) Liens incurred or deposits made in the ordinary course of
business, and provided any amounts secured thereby are not overdue or
delinquent in any respect (a) in connection with worker's
compensation, unemployment insurance, social security and other like
laws, or (b) to secure the performance of letters of credit, bids,
tenders, sales contracts, leases, statutory obligations, surety,
appeal and performance bonds and other similar obligations not
incurred in connection with the borrowing of money, the obtaining of
advances or the payment of the deferred purchase price of Property;
(4) Attachment, judgment, and other similar non-tax Liens arising
in connection with court proceedings, provided the execution or other
enforcement of such Liens is effectively stayed or bonded within
thirty (30) days after issuance or filing and the claims secured
thereby are being actively contested in good faith and by appropriate
proceedings; and
(5) Such other Liens as described on EXHIBIT C hereto or as
hereafter approved by Bank in writing.
(B) Sell, lease, transfer or otherwise dispose of any of the Equipment.
(C) Change its name or otherwise use any fictitious name, trade name,
trade style or "d/b/a", unless it provides Bank with at least thirty (30)
days prior written notice thereof. Bank acknowledges that EPI has given Bank
notice of its intent to change its name to EPI Technologies, Inc., and that
such change will not violate this covenant.
(D) Transfer its executive offices to, or maintain records with
respect to any Accounts at, any location other than Borrowers' Principal
Business Location as set forth above, or otherwise permit any other
Collateral to be located at any location other than a Collateral Location,
except upon providing Bank with thirty (30) days prior written notice thereof.
6. TERMINATION OF AGREEMENT
The undertakings, agreements, covenants, warranties and representations of
Borrower contained in this Agreement shall terminate, and Bank shall release
its Lien on the Collateral and all of its rights under this Agreement, at
such time as all Obligations have been fully paid and satisfied.
-9-
<PAGE>
7. RIGHTS AND REMEDIES ON DEFAULT
7.1 REMEDIES. Upon and after the occurrence of an Event of Default,
Bank shall have, to the extent permitted by applicable law, and in addition
to any other right or remedy provided for in this Agreement, the following
rights and remedies:
(A) All of the rights and remedies of a secured party under the
Code or under other applicable law, and all other legal and equitable rights
to which Bank may be entitled, all of which rights and remedies shall be
cumulative, and none of which shall be exclusive, to the extent permitted by
law, in addition to any other rights or remedies contained in this Agreement
or in any of the other Loan Documents.
(B) The right to take immediate possession of the Collateral, and
(i) require Borrowers to assemble the Collateral, at Borrowers' expense, and
make it available to Bank at a place to be designated by Bank which is
reasonably convenient to both parties, and (ii) enter any of the premises of
any Borrower or wherever any Collateral shall be located and to keep and
store the same on said premises until sold (and if said premises be the
property of Borrowers, Borrowers agree not to charge Bank for storage thereof
for a period of at least ninety (90) days after sale or disposition of the
Collateral). Bank is hereby granted a non-exclusive license or other right to
use, without charge, Borrowers' labels, patents, copyrights, rights of use of
any name, trade secrets, tradenames, trademarks and advertising matter, or
any property of a similar nature, as it pertains to the Collateral, in
advertising for sale and selling any Collateral and Borrowers' rights under
all licenses and all franchise agreements shall inure to Bank's benefit.
(C) The right to foreclose the Bank's Liens.
(D) The right to sell or to otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, wholesale
dispositions, or sales pursuant to one or more contracts, with such notice as
may be required by law, in lots or in bulk, for cash or on credit, all as
Bank, in its sole discretion, may deem advisable. Borrowers agree that ten
(10) days written notice to Borrowers of any public or private sale or other
disposition of Collateral shall be reasonable notice thereof, and such sale
shall be at such location(s) as Bank shall designate in said notice. Bank
shall have the right to conduct such sales on Borrowers' premises, without
charge therefor, and such sales may be adjourned from time to time in
accordance with applicable law without further requirement of notice to
Borrowers Bank shall have the right to bid or credit bid at any such sale on
its own behalf.
(E) In connection with any sale of Collateral, Bank shall have the
right to sell, lease or otherwise dispose of the Collateral, or any part
thereof, for cash, credit or any combination thereof, and Bank may purchase
all or any part of the Collateral at public or private sale and, in lieu of
actual payment of such purchase price, may set off the amount of such price
against the Obligations. Subject to the rights of the holders of any
Permitted Lien having priority over the Liens of Bank, if any, the proceeds
realized from the sale of any Collateral shall be applied first to the
reasonable costs, expenses and attorneys' fees and legal expenses incurred by
Bank for collection and for acquisition, completion, protection, removal,
storage, sale and delivery of the
-10-
<PAGE>
Collateral; second, to interest due upon any of the Obligations; and third,
to the principal of the Obligations. If any deficiency shall arise, Borrowers
shall remain liable to Bank therefor.
7.2 APPLICATION OF COLLATERAL. Upon the occurrence of any Event of
Default, Bank may also, with or without proceeding with sale or foreclosure
or demanding payment of the Obligations, without notice, appropriate and
apply on any Obligations any and all Collateral in the possession of Bank or
in any Lockbox, and any and all balances, credits, deposits, accounts,
reserves, indebtedness, or other monies due or owing to Borrowers or held by
Bank hereunder or otherwise, whether accrued or not.
7.3 REMEDIES CUMULATIVE. All covenants, conditions, provisions,
warranties, guaranties, indemnities and other undertakings of Borrowers
contained in this Agreement, the other Loan Documents or in any document
referred to herein or therein or contained in any agreement supplementary
hereto or thereto or in any schedule or report give to Bank, or contained in
any other agreement between Bank and Borrowers, heretofore, concurrently, or
hereafter entered into or delivered, shall be deemed cumulative to and not in
derogation or substitution of any of the terms, covenants, conditions or
agreements of Borrowers herein contained. The failure or delay of Bank to
exercise or enforce any rights, powers or remedies hereunder or under the
other Loan Documents or under any document referred to herein or therein or
contained in any agreement supplementary hereto or thereto or against any
Collateral shall not operate as a waiver of such rights, powers and remedies,
but all such rights, powers, and remedies shall continue in full force and
effect until all Obligations owing or to become owing from Borrowers to Bank
shall have been fully satisfied, and all rights, powers and remedies of Bank
as aforesaid are cumulative and none are exclusive.
7.4 CROSS-COLLATERAL AND CROSS-DEFAULT. Each of the security interests
and liens granted to Bank by Borrowers and MNC pursuant to the Loan Documents
or otherwise shall secure any and all of Borrowers' and MNC's liabilities and
obligations to Bank under the Loan Documents including, but not limited to,
MNC's obligations under the Term Note and the Credit Note (each as defined in
the Loan Agreement). It is further understood and agreed that (a) a default
under either of the Credit Note or the Term Note, or any of the Loan
Documents shall constitute a default under each of the Notes and under this
Agreement, and (b) a default under the Notes or under this Agreement shall
constitute a default under the Credit Note, the Term Note and the Loan
Agreement. References in any of the other Loan Documents to events or
conditions constituting a default shall in no way impair Bank's absolute and
unconditional right to demand immediate repayment of the unpaid balance of
the Credit Note, notwithstanding the fact that at the time of such demand
there may not exist any event or condition constituting a default.
8. APPOINTMENT OF BANK AS BORROWERS' LAWFUL ATTORNEY
Each Borrower hereby irrevocably designates, makes, constitutes and
appoints Bank (and all persons designated by Bank) as each Borrower's true
and lawful attorney (and agent-in-fact) to, upon the occurrence, or at any
time during the continuance, of an Event of Default, as Bank may determine,
in each Borrower's or Bank's name: (i) demand payment of the Accounts; (ii)
enforce payment of the Accounts, by legal proceedings or otherwise; (iii)
exercise all of each Borrower's rights and remedies with respect to the
collection of the Accounts and any other Collateral; (iv) settle, adjust,
compromise, extend or renew the Accounts; (v) settle, adjust or compromise
any legal
-11-
<PAGE>
proceeding brought to collect the Accounts; (vi) if permitted by applicable
law, sell or assign the Accounts and other Collateral upon such terms, for
such amounts and at such time or times as Bank deems advisable; (vii)
discharge and release the Accounts and any other Collateral; (viii) take
control, in any manner, of any item of payment or proceeds relating to any
Collateral; (ix) prepare, file and sign Borrower's name on a proof of claim
in bankruptcy or similar document against any Account Debtor; (x) prepare,
file and sign each Borrower's name on any notice of Lien, assignment or
satisfaction of Lien or similar document in connection with the Accounts;
(xi) do all acts and things necessary, in Bank's sole discretion, to fulfill
each Borrower's obligations under this Agreement; (xii) endorse the name of
each Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Bank on account of the
Obligations (xiii) endorse the name of each Borrower upon any chattel paper
document, instrument, invoice, freight bill, bill of lading or similar
document or agreement relating to the Accounts and any other Collateral;
(xiv) use each Borrower's stationery and sign the name of each Borrower to
verifications of the Accounts and notices thereof to Account Debtors; (xv)
use the information recorded on or contained in any data processing equipment
and computer hardware and software relating to the Accounts and any other
Collateral to which each Borrower has access; and (xvi) notify post office
authorities to change the address for delivery of such Borrower's mail to an
address designated by Bank and receive and open all mail addressed to each
Borrower, and after removing all remittances and other proceeds of
Collateral, forwarding the mail to such Borrower.
9. MISCELLANEOUS
9.1 MODIFICATION OF AGREEMENT. This Agreement may not be modified,
altered or amended, except by an agreement in writing signed by Borrowers and
Bank.
9.2 COSTS, EXPENSES AND ATTORNEYS' FEES. All reasonable costs,
expenses, charges and fees, including reasonable attorneys' fees which are
incurred by Bank at any time or times, whether prior or subsequent to the
date hereof, and regardless of the existence of an Event of Default, in
connection with:
(A) The preparation of this Agreement or any amendment of or
modification of this Agreement;
(B) The administration of this Agreement and the transactions
contemplated hereby;
(C) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Bank, Borrowers or any other Person) in any way
relating to the Collateral, this Agreement or Borrower's affairs, but
excluding any litigation between Borrowers and Bank as adverse parties unless
otherwise permitted by law in connection with any judgment awarded in favor
of the prevailing party;
(D) Any attempt to enforce any rights of Bank against any other
Person which may be obligated to Bank by virtue of this Agreement including,
without limitation, any guarantor of the Obligations and any Account Debtors;
-12-
<PAGE>
(E) Any attempt to protect, collect, sell, liquidate or
otherwise dispose of the Collateral; or
(F) The filing and recording of all documents required by Bank
to perfect Bank's Liens in the Collateral, including without limitation, any
documentary stamp tax, intangibles tax or any other taxes incurred because of
such filing or recording;
shall be payable, on demand, by Borrowers to Bank and shall be additional
Obligations hereunder secured by the Collateral. Without limiting the
generality of the foregoing, such expenses, costs, charges and fees may
include accountants' fees, costs and expenses; court costs and expenses;
photocopying and duplication expenses; court reporter fees, costs and
expenses; long distance telephone charges; air express charges, telegraph
charges; secretarial overtime charges; and expenses for travel, lodging and
food paid or incurred in connection with the performance of services.
Additionally, if any taxes shall be payable on account of the execution or
delivery of this Agreement, or the execution, delivery, issuance or recording
of any of the other Loan Documents, or the creation of any of the Obligations
hereunder, by reason of any existing or hereafter enacted federal or state
statute, Borrowers will pay all such taxes, including, but not limited to,
any interest and/or penalty thereon, and will indemnify and hold Bank
harmless from and against liability in connection therewith. Borrowers
otherwise agree to indemnify and hold Bank harmless from any and all loss,
damage, cost, liability or expense (including reasonable attorneys' fees)
arising out of the use, generation, storage or release of any hazardous
waste or hazardous substance in respect of any Borrower's operations or any
real property used by a Borrower in the conduct of such operations.
9.3 WAIVER BY BANK. Bank's failure, at any time or times hereafter, to
require strict performance by Borrowers of any provision of this Agreement
shall not waive, affect or diminish any right of Bank thereafter to demand
strict compliance and performance therewith. Any suspension or waiver by Bank
of an Event of Default by Borrowers under this Agreement or the other Loan
Documents shall not suspend, waive or affect any other Event of Default by
Borrowers under this Agreement or the other Loan Documents, whether the same
is prior or subsequent thereto and whether of the same or of a different type.
None of the undertakings, agreements, warranties, covenants and
representations of Borrowers contained in this Agreement or the other Loan
Documents and no Event of Default by Borrowers under this Agreement or the
other Loan Documents shall be deemed to have been suspended or waived by
Bank, unless such suspension or waiver is by an instrument in writing
specifying such suspension or waiver and is signed by a duly authorized
representative of Bank and directed to Borrowers.
9.4 SEVERABILITY. Wherever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by
or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of the Agreement.
9.5 PARTIES. This Agreement and the other Loan Documents shall be
binding upon and inure to the benefit of the successors and assigns of
Borrowers and Bank.
-13-
<PAGE>
9.6 CONFLICT OF TERMS. The provisions of the other Loan Documents and
any exhibit or schedule hereto are incorporated in this Agreement by this
reference thereto. Except as otherwise provided in this Agreement and except
as otherwise provided in the other Loan Documents by specific reference to
the applicable provision of this Agreement, if any provision contained in
this Agreement is in conflict with, or inconsistent with, any provision in
the other Loan Documents, the provision contained in this Agreement shall
govern and control.
9.7 WAIVERS BY BORROWERS. Except as otherwise provided in any of the
Loan Documents, Borrowers waive (i) presentment, demand and protest and notice
of presentment, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all commercial paper, accounts,
contract rights, documents, instruments, chattel paper and guaranties at any
time held by Bank on which Borrowers may in any way be liable and (ii) notice
prior to taking possession or control of the Collateral which might be
required by any court prior to allowing Bank to exercise any of Bank's
remedies.
9.8 GOVERNING LAW. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS
AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS
OF THE STATE OF OHIO. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED,
BORROWERS HEREBY CONSENT TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE STATE OF OHIO AND CONSENT THAT ALL SUCH SERVICE OF
PROCESS BE MADE BY REGISTERED OR CERTIFIED MAIL DIRECTED TO BORROWER IN THE
MANNER SET FORTH IN SECTION 9.9 BELOW AND SERVICE SO MADE SHALL BE DEEMED TO
BE COMPLETED UPON ACTUAL RECEIPT THEREOF. BORROWERS WAIVE ANY OBJECTION TO
JURISDICTION AND VENUE OF ANY ACTION INSTITUTED HEREUNDER, AGREE NOT TO
ASSERT ANY DEFENSE BASED ON LACK OF JURISDICTION OR VENUE. NOTHING CONTAINED
HEREIN SHALL AFFECT THE RIGHT OF BANK TO SERVE LEGAL PROCESS IN ANY OTHER
MANNER PERMITTED BY LAW OR AFFECT THE RIGHT OF BANK TO BRING ANY ACTION OR
PROCEEDING AGAINST BORROWERS OR THEIR PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION.
NOTICES. Except as otherwise provided herein, any notice or demand
required hereunder shall be in writing, and shall be deemed to have been
validly served, given or delivered when personally delivered or when sent by
first class mail, return receipt requested, with proper postage prepaid, and
addressed to the party at the following addresses or to such other address
as each party may designate for itself by like notice given in accordance
with this Section 9.9:
If to Bank: National Canada Finance Corp.
One Cleveland Center
Suite 2430
1375 East Ninth Street
Cleveland, Ohio 44114
Attn: Jack Jankovic
-14-
<PAGE>
With copy to: Arter & Hadden
925 Euclid Avenue
Suite 1100
Cleveland, Ohio 44115-1475
Attn: James E. Phillips
If to Borrowers: Environmental Purification Industries, Inc.
810 Chicago Street
Toledo, Ohio 43611
Attn: William D. Feniger
With copy to: Benesch, Friedlander, Coplan & Aronoff P.L.L.
2300 BP America Building
200 Public Square
Cleveland, Ohio 44114
ATTN: Lawrence M. Bell
9.10 SECTION TITLES. The section titles and table of contents contained
in this Agreement are and shall be without substantive meaning and content of
any kind whatsoever and are not, and shall not be deemed, a part of the
agreement between the parties hereto.
(Remainder of Page Intentionally Left Blank)
-15-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day
and year specified at the beginning hereof.
ENVIRONMENTAL PURIFICATION
INDUSTRIES, INC.
By: /s/ BRUCE F. MAISON
------------------------------
Name: /s/ BRUCE F. MAISON
------------------------------
Title: President
------------------------------
Accepted at Cleveland, Ohio as of the ENVIRONMENTAL PURIFICATION
date first above written. INDUSTRIES COMPANY
NATIONAL CANADA FINANCE By National Purification, Inc.
CORP. General Partner
By: /s/ JACK JANKOVIC /s/ JAMES L. ROSINO, Treasurer
------------------------ -------------------------------------
Name: /s/ JACK JANKOVIC and
------------------------
Title: VP By MEPI Corp.
------------------------ General Partner
/s/ JAMES L. ROSINO, Treasurer
-------------------------------------
-16-
<PAGE>
EXHIBIT A
COLLATERAL LOCATIONS
Plant Location:
2111 Champlain Street
Toledo, Ohio 43611
Executive Offices:
810 Chicago Street
Toledo, Ohio 43611
-17-
<PAGE>
EXHIBIT B
Environmental Purification Industries
Equipment List
<TABLE>
<CAPTION>
System/Vendor Description
------------- -------------------------------
<S> <C>
RECEIVING HOPPER
Odland Iron Works 30 cubic yard receiving hopper
RAW SLUDGE HANDLING SYSTEM
Schwing America 50gpm Positive displacement pump with various valves & controls
Applied Electronics Metal detection system
Fluid Process Equip. IWAKI Walchem pump
FMC Invalco Inc. Turbine meter and totalizer
CONDITIONED SLUDGE HANDLING SYSTEM
Lee Industries 2,000 gallon tank assembly
Fluid Process Equip. Moyno progressing cavity pump
Fluid Process Equip. Pipeliner
Fluid Process Equip. Moyno progressing cavity drum pump
Mc Stay & Assoc Six inch tank bottom valve
REACTOR SYSTEM
Lee Industries 3,000 gallon tank assembly
Mc Stay & Assoc Six inch tank bottom valve
Seco Pumping trap
PLASTICIZER SYSTEM
Clawson Tank Co. 9,800 gallon vertical storage tank
CPI Controls Liquid level indicator and 4 inch guage hatch
Fluid Process Equip. Roper iron gear pump. (30 gpm and 117 psi)
FMC Invalco Inc. Turbine meter and totalizer
PACKAGING SYSTEM
Integrated Process Systems Grinder and offloading system
Hamill Industrial Sales Co. Conveyor system
STEAM GENERATION & DISTR.
Donlee Technologies 150 psi Boiler
Bryan Steam Tray type deaerator (10.000 #/hr.)
Sullivan Sales Co. Economizer for 225 h.p boiler
Boiler Controls Chemical feed system
COOLING TOWER SYSTEM
BCE Inc. Penn blowdown separator.
Toledo Thermal Two 2-stage vertical turbine pumps
Xchanger Inc. Heat exchanger
Marley Cooling Tower Co. Cooling tower
Craun-Liebing Level control and still chamber
COMPRESSED AIR SYSTEM
Toledo Compressor Water cooled air compressor with various valves and filters
LAB EQUIPMENT
Charles Ross & Son 1 qt planetary mixer
BMC Lab Cabinets
WASTEWATER TREATMENT
HLT Gear pump
Hudson Industries Oil / water separator
</TABLE>
<PAGE>
EXHIBIT C
PERMITTED LIENS
1. Affidavit of Mechanic's Lien as filed with the Recorder of Lucas County,
Ohio on October 2, 1996 by Gem Industrial, Inc.
2. Affidavit of Mechanic's Lien as filed with the Recorder of Lucas County,
Ohio on October 11, 1996 by Odland Iron Works, Inc.
3. Primary Reserve Fund held by Mellon Bank, as trustee, pursuant to the
terms of a loan agreement between the Toledo-Lucas County Port Authority
and Environmental Purification Industries Company.
4. Closure Fund held by Mellon Bank, as trustee, established as required
under regulations issued by the U.S. Environmental Protection Agency.
-19-
<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>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary Selected
Consolidated Financial Data," and "Experts" and to the use of our report dated
May 22, 1997 in the Registration Statement (Form S-1) and related Prospectus of
EPI Technologies, Inc. for the registration of 1,437,500 shares of its Common
Stock and 1,437,500 redeemable warrants to purchase Common Stock.
[SIG]
Ernst & Young LLP
Toledo, Ohio
October 1, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF EPI TECHNOLOGIES, INC. AS
OF AND FOR THE YEAR ENDED FEB 28, 1997 AND THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF EPI TECHNOLOGIES, INC. AS OF AND
FOR THE SIX MONTHS ENDED AUG 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> FEB-28-1997 FEB-28-1998
<PERIOD-START> MAR-01-1996 MAR-01-1997
<PERIOD-END> FEB-28-1997 AUG-31-1997
<CASH> 4,743 1,521
<SECURITIES> 0 0
<RECEIVABLES> 491,649 647,729
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 866,756 1,003,300
<PP&E> 5,654,922 5,942,517
<DEPRECIATION> 2,051,887 2,222,767
<TOTAL-ASSETS> 6,129,790 6,264,392
<CURRENT-LIABILITIES> 4,721,800 7,597,038
<BONDS> 3,983,701 1,733,290
0 0
0 0
<COMMON> 1 1
<OTHER-SE> (2,575,712) (3,065,937)
<TOTAL-LIABILITY-AND-EQUITY> 6,129,790 6,264,392
<SALES> 0 0
<TOTAL-REVENUES> 3,417,070 1,800,240
<CGS> 0 0
<TOTAL-COSTS> 2,307,086 1,292,014
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 437,839 296,258
<INCOME-PRETAX> (945,136) (515,117)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (945,136) (515,117)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 329,729 0
<CHANGES> 0 0
<NET-INCOME> (615,857) (515,117)
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
</TABLE>
