<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 10, 1997
REGISTRATION NO. 333-37071
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
AMENDMENT NO. 1
TO
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/
--------------------------
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 DECEMBER 10, 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 per
share ("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
quotation of the Common Stock as reported on The Nasdaq Stock Market or the last
sales price if quoted on a national securities exchange equals or exceeds $8.25
per share, subject to certain adjustments, 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 on the third trading day 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 "EPIC" and "EPICW,"
respectively. Application has also been made to list the Common Stock and the
Warrants on the Boston Stock Exchange under the trading symbols "EPI" and
"EPIW," 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
22).
------------------------
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 $5,737,500
</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 upon 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 (equal to 5% of the first $5 million of transaction consideration, 4% of
the next $1 million of transaction consideration, 3% of the next $1 million
of transaction consideration, 2% of the next $1 million of transaction
consideration and 1% of all transaction consideration thereafter) 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 $390,000). 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."
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.
Historically, the Company has generated in excess of 97% of its annual sales
revenue from the processing of paint waste. The Company has not generated
significant revenues from the sale of EPI-PURE-TM- because the materials which
EPI-PURE-TM- replaces as a filler are generally inexpensive and the DryPure-TM-
system generates a limited supply of EPI-PURE-TM-. 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-. For these reasons,
management believes that the Company's profitability is substantially dependent
on sales of EPI-MER-TM-. In addition, if the Company is successful in its
marketing of EPI-MER-TM-, the Company believes that revenue generated from sales
of EPI-MER-TM- will provide the Company with flexibility when pricing its paint
waste processing services. 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. Further,
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-.
3
<PAGE>
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. For
example, by recycling hazardous paint waste, which during the Company's last two
fiscal years have represented approximately 15% of the Company's annual sales,
businesses avoid liability as a "potential responsible party" at the landfill
where their paint waste or incinerated ash is disposed and which may be declared
a Superfund clean-up site. In addition, generators of non-hazardous paint waste
avoid the expense associated with establishing that they did not contribute to
the contamination of a landfill in the event that they are named as a "potential
responsible party" with respect to the contamination. Further, 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. 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, $.01 par value per share, to Meridian
("Meridian Preferred Stock") in exchange for certain outstanding indebtedness of
the Company to Meridian. The Company estimates that it will owe Meridian
approximately $4,020,000 immediately prior to the completion of this Offering,
of which $2,000,000 will be exchanged for 1,000,000 shares of Meridian Preferred
Stock, approximately $1,530,000 will be contributed to the capital of the
Company and $490,000 will be repaid to Meridian from the net proceeds of this
Offering. To the extent that the amount of debt exchanged by Meridian for the
Meridian Preferred Stock exceeds the fair market value of such Meridian
Preferred Stock, such excess shall be treated as a contribution by Meridian to
the Company's capital. 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."
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 quotation of the Common Stock as
reported on The Nasdaq Stock Market or the last sales price
if quoted on a national securities exchange equals or
exceeds $8.25 per share, subject to certain adjustments, 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 on the third trading
day 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."
</TABLE>
5
<PAGE>
<TABLE>
<S> <C>
USE OF PROCEEDS............... The Company plans to apply the net proceeds from this
Offering, estimated to aggregate $5,056,250, 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 and
refinancing of the Bank Debt (as hereinafter defined),
including a $50,000 loan closing fee; (iv) $490,000 for the
repayment of advances from Meridian; (v) $260,000 for
repayment of a subordinated cognovit promissory note,
including accrued interest (the "Bridge Note"); (vi)
$250,000 for U.S. EPA Part B permit approval costs; (vii)
$150,000 for improvements to the Polymeric Recovery System
at the Company's Toledo, Ohio facility; and (viii)
$1,756,250 for working capital and general corporate
purposes. See "Use of Proceeds" and "Business."
RISK FACTORS.................. The securities offered hereby involve a high degree of risk
and substantial immediate dilution to investors. See "Risk
Factors" and "Dilution."
PROPOSED NASDAQ SYMBOLS(3).... Common Stock -- "EPIC"
Warrants -- "EPICW"
PROPOSED BOSTON STOCK EXCHANGE
SYMBOLS(3)................... Common Stock -- "EPI"
Warrants -- "EPIW"
</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.
(3) The Company has applied for listing of the Common Stock and Warrants on
Nasdaq and the Boston Stock Exchange. Although the Company expects the
shares of Common Stock and the Warrants to be approved for listing on Nasdaq
and the Boston Stock Exchange, such listings do not imply that an
established public trading market will develop therefor or, if developed,
that such market will be sustained. See "Risk Factors -- Determination of
Public Offering Price; No Assurance of Public Market."
------------------------
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.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The 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(1)
---------- ---------- ---------- ---------- ----------
<S> <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)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Loss per common share: (2)
Loss before extraordinary gain............................. $ (0.75)
Extraordinary gain......................................... 0.26
----------
Net loss................................................... $ (0.49)
----------
----------
Pro forma loss per common share: (3)
Loss before extraordinary gain............................. $ (0.60)
----------
----------
BALANCE SHEET DATA:
Working capital (deficiency)................................. $(3,855,044) $(2,862,184) $(2,258,669) $(2,201,117) $(1,920,879)
Total assets................................................. 6,129,790 4,617,583 4,875,188 4,903,737 5,234,966
Property and equipment, net.................................. 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......................... 3,983,701 3,395,472 3,997,208 4,517,317 4,948,355
Receivable from former partner, less current portion......... 1,031,875 1,358,625 1,651,875 1,925,625 2,178,125
Stockholders' equity (net capital deficiency):
Meridian Preferred Stock................................... -- -- -- -- --
Common stock............................................... 1 1 1 1 1
Paid-in capital............................................ 581,145 99 99 99 99
Deficit.................................................... (3,156,857) (2,541,000) (2,400,858) (2,478,444) (2,282,205)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficiency)...................... (2,575,711) (2,540,900) (2,400,758) (2,478,344) (2,282,105)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends declared per common share..................... 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 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.
(2) Loss per common share is computed using 1,250,000 shares of Common Stock.
For calculation purposes, the 250,000 shares of Common Stock issued to the
Minority Stockholders in November 1996 at a price below the $5.00 per share
proposed public offering price are considered to have been outstanding for
the entire period. The Bridge Warrants, which were issued in August 1997,
are not considered in the calculation of loss per common share because,
upon completion of this Offering, the Bridge Warrant exercise price will
automatically be adjusted to a price in excess of the $5.00 per share for
which shares of Common Stock are being sold in connection with this
Offering.
(3) Pro forma loss per common share is computed using historical earnings and
shares of Common Stock outstanding adjusted to (i) eliminate interest
charges on indebtedness expected to be repaid from the net proceeds of this
Offering, and (ii) reflect the number of shares of Common Stock to be sold
in this Offering in connection with the repayment of such indebtedness.
Accordingly, the Company's loss before extraordinary gain was reduced by
$86,017, which represents interest on (A) $490,000 of advances from
Meridian, and (B) $500,000 to be applied against the Bank Debt, each
expected to be repaid from the net proceeds of this Offering. For
calculation purposes, the weighted average outstanding shares of Common
Stock were increased by 182,000 shares of Common Stock, which represents
the number of shares of Common Stock to be sold in connection with this
Offering which are required to repay such advances from Meridian and such
Bank Debt.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA -- CONTINUED
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
AUGUST 31, ----------- -----------
1997
AS
ADJUSTED(1)
------------
(BALANCE
SHEET ONLY)
<S> <C> <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
----------- -----------
----------- -----------
Earnings (loss) per common share: (2)
Loss before extraordinary gain...................................................... $ (0.41) $ (0.23)
Extraordinary gain.................................................................. -- 0.26
----------- -----------
Net income (loss)................................................................... $ (0.41) $ 0.03
----------- -----------
----------- -----------
Pro forma loss per common share: (3)
Loss before extraordinary gain...................................................... $ (0.32) $ (0.18)
----------- -----------
----------- -----------
BALANCE SHEET DATA:
Working capital (deficiency).......................................................... $1,001,214 $(6,593,738) $(4,945,956)
Total assets.......................................................................... 10,080,642 6,264,392 5,821,367
Property and equipment, net........................................................... 3,719,750 3,719,750 2,733,901
Advances from Meridian................................................................ -- 3,645,702 3,025,234
Long-term debt, less current portion.................................................. 3,166,290 1,733,290 2,392,500
Receivable from former partner, less current portion.................................. 860,265 860,625 1,196,250
Stockholders' equity (net capital deficiency)......................................... 5,520,314 (3,065,936) (2,507,351)
Cash dividends declared per common share.............................................. N/A 0 0
OTHER OPERATING DATA:
Depreciation and amortization......................................................... $ 220,323 $ 139,591
Capital expenditures.................................................................. 287,595 313,863
</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 $490,000 of advances from Meridian, (iii) the exchange of
$2,000,000 of advances from Meridian for 1,000,000 shares of Meridian
Preferred Stock and the contribution by Meridian to the Company's capital of
the remaining debt owed to Meridian estimated to be approximately $1,530,000
(based on an estimate of the intercompany advances which will be due
immediately prior to the date of the completion of this Offering), (iv) the
payment of $500,000 to be applied against the Bank Debt along with a loan
closing fee of $50,000, (v) the refinancing of $1,661,000 of Bank Debt to
long-term debt (current portion $228,000), and (vi) the repayment of the
Bridge Notes in the principal amount of $250,000.
(2) Earnings (loss) per common share is computed using 1,250,000 shares of
Common Stock. For calculation purposes, the 250,000 shares of Common Stock
issued to the Minority Stockholders in November 1996 at a price below the
$5.00 per share proposed public offering price are considered to have been
outstanding for the entire period. The Bridge Warrants, which were issued in
August 1997, are not considered in the calculation of earnings (loss) per
common share because, upon completion of this Offering, the Bridge Warrant
exercise price will automatically be adjusted to a price in excess of the
$5.00 per share for which shares of Common Stock are being sold in
connection with this Offering.
(3) Pro forma loss per common share is computed using historical earnings and
shares of Common Stock outstanding adjusted to (i) eliminate interest
charges on indebtedness expected to be repaid from the net proceeds of this
Offering, and (ii) reflect the number of shares of Common Stock to be sold
in this Offering in connection with the repayment of such indebtedness.
Accordingly, the Company's loss before extraordinary gain was reduced by
$48,322 and $38,746 for the six months ended August 31, 1997 and 1996,
respectively, which represents interest on (A) $490,000 of advances from
Meridian, and (B) $500,000 to be applied against the Bank Debt, each
expected to be repaid from the net proceeds of this Offering. For
calculation purposes, the weighted average outstanding shares of Common
Stock were increased by 198,000 shares of Common Stock and 160,087 shares of
Common Stock for the six months ended August 31, 1997 and 1996,
respectively, which represents the number of shares of Common Stock to be
sold in connection with this Offering which are required to repay such
advances from Meridian and such Bank Debt.
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; NEGATIVE NET WORTH. At August 31, 1997, the Company had accumulated
losses of $3,672,000 and negative net worth of $3,066,000, 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 or contributed
by Meridian to the capital of the Company prior to the completion of this
Offering, the working capital deficiency at August 31, 1997 would have been
$2,948,000. The Company has experienced operating losses during the six months
ended August 31, 1997 and recognized net losses in 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. 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.
3. 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."
4. 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
9
<PAGE>
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."
5. 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."
6. MANAGEMENT'S BROAD DISCRETION IN APPLICATION OF PROCEEDS. Approximately
$1,756,250, or 34.7%, of the estimated $5,056,250 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 36.6% of the estimated net
proceeds from this Offering, which are designated for specific projects as
described in "Use of Proceeds", 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."
7. 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 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."
8. PENDING INVESTIGATION OF THE UNDERWRITER. The Underwriter is aware that
the Securities and Exchange 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.
From time to time, the Underwriter has also received requests for information
and documents from various other authorities in connection with its business
activities. The Underwriter has complied with, or is in the process of complying
with, all such requests and is fully cooperating with such authorities. There
can be no assurance that any investigation or inquiry will not adversely and
materially affect this Offering or subsequent trading in the Common Stock and/or
Warrants of the Company. See "Underwriting."
10
<PAGE>
9. UNDERWRITER'S LIMITED UNDERWRITING EXPERIENCE. 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.
10. 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."
11. 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. 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."
12. 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 when it installs on-site facilities outside
the State of Ohio and develops the second paint 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."
11
<PAGE>
13. 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."
14. 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 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."
15. 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."
16. 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. 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
12
<PAGE>
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. 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. Further, although the Senior
Lender has agreed to refinance the Bank Debt in connection with the closing of
this Offering, no assurance can be given that such refinancing will occur. 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, the Senior Lender has
agreed that (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,"
"Relationships Between the Company and Meridian" and "Certain Other
Relationships and Related Transactions."
17. ADVERSE EFFECT OF REDEMPTION OF WARRANTS. 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 quotation of the Common Stock as reported on
The Nasdaq Stock Market or the last sales price if quoted on a national
securities exchange equals or exceeds $8.25 per share, subject to certain
adjustments, 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 on the third trading day 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 the 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."
18. 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."
19. 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."
20. ANTI-TAKEOVER PROVISIONS. The Company's Second Restated Certificate of
Incorporation 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
13
<PAGE>
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,"
"Description of Securities -- Preferred Stock," and "-- Certain Provisions of
Delaware Law and of the Company's Second Restated Certificate of Incorporation
and By-laws."
21. 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 $3.72 per share (or
approximately 74%), based on certain assumptions. See "Dilution."
22. 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 "--
Capital Requirements; Potential Unavailability of Additional Financing,"
"Dividend Policy" and "Relationships Between the Company and Meridian--Meridian
Preferred Stock."
23. 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."
24. 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 is covered by an umbrella insurance policy maintained by
Meridian that provides an aggregate of $10,000,000 of coverage relating to
personal injury and product liability for Meridian and its subsidiaries. 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. In addition, a
substantial claim against Meridian or one of its other subsidiaries will limit
the umbrella insurance protection available to the Company. Further, the Company
anticipates that it will obtain its own insurance policies after the completion
of this Offering, which policies will likely be more expensive than the policies
which currently insure the Company.
25. 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
14
<PAGE>
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 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."
26. POSSIBLE ADVERSE EFFECT OF ISSUANCE OF PREFERRED STOCK. The Company's
Second Restated Certificate of Incorporation authorizes the issuance of
2,500,000 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. 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."
27. POSSIBLE DELISTING AND RISK OF PENNY STOCK. 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
15
<PAGE>
"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 and any equity security issued by an issuer that has (i) net tangible
assets of at least $2,000,000 if such issuer has been in continuous operation
for three years or more, (ii) net tangible assets of at least $5,000,000 if such
issuer has been in continuous operation for less than three years, or (iii)
average annual revenue of at least $6,000,000 if such issuer has been in
continuous operation for less than three years. Unless an exception is
available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks associated therewith.
In addition, if the Company's securities are not quoted on Nasdaq or the
Boston Stock Exchange, or the Company does not meet the other exceptions to the
penny stock regulations cited above, trading in the Company's securities could
be covered by Rule 15g-9 promulgated under the Exchange Act for non-Nasdaq and
non-exchange listed securities. Under such rule, broker/dealers who recommend
such securities to persons other than established customers and accredited
investors must make a special written suitability determination for the
purchaser and receive the purchaser's written agreement to a transaction prior
to sale. Securities also are exempt from this rule if the market price is at
least $5.00 per share.
If the Company's securities become subject to the regulations applicable to
penny stocks, the market liquidity for the Company's securities could be
adversely affected. In such an event, the regulations on penny stocks could
limit the ability of broker/dealers to sell the Company's securities and thus
the ability of purchasers of the Company's securities to sell their securities
in the secondary market.
28. 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.
29. 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
16
<PAGE>
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."
30. 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."
31. 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."
32. 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."
17
<PAGE>
33. 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."
34. 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 on Nasdaq 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 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."
35. INDEPENDENT DIRECTORS; BOARD COMMITTEES. The Company's Board of
Directors currently consists of four directors, only one of whom is independent.
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. The Underwriter has
not yet designated a nominee to the Board. The Board intends to appoint a second
independent director promptly after the completion of this Offering in the event
that the Underwriter does not designate a nominee to the Board who is reasonably
acceptable to the Company and independent with respect to the Company. In
addition, although the Board intends to establish an independent audit committee
and compensation committee upon the completion of this Offering, the Board
currently does not have such committees. See "Management -- Executive Officers
and Directors."
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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 $5,056,250 (or $5,886,000 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 19.78%
Southeast U.S. facility and equipment expansion (2)................................... 600,000 11.87%
Repayment of the Bank Debt (3)........................................................ 500,000 9.89%
Bank Debt loan closing fee (3)........................................................ 50,000 0.99%
Repayment of advances from Meridian (4)............................................... 490,000 9.69%
Repayment of Bridge Note, including interest (5)...................................... 260,000 5.14%
U.S. EPA Part B permit approval costs................................................. 250,000 4.94%
Polymeric Recovery System improvements................................................ 150,000 2.97%
Working capital (6)................................................................... 1,756,250 34.73%
------------ ------------
$ 5,056,250* 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 year 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
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<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) The Company estimates that it will owe Meridian approximately $4,020,000
immediately prior to the completion of this Offering, of which $2,000,000
will be exchanged for 1,000,000 shares of Meridian Preferred Stock and
approximately $1,530,000 will be contributed to the capital of the Company
as a capital contribution with respect to Meridian's Common Stock in the
Company. Meridian will receive, in addition to the Meridian Preferred Stock,
$490,000 from the net proceeds of this Offering for the repayment of
advances from Meridian to the Company. 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.
See "Management's Discussion and Analysis of Financial Condition and the Results
of Operations -- Liquidity and Capital Resources."
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) the
issuance and sale of 1,250,000 shares of Common Stock and 1,250,000 Warrants
pursuant to this Offering, (b) the repayment of $490,000 of advances from
Meridian, (c) the exchange of $2,000,000 of advances from Meridian for 1,000,000
shares of Meridian Preferred Stock and a capital contribution by Meridian to the
Company of the remaining debt owed to Meridian estimated to be approximately
$1,530,000, and (d) the partial repayment of $500,000 on the Bank Debt and the
refinancing of the remaining Bank Debt of $1,661,000 into long-term debt. The
Meridian Preferred Stock bears a cumulative dividend of 8% per annum, is
non-voting and has a liquidation preference equal to the amount of indebtedness
exchanged by Meridian. Subject to certain conditions, the Meridian Preferred
Stock is redeemable at its liquidation value of $2.00 per share at the option of
the Company after five years from the date of completion of this Offering. The
number of shares of Meridian Preferred Stock issued by the Company equals the
amount of debt exchanged by Meridian divided by the $2.00 liquidation value. The
Company estimates a fair market value of $1.30 per share of the Meridian
Preferred Stock based on an annual return of approximately 15% over a ten year
period. The amount of debt contributed by Meridian to the Company as a capital
contribution with respect to its Common Stock in the Company and the difference
between the amount of debt exchanged ($2,000,000) and the estimated fair market
value of the shares of Meridian Preferred Stock ($1,300,000) are reflected in
the as adjusted amount of "Capital in excess of par value." 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," "Relationships Between the
Company and Meridian" and "Description of Securities -- Preferred Stock."
<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)............................................... 3,085,965 902,965
Long-term debt, net of current portion............................................... 1,733,290 3,166,290
Stockholders' equity (net capital deficiency):
Meridian Preferred Stock, $.01 par value; zero shares authorized, none issued and
outstanding, (2,500,000 shares authorized, 1,000,000 issued and outstanding at an
estimated fair market value of $1.30 per share, as adjusted)...................... -- 1,300,000
Common Stock: $.01 par value; 20,000,000 shares authorized; 1,250,000 issued and
outstanding, (2,500,000 issued and outstanding, as adjusted)...................... 12,500 25,000
Capital in excess of par value..................................................... 593,538 7,867,288
Deficit............................................................................ (3,671,974) (3,671,974)
------------ -------------
Total stockholders' equity (net capital deficiency).................................. (3,065,936) 5,520,314
------------ -------------
Total capitalization................................................................. $ 5,399,021 $ 9,589,569
------------ -------------
------------ -------------
</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
$3,378,000 or $(2.70) 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 (i) the 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), and (ii) the contribution of
$1,530,000 by Meridian to the capital of the Company, the pro forma net tangible
book value of the Company would have been approximately $3,208,000, or
approximately $1.28 per outstanding share of Common Stock. This represents an
immediate dilution of $3.72 per share, or 74%, 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... $ (2.70)
Increase per share attributable to shares offered hereby................. 3.98
---------
Pro forma net tangible book value per common share after this Offering..... 1.28
-----
Dilution of net tangible book value per common share to new investors...... $ 3.72(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
$4,038,000 or $1.50 per common share and the dilution per common share to
new investors would have been approximately $3.50. 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 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(1)
---------- ---------- ---------- ---------- ----------
<S> <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)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Loss per common share: (2)
Loss before extraordinary gain............................. $ (0.75)
Extraordinary gain......................................... 0.26
----------
----------
Net loss................................................... $ (0.49)
----------
----------
Pro forma loss per common share: (3)
Loss before extraordinary gain............................. $ (0.60)
----------
----------
BALANCE SHEET DATA:
Working capital (deficiency)................................. $(3,855,044) $(2,862,184) $(2,258,669) $(2,201,117) $(1,920,879)
Total assets................................................. 6,129,790 4,617,583 4,875,188 4,903,737 5,234,966
Property and equipment, net.................................. 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......................... 3,983,701 3,395,472 3,997,208 4,517,317 4,948,355
----------
Receivable from former partner, less current portion......... 1,031,875 1,358,625 1,651,875 1,925,625 2,178,125
Stockholders' equity (net capital deficiency):
Meridian Preferred stock................................... -- -- -- -- --
Common stock............................................... 1 1 1 1 1
Paid-in capital............................................ 581,145 99 99 99 99
Deficit.................................................... (3,156,857) (2,541,000) (2,400,858) (2,478,444) (2,282,205)
---------- ---------- ---------- ---------- ----------
Total stockholders' equity (deficiency)...................... (2,575,711) (2,540,900) (2,400,758) (2,478,344) (2,282,105)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Cash dividends declared per common share..................... 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 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.
(2) Loss per common share is computed using 1,250,000 shares of Common Stock.
For calculation purposes, the 250,000 shares of Common Stock issued to the
Minority Stockholders in November 1996 at a price below the $5.00 per share
proposed public offering price are considered to have been outstanding for
the entire period. The Bridge Warrants, which were issued in August 1997,
are not considered in the calculation of loss per common share because, upon
completion of this Offering, the Bridge warrant exercise price will
automatically be adjusted to a price in excess of the $5.00 per share for
which shares of Common Stock are being sold in connection with this
Offering.
(3) Pro forma loss per common share is computed using historical earnings and
shares of Common Stock outstanding adjusted to (i) eliminate interest
charges on indebtedness expected to be repaid from the net proceeds of this
Offering, and (ii) reflect the number of shares of Common Stock to be sold
in this Offering in connection with the repayment of such indebtedness.
Accordingly, the Company's loss before extraordinary gain was reduced by
$86,017, which represents interest on (A) $ 490,000 of advances from
Meridian, and (B) $500,000 to be applied against the Bank Debt, each
expected to be repaid from the net proceeds of this Offering. For
calculation purposes, the weighted average outstanding shares of Common
Stock were increased by 182,000 shares of Common Stock, which represents the
number of shares of Common Stock to be sold in connection with this Offering
which are required to repay such advances from Meridian and such Bank Debt.
23
<PAGE>
SUMMARY SELECTED CONSOLIDATED FINANCIAL DATA -- CONTINUED
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
AUGUST 31, ---------- ----------
1997 AS
ADJUSTED
(1)
----------
(BALANCE
SHEET
ONLY)
<S> <C> <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
---------- ----------
---------- ----------
Earnings (loss) per common share (2):
Loss before extraordinary gain $ (0.41) $ (0.23)
Extraordinary gain........................................................ -- 0.26
---------- ----------
Net income (loss)......................................................... $ (0.41) $ 0.03
---------- ----------
---------- ----------
Pro forma loss per common share (3):
Loss before extraordinary gain............................................ $ (0.32) $ (0.18)
---------- ----------
---------- ----------
BALANCE SHEET DATA:
Working capital (deficiency)................................................ $1,001,214 $(6,593,738) $(4,945,956)
Total assets................................................................ 10,080,642 6,264,392 5,821,367
Property and equipment, net................................................. 3,719,750 3,719,750 2,733,901
Advances from Meridian...................................................... -- 3,645,702 3,025,234
Long-term debt, less current portion........................................ 3,166,290 1,733,290 2,392,500
Receivable from former partner, less current portion........................ 860,265 860,625 1,196,250
Stockholders' equity (net capital deficiency)............................... 5,520,314 (3,065,936) (2,507,351)
Cash dividends declared per common share.................................... N/A 0 0
OTHER OPERATING DATA:
Depreciation and amortization............................................... $ 220,323 $ 139,591
Capital expenditures........................................................ 287,595 313,863
</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 $490,000 of advances from Meridian, (iii) the exchange of
$2,000,000 of advances from Meridian for 1,000,000 shares of Meridian
Preferred Stock and the contribution by Meridian to the Company's capital of
the remaining debt owed to Meridian estimated to be approximately $1,530,000
(based on an estimate of the intercompany advances which will be due
immediately prior to the date of the completion of this Offering), (iv) the
payment of $500,000 to be applied against the Bank Debt along with a loan
closing fee of $50,000, (v) the refinancing of $1,661,000 of Bank Debt to
long-term debt (current portion $228,000), and (vi) the repayment of the
Bridge Note in the principal amount of $250,000.
(2) Earnings (loss) per common share is computed using 1,250,000 shares of
Common Stock. For calculation purposes, the 250,000 shares of Common Stock
issued to the Minority Stockholders in November 1996 at a price below the
$5.00 per share proposed public offering price are considered to have been
outstanding for the entire period. The Bridge Warrants, which were issued in
August 1997, are not considered in the calculation of earnings (loss) per
common share because, upon completion of this Offering, the Bridge Warrant
exercise price will automatically be adjusted to a price in excess of the
$5.00 per share for which shares of Common Stock are being sold in
connection with this Offering.
(3) Pro forma loss per common share is computed using historical earnings and
shares of Common Stock outstanding adjusted to (i) eliminate interest
charges on indebtedness expected to be repaid from the net proceeds of this
Offering, and (ii) reflect the number of shares of Common Stock to be sold
in this Offering in connection with the repayment of such indebtedness.
Accordingly, the Company's loss before extraordinary gain was reduced by
$48,322 and $38,746 for the six months ended August 31, 1997 and 1996,
respectively, which represents interest on (A) $490,000 of advances from
Meridian and (B) $500,000 to be applied against the Bank Debt, each expected
to be be repaid from the net proceeds of this Offering. For calculation
purposes, the weighted average outstanding shares of Common Stock were
increased by 198,000 shares of Common Stock and 160,087 shares of Common
Stock for the six months ended August 31, 1997 and 1996, respectively, which
represents the number of shares of Common Stock to be sold in connection
with this Offering which are required to repay such advances from Meridian
and such Bank Debt.
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.
Historically, the Company has generated in excess of 97% of its annual sales
revenue from the processing of paint waste. The Company has not generated
significant revenues from the sale of EPI-PURE-TM- because the materials which
EPI-PURE-TM- replaces as a filler are generally inexpensive and the DryPure-TM-
system generates a limited supply of EPI-PURE-TM-. 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-. For these reasons,
management believes that the Company's profitability is substantially dependent
on sales of EPI-MER-TM-. In addition, if the Company is successful in its
marketing of EPI-MER-TM-, the Company believes that the revenue generated from
sales of EPI-MER-TM- will provide the Company with flexibility when pricing its
paint waste processing services. 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.
25
<PAGE>
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
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 primarily related to the 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. In addition, the Company experienced higher utility
costs, which increased by $52,000 over the prior year due primarily to higher
average gas rates.
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
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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 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 an increase of $184,000 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 expenditures
incurred in connection with the commencement of the start-up period for the
Polymeric Recovery System in May 1997, including capital expenditures of
approximately $224,000 related to the Polymeric Recovery System, and debt
service requirements related to the Bank Debt, which was incurred to finance the
construction of the Polymeric Recovery System, of approximately $221,000.
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
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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 ($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 County (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
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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 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
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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
"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. In
its projections, the Company assumed that it will be able to install the on-site
facilities and build the facility in the Southeast region of the United States
within the next three years. The Company also assumed that it will sell the
EPI-MER-TM- generated from the paint waste processed at these facilities at
prices ranging from 15 cents to 20 cents per pound. The Company anticipates that
it must sell EPI-MER-TM- at prices greater than 10 cents per pound to generate
positive cash flow. If (i) the Company's assumptions change or prove to be
inaccurate, (ii) the Company is unable to obtain sufficient financing to
complete its expansion program, or (iii) 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, which includes a $50,000 loan closing
fee, (ii) repay $490,000 of advances from Meridian, (iii) repay the $260,000
Bridge Note, including $10,000 of interest thereon, (iv) make capital
expenditures of $250,000 in connection with the U.S. EPA Part B permit approval,
and (v) make improvements for $150,000 to the Polymeric Recovery System at the
Company's Toledo, Ohio facility 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.
Historically, the Company has generated in excess of 97% of its annual sales
revenue from the processing of paint waste. The Company has not generated
significant revenues from the sale of EPI-PURE-TM- because the materials which
EPI-PURETM replaces as a filler are generally inexpensive and the DryPure-TM-
system generates a limited supply of EPI-PURE-TM-. 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-. For these reasons,
management believes that the Company's profitability is substantially dependent
on sales of EPI-MERTM. In addition, if the Company is successful in its
marketing of EPI-MERTM, the Company believes that the revenue generated from
sales of EPI-MERTM will provide the Company with flexibility when pricing its
paint waste processing services. 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. Further,
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
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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. For
example, by recycling hazardous paint waste, which during the Company's last two
fiscal years have represented approximately 15% of the Company's annual sales
revenue, businesses avoid liability as a "potential responsible party" at the
landfill where their paint waste or incinerated ash is disposed and which may be
declared a Superfund clean-up site. In addition, generators of non-hazardous
paint waste avoid the expense associated with establishing that they did not
contribute to the contamination of a landfill in the event that they are named
as a "potential responsible party" with respect to the contamination. Further,
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
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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.
Incineration of paint waste, which is generally at least twice as expensive
as landfill for the disposal of paint waste, 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 or generation of energy, or (ii)
direct thermal destruction of waste streams, 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 landfills, thereby continuing the generator's
potential long-term liability connected with the disposal of hazardous waste. In
addition, ash generated by the incineration of non-hazardous paint waste may be
designated as potentially causing the contamination of a landfill, thereby
exposing the generator to expenses related to demonstrating that it was not
responsible for contamination.
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 a
landfill. 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
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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 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. The Company does not believe that it
will be required to sell EPI-MERTM in order to be price competitive with other
paint waste processors but that sales of EPI-MERTM will instead provide the
Company with flexibility when pricing its paint waste processing services. See
"Risk Factors -- No Current Sales of EPI-MER-TM-; Developing Market for a New
Product."
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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. The Company has not generated significant revenues from
the sale of EPI-PURE-TM- because the materials which EPI-PURE-TM- replaces as a
filler are generally inexpensive and the DryPure-TM- system generates a limited
supply 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 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.
For example, by recycling hazardous paint waste, which during the Company's last
two fiscal years have represented approximately 15% of the Company's annual
sales revenue, businesses avoid liability as a "potential responsible party" at
the landfill where their paint waste or incinerated ash is disposed and which
may be declared a Superfund clean-up site. In addition, generators of
non-hazardous paint waste avoid the expense associated with establishing that
they did not contribute to the contamination of a landfill in the event that
they are named as a "potential responsible party" with respect to the
contamination. Further, 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 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. The Company anticipates that it will enter into a
long-term agreement with the customer for each on-site facility, including set
prices for processing paint waste and minimum requirements for paint waste
processed on an annual basis, which terms the Company believes to be standard
for on-site paint waste processing facilities. In addition, the Company
anticipates that it will sell the EPI-MER-TM- generated by the Polymeric
Recovery System at each on-site facility. However,
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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."
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- 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
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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 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's
recycling processes 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."
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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, 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).
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DESCRIPTION OF PROCESSES
DRYPURE-TM- SYSTEM.
The Company currently processes over 95% of its paint waste using the
DryPure-TM- system. After testing all incoming paint waste from customers for
unacceptable contaminants, the paint waste is off-loaded into hoppers for
transfer to the DryPure-TM- system. At the beginning of the DryPure-TM- process,
the paint waste is pumped into a thermal fluid dryer where dual Holo-flite
screws filled with 600-degree Fahrenheit oil, indirectly heat the paint waste to
450 degrees Fahrenheit. This heating reaction drives off volatile compounds,
leaving solids consisting of cured cross-linked resins in the form of a powder.
The solids are then passed through a screen separating the cured powder from
uncured paint waste, which is then returned to the dryer for further processing.
Liquids that flash off during the process are captured in a vapor dome and are
routed to the DryPure-TM- waste heat boiler. In this boiler, captured vapors are
combusted as a supplemental fuel with natural gas at 1,400 to 1,600 degrees
Fahrenheit for a dwell time of two seconds and the thermal energy is recycled
back into the system to heat the 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
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.
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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 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
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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, 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.
41
<PAGE>
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 $4,020,000 immediately prior to the completion
of this Offering, of which $2,000,000 will be exchanged for 1,000,000 shares of
Meridian Preferred Stock, approximately $1,530,000 will be contributed to the
capital of the Company and $490,000 will be repaid to Meridian from the net
proceeds of the Offering. To the extent that the amount of debt exchanged by
Meridian for the Meridian Preferred Stock exceeds the fair market value of such
Meridian Preferred Stock, such excess shall be treated as a contribution by
Meridian to the Company's capital. 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 October 31, 1997, the Company had 31 full-time employees and had engaged
two independent contractors. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes that its employee
relations are satisfactory.
LITIGATION
There are no material legal proceedings pending against the Company.
PROPERTIES
The Company owns a 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
42
<PAGE>
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."
43
<PAGE>
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
Joseph D. Van Brackel...................... 36 Treasurer
Spencer I. Browne.......................... 48 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.
JOSEPH D. VAN BRACKEL has been Treasurer of the Company since June 1996.
From June 1995 to May 1996, Mr. Van Brackel served as Corporate Accounting
Manager of Meridian. From January 1994 to June 1995, Mr. Van Brackel served as
Assistant Controller of Chase Brass and Copper Co. and from February 1988 to
December 1993 served as Manager of Consolidations and Reporting of Vickers Inc.
Mr. Van Brackel earned a B.B.A. from the University of Notre Dame.
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.
44
<PAGE>
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.
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.
The Underwriter has not yet designated a nominee to the Board. In the event
that the Underwriter does not designate a nominee to the Board promptly after
the completion of this Offering or the Underwriter's nominee is not reasonably
acceptable to the Company, the directors of the Company will appoint an
independent director to the Board promptly after the completion of this
Offering. After the appointment of a new director, 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 entered into during the three year period
commencing 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 determined that Spencer I. Browne and the new director (either the
Underwriter's nominee or an independent director appointed by the Board) will
serve on the Audit Committee and the Compensation Committee. The Board has not
yet determined which directors will serve on the Stock Option Committee.
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.
45
<PAGE>
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.
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 party of its intention to terminate the agreement. The employment
agreement provides for an initial annual 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 $24,500 upon the completion of this Offering.
46
<PAGE>
Mr. Remillard is employed as Chief Financial Officer and Secretary of the
Company under an agreement expiring November 2000. The employment agreement
provides for an initial annual base salary of $50,000, subject to an increase
each year at the discretion of the Board, and requires that Mr. Remillard work
an average of 20 hours a week. 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 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. The Board amended the Option Plan to, among other
things, increase the number of authorized shares reserved for issuance under the
Option Plan. An aggregate of 235,000 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. In addition, the Company has agreed that it will not
grant any non-qualified stock options at less than 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 or
47
<PAGE>
Section 162(m) 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.
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
75,000 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.
48
<PAGE>
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 the indemnitee must
provide the Company with an undertaking to repay all amounts advanced if it is
determined by the Company or 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 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.
49
<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
400 East 56th Street, Apt. 19D
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%
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DIRECTORS AND EXECUTIVE OFFICERS
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<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 (6 persons)............. 234,333(8) 16.7% 8.8%
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* 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
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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.
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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."
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.
Further, the terms of the refinanced Bank Debt prevent the Company from making
any loans or advances to Meridian.
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."
MERIDIAN PREFERRED STOCK
The Company estimates that it will owe Meridian approximately $4,020,000
immediately prior to the completion of this Offering, of which $2,000,000 will
be exchanged for 1,000,000 shares of Meridian Preferred Stock, approximately
$1,530,000 will be contributed to the capital of the Company and $490,000 will
be repaid to Meridian from the net proceeds of this Offering. To the extent that
the amount of debt
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exchanged by Meridian for the Meridian Preferred Stock exceeds the fair market
value of such Meridian Preferred Stock, such excess shall be treated as a
contribution by Meridian to the Company's capital. 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, pursuant to the Underwriting Agreement, 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. 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."
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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.
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 entered into during the three year period
commencing the date of the completion of this Offering must be reasonably
acceptable to the Underwriter.
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 2,500,000 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 2,500,000 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
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a change in control of the Company. However, there can be no assurance that
shares of Preferred Stock will not be issued at some time in the future.
Preferred Stock may be issued in the future in connection with acquisitions,
financings or such other matters as the Board deems to be appropriate. In the
event that any such shares of Preferred Stock are issued, a Certificate of
Designation, setting forth the series of such Preferred Stock and the relative
rights, privileges and designations with respect thereto, will be filed with the
Secretary of the State of Delaware. The effect of such Preferred Stock is that
the Board alone, within the bounds of and subject to the federal securities laws
and Delaware Law, may be able to authorize the issuance of Preferred Stock which
could have the effect of making a takeover of the Company unpalatable to
potential bidders for the hostile acquisition of the Company. See "Risk Factors
- -- Possible Adverse Effect of Issuance of Preferred Stock."
The Meridian Preferred Stock bears a cumulative dividend of 8% per annum, is
non-voting and has a liquidation preference equal to the amount of the
indebtedness exchanged. Total advances from Meridian are estimated to aggregate
$4,020,000 (including accrued interest payable), of which $2,000,000 will be
converted into Meridian Preferred Stock prior to the completion of this
Offering, $1,530,000 will be contributed to the capital of the Company by
Meridian, and $490,000 will be repaid to Meridian from the net proceeds 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. The Meridian Preferred Stock is redeemable at its liquidation value of
$2.00 per share at the option of the Company after five years from the date of
the completion of this Offering, subject to certain conditions. The number of
shares of Meridian Preferred Stock issued by the Company equals the amount of
debt exchanged by Meridian divided by the $2.00 liquidation value. The Company
estimates a fair market value of $1.30 per share of the Meridian Preferred Stock
based on an annual return of approximately 15% over a ten year period. The
difference between the amount of the debt exchanged ($2,000,000) and the
estimated fair market value of the shares of Meridian Preferred Stock
($1,300,000), along with the amount of debt contributed by Meridian to the
Company as a capital contribution with respect to its common stock in the
Company, estimated to be approximately $1,530,000, will be recorded as
additional paid in capital on the Company's financial statements.
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 quotation of the Common Stock as reported on
The Nasdaq Stock Market or the last sales price if quoted on a national
securities exchange equals or exceeds $8.25 per share, subject to certain
adjustments, 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 on the third
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trading day prior to the date on which the Company gives notice of redemption.
The Warrants will be exercisable until the close of business on the day
immediately preceding the date fixed for redemption. See "Risk Factors --
Adverse Effect of Redemption of Warrants."
The holders of the Warrants have certain anti-dilution protection upon the
occurrence of certain events, including stock dividends, stock splits,
reclassifications, mergers and stock issuances at a price below both the then
current market price of the Common Stock and the exercise price of the Warrants.
The holders of the Warrants have no right to vote on matters submitted to the
stockholders of the Company and have no right to receive dividends. The holders
of the Warrants are not entitled to share in the assets of the Company in the
event of liquidation, dissolution or the winding up of the Company's affairs.
The Company is required to use its reasonable efforts to have a current
registration statement on file with the Commission at all times when the
Warrants may be exercised and to effect appropriate qualifications under the
laws and regulations of the states in which the Common Stock and Warrants are
sold in this Offering in order to comply with applicable laws in connection with
such exercise. There is no assurance that the Registration Statement which
includes this Prospectus can or will be kept current or that the Company 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."
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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.
BOARD OF DIRECTORS
The Company's Second Restated Certificate of Incorporation and By-laws
provide that the Board will consist of not less than three 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. A majority of the Board then in office has the sole
authority to fill any vacancies on the Board. See "Management -- Executive
Officers and Directors."
SPECIAL MEETINGS
Special meetings of the stockholders may be called by the President, a
majority of the Board or by stockholders owning shares representing at least 20%
of the entire capital stock of the Company issued and outstanding and entitled
to vote.
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,
58
<PAGE>
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
59
<PAGE>
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.
60
<PAGE>
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 date of
this Prospectus, 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. The Underwriter's Warrant may not be sold,
transferred, assigned or hypothecated for one year following the date of this
Prospectus, except to officers or partners (not directors) of the Underwriter
and members of the selling group, and/or their respective officers or partners.
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.
61
<PAGE>
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.
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 (equal to 5% of the
first $5 million of transaction consideration, 4% of the next $1 million of
transaction consideration, 3% of the next $1 million of transaction
consideration, 2% of the next $1 million of transaction consideration and 1% of
all transaction consideration therafter) based on the transaction consideration
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
62
<PAGE>
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 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.
The Underwriter is aware that there is a formal order of investigation by
the Commission relating to the Underwriter's trading practices and mark-ups in
connection with securities of a corporation whose 1995 public offering was
underwritten by the Underwriter. Since the issuance of the formal order in June
1996, no charges have been brought. The Underwriter believes that it has
violated no laws or regulations in connection with this matter. The Underwriter
intends to vigorously defend itself against any claims which may be asserted by
the Commission, but there can be no assurance that the pendency of any
investigation or inquiry or any proceeding which may thereafter be instituted or
any remedies granted in connection therewith would not adversely and materially
affect this Offering or subsequent trading in the Common Stock and/or the
Warrants.
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.
63
<PAGE>
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).
64
<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-15
For the Three-Month Periods Ended August 31, 1997 and 1996 (Unaudited):
Condensed Consolidated Statements of Operations.................................... F-16
Condensed Consolidated Statements of Cash Flows.................................... F-17
Notes to Condensed Consolidated Financial Statements (Unaudited)..................... F-18
</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.
ERNST & YOUNG LLP
Toledo, Ohio
May 22, 1997, except for Note 13, as to which the date is August 26, 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; 20,000,000 shares authorized; 1,250,000 shares
issued and outstanding (1,000,000 in 1996).................................... 12,500 10,000
Additional paid-in capital..................................................... 568,646 (9,900)
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 gain................................. (945,136) (139,642) 77,586
Extraordinary gain -- extinguishment of debt (NOTE 8)................... 329,279 -- --
------------ ------------ ------------
Net income (loss)....................................................... $ (615,857) $ (139,642) $ 77,586
------------ ------------ ------------
------------ ------------ ------------
Loss per common share:
Loss before extraordinary gain........................................ $ (0.75)
Extraordinary gain.................................................... 0.26
------------
Net loss.............................................................. $ (0.49)
------------
------------
Pro forma loss per common share:
Loss before extraordinary gain........................................ $ (0.60)
------------
------------
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 1,000,000 shares of common
stock................................... 10,000 (9,900) 100
------------ ----- ---------- ------------- -------------
Balance at February 29, 1996............... 10,000 -- (9,900) (2,541,000) (2,540,900)
Issuance of 250,000 shares of common
stock................................... 2,500 578,546 581,046
Net loss................................. (615,857) (615,857)
------------ ----- ---------- ------------- -------------
Balance at February 28, 1997............... $ 12,500 $ -- $ 568,646 $ (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 250,000 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.
On November 19, 1996 the Company sold to outside investors 250,000 shares of
common stock for gross proceeds of $600,000 ($2.40 per share) 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.
LONG-LIVED ASSETS
Effective March 1, 1996, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." Such adoption
had no impact on the Company's financial statements. The Company evaluates the
recoverability of long-lived assets based on undiscounted projected cash flows,
excluding interest and taxes, when factors indicate that an impairment may
exist.
LOSS PER COMMON SHARE
Loss per common share is computed using 1,250,000 shares of common stock.
For calculation purposes, the 250,000 shares of common stock issued during
fiscal 1997 at a price below the $5.00 per share proposed public offering price
are considered to have been outstanding for the entire period. Common stock
purchase warrants issued in August 1997 are not considered in the calculation of
loss per common share because, upon completion of the proposed public offering,
the exercise price on such warrants will automatically be adjusted to a price in
excess of the $5.00 per share proposed public offering price.
PRO FORMA LOSS PER COMMON SHARE
Pro forma loss per common share is computed using historical earnings and
common shares outstanding adjusted to (i) eliminate interest charges on debt
expected to be repaid from the net proceeds of the proposed public offering and
(ii) reflect the number of shares of common stock to be sold in the proposed
public offering in connection with the repayment of such debt. Accordingly, loss
before extraordinary gain was reduced by $86,017, which represents interest on
(A) $490,000 in advances from Meridian and (B) $500,000 to be applied against
notes payable to a bank, each expected to be repaid from the net proceeds of the
proposed public offering. For calculation purposes, the weighted average
outstanding shares of
F-8
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
common stock were increased by 182,000 shares of common stock, which represents
the number of shares of common stock to be sold in connection with the proposed
public offering which are required to repay such advances from Meridian and such
notes payable to the bank.
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 service
requirements. The obligations of Haden Purification under its assumed liability
are consistent with the terms and requirements of the 8.5% mortgage note payable
to the trustee bank disclosed in Note 8. Haden Purification makes principal,
interest and fee payments directly to the trustee bank. Principal payments,
which amounted to $293,250, $273,750 and $252,500 in 1997, 1996 and 1995,
respectively, reduce the receivable from former partner and reduce long-term
debt in the balance sheet and have been excluded from the statements of cash
flows. Interest and fee payments of $149,099, $173,347 and $207,247 in 1997,
1996 and 1995, respectively, are excluded from the statements of operations and
the statements of cash flows. The current portion of the receivable from Haden
Purification represents the principal payment requirements for Haden
Purification for the next twelve months.
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>
F-9
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
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>
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.
F-10
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
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.
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
F-11
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
8. LONG-TERM DEBT -- (CONTINUED)
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. The Company's agreement with Aster is perpetual
in nature and is exclusive worldwide to the Company except for Mexico and has
patent coverage in North America, Japan and Europe. The Company is required to
pay Aster a $20,000 monthly minimum which can be composed of royalties,
technical service fees and processing fees. Payments made to Aster amounted to
$182,000 during the six months ended August 31, 1997 and $294,000, $296,000,
$63,000 during the fiscal years 1997, 1996 and 1995, respectively, inclusive of
payments for paint waste processed for the Company at Aster's facility.
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
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.
F-12
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
9. COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
The Company is a party to an employment agreement with its President and
Chief Executive Officer (the "President") which becomes effective upon the
completion of the proposed public offering. The Company carries key man life
insurance of $1 million on the President. The employment agreement expires in
July 2002 with automatic one-year extensions upon expiration unless either the
Company or the President notifies the other party of its intention to terminate
the agreement. The employment agreement provides for an initial annual 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 of Directors of the Company. The employment agreement also provides a
deferred compensation benefit of up to $190,000 (which is funded through an
annuity purchased by the Company) and a bonus arrangement based on the Company's
performance. In the event of the termination of the President by the Company
other than for cause within two years of a "change of control" of the Company,
the President will receive an amount equal to the sum of three times his base
salary and all amounts due him through the term of his employment agreement.
Meridian has guaranteed the Company's obligations under the employment agreement
and agreed to vote the shares of common stock which it owns in favor of the
election of the President to the Board.
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.
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>
F-13
<PAGE>
EPI TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FEBRUARY 28, 1997
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.
13. SUBSEQUENT EVENT
On August 26, 1997, the Company's stockholders authorized a 10,000-for-one
split of the common stock and an increase in the number of authorized shares.
All references in the financial statements to the number of common shares and
per common share amounts have been retroactively restated to reflect the
10,000-for-one stock split.
F-14
<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; 20,000,000 shares authorized; 1,250,000 shares issued and
outstanding..................................................................................... 12,500
Additional paid-in capital....................................................................... 593,538
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-15
<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
------------- -------------
------------- -------------
Earnings (loss) per common share:
Loss before extraordinary gain.................................................... $ (0.41) $ (0.23)
Extraordinary gain................................................................ -- 0.26
------------- -------------
Net income (loss)................................................................. $ (0.41) $ 0.03
------------- -------------
------------- -------------
Pro forma loss per common share:
Loss before extraordinary gain.................................................... $ (0.32) $ (0.18)
------------- -------------
------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-16
<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............................................................. 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-17
<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. COMMON STOCK
On August 26, 1997, the Company's stockholders authorized a 10,000-for-one
split of the common stock and an increase in the number of authorized shares.
All references in the financial statement to the number of common shares and per
common share amounts have been retroactively restated to reflect the 10,000-for-
one stock split.
4. EARNINGS (LOSS) PER COMMON SHARE
Earnings (loss) per common share is computed using 1,250,000 shares of
common stock. For calculation purposes, the 250,000 shares of common stock
issued during fiscal 1997 at a price below the $5.00 per share proposed public
offering price are considered to have been outstanding for the entire period.
Common stock purchase warrants issued in August 1997 are not considered in the
calculation of earnings (loss) per common share because, upon completion of the
proposed public offering, the exercise price on such warrants will automatically
be adjusted to a price in excess of the $5.00 per share proposed public offering
price.
5. PRO FORMA LOSS PER COMMON SHARE
Pro forma loss per common share is computed using historical earnings and
common shares outstanding adjusted to (i) eliminate interest charges on debt
expected to be repaid from the net proceeds of the proposed public offering and
(ii) reflect the number of shares of common stock to be sold in the proposed
public offering in connection with the repayment of such debt. Accordingly, loss
before extraordinary gain was reduced by $48,322 and $38,746 for the six months
ended August 31, 1997 and 1996, respectively, which represents interest on (A)
$490,000 in advances from Meridian and (B) $500,000 to be applied against notes
payable to a bank, each expected to be repaid from the net proceeds of the
proposed public offering. For calculation purposes, the weighted average
outstanding shares of common stock were increased by 198,000 shares of common
stock and 160,087 shares of common stock for the six months ended August 31,
1997 and 1996, respectively, which represents the number of shares of common
stock to be sold in connection with the proposed public offering which are
required to repay such advances from Meridian and such notes payable to the
bank.
F-18
<PAGE>
6. 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-19
<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................................................................ 44
Principal Stockholders.................................................... 50
Relationships Between the Company and Meridian............................ 52
Certain Other Relationships and Related Transactions...................... 54
Description of Securities................................................. 54
Certain Federal Income Tax Considerations................................. 58
Shares Eligible for Future Sale........................................... 59
Underwriting.............................................................. 61
Legal Matters............................................................. 63
Experts................................................................... 63
Additional Information.................................................... 63
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 REDEEMABLE COMMON STOCK PURCHASE 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
NASD Filing Fee.................................................... 2,170
Boston Stock Exchange Filing Fee................................... 5,000
Nasdaq Filing Fee.................................................. 1,000
Printing Expenses.................................................. 125,000
Legal Fees and Expenses............................................ 110,000
Underwriter's Nonaccountable Expense Allowance..................... 191,250
Underwriter's Consulting Fee....................................... 100,000
Accounting Fees and Expenses....................................... 65,000
"Blue Sky" Fees and Expenses....................................... 35,000
Transfer Agent, Warrant Agent and Registrar Fees................... 20,000
Miscellaneous...................................................... 21,771
----------
Total........................................................ $ 681,250
----------
----------
</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 6 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 an aggregate of
$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. The Bridge Warrant comes
into warrants with substantially the same terms as the Warrants upon completion
of this Offering.
In November 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.
4.4 Form of Certificate of Designation for the Meridian Preferred Stock.
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 July 25, 1997 between the Company and Real P. Remillard.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
*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 Agreement between the Company and the Minority Stockholders.
10.20 Form of Registration Rights Agreement among the Company, the holder of the Bridge
Warrants and the Minority Stockholders.
10.21 Form of First Amendment to Employment Agreement dated July 30, 1996 between Bruce
F. Maison and the Company.
**10.22 First Amendment to Letter Agreement dated July 30, 1996 between Bruce F. Maison and
Meridian.
10.23 Form of Amended and Restated 1997 Non-Qualified and Incentive Stock Option Plan
*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 of the Company.
*27.1 Financial Data Schedule.
</TABLE>
- --------------
* Filed previously.
** To be filed by an 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-3
<PAGE>
(ii)To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high and of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement.
(iii)
To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement.
(2) That, for the purpose of determining 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
DECEMBER 10, 1997.
EPI TECHNOLOGIES, INC.
By: /s/ Bruce F. Maison
-----------------------------------
Bruce F. Maison
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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>
* President, Chief Executive Officer and
-------------------------------------- Director December 10, 1997
Bruce F. Maison
* Chief Financial Officer and Secretary
-------------------------------------- December 10, 1997
Real P. Remillard
* Chairman of the Board and Director
-------------------------------------- December 10, 1997
William D. Feniger
* Director
-------------------------------------- December 10, 1997
Spencer I. Browne
* Director
-------------------------------------- December 10, 1997
James L. Rosino
</TABLE>
By: /s/ Bruce F. Maison
-------------------------
Bruce F. Maison
ATTORNEY-IN-FACT
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.........................................................
4.4 Form of Certificate of Designation for the Meridian Preferred Stock.............................
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 July 25, 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 Agreement between the Company and the Minority Stockholders.....................
10.20 Form of Registration Rights Agreement among the Company, the holder of the Bridge Warrants and
the Minority Stockholders......................................................................
</TABLE>
<PAGE>
<TABLE>
<C> <S> <C>
10.21 Form of First Amendment to Employment Agreement dated July 30, 1996 between the Company and
Bruce F. Maison................................................................................
**10.22 First Amendment to Letter Agreement dated July 30, 1996 between Bruce F. Maison and Meridian....
10.23 Form of Amended and Restated 1997 Non-Qualified and Incentive Stock Option Plan.................
*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 of the Company................................................................
*27.1 Financial Data Schedule.........................................................................
</TABLE>
- --------------
* Filed previously.
** To be filed by an amendment
<PAGE>
Exhibit 3.2
SECOND RESTATED
CERTIFICATE OF INCORPORATION
OF
EPI TECHNOLOGIES, INC.
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. GENERAL AUTHORIZATION. The aggregate number of shares
which the Corporation is authorized to issue is Twenty-Two Million Five
Hundred Thousand (22,500,000), consisting of:
(1) Twenty Million (20,000,000) shares of Common Stock, with a par value of
$.01 per share ("Common Stock"); and
(2) Two Million Five Hundred Thousand (2,500,000) shares of Preferred
Stock, with a par value of $.01 per share ("Preferred Stock").
B. PREFERRED STOCK. The following is a statement of the express terms,
powers, preferences, rights, qualifications, limitations and restrictions
thereof in respect to the shares of the Preferred Stock:
The Board of Directors of the Corporation is hereby authorized, subject to
the limitations prescribed by law and the provisions of this subsection B, to
provide by resolutions for the issuance of the Preferred Stock in one or more
series, to establish the number of shares to be included in each such series,
and to fix and state the voting powers, the designations, preferences and
relative, participating, optional or other special rights, or qualifications,
limitations, or restrictions thereof, applicable to the shares of each series.
The authority of the Board of Directors with respect to each series shall
include, without limitation, the determination of the following:
(1) The number of shares constituting that series and the distinctive
designation of that series;
(2) The dividend rate and preference as to dividends on the shares of that
series, whether dividends shall be cumulative and the date or dates, if any,
from which dividends thereon shall be cumulative;
<PAGE>
(3) The voting powers, if any, of the shares of that series;
(4) Whether shares of that series shall have conversion or exchange
privileges and, if so, the terms and conditions of such conversion or exchange
privileges, including provision for adjustments in such events as the Board of
Directors shall determine;
(5) Whether or not the shares of that series shall be redeemable, and if
so, the terms and conditions of such redemption, including, without limitation,
the date or dates on or after which they shall be redeemable, and the amount per
share payable in the event of redemption, which amount may vary under different
conditions and at different redemption dates;
(6) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation;
(7) Whether shares of that series shall be entitled to the benefit of
sinking fund provisions and, if so, on what terms and conditions; and
(8) Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and privileges of
shares of that series, provided, however, that no such rights, privileges,
qualifications, limitations or restrictions shall be in conflict with this
Second Restated Certificate of Incorporation.
The shares of each series authorized by the Board of Directors hereunder
may vary from the shares of any other series as to rights, privileges,
qualifications, limitations or restrictions applicable thereto.
C. COMMON STOCK. The following is a statement of the express terms,
powers, preferences, rights, qualifications, limitations and restrictions of the
Common Stock of the Corporation.
(1) GENERALLY:
All preferences, voting powers, relative, participating, optional or other
special rights and privileges, and qualifications, limitations, or restrictions
of the Common Stock are expressly made subject and subordinate to those that may
be fixed with respect to the Preferred Stock.
(2) VOTING RIGHTS:
Except as otherwise required by law or this Second Restated Certificate of
Incorporation, each holder of Common Stock shall have one vote in respect of
each share of Common Stock held by him of record on the books of the Corporation
for the election of directors and on all matters submitted to a vote of
stockholders of the
2
<PAGE>
Corporation. Except as otherwise required by law or as set forth in this
Second Restated Certificate of Incorporation or in the terms of a class of
Preferred Stock, the holders of Common Stock and the Preferred Stock shall
vote together as a single class on all matters submitted to the stockholders
for a vote.
(3) DIVIDENDS:
The holders of outstanding Common Stock shall be entitled to receive dividends
when, as and if declared by the Board of Directors from funds legally available
therefor, subject to the dividend rights of the holders of outstanding shares of
the Preferred Stock.
(4) DISSOLUTION, LIQUIDATION OR WINDING UP:
In the event of any dissolution, liquidation or winding up of the affairs of the
Corporation, subject to the rights and preferences of the holders of shares of
the Preferred Stock, the holders of Common Stock shall be entitled to receive
all of the remaining assets of the Corporation of whatever kind available for
distribution to stockholders ratably in proportion to the number of Common Stock
held by them respectively, unless otherwise provided by law or this Second
Restated Certificate of Incorporation.
FIFTH: The Corporation is to have perpetual existence.
SIXTH: In furtherance and not in limitation of the powers conferred by
statute, the Corporation's Board of Directors is expressly authorized:
To make, alter or repeal the by-laws 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
Second 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
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stock or other securities of any other corporation or corporations)
as the Corporation's Board of Directors shall deem appropriate
and in the best interests of the Corporation.
SEVENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors and/or on all the
stockholders or class of stockholders, of this Corporation, as the case may be,
and also on this Corporation.
EIGHTH: Meetings of stockholders may be held within or without the
State of Delaware, as the by-laws 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 by-laws of the
Corporation. Elections of directors need not be by written ballot unless the
by-laws of the Corporation shall so provide.
NINTH: The business and affairs of the Corporation shall be managed by or
under the direction of its Board of Directors, which shall consist of not less
than three directors, the exact number of directors to be determined from time
to time by resolution adopted by affirmative vote of a majority of the entire
Board of Directors. The Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors, initially with Class I directors being elected
for a one-year term, Class II directors for a two-year term and Class III
directors for a three-year term. At each succeeding annual meeting of
stockholders, beginning in 1998, successors to the class of directors whose term
expires at that annual meeting shall be elected for a three-year term. If the
number of directors is changed, any increase or decrease shall be apportioned
among the classes so as to maintain the number of directors in each class as
nearly equal as possible, and any additional director of any class elected to
fill a vacancy resulting from an increase in such class shall hold office for a
term that shall coincide with the remaining term of that class, but in no case
will a decrease in the number of directors shorten the term of any incumbent
director. A director shall hold office until the annual meeting for the year in
which his term expires and until his successor shall be elected and shall
qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from
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office. Any vacancy on the Board of Directors may be filled by a majority of
the directors then in office, even if less than a quorum, or by a sole
remaining director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same remaining
term as that of his predecessor. Subject to the rights of the holders of any
class or series of the voting stock then outstanding, any director, or the
entire Board of Directors, may be removed from office at any time, with or
without cause by the affirmative vote of the holders of at least 75% of the
voting power of all of the then-outstanding shares of the voting stock,
voting together as a single class.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Second Restated Certificate of Incorporation applicable thereto
(including the resolutions of the Board of Directors adopted pursuant to Article
FOURTH).
TENTH: Special meetings of the stockholders of the Corporation, for any
purpose or purposes, may be called by the President, by a majority of the
Board of Directors or by stockholders owning shares representing at least 20%
of the entire capital stock of the Corporation issued and outstanding and
entitled to vote. Such request shall state the purpose or purposes of the
meeting.
ELEVENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Second 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, officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as a director, officer,
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employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action in an official
capacity as a director, officer, employee or agent or in any other capacity
while serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Corporation to the fullest extent authorized by the
Delaware General Corporation Law, as the same exists or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights
than said law permitted the Corporation to provide prior to such amendment),
against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA, excise taxes or penalties and amounts paid or to be
paid in settlement) reasonably incurred or suffered by such person in
connection therewith and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure
to the benefit of his heirs, executors and administrators; provided, however,
that, except as provided in subsection B of this Article, the Corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the
Corporation. The right to indemnification conferred in this Article shall be
a contract right and shall include the right to be paid by the Corporation
the expenses incurred in defending any such proceeding in advance of its
final disposition; provided, however, that 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 by the Corporation or a final judicial
decision 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
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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 Second Restated
Certificate of Incorporation, bylaw, agreement, vote of stockholders or
disinterested directors or otherwise.
D. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
E. As used in this Article, references to "the Corporation" shall
include, in addition to the resulting or surviving corporation, any constituent
corporation absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees and agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, shall stand in the same position under the
provisions of this Article with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
F. If this Article or any portion hereof shall be invalidated on any
ground by any court of competent jurisdiction, then the Corporation shall
nevertheless indemnify each director, officer, employee and agent of the
Corporation as to expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including a grand jury
proceeding and an action by the Corporation, to the fullest extent permitted by
any applicable portion of this Article that shall not have been invalidated or
by any other applicable law.
FOURTEENTH: When necessary or appropriate to the meaning hereof, the
singular, plural, masculine, feminine and neuter shall be deemed to include each
other.
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EXHIBIT 3.3
RESTATED BY-LAWS
OF
EPI TECHNOLOGIES, INC.
ARTICLE I
STOCKHOLDERS
Section 1. PLACE OF STOCKHOLDERS' MEETINGS. All meetings of the
stockholders of the Corporation shall be held at such place or places, within
or outside the State of Delaware, as may be fixed by the Board of Directors
from time to time or as shall be specified in the respective notices thereof.
Section 2. DATE, HOUR AND PURPOSE OF ANNUAL MEETINGS OF STOCKHOLDERS.
Annual meetings of stockholders, commencing with the year 1998, shall be held
on such day and at such time as the Directors may determine from time to time
by resolution, at which meeting the stockholders shall elect, by a plurality
of the votes cast at such election, a Board of Directors, and transact such
other business as may properly be brought before the meeting. If for any
reason a Board of Directors shall not be elected at the annual meeting of
stockholders, or if it appears that such annual meeting is not held on such
date as may be fixed by the Directors in accordance with the provisions of
these Restated By-laws, then in either such event the Directors shall cause
the election to be held as soon thereafter as convenient.
Section 3. SPECIAL MEETINGS OF STOCKHOLDERS. Special meetings of the
stockholders of the Corporation, for any purpose or purposes, may be called
by the President, a majority of the Board of Directors, or by stockholders
owning shares representing at least 20% of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose or purposes of the meeting.
Section 4. NOTICE OF MEETINGS OF STOCKHOLDERS. Except as otherwise
expressly required or permitted by the laws of Delaware, not less than 10
days nor more than 60 days before the date of every stockholders' meeting the
Secretary shall give to each stockholder of record entitled to vote at such
meeting written notice stating the place, day and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting
is called. Such notice, if mailed, shall be deemed to be given when
deposited in the United States mail, with postage thereon prepaid, addressed
to the stockholder at the post office address for notices to such stockholder
as it appears on the records of the Corporation.
An affidavit of the Secretary or an Assistant Secretary or of a transfer
agent of the Corporation that the notice has been given shall, in the absence
of fraud, be prima facie evidence of the facts stated therein.
<PAGE>
Section 5. QUORUM OF STOCKHOLDERS.
(a) Unless otherwise provided by the laws of Delaware, at any
meeting of the stockholders the presence in person or by proxy of
stockholders of record of at least a majority of the stock of the
Corporation issued and outstanding and entitled to vote thereat shall
constitute a quorum.
(b) At any meeting of the stockholders at which a quorum shall be
present, a majority of those present in person or by proxy may adjourn the
meeting from time to time without notice other than announcement at the
meeting. In the absence of a quorum, the officer presiding thereat shall
have power to adjourn the meeting from time to time until a quorum shall
be present. Notice of any adjourned meeting other than announcement at the
meeting shall not be required to be given, except as provided in
Section 5(d) below and except where expressly required by law.
(c) At any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting
originally called, but only those stockholders entitled to vote at the
meeting as originally noticed shall be entitled to vote at any adjournment
or adjournments thereof, unless a new record date is fixed by the Board of
Directors.
(d) If an adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
Section 6. CHAIRMAN AND SECRETARY OF MEETING. The Chairman, or in his
absence, the Vice Chairman, or in his absence, the President, or in his
absence, any Vice President, shall preside at meetings of the stockholders.
The Secretary shall act as secretary of the meeting, or in his absence an
Assistant Secretary shall act, or if neither is present, then the presiding
officer shall appoint a person to act as secretary of the meeting.
Section 7. VOTING BY STOCKHOLDERS. Except as may be otherwise provided
by the Second Restated Certificate of Incorporation or by these Restated
By-laws, at every meeting of the stockholders each stockholder shall be
entitled to one vote for each share of stock standing in his name on the
books of the Corporation on the record date for the meeting. All elections
and questions shall be decided by the vote of a majority in interest of the
stockholders present in person or represented by proxy and entitled to vote
at the meeting, except as otherwise permitted or required by the laws of
Delaware, the Second Restated Certificate of Incorporation or these Restated
By-laws.
Section 8. PROXIES. Any stockholder entitled to vote at any meeting of
stockholders may vote either in person or by his attorney-in-fact or any
other manner permitted by the General Corporation Law of the State of
Delaware. Every proxy shall be in writing, subscribed by the stockholder or
his duly authorized attorney-in-fact, but need not be dated, sealed,
witnessed or acknowledged.
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Section 9. LIST OF STOCKHOLDERS.
(a) At least 10 days before every meeting of stockholders, the
Secretary shall prepare or cause to be prepared a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order
and showing the address of each stockholder and the number of shares
registered in the name of each stockholder.
(b) During ordinary business hours, for a period of at least 10 days
prior to the meeting, such list shall be open to examination by any
stockholder for any purpose germane to the meeting, either at a place
within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the
place where the meeting is to be held.
(c) The list shall also be produced and kept at the time and place
of the meeting during the whole time of the meeting, and it may be inspected
by any stockholder who is present.
(d) The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list required by this
Section or the books of the Corporation, or to vote in person or by proxy at
any meeting of stockholders.
ARTICLE II
DIRECTORS
Section 1. POWERS OF DIRECTORS. The property, business and affairs of
the Corporation shall be managed by its Board of Directors, which may
exercise all the powers of the Corporation except such as are by the laws of
Delaware or the Second Restated Certificate of Incorporation or these
Restated By-laws required to be exercised or done by the stockholders.
Section 2. NUMBER, METHOD OF ELECTION, TERMS OF OFFICE OF DIRECTORS.
The number of Directors which shall constitute the whole Board of Directors
shall be such as from time to time shall be determined by resolution of the
Board of Directors, but the number shall not be less than three, provided,
however, that the tenure of a Director shall not be affected by any decrease
in the number of Directors so made by the Board. Each Director shall hold
office until his successor is elected and qualified, provided, however, that
a Director may resign at any time.
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Section 3. VACANCIES ON BOARD OF DIRECTORS.
(a) Any Director may resign his office at any time by delivering his
resignation in writing to the Chairman or the President or the Secretary.
It will take effect at the time specified therein, or if no time is
specified, it will be effective at the time of its receipt by the
Corporation. The acceptance of a resignation shall not be necessary to
make it effective, unless expressly so provided in the resignation.
(b) Any vacancy on the Board of Directors may be filled by a
majority of the directors then in office, even if less than a quorum, or
by a sole remaining director. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
Section 4. REMOVAL OF DIRECTORS. Subject to the rights of the holders
of any class or series of the voting stock then outstanding, any director or
the entire Board of Directors may be removed from office, at any time, with
or without cause by the affirmative vote of stockholders owning shares
representing at least 75% of the voting power of all of the then-outstanding
shares of the voting stock, voting together as a single class.
Section 5. MEETINGS OF THE BOARD OF DIRECTORS.
(a) The Board of Directors may hold its meetings, both regular and
special, either within or outside the State of Delaware.
(b) Regular meetings of the Board of Directors may be held without
notice at such time and place as shall from time to time be determined by
resolution of the Board of Directors.
(c) The first meeting of each newly elected Board of Directors for
the election of officers and the transaction of such other business as may
come before it (except the initial Board of Directors) shall be held as
soon as practicable after the annual meeting of the stockholders.
(d) Special meetings of the Board of Directors shall be held
whenever called by direction of the Chairman or the President or at the
request of Directors constituting one-third of the number of Directors
then in office, but not less than two Directors.
(e) The Secretary shall give notice to each Director of any meeting
of the Board of Directors by mailing the same at least two days before the
meeting or by telegraphing, faxing or delivering the same not later than
the day before the meeting. Such notice need not include a statement of
the business to be transacted at, or the purpose of, any such meeting. Any
and all business may be transacted at any meeting of the Board of
Directors. No notice of any adjourned meeting need be given. No notice to
or waiver by any Director shall be required with respect to any meeting at
which the Director is present.
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Section 6. QUORUM AND ACTION. A majority of the total number of
directors shall constitute a quorum for the transaction of business; but if
there shall be less than a quorum at any meeting of the Board, a majority of
those present may adjourn the meeting from time to time. Unless otherwise
provided by the laws of Delaware, the Second Restated Certificate of
Incorporation or these Restated By-laws, the act of a majority of the
Directors present at any meeting at which a quorum is present shall be the
act of the Board of Directors.
Section 7. PRESIDING OFFICER AND SECRETARY OF MEETING. The Chairman or,
in his absence, a member of the Board of Directors selected by the members
present, shall preside at meetings of the Board. The Secretary shall act as
secretary of the meeting, but in his absence the presiding officers shall
appoint a secretary of the meeting, who may, but need not, be a Director.
Section 8. ACTION BY CONSENT WITHOUT MEETING. Any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if all members of the Board
or committee, as the case may be, consent thereto in writing and the writing
or writings are filed with the records of the Board or committee.
Section 9. EXECUTIVE COMMITTEE. The Board of Directors may appoint from
among its members and from time to time may fill vacancies in an Executive
Committee to serve during the pleasure of the Board. The Executive Committee
shall consist of three members, or such greater number of members as the
Board of Directors may by resolution from time to time fix. One of such
members shall be the Chairman of the Board, who shall be the presiding
officer of the Committee. During the intervals between the meetings of the
Board, the Executive Committee shall possess and may exercise all of the
powers of the Board in the management of the business and affairs of the
Corporation conferred by these Restated By-laws or otherwise, except to the
extent restricted in the resolutions of the Board of Directors appointing the
members of the Executive Committee. The Committee shall keep a record of all
its proceedings and report the same to the Board. A majority of the members
of the Committee shall constitute a quorum. The act of a majority of the
members of the Committee present at any meeting at which a quorum is present
shall be the act of the Committee.
Section 10. OTHER COMMITTEES. The Board of Directors may also appoint
from among its members such other committees of two or more Directors as it
may from time to time deem desirable, and may delegate to such committees
such powers of the Board as it may consider appropriate.
Section 11. COMPENSATION OF DIRECTORS. Directors shall receive such
reasonable compensation for their service on the Board of Directors or any
committees thereof, whether in the form of salary or a fixed fee for
attendance at meetings, or both, with expenses, if any, as the Board of
Directors may from time to time determine. Nothing herein contained shall be
construed to preclude any Director from serving in any other capacity and
receiving compensation therefor.
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ARTICLE III
OFFICERS
Section 1. EXECUTIVE OFFICERS OF THE CORPORATION. The executive
officers of the Corporation shall be chosen by the Board of Directors and
shall be a President, a Secretary and a Treasurer. The Board of Directors
also may appoint a Chairman of the Board, a Vice Chairman of the Board, and
one or more Vice Presidents, Assistant Secretaries and Assistant Treasurers.
Any two offices except those of Chairman of the Board and Vice Chairman of
the Board, President and Vice President, or President and Secretary may be
filled by the same person. None of the officers need be a member of the
Board except the Chairman of the Board and the Vice Chairman of the Board.
Section 2. CHOOSING OF EXECUTIVE OFFICERS. The Board of Directors at
its first meeting after each annual meeting of stockholders shall choose a
President, a Secretary and a Treasurer.
Section 3. ADDITIONAL OFFICERS. The Board of Directors may appoint such
other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties
as shall be determined from time to time by the Board.
Section 4. SALARIES. The salaries, if any, of officers and agents of
the Corporation specially appointed by the Board shall be fixed by the Board
of Directors.
Section 5. TERM, REMOVAL AND VACANCIES. The officers of the Corporation
shall hold office until their respective successors are chosen and qualify.
Any officer elected or appointed by the Board of Directors may be removed at
any time by the affirmative vote of a majority of the Board of Directors.
Any vacancy occurring in any office of the Corporation by death, resignation,
removal or otherwise shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the Board of Directors and of the
stockholders. In the absence or disability of the Chairman of the Board:
(a) the Vice Chairman of the Board shall preside at all meetings of the Board
of Directors and of the stockholders, and (b) the powers and duties of the
Chairman of the Board shall be exercised jointly by the Vice Chairman of the
Board and the President until such authority is altered by action of the
Board of Directors. The Chairman of the Board shall present to the Annual
Meeting of Stockholders a report of the business of the preceding fiscal year.
Section 7. VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board,
if any, shall have such powers and perform such duties as are provided in
these Restated By-laws or as may be delegated to him by the Chairman of the
Board, and shall perform such other duties as may from time to time be
assigned to him by the Board of Directors.
Section 8. PRESIDENT. The President shall have such powers and perform
such duties as are provided in these Restated By-laws or as may be delegated
to him by the Board of Directors or
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the Chairman of the Board. The President shall be the Chief Executive
Officer of the Corporation and shall have all the duties and responsibilities
previously enumerated for the Chairman of the Board. In the absence of the
Chairman of the Board and the Vice Chairman of the Board, the President shall
preside at all meetings of the stockholders.
Section 9. POWERS AND DUTIES OF THE CHIEF EXECUTIVE OFFICER. The Chief
Executive Officer shall have general charge and supervision of the business
of the Company and shall exercise and perform all the duties incident to the
office of the Chief Executive Officer. He shall have direct supervision of
the other officers and shall also exercise and perform such powers and duties
as may be assigned to him by the Board of Directors.
Section 10. POWERS AND DUTIES OF VICE PRESIDENTS. Any Vice President
designated by the Board of Directors shall, in the absence, disability, or
inability to act of the President, perform all duties and exercise all the
powers of the President and shall perform such other duties as the Board may
from time to time prescribe. Each Vice President shall have such other
powers and shall perform such other duties as may be assigned to him by the
Board.
Section 11. POWERS AND DUTIES OF TREASURER AND ASSISTANT TREASURERS.
(a) The Treasurer shall have the care and custody of all the funds
and securities of the Corporation except as may be otherwise ordered by the
Board of Directors, and shall cause such funds to be deposited to the
credit of the Corporation in such banks or depositories as may be
designated by the Board of Directors, the Chairman, the President or the
Treasurer, and shall cause such securities to be placed in safekeeping in
such manner as may be designated by the Board of Directors, the Chairman,
the President or the Treasurer.
(b) The Treasurer, or an Assistant Treasurer, or such other person
or persons as may be designated for such purpose by the Board of Directors,
the Chairman, the President or the Treasurer, may endorse in the name and
on behalf of the Corporation all instruments for the payment of money,
bills of lading, warehouse receipts, insurance policies and other commercial
documents requiring such endorsement.
(c) The Treasurer, or an Assistant Treasurer, or such other person
or persons as may be designated for such purpose by the Board of Directors,
the Chairman, the President or the Treasurer, may sign all receipts and
vouchers for payments made to the Corporation; he shall render a statement
of the cash account of the Corporation to the Board of Directors as often
as it shall require the same; he shall enter regularly in books to be kept
by him for that purpose full and accurate accounts of all moneys received
and paid by him on account of the Corporation and of all securities received
and delivered by the Corporation.
(d) Each Assistant Treasurer shall perform such duties as may from
time to time be assigned to him by the Treasurer or by the Board of
Directors. In the event of the absence
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of the Treasurer or his incapacity or inability to act, then any Assistant
Treasurer may perform any of the duties and may exercise any of the powers
of the Treasurer.
Section 12. POWERS AND DUTIES OF SECRETARY AND ASSISTANT SECRETARIES.
(a) The Secretary shall attend all meetings of the Board, all
meetings of the stockholders, and shall keep the minutes of all proceedings
of the stockholders and the Board of Directors in proper books provided for
that purpose. The Secretary shall attend to the giving and serving of all
notices of the Corporation in accordance with the provisions of these
Restated By-laws and as required by the laws of Delaware. The Secretary
may, with the President, a Vice President or other authorized officer, sign
all contracts and other documents in the name of the Corporation. He shall
perform such other duties as may be prescribed in these Restated By-laws or
assigned to him and all other acts incident to the position of Secretary.
(b) Each Assistant Secretary shall perform such duties as may from
time to time be assigned to him by the Secretary or by the Board of
Directors. In the event of the absence of the Secretary or his incapacity
or inability to act, then any Assistant Secretary may perform any of the
duties and may exercise any of the powers of the Secretary.
(c) In no case shall the Secretary or any Assistant Secretary,
without the express authorization and direction of the Board of Directors,
have any responsibility for, or any duty or authority with respect to, the
withholding or payment of any federal, state or local taxes of the
Corporation, or the preparation or filing of any tax return.
ARTICLE IV
CAPITAL STOCK
Section 1. STOCK CERTIFICATES.
(a) Every holder of stock in the Corporation shall be entitled to
have a certificate signed in the name of the Corporation by the Chairman or
the President or the Vice Chairman or a Vice President, and by the Treasurer
or an Assistant Treasurer or the Secretary or an Assistant Secretary,
certifying the number of shares owned by him.
(b) If such a certificate is countersigned by a transfer agent other
than the Corporation or its employee, or by a registrar other than the
Corporation or its employee, the signatures of the officers of the
Corporation may be facsimiles and, if permitted by Delaware law, any other
signature on the certificate may be a facsimile.
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(c) In case any officer who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer
before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such officer at the date of issue.
(d) Certificates of stock shall be issued in such form not
inconsistent with the Second Restated Certificate of Incorporation as
shall be approved by the Board of Directors or by the Secretary of the
Corporation. They shall be numbered and registered in the order in which
they are issued. No certificate shall be issued until fully paid.
Section 2. RECORD OWNERSHIP. A record of the name and address of the
holder of each certificate, the number of shares represented thereby, and the
date of issue thereof shall be made on the Corporation's books. The
Corporation shall be entitled to treat the holder of record of any share of
stock as the holder in fact thereof, and accordingly shall not be bound to
recognize any equitable or other claim to or interest in any share on the
part of any other person, whether or not it shall have express or other
notice thereof, except as required by the laws of Delaware.
Section 3. TRANSFER OF RECORD OWNERSHIP. Transfers of stock shall be
made on the books of the Corporation only by direction of the person named in
the certificate or his attorney, lawfully constituted in writing, and only
upon the surrender of the certificate therefor and a written assignment of
the shares evidenced thereby. Whenever any transfer of stock shall be made
for collateral security, and not absolutely, it shall be so expressed in the
entry of the transfer if, when the certificates are presented to the
Corporation for transfer, both the transferor and transferee request the
Corporation to do so.
Section 4. LOST, STOLEN OR DESTROYED CERTIFICATES. Certificates
representing shares of the stock of the Corporation shall be issued in place
of any certificate alleged to have been lost, stolen or destroyed in such
manner and on such terms and conditions as the Board of Directors from time
to time may authorize.
Section 5. TRANSFER AGENT, REGISTRAR, RULES RESPECTING CERTIFICATES.
The Corporation shall maintain one or more transfer offices or agencies where
stock of the Corporation shall be transferable. The Corporation shall also
maintain one or more registry offices where such stock shall be registered.
The Board of Directors may make such rules and regulations as it may deem
expedient concerning the issue, transfer and registration of stock
certificates.
Section 6. FIXING RECORD DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD.
(a) The Board of Directors may fix a date as the record date for the
purpose of determining the stockholders entitled to notice of, or to vote
at, any meeting of the stockholders or any adjournment thereof, which
record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record
date shall not be more than 60 nor less than 10 days before the date of a
meeting of
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the stockholders. A determination of the stockholders of record entitled
to notice of or to vote at a meeting of the stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
(b) The Board of Directors may fix a date as the record date for the
purpose of determining the stockholders entitled to consent to corporate
action in writing without a meeting, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which date shall not be more than 10 days
after the date upon which the resolution fixing the record date is adopted
by the Board of Directors.
(c) The Board of Directors may fix a date as the record date for the
purpose of determining the stockholders entitled to receive payment of any
dividend or other distribution or the allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock, or for any other lawful purpose, which record date shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which record date shall not be more than 60 days
prior to the date of any such action.
ARTICLE V
SECURITIES HELD BY THE CORPORATION
Section 1. VOTING. Unless the Board of Directors shall otherwise order,
the Chairman, the Vice Chairman, the President, any Vice President or the
Treasurer shall have full power and authority on behalf of the Corporation to
attend, act and vote at any meeting of the stockholders of any corporation in
which the Corporation may hold stock and at such meeting to exercise any or
all rights and powers incident to the ownership of such stock, and to execute
on behalf of the Corporation a proxy or proxies empowering another or others
to act as aforesaid. The Board of Directors from time to time may confer
like powers upon any other person or persons.
Section 2. GENERAL AUTHORIZATION TO TRANSFER SECURITIES HELD BY THE
CORPORATION.
(a) Any of the following officers, to-wit: the Chairman, the
President, any Vice President, the Treasurer or the Secretary of the
Corporation shall be and are hereby authorized and empowered to transfer,
convert, endorse, sell, assign, set over and deliver any and all shares of
stock, bonds, debentures, notes, subscription warrants, stock purchase
warrants, evidences of indebtedness, or other securities now or hereafter
standing in the name of or owned by the Corporation, and to make, execute
and deliver under the seal of the Corporation any and all written
instruments of assignment and transfer necessary or proper to effectuate
the authority hereby conferred.
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(b) Whenever there shall be annexed to any instrument of
assignment and transfer executed, pursuant to and in accordance with
the foregoing paragraph (a), a certificate of the Secretary or an
Assistant Secretary of the Corporation in office at the date of such
certificate setting forth the provisions hereof and stating that they
are in full force and effect and setting forth the names of persons
who are then officers of the Corporation, then all persons to whom
such instrument and annexed certificate shall thereafter come shall
be entitled, without further inquiry or investigation and regardless of
the date of such certificate, to assume and to act in reliance upon the
assumption that the shares of stock or other securities named in such
instrument were theretofore duly and properly transferred, endorsed,
sold, assigned, set over and delivered by the Corporation, and that
with respect to such securities the authority of these provisions of
the Restated By-laws and of such officers is still in full force and
effect.
ARTICLE VI
DIVIDENDS
Section 1. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the Corporation may be declared by the Board of Directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, in
property, or in shares of the capital stock, subject to the provisions of the
Second Restated Certificate of Incorporation.
Section 2. PAYMENT AND RESERVES. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sum or sums as the Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
Corporation, or for such other purpose as the Directors shall think conducive
to the interest of the Corporation, and the Directors may modify or abolish
any such reserves in the manner in which they were created. Only
stockholders of record on the date fixed as the record date for the
determination of stockholders entitled to receive payment of any dividend
shall be entitled to receive payment of such dividend, notwithstanding any
transfer of stock on the books of the Corporation after any such record date.
ARTICLE VII
GENERAL PROVISIONS
Section 1. SIGNATURES OF OFFICERS. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person or persons as the Board of Directors may from time to time
designate. The signature of any officer upon any of the foregoing
instruments may be a facsimile whenever authorized by the Board.
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Section 2. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors, and if not so fixed, shall end
on the last day of February of each year.
Section 3. SEAL. Upon resolution of the Board of Directors, the
Corporation may elect to have a corporate seal. In such event, the corporate
seal shall have inscribed thereon the name of the Corporation, the year of
its incorporation and the words "Corporate Seal, Delaware". Said seal may be
used for causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 4. GENDER. When necessary or appropriate to the meaning hereof,
the singular, plural, masculine, feminine and neuter shall be deemed to
include each other.
ARTICLE VIII
WAIVER OF OR DISPENSING WITH NOTICE
Whenever any notice of the time, place or purpose of any meeting of the
stockholders, Directors or a committee is required to be given under the laws
of Delaware, the Second Restated Certificate of Incorporation or these
Restated By-laws, a waiver thereof in writing, signed by the person or
persons entitled to such notice, whether before or after the holding thereof,
or actual attendance at the meeting in person, or in the case of a
stockholder, by his attorney-in-fact, shall be deemed equivalent to the
giving of such notice to such persons. No notice need be given to any person
with whom communication is made unlawful by any law of the United States or
any rule, regulation, proclamation or executive order issued under any such
law.
ARTICLE IX
AMENDMENT OF BY-LAWS
These Restated By-laws, or any of them, may from time to time be
supplemented, amended or repealed by the Board of Directors, or by the vote
of a majority in interest of the stockholders represented and entitled to
vote at any meeting at which a quorum is present.
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Exhibit 4.2
WARRANT AGREEMENT
WARRANT AGREEMENT, dated as of ________, 1997, by and among EPI
TECHNOLOGIES, INC., a Delaware corporation (the "Company"), CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, a New York corporation, as Warrant Agent (the
"Warrant Agent"), and DUKE & CO., INC., a Florida corporation (the
"Underwriter").
W I T N E S S E T H:
WHEREAS, pursuant to an underwriting agreement (the "Underwriting
Agreement") dated ________, 1997 between the Company and the Underwriter, in
connection with (i) a public offering pursuant to a Registration Statement on
Form S-1 (Registration No. 333-37071) (the "Registration Statement") filed
pursuant to the Securities Act of 1933, as amended (the "Act"), and declared
effective by the Securities and Exchange Commission on ________, 1997 of
1,250,000 shares of its Common Stock, par value $0.01 per share (the "Common
Stock"), and 1,250,000 Redeemable Common Stock Purchase Warrants (the
"Warrants") (and up to 187,500 additional shares of Common Stock and up to
187,500 additional Warrants covered by an over-allotment option granted by
the Company to the Underwriter), and (ii) the issuance to the Underwriter or
its designees of warrants to purchase up to an aggregate of 125,000 shares of
Common Stock and/or 125,000 Warrants (the "Underwriter's Warrants"), the
Company will issue up to an aggregate of 1,562,500 Warrants; and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing to so act, in connection with the
issuance, registration, transfer, exchange and redemption of the Warrants,
the issuance of certificates representing the Warrants, the exercise of the
Warrants, and the rights of the holders thereof;
NOW THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and
provisions of the Warrants and the certificates representing the Warrants and
the respective rights and obligations thereunder of the Company, the holders
of certificates representing the Warrants and the Warrant Agent, the parties
hereto agree as follows:
SECTION 1. DEFINITIONS. As used herein, the following terms shall
have the following meanings, unless the context shall otherwise require:
(a) "Common Stock" shall mean the authorized common stock of the Company
of any class, whether now or hereafter authorized, which has the right to
participate in the distribution of earnings
<PAGE>
and assets of the Company without limit as to amount or percentage, which at
the date hereof consists of Common Stock of the Company, $.01 par value.
(b) "Corporate Office" shall mean the office of the Warrant Agent (or
its successor) at which at any particular time its principal business shall
be administered, which office is located on the date hereof at 2 Broadway,
19th Floor, New York, New York 10004.
(c) "Exercise Date" shall mean, as to any Warrant, the date on which the
Warrant Agent shall have received both (i) the warrant certificate
representing such Warrant (a "Warrant Certificate"), with the exercise form
thereon duly executed by the Registered Holder thereof or his attorney duly
authorized in writing, and (ii) payment in cash, or by official bank or
certified check made payable to the Company, of an amount in lawful money of
the United States of America equal to the applicable Purchase Price.
(d) "Initial Warrant Exercise Date" shall mean, as to each Warrant,
_______, 1999 [24 months from Effective Date].
(e) "Purchase Price" shall mean the price to be paid upon exercise of
each Warrant in accordance with the terms hereof, which price shall be $5.50
per share of Common Stock, subject to adjustment from time to time pursuant
to the provisions of Section 9 hereof, and subject to the Company's right to
reduce the Purchase Price upon notice to all Warrant Holders.
(f) "Redemption Price" shall mean the price at which the Company may, at
its option, redeem the Warrants in accordance with the terms hereof, which
price shall be $.10 per Warrant, subject to adjustment from time to time
consistent with the provisions of Section 9 hereof.
(g) "Registered Holder" shall mean the person in whose name any
certificate representing Warrants shall be registered on the books maintained
by the Warrant Agent pursuant to Section 6.
(h) "Transfer Agent" shall mean Continental Stock Transfer & Trust
Company, as the Company's transfer agent, or its authorized successor, as
such.
(i) "Warrant Expiration Date" shall mean, with respect to each Warrant,
5:00 p.m. (Eastern time) on _________, 2002 [5 years after Effective Date],
or on the business day immediately preceding the date fixed for redemption
(as set forth in Section 8), whichever is earlier; provided that if such date
shall in the State of New York be a holiday or a day on which banks are
authorized to close, then 5:00 p.m. (Eastern time) on the next following day
which in the State of New York is not a holiday nor a day on which banks are
authorized to close. Upon notice to all
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Warrant Holders, the Company shall have the right to extend the Warrant
Expiration Date.
SECTION 2. WARRANTS AND ISSUANCE OF WARRANT CERTIFICATES.
(a) Each Warrant shall initially entitle the Registered Holder of the
Warrant Certificate representing such Warrant to purchase one (1) share of
Common Stock upon the exercise thereof, in accordance with the terms hereof,
subject to modification and adjustment as provided in Section 9.
(b) Upon execution of this Agreement, Warrant Certificates representing
the number of Warrants sold pursuant to the Underwriting Agreement shall be
executed by the Company and delivered to the Warrant Agent. Upon written
order of the Company signed by its President or Chairman or a Vice President
and by its Secretary or an Assistant Secretary, the Warrant Certificates
shall be countersigned, issued and delivered by the Warrant Agent.
(c) From time to time up to the Warrant Expiration Date, the Transfer
Agent shall countersign and deliver stock certificates in required whole
number denominations representing up to an aggregate of 1,562,500 shares of
Common Stock, subject to adjustment as described herein, upon the exercise of
Warrants in accordance with this Agreement.
(d) From time to time up to the Warrant Expiration Date, the Warrant
Agent shall countersign and deliver Warrant Certificates in required whole
number denominations to the persons entitled thereto in connection with any
transfer or exchange permitted under this Agreement; provided that no Warrant
Certificates shall be issued except (i) those initially issued hereunder,
(ii) those issued on or after the Initial Warrant Exercise Date upon the
exercise of fewer than all Warrants represented by any Warrant Certificate to
evidence any unexercised Warrants held by the exercising Registered Holder,
(iii) those issued upon any transfer or exchange pursuant to Section 6; (iv)
those issued in replacement of lost, stolen, destroyed or mutilated Warrant
Certificates pursuant to Section 7; (v) those issued pursuant to the
Underwriter's Warrants; and (vi) those issued at the option of the Company,
in such form as may be approved by its Board of Directors, to reflect any
adjustment or change in the Purchase Price, the number of shares of Common
Stock purchasable upon exercise of the Warrants or the Redemption Price
therefor made pursuant to Section 9.
(e) Pursuant to the terms of the Underwriter's Warrants, the Underwriter
and its designees may purchase up to an aggregate of 125,000 Warrants.
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SECTION 3. FORM AND EXECUTION OF WARRANT CERTIFICATES.
(a) The Warrant Certificates shall be substantially in the form annexed
hereto as Exhibit A, and may have such letters, numbers or other marks of
identification or designation and such legends, summaries or endorsements
printed, lithographed or engraved thereon as the Company may deem appropriate
and as are not inconsistent with the provisions of this Agreement or as may
be required to comply with any law or with any rule or regulation made
pursuant thereto or with any rule or regulation of any stock exchange on
which the Warrants may be listed, or to conform to usage. The Warrant
Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates) and issued in registered form. Warrants
shall be numbered serially with the letter W on each Warrant Certificate.
(b) Warrant Certificates shall be executed on behalf of the Company by
its Chairman of the Board, President or any Vice President and by its
Secretary or an Assistant Secretary, by mutual signatures or by facsimile
signatures printed thereon. In case any officer of the Company who shall have
signed any of the Warrant Certificates shall cease to be such officer of the
Company before the date of issuance of the Warrant Certificates or before
countersignature by the Warrant Agent and issue and delivery thereof, such
Warrant Certificates may nevertheless be countersigned by the Warrant Agent,
issued and delivered with the same force and effect as though the person who
signed such Warrant Certificates had not ceased to be such officer of the
Company. After countersignature by the Warrant Agent, Warrant Certificates
shall be delivered by the Warrant Agent to the Registered Holder without
further action by the Company, except as otherwise provided by Section 4(a).
SECTION 4. EXERCISE.
(a) Each Warrant may be exercised by the Registered Holder thereof at
any time on or after the Initial Warrant Exercise Date, but not after the
Warrant Expiration Date, upon the terms and subject to the conditions set
forth herein and in the applicable Warrant Certificate. A Warrant shall be
deemed to have been exercised immediately prior to the close of business on
the Exercise Date and the person entitled to receive the securities
deliverable upon such exercise shall be treated for all purposes as the
holder upon exercise thereof as of the close of business on the Exercise
Date. As soon as practicable on or after the Exercise Date, the Warrant
Agent shall forward to the Company the cash or check received from the exercise
of a Warrant and shall notify the Company in writing of the exercise of the
Warrants. Promptly following, and in any event within five (5)
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days after receiving authorization from the Company, the Warrant Agent, on
behalf of the Company, shall cause to be issued and delivered by the Transfer
Agent to the person or persons entitled to receive the same a certificate or
certificates for the securities deliverable upon such exercise (plus a
Warrant Certificate for any remaining unexercised Warrants of the Registered
Holder). Notwithstanding anything in the foregoing to the contrary, no
Warrant will be exercisable unless at the time of exercise the Company has
filed with the Securities and Exchange Commission a registration statement
under the Act covering the shares of Common Stock issuable upon exercise of
such Warrant and such shares have been so registered or qualified or deemed
to be exempt under the securities laws of the state of residence of the
Registered Holder of such Warrant. The Company shall use its reasonable efforts
to have all shares so registered or qualified on or before the date on which the
Warrants become exercisable.
(b) If, on the Exercise Date in respect of the exercise of any Warrant
at any time on or after the Initial Warrant Exercise Date, (i) the market
price of the Common Stock is equal to or greater than the then Purchase Price
of the Warrant, (ii) the exercise of the Warrant is solicited by the
Underwriter at such time as the Underwriter is a member of the National
Association of Securities Dealers, Inc. ("NASD"), (iii) the Warrant is not
held in a discretionary account, (iv) disclosure of the compensation
arrangement is made in documents provided to the holders of the Warrants and
(v) the solicitation of the exercise of the Warrant is not in violation of
Regulation M (as such regulation or any successor regulation or rule may be
in effect as of such time of exercise) promulgated under the Securities
Exchange Act of 1934, as amended, then the Underwriter shall be entitled to
receive from the Company, upon exercise of the each of Warrant(s), a fee of
five percent (5%) of the aggregate Purchase Price of the Warrants so
exercised (the "Exercise Fee"). Within five (5) days of the last day of each
month commencing with the Initial Warrant Exercise Date and ending on the
Warrant Expiration Date, the Warrant Agent will notify the Underwriter of
each Warrant Certificate which has been properly completed for exercise by
holders of Warrants during the last month. The Company and Warrant Agent
shall determine, in their sole and absolute discretion, whether a Warrant
Certificate has been properly completed. The Warrant Agent will provide the
Underwriter with such information, in connection with the exercise of each
Warrant, as the Underwriter shall reasonably request. The Company hereby
authorizes and instructs the Warrant Agent to deliver to the Underwriter the
Exercise Fee promptly after receipt by the Warrant Agent from the Company of
a check payable to the order of the
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Underwriter in the amount of the Exercise Fee. In the event that an Exercise
Fee is paid to the Underwriter with respect to a Warrant which the Company or
the Warrant Agent determines is not properly completed for exercise or in
respect of which the Underwriter is not entitled to an Exercise Fee, the
Underwriter will promptly return such Exercise Fee to the Warrant Agent which
shall forthwith return such fee to the Company. The Underwriter and the
Company may at any time, after ________, 1999 [second anniversary of date
hereof] and during business hours, examine the records of the Warrant Agent,
including its ledger of original Warrant certificates returned to the Warrant
Agent upon exercise of Warrants. Notwithstanding any provision to the
contrary, the provisions of this paragraph may not be modified, amended or
deleted without the prior written consent of the Underwriter.
SECTION 5. RESERVATION OF SHARES; LISTING; PAYMENT OF TAXES; ETC.
(a) The Company has reserved, and covenants that it will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon exercise of Warrants, such number of shares of
Common Stock as shall then be issuable upon the exercise of all outstanding
Warrants. The Company covenants that all shares of Common Stock which shall
be issuable upon exercise of the Warrants shall, at the time of delivery, be
duly and validly issued, fully paid, nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof (other than those
which the Company shall promptly pay or discharge) and that upon issuance
such shares shall be listed on each national securities exchange, if any, on
which the other shares of outstanding Common Stock of the Company are then
listed or, if applicable, The Nasdaq Stock Market.
(b) The Company hereby agrees that, so long as any unexpired Warrants
remain outstanding, the Company will file such post-effective amendments to
the Registration Statement as may be necessary to permit it to deliver to
each person exercising a Warrant a prospectus meeting the requirements of
Section 10(a)(3) of the Act and otherwise complying therewith, and will
deliver such a prospectus to each such person.
(c) The Company shall pay all documentary, stamp or similar taxes and
other governmental charges that may be imposed with respect to the issuance
of Warrants or the issuance or delivery of any shares upon exercise of the
Warrants; provided, however, that if the shares of Common Stock are to be
delivered in a name other than the name of the Registered Holder of the
Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same had paid to the
Warrant Agent the amount of transfer taxes or charges incident thereto, if
any.
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(d) The Warrant Agent is hereby irrevocably authorized to requisition
the Company's Transfer Agent from time to time for certificates representing
shares of Common Stock issuable upon exercise of the Warrants, and the
Company will authorize the Transfer Agent to comply with all such proper
requisitions. The Company will file with the Warrant Agent a statement
setting forth the name and address of the Transfer Agent of the Company for
shares of Common Stock issuable upon exercise of the Warrants, unless the
Warrant Agent and the Transfer Agent are the same entity.
SECTION 6. EXCHANGE AND REGISTRATION OF TRANSFER.
(a) Warrant Certificates may be exchanged for other Warrant Certificates
representing an equal aggregate number of Warrants of the same class or may
be transferred in whole or in part. Warrant Certificates to be exchanged
shall be surrendered to the Warrant Agent at its Corporate Office, and upon
satisfaction of all the terms and provisions hereof, the Company shall
execute and the Warrant Agent shall countersign, issue and deliver in
exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Warrant Agent shall keep at its office books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof in accordance with its regular
practice. Upon due presentment for registration of transfer of any Warrant
Certificate at such office, the Company shall execute and the Warrant Agent
shall issue and deliver to the transferee or transferees a new Warrant
Certificate or Certificates representing the aggregate number of Warrants so
transferred.
(c) With respect to all Warrant Certificates presented for registration
or transfer, or for exchange or exercise, the "Election to Purchase" or
"Assignment" form, as appropriate, on the reverse thereof shall be duly
endorsed, or be accompanied by a written instrument or instruments of
transfer and subscription, in form satisfactory to the Company and the
Warrant Agent, duly executed by the Registered Holder or his attorney-in-fact
authorized in writing.
(d) A service charge may be imposed by the Warrant Agent for any
exchange or registration of transfer of Warrant Certificates requested by a
Registered Holder. In addition, the Company may require payment by such
Registered Holder of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for exchange in
case of mutilated Warrant Certificates shall be promptly canceled by the
Warrant Agent and thereafter retained by
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the Warrant Agent until termination of this Agreement or resignation as
Warrant Agent, or, with the prior written consent of the Underwriter,
disposed of or destroyed, at the direction of the Company.
(f) Prior to due presentment for registration of transfer thereof, the
Company and the Warrant Agent may deem and treat the Registered Holder of any
Warrant Certificate as the absolute owner thereof and of each Warrant
represented thereby (notwithstanding any notations of ownership or writing
thereon made by anyone other than a duly authorized officer of the Company or
the Warrant Agent) for all purposes and shall not be affected by any notice
to the contrary. The Warrants, which are being publicly offered with shares
of Common Stock pursuant to the Underwriting Agreement, may be purchased
separately from the shares and will be immediately transferable separately
from the Common Stock.
SECTION 7. LOSS OR MUTILATION. Upon receipt by the Company and the
Warrant Agent of evidence satisfactory to them of the ownership of and loss,
theft, destruction or mutilation of any Warrant Certificate and (in case of
loss, theft or destruction) of indemnity satisfactory to them, and (in the
case of mutilation) upon surrender and cancellation thereof, the Company
shall execute and the Warrant Agent shall (in the absence of notice to the
Company and/or Warrant Agent that the Warrant Certificate has been acquired
by a bona fide purchaser) countersign and deliver to the Registered Holder in
lieu thereof a new Warrant Certificate of like tenor representing an equal
aggregate number of Warrants. Applicants for a substitute Warrant
Certificate shall comply with such other reasonable regulations and pay such
other reasonable charges as the Warrant Agent may prescribe pursuant to
Section 6(d) or otherwise.
SECTION 8. REDEMPTION.
(a) Commencing on the Initial Warrant Exercise Date, on prior written
notice as required pursuant to the provisions of paragraph (b) of this
Section 8 below, the Warrants may, with the prior written consent of the
Underwriter, be redeemed by the Company at the Redemption Price, provided the
closing bid quotation of the Common Stock on The Nasdaq Stock Market or the
last sales price if quoted on a national securities exchange equals or
exceeds $8.25 per share, subject to adjustment consistent with the provisions
of Section 9 hereof, for 20 consecutive trading days ending on the third
trading day prior to the date on which the Company gives notice of
redemption. All Warrants must be redeemed if any of the Warrants are
redeemed.
(b) In case the Company shall desire to exercise its right to so redeem
the Warrants, it shall request the Warrant Agent, or the Underwriter, to mail
a notice of redemption to each of the Registered Holders of the Warrants to
be redeemed, first
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class, postage prepaid, not earlier than the forty-fifth (45th) day before
the date fixed for redemption and not later than the thirtieth (30th) day
before the date fixed for redemption, at such Registered Holder's last
address as it shall appear on the records of the Warrant Agent. Any notice
mailed in the manner provided herein shall be conclusively presumed to have
been duly given whether or not the Registered Holder receives such notice.
(c) The notice of redemption shall specify (i) the Redemption Price,
(ii) the date fixed for redemption, (iii) the place where the Warrant
Certificates shall be delivered and the Redemption Price paid, (iv) that the
Underwriter will assist each Registered Holder of a Warrant in connection
with the exercise thereof (if the Underwriter has conducted, or caused to be
conducted, the mailing) and (v) that the right to exercise the Warrant shall
terminate at 5:00 p.m. (Eastern time) on the business day immediately
preceding the date fixed for redemption. No failure to mail such notice nor
any defect therein or in the mailing thereof shall affect the validity of the
proceedings for such redemption except as to a holder (a) to whom notice was
not mailed or (b) whose notice was defective. An affidavit of the Warrant
Agent or of the Secretary or an Assistant Secretary of the Underwriter or the
Company that notice of redemption has been mailed shall, in the absence of
fraud, be prima facie evidence of the facts stated therein.
(d) Any right to exercise a Warrant that has been called for redemption
shall terminate at 5:00 p.m. (Eastern time) on the business day immediately
preceding the date fixed for redemption. After such termination, Holders of
the redeemed Warrants shall have no further rights except to receive, upon
surrender of the redeemed Warrant, the Redemption Price.
(e) From and after the date fixed for redemption, the Company shall, at
the place specified in the notice of redemption, upon presentation and
surrender to the Company by or on behalf of the Registered Holder thereof of
one or more Warrants to be redeemed, deliver or cause to be delivered to or
upon the written order of such Holder a sum in cash equal to the Redemption
Price of each such Warrant. From and after the date fixed for redemption and
upon the deposit or setting aside by the Company of a sum sufficient to
redeem all the Warrants called for redemption, such Warrants shall expire and
become void and all rights hereunder and under the Warrant Certificates,
except the right to receive payment of the Redemption Price, shall cease.
SECTION 9. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES OF
COMMON STOCK OR WARRANTS.
(a) (i) In the event the Company shall, at any time or from time to
time after the date hereof, issue any shares of Common Stock as a stock
dividend to the holders of Common Stock, or
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subdivide or combine the outstanding shares of Common Stock into a greater or
lesser number of shares (any such sale, issuance, subdivision or combination
being herein called a "Change of Shares"), then, and thereafter upon each
further Change of Shares, the applicable Purchase Price in effect immediately
prior to such Change of Shares shall be changed to a price (calculated to the
nearest cent) determined by multiplying the Purchase Price in effect
immediately prior thereto by a fraction, the numerator of which shall be the
total number of shares of Common Stock outstanding immediately prior to such
Change of Shares and the denominator of which shall be the total number of
shares of Common Stock outstanding immediately after such Change of Shares.
(ii) Subject to the exceptions referred to in Section 9(h), in the
event that the Company shall at any time or from time to time issue or sell
any shares of its Common Stock for a consideration per share of Common Stock
less than the then applicable Purchase Price, the Purchase Price shall
thereupon be reduced to a price (calculated to the nearest cent) determined
by dividing (x) an amount equal to the sum of (i) the number of shares of
Common Stock of the Company outstanding immediately prior to such issue or
sale multiplied by the then applicable Purchase Price plus (ii) the
consideration, if any, received by the Company upon such issuance or sale by
(y) the total number of shares of Common Stock of the Company outstanding
immediately after such issuance or sale.
(iii) If the Company shall at any time after the date hereof issue
or sell any shares of any other securities convertible into Common Stock or
any options or warrants to purchase Common Stock (except as provided in
Section 9(h)), including in connection with retirement of outstanding debt,
for a consideration per share less than the Purchase Price in effect
immediately prior to the time of such issue or sale, then, forthwith upon
such issue or sale, the Purchase Price shall be reduced to the price
(calculated to the nearest cent) determined by dividing (x)an amount equal to
the sum of (i) the number of shares of Common Stock outstanding immediately
prior to such issue or sale multiplied by the Purchase Price at the time plus
(ii) the consideration, if any, received by the Company upon such issue or
sale by (y) the total number of shares of Common Stock outstanding
immediately after such issue or sale.
(iv) For purposes of this Section 9(a) the consideration in
connection with any such issue or sale shall be the amount of cash received
by the Company (or, in the case of securities sold to underwriters or dealers
for public offering or to the public through underwriters, the public
offering price) for the sale of such shares or other securities, options or
warrants, before deducting therefrom any commissions or other expenses paid
or incurred by the Company in connection with the issue or sale of such
securities, options or warrants plus any additional cash
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receivable by the Company on conversion or exercise of such other securities,
options or warrants except that, if any portion of such consideration is a
consideration other than cash, the amount of such consideration other than
cash shall be (i) the principal amount thereof, plus any accrued but unpaid
interest thereon and all other amounts payable in connection with such debt
including for expenses and yield maintenance premiums, in the case of debt
forgiven, exchanged or converted, and (ii) the value of such consideration as
determined in good faith by the Board of Directors of the Company (whose
determination shall be conclusive and shall be evidenced by a resolution of
the Company's Board of Directors filed with the Warrant Agent), in the case
of any other non-cash consideration.
(v) If the conversion or exercise price of any securities
convertible into Common Stock or options or warrants to purchase Common Stock
is not specified at the time of the issue or sale of such securities, option
or warrants, the amount thereof, for purposes only of this Section 9(a),
shall be as determined in accordance with Section 9(i).
(vi) In the event of the issuance or sale by the Company of any
securities convertible into Common Stock or any options or warrants to
purchase Common Stock (except as provided in Section 9(h)), the Company shall
be deemed to have issued the maximum number of shares of Common Stock into
which such convertible securities may be converted or the maximum number of
shares of Common Stock deliverable upon the exercise of such options or
warrants, as the case may be, for the minimum consideration payable in
respect thereof. On the expiration of such options or warrants or the
termination of the right to convert such convertible securities, the Purchase
Price shall be readjusted based upon the number of shares of Common Stock
actually delivered upon the exercise of such options or warrants or upon the
conversion of such convertible securities. Except as provided in the next
preceding sentence no further adjustment of the Purchase Price shall be made
as a result of the actual issuance of shares of Common Stock upon the
exercise of such options or warrants or the conversion of such convertible
securities.
(b) Upon each adjustment of the applicable Purchase Price pursuant to
Section 9(a), the total number of shares of Common Stock purchasable upon the
exercise of each Warrant shall (subject to the provisions contained in
Section 9(c)) be such number of shares (calculated to the nearest tenth)
purchasable at the applicable Purchase Price immediately prior to such
adjustment multiplied by a fraction, the numerator of which shall be the
applicable Purchase Price in effect immediately prior to such adjustment and
denominator of which shall be the applicable Purchase Price in effect
immediately after such adjustment.
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(c) The Company may elect, upon any adjustment of the applicable
Purchase Price, to adjust the number of Warrants outstanding, in lieu of
adjusting the number of shares of Common Stock purchasable upon the exercise
of each Warrant as hereinabove provided, so that each Warrant outstanding
after such adjustment shall represent the right to purchase one share of
Common Stock. Each Warrant held of record prior to such adjustment of the
number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the applicable Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be
the applicable Purchase Price in effect immediately after such adjustment.
Upon each such adjustment of the number of Warrants, the Redemption Price in
effect immediately prior to such adjustment also shall be adjusted by
multiplying such Redemption Price by a fraction, the numerator of which shall
be the Purchase Price in effect immediately after such adjustment and the
denominator of which shall be the Purchase Price in effect immediately prior
to such adjustment. Upon each adjustment of the number of Warrants pursuant
to this Section 9, the Company shall, as promptly as practicable, cause to be
distributed to each Registered Holder of Warrant Certificates on the date of
such adjustment Warrant Certificates evidencing, subject to Section 10, the
number of additional Warrants, if any, to which such Holder shall be entitled
as a result of such adjustment or, at the option of the Company, cause to be
distributed to such Holder in substitution and replacement for the Warrant
Certificates held by such Holder prior to the date of adjustment (and upon
surrender thereof, if required by the Company) new Warrant Certificates
evidencing the number of Warrants to which such Holder shall be entitled
after such adjustment.
(d) In the case of any consolidation or merger of the Company with or
into another corporation (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result in any
reclassification, capital reorganization or other change of outstanding
shares of Common Stock), or in case of any sale or conveyance to another
corporation of the property of the Company as, or substantially as, an
entirety (other than a sale/leaseback, mortgage or other financing
transaction), the Company shall cause effective provision to be made so that
each holder of a Warrant then outstanding shall have the right thereafter, by
exercising such Warrant, to purchase the kind and number of shares of stock
or other securities or property (including cash) receivable upon such
consolidation, merger, sale or conveyance by a holder of the number of shares
of Common Stock that might have been purchased upon exercise of such Warrant,
immediately prior to such consolidation, merger, sale or conveyance. Any
such provision shall include provision for adjustments that shall be as
nearly equivalent as may be practicable to the adjustments provided for in
this Section 9. The
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foregoing provisions shall similarly apply to successive consolidations,
mergers, sales or conveyances.
(e) Irrespective of any adjustments or changes in the Purchase Price or
the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant
Certificates, continue to express the applicable Purchase Price per share,
the number of shares purchasable thereunder and the Redemption Price therefor
as were expressed in the Warrant Certificates when the same were originally
issued.
(f) After each adjustment of the Purchase Price pursuant to this Section
9, the Company will promptly after the fiscal quarter in which such
adjustment was triggered prepare a certificate signed by the Chairman or
President, and by the Secretary or an Assistant Secretary, of the Company
setting forth: (i) the applicable Purchase Price as so adjusted, (ii) the
number of shares of Common Stock purchasable upon exercise of each Warrant
after such adjustment, and, if the Company shall have elected to adjust the
number of Warrants, the number of Warrants to which the Registered Holder of
each Warrant shall then be entitled, and the adjustment in Redemption Price
resulting therefrom, and (iii) a brief statement of the facts accounting for
such adjustment. The Company will promptly file such certificate with the
Warrant Agent and cause a brief summary thereof to be sent by ordinary first
class mail to the Underwriter and to each Registered Holder of Warrants at
his or her last address as it shall appear on the registry books of the
Warrant Agent. No failure to mail such notice nor any defect therein or in
the mailing thereof shall affect the validity thereof except as to the holder
to whom the Company failed to mail such notice, or except as to the holder
whose notice was defective. The affidavit of an officer of the Warrant Agent
or the Secretary or an Assistant Secretary of the Company that such notice
has been mailed shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
(g) For purposes of Section 9(a), 9(b) and 9(c) hereof, the following
provisions (i) and (ii) shall also be applicable.
(i) The number of shares of Common Stock outstanding at any given
time shall include shares of Common Stock owned or held by or for the account
of the Company and the sale or issuance of such treasury shares or the
distribution of any such treasury shares shall not be considered a Change of
Shares for purposes of said sections.
(ii) No adjustment of the Purchase Price shall be made unless such
adjustment would require an increase or decrease of at least $0.05 in such
price; provided that any adjustments which by reason of this clause (ii) are
not required to be made
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shall be carried forward and shall be made at the time of and together with
the next subsequent adjustment which, together with any adjustment(s) so
carried forward, shall require an increase or decrease of at least $0.05 in
the Purchase Price then in effect hereunder.
(h) No adjustment to the Purchase Price or to the number of shares of
Common Stock purchasable upon the exercise of each Warrant will be made,
however, with respect to the following:
(1) upon the issuance or exercise of any of the Warrants;
(2) upon (i) the issuance or sale of shares of Common Stock
pursuant to options, warrants or convertible or exchangeable securities
outstanding as of the date of this Agreement or (ii) issuance of shares of
Common Stock pursuant to the Company's 1997 Non-Qualified and Incentive Stock
Option Plan and 1997 Non-Employee Directors' Stock Option Plan as each of
such plans exists on the date hereof; or
(3) upon the issuance of any shares of Common Stock in connection
with a consolidation or merger in which the Company or a wholly owned
subsidiary of the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of the
outstanding Common Stock, or (ii) pursuant to and in connection with the
acquisition by the Company or any wholly owned subsidiary of the Company of
all or substantially all of the assets or stock (or other equity interests,
as the case may be) of another entity.
(i) Any determination as to whether an adjustment in the Purchase Price
in effect hereunder is required pursuant to Section 9, or as to the amount of
any such adjustment, if required, shall be binding upon the holders of the
Warrants and the Company if made in good faith by the Board of Directors of
the Company.
(j) If and whenever the Company shall grant to all of the holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into
or exchangeable for or carrying a right, warrant or option to purchase Common
Stock, the Company shall concurrently therewith grant to each of the then
Registered Holders of the Warrants all of such rights, warrants or options to
which each such holder would have been entitled if, on the date of
determination of stockholders entitled to the rights, warrants or options
being granted by the Company, such holder were the holder of record of the
number of whole shares of Common Stock then issuable upon exercise (assuming,
for purposes of this Section 9(j), that the exercise of Warrants is
permissible during periods prior to the Initial Warrant Exercise Date) of his
Warrants. Such grant by the Company to the holders of the Warrants shall be in
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lieu of any adjustment which otherwise might be called for pursuant to this
Section 9.
(k) In case the Company shall, at any time prior to the exercise of a
Warrant, make any distribution of its assets to holders of the Common Stock,
then the Registered Holder of such Warrant who exercises his Warrant after
the record date for determination of those Registered Holders of Common Stock
entitled to such distribution of assets shall be entitled to receive, upon
exercise of the Warrant, in addition to Common Stock, the amount of such
distribution which would have been payable to such Registered Holder had he
been the holder of record of the Common Stock receivable upon exercise of
such Warrant on the record date for the determination of those entitled to
such distribution.
SECTION 10. FRACTIONAL WARRANTS AND FRACTIONAL SHARES.
(a) If the number of shares of Common Stock purchasable upon the
exercise of each Warrant is adjusted pursuant to Section 9 hereof, the
Company shall nevertheless not be required to issue fractions of shares, upon
exercise of the Warrants or otherwise, or to distribute certificates that
evidence fractional shares. With respect to any fraction of a share called
for upon any exercise hereof, the Company shall pay to the Holder an amount
in cash equal to such fraction multiplied by the current market value of such
fractional share, determined as follows:
(i) If the Common Stock is listed on a national securities exchange
or admitted to unlisted trading privileges on such exchange or listed for
trading on The Nasdaq Stock Market, the current value shall be the last
reported sale price of the Common Stock on The Nasdaq Stock Market or such
exchange on the last business day prior to the date of exercise of the
Warrant, or if no such sale is made on such day, the average of the closing
bid and asked prices for such day on such exchange; or
(ii) If the Common Stock is not listed or admitted to unlisted
trading privileges, the current value shall be the mean of the last reported
bid and asked prices reported by the National Quotation Bureau, Inc. on the
last business day prior to the date of the exercise of the Warrant; or
(iii) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value shall be an amount determined in such reasonable manner as may
be prescribed by the Board of Directors of the Company.
SECTION 11. WARRANT HOLDERS NOT DEEMED STOCKHOLDERS. No holder of
Warrants shall, as such, be entitled to vote or to receive dividends or be
deemed the holder of Common Stock that may at any time be issuable upon
exercise of such Warrants for any
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purpose whatsoever, nor shall anything contained herein be construed to
confer upon the holder of Warrants, as such, any of the rights of a
stockholder of the Company or any right to vote for the election of directors
or upon any matter submitted to stockholders at any meeting thereof, or to
give or withhold consent to any corporate action (whether upon any
recapitalization, issuance or reclassification of stock, change of par value
or change of stock to no par value, consolidation, merger or conveyance or
otherwise), or to receive notice of meetings, or to receive dividends or
subscription rights, until such Holder shall have exercised such Warrants and
been issued shares of Common Stock in accordance with the provisions hereof.
SECTION 12. RIGHTS OF ACTION. All rights of action with respect to
this Agreement are vested in the respective Registered Holders of the
Warrants, and any Registered Holder of a Warrant, without consent of the
Warrant Agent or of the holder of any other Warrant, may, in his own behalf
and for his own benefit, enforce against the Company his right to exercise
his Warrants for the purchase of shares of Common Stock in the manner
provided in the Warrant Certificates and this Agreement.
SECTION 13. AGREEMENT OF WARRANT HOLDERS. Every holder of a Warrant,
by his acceptance thereof, consents and agrees with the Company, the Warrant
Agent and every other holder of a Warrant that:
(a) The Warrants are transferable only on the registry books of the
Warrant Agent by the Registered Holder thereof in person or by his attorney
duly authorized in writing and only if the Warrant Certificates representing
such Warrants are surrendered at the office of the Warrant Agent, duly
endorsed or accompanied by a proper instrument of transfer satisfactory to
the Warrant Agent and the Company in their sole discretion, together with
payment of any applicable transfer taxes; and
(b) The Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the holder and as the
absolute, true and lawful owner of the Warrants represented thereby for all
purposes, and neither the Company nor the Warrant Agent shall be affected by
any notice or knowledge to the contrary, except as otherwise expressly
provided in Section 7 hereof.
SECTION 14. CANCELLATION OF WARRANT CERTIFICATES. If the Company
shall purchase or acquire any Warrant or Warrants, the Warrant Certificate or
Warrant Certificates evidencing the same shall thereupon be delivered to the
Warrant Agent and canceled by it and retired.
SECTION 15. CONCERNING THE WARRANT AGENT. The Warrant Agent acts
hereunder as agent and in a ministerial capacity for the
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Company, and its duties shall be determined solely by the provisions of this
Agreement. The Warrant Agent shall not, by issuing and delivering Warrant
Certificates or by any other act hereunder, be deemed to make any
representations as to the validity, value or authorization of the Warrant
Certificates or the Warrants represented thereby or of any securities or
other property delivered upon exercise of any Warrant or whether any stock
issued upon exercise of any Warrant is fully paid and nonassessable.
The Warrant Agent shall not at any time be under any duty or
responsibility to any holder of Warrant Certificates to make or cause to be
made any adjustment of the Purchase Price or the Redemption Price provided in
this Agreement, or to determine whether any fact exists which may require any
such adjustments, or with respect to the nature or extent of any such
adjustment, when made, or with respect to the method employed in making the
same. The Warrant Agent shall not (i) be liable for any recital or statement
of facts contained herein or for any action taken, suffered or omitted by it
in reliance on any Warrant Certificate or other document or instrument
believed by it in good faith to be genuine and to have been signed or
presented by the proper party or parties, (ii) be responsible for any failure
on the part of the Company to comply with any of its covenants and
obligations contained in this Agreement or in any Warrant Certificate, or
(iii) be liable for any act or omission in connection with this Agreement
except for its own negligence or willful misconduct.
The Warrant Agent may at any time consult with counsel satisfactory to it
(who may be counsel for the Company or for the Underwriter) and shall incur
no liability or responsibility for any action taken, suffered or omitted by
it in good faith in accordance with the opinion or advice of such counsel.
Any notice, statement, instruction, request, direction, order or demand
of the Company shall be sufficiently evidenced by an instrument signed by the
Chairman of the Board, President, any Vice President, its Secretary, or
Assistant Secretary (unless other evidence in respect thereof is herein
specifically prescribed). The Warrant Agent shall not be liable for any
action taken, suffered or omitted by it in accordance with such notice,
statement, instruction, request, direction, order or demand believed by it to
be genuine.
The Company agrees to pay the Warrant Agent reasonable compensation for
its services hereunder and to reimburse it for its reasonable expenses
hereunder; it further agrees to indemnify the Warrant Agent and save it
harmless against any and all losses, expenses and liabilities, including
judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent in the execution of its duties and powers hereunder except
losses, expenses and liabilities arising as a result of the Warrant Agent's
negligence or willful misconduct.
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In the event of a dispute under this Agreement between the Company and
the Underwriter regarding proceeds received by the Warrant Agent from the
exercise of the Warrants, the Warrant Agent shall have the right, but not the
obligation, to bring an interpleader action to resolve such dispute.
The Warrant Agent may resign its duties and be discharged from all
further duties and liabilities hereunder (except liabilities arising as a
result of the Warrant Agent's own negligence or willful misconduct), after
giving 30 days' prior written notice to the Company. At least 15 days prior
to the date such resignation is to become effective, the Warrant Agent shall
cause a copy of such notice of resignation to be mailed to the Registered
Holder of each Warrant Certificate at the Company's expense. Upon such
resignation, or any inability of the Warrant Agent to act as such hereunder,
the Company shall appoint a new warrant agent in writing. If the Company
shall fail to make such appointment within a period of 15 days after it has
been notified in writing of such resignation by the resigning Warrant Agent,
then the Registered Holder of any Warrant Certificate may apply to any court
of competent jurisdiction for the appointment of a new warrant agent. Any
new warrant agent, whether appointed by the Company or by such a court shall
be a bank or trust company having a capital and surplus as shown by its last
published report to its stockholders, of not less than Ten Million Dollars
($10,000,000.00), or a stock transfer company. After acceptance in writing of
such appointment by the new warrant agent is received by the Company, such
new warrant agent shall be vested with the same powers, rights, duties and
responsibilities as if it had been originally named herein as the Warrant
Agent, without any further assurance, conveyance, act or deed; but if for any
reason it shall be necessary or expedient to execute and deliver any further
assurance, conveyance, act or deed, the same shall be done at the expense of
the Company and shall be legally and validly executed and delivered by the
resigning Warrant Agent. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning Warrant
Agent and shall forthwith cause a copy of such notice to be mailed to the
Registered Holder of each Warrant Certificate.
Any corporation into which the Warrant Agent or any new warrant agent may
be converted or merged or any corporation resulting from any consolidation to
which the Warrant Agent or any new warrant agent shall be a party or any
corporation succeeding to the trust business of the Warrant Agent shall be a
successor warrant agent under this Agreement without any further act,
provided that such corporation is eligible for appointment as successor to
the Warrant Agent under the provisions of the preceding paragraph. Any such
successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed to the Company and to the Registered Holder of
each Warrant Certificate.
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The Warrant Agent, its subsidiaries and affiliates, and any of its or
their officers or directors, may buy and hold or sell Warrants or other
securities of the Company and otherwise deal with the Company in the same
manner and to the same extent and with like effects as though it were not
Warrant Agent. Nothing herein shall preclude the Warrant Agent from acting
in any other capacity for the Company or for any other legal entity.
SECTION 16. MODIFICATION OF AGREEMENT. Subject to the provisions of
Section 4(b), the Warrant Agent and the Company may by supplemental agreement
make any changes or corrections in this Agreement (i) that they shall deem
appropriate to cure any ambiguity or to correct any defective or inconsistent
provision or manifest mistake or error herein contained or (ii) that they may
deem necessary or desirable and which shall not adversely affect the
interests of the holders of Warrant Certificates; provided, however, that
this Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered Holders of
Warrant Certificates representing not less than a majority of the outstanding
Warrants, and provided, further, that no change in the number of or nature of
the securities purchasable upon the exercise of any Warrant, or the Purchase
Price therefor, or the acceleration of the Warrant Expiration Date, shall be
made without the consent in writing of the Registered Holder of the Warrant
Certificate representing such Warrant, other than such changes as are
specifically prescribed by this Agreement as originally executed.
SECTION 17. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
made three days after such is mailed first class registered or certified
mail, postage prepaid as follows: if to the Registered Holder of a Warrant
Certificate, at the address of such holder as shown on the registry books
maintained by the Warrant Agent; if to the Company, at 810 Chicago Street,
Toledo, Ohio 43611 Attention: President, or at such other address as may
have been furnished to the Warrant Agent in writing by the Company, with a
copy to Benesch, Friedlander, Coplan & Aronoff LLP, 2300 BP America Building,
200 Public Square, Cleveland, Ohio 44114, Attention Ira C. Kaplan, Esq.; if
to the Warrant Agent, at Continental Stock Transfer & Trust Company, 2
Broadway, New York, New York 10004; if to Duke & Co., Inc., at 909 Third
Avenue, 7th Floor, New York, New York 10022, Attention: President, with a
copy sent to Zimet, Haines, Friedman & Kaplan, 460 Park Avenue, New York, New
York 10022, Attention: James Martin Kaplan, Esq.
SECTION 18. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without
reference to principles of conflict of laws.
SECTION 19. BINDING EFFECT. This Agreement shall be binding upon and
inure to the benefit of the Company, the Warrant
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<PAGE>
Agent and the Underwriter, and their respective successors and assigns, and
the holders from time to time of the Warrant Certificates. Nothing in this
Agreement is intended or shall be construed to confer upon any other person
any right, remedy or claim, in equity or at law, or to impose upon any other
person any duty, liability or obligation.
SECTION 20. TERMINATION. This Agreement shall terminate at the close
of business on the Warrant Expiration Date of all the Warrants or such
earlier date upon which all Warrants have been exercised and/or redeemed,
except that the Warrant Agent shall account to the Company for cash held by
it and the provisions of Section 15 hereof shall survive such termination.
SECTION 21. COUNTERPARTS. This Agreement may be executed in several
counterparts, which taken together shall constitute a single document.
IN WITNESS WHEREOF, the parties hereto have caused this warrant Agreement
to be duly executed as of the date first above written.
EPI TECHNOLOGIES, INC.
By:
-------------------------------------
Name:
Title:
CONTINENTAL STOCK TRANSFER &
TRUST COMPANY
By:
-------------------------------------
Name:
Title: Authorized Officer
DUKE & CO., INC.
By:
-------------------------------------
Name:
Title:
20
<PAGE>
EXHIBIT A
(FORM OF FACE OF WARRANT CERTIFICATE)
No. Warrants
VOID AFTER _______, 2002
WARRANT CERTIFICATE FOR PURCHASE OF COMMON STOCK
EPI TECHNOLOGIES, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED, __________ or registered assigns
(the "Registered Holder") is the owner of the number of Redeemable Common Stock
Purchase Warrants ("Warrants") specified above. Each Warrant initially entitles
the Registered Holder to purchase, subject to the terms and conditions set forth
in this Certificate and the Warrant Agreement (as hereinafter defined), one (1)
fully paid and nonassessable share of common stock, $0.01 par value (the "Common
Stock"), of EPI TECHNOLOGIES, INC., a Delaware corporation (the "Company"), at
any time from _________, 1999 to the Expiration Date (as hereinafter defined),
upon the presentation and surrender of this Warrant Certificate with the
Election to Purchase Form on the reverse hereof duly executed, at the corporate
office of CONTINENTAL STOCK TRANSFER & TRUST COMPANY as warrant agent, or its
successor (the "Warrant Agent"), accompanied by payment of $5.50, subject to
adjustment (the "Purchase Price") in lawful money of the United States of
America in cash or by official bank or certified check made payable to the
Company.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement") dated as of _________,
1997, by and among the Company, the Warrant Agent and Duke & Co., Inc. (the
"Underwriter"). Reference is hereby made to said Warrant Agreement for a more
complete statement of the rights and limitations of rights of the Registered
Holder hereof, the rights and duties of the Warrant Agent and the rights and
obligations of the Company thereunder. In the event of a conflict between the
terms of this Warrant Certificate and the Warrant Agreement, the terms of the
Warrant Agreement shall prevail. Copies of said Warrant Agreement are on file
at the office of the Warrant Agent.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price or the number of shares of Common Stock subject to
purchase upon the exercise of each Warrant represented hereby are subject to
modifications or adjustments.
Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional shares of Common
<PAGE>
Stock will be issued. In case of the exercise of less than all the Warrants
represented hereby, the Company shall cancel this Warrant Certificate upon the
surrender hereof and shall execute and deliver a new Warrant Certificate or
Warrant Certificates of like tenor, which the Warrant Agent shall countersign,
for the balance of such Warrants.
The term "Expiration Date" shall mean 5:00 p.m. (Eastern time) on ________,
2002, or on the business day immediately preceding the date fixed for
redemption, whichever is earlier. If such date shall in the State of New York
be a holiday or a day on which the banks are authorized to close, then the
Expiration Date shall mean 5:00 p.m. (Eastern time) on the next following day
which in the State of New York is not a holiday or a day on which banks are
authorized to close.
The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended, with respect to such securities is
effective. This Warrant shall not be exercisable by a Registered Holder in any
state in which it would be unlawful for the Company to deliver the shares of
Common Stock upon exercise of the Warrants represented hereby.
The Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment of this Warrant Certificate at
such office for registration of transfer, together with any transfer fee and any
tax or other governmental charge imposed in connection with such transfer, a new
Warrant Certificate or Warrant Certificates representing an equal aggregate
number of Warrants will be issued to the transferee in exchange therefor,
subject to the limitations provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as may be provided in the Warrant Agreement.
Commencing ________, 1999, this Warrant may, with the prior written consent
of the Underwriter, be redeemed at the option of the Company, at the Redemption
Price (as defined in the Warrant Agreement), provided the closing bid quotation
of the Common Stock on The Nasdaq Stock Market or the last sales price if
quoted on a
<PAGE>
national securities exchange equals or exceeds $8.25 per share (subject to
adjustment as set forth in the Warrant Agreement) for 20 consecutive trading
days ending on the third trading day prior to the date on which the Company
gives notice of redemption. Notice of redemption shall be given not later than
the thirtieth day, and not earlier than the forty fifth day, before the date
fixed for redemption, all as provided in the Warrant Agreement. On and after
the date fixed for redemption, the Registered Holder shall have no rights with
respect to this Warrant except to receive the Redemption Price per Warrant upon
surrender of this Certificate.
Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary.
The Company has agreed to pay a fee of 5% of the Purchase Price to the
Underwriter upon certain conditions as specified in the Warrant Agreement upon
the exercise of this Warrant.
This Warrant Certificate and each Warrant represented hereby shall be
governed by and construed in accordance with the laws of the State of New York.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized, and a facsimile of its corporate seal to be imprinted hereon.
EPI TECHNOLOGIES, INC.
By
--------------------------------------
Its
By
--------------------------------------
Its
Date:
-------------------
Seal
COUNTERSIGNED:
CONTINENTAL STOCK TRANSFER
& TRUST COMPANY, as
Warrant Agent
By
-----------------------
Its Authorized Officer
<PAGE>
(FORM OF REVERSE OF WARRANT CERTIFICATE)
ELECTION TO PURCHASE FORM
To Be Executed by the Registered Holder
in Order to Exercise Warrants
The undersigned Registered Holder hereby irrevocably elects to exercise
(___) Warrants represented by this Warrant Certificate, and to purchase the
securities issuable upon the exercise of such Warrants, and requests that
certificates for such securities shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________
_________________________
_________________________
_________________________
please print or type name and address
and be delivered to
_________________________
_________________________
_________________________
_________________________
please print or type name and address
and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.
The undersigned represents that the exercise of the within Warrant was
solicited by a member of the National Association of Securities Dealers, Inc.
("NASD"). If not solicited by an NASD member, please write "unsolicited" in the
space below. Unless otherwise indicated by listing the name of another NASD
member firm, it will be assumed that the exercise was solicited by Duke & Co.,
Inc.
<PAGE>
Please indicate the name of the NASD member firm which solicited the exercise
of the Warrant.
--------------------------------------
Name of soliciting NASD Member
Dated: __________________
--------------------------------------
Name
(Please Print or Typewrite)
--------------------------------------
Signature
--------------------------------------
Street Address
--------------------------------------
City, State and Zip Code
--------------------------------------
Social Security or Other
Taxpayer ID Number
Signature Guaranteed:
--------------------------------------
<PAGE>
ASSIGNMENT
To Be Executed by the Registered Holder
in Order to Assign Warrants
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto
PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER
_________________________
_________________________
_________________________
_________________________
please print or type name and address
(___) of the Warrants represented by this Warrant Certificate, and hereby
irrevocably constitutes and appoints _______________ Attorney to transfer this
Warrant Certificate on the books of the Company, with full power of substitution
in the premises.
Dated:
------------- -------------------------------------------------------
Signature Guaranteed:
--------------------------------------
THE SIGNATURE TO THE ASSIGNMENT OR THE ELECTION TO PURCHASE FORM MUST
CORRESPOND TO THE NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN
EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER,
AND MUST BE GUARANTEED BY A MEDALLION BANK.
<PAGE>
EXHIBIT 4.4
EPI TECHNOLOGIES, INC.
Certificate of Powers, Designations, Preferences and Rights,
Providing For an Issue of ____________________ shares of
Cumulative Preferred Stock, Par Value $.01 Per Share, Designated
"Meridian Preferred Stock"
We, Bruce Maison, President, and Real P. Remillard, Secretary, of EPI
Technologies, Inc. (hereinafter referred as the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, in accordance with the provisions of Section 151 thereof, do hereby
certify:
That pursuant to authority conferred upon the Board of Directors by the
Corporation's Restated Certificate of Incorporation, said Board of Directors,
by unanimous written consent dated __________, 1997, duly authorized and
adopted the following resolution providing for the issuance of a series of
preferred stock, par value $.01 per share, to be designated "Meridian
Preferred Stock":
"RESOLVED, that effective upon the exchange by Meridian National
Corporation, a Delaware corporation ("Meridian"), of certain indebtedness
owed by the Corporation to Meridian, immediately prior to the effectiveness
of a registration statement filed by the Corporation with respect to an
initial public offering of shares of the Corporation's common stock, par
value $.01 per share ("Common Stock"), an issue of a series of preferred
stock, par value $.01 per share ("Preferred Stock"), to consist of
___________ shares, designated Meridian Preferred Stock, is hereby provided
for and the powers, designations, preferences and rights, and the
qualifications, limitations and restrictions thereof are hereby fixed as
follows:
1. DIVIDEND RATE. (a) To the extent permitted by applicable law, the
holders of record of shares of Meridian Preferred Stock shall be entitled to
receive, when and if declared by the
<PAGE>
Corporation's Board of Directors, dividends on each share of the Meridian
Preferred Stock from the date of its original issue (the "Original Issuance
Date") at a rate of $____ per share per annum. Such dividends shall be
cumulative from the Original Issuance Date and shall be payable, when and as
declared by the Board of Directors, out of funds legally available for such
purpose, on the 120th day following the end of each of the Corporation's
fiscal years, commencing June 28, 1999, (each such date being hereinafter
called individually a "Dividend Payment Date" and collectively the "Dividend
Payment Dates"), except that if any such date is a Saturday, Sunday or legal
holiday then such dividend shall be payable on the first immediately
succeeding calendar day which is not a Saturday, Sunday or legal holiday;
PROVIDED, HOWEVER, that if earnings before interest, taxes, depreciation and
amortization ("EBITDA") of the Corporation computed in accordance with
generally accepted accounting principles for the fiscal year immediately
preceding a Dividend Payment Date is less than five times the aggregate
dividend payable in respect of all shares of Meridian Preferred Stock then
outstanding, the Corporation will only pay a portion of the aggregate
dividend payable on the Dividend Payment Date, 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 of Meridian Preferred Stock originally issued. In the event that the
dividend payable on any Dividend Payment Date is reduced by operation of the
proviso in the preceding sentence, some or all of the dividend unpaid may be
paid on a subsequent Dividend Payment Date if EBITDA in the fiscal year
immediately preceding such subsequent Dividend Payment Date exceeds five
times the aggregate dividend then payable in respect of the shares of
Meridian Preferred Stock then outstanding, with the amount of the unpaid
dividend which may be paid on such subsequent Dividend Payment Date to be
determined by multiplying the
2
<PAGE>
amount of the unpaid dividend by a fraction, the numerator of which is the
amount by which EBITDA in such 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. Each such dividend
shall be paid to the holders of record of shares of the Meridian Preferred
Stock as they appear on the books of the Corporation on the record date fixed
by the Board of Directors of the Corporation. Such record date shall not
exceed 60 days nor be fewer than ten days preceding the Dividend Payment
Dates thereof.
(b) So long as any shares of Meridian Preferred Stock are outstanding,
no dividend or distribution (other than a dividend or distribution paid in
shares of the Corporation's Common Stock, or in any other capital stock of
the Corporation ranking junior to the Meridian Preferred Stock) shall be
declared or paid or set aside for payment upon the Common Stock or upon any
other capital stock of the Corporation ranking junior to the Meridian
Preferred Stock, nor shall any shares of Common Stock or any other capital
stock of the Corporation ranking junior to the Meridian Preferred Stock be
redeemed, purchased or otherwise acquired for any consideration (or any
moneys be paid to or made available for a sinking fund for the redemption of
any shares of any such capital stock) by the Corporation, unless, in each
case, the full cumulative dividends required to have been paid to date on all
outstanding shares of Meridian Preferred Stock shall have been paid.
2. REDEMPTION. (a) The Corporation may, in its sole discretion,
redeem the outstanding shares of Meridian Preferred Stock in full or in part
at the Liquidation Value per share plus Accrued and Unpaid
3
<PAGE>
Dividends (as hereinafter defined) at any time on or after the date which is
120 days after the first full fiscal year in which the Corporation's EBITDA
computed in accordance with generally accepted accounting principals equals
or exceeds $2 million (the "Initial Redemption Date"), PROVIDED, HOWEVER,
that the Initial Redemption Date may not be earlier than the date which is
the fifth anniversary of the Original Issuance Date, PROVIDED, FURTHER, that
such redemption will not cause the Common Stock or any other publicly listed
securities issued by the Corporation to be delisted from the Nasdaq SmallCap
Market or any national securities exchange which the Common Stock or
securities issued by the Corporation are included for quotation or publicly
traded, as the case may be.
For purposes of this Agreement, the term "Accrued and Unpaid Dividends"
shall mean a sum equal to $___ per outstanding share of Meridian Preferred
Stock per annum from the Original Issuance Date accrued to and including the
redemption date, less the aggregate amount of all dividends theretofore paid
thereon.
(b) In the event the Corporation shall redeem shares of the Meridian
Preferred Stock, notice of such redemption shall be given by registered mail,
not less than 30 nor more than 60 days prior to the redemption date, to each
holder of record of the shares to be redeemed, at such holder's address as
the same appears on the books of the Corporation. Each such notice shall
state: (i) the redemption date; (ii) the number of shares of Meridian
Preferred Stock to be redeemed and, if fewer than all the shares held by such
holder are to be redeemed, the number of such shares to be redeemed from such
holder; (iii) the redemption price; (iv) the place or places where
certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will
cease to accrue on such redemption date. In case of the redemption of only a
part of the Meridian Preferred Stock at the time outstanding, such redemption
shall be made PRO RATA as
4
<PAGE>
nearly as practicable, according to the number of shares then held by the
respective holders, with adjustment to the extent practicable to equalize for
any prior redemptions, provided that only full shares shall be selected for
redemption.
(c) Upon notice having been mailed as aforesaid, from and after the
close of business on the redemption date (unless default shall be made by the
Corporation in providing money for the payment of the redemption price of the
shares called for redemption), dividends on the shares of the Meridian
Preferred Stock so called for redemption shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to
receive from the Corporation the redemption price per share) shall cease.
Upon surrender in accordance with said notice of the certificates for any
shares so redeemed (properly endorsed or assigned for transfer, if the Board
of Directors of the Corporation shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the redemption
price aforesaid.
(d) So long as any shares of Meridian Preferred Stock remain
outstanding, any shares of Meridian Preferred Stock which shall at any time
have been redeemed by the Corporation shall, upon such redemption, be retired
and thereafter may not be reissued.
3. VOTING RIGHTS. The shares of Meridian Preferred Stock shall have no
right to vote on matters submitted to the holders of capital stock of the
Corporation except as otherwise required by the General Corporation Law of
the State of Delaware.
4. LIQUIDATION RIGHTS. (a) Upon the dissolution, liquidation or
winding up of the Corporation, whether voluntary or involuntary, the holders
of the shares of Meridian Preferred Stock shall be entitled to receive out of
the assets of the Corporation available for distribution to
5
<PAGE>
stockholders, before any payment or distribution shall be made on the Common
Stock or on any other class of capital stock ranking junior to the Meridian
Preferred Stock in respect of distributions upon liquidation or winding up,
the Liquidation Value per share, plus a sum equal to all Accrued and Unpaid
Dividends whether or not earned or declared by the Corporation's Board of
Directors.
(b) Neither the sale, lease or exchange (for cash, shares of stock,
securities or other consideration) of all or substantially all the property
and assets of the Corporation nor the merger or consolidation of the
Corporation into or with any other corporation or the merger or consolidation
of any other corporation into or with the Corporation, shall be deemed to be
a dissolution, liquidation or winding up, voluntary or involuntary, for the
purposes of this paragraph 4.
(c) After the payment to the holders of the shares of the Meridian
Preferred Stock of the full preferential amounts provided for in this
paragraph 4, the holders of the Meridian Preferred Stock as such shall have
no right or claim to any of the remaining assets of the Corporation.
5. CONVERSION; SINKING FUND. The shares of Meridian Preferred Stock
shall have no conversion or exchange privileges and shall not be entitled to
the benefit of a sinking fund.
IN WITNESS WHEREOF, EPI Technologies, Inc. has caused this certificate to
be signed by its President and Secretary, respectively, this _____ day of
______________, 1997.
____________________________________
Bruce Maison, President
____________________________________
Real P. Remillard, Secretary
6
<PAGE>
[LETTERHEAD]
November 14, 1997
Board of Directors
EPI Technologies, Inc.
810 Chicago Street
Toledo, Ohio 43611
Re: Registration Statement on Form S-1 (No. 333-37071)
Ladies and Gentlemen:
EPI Technologies, Inc., a Delaware corporation (the "Company"), has filed
with the Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended, a Registration Statement on Form S-1 (No. 333-37071) (the
"Registration Statement"), which Registration Statement relates to a proposed
public offering of 1,437,500 shares of common stock, par value $.01 per share
("Common Stock"), of the Company (the "Shares") (including 187,500 Shares
subject to an underwriter's over-allotment option) and warrants to purchase
1,437,500 shares of Common Stock (the "Public Warrants") (including 187,500
Public Warrants subject to an underwriter's over-allotment option), to be sold
pursuant to the terms of a purchase agreement (the "Purchase Agreement") to be
executed by the Company and Duke & Co., Inc. (the "Underwriter"). In accordance
with the terms of an underwriter's warrant agreement to be executed between the
Company and the Underwriter (the "Underwriter's Warrant Agreement"), a copy of
which has been reviewed by us, the Company is also registering, pursuant to the
Registration Statement, a warrant to be issued to the Underwriter (the
"Warrant") pursuant to which the Underwriter will be permitted to purchase up to
125,000 shares of Common Stock (the "Underwriter's Shares") and 125,000 warrants
to purchase shares of Common Stock (the "Underwriter's Warrants").
You have requested our opinion in connection with the Company's filing of
the Registration Statement. In this regard, we have examined and relied on
originals or copies, certified or otherwise identified to our satisfaction as
being true copies, of all such records of the Company, all such agreements,
certificates of officers of the Company and others, and such other documents,
certificates and corporate or other records as we have deemed necessary as a
basis for the opinion expressed in this letter including, without limitation,
the Purchase Agreement, the Company's Restated Certificate of Incorporation, the
Registration Statement and the agreement pursuant to which the shares of Common
Stock underlying the Public Warrants will be issued (the "Warrant Agreement").
In our examination, we have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to us as originals and the conformity
<PAGE>
Board of Directors
EPI Technologies, Inc.
November 14, 1997
Page 2
to original documents of all documents submitted to us as certified or
photostatic copies. As to facts material to the opinions expressed in this
letter, we have relied on statements and certificates of officers of the Company
and of state authorities.
We have investigated such questions of law for the purpose of rendering the
opinions in this letter as we have deemed necessary. We express no opinion in
this letter concerning any law other than the General Corporation Law of the
State of Delaware.
The opinions expressed herein assumes that there is no change in the facts,
circumstances and law in effect on the date of this letter, particularly as they
relate to corporate authority and the Company's good standing under Delaware
law.
On the basis of and in reliance on the foregoing, we are of the opinion
that:
1. The Shares and the Public Warrants, when and if issued and paid for in
accordance with the terms of the Purchase Agreement, will be validly issued,
fully paid and nonassessable.
2. The shares of Common Stock underlying the Public Warrants, when and if
issued and paid for in accordance with the terms of the Warrant Agreement, will
be validly issued, fully paid and nonassessable.
3. The Warrant, the Underwriter's Shares, the Underwriter's Warrants and
the shares of Common Stock underlying the Underwriter's Warrants, when and if
issued and paid for in accordance with the terms of the Underwriter's Warrant
Agreement, will be validly issued, fully paid and nonassessable.
The opinions in this letter are rendered in connection with the filing of
the Registration Statement. We hereby consent to the filing of this letter as
an exhibit to the Registration Statement and to being named in the Registration
Statement under the heading "Legal Matters" as counsel to the Company.
Very truly yours,
/s/ Benesch, Friedlander, Coplan & Aronoff LLP
BENESCH, FRIEDLANDER,
COPLAN & ARONOFF LLP
<PAGE>
Exhibit 10.10
July 25, 1997
Bruce Maison, President
EPI Technologies, Inc.
2111 Champlain Street
Toledo, Ohio 43611
Dear Bruce,
Following are the terms and conditions which would apply to my employment
with EPI Technologies, Inc. upon the consummation of an initial public
offering of EPI securities:
TERM
The term of my employment would be three years from the date of closing of
EPI's initial public offering.
DUTIES AND RESPONSIBILITIES
I would be employed as Chief Financial Officer and Secretary of the Company.
My duties and responsibilities would be commensurate with those generally
associated with those offices.
COMPENSATION AND AMOUNT OF HOURS OF EMPLOYMENT
a. My annual salary would be $50,000 for which I would work 1,000 hours per
year during my term of employment (committed hours). Annual increases would
be at the discretion of the Company's Board of Directors. My salary would be
paid in equal installments consistent with the other salaried employees of
EPI. Holidays observed by salaried employees of EPI would be considered as
hours worked towards the committed hours at the rate of eight hours per
holiday. I would submit monthly reports accounting for time spent by projects.
b. It is expected that my committed hours would generally be spaced out
fairly evenly over my term of employment at the rate of 20 hours per week. If
the accumulated hours worked per month beginning with my term of employment
would exceed or be less than an average of 20 hours from the cumulative
schedule of 20 hours per week, an adjustment would be made at the next pay
period a the rate of $50.00 per hour for hours over or under the 20 hour
difference.
<PAGE>
c. I would be entitled to such medical and hospitalization insurance,
disability insurance, retirement plan benefits, flexible benefit plan, and
such other similar employment privileges and benefits as are afforded
generally from time to time to other salaried employees of EPI.
d. EPI would reimburse me for travel, entertainment, auto expenses and other
expenses reasonably and necessarily incurred by me in the performance of my
duties.
BONUSES AND STOCK OPTIONS
I would be considered for bonus payments and stock options at the discretion
of the Board of Directors of EPI.
Sincerely,
/s/ Real P. Remillard
Real P. Remillard
I am in agreement with the terms and conditions included in this letter.
EPI Technologies, Inc.
By: /s/ Bruce Maison Date: August 22, 1997
------------------------------
Bruce Maison, President
<PAGE>
EXHIBIT 10.18
THIS SUBORDINATED NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). NO INTEREST IN THIS
SUBORDINATED NOTE MAY BE OFFERED OR SOLD TO A U.S. PERSON OR WITHIN THE
UNITED STATES EXCEPT PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE, PURSUANT TO RULE 144 OR
REGULATION S UNDER THE ACT (OR ANY SIMILAR RULE UNDER THE ACT), OR (iii) AN
EXEMPTION FROM REGISTRATION UNDER THE ACT WHERE THE HOLDER HAS FURNISHED TO
THE COMPANY A WRITTEN OPINION OF COUNSEL, WHICH OPINION, IN FORM AND CONTENT,
AND COUNSEL ARE REASONABLY ACCEPTABLE TO COUNSEL FOR EPI TECHNOLOGIES, INC.,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
EPI TECHNOLOGIES, INC.
NON-NEGOTIABLE 10% COGNOVIT SUBORDINATED
PROMISSORY NOTE
$250,000.00 August 28, 1997
County of Lucas, Toledo, Ohio
FOR VALUE RECEIVED, the undersigned, EPI Technologies, Inc., a Delaware
corporation ("Payor"), having its executive office and principal place of
business at 810 Chicago Street, Toledo, Ohio 43611, hereby promises to pay to
Guido Mendogni ("Payee"), having an address at Via Pilastrello 8, 43020
Parma, Italy, at Payee's said address (or at such other place as Payee may
from time to time hereafter direct by notice in writing to Payor), the
principal sum of Two Hundred Fifty Thousand Dollars ($250,000.00), in such
coin or currency of the United States of America as at the time shall be
legal tender for the payment of public and private debts, on the first to
occur of the following dates: (i) the earlier date to occur (the "Maturity
Date") of: (a) August 28, 1998, and (b) the closing date of an initial
public offering, if any, by Payor of its common stock, par value $.01 per
share ("Common Stock"), pursuant to a firmly underwritten public offering and
registration statement which is declared effective by the Securities and
Exchange Commission (the "IPO"); (ii) the date on which the outstanding
principal amount of this Subordinated Note is prepaid in full as permitted
pursuant to this Subordinated Note (the "Prepayment Date"); and (iii) any
date on which any principal amount of, or accrued unpaid interest on, any
Bridge Note (as hereinafter defined) is declared to be, or becomes, due and
payable pursuant to the terms of such Bridge Note prior to the Maturity Date
(the "Acceleration Date").
This Subordinated Note is part of a unit or units (the "Units") and one
of a series of subordinated notes (the "Bridge Notes") being issued pursuant
to Payor's Confidential Private Offering Memorandum dated August 28, 1997
(the "Memorandum") relating to Payor's offering to accredited investors of
Five (5) Units (the "Bridge Financing"), each Unit consisting of (i) a Bridge
Note in the original principal amount of $50,000, and (ii) warrants to
purchase an aggregate of 100,000 shares of Common Stock. This Subordinated
Note shall rank PARI PASSU with all other Bridge Notes.
<PAGE>
Reference to the Memorandum shall in no way impair the absolute and
unconditional obligation of Payor to pay both principal and interest herein
as provided herein.
1. PAYMENT OF PRINCIPAL AND INTEREST.
1.1. The principal amount of this Subordinated Note outstanding from
time to time shall bear simple interest at the annual rate (the "Subordinated
Note Rate") of ten percent (10%) from the date hereof through the earliest to
occur of (i) the Maturity Date, (ii) the Prepayment Date, and (iii) the
Acceleration Date.
1.2. Interest accrued on this Subordinated Note shall be payable in
full, together with the then principal amount of this Subordinated Note, on
the earliest to occur of (i) the Maturity Date, (ii) the Prepayment Date, and
(iii) the Acceleration Date.
1.3. All payments made by the Payor on this Subordinated Note shall
be applied first to the payment of accrued unpaid interest and then to the
reduction of the unpaid principal balance.
1.4. If payment of the outstanding principal amount of any Bridge
Note, together with accrued unpaid interest thereon at the Subordinated Note
Rate, is not made on the earliest to occur of (i) the Maturity Date, (ii) the
Prepayment Date, and (iii) the Acceleration Date, then interest shall accrue
on the outstanding principal amount due under this Subordinated Note and on
any unpaid accrued interest due on this Subordinated Note from and after such
date of default to the date of the payment in full of such amounts (including
from and after the date of the entry of judgment in favor of Payee in an
action to collect this Subordinated Note) at an annual rate equal to the
lesser of eighteen percent (18%) or the maximum rate of interest permitted by
applicable law (the "Maximum Rate").
1.5. In no event shall Payee be entitled to receive interest,
however characterized and including other consideration received in
connection with this Subordinated Note, at an effective rate in excess of the
Maximum Rate. In the event that a court of competent jurisdiction determines
that such amounts paid or agreed to be paid by Payor in connection with this
Subordinated Note causes the effective interest rate on this Subordinated
Note to exceed the Maximum Rate, such interest or other consideration shall
automatically be reduced to a rate which results in an effective interest
rate under this Subordinated Note equal to the Maximum Rate over the term
hereof, and, in such event, any amounts received by Payee deemed to
constitute excessive interest shall be applied first to the payment of
accrued unpaid interest on this Subordinated Note and then to the reduction
of the unpaid principal balance of this Subordinated Note.
1.6. In the event that the date for the payment of any amount
payable under this Subordinated Note falls due on a Saturday, Sunday or
public holiday under the laws of the United States of America or the State of
Ohio, the time for payment of such amount shall be extended to the next
succeeding business day and interest at the Subordinated Note Rate shall
continue to accrue on any principal amount so effected until the payment
thereof on such extended due date.
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2. REPLACEMENT OF SUBORDINATED NOTE. In the event that this
Subordinated Note is mutilated, destroyed, lost or stolen, Payor shall, at
its sole expense, execute, register and deliver a new Subordinated Note, in
exchange and substitution for this Subordinated Note, if mutilated, or in
lieu of and substitution for this Subordinated Note, if destroyed, lost or
stolen. In the case of destruction, loss or theft, Payee shall furnish to
Payor indemnity reasonably satisfactory to Payor, and in any such case, and
in the case of mutilation, Payee shall also furnish to Payor evidence to its
reasonable satisfaction of the mutilation, destruction, loss or theft of this
Subordinated Note and of the ownership thereof. Any replacement Subordinated
Note so issued shall be in the same outstanding principal amount as this
Subordinated Note and dated the date to which interest shall have been paid
on this Subordinated Note or, if no interest shall have yet been paid, dated
the date of this Subordinated Note.
3. PREPAYMENT. At the option of Payor, the principal amount of this
Subordinated Note may be prepaid in whole at any time, or in part from time
to time, without penalty or premium, together with interest thereon accrued
through the Prepayment Date. Each partial prepayment of this Subordinated
Note shall first be applied to interest accrued through the Prepayment Date
and then to principal.
4. SUBORDINATION.
4.1. Payee shall subordinate the indebtedness evidenced hereby to
the indebtedness of the Company (the "Senior Debt") to any bank, financial
institution, trust company, insurance company or other institutional lender
(collectively, the "Senior Lenders"). To the extent and in the manner
hereinafter set forth, anything in this Subordinated Note to the contrary
notwithstanding, Payee shall subordinate the indebtedness evidenced hereby to
the indebtedness of the Company to any bank, financial institution, trust
company, insurance company or other institutional lender that replaces any of
the Senior Lenders (a "Replacement Senior Lender"); PROVIDED, HOWEVER, that
the terms and conditions of any subordination to a Replacement Senior Lender
shall be on terms and subject to conditions that in all material respects are
no less favorable to Payee, in Payee's reasonable determination, than the
terms and conditions of the subordination provision hereof; provided that the
Company may, in its sole discretion, increase the amount of its Senior Debt
and the interest rate thereon and extend the term thereof.
4.2. In the event that any default occurs and is continuing under or
with respect to any Senior Debt, which default permits a Senior Lender to
accelerate the maturity thereof and such Senior Lender shall have given
written notice of acceleration of the Senior Debt to the Company, then the
Senior Lenders shall be entitled to receive payment in full of all principal
of and interest on all Senior Debt before Payee is entitled to receive any
further payment on account of principal of, or interest on, this Subordinated
Note, and to that end the Senior Lenders shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any proceedings in respect to this Subordinated Note.
4.3. In the event of any insolvency or bankruptcy proceedings, and
any receivership, liquidation, reorganization or other similar proceedings in
connection therewith, with
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<PAGE>
respect to the Company or to its creditors, or to its property, and in the
event of any proceedings for voluntary liquidation, dissolution or other
winding up of the Company, whether or not involving insolvency or bankruptcy,
and in the event of any execution sale, then the Senior Lenders shall be
entitled to receive payment in full of all principal of and interest on all
Senior Debt (including any such interest which may accrue after the
commencement of any proceedings) before Payee is entitled to receive any
further payment on account of principal of, or interest on, this Subordinated
Note, and to that end the Senior Lenders shall be entitled to receive for
application in payment thereof any payment or distribution of any kind or
character, whether in cash or property or securities, which may be payable or
deliverable in any such proceedings in respect to this Subordinated Note.
Notwithstanding anything to the contrary in this Subordinated Note, Payee
shall only declare this Subordinated Note due and payable before its
expressed maturity by written notice to Payor, with a copy to each Senior
Lender.
4.4. In the event that this Subordinated Note is declared due and
payable before its expressed maturity by Payee upon written notice to Payor
and all Senior Lenders because of the occurrence of an Event of Default
hereunder (as defined in Section 6 below), and, within sixty (60) days after
such notice is provided to Payor and the Senior Lenders, the Senior Lenders
accelerate the indebtedness evidenced by such Senior Debt, the Senior Lenders
shall be entitled to receive payment in full of all principal and interest on
all such Senior Debt (including any such interest which may accrue after the
commencement of any proceedings referred to in Sections 4.2 and 4.3 above)
before Payee shall receive any further payment on account of the principal
of, or interest on, this Subordinated Note.
4.5. Should any mandatory, optional, or other prepayment, payment or
distribution be made to Payee which the Senior Lenders shall (at Payee's time
of receipt) be entitled to receive under the foregoing provisions, the same
shall be forthwith delivered to the Senior Lenders and, until so delivered,
shall be held in trust by Payee as property of the Senior Lenders.
4.6. No present or future Senior Lender shall be prejudiced in its
right to enforce subordination of this Subordinated Note by any act or
failure to act on the part of Payor. The subordination provisions of this
Subordinated Note are solely for the purpose of defining the relative rights
of the Senior Lender, on the one hand, and Payee, on the other hand, and
nothing herein shall impair, as between Payor and Payee, the obligation of
Payor, which is unconditional and absolute, to pay Payee the principal hereof
and interest hereon in accordance with the terms of this Subordinated Note,
nor shall anything herein prevent Payee from declaring this Subordinated Note
to be due and payable before the earlier of (i) the Maturity Date, and (ii)
the Prepayment Date because of an Event of Default hereunder or from
exercising all remedies otherwise permitted by applicable law or hereunder
upon an Event of Default hereunder, subject to the rights of Senior Lenders
to cash, securities or other property of Payor otherwise payable or
deliverable to Payee.
4.7. Notwithstanding anything to the contrary in this Section 4, in
the event that the IPO does not occur by August 28, 1998, the indebtedness of
Payor evidenced by this Subordinated Note shall not be subordinated to any
advances to Payor by Meridian National Corporation, a Delaware corporation.
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<PAGE>
5. COVENANTS OF PAYOR. Payor covenants and agrees that, so long as
this Subordinated Note remains outstanding and unpaid, in whole or in part:
5.1. Payor will not, and will not permit any of its majority owned
subsidiaries ("Subsidiaries") to, sell, transfer or in any other manner
alienate or dispose of a material part of its assets; provided, however, that
Payor or any of its Subsidiaries may effect such a transaction if (i) the
transaction is a bona fide transaction in which fair market value is
received, and (ii) no Event of Default (defined below) or any condition or
event which, with the giving of notice or the lapse of time or both, would
become an Event of Default has occurred or would occur after giving effect to
such transaction;
5.2. Payor will not, and will not permit any of its Subsidiaries to,
make any material loan to any person who is or becomes a stockholder of
Payor, other than for (i) reasonable advances for expenses in the ordinary
course of business, and (ii) reasonable advances for expenses relating to
employee relocations;
5.3. Payor will, and will cause each of its Subsidiaries to,
promptly pay and discharge all lawful taxes, assessments and governmental
charges or levies imposed upon it, its income and profits, or any of its
property, before the same shall become in default, as well as all lawful
claims for labor, materials and supplies which, if unpaid, might become a
lien or charge upon such properties or any part thereof; provided, however,
that Payor or any of its Subsidiaries shall not be required to pay and
discharge any such tax, assessment, charge, levy or claim so long as the
validity thereof shall be contested in good faith by appropriate proceedings
and Payor or such Subsidiary, as the case may be, shall set aside on its
books adequate reserves with respect to any such tax, assessment, charge,
levy or claim so contested;
5.4. Payor will, and will cause each of its Subsidiaries to, do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence, rights and franchises and comply with all
laws applicable to Payor as its counsel may advise;
5.5. Payor will, and will cause each of its Subsidiaries to, at all
times maintain, preserve, protect and keep its property used or useful in the
conduct of its business in good repair, working order and condition (except
for the effects of reasonable wear and tear in the ordinary course of
business) and will, from time to time, make all necessary and proper repairs,
renewals, replacements, betterments and improvements thereto;
5.6. Payor will, and will cause each of its Subsidiaries to, keep
adequately insured, by financially sound reputable insurers, all property of
a character usually insured by similar corporations and carry such other
insurance as is usually carried by similar corporations;
5.7. Payor will, promptly following the occurrence of an Event of
Default or of any condition or event which, with the giving of notice or the
lapse of time or both, would constitute an Event of Default, furnish a
statement of Payor's President or Chief Financial Officer to Payee setting
forth the details of such Event of Default or condition or event and the
action which Payor intends to take with respect thereto;
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<PAGE>
5.8. Payor will, and will cause each of its Subsidiaries to, at all
times maintain books of account in which all of its financial transactions
are duly recorded in conformance with generally accepted accounting
principles;
5.9. Payor will not, and will not permit any of its Subsidiaries to,
purchase or otherwise redeem any Common Stock except for cashless exercises
of outstanding stock options or warrants; and
5.10. Payor will not declare any dividends on any outstanding shares
of its Capital Stock.
6. EVENTS OF DEFAULT. If any of the following events (each an "Event
of Default") occurs:
6.1. The dissolution of Payor or any vote in favor thereof by the
Board of Directors and stockholders of Payor; or
6.2. Payor or any of its Subsidiaries becomes insolvent, however
evidenced, or makes an assignment for the benefit of creditors, or files with
a court of competent jurisdiction an application for appointment of a
receiver or similar official with respect to it or any substantial part of
its assets, or Payor files a petition seeking relief under any provision of
the Federal Bankruptcy Code or any other federal or state statute now or
hereafter in effect affording relief to debtors, or any such application or
petition is filed against Payor, which application or petition is not
dismissed or withdrawn within sixty (60) days from the date of its filing; or
6.3. Payor fails to pay the principal of, or interest on, or any
other amount payable under, this Subordinated Note or any of the other Bridge
Notes, as and when the same becomes due and payable; or
6.4. Payor or any of its Subsidiaries admits in writing its
inability to pay its debts as they mature; or
6.5. Payor sells all or substantially all of its assets (other than
in compliance with Section 5.1 above) or merges or is consolidated with or
into another corporation in which Payor does not survive such merger or
consolidation; or
6.6. A proceeding is commenced (and not dismissed within 60 days
from the date of commencement) to foreclose a security interest or lien in
any property or assets of Payor or of any Subsidiary of Payor as a result of
a default in the payment or performance of any debt (in excess of $50,000 and
secured by such property or assets) of Payor or of any Subsidiary of Payor; or
6.7. Payor defaults in the due observance or performance of any
covenant, condition or agreement on the part of Payor to be observed or
performed pursuant to the terms of this Subordinated Note (other than the
default specified in Section 6.3 above) and such default continues uncured
for a period of thirty (30) days; or
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<PAGE>
6.8. Payor defaults in the payment when due of the principal of,
interest on, any Senior Debt or a default occurs in the performance or
observance by Payor of any covenant or condition (other than for the payment
of money) contained in any Subordinated Note or agreement evidencing or
pertaining to any Senior Debt which causes the maturity of such indebtedness
to be accelerated;
then, upon the occurrence of any such Event of Default and at any time
thereafter, the holder of this Subordinated Note shall have the right (at
such holder's option) to declare the principal of, accrued unpaid interest
on, and all other amounts payable under this Subordinated Note to be
forthwith due and payable, whereupon all such amounts shall be immediately
due and payable to the holder of this Subordinated Note, without presentment,
demand, protest or other notice of any kind, all of which are hereby
expressly waived; provided, however, that in case of the occurrence of an
Event of Default under any of Sections 6.1, 6.2 or 6.4 above, such amounts
shall become immediately due and payable without any such declaration by the
holder of this Subordinated Note.
7. SUITS FOR ENFORCEMENT AND REMEDIES. Subject to the terms and
conditions of this Subordinated Note, if any one or more Events of Default
shall occur and be continuing, Payee may proceed to (i) protect and enforce
Payee's rights either by suit in equity or by action at law, or both, whether
for the specific performance of any covenant, condition or agreement
contained in this Subordinated Note or in any agreement or document referred
to herein or in aid of the exercise of any power granted in this Subordinated
Note or in any agreement or document referred to herein, (ii) enforce the
payment of this Subordinated Note, or (iii) enforce any other legal or
equitable right of the holder of this Subordinated Note. No right or remedy
herein or in any other agreement or instrument conferred upon the holder of
this Subordinated Note is intended to be exclusive of any other right or
remedy, and each and every such right or remedy shall be cumulative and shall
be in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or by statute or otherwise.
8. UNCONDITIONAL OBLIGATION; FEES, WAIVERS, OTHER.
8.1. The obligations to make the payments provided for in this
Subordinated Note are absolute and unconditional and not subject to any
defense, set-off, counterclaim, rescission, recoupment or adjustment
whatsoever.
8.2. No forbearance, indulgence, delay or failure to exercise any
right or remedy with respect to this Subordinated Note shall operate as a
waiver or as an acquiescence in any default, nor shall any single or partial
exercise of any right or remedy preclude any other or further exercise
thereof or the exercise of any other right or remedy.
8.3. This Subordinated Note may not be modified or discharged (other
than by payment) except by a writing duly executed by Payor and Payee.
9. RESTRICTION ON TRANSFER. This Subordinated Note has been acquired
for investment and has not been registered under the securities laws of the
United States of America or any state thereof. Accordingly, no interest in
this Subordinated Note may be offered for sale, sold or
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transferred in the absence of registration and qualification of this
Subordinated Note under applicable federal and state securities laws or a
written opinion of counsel of Payee, which opinion, in form and content, and
Counsel are reasonably satisfactory to counsel for Payor, stating that such
registration and qualification are not required.
10. WARRANT OF ATTORNEY. Payor authorizes any attorney at law at any
time or times to appear in any state or federal court of record in the United
States of America after this Promissory Note or any part thereof shall have
become due and payable (whether the payments becomes due by lapse or time or
by acceleration of maturity or otherwise) and in each case to waive the
issuance and service of process, to admit the maturity of this Promissory
Note and the nonpayment thereof when due, to present each evidence of this
Promissory Note or any part thereof to the court and to certify the amount of
the debt then owing thereon, to confess judgment against Payor in favor of
Payee for the amount of the debt then appearing due, together with interest
thereon, 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, and, should any judgment be vacated for any reason, Payee may
nevertheless utilize the foregoing warrant of attorney in thereafter
obtaining an additional judgment or judgments against Payor. Payor agrees
that Payee's attorney may confess judgment pursuant to the foregoing warrant
of attorney.
11. PERMITTED PAYMENT. Notwithstanding the provisions of Section 4
hereof, so long as on the day of the receipt of any payment to be made
pursuant to this Subordinated Note, no event of default under a credit
agreement between Payor and a Senior Lender shall have occurred and be
continuing, then Payor shall pay to Payee, and Payee shall accept from Payor,
the regularly scheduled payment of principal and interest provided for
pursuant to Section 1 of this Subordinated Note (without giving effect to any
amendments or modifications hereof or to any event which would have the
effect of increasing or accelerating the amount of any such payment) and any
payment(s) constituting voluntary prepayment(s) of this Subordinated Note.
If the condition set forth in this Section 11 is not met, then until such
failure(s) shall have been cured to the appropriate Senior Lender's
satisfaction or shall have ceased to exist or shall have been waived in
writing by the appropriate Senior Lender, no such payments under this
Subordinated Note shall be paid to, or accepted by, Payee.
12. MISCELLANEOUS.
12.1. The headings of the various paragraphs of this Subordinated
Note are for convenience of reference only and shall in no way modify any of
the terms or provisions of this Subordinated Note.
12.2. All notices required or permitted to be given hereunder shall
be in writing and shall be deemed to have been duly given when personally
delivered or sent by registered or certified mail (return receipt requested,
postage prepaid), facsimile transmission or overnight courier to the address
of the intended recipient as set forth in the preamble to this Subordinated
Note or at such other address as the intended recipient shall have hereafter
given to the other party hereto pursuant to the provisions of this
Subordinated Note. All notices required by this Subordinated Note shall be
sufficiently given or made when received if delivered by messenger or
overnight delivery service, when confirmed if sent by facsimile transmission
(provided that the date of confirmation is not a Saturday, Sunday or legal
holiday in the State of Ohio, in which case the date of notice shall be the
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next succeeding business day) and three days after mailing if sent by
registered or certified mail (return receipt requested, postage prepaid).
12.3. This Subordinated Note and the obligations of Payor and the
rights of Payee shall be governed by and construed in accordance with the
substantive laws of the State of Ohio without giving effect to the choice of
laws rules thereof.
12.4. This Subordinated Note shall bind Payor and its successors and
assigns.
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"WARNING -- BY SIGNING THIS PAPER YOU GIVE UP THE 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."
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EPI TECHNOLOGIES, INC.
By: /s/ Real Remillard
Name: Real Remillard
Title: Chief Financial Officer
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EXHIBIT 10.20
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made as of this
___ day of ______________, 1997, by and among EPI Technologies, Inc., a
Delaware corporation (the "Company"), and Spencer I. Browne ("Browne"),
Elliot Smith ("Smith"), MNP Corporation, a Michigan corporation ("MNP"), and
Guido Mendogni ("Mendogni" and, collectively with Browne, Smith and MNP, the
"Investors").
PREAMBLE
WHEREAS, each of Browne, Smith and MNP (collectively, the "Minority
Stockholders") own 83,333.33 shares of the Company's common stock, par value
$.01 per share ("Common Stock"), and warrants to purchase 50,000 shares of
Common Stock ("Minority Stockholder Warrants") and Mendogni owns warrants to
purchase 500,000 shares of Common Stock ("Bridge Warrants");
WHEREAS, the Minority Stockholders, among other things, have waived
certain registration rights with respect to their shares of Common Stock in
connection with the Company's initial public offering of shares of Common
Stock (the "IPO");
WHEREAS, effective upon the completion of the IPO, the warrants held by
Mendogni automatically convert into warrants being offered by the Company in
the IPO; and
WHEREAS, the Company desires to extend certain registration rights with
respect to the Registerable Securities (as hereinafter defined) to the
Investors.
NOW, THEREFORE, in consideration of the premises and mutual agreements
set forth herein, the Company and the Investors agree as follows:
Section 1. DEFINITIONS. As used in this Agreement, the following terms
shall have the following meanings:
(a) "business day" shall mean any day which is not a Saturday,
Sunday or public holiday under the laws of the United States of America or
the State of Ohio.
(b) "Commission" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the
Securities Act.
(c) "Holder" shall mean each of the Investors and anyone who
holds outstanding Registrable Securities to whom the registration rights
conferred by this Agreement have been transferred in compliance with this
Agreement.
(d) "Register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement, and compliance with applicable
state securities laws of such states in which Holders notify the Company of
their intention to offer Registrable Securities.
<PAGE>
(e) "Registrable Securities" shall mean all of the following to
the extent the same have not been sold to the public: (i) any and all shares
of Common Stock held by a Minority Stockholder on the date of this Agreement;
(ii) the Minority Stockholder Warrants; (iii) the shares of Common Stock
underlying the Minority Stockholder Warrants; (iv) the Bridge Warrants; (v)
the shares of Common Stock underlying the Bridge Warrants; (vi) shares of
capital stock issued in respect of shares of Common Stock referred to in (i),
(iii) and (v) above in any reorganization; and (vii) shares of capital stock
issued in respect of the shares of Common Stock referred to in (i) through
(vi) as a result of a stock split, stock dividend, recapitalization or
combination. Notwithstanding the foregoing, Registrable Securities shall not
include otherwise Registrable Securities (1) sold by a person in a
transaction in which his, her or its rights under this Agreement are not
properly assigned; (2) (A) sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction, or
(B) sold in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act under Section 4(1) thereof, in
either case such that all transfer restrictions, and restrictive legends with
respect thereto, if any, are removed upon the consummation of such sale; or
(3) the registration rights associated with such securities have been
terminated pursuant to Section 8 of this Agreement.
(f) "Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
Section 2. PIGGYBACK REGISTRATION.
(a) If, at any time during the term of this Agreement, the
Company proposes to prepare and file any 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 stockholders
(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 Agreement,
collectively, a "Registration Statement"), it will give written notice of its
intention to do so at least thirty (30) days prior to the filing of each such
Registration Statement, to all Holders of Registrable Securities. Upon the
written request of such a Holder (a "Requesting Holder"), made within twenty
(20) business days after receipt of notice from the Company of its intention
to file a Registration Statement, that the Company include any of 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 Securities Act of the
Registrable Securities which it has been so requested to register; 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.
(b) If the Registration Statement is for a registered public
offering involving an underwriting, the Company shall so advise the Holders
as a part of the Notice given pursuant to subsection 2(a). In such event,
the right of any Requesting Holder to registration pursuant to this Section 2
shall be conditioned upon such Requesting Holder's participation in such
underwriting and the inclusion of such Requesting Holder's Registrable
Securities in the underwriting to the extent provided herein. All Requesting
Holders proposing to distribute their securities through such
2
<PAGE>
underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2, if the managing underwriter(s) determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter(s) may limit the number of Registrable
Securities to be included in the proposed Registration Statement and
underwriting, or may exclude Registrable Securities entirely from such
Registration Statement. The Company shall so advise all Requesting Holders
and the other holders distributing their securities through such underwriting
pursuant to piggyback registration rights similar to this Section 2, and the
number of shares of Registrable Securities and other securities that may be
included in the proposed Registration Statement and underwriting shall be
allocated among all Requesting Holders and other holders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities
sought to be registered held by such Requesting Holders and other securities
held by other holders which such holders seek to register in connection with
the proposed Registration Statement. If any Requesting Holder disapproves of
the terms of any such underwriting, he may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. If, by the
withdrawal of such Registrable Securities, a greater number of Registrable
Securities held by other Requesting Holders may be included in such
registration (up to the limit imposed by the underwriters), the Company shall
offer to all Requesting Holders and the other holders the right to include
additional Registrable Securities in the Registration Statement on a PRO RATA
basis. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from such Registration Statement.
(c) Notwithstanding anything to the contrary in this Agreement,
in no event shall a Holder be permitted to exercise registration rights with
respect to a Registration Statement filed by the Company with the Commission
pursuant to a demand registration under the terms of that certain
Underwriter's Warrant Agreement dated as of _______________, 1997 between the
Company and Duke & Co., Inc., a Florida corporation ("Duke"), without the
prior written consent of the person or persons making such demand
registration request.
(d) Notwithstanding anything to the contrary in this Agreement,
none of the Minority Stockholders shall be permitted to exercise the
piggyback registration rights set forth in Section 2.1(a) of this Agreement
for a period of three (3) years commencing on the date first written above.
Section 3. EXPENSES OF REGISTRATION. All expenses incurred in
connection with registrations pursuant to Section 2 hereof, including without
limitation all registration, filing and qualification fees, printing
expenses, fees and disbursements of counsel for the Company and expenses of
any special audits of the Company's financial statements incidental to or
required by such registration, shall be borne by the
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Company, except that the Company shall not be required to pay underwriters'
fees, discounts or commissions relating to Registrable Securities or fees of
separate legal counsel of a Holder.
Section 4. REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to this Agreement, the Company will keep
each Requesting Holder participating therein advised in writing as to the
initiation of each registration and as to the completion thereof. At its
expense the Company will:
(a) promptly prepare and file with the Commission such amendments
and supplements to such Registration Statement and the prospectus used in
connection therewith as may be necessary to comply with the provisions of the
Securities Act;
(b) furnish such number of prospectuses and other documents
incident thereto as a Requesting Holder from time to time may reasonably
request;
(c) use reasonable efforts to obtain the withdrawal of any order
suspending the effectiveness of a Registration Statement, or the lifting of
any suspension of the qualification of any of the Registrable Securities for
sale in any jurisdiction, at the earliest possible moment;
(d) register or qualify such Registrable Securities for offer and
sale under the securities or Blue Sky laws of such jurisdictions as the
underwriter(s), if any, reasonably requires;
(e) cause all Registrable Securities covered by such
registrations to be listed on each securities exchange or quotation system,
including the Nasdaq Small Cap Market, on which similar securities issued by
the Company are then listed or quoted;
(f) use reasonable efforts to cause its accountants to issue to
the underwriter, if any, or the Requesting Holders, if there is no
underwriter, comfort letters and updates thereof, in customary form and
covering matters of the type customarily covered in such letters with respect
to underwritten offerings;
(g) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the
Requesting Holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including, without
limitation, effecting a stock split or a combination of shares);
(h) make available for inspection by any Requesting Holder, any
underwriter participating in any disposition pursuant to such Registration
Statement, and any attorney, accountant or other agent retained by any such
Requesting Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such Requesting Holder, underwriter,
attorney, accountant or agent in connection with such Registration Statement;
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(i) deliver promptly to each Requesting Holder 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;
(j) if the offering is underwritten, at the request of any
Requesting Holder to use its reasonable efforts to furnish on the date that
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration an opinion in the customary form of counsel representing
the Company for the purposes of such registration; and
(k) notify each Requesting Holder, at any time a prospectus
covered by such Registration Statement is required to be delivered under the
Securities Act, of the happening of any event of which it has knowledge as a
result of which the prospectus included in such Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
Section 5. INDEMNIFICATION.
(a) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Section 2, the Company will
indemnify and hold harmless each Holder of such Registrable Securities
thereunder, each underwriter of such Registrable Securities thereunder and
each other person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which such Holder, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar 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 any Registration Statement
under which such Registrable Securities were registered under the Securities
Act, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, 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, or
any violation by the Company of any rule or regulation promulgated under the
Securities Act or any state securities law applicable to the Company and
relating to action or inaction required of the Company in connection with any
such registration, and will reimburse each such Holder, each of its officers,
directors and partners, and each person controlling such Holder, each such
underwriter and each person who controls any such underwriter, for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage or liability arises out of or is
based on any untrue statement or omission based upon written information
furnished to the Company by such Holder or underwriter specifically for use
therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration is being effected, indemnify and hold harmless the Company, each
of its directors and officers, each underwriter, if any, of the Company's
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securities covered by such a Registration Statement, each person who controls
the Company and each underwriter within the meaning of the Securities Act,
and each other such Holder, each of its officers, directors and partners and
each person controlling such Holder, against all claims, losses, expenses,
damages and liabilities (or actions in respect thereof) arising out of or
based on any untrue statement or alleged untrue statement of any material
fact contained in any such Registration Statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company, such
Holders, such directors, officers, partners, persons or underwriters for any
reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability
or action, in each case to the extent, but only to the extent, that such
untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such Registration Statement, prospectus, offering
circular or other document in reliance upon and in conformity with written
information furnished to the Company by such Holder specifically for use
therein; provided, however, the aggregate amount for which any Holder, its
officers, directors and partners, and any person controlling such Holder,
shall be liable under this Section 5(b) shall not in any event exceed the
aggregate proceeds received by such Holder from the sale of Registrable
Securities sold by such Holder in such registration.
(c) Each party entitled to indemnification under this Section 5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified
Party has actual knowledge of any claims as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such
claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure
of any Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations hereunder, unless such failure
resulted in actual detriment to the Indemnifying Party. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect of such claim or litigation.
(d) Notwithstanding the foregoing, to the extent that the
provisions on indemnification contained in the underwriting agreements
entered into among the selling Holders, the Company and the underwriters in
connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall be
controlling as to the Registrable Securities included in the public offering.
(e) If the indemnification provided for in this Section 5 is held
by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred
to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or payable
by such Indemnified Party as a result of such loss, liability, claim, damage
or expense in such proportion as
6
<PAGE>
is appropriate to reflect the relative fault of the Indemnifying Party on the
one hand and of the Indemnified Party on the other hand in connection with
the statements or omissions which resulted in such loss, liability, claim,
damage or expense as well as any other relevant equitable considerations.
The relevant fault of the Indemnifying Party and the Indemnified Party shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
Notwithstanding the foregoing, the amount any Holder shall be obligated to
contribute pursuant to this Section 5(e) shall be limited to an amount equal
to the proceeds to such Holder of the Registrable Securities sold pursuant to
the Registration Statement which gives rise to such obligation to contribute
(less the aggregate amount of any damages which the Holder has otherwise been
required to pay in respect of such loss, claim, damage, liability or action
or any substantially similar loss, claim, damage, liability or action arising
from the sale of such Registrable Securities).
(f) The indemnification provided by this Section 5 shall be a
continuing right to indemnification and shall survive the registration and
sale of any securities by any Person entitled to indemnification hereunder
and the expiration or termination of this Agreement.
Section 6. INFORMATION BY HOLDER. Any Requesting Holder shall promptly
furnish to the Company such information regarding such Requesting Holder and
the distribution proposed by such Requesting Holder as the Company may
request in writing and as shall be required in connection with any
registration referred to herein.
Section 7. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities of a Holder and keep information
available granted to a Holder by the Company under Section 2 may be assigned
by a Holder to any partner or shareholder of such Holder, to any other
Holder, or to a transferee or assignee of an Investor who receives at least
25,000 shares of Registrable Securities (as adjusted for stock splits and the
like); PROVIDED, HOWEVER, that the Company is given written notice by the
Holder at the time of or within a reasonable time after said transfer,
stating the name and address of said transferee or assignee and identifying
the securities with respect to which such registration rights are being
assigned.
Section 8. TERMINATION OF RIGHTS. The rights of any particular Holder
to cause the Company to register securities under Section 2 shall terminate
with respect to such Holder at the earlier of (i) at such time as such
Holder who is not an affiliate of the Company (within the meaning of Rule 405
under the Securities Act) is able to dispose of all of his Registrable
Securities in a three-month period pursuant to the provisions of Rule 144
under the Securities Act, and (ii) the date that is the eighth anniversary
of the date hereof.
Section 9. MISCELLANEOUS.
(a) This Agreement may be amended only by a writing signed by the
Company and Holders of at least seventy-five percent (75%) of the Registrable
Securities (including shares of Common Stock underlying the Minority
Stockholder Warrants and the Bridge Warrants) held by such Holders, as
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<PAGE>
constituted from time to time. The Holders hereby consent to future
amendments to this Agreement that permit future investors, other than
employees, officers or directors of the Company, to be made parties hereto
and to become Holders of Registrable Securities; PROVIDED, HOWEVER, that no
such future amendment may materially impair the rights of the Holders
hereunder without obtaining the requisite consent of the Holders, as set
forth above.
(b) Nothing contained in this Agreement shall be construed as
requiring any Holder to exercise his, her or its Minority Stockholder
Warrants or Bridge Warrants, as the case may be, prior to the initial filing
of any Registration Statement or the effectiveness thereof.
(c) This Agreement may be executed in any number of counterparts,
all of which shall constitute a single instrument.
(d) All notices to be given to any party shall be in writing and
delivered by hand in person, or by express overnight courier service, or by
electronic facsimile transmission (with a copy sent by first-class mail,
postage prepaid), or by registered or certified mail, return receipt
requested, postage prepaid, addressed (a) if to a Holder, at such Holder's
address set forth on the books of the Company, or at such other address as
such Holder shall have furnished to the Company in writing, or (b) if to any
other holder of any Registrable Securities, at such address as such holder
shall have furnished the Company in writing, or, until any such Holder so
furnishes an address to the Company, then to and at the address of the last
Holder of such securities who has so furnished an address to the Company, or
(c) if to the Company, at 810 Chicago Street, Toledo, Ohio 43611 (Attention:
President), or at such other address as the Company shall have furnished to
the Holders, with a copy to Benesch, Friedlander, Coplan & Aronoff LLP, 2300
BP America Building, 200 Public Square, Cleveland, Ohio 44114 (Attention:
Lawrence M. Bell). Any notice given by (i) electronic facsimile will be
effective when confirmed if given prior to 6:00 p.m., local time, on a
business day, otherwise it will be effective on the next succeeding business
day; (ii) overnight courier or personal delivery will be effective on the day
delivered, unless such day is not a business day, in which case it will be
effective on the next succeeding business day; and (iii) registered or
certified mail will be effective three business days after deposit in the
mails, all fees prepaid.
(e) Any other provisions of this Agreement to the contrary
notwithstanding, the Company's obligation to file a Registration Statement,
or cause such Registration Statement to become effective, shall be suspended
for such a period that there exists at the time material non-public
information relating to the Company which, in the reasonable opinion of the
Company, should not be disclosed.
(f) If any provision of this Agreement shall be held to be
illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any
manner affect or render illegal, invalid or unenforceable any other provision
of this Agreement, and this Agreement shall be carried out as if any such
illegal, invalid or unenforceable provision were not contained herein.
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(g) If, and as often as, there is any change in the Common Stock
by way of a stock split, stock dividend, combination or reclassification, or
through a merger, consolidation, reorganization or recapitalization, or by
any other means, appropriate adjustment shall be made in the provisions
hereof so that the rights and privileges granted hereby shall continue with
respect to the Common Stock as so changed.
(h) This Agreement shall be governed by and construed in
accordance with the procedural and substantive laws of the State of Delaware
without regard to principles of conflicts of law.
IN WITNESS WHEREOF, the Company and the Investors have executed this
Registration Rights Agreement as of the date first above specified.
EPI TECHNOLOGIES, INC.
___________________________________________
By: Real Remillard, Chief Financial Officer
___________________________________________
SPENCER I. BROWNE
___________________________________________
ELLIOT SMITH
MNP CORPORATION
___________________________________________
By:___________________, ___________________
___________________________________________
GUIDO MENDOGNI
9
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Exhibit 10.21
FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT (this "Amendment") dated as of
_______________, 1997 by and between EPI Technologies, Inc., a Delaware
corporation (f/k/a Environmental Purification Industries, Inc.) ("Employer"),
and Bruce Maison ("Employee"). Capitalized terms shall have the meanings given
them in the Employment Agreement (as hereinafter defined) unless otherwise
defined herein.
WHEREAS, Employer and Employee are parties to an Employment Agreement dated
July 30, 1996 (the "Employment Agreement"); and
WHEREAS, Employer and Employee desire to amend certain terms of the
Employment Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein and for other valuable consideration, the parties hereto agree
as follows:
1. AMENDMENTS TO THE EMPLOYMENT AGREEMENT. Employer and Employee agree
that, effective upon the date hereof, the Employment Agreement shall be amended
as follows:
(a). Paragraphs 4(a) and 4(b) of the Employment Agreement shall be
amended in their entirety to state as follows:
(a) If Employee's employment with Employer (i) has not been
terminated on or prior to February 28, 2002, (ii) is terminated
due to the death or "permanent disability" (as defined in
paragraph 11) of Employee on or prior to February 28, 2002, or
(iii) is terminated by Employee due to a decrease in his base
compensation pursuant to the last sentence of paragraph 3(b),
then Employee will be entitled to receive a deferred benefit (a
"Deferred Benefit") in an amount equal to $190,000, 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. If the
termination of Employee's employment with Employer occurs prior
to February 29, 2000 for any reason other than the reasons set
forth in clauses (ii) and (iii) of the preceding sentence,
Employee shall not be entitled to any part of the Deferred
Benefit; thereafter, in the event that Employee's employment is
terminated prior to February 28, 2002 for any reason other than
the reasons set forth in clauses (ii) and (iii) of the preceding
sentence or for "cause" (as such term is defined in paragraph
6(a)), Employee shall be entitled to receive a Deferred Benefit,
payable in 120 successive monthly installments, without interest,
equal to $190,000 multiplied by the "Applicable Fraction", as
defined by the following schedule:
<PAGE>
"Applicable
Date of Termination Fraction"
------------------- ------------
On or after February 29, 2000
but before February 28, 2001 1/2
On or after February 28, 2001
but before February 28, 2002 3/4
(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, Employer shall, subject to paragraph 4(d)
below, continue to pay the full $190,000 Deferred Benefit,
without interest, in over the 120 month period set forth in
paragraph 4(a) above, to such beneficiary(s) as shall be
designated by Employee in a notice for that purpose furnished to
Employer, or in the absence or failure of such designation, to
Employee's spouse, or in the event that Employee shall have no
spouse or in the event that Employee's spouse shall predecease
him or die during the 120 month payment period, to Employee's
estate.
(b). The last sentence of paragraph 9 shall be amended and restated in
its entirety as follows:
For the 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 30% of the voting power
of Employer are acquired by a person, entity or
group (as such term is used in Rule 13d-5 under
the Securities Exchange Act of 1934, as amended)
other than Meridian National Corporation, a
Delaware corporation (including a merger
transaction involving Employer but not including
the acquisition of shares of voting stock by an
underwriter in an underwritten offering of
securities by the Company).
(c). Paragraph 16 of the Employment Agreement shall be amended and
restated in its entirety as follows:
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
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<PAGE>
proposed "spin-off" by Meridian National Corporation of the
companies that comprise its paint recycling business (the
"Effective Date"), provided that Employee is employed by
Employer on such date.
2. OTHER TERMS AND CONDITIONS. Employer and Employee agree that all
other terms, conditions, covenants and agreements set forth in the Employment
Agreement, except as otherwise amended or modified herein, shall continue in
full force and effect. This Amendment shall be null and void and have no effect
in the event that the Employment Agreement does not become effective pursuant to
paragraph 16 of the Employment Agreement, as amended.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Employment Agreement as of the date first written above.
EPI TECHNOLOGIES, INC.
___________________________________
By:
Its:
___________________________________
BRUCE MAISON
3
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EXHIBIT 10.23
AMENDED AND RESTATED
1997 NON-QUALIFIED AND
INCENTIVE STOCK OPTION PLAN
OF
EPI TECHNOLOGIES, INC.
1. PURPOSE OF THE PLAN. This Amended and Restated 1997 Non-Qualified and
Incentive Stock Option Plan of EPI Technologies, Inc. adopted as of the ___ day
of November, 1997, is intended to encourage officers, other key employees and
consultants 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:
(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
<PAGE>
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 or consolidation which would result in the voting securities of
the Company outstanding immediately prior thereto continuing to
represent (either by remaining
<PAGE>
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 directors at the beginning
of the period or whose election or nomination for election was previously
so approved.
<PAGE>
2.7 "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.
2.8 "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.
2.9 "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 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.
<PAGE>
2.10 "INCENTIVE STOCK OPTION" means an Option meeting the
requirements and containing the limitations and restrictions set forth in
Section 422 of the Code.
2.11 "NON-QUALIFIED STOCK OPTION" means an Option other than an
Incentive Stock Option.
2.12 "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.
2.13 "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 Participant and which shall set forth
the terms and conditions of an Option under the Plan.
2.14 "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 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.
2.15 "PARTICIPANT" means officers (including officers who are members
of the Board), other key employees of the Company or any of the Company's
Subsidiaries, and, with respect to eligibility to receive awards of
Non-Qualified Stock Options, consultants
<PAGE>
to the Company or any of its Subsidiaries (excluding consultants who are
also non-employee directors of the Company).
2.16 "PLAN" means the Amended and Restated 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.
<PAGE>
2.21 "SUCCESSOR" means the legal representative of the estate of a
deceased Participant 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 Participant.
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 235,000 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
Participants 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
<PAGE>
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 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. PARTICIPANTS TO WHOM OPTIONS MAY BE GRANTED. Options may be granted
while the Plan is in effect to such of the Participants as the Committee, in its
discretion, shall determine; provided, however, that no Incentive Stock
Option may be granted to a Participant who is not an employee of the Company
or any of its Subsidiaries. In determining the Participants 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 Participants, 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 Participant 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.
<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 Participant. Any Option which is
designated as a Non-Qualified Stock Option shall not be treated by the
Company or the Participant 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 a Participant 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,
<PAGE>
then the option price per share of any Incentive Stock Option granted to
such Participant 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 a Participant 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 Participant
may be granted an Incentive Stock Option hereunder to the extent that the
aggregate fair market 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 Participant during any
calendar year (under all such plans of the Participant's employer corporation,
its Parent, if any, and its Subsidiaries, if any) exceeds One Hundred Thousand
Dollars ($100,000). For purposes of
<PAGE>
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. A Participant 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 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 a Participant, 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
<PAGE>
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 Participant 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 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
<PAGE>
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 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.
<PAGE>
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 a Participant 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 Participant, 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 Participant 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.
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 Participant. If the Participant
disposes of Shares acquired pursuant to an Incentive Stock Option in any
transaction considered to be a
<PAGE>
disqualifying transaction under Sections 421 and 422 of the Code, the
Participant 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
Participant.
16.2 PARTICIPANT ELECTION TO WITHHOLD SHARES. Subject to Committee
approval (which in the case of Incentive Stock Options must be given at the
time of grant), a Participant 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
a Participant 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.
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.
<PAGE>
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 a Participant 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.
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, which was approved by the
Board on ____________, 1997, amends and restates the 1997 Non-Qualified and
Incentive Stock Option Plan of the Company that was approved by the Board on
September 30, 1997. The Plan shall become effective on 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
<PAGE>
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.
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Consolidated Financial Data," "Summary Selected Consolidated Financial Data,"
and "Experts" and to the use of our report dated May 22, 1997 (except
Note 13, as to which the date is August 26, 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
December 8, 1997
